Ladies and gentlemen, good day, and welcome to Q2 FY23 earnings conference call of Voltas Limited, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you. Yeah, thanks, Yashasvi. On behalf of ICICI Securities, we welcome you all to Q2 FY 2023 results conference call of Voltas. We have with us senior management represented by Mr. Jitender P. Verma, Chief Financial Officer, Mr. Manish Desai, Head of Corporate Finance, and Mr. Vaibhav Vora, Manager Corporate Finance. Now, I hand over the call to the management for the initial comments on the quarterly and half-yearly performance, and then we will open the floor for question and answer session. Thanks, and over to you, sir. Thanks, Aniruddha, for the introduction, and welcome to everyone to this call. As you are all aware, the current fiscal year started with mixed indicators for the economy and especially the industry we are operating in. On one hand, we had an open window to a complete season after a gap of close to two COVID years, which supported sales. On the other hand, the global economy continued to face challenges of high inflation owing to global supply chain imbalance, depreciation in currency across the world amid surging dollar index and increase in interest benchmark rate by respective central banks impacting revival of the economy. In India, consumer durable industry witnessed weakness due to incessant rains and consequent dip in consumer sentiment towards discretionary spend given the high inflation rate. The CPI continues to be on the higher side, and WPI index is coming down gradually, indicating the absorption of the inflation impact by the manufacturers due to slowness in overall demand. India too witnessed a currency depreciation, taking away the possible benefit of softening of the commodity prices. The country has demonstrated resilience, however. Given the overall global outlook, the growth is expected to be slowing down as compared to the projections at the beginning of the financial year. Amid the above challenges, the company reported a marginal growth of 6% for the quarter in consolidated total income at INR 1,833 crore as compared to INR 1,737 crore in the corresponding quarter last year. Profit before share of profit, loss of joint ventures, associates and tax was at INR 149 crores as compared to INR 162 crores in the corresponding quarter last year. Profit before and after tax was further impacted during the current quarter due to an exceptional provision made on an overseas project. Earnings per share or face value per share of INR 1, not annualized, for the quarter ended thirtieth September 2022 was at -INR 0.22 compared to INR 3.13 last year. The consolidated total income for the six months period ended thirtieth September 2022 was higher by 29% at INR 4,627 crores as compared to INR 3,598 crores in the corresponding period last year. Profit before share of profit, loss of joint ventures, associates and tax was at INR 340 crores as compared to INR 360 crores in the corresponding period last year. Profit before tax, after share of profit, loss of joint venture associates and an exceptional item was at INR 174 crores as compared to INR 311 crores last year. Net profit after tax was at INR 103 crores as against INR 227 crores in the corresponding period last year. Earnings per share, face value per share of INR 1 not annualized, for six months ended thirtieth September 2022 was at INR 3.07 as compared to INR 6.81 last year. On a snapshot of our results this quarter is presented as you have already seen on the segment revenue as well as on the segments profit before tax for each of the segments. Segment A, unitary cooling products, UCP. For unitary cooling products, Q2 is usually a lean period. The quarter witnessed incessant rains in many parts of the country, coupled with lower consumer sentiment towards discretionary spend and high inflation. The overall secondary sales during the quarter were also lower on a high base of same quarter previous year, impacting primary sales to the channel partners. Given these challenges, segment has performed relatively better, reporting a revenue growth of 4% and 63% compared to Q2 FY 2022 and first half FY 2022 respectively. The silver lining in the overall lower secondary sales was a preference of the consumers towards higher star rated products, which has shown a good amount of increase over previous year. The adoption of the inverter technology has also seen traction with the consumers, taking share of the split inverter air conditioner to 77% from 66% in the corresponding quarter. We are pleased to inform you that Voltas continues to be the market leader and has sustained its number one position in the overall room air conditioner business with its year-to-date August 2022 market share at 22.8%, with the lead of close to 700 BPS over the second player in this segment. Our continued focus on the inverter category with expanded product portfolio yielded a desired result in sustaining our leadership in the inverter category as well. On the higher base of the last year and with the pent-up demand in quarter one of the current fiscal, commercial refrigeration vertical also witnessed a softer demand across OEMs and channel partners during the quarter. Nevertheless, strong tie-up with the OEMs and the continuous efforts of increasing channel partners' participation has resulted in a higher double-digit growth for the category on the first half yearly basis. Lower inventory at channel partner end, coupled with incentive schemes directed towards primary sales and expansion of channel footprint, resulted in higher double-digit growth for air cooler in a generally weak quarter. The investments in molds catering to the various types of air coolers shall help in further strengthening our product offering to the consumers and participation of channel partners across the length and breadth of the country. The targeted dealer schemes deviating from the standard trade practices resulted in a phased primary billing and in securing a higher order booking for the coming quarters. The commercial air conditioning, CAC business, reported a growth in the quarter on opening of the commercial spaces, expansion of the middle to small outlets, and increased focus on conversion rates for after-sales service through a higher participation of the channel partners. Quarter witnessed a growth across product categories of ducted split unit, packaged AC, light commercial AC, and VRFs. The orders in hand also provide a good visibility of sales in the forthcoming quarters. The challenges on the margin front persist in the quarter, owing to the carrying of high cost inventory and intensive competitive pricing. The concern on the supply chain, especially logistics costs, has relatively eased out, and commodity prices are also softening. However, the rupee depreciation has neutralized the impact of the same to some extent. In summary, for the quarter ended September 2022, UCP segment registered a 4% growth in turnover from INR 1,007 crores to INR 1,038 crores. The segment reported an EBIT of INR 76 crores in Q2 FY 2023 as compared to INR 102 crores in Q2 FY 2022. For the six months ended September 2022, the segment registered 66% growth in turnover to INR 3,210 crores from INR 1,970 crores. Segment EBIT reported was at INR 243 crores in the first half of financial year 2023, vis-à-vis INR 220 crores in first half of financial year 2022. For the Segment B, electromechanical projects and services, segment revenue for the quarter was INR 554 crores as compared to the previous corresponding quarter of INR 536 crores. Segment results before exceptional item was profit of INR 14 crores as compared to profit of INR 11 crore last year. Segment results after exceptional item, EBIT was loss at INR 92 crores. Domestic projects business witnessed a better traction in order booking, including potential orders in pipeline during the current quarter aggregating to INR 950 crores as compared to INR 99 crores in similar period previous year. Collective efforts towards project monitoring, execution of the projects, and intense focus on the collection has supported the results for the domestic projects group. With the consummation of the BTA, the challenges of securing fresh orders has largely been addressed, which should result in improving bid-to-win ratio for the new orders across project verticals and will help improve the order book. In international business, revenue was muted owing to low carry forward order book and most of the running projects being closer to the completion stage. Headwinds in terms of delay in certification and collection, lower than expected productivity, and low availability of the skilled manpower impacted the overall results of the international business. Amidst the above various challenges, in one of the overseas projects, the main contractor has unilaterally terminated the contract in October with Voltas and also encashed the underlying bank guarantees pursuant to the termination of the main contractor's contract by their customer. The company has considered a provision towards outstanding dues and encashed performance guarantee on the said project following a prudent approach and disclosed the same as an exceptional item during the quarter and six months period ended 30 September 2022. The company is also evaluating legal remedies to challenge the termination of the contract by the main contractor and recover the proceeds. The carry forward order book for domestic projects now stands at INR 3,866 crores, containing orders across water, HVAC, rural electrification and urban infra activities. The international order book as at thirtieth September 2022 stood at INR 2,110 crores. Total carry forward order book of the segment stood at INR 5,976 crores. Segment 3: Engineering products and services. Segment revenue and results continue to report improved performance for the quarter over corresponding quarter of previous year. Segment revenue was INR 137 crores and EBIT was INR 48 crores respectively. During the quarter, performance of both Mozambique and Indian operations was satisfactory. Increase in export duty on the iron ore by Indian government has impacted the demand for the capital equipment and also reduced production machine hours affecting our after-sales revenue. Nevertheless, the vertical continued to maintain consistency in its performance. Improved delivery of textile capital machinery from the principal and a tactical approach towards after-sales service revenue augured well for the segment during the quarter. Opening of few markets and government's focus to increase textile exports along with targeted CLCSS schemes will act positive for the segment. Although price increase by principals, supply chain related disruptions and volatility in the yarn prices impacting the running of textile mills continue to pose challenges in the entire period. Voltas Beko. The demand for the appliances at large was muted during the quarter, given the overall trade and consumer sentiments. The limited offtake during festive season has affected the trade participation in the primary sales, resulting into a volume drop during the quarter. Nonetheless, the brand Voltas Beko is aggressively pursuing growth strategy by focusing on the channel participation, creating a unique selling proposition for the consumer by providing a technologically advanced product at value for money with the tactical marketing and sales promotion activities. The localization of few products along with value engineering is supporting the margin improvement. Cumulatively, the brand has sold 2.5 million units till date in a span of three plus years, which is an evidence to the strength of the brand and acceptance of the products across the value chain. The lower penetration, value aspiration, capitalizing on the demographic dividends and leveraging technical and distribution strength of the joint venture partners of Voltas should work positive for the category and strengthen its presence in this competitive market. Outlook. The current economic situation is surrounded with uncertainty and volatility. The inflation continues to remain a focus point for all the future monetary and non-monetary actions impacting the overall economic growth and consumer demand in the coming quarters. We remain very optimistic given the various supporting factors for the businesses we are operating in. With this, I close my presentation, and I can request the organizer to open for question answer. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. In order to ensure that the management is able to answer all queries, kindly restrict your questions to two at a time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Dhananjai Bagrodia from ASK. Please go ahead. Hi, sir. I wanted to ask you, with more in-house manufacturing versus outsourcing as was earlier, would ROCE be impacted going ahead? Mr. Bagrodia, I think that's a very good question. However, because whenever you start manufacturing, you have to carry sufficient inventory for the purposes of manufacturing, carry sufficient finished goods also for the purposes of managing the seasonality of the product. Therefore, definitely capital employed would be a bit higher. However, at the same time, you do get the benefit of not having to hold the inventory on the sea, which was the case when you were importing a lot of finished goods in the past. There is a kind of a nullifying effect. However, with the current scenario where we are seeing the margins are lower, therefore definitely there would be a lower return on capital employed. I think that was your question. There would be an impact, but we are looking at this to improve our, you know, sourcing methodology just-in-time inventory management system. With those methods, since it's a relatively new manufacturing setup, but we are aggressively pursuing those opportunities to come to the original, you know, return on capital employed numbers. However, it may take us a while before we actually start to see those benefits across all our supply chains. Okay. Sir, answer to the second question would be, with now raw material prices decreasing, would we as brands look at terms of giving it, passing it back on to customers? Or would we like to recoup the gross margins which we've lost over the last few years? See, you have to remember that when the prices increased, we as brands did not pass on all the price increases to the consumer. A lot was absorbed by, I would say, almost all the brands and which was reflected or which is reflected in the lower margins, and in certain cases of other suppliers that increased losses also. Therefore it will be a judicious approach, where we would see whenever the softening of prices reaches a level which is before the increase, then obviously we would not shy away from passing on those benefits to the consumer. It would not happen immediately, because immediately it will be just to recoup the earlier price increases which were not taken. I mean, which were the cost increases which were not pushed on to the consumers. When that leveling will happen first and only thereafter we would think of or would consider starting to, you know, pull back on the prices. Because the softening of commodity prices is happening but not to a very great extent. There is a cautious approach here. The intention is all there if the prices do fall. As a company, I would say, you know, a very good social player in the scene, we would be the first ones to pass on whenever the prices soften to the right stage. Okay. Sir, and lastly, bookkeeping question. What would be our exit market share for the quarter? Because it's been given YTD this time. It's 23. Sir, how much? 23 August. 2023. Okay. As of August, because September data is still expected. Okay. 23 as of August. Okay, sure. Thank you, sir. I'll get back in for more questions. Yeah. Thank you. We have our next question from the line of Gopal Nawandhar from SBI Life. Please go ahead. Yeah. Thanks for the opportunity, sir. The last quarter our exit market share was at 24%. Did we lost market share in this quarter? See, like we have advised you that 24% was last quarter's EBIT and 23%. You can say there is a 1% drop. However, with that drop we still continue to maintain a big difference from our second player close to almost 750 basis points as we have indicated in my presentation. Yes, to that extent we are definitely the front runners in our market share. This loss. Furthermore, Gopal, just to give you a overall flavor, in the month of August if I look to overall secondary sales, because we always report on a secondary basis, the numbers are very small compared to the seasonality period. Any changes of even 10,000 units can make a difference in the market share. Is it because of pricing action by the competition or just- No. No price action is witnessed during July, August because there is an event came to a lean period of the season. To just give you a flavor of it, if I talk about the secondary in the first quarter, it is somewhere around 3.4 million. If I look into July, August, because that's what we got the data, September is still awaited, is even less than 1 million. It's close to six lakh units and all. 6-7 lakh units. Is there any change in the competitive landscape laddering anything? If I want to give the answer, only one change we witnessed over there, whereby Lloyd has seen the number four position now after remaining consistently number three for the consecutive period of three to six months or so, by close to 60-80 basis points, and that can help overcome them. To that extent, I would say the laddering undergone a change, rest all almost remain same. Okay. How are the inventories in the system for us and for the system? If I look from the value chain perspective, it will be in the range of around 35-40 days for the channel partners of September. If I look from the manufacturer perspective, it will be in the range of 90-110 days. Okay. We don't. It's largely attributed at the manufacturer's end because we have to take care of any potential supply chain disruptions which can happen, given the global uncertainty in which we all are living in. Furthermore, we have to prepare us for the seasonality, the season upcoming as well, starting from the quarter four. All these factors goes actually when you start building up the inventory for a future period. Sure, sir. I have more questions. I will come back in the queue. Yeah. Thank you. Ladies and gentlemen, in order to ensure the management is able to answer the questions from all participants, kindly restrict your questions to two at a time. We have our next question from the line of Renjith Sivaram from Mahindra Manulife Mutual Fund. Please go ahead, sir. Yeah. Hi, sir. Just wanted to understand, like what is the status of that Haier joint venture, because today there is some news that government has kind of eased out their norms for high-end electronic JV from China. Is there a probability that this Haier JV also can come under this easing of norms and work can restart on that? Just wanted your thoughts on that. Renjith Sivaram, we have also seen that news and since our people are already in touch with the ministry, so discussions have been going on. We would wait for a few more weeks before the real action starts at the ministry level. However, in the interim, we still remain in a waiting mode. At the same time, if you're talking of the report which came out today, it also talked about certain stipulations which have to be met by these joint ventures and all, wherein you know the control of the board has to be with the local JV partner and things like that, which actually is not the case in all the applications. We'll have to wait and watch whether is that going to be the new directive or is that just a guidance, or what exactly would happen. Therefore, we remain, I would say, cautiously optimistic and we'll wait. Yeah. Okay, great. Sir, this INR 106 crore of provision, because I think post Sidra we had taken so many measures from our side in terms of risk mitigation and putting up a much more good processes in which to avoid such kind of thing. Still we are coming out with such a situation where our main contractor has banged our end, we have to take such provision. What had gone wrong? Because despite all these risk mitigation, which is still we are coming back to the drawing board on the same. Renjith Sivaram, I agreed that, you know, Sidra was one event sometime in 2011. After so many years, we have had one event. But the two were quite different. I'll let Manish Desai answer the difference a little later. But let me tell you on the risk mitigation efforts which we have been taking, and I like to reiterate and agree with your thought process that yes, the company is very selective in who we partner with, how do we do our business, what kind of contracts we enter into, who are our counterparties. However, in spite of all these, you know, risk protections, there is a continuous risk, which is, I would say it's inherent in the nature of the business, is that if somebody wants to play unfair and want to encash the bank guarantees, that risk is something which remains with us. Because in this contract business, you have to offer bank guarantees in the shape of advanced bank guarantees, in the shape of performance bank guarantees, and then you have DLP periods during which these guarantees continue. As long as everybody plays fair, we are very, very, I would say in a fine position where business-like conditions, we are fully taking care of mitigating that risk. The open risk definitely remains. I would not be in a position to explain more than that. Something to that sort has happened in this particular case, where there is a dispute or disagreement between the main client or the original customer and his main contractor, where they were in dispute and they went in there and the main client terminated the main contractor, and in turn he did a termination on us and then cashed the bank guarantee. That's why we have said in our publication that we will be going legal against this person, this particular main contractor, and take all the legal remedies to recover this amount. We should remain hopeful on that recovery. Now the difference between Sidra and this one, maybe I'll let Manish come in. No, no. In fact, I don't want to highlight the difference between. Yeah. These two incidents. Ajit, the fact is that when you are carrying out this risk mitigation approach while selecting the project, and the project execution generally in such kind of large size take a good amount of duration. It runs into two to three years timeframe. Although we keep close eye on the execution of the project and the parameters, what we shortlisted, what we have considered that point of time. However, certain external events on which we have a limited control can result into such kind of incidents. You must have seen that enough, the kind of incidences or the kind of care has been taken for by the management to look after or to consider or to have a cautious approach. Gaining some kind of traction, but one or two incidents, as I said, between the award of the contract or selecting the value partner till the execution of the entire contract. The duration of the project, anything can happen at any point of time, and that's what we have to see, some of the situations beyond the control of anyone for that matter. Okay. How much is the receivable portion in that which is actually the work done by us, which they haven't paid? Everything been provided. If you read our enclosures or the notes, what we have given, we have even provided the retention money as well. Although we have a continuous support from the main customer, but following the prudent approach in terms of the accounting, we have provided the retention portion also out of the exposure. Okay, great. Thanks. I'll join the queue. Thanks. Thank you. We have our next question from the line of Ravi Swaminathan from Spark Capital. Please go ahead. Hi, sir. My first question is with respect to the UCP segment margins. First half you would have done 7%-7.5% kind of margins. How confident are we to get back to last year levels of 10%-10.5%? Is there a possibility like that or the margins are likely to be more in the range of 8%-9% for this year? Ravi, we have been telling this from the start of the year and more particularly after the Q1. Yes. Given the situation of inventory and the competition which the market is sitting in currently, to go to a trajectory of in excess of double-digit looks difficult. I am seeing that it is difficult for this current year as well as for the one or two quarters later on as well. We have to carefully watch the situation and the market dynamics in the same sense. We guided in the earlier quarter as well that achieving double-digit looks difficult. Our efforts are there to go closer to a higher single digit. Obviously the efforts are on the ground to ensure that we go to that objective. May not be seeing in the quarter three, immediately because we still have some high cost inventory with us on account of the lower Q2 and a Q1 volume, which we expected, and considering the disruptions which would build around the seasonal volume. The commodity price benefit should move in in a limited way because we all know currency also got depreciated to a certain extent. Some improvement is visibly there or expected from the middle of the Q4. Got it. My second question is with respect to Voltas Beko. You had talked about volume decline during the quarter. Yeah. To what extent was the volume decline? The thing is that specifically in this quarter, other larger players with a much higher market share, they have reported. Listed companies have reported revenue decline. We with our low revenue base, we should ideally still register good healthy growth rate from this low base. Can you give your thought process on this? Yeah. That's what we always say that we should not look into the industry growth or decline or increase or decrease in the volume. What happens is although we are, we are among one of the player in the industry, and when the industries are tremendously behaving in a different way, probably some of the impact will still fall into the brand, which is also a nascent brand and continuously looking for a growth in the business. That is actually impacted because if you see the results, I'm sure each one of you have gone through the results of the other appliance company also which has come out on the result. Even though with the price increase and being a top player in the industry, they did witness a kind of a muted performance on the revenue and a much larger impact on the bottom line. If you look into our results, we could protect our bottom line to certain extent of the roll back. The revenue, despite, I would say, was down in the range of 15%-20% for the roll back as such compared to the last quarter two of the last year. Got it. Thanks a lot. Thank you. We have our next question from the line of Siddhartha Bera from Nomura Holdings. Please go ahead. Yeah, thanks for the opportunity. First on the margins, will it be possible to indicate the broad range of benefits factoring in the commodity as well as the rupee depreciation? Can we look at the net level about 100 to 200 basis benefit or will it be higher or lower than that? Siddhartha, to give this answer, I hope that I should have been astrologer knowing how the future is going to work, which is not the true case we all know today. Like when we were happy that the commodity prices are coming down, rupee has taken a different knock altogether. Probably whatever benefit what we anticipated as an industry player on the commodity price generally getting squared off against the rupee depreciation because still in our case and in the industry as such, few components are still import sourced and will the foreign currency or the rupee level will still make a lot of difference. It is difficult, Siddhartha, to say that how much benefit can accrue to it. Furthermore, we have to see that how the other players in the industry are going to react to it. Mr. Verma, a few minutes back clearly said that, if the commodity prices are continuously going down and if the market dynamics remains competitive, probably some of the players despite complete absorption, not absorbing the overrun, may require of course to pass on some of the commodity benefits to the end consumers to revive the overall demand during season time. I would say that there is too much uncertainty or much in advanced stage to know how much we can improve upon. On a broad basis, we are expecting at least 50-60 basis points should minimum accrue from the middle of quarter four, when we should get the most advantage of the new inwarding of the commodity into our warehouses. Got it, sir. The second question is, sir, again, on the slightly medium term, if I look at in terms of market share, we had said we wanted to get back to I think 25%, 25%+, and I think medium term margin guidance is also probably low double digits. Given the competitive dynamics, which one do you think you will prioritize more and you believe you can achieve compared to the other, if you can share some thoughts there? Siddharth, we always guided by the balanced approach between market share and the margin, and that's why we have lower down the expectation on a higher single digit. Both objectives are of a paramount importance, and probably we'll like to play intellectually to ensure that we remain leader in both the aspects. That is being reflected so far in the announcements of the results we have seen and the kind of efforts we've done on the ground to ensure that we remain competitive at both the stage, at both the parameters. We are saying that for the next few years, margin should be closer to high single digits. Is it for the next few years or for this year? As I said, looking into the situation currently, probably we'll like to guide it by the short-term period of 12-15 months rather going in a long-term projections. Because many things may get evolved when you are doing the backward integrations. Lot of localization initiatives are working on the ground, which may help us to give a better guidance on the margin once we have a complete access to it. But till such time, we are going live or we are going to have the commercial production part of the backward integration, I would say that the lower single digit will still prevail. Got it. Thanks a lot. Thank you. We have our next question from the line of Sandeep Tulsiyan from JM Financial. Please go ahead. Very good evening. First question is regarding the market share shuffle that's kind of happening. Just want to get your perspective on this. We, you know, earlier we saw this low value brands like in-house brands of Flipkart, Amazon, some low market share companies like Godrej, Whirlpool, IFB, et cetera. You know, there's a preference towards low value ACs. There's a downgrading which is happening within customers. Now in your commentary, it says that higher star rated ACs are growing faster. Where do you see a post PLI, you know, how should this tail end players lose market share to larger players which will become larger? Do you think there's been upset of market share exchanges between the larger players? How do you see this industry going forward in the next, say, two to three years? Chief, if I elaborate more on your questions. The tail players are actually losing the importance because of the reduced price difference between them and the leaders in this category. They also make or manufacture five-star or high-star rated products because they cannot be different from the consumer preference. The question then arises, being a consumer, what you would like to prefer if the price gap between the leading brand and the tail brand is to certain extent which they can easily absorb with the support of the consumer subvention scheme also being available them to buy the product. This is going to drive the consolidation in the industry as such. Whereby the smaller players may find more and more difficult in order to compete with the leaders in this category. When I say leaders, it is the top five or top six players who have a, I would say, a consistent performance in the overall, in the segment for that matter. This is one exception out of, I would try to clarify that it doesn't make sense. That it doesn't say that the smaller players won't make the four-star or five-star rated products. What is happening is the shift is taking place largely in the saturated market, where people are going for more and more replacement and finding a five-star after the complete usage of the product for the earlier product makes sense for them because their usage in turn also have gone up. That's what our reference is, that the contribution of the highest rated or highest star rated products is increasing in our product basket, and we have seen the general trend also in the overall industry. Got it. Second question is pertaining this A&P spends. We noticed that, you know, over last two years, we completely cut down our A&P spends to a very low proportion of INR 20-INR 30 crore odd. We used to do INR 70-INR 80 crore earlier, that has helped margins. How do you see this panning out? Because you're doing more of digital marketing, at what level of sales would this ideally sustain? You know, because that in tandem with price hikes will kind of determine your margins. Sandeep, if I look from the comparison of the last two years and the current year, actually it is not like we have not spent on the A&P. There was no need or a merit to go for this expenditure because market was not there to support this. The complete lockdown, the COVID situation was not helping out any which way by putting those spend on the brands or on the outlets on the ground. Because of that, we didn't spend. Otherwise, we tend to incur the expenditure in the range of what we are doing earlier as well. When the shift between, because we may require to go more on a tactical marketing by going more spend on the digital side, rather going on a print media or a TV media for that matter. We do balancing it out based upon the kind of reach what we get on our targeted audience base, and we play around on those things to ensure that we remain visible as a brand in the minds of the consumer. This will go back to that 2%-2.5% of sales, you think? As I said, COVID period is not comparable, Sandeep, because if there is no market, there is no sale happening, the retail outlets are closed. What are you going to do by incurring the expenditure? Fair enough. Got it. Thank you so much, Manish. Thank you. We have our next question from the line of Keyur from ICICI Prudential Life Insurance. Please go ahead. Thank you. A bit longer term question. Say two years from now, how do you see your sourcing settling between, say, in-house, outsource within India and import? If you can just break it up in terms of, say, from INR 100 of bill of material, what will the break up or say in terms of key components or total assembly? How it will be divided, say, in next two years? In the next two years, I would say that, when I say indigenize, which means that we may not do our own production, but we start looking into sourcing from within India rather going from outside India. I am answering from that perspective because we are not going to manufacture as a brand, many of the components which anyway we'll continue to source from the outside. Even our PLI applications, we have restricted our scope of backward integration to our heat exchangers and some kind of plastic components. To give you answer on the overall indigenization versus what we are doing today, probably you can see the motor, heat exchangers, and to a certain extent, the compressor will be localized over the next two to three years timeframe. If I put together their constituents to the BoM, to the bill of material, today it may go as high as 40%, put together all three components. This will be localized largely as we move forward. However, as I said, every component is a direct and indirect kind of contribution. I would say that if I want to go on a one single line, I would say that after three years of timeframe, probably compressor to certain extent will still be imported. Rest all materials should be sourced within India. Of that, you are seeing heat exchangers and some plastic components will be made by us? Yeah, we are doing it. As we said that, even though for heat exchangers, we are increasing our capacity in a phased manner. Today, if I am producing in excess of 1.2 million air conditioner units, I'll be starting our backward integration phase with 500,000 heat exchangers, which means that 500,000 are still, we will still source it from the OEMs or too, depending upon the sources available to us. Gradually we'll be increasing our capacity to ensure that we remain, I would say balanced, as far as our sourcing is concerned for this component. It will shift more from outside India to within India than, say, outside Voltas to within Voltas. That's what the game is because the PLI benefit being extended to many players in the industry, and many new players also eyeing to move in which they were not having any presence as such. I don't want to give a name of the players. We all know as a part of the PLI application, some of the players who do not have a presence in the air conditioner market altogether, but because of their the downstream of the product or upstream of the product, they are entering into this category as well. Understood, sir. Sir, thanks a lot. All the best. I will get going. Thank you, sir. Bye. Thank you. We have our next question from the line of Atul Tiwari from Citi. Please go ahead. Yes, sir. Sir, thanks a lot for the opportunity. Sir, again, you know, going back to the question of market share versus margin. If one of obviously your key competitors is prepared to operate at deeply negative margins, and they have clearly communicated that they are going for the market share. To what extent will you be ready to compromise on margins to hold on to your 23% market share? I mean, will you be happy with even 20% market share to hold on to your margins? Or for you, say, a band of 23%-25% market share is sacrosanct. See, as I said, we do look into the market dynamics of the competitive move. It doesn't mean that Voltas has been leading this category blindly follow the strategy of the other players. I know about the brand which you're talking about, but you have seen that in the exit month, the August, they dipped down on the margin. If they have to work consistently on the strategy, they should have exceedingly doing well on a quarter or on a month-on-month basis. Which means that beyond a point, the price card doesn't play in the minds of channels, in the minds of the consumer as well. That's what the hard lesson we learned being present in this industry for a long period of time. That's why we always say we play a balancing act between the margin and the market share, and our objective remain strategic to have the market share in excess of 25%. Just for the benefit of all the audiences, since we are discussing about exit market share, from 24% of market share, what we reported in June exit, we did touch upon 24.5 during the July, and we came down from there to 23, being the lower second day in the month of August. We always see that we're one or two months down, but we prudently reported the YTD, although the exit month would have given some 20 basis points. That's why I would like to highlight to the audience that the pricing card will never go or never reach to a position beyond a threshold which will be the channel partners the customers are looking for. Thank you, sir. Very clear. This is the last one from my side. I think in your opening remarks, Mr. Verma briefly touched upon, you know, some orders in hand which kind of bode well for third and fourth quarter volumes. I don't know whether I heard it correctly, but could you please expand on that point that, you know, how does it compare with, say, the orders in hand in the past and, you know, what kind of volume or the market share numbers we could look forward to, say, in third and fourth quarter? No, chief. When we talk about the orders, it's largely a part of the commercial air conditioner because we carry out a lot of retrofit projects as well. We further carry out because, unlike your air conditioner, which is off the counter, in case of commercial air conditioners, some of the purchases take a longer time in terms of the ductables and the VRF and the chiller businesses. Mr. Verma was referring to those kind of orders in hand, and that's where it comes, and it doesn't have any relation to the market share as such when you talk about the segment A for that matter. As far as the segment project business is concerned, you all know we had a concern on the account of business transfer, which we initiated and took a longer time because of the COVID period. Really because of this uncertainty or the long delayed period, we faced the situation where the orders were flowing to us, but we could not, the customer was asking us to execute the orders, but under the BTA, we could not proceed further on that. Those constraints also been taken care by consummating the business transaction, agreement. Now UMPESL, the subsidiary company, are open and the customer is also very clear who is going to execute the orders. Orders started flowing into this both the domestic projects for that matter. Okay, sir. Okay. Thank you very much. Thank you. We have our next question from the line of Abhijit Akella from Kotak Securities. Please go ahead. Yeah, thank you so much. Good evening, and thanks for taking my questions. Most of my questions have been answered. I just had one data point to seek, if possible. Just within UCP, if you could share the proportion of the commercial segment and also the air cooler segment, if possible. Commercial segment, if I look into it, CAC will be in the range of 16%-18% of the overall turnover. I'm taking YTD, see, because the reason being is because quarter one will always be air condition driven, residential air condition. The comparison won't go well or won't be giving a meaningful, I would say, benefit to it. If I look from the air cooler, air cooler is still a nascent category for us. We are looking into it, and if you look from the price point, that is like a one-fourth of the air conditioner price. In terms of its overall contribution to the sales turnover, it is less than 5% for that matter. Sure. Just to understand, excluding these two, 16, 18, and then, you know, less than 5%, the rest would be basically the B2C business, if you would have. It's a B2B/B2C business comprising of air conditioners and commercial refrigerator. Okay. Commercial refrigerators also, if you could break out, please? Same. It will be in the range of between 16%-18%. Okay, great. Thank you so much, and wish you all the best. Thank you. Thank you. We have our next question from the line of Pulkit Patni from Goldman Sachs. Please go ahead. Thank you for taking my questions. My first question is again harping on margins. I mean, we've had competition in this business for a long time. Yes, commodity prices are hurting us. The fact that you are still hesitant giving a higher margin guidance, is it to do with just the amount of capacity that is coming in India and with everybody wanting to produce as much as they can? Structurally, have the margins come down to the high single digit number? Or is it just maybe a two to three quarter phenomena, when commodities normalize, we could go back? I mean, is there a change in thought process versus what it was, say, a couple of years back in terms of the margin profile? Pulkit, actually, we have been saying that during this phase of volatile prices where depending upon different constituents and depending upon their policies and their purchase point exist, this low guidance would definitely prevail. However, the period after that, let's say, once the prices stabilize and maybe a quarter after that. Now, whether these prices stabilize right away or they take two to three quarters, but at least a quarter after the prices stabilize, then the real price discovery should happen and where the margins would kind of stabilize. The guidance would be definitely in the range of, you know, I would say mid- to high-single digits. The manufacturing of products within India has also its bearing on these margins, which is to be looked at. In the initial years of manufacturing, there would be certain learnings as we go along the learning curve. Then subsequent to that, those benefits would also come in the margin, and that would establish. Therefore, in the current scenario, you have to see that we as Voltas have been maintaining our margins, though a bit lower, but we are still much higher than all the players who have been publishing their results. That's a, I would say a guidance on the questions which have been asked with respect to market share and margins. We have been maintaining the lead in the margin share as well as lead in the market share as well as in the margins, which has to be taken into account. Just further to add, Pulkit, the all PLI-led kind of investments by the other players are going into the components. Which means that the supplier of the components or the choices available to the manufacturer on the component sides are getting actually widened, which should result into some kind of more benefits to flow in to the manufacturers to a large extent. I would say that the PLI is not the reason for going into a margin imbalance between them, among the manufacturers. What is happening today is you are sandwiched between a lower demand and the high cost commodity or the carrying inventory which you are doing or which you are having in your books of accounts. The question then comes is what action we should take to revive this demand from the consumer side? That's where we are making this kind of products more affordable by going with the aggressive consumer subsidy scheme, not increasing the price despite seeing the headwinds in terms of the depreciation, the currencies, higher commodity price and all kind of stuff. Over a period of time, these all things will settle down. Once we have seen kind of harsh summer setting in, although on the period of April, May, we see a good amount of demand. I am sure that as the industry evolves, with this situation also get settled down as we move forward. Understood, sir. That's helpful. My second question is on the domestic MEP business. I mean, we've seen a pretty decent order inflow number this particular quarter, and obviously commentary from a lot of your competition and peers is also that the domestic market seems to be pretty good. Is it fair to assume that if we do more work on the domestic side, our margins actually here could improve? Or we think still that 3%-5% kind of margin is a fair number to go with over, say, next 12-24 months in that business? Pulkit, the more order book in fact will help you to strategize many things like sourcing your materials, standardizing your vendor base with you, have a long-term continuity contract with at least because you know very well project work depends upon the more on the skilled employee and all. Those execution benefit will certainly become accretive to the margin. We all know of what is challenging in the project business is the execution. Once we do the execution in a timely manner and keeping in mind and get the certification of work done from the main customers, probably I would say that the project business you can visualize or can earn a margin in excess of 5%. That's only time will say how we move forward. We all know even the giants like L&T has seen the pressure on the margin side. As we said, the more reduced competition, I would say a decent behavior from the customer side, approving the AOTS, considering the situation on the ground and the execution bandwidth should help us to go back to the old trajectories of the margin side. Sure, sir. Understood. Thank you. Thank you. Ladies and gentlemen, that was the last question for the day. I now hand over the conference to management for closing comments. Over to you, sir. Well, I'd like to thank all the participants for asking, I would say, very relevant questions. As a closing guidance, we still maintain that, you know, we will have a judicious balance in our market share as well as margins. Wherever it is required, we would definitely continue to maintain our leadership position, which we are very careful about, and we maintain that. In these inflationary, you know, trends, current inflationary trends, we would like to continue with the same philosophy. Given our strength and our other supporting factors, we are very optimistic on maintaining the margins and the increased volumes which we expect because of the industry would also help in the increased profits and thereby increased in earning per share on a long-term scenario basis. With that, I'd like to once again thank everyone. Thank you. Thank you, sir. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.