Whirlpool of India Limited analyst Q&A

Thank you Roopali. We will now start the question-and-answer session. Participants present on the audio bridge who wish to ask questions may press * and 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press * and 2. For clarity of questions and better audio experience, participants are requested to ensure that while asking questions, they are using headphones to avoid the background noise. In the interest of time, we sincerely request the participants to limit their questions to two. We will now begin the question and answer session. The first question comes from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.

Sir, two questions from my side, in the previous conference call you had indicated the revenue guidance in high single digits. But now we have seen a very strong performance in quarter one. So, will there be any change in the guidance and if you can indicate the revised guidance that you are looking at, that is question number one. And then question number two is, while the company has gain market share is there any strategy with which the company is working in terms of gaining market share, for example 1% market share gain each year or market share gains in premium end of the market or anything that you would like to elaborate and what will be the key triggers to drive the market share growth, is it the distribution in your regions or gaining market share in the existing regions itself or launch of new products or in a way price cuts or aggressive ad spend. So, just wanted more clarification and data on this from you. That's it from my side, thank you. And congrats for great set of numbers.

Thank you Aniruddha, much appreciate I kind of knew this question would come. Well, I would say that we are not giving any guidance, etcetera for the full year. What I can assure you is that, investors with us, I can assure you that we are putting in every effort to make sure that we try to meet your expectations and that's about the maximum guidance I can give. As you know we are a listed company here, a listed company in the US. I don't want to talk too much about guidance that we have not given elsewhere. So, we have done, I think we have had a very good first quarter. You know, everything depends on the growth actually for the year depends on a couple of things with respect to the revenue, right. First, it depends on the market, which is very difficult to predict what happens to the market. Second is your market share, so those are the two things that basically help to go towards your inorganic business growth. While market is very difficult to predict what will happen or not happen, our focus will be to try to keep our market share strong. Because at the end of the day, profitable market share growth is actually what as I said last time, is what we want to focus on. So, growing market share but growing profits at the same time, the intent is not to grow the market share and drop the profits, because that's not a sustainable model in our view. Now, the second part of the question I can answer in a little bit more detail, which is how do we look at gaining market share. What are the triggers driving the market share? So, firstly, the key for me would be to drive market share profitably, which basically means if I grow revenue, ideally, I should be growing profits ahead of revenue. That is the intent, there could be quarters in which we are not able to do that. But the intent would be to do that all the time. right. That is what I would say a good company does. There are many triggers, you know much better than me. The obviously new products and innovation is obviously one great trigger. The right pricing for the right product is another trigger. All of the sales fundamentals and execution you called about distribution being available in more stores, but you can also imagine extraction which is basically taking out more volume from the same store, from the same number of displays that you have in the store. So, your display share is also a driver. Your different categories can be drivers, some categories growing faster than the others, the lower penetrated categories which have momentum growing faster than the other can also be something that grows. Within this obviously we try to drive our premium market share harder than our let's say popular for lack of a better word market share the entry level products, but of course sometimes the season is great, the entry level market share will go up so that's okay. So, long as your premium market shares are going in the right direction that you want it to, there are times given the Indian market where the entry level segment really grows very well and being a leading player, your market share grows faster, you will end up with an entry market share growth faster than your premium market share. we are okay with that, so long as we are growing in premium. So, our strategy would be exactly what you called out, which is driving all these levers having a very clear idea of which lever to use when, having a very clear focus on return on investment in each of these levers, because as you can imagine, I only detail some of the sales and marketing levers, there are many of them, right. So, we are trying our level best to do this in a scientific and rational way. So, that we can always try to get to our goal of profitable market share. I hope, I answered your question.

Yes, many thanks for that. Just the last question and then I will come back in the queue. We are seeing, e-commerce is becoming a way major force in the entire consumption basket, especially in white goods and durables also, now with ONDC platform also becoming a bit bigger. So, in next 10 years this will be likely to be a major driving force in the entire distribution. So, what are the strategies of Whirlpool, in this entire thing and what are the market shares in e-commerce platform, compared to let's say, GT or MT, I don't want the exact number, but are they higher or materially higher or lower or materially lower, anything directionally would be very helpful. That's it and thanks from my side.

No, thanks a lot Aniruddha. So, to answer your question on e-commerce, well we obviously we are present on all the things that you mentioned, we are present on the key e-commerce platforms, we are also present on ONDC since end of last year, like you rightly say it is growing, and it will continue to grow on an ongoing basis.I think, the way we look at this is that, we don't want to favor any one segment or platform at all. These are just different ways of reaching our consumer. Right! And we also include in this our own D2C business as you recall, we have called that out also as a strategic focus going forward. And that's something that we will continue to introduce going forward as well. We already have a D2C website and a platform. So, to answer your question, yes, very much e-commerce is part of the plan. We have no, let's say aim to grossly drive one channel versus the other absolutely not. We plan to basically drive all the channels with respect to the financial return that we get out of the channel, and also the long term ability for that channel to kind of contribute to the industry and contribute to our growth, right. So, that is the basis on which we make our investments. And we continue to make investments in both e-commerce and in D2C, including ONDC. Now that's the first part of your question. In the second part of the question, the market shares are kind of pretty much, much of a much less, it's very difficult for me to give you an exact idea. The reason is because the numbers are slightly different across different, but I would say it's more or less in the same ballpark. So, it's not like we are massively below in one versus the other. It's more or less in the same ballpark between e-commerce and traditional trade, which also shows that like I told you before, this brand straddles geographic strata, it straddles premium and popular, it straddles different channels, it does pretty well across the board.

Okay, Thank You, Thanks Alot.

Thank You.

Thank you. The next question comes from the line of Priyank Chheda from Vallam Capital. Please go ahead.

Ya, Hi Team, Congratulations for great set of numbers. Sir, my question is on the gross margin, particularly for the June quarter which we saw, it is seasonally strong for refrigerator, but we are seeing seasonally slightly lower than what we see for the rest of the nine months. So, is refrigerator a lower margin business versus washer on a relative basis, if yes then why. (B), how should we think when it comes to the full year gross margins after all the price corrections that we have taken, vendor negotiations are getting initiated. So, where should we end gross margins for the full year and on the P4G program, if you can talk, if there are additional savings left below gross margin, which is freight, employment, employee cost or advertisements, is there anything that we should think, we should approve in this year below gross margin as a savings. That's on my side first question?

Thanks Priyank, this is Aditya and I will pick up this question. A, first thing I just want to say that because we are a listed company and we are not giving short term guidances so I won't exactly be able to tell you like how will my full year gross margin will look like etcetera, etcetera. Having said that, to the question on whether ref versus washers, are the margins are significantly different. So, not significantly different, both of them are ballpark in the same range. So, it is not that one is significantly better than the others. In this quarter, we have seen a year-over-year improvement in gross margins predominantly coming from the benefit of the productivity actions. And hence, you see roughly one and a half to two percentage points improvement coming from the material cost line. So, as we have explained, we have a very structured P4G program, there are teams both on commercial negotiation sides and, and the technical side who work on driving those productivity initiatives for us to deliver those cost savings apart from whatever happens on the commodity side in the market. To your points on line items below material cost which is your employee cost and all other expenses. We also have a P4G program in which we capture the indirect cost, while the material cost is a direct cost. But we also capture indirect cost, and the teams are working on it. The idea is not here to cut the cost, but open cost optimization as a principle that how can we get more from the same level of costs or how can we do the same level of work at a lower cost principle. So, there are teams working on each of the line items, but then material cost being a significant part of the P&L and roughly 70% of the cost is material cost is the entire P&L. Hence, that's where you will see the biggest amount of productivity, which is reflected in the P&L.

Perfect-Perfect. Coming to the season, which is for the washers. If you can elaborate overall strategy for the season, which has already started, how do you see industry growth panning out, given the strong monsoons and we are slightly weak on the front load side as far as the old category goes. So, how are we bridging the overall portfolio, making the overall portfolio ready to gain the maximum out of the current ongoing season and if you can also elaborate on this washer as a category which has seen a solid competition coming up from the entry level peers like Voltas, Beko, how is the overall competitive intensity panning out for you, particularly for the washers. Thank you.

That's a great question. I will try to answer it as best as I can without revealing too much because as you can imagine, we are a listed company and some of our competitors are not. So, I would be absolutely loath to give out any information that would prejudice us in the marketplace. How do I see the washer season coming through, very frankly like I said, right at the beginning very difficult to predict. I wish I could predict it and I would share that with you because it would be helpful for me as well. But it's very, very difficult to predict how the washer season could be. The summer season was better than what anybody expected. The best of the best did not expect that this good summer season, especially for air conditioners. And so, I am only hoping that the washer season is good, but to be honest, like I said what we focus on is trying to focus on market share, so, that we can be sure, if your market share grows, you can be sure of at least some of your growth. If you are counting on market growth, that can be in the short run a little bit of a misleading thing because if it doesn't come then you are in a soup. So, everything that we do is based on trying to drive market share, like I said profitably. So, we basically got three businesses, which is front load business, our top load business and our semi-automatic washing machine business. So I think , you have talked about competition, not going to go into which brands and so on and so forth. But yes it is quite competitive and that's great, because it's good for the consumers when it's competitive. We welcome the competition, it's very inspiring for us. So, we have special plans for the washer season, you will see it in the market. We have already taken some actions actually, to be honest, I don't want to say on the call. But if you actually make some inquiries in the market, you will already know the actions we have taken on semi-automatic, you will know the actions. For example, I already spoke to you about one thing on front loading that you asked about, that we have actually gone to a five year comprehensive warranty on the front load washing machines. So, fantastic new products with a five year front load washing machine. If you look at our top load business, which is basically the top load vertical axis machines, we have just got advertising on after many years with the Unilever Whirlpool ad. If you see that ad, you will see that what is featured in the ad is the bloomwash series, which is our flagship product in top loaders. And in semi-automatic washing machines, which is historically been a big success for us, but of late has been something in which we have had some challenges in share, we have taken a couple of steps, we have taken some corrections in pricing that should help us through the season. And the second thing that we have done is, we have launched the dynamic detergent dispenser in the semi-automatic machines, which is a premium end of semi-automatic machine. So, all in all more to come, but I think we have a decent plan for the washer season. For us, the critical thing is, we are not so bothered about other people, we just want to do what we need to do, which is grow our market share profitably. And that's basically our focus.

Perfect, sounds great. Just a last question on the market share gains, the three levers which you have alluded to which is additional brand promoters. Second, is new product launches. And third is mix, would it be by any chance possible to break down the contribution from the each of the three levers which are contributing to the market share gains, and a result in most likely the Koreans would have lost markets given the last share that they would have, any reason would you like to address why such that is happening in your industry. That will be my last question. Thank you.

Sure. I think to be honest, we can't really give that break up because, like I said that would literally serve the answers up to everybody on a platter. And it's taken us a lot of hard work to figure this out. Unfortunately, I can't give more color on what contributes how much. Needless to say, it's not just these three, there's a lot more actually, which I haven't detailed out, there is a huge amount of work. If you remember, I also talked about the sales incentive structure. It’s not just stuff that costs money, it's also how we use the stuff like what Aditya was saying. The incentive structures is another big thing, there are several- several things that we have done, whether display shares, whether distribution, whether it's extraction. So, there's a lot of work that's gone in, it's not only these three levers, these were three of the levers, which are a little prominent, but there are many others that have led to this. So, the combination of these things done the right way with the right investment behind each is. That's what we need to get right to get profitable market share growth basically. And as far as other players are concerned, I think, look let's be honest, it's not a one way street for anybody. I think we have seen years in which our market share has gone down, I think those numbers are shared with you in the beginning. That was the same company and does it mean, it can never happen again, yes it can happen again. We are paranoid about making sure that it doesn't happen again. But, this is a competitive market and people take competitive actions, all we can do is focus on what we need to do. We are not desperately focused on others, we look at competition, what they do in the market to understand what they are doing and to understand the impact of what they are doing surely, through the market shares. But we spend a lot more time making sure that we are running the race we need to run, if that makes sense. That way, we can be sure of ourselves, rather than looking over a shoulder at somebody or looking ahead at somebody and saying, how do I catch up. I think we just need to pace ourselves and just do it right. That's all.

Wonderful, Congratulations and All the Best.

Thank You so much Priyank.

Thank you. The next question comes from the line of Ravi Swaminathan from Avendus. Please go ahead.

Hi Sir and thanks alot for taking my question and congratulations on good set of numbers. I know this quarter had been good because of the strong summer season. But in general, the demand environment, especially post COVID had been slightly soft. If you could give some commentary on the demand scenario on a normalized basis. How it is on a pan India level. Probably you can give a commentary on how good rural is, urban is, that will be great.

That's a great question. So I think this is actually the, I would say one of the trickier questions to answer. What has actually happened that we can see post COVID is that, there was a big bump post COVID basically, when people came back to the market, there was a maximum, I would say significant market growth, we are talking about 20% odd growth basically, unfortunately, we couldn't participate in that growth for various reasons at that point in time. But then what's happened post COVID is we see on an ongoing basis is, outside of these big spikes the market growth has been a little subdued okay, to be honest. And the reason that's happening is because what we can see for sure is that the premium segment of the market has certainly been growing really fast. But the belly of the market, the entry level of the market, that has not been doing massively in the last few years, right. Now, I do believe that, of course, I am not an economist at all, by any stretch of imagination. But I do believe that, kind of having the GDP growth that we have, the trickle down should happen. I do believe that post COVID consumers were spending on a lot of things that they didn't spend on during COVID. If you look at house prices, they went up so much basically, extraordinarily, rentals went up extraordinarily, travel we all know how brilliant travel was, people only get a certain amount of money every year. Say you get Rs.100 last year, next year, you get Rs.110 or Rs.109 salary increase. You choose where you put the extra Rs.9 because the Rs.100 is already accounted for. Now, I do believe that a lot of people in the last few years put their money in a lot more travel, wanting to see the world, wanting to look at different places, you know, almost catch up on all the stuff that they didn't do. So, there was a significant increase in travel, as you know from the reported figures. Hotel costs went up because of the travel. So, all of these were inflationary in nature. And I think durables really didn't get the full benefit of this growth. Now, I am hoping being an optimist, that at some point in time, and hopefully that is from next year onwards, but we never know that this growth comes back, and we start growing at least at the rate at which normally the country would be expected to grow, a country like India with this kind of growth would be expected to grow. So, I think that is the one thing, and the second thing is, you know, the other thing that usually drives growth is inflation. So, the inflation in this industry typically has not been very good at all, in the last few years, driven by intense competition, and I am sure by decisions that different companies are making on their own. So, there are two components to it. Therefore, one is the volume growth and the second is the value growth on top of the volume growth. The value growth has been very muted, only driven by premiumization, more or less, predominantly and the volume growth has not been that great in the entry and the mid-level basically, it's been much more on the premium segment. But I do believe that in a country like India, with the kind of population that it has, rate at which the middle class is growing, some of the lovely announcements that have been made with respect to the number of houses that will be built, going forward, etcetera when you build a house, the house will hopefully need a refrigerator, had a minimum maybe it needs a washing machine, some of the houses, maybe some of them need air conditioners surely. So, I am hoping that these things are actually going to start contributing to the growth, not just at the top end of the market, but in the belly of the market as well.

Understood sir. And my second question is with respect to pricing, we know it's a very competitive market, it had been competitive, it is competitive and likely to be competitive. But some factor like pricing probably would be at the margin. So, at the margin, has things improved over the probably past couple of years, or is it at the same level, or 100%, so the elbow room for you to increase prices in your products, has it improved?

I would say, what we are very clear about is that it's a very competitive market like you said. Iin this category, because the cost of the product is very high, the price impact is quite significant. I think we openly discussed that basically, and talked about how that affected when we were at a price premium versus a competition, how it affected our market share and so on and so forth. So, I would say it is market determined. If there are opportunities in the market to take pricing, I think the companies will take them and everybody takes it independently. In the absence of any companies taking up pricing, obviously the value of the market would continue to be depressed. So, it's a very difficult one to predict or plan for. Obviously, the one variable in this is commodity prices, ocean freight, all these costs going up. So, just common sense, say, that at some point in time, that should be something that we look at, basically. And I am sure everybody will do their own mathematics on the topic.

Understood. And my last question is with respect to the premium products. You had mentioned that the premium products have grown faster than the entry level products. So, the percentage of share would have obviously gone up over the past few years.I mean if you can share the number of what is the premium product share say double door refrigerator, in the overall mix and automatic washing machine and the overall mix, and how it can read over a three, four years period?

Ya sure, we don't give out the share data, by segment or so on and so forth. This is something that we don't do, but I can kind of tell you that, typically our shares are higher than the entry level historically than they are in the premium level. And therefore, I would say the room for us to grow in premium is more. And so what we try to do is make sure that we get a certain amount of growth in the premium segment. Like I said before, there are sometimes when the entry level actually grows faster because the market is faster and we are quite strong in entry. So, we end up getting a higher growth there. But strategically we would like to see the premium shares growing ahead of entry on a going basis, on an absolute a percentage basis point growth year-on-year. So, for example, I am just making up numbers, if your premium share is 12% and your regular share is, entry level share is say 15%, you would like the higher percentage of growth on your premium shares or on your entry share. So, that your financials work out better, your mix is better. Obviously the more premium products that you have, the more you can drive them the better off you are as a company from many points of view. And so that's what we really try to focus on. Unfortunately, numbers, percentages, etcetera we are not able to give out.

Understood Sir, Thanks Alot.

Thank You, Thank You Ravi.

Thank you. The next question is from the line of Amit Mahavar from UBS. Please go ahead.

Thank You, Eswar Sir, first of all congratulations on achieving a lot of operational turnaround if I can call it since you joined, very difficult time and reflecting also in the cash flows, not only in the P&L. My first question is more on, if you see what you have done in last couple of quarters, a lot of representation which was missing for Whirlpool in the trade channels, you have more people on floor, shop floor market Whirlpool products, you have actually expanded the SKUs both in ref and washing machine across four, five categories. Can you just help us understand what is the, which are the segments where you gain more market share in ref, it seems it's more in DC versus FF, can you just help us qualitatively understand the change in market share across categories in both the key categories of ref and washing machine?

Ya, Thank you Amit, looks you know more than me. So, you are right, its pretty much everything you said is right. We have done a lot to be honest Amit on a lot of areas, because execution was something that we were very keen to get right. And like I said before, strategies are great, but if you can't execute them in the market, then they are meaningless to the consumer. We have invested a lot in trade channels basically, as you talked about people on the shop floor explaining our products to the consumer, which we see actually as a way of marketing. So, we have done that, we have done a huge amount of training for them, we have made sure that they are kind of comfortable with not just the products, but they are proud ambassadors of the products, we have brought in new products, just to give you a couple of examples, the DC, we brought in five star after a couple of years, basically we brought in the five star industry very well, we brought in the frost free range we brought in the three star after quite some time. So, that's been doing very well as well. Like, we just talk to you now, we brought in the glass doors into DC that we never had before, which is quite a cool thing because a brand like Whirlpool bring in glass doors, it's wonderful. It's like, I pop across sometime the market to Bangladesh to basically see in and pretty much the whole market there is a glass door. So, glass door is a wonderful thing that we brought in here as well. So, we brought in a lot of new products but that's not all we have done a lot of executional change in a lot of areas. And therefore I think, focusing on that and driving that is what we really are clear about. And like I said, we put down so many different things, basically. And we say okay, which ones, what are the kinds of bullets that we have for each of these. So, obviously a direct, I mean I am sure you know about this, but our direct cool performance has been very good, we are very happy with that. And frankly, our interest will be to make sure we continue with that kind of growth. I don't want to say too much. But if you see the shares, you will figure out what I am talking about. The direct cool refrigerators business, we have had some very good success, we started seeing the turnaround on frost free as well. But, for us to kind of even think that whatever share increase we have got is ours to keep that would be folly. It is a very, very hard-fought battle and it's got great respective competitors, who I genuinely respect and therefore I think we have got to be on our toes all the time. And in washers, for example, we had some very, very good success in our top loading washer business. But I am pretty sure that we will try to bring that success to bear in our front loading washers business as well, where our share opportunity as you know, we have been active for the last two years, others have been active for more than a decade. So, in front loaders, we have a tremendous opportunity to grow the business. And we will absolutely focus on trying to do that. So, for me there is a lot of opportunity that we have basically, obviously the key is to invest in areas that can give you a return, so that we can focus on profitable market share growth, but I must say that you pretty much answered your question.

Thanks. The second question is, you know, a lot of low hanging fruit is what you seemingly have achieved or in the course of broadly achieving it. But you also have some of the tough competition now in Beko, which was non-existent when the last big management change had happened and I am not worried about competition for Whirlpool, maybe Whirlpool and Beko as a strong players will lift the category and cut down the tail. Do you think for you in the next three years, say by 26-27, the SKUs that you track and then you plan in the market for these two categories, will you be able to cut down the gap vis-à-vis say if you compare with LG, Samsung, particularly if I can name them, do you think that's a very strong and important target for you and in that category. When you do that, it needs a lot of innovation, which anyways you are trying to drive. So, any color about how the SKUs across the categories will move in the next two, three years. I understand the limitation with which you can answer this but anything incremental is helpful plus, the factory setup you have now, we have much and much less imports now. So, something around that, thanks Eswar.

Sure. It's a very good question, actually. And I was expecting this question. It's a very good comment that you make and it's a very fair thing to say that there are low hanging fruits. But, to be honest with you, what we have tried to do Amit is, we have tried to figure out all the fruits, some of them are low hanging, some of them are medium hanging, and some of them are high hanging. So, the critical thing that we tried to do is figure out where are these fruits, how big are the fruits, what is the momentum of these fruits, how big is the runway for these fruits. That's what I was trying to explain at the beginning. So, what we have tried to do is, come up with a menu of things that we could potentially invest in, and what returns could that get. And so in a way, while this is a bit theoretical, but you have to invest money according to a certain theory. So, we work that piece out. Obviously, it's not an exact science, but we work that piece out to say what we should be doing at what point in time. So, I think we are not counting on any low hanging fruits, obviously if they are there we will pluck them. But we are not counting on low hanging fruits to basically drive success going forward. Now I thinkthe question that you were asking me, basically if I can reframe it as to say, what is the ambition that we have, I will not state a specific number or something. But to be honest, you play games or you play in arenas, or battles with only one intent is to win. So, that's what we want to do, we want to win and we know that it's a long hard road to win eventually and we got to win year-after-year, quarter-after-quarter, month-after-month, week-after-week, day-after-day. That's how you will in the long run. In the battle sometimes you lose, sometimes you win. But if you win much more often than you lose, that's how you get to your goal. So, our intent is, like I said, very simply to drive profitable market growth through identified levers, which we are fairly clear on which we track and measure with discipline financially, that we try to execute as a team. And what I am happy about is that the entire team is basically thinking that way. Whether you talk to the leadership team here, or you talk to people who are executing in the field, we are all kind of trying to think in the same way. We are not perfect at all, nowhere near that. But we are trying really hard. And i think the intent will be only one which is, profitable market growth, sensible market growth, but market share growth, but continuously. And so whatever market growth comes on top of the market share growth for me is like wow, that's a bonus basically, but your salary is market share, your bonus is market growth, that's the way we like to look at it. And we like to invest it in sensible ways. If you have an open mind and if the organization is harnessed properly, there are so many opportunities that can be leveraged. In fact, just to give you a small example of how the organization is working now. The idea to do a consumer promo on the front load washer machine actually came from a sales team in Hyderabad, they do not come from the central office. So, doesn't mean the central office doesn't give ideas. They give a lot of ideas which are implemented. But we are very proud of the fact that ideas are coming from the ground up basically. And we are implementing those, and we implement them fast and if we see the proof, then we go really quickly. So I think we have a lot of stuff to do, a lot of battles to overcome. But it's a very interesting fight and we are happy to be in this fight.

Thanks Eswar and good luck to the entire team.

Thank You.

Thank you. The next question is from the line of Umang Mehta from Kotak Securities. Please go ahead.

Ya, Thank You for the opportunity, Sir, just wanted to understand for this low double digit growth that market did in the first quarter, what would have been the growth for economy end, so basically the direct cool range, any sense around that?

Ya I think, Most of the growth and I am sure you know, most of the growth actually in the first quarter, actually came from refrigerators. So, not most of the growth, all of the growth between refrigerators and washers came from refrigerators. So, refrigerators had a very strong growth pattern, both the direct cool range and the frost-free range actually grew quite significantly, strong double digits.

Understood. And the second question was again on gross margin. So, while I understand on Y-o-Y basis, the reasons that you explained. On a Q-o-Q basis, is there a mix element that play for the contraction? That was my last question.

Not a significant one, which will impact the Q-on-Q margin mix. So, as I explained earlier, the margin between ref and washers are not significantly different. So, that is something which has an impact on the margins, than the mix not a significant impact on margins.

Then what was the main, there's a substantial contraction on Q-o-Q basis. So, just wasn't able to understand the reason behind that?

So, what really happens in April to June quarter is, (A) your mix of the product, for example AC becomes significantly higher, which has a relatively lower margin compared to a core T2 product so that is one factor, which impacts quarter-on-quarter margin. And the second factor is about the summer, for example there are a lot of promotional schemes which are run in summer, which are not there in your Jan to March quarter. So, because of these two reasons, you will see that sequentially, you will see your gross margins could be a little lower in quarter two versus quarter one. So, those are the two big reasons which impact your sequential margins.

Understood, That’s it from my side, Thank You Sir and Good Luck.

Thank You.

Thank you. The next question comes from the line of Rahul Agarwal from Ikigai Asset Managers. Please go ahead.

Hi, Thank You, Good Evening and compliments on not only 1Q but the achievement you achieved in the last 12 months is wonderful. It was really commendable. Sir first question essentially was on the input content, my sense is just wanted to know, how much are we importing right now from a material perspective, both for Whirlpool or Elica and where are we right now and what kind of changes, should we expect any changes over there, that’s the first question.

Okay. So, you are talking about finished goods, right. So, almost all of our business is basically made locally, refrigerators, washers, air conditioners, everything is made locally. There is very small, extremely small proportion of business that's imported. I think over time, the intent will be to make everything in India, that's the intent very frankly that the country has overall as a country and that's the intent that we would have as well, touched on a lot of supply chain, and inefficiencies and complexities and so on, and so forth. But obviously, all of that localization, whether it be on finished goods, or on components is going to depend a lot on (A) readiness of the local market, which is very, very, very, depending on what the situation is, depends on the regulatory kind of rules and regulations that come in, about what should be done by when. And also depends a lot on the competitive environment with respect to cost and quality between local producers and international producers. So, there's a lot of factors that go into this, without going into the details, because I cannot share with you unfortunately again, because we are a public listed company, I cannot share that information in detail. But what I can do is tell you that, as a team we have put down all of the stuff, and then we prioritized what should be done by when, that piece of work has been done. And we are working on it, all of them as you can imagine fairly complex projects. And we are working on those projects to make those come through. I think it will take a few years, because there's a lot of, let's say, a lot of things to be done before everything can be done locally. As you can imagine, in every industry it's the same story. And certainly, we are no exception as an industry. So, we also closely work with industry bodies to make sure that the opportunity of making here versus the cost of making here, as well as the regulatory requirements, all of those are basically managed in such a way that it has become viable for the industry, and not unviable, I think that's the key.

Just a follow up on this, so in terms of, I was actually referring to competence and so, like how much are we importing right now, what's our import content?

Yes, so that is something that we will not be able to speak about, to be honest with you because we don't share that information publicly. We haven't shared it, and we don't plan to share publicly as well. But it's something that, to be honest pretty much if you know the industry number it’s pretty much in the same range. More or less, there will be one or two players who are more localized, there will be one or two players who are less localized, but quite a few of the players will be right in the middle.

Got it. The second question was, of course we have done enough to recover, back to what positions we are right now. But in terms of your team, where will you be spending your time on over the next 12 months in terms of the top three, four challenges in your mind which are still a gap or a challenge you see and will spend time on?

Ya, I think, Basically, if I look at what us, what do we as a team, basically spend time on, the first thing that we spend time on is very frankly, profitable market shares. How do we basically secure market share and continue to grow market share but how do we do that profitably, right. So, that's the first big one, because it's a very competitive marketplace. Very, very good competition, very tough competition, people nobody wants to take a step backward in this game. So, the first thing that we look at is profitable market share, then we basically look at working on our own cost programs, basically which is absolutely crucial. So, first, is to drive the revenue. Second is to make sure that we are working on cost, we are always conscious that there are headwinds that come, sometimes the headwinds are very, very strong. I would say right now with all of the stuff that's happening on ocean freight and commodities, etcetera, it is harder headwind than has been done in the past and it's true not only for us, it's true for entire India, it's actually true for the whole world as well. So, commodity headwinds are quite significant. Competition, I think, is the other one, but like I said, what we do is we understand what they are doing in the marketplace based on their actions in the marketplace. And we figure out if we need to adjust our strategies or not. The other thing that really is very critical for us is to make sure that we have a very clear vision, we are very clear strategic imperatives. All the people in our organization are aligned to the strategic imperatives, and we march to the same drumbeat. So, making sure that the organization is marching to the same drumbeat and everybody singing the same song is an extremely important thing for the leadership team, which is what we focus on.

Got it, thanks very much for answering my questions. And really appreciate to hold this call, I think as a shareholder, just request that if we have these periodical discussions, it really helps to understand the numbers better. So, hope to meet on future calls as well. Thank you so much and all the best.

Thank You Rahul, Thank You very much.

Thank you. The next question is from the line of Shrinidhi Karlekar from HSBC. Please go ahead.

Ya, Hi, Thank you for the opportunity and congratulations on the good set of numbers. So, just couple of clarifications. So, did you mention that both economy raise as well as premium range of product did excellent for the refrigerator category in Q1 and you have had a gains in both direct cool as well as frost free subcategories?

Yes, please. So, when you say economy and premium you are talking about direct cool and frost free I presume, because the way we kind of look at it is within direct cool, we look at entry, middle and high, kind of thing. So, if you are asking, did the direct cool business as well as the frost-free business do well, in the first quarter, the answer is yes. Both did well, from an industry point of view.

Okay. And within the DC as well, did entry also did well?

Yah-yah. Yes, because I mean It was a very hot summer as you can imagine. So, entry from a market point of view also did reasonably well. What I think is also, so all the segments actually grew and as far as refrigerators are concerned entry, mid and premium across DC, direct cool as well as frost free. So, all of those segments grew.

And sir share gains, you have in both DC as well as frost free?

Yes, we will not be able to share the details. But yes, we have had, obviously they are differential. Our share gains and DC have been more than frost free, but both have grown. We have had some very good success in DC.

Great. And sir second question I had is, so we are seeing is that, channel mix is shifting in India, it is moving more from general trade to e-commerce and modern format retailers. So, how do you see it as a headwind to the profitability of industry and therefore the company like Whirlpool and create lot of channel or do you think it doesn't really change much from the profitability of the industry perspective?

That's a fantastic question actually, honestly. You are right, there is that kind of a shift. But, I think first based on all the experiences that we have seen across the world, not only in this industry, but also in FMCG that I worked for many years. It's not going to be a complete shift with nothing happening in traditional trade. That's never going to be the case in a country like India, you are always going to have a traditional trade business, purely because of scale and a lot of other reasons. So, you will always have the traditional trade business in India, and it will always be a reasonable chunk of the total business firstly. So, I think, one of the one hand margins can be affected by shifting to more organized trade for obvious reasons. The other advantage that we have is because you are displaying and you are driving the visibility, and you are providing a nicer environment to shop in, etcetera, etcetera, propensity you increase, your basket also increases. So, to be honest, the way I look at it is, India's an amazing story going forward. Because if you grow at a GDP growth of what 7% to 8% a year, hopefully even more going forward. With the real rate of growth being that nominal, you add on top of that, you are looking at a business that is going to, a country that is going to grow GDP significantly, it's hopefully going to double its per capita by 2030. And then you are talking about a lot of people coming into the purchasing space. So, the belly of the market, if I can call it, is going to become bigger and bigger. And when the belly becomes bigger and bigger, there is more and more opportunity. So, imagine today, so it's not a zero-sum game. That's the point I am trying to make. It is not a zero-sum game. That is the beauty of India. So, I am super happy that e-commerce grows, and modern trade grows and traditional trade grows because all of them will grow. And the reason I am saying that is because again, I want to re-emphasize India is not a zero-sum game. It is not a, I will only grow by 3% so, if you grow, I have got a de-grow not at all, there's space for everybody to grow in this amazing place. And it is not the case for the next five years. In my view, it's the next case for the next 30 years, probably. So, at least in my lifetime and I am sure you are much younger than I am. But in both of our lifetimes, we don't have to worry about lack of growth. So, I think the propensity where refrigerators are selling mid-30s, in penetration, refrigerators can go up to mid-60s, mid-70s. Washing machines are mid-teens, washing machines can comfortably go up to mid-30s without a doubt. ACs are less than 10%, why can't they go up to 50%. So, the point I am trying to make is, in modern trade, or e-commerce or whatever, you have a basket, a bigger basket, because you have more space, you have more people, blah, blah, blah. And so therefore whatever you lose in a percentage you might make up in an absolute. So, I think, the beauty of India is that, one doesn't have to worry so much about it, of course year-on-year you have to manage your P&L, absolutely. But in the long run, this is going to be a great story for the durables industry.

One more if I may ask sir. So, look at your margins have improved quite sharply, but they continue to be a good 5%, 6% lower than what we used to do before COVID. So, just wondering, do you think that margins are structurally gone down? Some of the players in the air conditioning industry do call it out that sectorial margins in India probably have gone down. So, I want to share your perspectives. Is there a possibility wherein you can go back to the margins you have had before COVID, which in first quarter was typically 14% to 18%?

Ya, so, to be honest, it's very difficult to predict. But what I can tell you is that the market is much more competitive than it was pre COVID. Much more competitive, somebody on the call else has mentioned about very strong pricing action being taken by different people, et cetera. From our point of view, we are very clear that the long-term guidance that we have given is high single digit profit margins. That's what we have given, and we absolutely stick only with that and that's the long term guidance that's not tomorrow morning's guidance. It's a long term guidance and the reason we are saying that is because we recognize that the market is a lot more competitive than it was in 2018. 2018 - 2019, you had people exiting the market, today you have people entering the market, everybody wants to come into India and grow the business in India, every global CEO, has declared India as their most important growth market. So, this is just the reality; this is the fact of our great country. And so everybody will want to come in, everybody will have market share. That means there will be pressure on profits and margins and so on and so forth. And therefore, having massive margins probably is not very likely. At some point in time, I can tell you that when all the regulatory pressures as well have gone, because keep in mind that when you have regulatory changes every two to three years, three to four years, that also brings in a significant amount of cost into all players. Nobody is an exception to this. So, you have got competitive pressures, you have got regulatory pressures, all of these will impact people's margins. And therefore, I think steady progress year-on-year is the best thing to look forward to. We have called our high single digit in the long term and that's what I think, we can aspire to.

Thank You for answering my questions sir and all the very best.

Thank You Very Much Shrinidhi.

Thank you. Moderator, we will take, if we are already overtime. We will take one last question before concluding the call today please.

Certainly, ma'am. We have the last question from the line of Nirransh Jain from BNP Paribas. Please go ahead.

Ya. Hi Sir, Thank You for the opportunity and congratulations on good set of numbers. Sir, firstly wanted to check on the working capital. So, if I am not wrong we are a company that is already operating at close to nil working capital days, for over the years, but what we have seen in this result also like we are able to generate a very strong cash flow because of continued improvement. So, I just wanted to check, do we have scope of further improvement in the working capital and directionally is there any target for how much working capital days can go to. And secondly, I have a question on the discounting part. So, we have seen consistent, like increase in the discounting over the past few years, but now considering that we have taken a significant price correction, realigned a strategy in line with our competitors, so, can we expect some moderation in the part of the discounting. So, those were my two questions. Thank you.

I will take the question on working capital, so our improvement in the working capital right now has been driven more by inventories. What we have done as I said in my earlier part of my performance and results is that as an organization we have been working on improving the quality of the inventories, and hence a significant effort went behind liquidity slow moving non-moving inventories. Now, given the levels, we are currently at inventories, is there a further optimization possible? Yes, you can always look at opportunities but are the big opportunities available, probably no, unless you significantly improve your capacities, for example, and then you say that you have significantly increased capacity, then you can work on anything, you can lower inventory so that's one. On the receivable side, again it's a published number, the days you operate at, we operate at pretty healthy days. And the third lever on the working capital is accounts payable, so have we reached the end of it, obviously, no. We will keep looking at opportunities to improve working capital across all the three levers between APAR and inventory. What are we targeting again, it's a matter of guidance again, and we don't disclose the exact numbers, but then opportunities will always be there in the various areas as we look at each and every nook and corner of our business. On the discounting side, just want to give your perspective the numbers if you look at published numbers on the balance sheet, year-over-year not seen an increase in discounting percentage. It's more or less, the flattish. If you look at the discount for the TPI, as percentage of revenue, we have not seen any change on those numbers. Pricing is a factor of more consumer in competition led, so that we will keep calibrating between what's happening in the market and what's market can absorb. But the intent would be to hold the discounts flat to where we are, largely.

Sure Sir, That’s Very Helpful. Thank You and all the best.

Thank You.

Thank you. Thank you Mr. Eswar and Mr. Jain for today's session. And thank you, ladies and gentlemen, for joining us today. With that, I hand it over to the moderator to close out the session.