Key takeaways of the call

Expect the room air-conditioner market in volume terms to grow by 12% for FY20 and the company expect to register a growth of 17%.

Not see any supply disturbance/issue till middle of April 2020 for the company on account of Corona Virus in China. The company has already issued procurement orders and despatches happened. The company's suppliers are largely based out of Guangzhou. Some of the suppliers have opened the factories. . The ports operations are also impacted with workers staying away. The company is also airlifting certain components. The company have 13 containers leaving China with supplies in last few days.

The corona virus impact is not only for the company but for the entire industry as a whole. Every player is some-how or other dependent on China for one or other components or their vendor outside China are dependent on China for some components. So the level of impact for a player will depend on the inventory levels.

Even though there is no impact till Mid April, the volume growth afterwards largely depends on resumption of supply from China. So this un-certainty hangs on.

Trade restocking is expected to happen at a faster rate in Q4FY20. The Jan 2020 witnessed strong restocking by Channel with continuations of New Year and Pongal sales. But that slowed down in Feb 2020 a bit but expected to pick up in March 2020.

The company in order to increase its market share from about 12.5% to 15% has turned its focus on premium but affordable segment. Usually of the top five players, the company's products are priced about 5-6% higher than Voltas &LG and almost equal to Daikin & Hitachi. But for some quarters the company's prices gap has increased by about 5-6% than Daikin & Hitachi. The company have now redesigned about 50% of its 82 SKUs and reduced cost by about 5-6% and the benefit of same has been passed on to the customers.

However the ocean freight rates have increased sharply as scrubber retrofit wave has shaved off significant container ship capacity out of circulation at the end of 2019. Further the customs duty on motors and compressors increased from 10% to 12% recently. These two factors has increased the cost by about 3% and the company has decided to pass on the same to customers. The price rise though announced will come into effect only from March 1, 2020 and it is across the board on all Room ACs.

The company increased its advt spend by Rs 10 crore to Rs 65 crore and R&D spend by Rs 10 crore to Rs 45 crore.

The deep freezer market which is about Rs 1400 crore is growing at about 12% annually. The company is having a market share of about 30%. The growth is also largely driven by branded Ice Creams penetration well into tier 3, 4, 5 markets.

Tier 3, 4, 5 markets accounts for about 60% of the room AC business of the company and this market continue to show strong growth driven by lower level of penetration (@1-2% less than national average) and increasing aspiration levels.

The company invested about Rs 130 crore in deep freezer facility in Wada, Maharashtra and the plant will go on stream from June/July 2020. The company is also embarked on setting up the Sricity (Andhra Pradesh) plant for Room ACs which will brought down the logistics cost substantially being near to southern markets. The company will invest Rs 120 crore in Phase I and equal amount in each of next two phases. The company is looking to take advantage of 15% incentive available for new manufacturing plant and considering appropriate corporate structure to avail it.

In water purifier the company looks at a revenue of Rs 120 crore for next year even though the company is expected to fall short of its internal target sales turnover for this fiscal. This optimism comes on the back as Water purifiers is start to leveraging the sales and distribution bandwidth of Air-conditioners post restructuring of product business of the company.