Voltas (NSE:VOLTAS) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Voltas Limited Q2 FY 'twenty seven Earnings Conference Call hosted by AXIS Capital Limited. 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. I now hand the conference over to Ms. Divan... Devanshipanda from Axis Capital Limited. Thank you, and over to you, ma'am. Yeah. Hi. Good evening, everyone. I'm Devanshipanda on behalf of Axis Capital. I welcome all of you to the q two FY twenty seven earnings conference call of Voltas Limited. From the management, we have mister Mukundin Menon, managing director mister Jayan Balan, MD designate mister KD Shreedhar, CFO mister Nikhil R Chandarana, head corporate finance Ms. Suman Shapati, Head, FP and A Mr. Manish Sumani and Mr. Anuj Bansal as Head, Finance Controlling.

1:03 I now request the management to give their opening remarks, following which we will open the floor for Q and A. Hand over to you, sir. So good evening, everyone, and happy to host this session for you after quarter two results. My name is Mokundan Manon. And as you would have seen in the press release that came out, we had the Board has announced that Jayant Balan will succeed me on my retirement on 05/24/2027. And to ensure a continuity and a seamless leadership transition, Jayant has been redesignated as Head of Room Air Conditioner business as well as Managing Director designate until his appointment as Managing Director, which will take which will come into effect on 05/25/2027.

2:01 So on behalf of the Board and all of us at Voltas, we extend a very warm welcome to Jayant, and he's also participating in the session. So that before we start the session with the opening remarks by K. V. Sridhar, I thought it's important for me to introduce Jayant, who is also on this call. So welcome Jayant, and we look forward to the session. Over to you, Divans. And I think K. V. Sridhar will do the opening remarks and I think... Yes. Good evening, Glad to connect as part of the earnings call for the Q2 FY twenty twenty seven. Thank you, Mr. Menon.

2:46 Sreedhar here. So Voltas delivered a steady Q2 FY twenty twenty seven performance on the back of market leadership and executing excellence. Voltas continued to strengthen its competitive position during Q2 FY twenty twenty seven supported by market leadership in room air conditioners continued expansion of its home appliances business and disciplined execution across its projects and engineering businesses. The quarter was characterized by moderate global economic growth, continued geopolitical uncertainties, commodity inflation and currency volatility. These developments created cost pressures across manufacturing and supply chain. Across against this backdrop, the Indian consumer durables industry benefited from relatively stable domestic demand with an extended summer providing additional support to the cooling category during a traditionally lean quarter.

3:32 Voltas recorded 32% volume growth in its room air conditioning business materially outperforming the broader industry. The company further consolidated its position as India's number one room air conditioning brand, achieving a market share of 17.4% for the year to date ended September 26, representing an increase of approximately 1.5 percentage points over the previous year. Its lead over the nearest competitor stood at 4.2%. The unitary cooling products business recorded 29% revenue growth accompanied by improved profitability despite commodity and currency related pressures. Voltas achieved its highest quarterly sales in both value and volume by the projects business maintained a carry forward order book exceeding INR 6,800 crores. Engineering Products and Services recorded high double digit revenue growth, reflecting the contribution of the company's diversified business portfolio.

4:27 The performance reflects Voltas' continued focus on translating market leadership into business growth, improving operational efficiencies and strengthening the foundations for sustainable profitability. For the quarter ended 09/30/2026, consolidated total income was INR2746 crores compared to INR2412 crores for the same period last year. Profit before tax was INR83 crores versus INR54 crores last year. Net profit, INR48 crores compared to INR32 crores last year. The company's operating priorities continue to center on market competitiveness, profitable growth, working capital discipline and investment in capabilities that support its long term strategic objectives. Segment eight, room air conditioners. The unitary cooling products recorded 29% revenue growth during Q2 FY 'twenty seven, driven primarily by the room air conditioning business, which achieved 32% volume growth during the quarter. The performance reflects Voltas' ability to capture market opportunities through its established brand franchise, comprehensive product portfolio, distribution strength and effective execution across channels and geographies.

5:33 Voltas maintained its leadership position in the room air conditioning number one room air conditioning brand, achieving a 17.4% market share for the year to date ended September 26, an improvement of approximately 1.5 percentage points over the corresponding period. The company maintained 4.2 percentage points lead over the nearest competitor, reinforcing its competitive position in the Indian RAC market. The combination of value and volume growth reflects the strength for the consumer demand for Voltas products supported by improved product positioning, portfolio competitiveness and sustained investments in distribution and consumer engagement. The company continued to respond to evolving consumer preferences through a sharper product portfolio across capacities, energy efficiency ratings, technology and price points. Greater emphasis on product differentiation, energy efficiency and consumer element features supported the competitiveness of the portfolio.

6:27 Distribution expansion remains a key priority, particularly in emerging consumption centers and markets where REC penetration continues to remain relatively low. The company continued to strengthen its channel partnerships, improve product availability and expand market coverage to capture opportunities arising from increasing adoption of air conditioning across India. Voltas remains focused on building upon its established leadership through sustained investments in product innovation, brand development, distribution reach and customer experience. Commercial Air Conditioning and Complementary Cooling business. The Commercial Air Conditioning business continued to record stable growth supported by demand across commercial real estate, health care, hospitality, retail, manufacturing and data centers.

7:13 The business benefits from a diversified customer base and lower seasonal dependence compared with room air conditioners provided greater balance to the overall cooling portfolio. Continued investments in infrastructure and institution development alongside demand for energy efficient and technology advanced cooling solutions provided opportunities for further expansion. Home Comfort products comprising air coolers, water heaters and fans recorded healthy growth during the quarter, while Commercial Refrigeration remained relatively flat, reflecting softer demand. The company continues to focus on expanding key account relationships, strengthening institutional sales, improving channel penetration and introducing relevant product innovations to support growth across these businesses. Together, these categories complement the RHC business and contribute to the breadth, diversification and resilience of the unitary cooling products portfolio.

8:04 Recent global developments have contributed to higher input cost and currency volatility, creating challenges for broader consumer durables industry. Voltas continues to address these pressures through calibrated pricing actions and structured cost optimization initiatives undertaken since FY 2026. These include strategic sourcing, greater localization, product redesign, manufacturing productivity improvements and tighter operating cost management. The benefits of these initiatives, together with revenue growth and operational efficiencies, contributed to improved segment profitability compared with the corresponding period of the previous year. The company's focus remains on strengthening cost competitiveness while preserving its market position, investing in innovation and improving absolute profitability. With an established brand franchise, industry leading market position, healthy inventory levels and expanding distribution network, Voltas remains focused on sustaining market share gains and translating market business growth into improved profitability.

9:05 Strategic manufacturing and localization initiatives. Voltas continued to strengthen its manufacturing and supply chain capabilities through localization, strategic sourcing, product engineering and operational efficiency initiatives. Greater localization of critical components, including opportunities relating to compressor sourcing and manufacturing remains an important strategic priority for improving supply chain resilience, reducing import dependence and enhancing long term cost competitiveness. The company continues to evaluate opportunities for strengthening its manufacturing ecosystem and developing partnerships that can support product innovation, technology access and future growth. These initiatives form part of a broader strategy to build a more competitive, efficient and resilient operating model by supporting sustainable profitability. Voltas Home Appliances.

9:51 Voltas continued its expansion during Q2 FY twenty twenty seven, recording its highest Q2 sales in both value and volume, supported by expanding product portfolio, increasing consumer acceptance and deeper distribution penetration. The business continued to outperform the broader home appliances market and strengthened its position across key product categories. For the year ended September 26, Voltas achieved market share of approximately 8.8% in washing machines and 7% in refrigerators. The business also maintained its number two position in the semiautomatic washing machine category with a market share of approximately 14.9%. These gains reflect continued progress in building brand consideration, expanding retail presence and expanding product portfolio.

10:37 VOLTAS VOLTAS BECO SENSE OPANTAHEY, supported by the refreshed product offerings and enhanced consumer engagement aimed at strengthening brand awareness and market penetration. Distribution expansion, retail visibility and product availability remains key priorities as Voltas works towards increasing its presence across established and emerging consumption markets. In parallel, sourcing efficiencies and manufacturing productivity initiatives are expected to support improved cost competitiveness and profitability as the business continues to scale.

11:25 With its expanding market presence, increasing product elements and sustained investments in brand building, VOLTAS is emerging as an important growth pillar for Voltas. The business continues to enhance Voltas' channel relevance, complementing the company's established leadership in cooling products while strengthening its position as an all season, full stack consumer durables brand. Segment B, electromechanical projects and services. The electromechanical projects and service business continued to provide diversification and revenue visibility to the Voltas portfolio supported by its established engineering capabilities, project execution expertise and presence across domestic and international markets. The Domestic Projects. The Domestic Projects business maintained order momentum during Q2 FY twenty twenty seven, securing projects across industrial infrastructure, electronics manufacturing, metro and tunnel projects and data centers.

12:19 The business continued to prioritize selective order booking, focusing on projects that align with its engineering capabilities, execution strength and profitability objectives. Greater emphasis on project selection, contractual discipline, working capital management and execution efficiencies remain central to improving the quality of the order book and supporting sustainable profitability. The company continues to pursue opportunities in infrastructure and industrial development while maintaining a disciplined approach to risk and capital deployment. International projects. The international projects business continued to focus on operational stability, disciplined execution and prudent risk management against the backdrop of the geopolitical uncertainties in The Middle East. During Q2 FY 'twenty seven, Chidra Bank guarantee segregating to INR 167,000,000, approximately INR $4.38 crores were canceled pursuant to a favorable court award.

13:10 The subsequent appeal filed by the main contractor before the court of secession was dismissed, upholding the earlier judgment and bringing further clarity to the matter. The resolution remains an important development introducing contingent exposure and strengthening the risk profile of the International Projects business. The company continues to maintain business continuity across key projects and customer relationships while prioritizing tighter project control, selective bidding and working capital discipline. As of 09/30/2026, the total order pad for segment B stood at around INR 6,800 crores, providing revenue visibility across domestic and international projects. The business remains focused on converting its order book through its disciplined execution, improved cash flow and maintaining a selective approach to new opportunities. Segment C, Engineering Products and Services. The Engineering Products and Services segment delivered robust revenue growth during Q2 FY twenty twenty seven, supported by performance across mining and construction equipment and textile machinery. The segment continues to provide diversification to Voltas portfolio through its presence across industrial equipment, aftermarket services and long standing customer relationships.

14:14 Its relatively lower seasonal dependency and growing contribution from service business provides additional balance to the company's earning profile. Mining and Construction Equipment. The Mining and Construction Equipment business recorded revenue growth led by demand for crushing and screening equipment, continued execution of operations and maintenance contracts and stable performance from the African operations. Aftermarket services and recurring maintenance activities continued to contribute to the business, supporting customer engagement and improving the quality of revenue. The business remains focused on expanding equipment opportunities, strengthening service capabilities and increasing the contribution from aftermarket and recurring service teams. Textile machinery. The textile machinery business continued to record strong growth despite challenges arising from geopolitical uncertainties and international trade developments.

15:07 Growth was supported by spinning and post spinning solutions after sales service, spinning accessories and customer support offerings. The division continued to leverage its established customer relationships and technical capabilities to strengthen its market presence and expanding opportunities across products and services. The Engineering Products and Services segment remains focused on expanding its customer base, improving operational efficiencies and enhancing the contribution of services and aftermarket businesses to support sustainable growth and profitability. Balance sheet, liquid and working capital. Voltas maintained a healthy liquidity position and disciplined approach to working capital management during the quarter. The company continued to focus on cash flow generation, inventory management, receivables and prudent capital allocation across its business. Working capital discipline and operational efficiencies remain important priorities, particularly in the projects business, where selective order booking and execution controls support improved cash flow management.

16:00 The company's financial position remain continues to support investments in brand building, product innovation, distribution expansion, manufacturing capabilities and strategic growth initiatives. Voltas remains focused on balancing investments for growth future growth with financial discipline and sustainable returns. Outlook and strategic direction. Voltas entered the festive season of FY twenty twenty seven with continued momentum across its businesses supported by its established market leadership in room air conditioners and the expanding scale of VOLTAS and diversified portfolio for projects and engineering business. The company's strategic priorities remain centered on sustaining market leadership, improving absolute profitability, strengthening cost competitiveness and building capabilities for long term growth. In true air conditioners, Voltas will continue to focus on consolidating and extending its market leadership through product innovation, sharper portfolio management, sustained brand investments and deeper distribution penetration.

16:58 The company will also maintain its focus on premiumization, energy efficient products and technology led differentiation while addressing commodity and currency related cost pressures through calibrated pricing and structural cost optimization initiatives. Commercial air conditioning, commercial refrigeration and home comfort products will continue to complement the RAC business and contribute to the diversification of the cooling portfolio. Voltas remains focused on accelerating scale, strengthening its position across washing machine and refrigerators and improving profitability through new line of Frosty refrigerators and fully automatic washing machines and distribution expansion. In the projects business, the emphasis will remain on selective and value accretive order booking, disciplined execution, working capital efficiency and sustainable profitability. Engineering Products and Services will continue to pursue growth opportunities through its diversified product portfolio, established customer relationships and expanding aftermarket and service capabilities.

17:54 Thank you. Over to you, Divanshi. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. First question is from the line of Natasha Jen from Philip Capital.

18:43 So my question is on EBITDA margin. If I adjust for PLI and EMTS one offs, then gross margin has actually improved, but the EBITDA has declined by 40%. And this decline is coming despite the fact that we've clocked in strong volumes in REC as well as CAC. So when should we start seeing meaningful operating leverage in UCP rather than just revenue growth? Or rather our strategy is only tinting towards protecting market share, which is probably coming at the cost of profitability. Could you please explain that? Natasar, just to clarify, yes, there are a couple of notes which sort of clarify the impact of the Sidra reversal and the PLI. But if you see there are other normal reversals or the debit that also sort of included in the operations.

19:32 So if you compare versus last year in the same quarter, for example, there has been improvement in terms of the profitability across verticals, including if you see the segment A including segment A. If you see there has been an improvement in the profitability. And the thought process that we have always conveyed is this for the same quarter last year, we will try and improve the profitability and get the growth momentum going. If you see if you want to look at sequential, for example, I mean, Q2 is generally the softer quarter. So generally, even in earlier years also, the Q2 has always been lower than what it has been Q1, while it sort of gets better in Q3 and Q4. So we expect the same trend to continue in Q3 and Q4. The operation leverage should definitely come better in terms of EBIT expectations going forward.

20:27 Understood, sir. If I may just ask one more question. So if I adjust for the provision write back on E and PS also, the fundamental organic margin in E and PS is 1.4%. So just want to understand, I mean, I understand top line growth is not coming because you've been selective in terms of high quality order bookings, but aren't those executions supposed to lead us to better profitability? And therefore, what's the outlook here in terms of margin for eMPS? Okay. So as far as the Engineering segment B is concerned, we have maintained that we would sort of on a longer term basis, we would maintain margins closer to the 5% to 4% to 6% has been the range that we have been talking. This quarter, obviously, we have had the one off impact, but there are some other debits also that's considered in the P and L. So if you see the net impact, for example, it will be around 2.5%, 3%.

21:16 But on a longer term basis, the expectation is the margins will be closer to anywhere between four to 6%. That's a sustainable percentage that we will maintain. Next question is from the line of Aditya Bhatia from Investec. So my first question is on the room AC margins and profitability. In first half of this fiscal, we have had fairly strong growth, of course, on a weak base, almost like a 30% growth. But despite that, it seems that pretty much the entire industry struggled to pass on increased cost. So I just want to understand why exactly has this been happening?

22:05 What really has changed in terms of industry structure that it became so difficult that margins have taken a complete beating despite strong growth? I don't care. Yeah. So this has been actually the last six months have been actually very difficult, very volatile with respect to the cost increases with all the vaestesia crisis. So the kind of changes in the pricing that came in during this last six months was phenomenal, both on the currency front, the ocean and freight, plastics, copper and most of the items that we use in our air conditioner, aluminum controllers, so on and so forth. So the unpredictability of this and the volatility of this price increase is what makes the management of the margin so very difficult.

22:58 As all of you know, the season starts from the month of March and then goes on till the primary buying ends in sometime in July, August. So and many of the places, especially the organized trade and the regional retailer, who are the bulk buyers of this and so is the case of the e com player. The commitment on the price is generally done on a long term basis because we like to lock in quantities and lock in the price and they would like to lock in the prices. So when you have such a volatile upward movement in material prices and but your prices are locked in, that is where this kind of pressure that you rightly said, as you said, not only what does almost all brands had to sort of handle this kind of erosion of the margin on the margin front. So this is a very rare, I would say, it's like a black swan event. This kind of volatility we have never seen in the last many years where during the season, starting from February going right up to July, August, things have gone so completely haywire.

24:10 So I think the way to look at it is on a long term basis is an improvement in this margin possible. The answer is very much a yes because there is a when things do settle down and prices do come back, the pressure on us to sort of on the margin front will certainly ease. So it's just a temporary phenomenon that the industry has gone through this year. And the timing of all this volatility has been just time with the summer months when the prices got locked in with all the channel partners, especially the large channel partners, and we had very little room for us to maneuver on that. To add Mr.

24:57 To Menon said, I think we are also sensitive in terms of from a consumer expectation also in terms of how much the pass on can happen. So we are also very conscious and sensitive in terms of a consumer sentiment. I think you would have seen it in multiple categories or also in our categories, for example, the price increases have been significant. So obviously, we have to be conscious about how much we can pass on and sort of balance the overall profitability. So that's the way how we have been able to navigate it. So just to follow-up on that. You say that prices get locked in, typically, what is the duration of this kind of a lock in and pricing? And that will hold true only for, I guess, modern trade and ecommerce channel, which is not very large for us, at least versus the industry as to my understanding.

25:48 Also, sir, over here, while while this kind of a cost inflation has been there for certain industries, like, maybe auto auto components, paint, tires, multiple industries saw this kind of a cost inflation. We saw different levels of pass through that was possible. And durables, particularly particularly ACs appears to be really, really lagging over there. So just wanting to kind of understand why was it so difficult. So I agree with you, Ajay. The analysis is spot on what you said about this industry versus the when you compare the other industries like the auto industry, there's a pass through is a fast far more nimble footed and it goes through much faster. So to answer your first question, how long the thing is normally for the season, we lock it in. We decide the prices sometime in February and lock it until until four, five, six months almost for the full season.

26:48 And that is the duration and the organized trade, which is the 70 odd regional retailers as well as the modern trade partners, that is where which constitutes roughly 35% also for a brand like ours also, it's around 35% of the overall volume is where this thing happens where the prices get locked in. And there's not too much of a room for us to sort of maneuver when the prices go a little haywire. So that's the thing. The comparison to the auto industry and the stark difference that I can think about, I'd say, the seasonality of this for us. 70% of the sale for the room air conditioners in the calendar year between January and December, 70% of the primary sales takes place between January and June. That means the first half of the calendar year. And when you have a seasonality, so much focus on the six months so heavily and 30% only happening in the H2 of the calendar year. And when you have the kind of instability in pricing, the volatility of the pricing starting perfectly at the right time in February, I think this is just an outcome of that is the way I see it actually. So unlike in the automobile industry where the seasonality factor doesn't happen, so the industry has learned to pass through as much as they they feel the consumers will take. So this industry somehow is

28:21 in a way constrained by the fact that most of the actions of the selling happens during this very short window and deals have to be struck for the season for that period. Yes. So that's very, very interesting. Thank you so much for this explanation. And if you could just mention what would be the lag that we are still facing? What kind of a price increase is required to completely pass on the cost impact? And how much pricing increase would have been taken on? Thank you so much. Yes. So thanks, Satya. And just essentially, see, we had done a bunch of price increases to the tune of almost like 14% this year, out of which some of it was because of the table change, energy label change. And then there was an impact of something else for the currency and the commodity.

29:15 Totally, I think our 18% cost inflation has happened, price increase passed on is around 14%. So I think there's room for another 3%, 4% for sure actually, yes. And we have announced a price increase actually of 5% to 7% starting now. So that has already gone to the market and billings are now at this higher price. Sir. Thank you so you. Thank you. Ladies and gentlemen, we request you to please limit your question to one per participant. If you have a follow-up question, you may rejoin the queue. Next question is from the line of Mr. Achal Lohade from Nuwama Institutional Equities. Please go ahead. So the question is with respect to the market share.

30:07 Now where we have reached to the kind of lead what we have, you know, is it fair to say now from here on, we should kind of look at just slightly higher than the industry growth and improving the profitability? Or you think the focus is to maintain that large lead as we have got so far? Yes. Mr. Lohad, what you mentioned is right, the lead is indeed like between us and the number two brand, the lead was 1.2% September last year. And now YTD September last year, this has increased to 4.2% lead and between us and the number two brand. And in value terms also, we have opened up a significant lead with the two brand.

30:54 So we remain committed to the fact that market share growth has to happen for sure. And the way we are looking at it is the overall quantum of gross margin that we generate. So it's a our approach is market share, very important from a long term perspective because that is something which is very easy to lose and very difficult to gain back. And the quantum of gross margin that we generate, if it is adequate, I think the direction will be towards that. We are a little less, I would say, we started with that percentage gross margin. I know from analyst point of view, what you're looking at the percentage, but we are very clear it's market share, quantum GM will be our focus, and this will take us a long way because this will establish ourselves as a leader with a very wide gap for anybody to come anywhere close to us. So the long term strength of the story is very, very clear to us.

32:06 Got it. Just one clarification on VOLTAS in terms of the how do you see the losses? How soon how fast can we expect a breakeven? Those are VOLTAS. Yes. So VOLTAS, quickly, I'll just explain to you, Mr. Lodi, what had happened was this was another thing where the commodity price increase also because there are lot of plastics, there's a lot of metal that goes into it. And these got affected very badly during including insulation material and so on and so forth. And this war completely disrupted the pricing that the cost structure for this thing. So this was a year or this was the first the six months where we were supposed to start that recovery journey in a very significant way.

32:57 I think this what has happened in the last six months has certainly put us back. Our idea is to get an EBITDA, EBITDA breakeven sometime by next year, the financial year. And I think directionally, we are going towards that. Got it, sir. Thank you so much. Thank you, Mr. Lotte. Yes. Thank you. Next question is from the line of Kevur Pandya from ICICI Prudential Life Insurance. Please go ahead. Thank you for the opportunity, sir. So on the profitability side, I think you're leading the absolute margin to cover the profitability. So here, the operating unit becomes key. So in that backdrop, what do you guide for or what you can share in terms of this year's profitability for GCP as well as for next year since you have passed on large part of price hikes, either in absolute terms gross margin or just as a derivative based on current prices, what percentage margin we can see this year?

34:03 Okay. So I think we have been sort of consistent in the communication or the thought process that we have, as Mr. Menon, I think, mentioned, in terms of the fact that we want to continue to focus on market share and the absolute margin. So intent would be to sort of continue to do better than the same quarter previous year. So quarter on quarter to do better and get better is what the thought process would be, and we continue to sort of follow that principle. You mean in terms of sorry, just you mean in terms of profitability doing better versus last year's corresponding quarters? That is what we are seeing. As you know, we are in a fairly seasonal business. So on a sequential basis, it may not be practical, but the quarter on quarter against the same quarter last year is what the comparison should be, and I think that's the right way to sort of look at the progress.

34:52 And Mr. Pani, you would have seen quarter one and quarter two, whatever K. V. Caesar mentioned, that exactly has happened in that direction. So now the significant jump in a situation which is so volatile becomes a little sort of challenging. So that so the movement is in the right direction and the movement is consistently in the right direction. It's just a matter of this volatility, which has sort of made that journey a little slower than what we imagined. Understood, sir. Sir, just one follow-up on your last answer. So I mean, last year was such a bad season. I mean, is even it unfair to just benchmark margins versus last year, low base, so most steady state where should we think of the VOLTAS in terms of profitability, absolute percentage, whichever you can share? Thank you.

35:53 Okay. So I think while the Q1 and Q2 were fairly weak and obviously we have done better as you would have seen. But if you remember, Q3 had the BEE table change because of which Q3 was fairly good, if you remember. The recovery did happen by Q3. And Q4 also, if you see from a category point of view, was a fairly decent quarter. So from that angle, the base has been fairly high. So our intent would be to sort of do better than what we had done in terms of results for Q3 and Q4 last year, so that sequentially, we are able to do better on a quarter on quarter basis. Understood, sir. Thanks a lot and happy to well. Thank you, Mr. Pandya. Yeah. Thank you. Next question is from the line of Sameer Gupta from IFL Capital. Please go ahead.

36:39 Hi. Good evening, everyone, and thanks for taking the question. Most of the questions have been answered. Just had certain follow ups on... Which have emerged during the course of the conversation and during this call. So lock in of the prices in February, I understand, but even the commodities that you would have procured for making these products, which would be sold in the season would be also procured before February or if not, you would have also locked in the prices of those commodities. So is this a correct understanding? And if not, would the industry then work towards that so as to avoid this situation in future? Yes. Mr. Gupta, so what generally happens is the rates get logged in. What changes is that the payment is done in the foreign currency, either in dollars or Chinese RMB, and that is after that credit period and then after these so many days from that thing, after the bill of lending. So there is a gap between the time that price is finalized in a particular month and the time you really pay that out, the currency has moved.

37:50 Significantly, you would have seen this year. We also noticed that the ocean freight charges that we have factored in, that almost jumped to 2x of what it was. These are as far as the long term five important components are concerned, compressor, copper, aluminum, we call it the PCB assembly board and motors. So that's applicable for these five items, where the prices get locked in, but the currency and the ocean and freight are completely volatile, and these are not small deltas, what we saw this year. The second is there are many items which go in which don't have this long purchase cycle like plastic, insulation, all this is almost like month a on month pricing, and it varies like the plastic polymer that we buy is almost like a monthly price changes. So that is where we get into a problem, actually.

38:49 Got it, sir. And do we have plans to start hedging currency exposure in future? Or it's just a black swan event and we forget it? No. In terms of currency, we do currency exposure that we sort of periodically look at the rates. As you know, the rates have been fairly volatile from almost the last six to nine months, as you can see. So we obviously monitor it in terms of what the rates are and also the premiums. I think you would also notice that the forward premiums have also had certain upward movements that also we have to monitor. So obviously, we look at what the forward premiums are, the landed cost as we did it over the next sort of three to four months and do hedging accordingly. Got it. Last question, if I may squeeze in. 14% price hike, does it include the 5% to 7% announced or that is over and above that 14%?

39:47 Yeah. So the additional five to seven that mister Menon mentioned is what we have sort of implemented in q three starting October. And 14% is still two q, the price rate? Yes. But please understand, has he clarified this includes the BEE change, which sort of took place in January '26. So it just obviously populates over a longer period, just to clarify that. Mister Gupta, may we request you to please rejoin the queue? Thank you. Ladies and gentlemen, we request you to please limit your question to one per participant. The next question is from the line of from Nomura. Please go ahead. Thanks for the opportunity, sir.

40:33 Sir, first question is on this PLI, which we have reported for the past three years. So current numbers or that will again come as a lumpy item in the future? How does it work? No. So we will get it every quarter. So I think so we've got INR 5 crores in this quarter, and we expect to get a similar amount going forward, at least for the next five quarters five, six quarters. There'll be no long fee impact. Okay. Okay. And this price increase, what we have done in October, does it cover the entire cost inflation? Or do we need to take more to sort of offset the cost pressure? So what we have done now certainly covers the cost increase. And if the commodities and the ocean and freight and the dollar easing and all will only help us further it will be a silver lining for us, actually, yes.

41:46 Next question is from the line of Danesh Shah from DAM Capital. Sir, just wanted to understand a little bit from a longer term perspective, why we understand and appreciate the near term RM inflation, which we've seen and also appreciate our focus on sort of maintaining market share, right? And we've maintained that leadership as well and only expanded that over a period of time. So my question is that a 10% penetration and with such strong volume growth as well, we're not being able to make adequate margins. What sort of gives us confidence over a period of two to three years to improve our margin profile back to where we were, let's say, in FY 2025?

42:33 Yes. It's a very valid question. Actually, the generally, what happens is there is always this a brand like ours with such a large volume and such a large market share, we build this on the strength of our distribution reach, the distribution reach that we have. And for there are brands which are the challenger brands, obviously, The distribution reach for them to keep expanding the way we are doing it will, I think, over a period of time, start eroding their overall sort of the kind of disruption that they've done on the pricing. So I have a feeling the leaders that we are, we will only get into a position of strength over a period of time.

43:27 Our reach will only further increase because of the kind of effort the kind of muscle that we have in terms of with the channel. It also, at some point, will start differentiating because of the cost structure when you become such a large player and your nearest competitor is 5%, 6%, 78%, 9% below you, the procurement muscle will also start playing out. So it's just a matter of time before, as you rightly said, the penetration level is below 10%. We are the leaders in as far as market share. For the last many years, we have sizable volumes going into the market.

44:14 Many of these machines, which are seven, eight years, nine years old with the old energy label will come up for a replacement. And when you have a replacement of an air conditioner, when your earlier machine was a Voltas, there is a very, very high probability that the replacement also will be a Voltas. So this replacement cycle, which will play out over the next few years, the reach muscle and the procurement muscle, these three will gives us a lot of confidence, coupled with the fact that 10% penetration is the only thing. So I think we seem to be in the right direction. The margins will self correct. We are very confident about that.

45:02 Sure, sir. Thank you so much for answering my question and festive greetings Thanks. To all of Thank you. Next question is from the line of Keshav Lahouti from HDFC Securities. Please go ahead. Hi. Thank you for the opportunity. I just want to understand in the quarterly number which you report of EBIT of each segment. So what is the nonoperating income, any nonoperating income included for PNI or whatever the write back you have there? I think mainly covered by the couple of notes that you can make out in terms of the siddhra and the CLI impact. I think that's been covered, I think, in the notes. I think we have mentioned that.

45:50 Can you give a sense about segmental mode? I'm talking maybe at the company level, I'm able to get the impact, but more at segmental level to see the margin, I'm talking, if you get this for that. So so the PLI would be from a segment a point of view, while the siddha would be referring to the segment b. So that's the two things to consider. Understood. Got it. Understood. Thank you. Thank you. Next question is from the line of from Kotak Securities. Please go ahead. Hi, sir. Thanks for the opportunity. Sir, in context of your aspiration to grow profits Y o Y, it seems that the hikes which you've taken in this round are similar to what some of the other brands have also done. So just trying to think about the thought process. How do you determine how much hike you need to take at what point in time? And since you've covered the entire inflation now, isn't the guidance still slightly conservative that if there are no incremental R and headwinds, why are we not talking about percentage margins?

46:59 Yes. So essentially, the large quarter for this next large quarter for this is quarter four. Quarter three is from an air conditioner point of view, it's a little generally a quarter, which is not very different from quarter two. So as a percentage, when we look at the thing, this number, we don't want to give any forecast, which looks for a base for a small quarter like this, we don't want to do that. But eventually, this will play out. Quarter four is a very large quarter. So we also have the positive news about a very a hotter than normal summer because of the El Nino. So that will we expect that the channel will start stocking up in quarter four big time in the month of January, February, March, for sure, January, February in the South and March, April, May in the month of in the North and East.

48:02 So we are very hopeful that the last quarter will be a good quarter for all of us, and the things will pan out. But at this point in time, when there is no certainty about how the commodity prices are moving, how the currency thing is going, whether the West Asia crisis will wind down. If the West Asia Crisis were to clearly wind down, you'll see a much faster softening of the challenges on the margin in quarter three itself, and things will look quite good in quarter four. Understood, sir. And just to Yeah. Sorry. Just to clarify, this hike of 14%, did it include the five to 7% you've taken? So I know someone else asked you, said it included BEE, but because you're now saying that you covered the entire inflation of 18%, this is... I'm assuming that the hikes, including BEE and the latest round are more than eight... Around 18. Is that correct? Yeah.

49:03 That's correct. Yeah. That's correct. Okay. Perfect. Thank you so much, sir. Thank you. Thanks a lot. Thank you. Next question is from the line from ICIC Prudential Life Insurance. Please go ahead. Thank you for the opportunity again. Just one question. So since I mean your focus on market share and gaining the lead from here on as well, Do you think, I mean, just because of the cost sensitiveness, you need to increase outsourcing or how that mix will change going ahead once, say, South facilities ramped up over next two, three years? Okay. Just to yes, so the way we sort of plan to do that, obviously, the South facility came in August 2024 is when the South facility came. And currently, we have a capacity of around 1,500,000 units in the South capacity.

50:07 So intent that we plan to sort of do, I think we've given this thought process earlier also, is to intent is to sort of have a uniform production across our facilities throughout the year. And depending on I think that will sort of leave us a bit of a gap in terms of what we could need depending on our top line requirement. To that extent, we will sort of lean over to the OEMs in terms of base requirement is required, whether in any of the centers, whether it's North, South, East or West. So we will sort of depend accordingly. So the intent is to sort of maximize our own production and sort of lean back on the OEMs wherever there is a gap. And this reduces the 1,000 percentage or how does it change?

50:52 Sorry, can you... And this strategy... Percentage. So I mean, so broadly, you can say it again, depending on the quarter, it sort of changes. But maybe on an annualized level, maybe you can say around 75%, 80% to around 20%. So roughly in that range is where the percentage will vary. Yes. Sir. Thanks a lot. Thank you. Thank you, Mr. Next question is from the line of Ashish Jain from Macquarie Capital. Please go ahead. Hi, sir. Good evening. Sir, I had a more industry question. The point which you made earlier comparing air conditioners with autos and seasonality angle that you spoke about.

51:37 Now a sector like cement, which also is heavily seasonal, has exhibited much more resilient margins. Right? So my my question is really that, you know, give this market share focus while I understand the operating leverage that market share brings in. From a longer term perspective, have you seen a trend that, you know, a a customer when he buys a Voltas AC, the second or third AC, if and when he buys, he sticks to the brand or whenever he replaces the same, he sticks to the brand. Have we seen any such trend which then gives confidence on, you know, longer term buildup on this market share that we have built in the last, say, two, three years? Yes. So the as you mentioned, Ashish, actually the other industry like cement and all, you know the two brands which probably have such a big control on the overall between the two of them, they control a very large percentage of the market.

52:36 This is a little more fragmented kind of industry where there are quite technically, there are 60 brands, out of which at least 15 or 20 of them are serious brands who have a market share upwards of, say, 4%, 5%. So that way, it's a little different from the cement industry. And this thing which we are very confident, we have seen a clear trend where the first air conditioner is a Voltas, the next one when it gets replaced, the second room happens to be Voltas and the replacement also happens to be Voltas. So we track we have a customer data of almost like 20,000,000 customers in our database, and we are seeing a clear trend in that. And we are also able to offer them some clear benefits, where when as a loyalty thing, is a campaign going out with anybody who has our product will get a special price on our product. So we are working that out because among all the brands, the brand which has the highest installed base in the country happens to be Voltas.

53:47 And that loyalty bias, coupled with the fact that the Tata Trust is there and our lineup is also we have moved from just having a good product to a better and the best category. There are premium products. We have got products with artificial intelligence, which is doing extremely well. AI, Vertis is a product. We are running campaigns for people to upgrade both to save power, to the machine to look more aesthetically beautiful and have more features. So all this is playing out well for us and this will play out very well for us big time over the next many years. We're very confident of it, Ashish. Sir, just if you can share, our installed base will be, I think, close to 10,000,000, 12,000,000 units today or it will be significantly higher?

54:38 For that number, I'm looking. Roughly 26,000,000. 26,000,000 is installed. And when you say installed, this is what is currently operating in your best judgment. Yeah. Yeah. Okay. Okay. Got it, sir. Thank you. Thanks, Ashish. Thank you. Next question is from the line of Dhruv Jain from Abbott Capital. Please go ahead. Hi, sir. Thank you for the opportunity. Just had one question. So given the fact that last year was also a weak season, I'm guessing that there would be under absorption of overheads with respect to facility. So if you could just give us some sense of what that under absorption is. Right? So it'll help us figure out the markings when the season comes through in the next year when your utilization improves. That's the only question. Yes.

55:30 So I think I clarified that. I think our intent is to sort of continue the production on a full year basis so that we are able to utilize our facilities to the maximum. And to the extent that we will need from a sales side, we would sort of take the help and support of the OEMs. So that's the thought process. So while last year, we had a bit of under absorption because it was the first year operations of the Chennai factory. But going forward, intent is to run the factory on a twelve month basis and not have any material under absorption going forward. Hope that clarifies. Sir, I was just checking if in the first half, if there is some number that you can give us with respect to what is the under absorption or in the first half that under absorption has actually come off? No, there was no material under absorption in the first half.

56:18 Okay. Thanks. Thank you. Next question is from the line of Deepak Agarwal from Access Capital Limited. Please go ahead. Hi, sir. Thank you so much for taking my question. I just want to understand on the inventory status. So if you can help us how the inventory status on ground for the channel? And is it lower than last year? Or any number that will help you, sir. Yes. So what this year has been actually has been a little extended summer. As you noticed, it's very warm even in places like Mumbai, you would notice that temperatures are very uncomfortable. The second summer is also going very strong. We're seeing good traction across all most parts of the country. So the channel inventory is much lower than what it was last year. So I would say roughly around three weeks of inventory is what I think the channel will be carrying and not more for sure.

57:13 And a similar number last time would be last year same time would be how much, sir? Any number that you can put... Was it half of last year is what you're saying? So yes, just want to understand. So this time, Q2 end, you were saying the three weeks kind of inventory, the same number last year Last will year would have been, say, four to six weeks. This time, it's three weeks or so. We are seeing a very, very distinctly different kind of secondary sale happening. So we are very confident that the channel inventory is really minimized, I would say, Okay. Thank you so much, and all the best. Thank you.

57:58 Thank you. Ladies and gentlemen, that will be your last question for today, which is from the line of Manoj Gauri from Equities Capital. Please go ahead. Yep. Thanks for the opportunity, sir. Sir Yes. You have given some answers in bits and pieces. I just want to understand if you look at the pricing that we have taken in the unitary products. So by and large, we have covered most of the inflationary pressures plus the rating changes and by and large unitary product at large. Our gross margin currently should be at normal level. Now we have some further investment in form of our South facility. Second, if you look at, we were investing behind alternate channels where we were deploying more number of paid promoters and further marketing activities.

58:59 So if we look at considering all the factors, probably what would be the difference between that 8% or 9% are aspirational EBIT margin for unitary product at a at a yearly level, at an annualized level. And probably the pricing that we have taken, so probably where we can see, like, what should be the difference between the eight, 9% and currently the price number that we should be. Yeah, Manu. So so essentially, while the price increases were taken, you... As I mentioned, Ajay, there was a lag between the price realization that we got because of the lock in for 35% of the channel and also the speed at which the price increases could be passed on in a continuously inflationary kind of trajectory.

59:48 So there is always a gap between cost increase and the selling price absorption. So this is what gets affected. With this last increase of 5% to 7%, which we have passed on now, things have come back to normal. So that is why it is not very visible in the quarter one, quarter two because it was right in at the time when the market had got that lock in in pricing, but we had our costs went completely north. Going forward, with this price increase, I think we that gap of 3%, 4%, which we probably had eroded will get corrected. So that should be visible from third quarter itself, right? And that is completely visible in fourth quarter?

1:00:38 The third quarter, yes. Then fourth quarter, certainly better because of this year volume as a percentage, the overheads get absorbed better. But obviously, I mean, just to clarify the point, obviously, during Q2, Q3 is when these commodity prices also softened if you go by historical trends, right? And that has not been the situation this year. So obviously, we have to monitor. Our intent is to obviously pass on the price increase, as Mr. Mehren mentioned. But in terms of, as I said, our thought process has been to sort of better the margins that we had same quarter, say, last year to sort of do better in this quarter also. That's our thought process, and we hope to maintain that. Sure, sure. Thank you, and wish you all the best and greetings for the festival.

1:01:24 Yes. Thank you, everyone. And on behalf of Voltas, Givali greetings to each one of you and your family. Have a great festival ahead. There is a closing remark by KV Sridhar, which he will just do now. Yes. Thank you. So just two closing comments from our end. So Voltas will continue to invest in product innovation, manufacturing readiness, localization, supply chain efficiencies, customer experience and operational excellence. With its leadership in cooling, expanding consumer durables portfolio, established engineering capabilities and disciplined approach to capital allocation, Voltas remains focused on translating market opportunities into sustainable growth and long term shareholder value. Thank you. Thank you. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

1:02:18 Thank you.