Crompton Greaves Consumer Electrical expects it will take at least 3-6 months for demand to be back to normal as demonetisation-led inventory build up and uncertainty in the real estate sector impacted business.
Speaking from the sidelines of Edelweiss India Conference, the company's MD Shantanu Khosla told CNBC-TV18 the company has gained market share from both the organised and unorganised players.
He says Energy Efficiency Services (EESL) provides scale, which enables them to reduce the cost of LED, and that is passed on to consumers.
The company is working on cost reduction of projects to mitigate the rise in commodity prices and looking at premium end of the market which helps it to improve the mix.
The company reported strong earnings for Q3 with revenue increasing 9.7 percent at Rs 888.9 crore versus Rs 810.1 crore in corresponding quarter last fiscal. Profit was up 39.3 percent at Rs 57.4 crore from Rs 41.2 crore in year ago period.
Below is the verbatim transcript of Shantanu Khosla's interview to Sumaira Abidi and Anisha Jain on CNBC-TV18.
Sumaira: You reported a very strong set of numbers just a short while back but we were listening to some of the takeaways from the analyst conference call that you had post your numbers. You said that definitely the impact of demonetisation is not entirely behind us. By when do you expect for this impact to be over for normalcy to return and can this trajectory of earnings then continue?
A: It is very difficult to predict exactly how long it will take to come completely back to normal because there is potentially some amount of inventory down the channel plus longer-term uncertainties such as the impact on real estate, which impacts our business, I would -- if I had to guess -- say probably three-six months would be the timeframe.
Anisha: You mentioned that you are more exposed to the business segment, so can you please bifurcate what is your sales from business to retail and what part comes from business to business?
A: Primarily our business is business to consumer (B2C). It is only in lighting segment where about 40 percent of our business is B2B. What I had mentioned earlier was there is a correlation between our business and the real estate business. So if the real estate business takes some time to recover that does have a correlation with consumer electricals since a lot of our products are bought along with new property.
Anisha: Give us a word on the gross margin, this time around the beat was around 200 bps higher than last year. With the raw material prices going up, do you see that there might be some pressure going forward or the price hike that you have taken in January, you intend to keep on taking the price hikes, so that you can manage the margins?
A: We will work a couple of fronts given the commodity cost pressure, one is pricing but beyond pricing, it is also critical for us to continue to work actively focused cost reduction projects and the final thing is strategic choice on driving more of the premium end of the market, which helps improve our mix. Pricing we will obviously have to ensure that we stay competitive.
Anisha: You did mention in your conference call that in November and December, you had scaled back some advertisement spend, would we see that coming in Q4 and therefore the spike in the advertisement spend in Q4?
A: We are back in Q4 to advertising at normal levels.
Anisha: Coming to the cost reduction programme that we have been having and even the Energy Efficiency Services (EESL) impact as far as LED and fans is concerned, how do you see EESL impacting the fan segment as well as the LED business going forward?
A: On LED like I had mentioned before, over the long-term EESL has a very positive impact because it has helped provide scale to all of us which has enabled us to reduce cost which will be passed on to the consumer. I do believe however in some of the other segments such as fans, pumps, the impact of the EESL programme will be less than has been on lighting and that is because fans, pumps also involved an installation by a service provider, an electrician, a contractor etc which lighting doesn’t.
Anisha: You were waiting for the December numbers to come by and to discuss the part of demonetisation. Now if you would have a clear idea in terms of the market share, what the growth has been from the unorganised sector to the organised sector and how has the market share been in the December quarter?
A: Our market share in this quarter have grown across our core businesses, consumption market share and we are gaining share from both organised and unorganised.
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