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A masterclass on building legacy businesses | Rakesh Malhotra @ Livpure
244 Plays1 year ago
Learn about Rakesh Malhotra, the visionary entrepreneur who started Luminous, India's most trusted inverter brand more than 30 years ago. Hear firsthand about his journey of diversifying ventures and successfully navigating the market landscape. Discover Rakesh's invaluable insights on market penetration and his strategies for building businesses that stand the test of time, spanning across a multitude of sectors.
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Read more about Livpure:-
1.The business of sleep and why unicorns do not rest
2.How this water and air purifier brand forayed into mattresses during the pandemic
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Transcript
Introduction to Rakesh Malhotra
00:00:00
Speaker
Hi, I'm Rakesh Malhotra. I'm founder at Livebio.
Building Companies for Longevity
00:00:19
Speaker
A lot of the episodes of the Founder Thesis podcast will teach you how to find product market fit and how to navigate the 0 to 1 and 1 to 10 journey. But once in a while, we get to speak to builders of legacies, the kind of founders who build companies that will last for a hundred years. One such legacy builder is Rakesh Malhotra. He started Luminous, which is India's most trusted inverter brand more than three decades ago.
00:00:44
Speaker
A couple of years ago, the dormant giant Schneider bought out his stake in Luminous and today Rakesh is building sizeable businesses in almost a dozen categories, ranging from water purification to mattresses to ACs to EV drivetrains to solar. Stay tuned for Akshay's freewheeling chat with Rakesh as he shares his insights around market penetration and building businesses that last for 100 years.
Entrepreneurial Journey Begins
00:01:17
Speaker
Tell me about how did that decision happen to not follow the typical career path, become an entrepreneur. Just take me through a little bit of your early life and what led up to you becoming an entrepreneur. Sure.
00:01:32
Speaker
No, so I mean, I come from a family. My father was an IS officer. So we are, you know, the typical well-educated middle-class family that we came from. And the first mode of call after my engineering undergrad was to take a job. And I did. And in about a year and five, six months, I had
00:01:57
Speaker
already changed four jobs. The longest stint was for nine and a half months. I was already figuring out that I'm restless. And then I have to do something beyond being... And what kind of jobs were these?
00:02:11
Speaker
I worked for a Japanese company called Mitsui to start with and Tata's at Nelco and the last one was Siemens. Siemens is this industrial electronics and electrical company and the basic problem was that I was just not willing to get
00:02:36
Speaker
you know, bogged down with preset goals and timelines and outcomes that we had to work with in certain constraints. So I felt that there could be more that can be done.
Challenges and Lessons from Early Ventures
00:02:52
Speaker
And my own family was a little bit, my mother came from a, you know, from a business family in that sense that her parents and brothers, her father and brothers were in manufacturing business in Ludhiana. And my father was a career bureaucrat. And so, so initially in the family was a divided view on what should be done or not done, but I decided to take the plunge anyway.
00:03:22
Speaker
and it didn't work out all that well in the first stint. Which year was this?
00:03:30
Speaker
This is 1985. So somewhere around middle of 1985 is when I started. I would have been like a class fifth student at that time. Don't remind me of my age. All right. So it was 1985. And the first venture that I started, we had to close it down in 1987.
00:04:00
Speaker
What was it about? This was the age of early introduction of DOS PCs. And we decided to build power backup systems or UPSs for that. So this was well ahead of its time. There was nothing like that in India at that point in time. We managed to put a product together with very limited resources. And it took off well. And then after it started, we had trouble
00:04:29
Speaker
with the product quality and reliability. Because it was ahead of time, it got a lot of traction. But the maturity of the product was not that great. So we had plenty of trouble managing services and this and that. And finally, we ran out of all resources to support it and had to take a call of shutting it down. So that was the first one. Who is we here?
00:04:52
Speaker
So I had a partner, Anil, who I had brought in after about a year and a half of starting that company, a year after starting that company, who joined me and, you know, he was there for that run.
The Rise of Luminous
00:05:10
Speaker
But then that bruise was too much for him to handle. So he decided to go on his own way when we shared it down. And the next round was with a different co-founder.
00:05:22
Speaker
So what was Round 2? So Round 2 was what eventually became Luminous. So that was in 1988 is when we started that business. And from 1988 till 91, I was alone in that business as a founder. I put it together. And then Navneet, who has since then been my co-founder and partner in crime and everything that we have done, joined in 1991.
00:05:51
Speaker
In 1988, what did you build? You must have gone through a process of deciding what you want to do. The first venture gave us a platform of power electronics for power backup.
00:06:07
Speaker
though the venture didn't work, there was some residual or a lot of residual value and learning out of what we had done in the first venture. And by that time, the one insight that hit me was that look, you know, PCs, of course, will grow.
00:06:26
Speaker
But power deficit and availability of electricity is hampering not just personal computers, but life in general in homes. So, and that set of market or addressable market is much larger than the PC market. So the big, big thought there was, and you go after the homes. And that's how Luminous was born. We made a power backup system for homes and we made it
00:06:53
Speaker
It wasn't a new idea. There were plenty of people who were making gensets and inverters even before that. What we did right was created it into a consumer durables format. So we made a reliable product. We got it to look good. We brought it outside of the bursati into the living room as a product and that gave it profile and that's how that industry got created.
00:07:19
Speaker
So you were the first product which could be kept inside the house, which looked more consumer durable. That's right. So it looked more like a consumer durable. It had reliability like a television would have. And it was getting service the way you would expect a durables company to provide a backup if you ever have a problem. So those three pieces kind of got the process started.
00:07:52
Speaker
fairly difficult journey to reach there, right? Because let's take the example of service. To provide service at scale, you need a certain amount of cash flows to employ engineers and provide the guarantee and so on and so forth. Tell me about how those early years must have been like where you may not have had so many resources available to do things in a scalable manner. It might have been done more like
00:08:11
Speaker
But it must have been a
00:08:19
Speaker
You know, more hands-on, maybe you would have gone to do servicing calls and all. I'd love to hear that journey. Sure. No, so look, you know, one, in the product reliability, you know, when you learn by making a big mistake and paying the consequences, you learn really well. And that's what happened in that situation. The first business, we had to fold it up. We were in debt.
00:08:47
Speaker
I was in debt, I should say, because I was the one putting together the debt, friends and family debt, basically, because there was no real backup of capital or debt at that time for a company like this. And so we started there, and we realized how important it is to make sure that that damn thing will not go wrong. So between 1988 and 1991, it took us three years.
00:09:15
Speaker
to get the product right. And we did not go to market before we got the product right. So we continued to invest time and effort and whatever resources we had done. So I had to do day job of actually selling products for somebody who was making larger UPS systems. Day job meaning it was a side hustle. I was selling that stuff for a company in Pune, which eventually got acquired by Emerson.
00:09:45
Speaker
And I was making money as commissions for those sales and supporting that activity. So that made a decent amount of money. I probably put together an earning of around 4-5 crores in those three years, which was a lot of money for those times. Just from selling that inverter, amazing. You must have been a phenomenal salesperson.
00:10:10
Speaker
I don't know. I mean, so we did good, good work. No, it's not inverters. These were large UPSs for, for data centers and, you know, corporate style stories. So on average of a 2030 lakhs order. And then, then you put together a lot of them. So I had to do, that was my day job. I used to do that during the day and in the night we ran the business of developing products. That's how it worked.
00:10:34
Speaker
Amazing. And what did you learn about sales in that state of selling the large format? The one job that a CEO or a co-founder can never or a founder can never give up is selling, right?
00:10:49
Speaker
You sell different things at different times, you sell dreams first and then you sell products and then you sell shares and then you sell something else, but you sell nonetheless, right? Something you have to sell. And I think that you put the bread on the table is a learning that you get. And in those days, you know, capital was hard to get by.
00:11:14
Speaker
And especially for people from our background, which was middle class background with Nouriel, saving my father's profit and fund was gone in the first venture. So the second one I could do with his profit and fund, it had to be done with earnings. So you learn how to do different things to survive. I guess that is true for any startup, even now that's the same story actually.
00:11:36
Speaker
But it's incredible that you didn't give up even after being in debt, losing family money. And you must have had to hear that people commenting and stuff like that.
00:11:50
Speaker
Absolutely. So the choice was between hearing it for a few years till you succeed, or hearing it for the rest of your life. So I took the letter. I took the former. I said, OK, I'll soon let you know. Let me prove myself again. And once you're done, at least this will be over. Otherwise, you would have had to take it for the rest of your life.
00:12:16
Speaker
So 91, you were ready with your product. 91, we were ready with our product. So we went back to the market. We started to sell only in Delhi first. What was the same strategy? Like door to door? No, not really door to door. We built it in through a dealer network to start with. A small one, very, very small. We used to have eight dealers in Delhi in all, covering the whole of Delhi.
00:12:43
Speaker
Now, when I look back and see Luminous Today has, I think, about 60,000 dealers across the country. So that's quite some long journey that has been traveled. Yes. But yeah, I mean, so a few dealers. We invested on the brand. We used to do partnerships with Times of India and Hindustan Times. Those were days of print media when it was still relevant fully.
00:13:10
Speaker
So we took all kinds of, you know, frugal brand development approaches that we could take, you know, different on both BTL as well as through ATL advertising. But the product familiarized. We got some call center ready so we could explain people. We used to do road shows.
00:13:33
Speaker
that time PVR was quite a happening spot in wasn't there so we would do stuff around PVRs and this and that so all kinds of stuff and and you could you know I mean you little small setup so I mean I've done it myself multiple
00:13:49
Speaker
number of times for a few years till the organization got built and you know we got to a point where it was really good but I think we invested very early on on consumer service so it's a it's a nice anecdote maybe for your story here in 1996 paging services
00:14:10
Speaker
or 95 I think paging services were started by RPG paging in in Delhi and It wasn't the time of mobiles. It was time of two-way Motorola pagers You know people would send messages and you could respond to that message on the pager so we built a
00:14:33
Speaker
a software and a service management system that we deployed in those days, which was the first 24-hour call center for any consumer durable brand. And when I say any means any, so at that time, no Samsung, no Sony had a 24-hour call center, and this little tiny company called Luminous, which just started,
00:14:57
Speaker
in Delhi only had that facility. So we had amazing testimonials coming out of customers when people, sometimes they would get a service in 15 minutes after they call, not always, but sometimes. So this is like, because we knew where our technician was at that point in time, we were connected to that guy and
00:15:22
Speaker
we had a call allocation system where we knew when he would have finished his call. So if a customer called and you were like, you know, one kilometer away, and he just finished his call, he could actually show up at the customer's door in 15 minutes. And that was, you know, unheard of. At that time, I think it's unheard of even now that you get a call service call like that done, right. So, so, so, so that gave us a huge, you know, sort of,
00:15:53
Speaker
swell from the ground in terms of what the brand stood for and that stayed with the brand. In fact, Luminous continued to build on that base foundation of the brand into becoming a trustworthy company.
00:16:09
Speaker
solidly dependable brand that it became eventually and then we in 2010 we brought Sachin Tendulkar as a brand ambassador and changed our line to Jispe Deshka Revarosa and took away from Sachin's credibility and added the added the brand
00:16:26
Speaker
credibility together and then it became completely, you know, intertwined. Even now, Sachin endorses luminous even after all these years, you know, 13 years later. Amazing. So, in 1995, you were still in Delhi. What kind of revenue were you doing?
00:16:43
Speaker
Ninety five ninety
Strategic Investments and Growth
00:16:45
Speaker
six. I think there were about two and a half crores in revenue at that time. I would imagine I might be wrong by a few days a long time ago. Yeah. But yes, it was it was a small company. And the big turning point for us came in 2004 five. We used to buy batteries for our inverters from Excite and Excite started giving us trouble.
00:17:06
Speaker
in terms of product quality, deliveries, all kinds of things. And then we realized that we are dependent on their performance for our brand equity. That was not an equation that was looking good. So we had to take a call. By this time, we are like about a 70, 80 crore business, thinking about four, five crores in EBITDA.
00:17:32
Speaker
And Pan-India? No, mostly North. Mostly North at that time. But we were now in about 30-40 cities and we had some presence of around 4-500 dealers. That's where we were. It's still tiny compared to what
00:17:50
Speaker
it turned out to be eventually but it was now a well-established brand in some pockets of the country and we were getting into trouble with batteries and we had to take a call that we have to invest in learning and then
00:18:08
Speaker
manufacturing our own batteries, which was a massive leap for a company that size we had to invest about 70 odd crores of capital into building a factory first factory. And that is something we had no money for. And after having built it very judiciously one brick at a time,
00:18:33
Speaker
and not taking undue risk on anything, product, brand, service, people for many, many years from 1988 till 2004. That's already, you know, some 16 years of build out. Then we had to take a make or break call where we had to put all in into risk again, one more time. And we actually went and borrowed money from a public sector bank, corporation bank.
00:19:05
Speaker
And we got that money by leveraging or mortgaging the luminous brand. Not many people know this, but we actually mortgage the brand to raise capital for putting up a factory. So which means that we had put in everything that we had earned by that time to make that one decision of making batteries that we had never done before.
00:19:27
Speaker
So, yeah, I mean, in the life of entrepreneurs, I think those turning points come when you have to go with your gut and you have to believe in what you're trying to do and you have to take risks that look absolutely absurd to take. You know, those things happen and, you know,
00:19:44
Speaker
But then if you do it right, and if it turns out right, sometimes both of those things have to come together. Providence also has a role to play. Then you get it right, then it just changes the game for you. And we did that, that one decision with after some struggle, after starting that plant, it got us going. And then the plant came up in 2006 when we were roughly about 100 crores in revenue.
00:20:14
Speaker
We then raised some private equity money for the first time in our life. This is after we had spent 18 years in existence as a self-funded venture.
00:20:31
Speaker
And then that money propelled further growth. And from 2006 to 2011, the business grew from 100 crores to 1250 crores. And then we ended up selling a majority stake to Schneider Electric in 2011. And then all of it got sold in 2017 when we exited it completely. So that's the history of that venture.
00:21:04
Speaker
Sorry, OK. I want to kind of zoom in a little bit more on this journey. What was your supply chain like? I mean, was it like contract manufacturing? No, no, no. So we had workers. No, we were making it internally. So we had a manufacturing. So we were doing a full Monte, right from design of the product to manufacturing, sales, service, distribution, branding, everything.
00:21:33
Speaker
So it is a typically full blown consumer durables operation. The reason and we at various times we have toyed with the idea of contract manufacturing during the journey and it does make sense in bits and pieces. But if you are looking at a cycle of innovation and development which is fast
00:21:57
Speaker
And if you give a high emphasis on certain uniqueness in what you make, then those capabilities that you have to build are best kept inside than outside. So even though it might not be a cost-based decision, it can be a decision based on the other things. Okay, okay.
00:22:20
Speaker
What did you learn when you were at that 70 crore turnover in 2005 when you were on the verge of taking that bet to build batteries? By that time, you would have got some lessons as an entrepreneur building up a full-stack consumer durables company. What were some of those learnings which you'd had? How did they give you the conviction to
00:22:47
Speaker
build the batteries to invest in the battery plant. Sure. No, so here's the thing, right? So my personally, I mean, so every entrepreneur learns different things, right? And that's about, that's kind of a reflection of who they are in some sense in terms of people, human beings. And
00:23:08
Speaker
For me, given my value system or given my upbringing, it was always about trust relationships and rewards. So responsibility relationships and rewards is my philosophy. So you have to be responsible entirely to whatever you are committing to. And there is no ambiguity in that responsibility.
00:23:34
Speaker
And then there is relationships, the biggest capital in any business, especially if you are running a brick and mortar business, the biggest value that you have or biggest capital that you have, which is not possible to buy with money in a short period of time, is relationships. It could be with your suppliers, with your own people, it could be with your channels, whatever.
00:24:01
Speaker
So that and the third piece is rewards. So if you are having relationships that can't be rewarding only to one side, it has to reward both sides. So if you get those three right, that's the portion we have. So by the time we were at 70 crores, we were small as a company, but we were very deep in terms of our relationships internally and externally. And we had enormous amount of confidence
00:24:27
Speaker
in whatever we had built in terms of people as well as in terms of networks. So that said, we felt that now the risk is controlled to being able to execute on making the product. Once we get it right, everything else will fall in place. And it turned out to be right. And I think that was our reason to take that back. That's where the confidence came from.
00:24:57
Speaker
Okay, got it. Your primary sales channel was through dealer network? Yes, it was purely through dealer network, yes.
00:25:09
Speaker
And what did you learn over there in terms of how to drive sales? Like you told me, from 70 you went to 100 crores, which is like a close to 50% jump in a year. And then from 100 to 1,250 crores in five years. Yeah, which again, you must have been almost doubling or close to that every year. So we had a very interesting history of that company. It had been growing for 23, 24 years. Every eight year period was a 40% Kaggle.
00:25:38
Speaker
from zero to whatever level and then next eight year and the next eight years always was 40% Kaggle. Amazing. And the interesting stuff is that's the reason why that business was owned 90% by us when we exited. So even though we had a private equity investor who put in the bulk of the capital, we had 90% ownership of the company when we exited.
00:26:02
Speaker
So because it was generating enough cash to grow on its own steam, and it was growing consistently, there was no big, you know, I mean, 40% is a great growth rate, but there was no real doubling every year type of growth.
00:26:21
Speaker
very contained and sustained growth. Yes, yes, absolutely. What worked in sales? Was it like you had a good sales is great product, great service that you can't go wrong with those that's hygiene. We invested on the brand also was decently required. I think what tipped the things in our favor was the energy that our people and our channels put behind our brand.
00:26:48
Speaker
Because they were suits, you know, they were an order of level higher in commitment to this brand than you would find in the competent competing brand. So that is a differentiator.
00:27:02
Speaker
which comes from relationships that comes from relationships and respecting their responsibility and rewards rewards with the relationship right right right amazing amazing okay and this is a good month uh responsibility relationship reward amazing okay uh the PE money that you got on how did you uh
00:27:23
Speaker
Like how did it happen? Did you appoint an investment banker? Yeah, so in 2006, we appointed Kotak as our banker and they did whatever they did. And then we had about any five term sheets in a span of six, seven months that that process took.
00:27:43
Speaker
We went with CLSA Capital Partners as our investor. They were a good name to have. They were willing to give us a structure where we had to dilute less if we did better. We had very high confidence in our own ability to deliver on a higher level.
00:28:03
Speaker
which was not visible based on historical performance. So we took that over a safer bet where we would have had to dilute a little more but would have had no pressure of delivery. So that's how we took CLSA in. That was in 2007.
00:28:24
Speaker
And in 2011, four years later, we exited about with 3x of their investment in a span of just four years. They were happy. OK. OK. How did, why was batteries a game changer?
00:28:42
Speaker
How did it help? How is that a game changer? It bankrolled the infrastructure that had already gotten created. It got bankrolled with performance of delivery because now you had capital. Now you were able to do things that otherwise you were constrained in terms of your ability to execute.
00:29:06
Speaker
But you know if in hindsight if I had taken that money Maybe ten years earlier we could have done that maybe a little bit faster Maybe four or five years could have been shaved off out of the 23 years in the outcome but but
00:29:25
Speaker
In this situation, we've diluted much lesser. And from a founder's standpoint or from our employees who had the ESOPs, their standpoint, I think we had a better outcome by delaying that fundraise. Although, I mean, this is hindsight. So if it didn't all work perfectly, it might not have been so good a story to tell, right? True, true, true, true.
00:29:52
Speaker
Why was batteries a game changer? You started manufacturing batteries. Yeah, because that gave us control over our end-to-end product and therefore we were in a position to differentiate our offerings a lot better. We were able to deliver clearly better performance compared to our competitors.
00:30:12
Speaker
who were at that stage, by the way, in 2006, bigger than us. So there were two competitors at that time, Microtech and Succam. There was a brand called Succam and there was a brand called Microtech. Both of them were significantly larger than us, more than two and a half times bigger than what Luminous was at that time.
00:30:32
Speaker
And we were coming from behind, although we knew that our foundations were infinitely stronger than theirs, but we were smaller. So that stage when we raised the capital,
00:30:48
Speaker
you know we could leverage our foundations to grow at a very very rapid pace and and we had no looking back because it just worked like clockwork everything was in place already so the moment we started pushing the gas on the pedal on the gas it just took off after that.
00:31:06
Speaker
How did batteries help create a differentiated product? Because you're in a power backup system, right? So the battery is the heart of that power backup system. We were buying them from Exide, so we had only so much.
00:31:22
Speaker
ability to have excited develop a product that we would want from them. Whereas when we started doing it ourselves, we knew exactly what we want and we built products that gave a better performance in terms of life, backup, charge acceptance, everything to our customers and therefore the brand got differentiated and people realize that this product works better.
00:31:48
Speaker
And that gets you started, right? I mean, at the end of the day, consumer is in a durable business. He's buying something that solves for a problem. And if you are doing that much better and distinctly better than someone else, then that gives you an edge.
00:32:07
Speaker
So when 2011, when Snyder came in with a majority stake, what was your thinking behind it? Like why did you want to give control away? So we were going through an IPO process again with Kotak as our banker. We had started to look at preparing for an IPO.
00:32:28
Speaker
And then it just so happened that we had a large buyout fund. I can't name them right now, but they came in and put a term sheet and then eventually did a diligence and were ready to sign agreements to buy 90% of the company. I had gone through personally a little bit of health care at that time in 2010.
00:32:54
Speaker
It was over, but that made me realize that I had all my eggs in one basket and that basket could be a risk that is disproportionate risk concentration. So that kind of opened me up a little bit to an idea of selling the business. Otherwise, the plan was to list it.
00:33:15
Speaker
And then that private equity fund was somewhere in the middle of closing the final agreements with us when Schneider got in touch with us and made some quick offer. And since we were anyway going to sell control, we chose to go with Schneider because we felt that would be a better place for the business to be housed in rather than a private equity fund.
00:33:43
Speaker
Right. Yeah. I mean, it would be like synergistic acquisition for them. They would want to invest and grow it in the long term. Yeah. Whereas for a P. So we ran it as a joint venture. We were together in that company and we owned 26% of the company till 2017. So we stayed invested in the business for another six years after selling majority.
00:34:07
Speaker
So it got run as a joint venture for a good six years, got grew to a much bigger size from where we had started. And then we finally decided to exit because once you have sold majority, someday you have to exit. So that I think was what happened in 2017.
00:34:27
Speaker
Did you feel constrained in terms of the entrepreneurial spirit once you're part of a bigger organization? No, so I was not running it. I was the chairman of the company, but non-executive. I was very much involved in the direction, but not running it. So therefore, no constraints on my own. That I would not have done. I wouldn't have been a CEO in a minority-owned business. That I would do.
00:34:57
Speaker
I couldn't do it even when I was 21 years old in 1983. I wouldn't have done it in 2012. What was the turnover by 2017 when you sold the remaining? I don't remember exactly when it was above 3000 crores. It could have overtaken Microtech and Sukham. I think Sukham. That had happened in 2011 itself.
00:35:25
Speaker
So, by that time it was already bigger than those two guys. We were almost twice the size of those two guys at that time. And then I think Sukham eventually fizzled out, it went into bankruptcy protection, that whole process and all of that. Microtech is still alive and well, they are doing what they are doing.
Emergence of Live Pure
00:35:50
Speaker
How is the market doing? Because inverters as a category existed because of poor infrastructure, right? Like India's power to do the infrastructure was poor. Well, it's still doing quite well. In fact, we have another business called Livgard, which we started in 2015, which is also now that we are free from all our obligations. Since 2018 or 2019, 2019 onwards, that business also does
00:36:18
Speaker
solar and inverter business besides their other activities. So that company is in that business now. And all of these companies are actually growing. So Livgard grew from inception in 2015 to being about half a billion dollar business in eight years time. Because that whole energy storage, energy transition business is a very large opportunity over the next 20, 30 years, I would think.
00:36:47
Speaker
So yes, sorry, the infrastructure is improving, but the nature of the usage of energy generation and storage is changing. But the market is actually growing, not going down. I'm guessing the consumer durable inverter sales must be coming more from tier two now, right? Because tier two, three, four, five and rural. Right, yeah. All the way to the rural markets.
00:37:17
Speaker
Right, right, right, right. With increasing affluence they would want uninterrupted power. Absolutely, absolutely. What was Luminous worth when you sold the remaining 26% in 2017?
00:37:33
Speaker
I don't remember exactly, but somewhere in the three and a half thousand crores range. Wow. Amazing. Okay. So tell me about live pure. What, what did it start? When you started live pure, you were still owning that stake in lumina. So what did you start it as? What was the idea behind starting it? So, so the live pure histories like this, that as part of our
00:37:59
Speaker
Luminous business, we had just started a small activity in one state in Punjab around water purifiers because it was our thesis that just like energy deficit is a problem,
00:38:16
Speaker
There is a problem of water quality and drinking water quality, which is quite secular in nature, it's hard to fully settle. Even when you have piped water available in every house in the country, which may be sometime away, but will happen, it is during the delivery process from source to delivery point, there is still a lot of contamination.
00:38:40
Speaker
And therefore, there will be a water purification market at point of views, which is quite secular in nature. We had, you know. Sorry, one question. What do you mean when you say it is secular in nature? What does that term mean? People will not stop drinking water, that's for sure. And infrastructure cannot be refreshed every day for keeping the delivered water clean, even though you may start from clean water.
00:39:10
Speaker
So, which means that this is a market forever, more or less. It may change in terms of what is the technology being used at the other end, but the need for something like this is never going to end. Got it. So, it's a very large, you know, really, really long term opportunity. There are very few consumer durable businesses that can say that we will be around even 100 years from now.
00:39:38
Speaker
Right. So that's the kind of business it is. Therefore, and that is why it is such an attractive business for every company that has an ability to innovate, has a brand, has a distribution, has wanted to do this.
00:39:53
Speaker
Right? Yeah, right from Hindustan, you really were, which is an everyday of things. Everybody. So I mean, I can name 40 names that I've tried of large companies. And all global players, everybody from LG to Philips to AO Smith to Vorpul to Usha to Crumpton to, you can name it. Everybody as well. Havels to whoever. Right.
00:40:22
Speaker
Literally everybody, Blue Star, there is not a single large consumer durable name who has not tried doing word of purifier. Right, right, right, yes. So, oneida even, literally everyone. So, why is it like that? It's not a large market, it's comparatively speaking a very small market.
00:40:44
Speaker
From a durable category standpoint, an air conditioning market is about 20 times bigger than what a purifier market in value terms. Why is that? The price of the product is lower. Right, and the number. Only one per household. One per household and so on.
00:41:06
Speaker
The point is that we had just started it in luminous and as part of our transaction with Schneider, we had carved out this business because they didn't want to continue with it and we carved it out and we said, so we moved it out. And in fact, originally it started as even after carve out, it was first few months, it was sold as luminous water purifier.
00:41:32
Speaker
And in fact, there was even a television commercial we ran as Luminous Water Purifiers after carving it out. We had rights to use it till 2016, the brand. But then very early on in 2012 itself, we decided, or 13, I think, when we started to launch the product, we decided that we have to give this a new life. And Water Purifier is only a starting point.
00:42:00
Speaker
And our purpose for building a business like this is to bring wellness, health, and comfort into consumers' life. That's the purpose. And make it affordable, make it wide, and improve the quality of life for consumers. This is our purpose. So it is not limited to just water purifiers. That's a starting point for the platform. It will eventually grow and move into other areas. So we have to coin.
00:42:30
Speaker
ourselves a brand that reflects what we want to do and that's how a live pure brand was born because somehow has a ring to it which is broader than just water. It is about life, it is about living well and living pure and whatever else that is there around it.
00:42:52
Speaker
So that's how the brand was born. And we started to work with water purifiers. We put up a manufacturing unit. We innovated the product a little bit. It took about a year, year and a half. When did you put up the manufacturing unit? This was done in Manesar.
00:43:10
Speaker
Okay. And which year? This is 2014, 13-14. Okay. So after the pilot, you pretty much... Yeah, after the pilot, when we took over, we started to put up a factory, the manisar, we put up a plant. It is probably even now the most integrated water purifier manufacturing plant. So we do everything from making pumps to making membrane rolls to filters.
00:43:36
Speaker
even injection molding of edible grade plastics. So everything so that we make sure that what we make is a really, really good quality product and that it can still be done at an affordable cost. So that's the secret sauce of live pure and it does. And we have benefited out of that, you know, that whole investment that we made in the in the ability to create a good product.
00:44:06
Speaker
And it was actually front-loaded the investment. This time around, we were a little liberal on capital dosage because we had the capital to invest. So we took strong measures to build a foundation for the brand. So three, four things we did with the brand. One is build very deep integration in terms of quality and cost on the product development side.
00:44:33
Speaker
Second thing we did was build a service network, which is very well-automated, which was our own. So Lipure is actually the only water purifier brand that installs every single water purifier that we sell ourselves. Even though the product is sold by a distributor to a dealer or maybe an online platform or whatever it might be, but the installation is done by the company or its franchisee.
00:45:01
Speaker
So we have 100% data of every one of our customers and we know exactly who he is, how is he doing, we are connected with him and so on. So we built a deep sort of capability around service.
00:45:18
Speaker
This is something we had learned from our early experiences at Luminous as well. So we managed to put a very strong service network, very strong product, good innovation around the product and its quality.
00:45:33
Speaker
And then we invested in the brand deeply. In fact, Sachin this time around decided to become a shareholder with us. So he was actually a shareholder in Lipure. And we did a five, six year contract for a small part of the Lipure equity, which he held till I think seven years, finally exited a couple of years back. He still is our brand ambassador.
00:46:00
Speaker
But now nobody sold out his equity now. But he had some shares in the company. So we invested deep, got the product right, got the service right. Initially, the company started as a brick and mortar, go-to-market model like what we were used to doing. So we built channels, distribution everywhere.
00:46:27
Speaker
The distributors we started with, most of them still work with us even now, after all these years. Again, the same principles, nothing new. But what changed, what we did differently this time around in live pair is that somewhere around 2017, I think we decided that we have to create an omni-channel play.
00:46:51
Speaker
So first five years of the life of the business was brick and mortar. It's like a typical durables company. The next five years or first six years and the next six, second six years period was converting a brick and mortar business into an omni-channel digital first business.
00:47:11
Speaker
This is what has happened over the next six years. So between 17 and 23, that last six years of existence is completely transforming the business from being 100% revenue coming from physical channels. Today, we are at about 35% revenue coming from physical channels, 65% of our revenue.
00:47:39
Speaker
So it's 35% from physical channels, 35% from digital channels, and 30% from recurring revenue as for product as service. So we have now, it's actually very little, I mean, we have pretty publicity shy it looks like because very few people talk about this brand, but it's a brand which is this year going to be a 600 crore revenue brand profitable.
Innovations and Consumer Trust in Live Pure
00:48:08
Speaker
omnichannel brand digital first with product as service business model proven to a significantly large scale. So we have over quarter million customers who
00:48:23
Speaker
By the end of this year, we'll have a quarter million customers who are paying for the product as a service. And that is, you know, order is larger than anyone else in product as service business in any category, not just in water welfare. So it's a very interesting
00:48:43
Speaker
Interesting build out. We started in 2018, refined the model, build the tech stack. It is fully full stack play. Everything is covered in that all the way from payments to connectivity to cloud analytics. The whole nine yards is there. And we have embedded the water purifier in that. And now that platform is so good that we can actually think of building other product categories into service on that platform.
00:49:13
Speaker
It's an interesting build out over the last many years. Now it's even profitable. So that business took us a little while to build, but it's a profitable business now. And it helps us too.
00:49:27
Speaker
I'm going to zoom in on how you did the transformation post 2017. But quick understanding of where were you at in 2017, what kind of revenue were you at in 2017? About 120 odd crores, I would say. Okay. And I want to ask you a couple of questions based on what you had spoken about.
00:49:53
Speaker
Do you think the reason why you got success versus all the 50 other brands which were also attempting it was in-house manufacturing? Well, I think that played a part. But I think this is a business. One of the reasons why we got success is because we stayed with it. So we were very persistent.
00:50:18
Speaker
We took 10 years to turn the company around and make a profit. First time around. 10, 11 years actually. And we continue to stay committed to the build out all through that long journey. We have two private equity investors along the way. One of them has exited. The other one is still there.
00:50:41
Speaker
we continued to be committed to the venture all the way. And we have never allowed ourselves to get diluted after the first two rounds. So we have made sure that we have actually accrued more whatever we could find, whoever was selling we have bought. And we have built our
00:51:02
Speaker
We've demonstrated, we've put our money where our mouth is, because we believe that something like this takes a long time to build. Payback in durables businesses is a back-ended affair. It doesn't happen in the front end. And the longer the build-out period, the higher the hurdle. And therefore, the higher the terminal value of the business, because it's that much harder for someone else to come and build it.
00:51:32
Speaker
And it just keeps getting harder as you progress over time. Fascinating. So what you're saying is in the consumer durable space, it needs a lot of upfront investment. And it also needs a lot of time to learn how to create a good quality product. That's why the payback is backloaded.
00:51:55
Speaker
Yeah, I mean, it takes time to win consumer confidence. It takes time to build scale. You have to develop a brand. You have to innovate on the product consistently. You have to manage the service operations, which are hard to manage on a small scale in terms of effectiveness. So there are plenty of odds against a new entry.
00:52:16
Speaker
Now, the question is, if you take this approach that I'm going to enter a category or a bunch of categories, just because I have some root to market access, which is what most of these other brands had in plenty much better than we had in terms of the brand recognition, in terms of the distribution, in terms of even money to invest.
00:52:41
Speaker
But the question is, do we have the commitment to go all in into a category and create real reason to win? Innovating in product, business model, and capital allocation, all three. Whether you can actually do it for long enough to succeed, that's the question. I mean, I wouldn't be nonchalant on this, but along the years, over 11 years, many times we felt, are we in the right space?
00:53:11
Speaker
Or do we have it in us to keep supporting it? But then, of course, pride takes over for entrepreneurs. They end conviction, both. And you keep doing what otherwise looks stupid to do. OK, amazing. How much did you dilute to private equity?
00:53:36
Speaker
So we start at peak, we had about 20 odd percent outside our ownership, ours and our ESOP pool. I think we are right now we own most of it. So we have one private equity investor left who will exit whenever they get the right return. And that is a good thing. We are happy to have them, want them to make a good return.
00:54:06
Speaker
But we believe that we are building this for a much, much longer period. So the horizon with which we are building it is much, much longer, which is why we chose a difficult category, which is relatively small, but has a very high brand connectivity. So because you drink water, you don't really trust something that if you can trust the brand for water purification is easy to trust it for a lot of other things.
00:54:34
Speaker
Yeah, I mean, I get that it's difficult to win trust, and I mean, Aquagard is a classic example. It's spent decades building trust. Though Yureka Forbes has not been able to diversify much beyond Aquagard, right? Yeah, but that's different for Live Pure.
00:54:53
Speaker
And we have actually pretty successfully managed to start green shoots in three, four different adjacent categories, which is again around health wellness comfort. And we are seeing good response and good build out in all of those other categories. And Aquagard, maybe there is something in the name actually.
00:55:19
Speaker
It is just way too tightly associated with water. One of the reasons why we never used anything related to water in Lipure when we were coining the brand was this, that if you make it about water, then it's hard to get out of that category.
00:55:39
Speaker
Right. Okay. Let's talk about that transformation journey. And I'm assuming that you became profitable last year. You said it took you 10 years to become this this this year. This year. Okay. Yeah. Okay. So how did that transformation journey happen? 2018 onwards? And how did it make you profitable?
00:55:57
Speaker
No, so it didn't make us profitable to begin with. We had to take actually higher losses for a few years. About, I think we took higher losses for three years, then it started coming down last year and now it's turned the corner. Why higher losses? You are investing in... Yeah, you have to invest in building the new GTN channels and their stacks and other things. So I think the three things we did there were
00:56:23
Speaker
Hey, we started with a deep relationship with Flipkart to start with and then eventually last two years even with Amazon. We went deep. We helped the partners build an ecosystem. In the category build out of water purifiers, we helped Flipkart for the platform itself. So as a result of which we created a space for ourselves. We created a specific product portfolio that we sold
00:56:52
Speaker
on these channels, and therefore, both of us got real velocity. Why did you have to create a different portfolio for Flipkart? Because their customers' expectation of value proposition is different than what the customer who goes and looks for a touch and feel and wants a certain extra set of package. So more layered services, more layered features is what is the expectation in, let's say, a Chrome outlet.
00:57:22
Speaker
Compared to let's say a customer buying it on on Flipkart. So I mean a water purifier is a I mean, it's a it's not a very complex product, right? Like how did you differentiate between what your dealer was selling and what you were selling on Flipkart? No, so there so there is lot of differentiation it can it it is it starts from the degree of
00:57:44
Speaker
fortification of the water post purification. It can go to hot and cold. It can come up with other display and interface UI features. So around that you can have a copper tank to have a fortified water. There are multiple ways you can do
00:58:07
Speaker
product slicing based on segmentation. And this is where you know the fact that we had over a million customers that we have installed our own product in their homes ourselves. We got to know a lot of things that usually which you will not know if you are just selling the product and someone else was installing it.
00:58:29
Speaker
What were some of those things that you learned through central solution? The nuances about like, for example, in South of India, copper is a big deal because there is a history of people believing that if you drink water out of a copper vessel, it's good for your health.
00:58:47
Speaker
So you could design a water purifier with a copper tank. Which is fortified with copper. So all kinds of insights of this nature you could get out of delay. So consumers tell you a lot of things, sometimes explicitly, sometimes not so explicitly.
00:59:04
Speaker
And if you are in direct touch with consumers, this is what D2C today is a fashionable term. But at the end of the day, D2C really means that you are in connect with your customer, whether you go digitally or otherwise. If you know what your customer wants and is, who he is, then you can actually take those insights into the product journey.
00:59:27
Speaker
Right. In a way, you're like the original D2C founder, right? Because Luminous also was installing on its own. So irrespective of who was selling the service and the installation was done by Luminous itself. And the same thing has continued here at Lipure. Yeah. I mean, of course, the D2C founders of today are actually, I mean, they were smarter. They have much more data about their consumers than we have.
00:59:51
Speaker
But 80-90% of the insights you can get actually with very little data if you are in touch and if you are listening. And if you can even use that 90% effectively, you can still create a lot of differentiation.
01:00:05
Speaker
So your Flipkart range was essentially more value for money. It was on target for what the customer wanted. It was actually not an inferior spec. It was actually a good spec made available without the frills.
01:00:25
Speaker
And Flipkart did their job of making it known and therefore what we would have otherwise had to spend in terms of reach, both of us decided to give it away to the customer.
01:00:41
Speaker
And as a result of this, that category got built on Flipkart. And then, of course, we did everything else. And today we are, you know, they have other brands selling there. We are also a fairly sizable part of their portfolio even now. And then in the last two years, the same has happened on Amazon as well.
01:01:00
Speaker
It took us a little while, but we are getting there on Amazon. So it's now Flipkart, Amazon, other digital platforms, bringing in about 35 odd percent. We have our own D2C operation directly from our own website, a full stack of that. So we're fully built out as a D2C platform.
01:01:20
Speaker
or rather as an omni-channel platform, where a customer can pretty much have a seamless, there's work to do, but a lot has been done in terms of how it is. So right now, 35% of our revenue is offline, available through all channels. 35% of our revenue comes from digital channels. And the rest of the 30% is product as a service, where we have our own D2C site.
01:01:50
Speaker
where we offer you a subscription of water verification in your own place. So you pay 1500 rupees or 4,500 rupees depending on whichever plan you choose. It's a deposit, refundable deposit.
01:02:09
Speaker
That's all you have to pay. And somebody will come to your place, install a water purifier, which is cloud connected. We will allow you to draw water out of that water purifier in your own house. You don't have to buy jars. And if you keep paying every month, the service will continue. If you don't pay, it will get disconnected, like a telephone or a electricity bill.
01:02:37
Speaker
and you keep paying every month and you keep using the water purification. It's priced in a way that it is absolutely a no-brainer. So, you know, a typical water purifier of AquaGuard, if you buy it today, you end up paying about $5,500 a year or $5,000 a year in AMC.
01:02:59
Speaker
right after the warranty is over and for 550 rupees a month you can actually you don't need to buy a water purifier you will get purified water through a machine installed in your house which you can kick me out of your house the day you don't like me.
01:03:16
Speaker
So, and this is like unlimited usage. There's no like 550 rupees for up to. There are lower plans for limited usage, but 550 rupees is for unlimited usage. Okay. Okay. Okay. Phenomenal. Do you see default here? And by default, it could be that somebody. Now it's a five year old operation. We have
01:03:44
Speaker
you know, we have gone through about 250,000, 200,000 customers already. We do have some default, but it's nothing to, nothing to be scared of. Well below, well, very low single digits.
01:04:01
Speaker
which is extremely good. I mean essentially like the best NPA rate a bank can have is low single digits which is similar to what you have. So it is lower than an NBFC NPA rate. So this, do you finance it further or this sits in your books?
Live Pure's Digital Transformation
01:04:20
Speaker
So the assets are, we have small part of the assets are on operating lease, but a large part of the assets are on our books. What does that mean? Sorry, can you break it down? So you can either buy an asset and get it financed and it becomes an asset on your book and you take amortization on your own books. That's an EMI, like someone buying an EMI.
01:04:44
Speaker
No, slightly different. So an asset is owned irrespective of who's financed by somebody, right? So if I buy an asset in my company, so the asset is owned by the company. Now it may be financed by a bank or it may be financed by an NBFC or whoever else has given me a loan. That's a term loan against the finance of the asset.
01:05:08
Speaker
but the assets still belongs to the company and it is amortized by the company year after year. So we have, let's say 85% of the assets under this subscription business are on our own books. 15% of the assets are in operating lease. So operating lease is given by financing companies that run operating lease business, people like Tata Capital and others who buy the assets on their books
01:05:37
Speaker
and provide the asset to our company at a monthly operating lease and we use that asset to run our business. Customer pays to live pure, live pure pays to Rata capital whatever it has to pay but the whole operation of the business still remains with live pure.
01:05:58
Speaker
Why do you do this? I mean it's such a small percentage. You said 10-15% is operating lease. No, so over time we would like to increase the operating lease percentage because there is no point in keeping the assets on your own books if there are people whose job it is to keep the asset on their books will do it. Right, you're blocking your working capital.
01:06:19
Speaker
not working capital we are actually getting it financed it is a difference between an asset being on your book versus it is not being on your book as we grow much larger.
01:06:30
Speaker
If you have millions of customers, you don't want to keep on increasing your CAPEX. You want to convert CAPEX into OPEX, just like what you are doing for the customer. For the customer, you are converting CAPEX into OPEX. So it is only logical that over a period of time, you will convert your CAPEX into OPEX.
01:06:50
Speaker
And, but it needs confidence building. People have to see outcomes, metrics. As now we have those metrics in place and a lot of more, a lot of confidence is building up. We are getting those kinds of people coming on board and taking on those assets on operating.
01:07:07
Speaker
Okay, got it. So right now it's a small percentage because it's like a pilot and eventually all further purchases you would want the bulk of it or all of it to be. With time it will grow, I mean as we move and also it depends on how much free cash flow you have got in the company.
01:07:23
Speaker
If you have enough capital getting generated in the company and you don't have productive use for it, instead of it going out, you will put it back into the business and generate a better return for your shareholders. A couple of questions about the distribution. 35% of your business is digital sales. What percentage of that is your own website?
01:07:53
Speaker
Well, not a whole lot. I would say five out of 35. Okay. Okay. And does the economics work out better when it's your own website? No, no way. No, it is always going to be higher. That is an experiential story. So you do it on your own website because you want to know more about your customer and you want to prove something well before it is scaled up on some other larger platform.
01:08:21
Speaker
Okay, like launching a new model or schemes. Yeah, getting direct feedback of anything and figuring out whether it is working or not working, you do it yourself and then you transfer it on to the
01:08:33
Speaker
larger platforms. Okay, okay, got it, got it. And your physical sales is again 35%. What is the split here between like modern format chain stores? I would say modern format chain stores put together about 78%, 78% through
01:08:56
Speaker
more institutional retail channels like Ami Canteen, this, that and all of that, all kinds of institutional retail formats and the rest 25, 22, 23 percent general trade. Okay. Okay. Gender still dominance. Okay. And that has to be because they are, that's a much larger access to consumers.
01:09:19
Speaker
Okay, got it. Interesting. Okay. You said that you've done work in allied product categories. Can you talk about that? What all products have you got? You said health, wellness, comfort. Yeah. So now, now, LIFPR has air vertical where we have air coolers already in place. We have also sold some 25,000 smart, energy efficient air conditioners largely through Flipkart platform.
01:09:47
Speaker
which is now we are getting seeded well, we are working on it to further refine our portfolio. So these two, that's relatively a small volume for us, but it's something which is in the, I mean, it's a large enough pilot though, where we have demonstrated a very unique product proposition. Then there is a sleep category that we have got. So Lipure has a mattress
01:10:13
Speaker
category which is only on Amazon and Flipkart. We don't do it in other channels yet, which is also right now growing from 2 crores a year, 2 years back to about 4-5 crores a month as we talk, building up.
01:10:33
Speaker
People have accepted that. And that happens without a single dime in investment in marketing for the category on the platforms. So that's a natural affinity consumers are having for that brand with the category. So we do all those tests on the platforms as we go around. So that's the beauty of digital platforms. You can do a lot of stuff without really going mass.
01:11:03
Speaker
Then we have we have we are working on introducing energy efficient fans in the air category and air purifiers. So these are all very very big markets each of these right like fans air conditioners mattresses these like these are all massive categories correct.
01:11:27
Speaker
Are you doing too much at the same time? Because you've been very focused so far. I agree. We've been focused till 2020 before COVID. And then we started moving into these categories. Actually, we had started moving into them in 2019. But then COVID happened and some of these things got a little shelf. It was always intended to be
01:11:58
Speaker
A brand that encircles health, wellness and comfort. Now the question is, are we biting off too much? I mean, I worried about it for first eight, nine years of my existence as Lipure and didn't bite anything except for getting ready in terms of tech and all that. But eventually we found this whole digital GTM, a very nice way of
01:12:29
Speaker
of figuring out what consumers think. We can think in our wisdom that consumers don't want us to be outside of this, but consumers in their wisdom can think, no, this is the rightful place for you to be. And actually we were motivated by Flipkart a lot because they're testing
01:12:47
Speaker
of their consumer traffic was telling us that you should be in A, B, C, D categories. And then we did small trials in each of those categories, and we are finding that not all, but most of them, the consumers are receiving it quite well.
01:13:07
Speaker
So, how did Flipkart arrive at this conclusion that Lipkart as a brand should exist in mattress category, for example? So, I honestly don't know exactly how they arrive at that conclusion. Maybe there is some search traffic like people are searching for Lipkart. No, they do. So, they have their own mechanisms of figuring out what the consumers are looking at. Why they tell the brands I can tell you?
01:13:34
Speaker
because they want each of their critical or strategic relationships to expand. So if with live peer they expand into five other categories and succeed, their portfolio with us gets bigger, our commitment to them gets bigger, their commitment to us gets bigger. So that rationale is well understood. But how they exactly find this out, honestly, I don't know the answer.
01:14:00
Speaker
This is fascinating. Okay, so are you manufacturing all of these in-house matrices? No, no, no, no, we are not manufacturing and my fans we are because that you have to manufacture internally. Why is that?
01:14:18
Speaker
Yeah, because the level of innovation cycle in terms of creating electronics and motor design improvements is very sharp and very quick and that you can't do unless you have control over it. And that we do want and we want to have that control and we are building that. So it's everything from product development, technology, stack, everything is ours. Mattress, we do finishing.
01:14:47
Speaker
We do the final piece of mattress manufacturing happens internally. But we don't do foam and various other things. The raw materials that are required to go into a mattress, a lot of people do. The larger offline mattress brands do that. We don't do that. We buy those foams out of the people that make it for us. So it is a hybrid model for mattress.
01:15:12
Speaker
for coolers and air conditioners for air conditioners we make the controllers which is where our IP is in terms of cloud managed air conditioner for energy efficiency so my air conditioner can give you
01:15:28
Speaker
a non-noticeable difference in temperature adjustment, which will not let you feel comfort difference, but can save you up to 15-20% of your energy bill. So that's my value proposition.
01:15:43
Speaker
And I'm able to do that because I have algorithms built in a way that I can understand how you are reacting to the story when you use the remote for a few first 10, 15 days. And then I'm able to really do it in a way that you don't feel the difference, but I'm able to optimize the energy consumption. Amazing, amazing. So the controller and the hardware we do ourselves,
01:16:11
Speaker
the AC we get manufactured from the ODMs that do for everyone. So it really depends, I mean, where there is value added and innovation control required, we do it ourselves and whatever somebody else can do better than us, we will do it with them.
01:16:29
Speaker
Very interesting. So in the, you said it's a cloud-connected air condition, like the users could get a stream of data on a mobile app also, like this is the temperature and so on. Yes, yes, yes, they got it. Okay, okay, okay. And so there's like a SIM-enabled device which is transferring data real-time. No, it's Wi-Fi. So AC is usually in home, so you can connect to Wi-Fi. You don't need a SIM for AC.
01:16:57
Speaker
And it's like you can activate it through your smart speaker, like Siri or Alexa. Yes, you can definitely activate it with Alexa or whatever you want. Okay, amazing. Is this a big category of smart ACs? So it will become a big category. Right now, about 2% of the air conditioning market in consumer is in this category of smart. But I think over the next four or five years, this will completely be a different story.
01:17:27
Speaker
What is the price differential between a non-smart and a smart AC? So right now, the gap is in the 5,000, 6,000 rupees range. But I think it can come down. Right. Like what happened with TVs? It used to be a big gap until now. You don't get non-smart TVs anymore. So it'll come down. Very rapidly, it can come down. Right, right, right. OK, amazing. And the fan is also cloud connected.
01:17:57
Speaker
So the fan is connected through BLE, Bluetooth. So it connects through your phone. Yes, it can connect to the cloud. And we do have a cloud place to receive the fan data. But most people don't quite need to connect the fan to the cloud.
01:18:20
Speaker
The fan primary requirement is energy efficiency and smart control. I think those two we are seeing that people are not really for a fan and app is not really that much in play because really speaking consumers don't want to use apps anymore. I mean that's
01:18:39
Speaker
You just want Alexa to operate it. Yeah, you just want things to work. That's it. You want to live your life, not play with apps. Right, right, right. So in fans, you would be competing with like, say, an atomberg, which also makes these smart phones. Yeah, so atomberg and everyone else, it's a
01:19:00
Speaker
It's a crowded category. There are plenty of players. So differentiation is the name of the game. What you deliver will make a difference to what you are able to do. And it's a tough build out, but also it's a large category. And if you are able to create a differentiation, then there is a lot of longevity to businesses like that. And how will you create a differentiation in advance?
01:19:26
Speaker
It will most definitely come from energy efficiency and reliability of controls and we come from power electronics as a background. So, our ability to manage power electronics well and make it reliable is quite good and that is what fan companies find it super hard to do because that is not their core strength.
01:19:45
Speaker
Okay, right, right, right. There you are more used to the mechanical design. I am guessing you would be using like a BLDC motor or something. No, we are only doing mainly BLDC fans and but it is more in the controller and the electrical motor design that we have a capability which is very high and this is not typical of fan manufacturers because they come from more the induction motor background so they are trying to do that.
01:20:13
Speaker
For BLDC, I guess your controller design is a lot more important for BLDC fans. Why is that? Because you can't run a BLDC motor without an effective controller. It requires, if you're giving it an AC supply and it's a DC motor, it has to run through the controller. Without that, it won't work. And therefore, the controller is integral to a BLDC fan. You have to have it.
01:20:42
Speaker
And air coolers, do you see this as a big category because air coolers to me seems like a transitional product, right? I mean, no, not really. We find a lot of opportunity in that it's actually a fairly fast growing category. The problem in that business is, you know, it's a large logistic bulk.
01:21:02
Speaker
And therefore, it is not given to e-commerce as a distribution channel very easily. Although e-commerce people are doing it, but it's a very volume weighted category. So therefore, very difficult for logistics to work in that category. And the rest of it is pure distribution. And therefore, there is a certain market access issue.
01:21:26
Speaker
We are trying to differentiate there as well both by design and some features. So, one of our core features is each of these coolers come with a smart humidity control. So, we are able to actually manage the motor in a way that and the pump in a way that it somewhat improves the humidity inside the room. So, which is basically a problem with it is not full solution, but it is significantly better experience than without it. So, that is the main differentiation.
01:21:55
Speaker
You have a sensor to tell you what is the humidity? Yes. The cooler has a sensor. And this is again, I'm assuming like more of a tier two product than a tier one product. Not really, it sells everywhere. Coolers have a market more or less everywhere.
01:22:14
Speaker
And people tend to use it largely because of the energy consumption or repetitive recurring cost of an air conditioner. So a lot of people who have ACs at home also have coolers and tend to use coolers whenever the humidity permits coolers to be used with equal comfort, then coolers get used. And when it is too humid outside for a cooler to be effective, that's when air conditioner gets used.
01:22:44
Speaker
The cost of running of a cooler is significantly lower. Therefore, the market exists. Why matrices? There is no tech in matrices, right? All these other products have tech. I can't disclose it right now, but we are working on some serious tech on matrices.
01:23:03
Speaker
By the time we release, you might be okay. It's some distance away, Akshay, so I don't want to talk about it right now, but it is around the area of smart. Okay, like a sleep sensor which can tell you how well you slept. I mean, it'll have some stuff which will help people sleep better.
01:23:26
Speaker
So, your turnover of 600 crores, how much of it is pure water purifier? So, water link turnover out of 600 crores will be around 380 crores and the rest of it will be from the other end. Actually, 420 crores, rest of it will be the rest, about 180 crores out of the other end.
01:23:47
Speaker
180 grams for these new categories. The new ventures, yes. That's amazing. So each of these is like a significant feature. Yeah, they're all getting started into becoming revenue streams. And they've already reached some critical mass. Yes, absolutely. The turnover is saying that.
01:24:09
Speaker
you know what do you see live here as let's say five years down the line what kind of top line would you be doing or let's say six years yeah every six years you are you know you have the six year milestone so what's the next six year milestone I think I think we should be at least the six year milestone I'm not sure about the revenue I don't see it more like that I see it more
01:24:33
Speaker
more from a point of view of brand love now. The next six years is a brand love story for me. So now we've got the foundation in place for becoming a seriously loved consumer brand. So my next year, next six years journey is brand love journey. So we want to cement the love for the brand in consumers mind over the next six years. That's what I would like my CEO to aim at. I mean, I don't run the business as you know, Akshay when we are
01:25:03
Speaker
I'm much more at a slightly detached level at the board, yes, but it is led by a gentleman called Rakesh Kaul, who's the CEO of Lipure. And the brief is clearly to build brand love. And of course, in the process, there will be growth, but I think I would reckon I would stick my neck out and say three to four times
01:25:26
Speaker
anywhere between that from where we will end this year for the next six years. Okay like a 2500 CR or more depends on when we are live. But doesn't matter actually these kind of brands have a life which is in perpetuity. So you have to worry more about
01:25:46
Speaker
making sure that you do the right things than at what rate you are growing. You can see the leverage on profitability for these brands is phenomenal because they are high contribution. What does that mean, leverage or profitability? So at Scale, Scale, Kijo Operating Leverage, Aatek Business School, where there is a higher contribution margin, their scale has a very high operating leverage for businesses.
01:26:11
Speaker
So these kind of businesses that are hard to build have a higher contribution margin. And once you reach breakeven in these kind of businesses, as you scale from there at whatever 30, 40% growth, the P&L grows much, much faster than the top line. OK, phenomenal. Amazing. OK.
01:26:36
Speaker
If you were an investor, what would be your way of evaluating pitches which would come to you?
Investment Philosophy and Organizational Strategy
01:26:43
Speaker
Because you have such a deep understanding of revenue contribution rather than profitability. Give me some examples of what kind of businesses you would have liked to invest in, what kind of businesses you would not have invested in.
01:27:01
Speaker
So we run, actually we have a, I don't know if you are aware of this, but we have a balance sheet investing vehicle called incubate capital partners. From where we do invest in private businesses. And over the last five, six years, we have done about 17, 18 investments. And this is about the seed level, series A level, what level is it?
01:27:24
Speaker
So we are a level agnostic. We can come in at seed level and we can also participate in series B up to series B. I don't think we do anything beyond. We have done one which was series C, but we can come in at any level wherever it makes sense. And we, I think very simply, there's a good business
01:27:48
Speaker
is the second filter, a good founder is the first filter. I think you have to know, no matter what business you run, it is going to go through trouble. So what will you do when it is hitting the rough waters and stays there for a long time, makes or breaks a business for an investor? Because when you are going to get out before that, that journey would have been traveled.
01:28:12
Speaker
So, how tenacious the entrepreneurs are at that kind of a situation? What is their level of commitment? I think is a critical lever for us. We look at that and we have invested in, you know, in all kinds of levels of companies from absolute
01:28:35
Speaker
napkin paper level business plan to a big basket or an off business. You know, this is the range of our investments. So we can be anywhere in the curve. And some of them have played out quite well, some of them have not. But what we look for is first, I mean, the biggest filter for us is who is running the business and then what business is he running. I think that's the order for us.
01:29:05
Speaker
How do you how do you judge? Do you have some like, like some sort of a screening process to judge about the quality of founders? It's not that formal. But I think, I think you interact in person almost invariably and you know, the conversation reveals a lot of
01:29:30
Speaker
You should know this, you do this conversations daily. So you know, you can make out where an entrepreneur comes from, right? I mean, what are the, where does he anchor when it comes to a situation to make decisions? So I think we've mostly figured it out based on, you know, the value system, the behaviors, the belief system more than even value system. Where do they come from?
01:29:58
Speaker
In general, at least for us, we would not invest in a company that is too quick, too fast in terms of expectations to break the norms and move forward somehow. That doesn't work for us. It can work for others, but it doesn't work for us. We don't feel comfortable with that kind of a founder. And it's not that they won't succeed. It's just that it doesn't work for us in terms of our understanding of
01:30:27
Speaker
founders. That's the biggest one for us. Because your personal learning has been, it takes 10 years to make a business profitable. So you want someone who's patient enough. You're right. And if you look at your own various podcasts that you would have done with various entrepreneurs, I think there are very, very few examples of great value being created in less than 10 years.
01:30:57
Speaker
And do you have a sectoral mandate that you invest in these sectors? We don't have a mandate mandate, but we try to stay in areas that we have some appreciation of.
01:31:13
Speaker
So that we can actually at least provide some degree of sounding board expertise to the founder If we can I mean there the late stage once the series B series C We don't have we are much less bothered about sectoral Mandate because by that time I think there are there is a lot of ecosystem for the entrepreneur to have figured out things and and he can figure out even if we don't understand the sector well There are others around him who can provide the support
01:31:43
Speaker
It is then a business evaluation more and the founders general evaluation, but other than that we do not have a bias. But early stage we will almost always stay within something that we understand. So, like consumer products be it consumer products, energy transition, electric mobility, those are the areas we understand well. So, that is where we would stay.
01:32:09
Speaker
Give me a couple of examples of companies you invested in and why you invested in them. Yeah, okay. So we have a company called Mukunda Foods, which is a company that was started by two entrepreneurs, which were supported by a Indian Angels Network. We actually bought Indian Angels Network's entire stake and invested into the company about four or five years ago.
01:32:39
Speaker
These guys were doing a machine called Dosamatic at that point in time to make automating Dosa making for kitchens and they had some success and from there they have pivoted and turned themselves into a kitchen automation company for cloud kitchens.
01:32:57
Speaker
after we got in and now they're quite a significant player in that space. They've had an investment round from Zomato about a year back, maybe a little over a year back, where Zomato invested in them sometime back. There's another one we have in supply chain finance company where
01:33:22
Speaker
which is an NBFC where we got a good management team and backed it up to start a supply chain finance company. The reason why we think it is something we know is because we have dealt with distribution and supply chain credit management for a very long period of time. So we kind of understand that subject well.
01:33:44
Speaker
So we partnered with these guys who were finance professionals and risk professionals, and then have them build that. They have an investment from DEG that followed. That is another example of early stage. These are all both. Both these companies are very, very early stage. In fact, the finance company was literally a napkin and a team of three people. And from there, it started.
01:34:10
Speaker
And even Mukunda foods was very early stage at that stage. But now of course, it's a sizable business. Okay. Okay. Fascinating. Can you share some lessons on how to build a high performance organization? You know, how do you structure it? And, you know, do you do like an SBU structure or do you do like a functional split up? And how do you make sure that
01:34:35
Speaker
I'm not sure if I can I should be commenting on generic structuring because frankly speaking it depends on what business you are running and what are your challenges. I don't know if that question can be really answered effectively but in general I mean one thing I can say for sure whatever you want to accomplish
01:34:56
Speaker
here and now and over the next three, four, five years, that should be both kept in mind while designing an organization structure. Typically, the mistake we make is we either go here and now or create something which is good for next five years but doesn't cater to here and now. And as a result of which, you end up having to dismantle one or the other, which is where the energy is lost or momentum is lost.
01:35:23
Speaker
Give me some examples of what the Luminous architecture was like and maybe it evolved when you made your own journey of experimenting with organization structures, organization building. Okay, so look we at Luminous was a very founder managed company. So I was the founder and CEO of the company. I did experiment
01:35:52
Speaker
in bringing in an outside CEO in 2008, a very fine gentleman called Arun Nagpal, who is now a social entrepreneur and was very, very, very, very accomplished leader. And he was the CEO from 2008 to 2010. I stepped down and became the CTO.
01:36:14
Speaker
for the company. And we stayed for two years in that space. And he did a great job of bringing processes and some meaningful sustainable growth practices, etc. A lot of good stuff that he did in those two years, which I'm pretty sure I didn't have a clue on how to do because I had no exposure of that. So kind of different.
01:36:40
Speaker
Then in 2010, he himself came back and we talked and he said, look, the kind of growth that there is for this company, the energy of a founder is probably going to do a better job on this than bringing it down to a 20-25% growth rate. This still has steam ahead of it. So for about a year before the
01:37:08
Speaker
or less than a year actually, before the sale we did to Schneider, we were actually thinking of doing an IPO. So it was in the context of doing an IPO that we had that call discussion and we went back and I started to drive the company again. So the difference in the founder style of leadership and that of a CEO, sometimes as a CEO is more constrained on
01:37:36
Speaker
on how much risk to take, even if it is a mental constraint.
01:37:41
Speaker
self-imposed mental constraint, even if it is that it is there is a constraint because he's handling, you know, it's a fiduciary responsibility of a higher order for him, because, you know, he's playing with someone else's assets, so to say, right, founders tend to have that natural advantage of getting away with murder, and be, you know, be also of being able to put their own
01:38:08
Speaker
own assets on the block many times, especially if you are very large shareholders, which in our case was true, we were 90% shareholders. I mean, we were taking risks with entirely our own assets.
01:38:22
Speaker
So, yeah, that's that's the nature of luminous management team. But rest of the organization below that was very, very well structured, decently allocated to what needed to be done. In fact, to the tribute to that is that that same organization ran luminous from 2011 till now. So even the CFO was the same.
01:38:45
Speaker
So they didn't even change the CFO till he superannuated I think a little while ago, a few months ago.
01:38:52
Speaker
That is how stable it was below. It was like a functional structure, like there was a sales head and a marketing head. Everything. The whole structure was in place. A large company was 1250 crores in revenue when we sold it. So well set, proper structures. And the structure was good enough for it to continue in a multinational ownership for the next 10 years. So it was a good, good, good structure.
01:39:20
Speaker
On the live peer side, what has been different or at the new businesses that we are building, the only difference is we are not, we did not take a CEO's role from day one. So we started building these companies, except for first year or so of running a company, we brought in CEOs, put them in place, put the structures in place and supported those CEOs to build the business rather than
01:39:46
Speaker
rather than running it ourselves. So, these businesses are way more, you know, independent of us than, let's say, a luminous structure was when we were running it. So, like the AC business has a separate CEO. So, the whole of live pure has one CEO. Okay. And then there is a structure below that. The whole of live guard has one CEO, the whole of our EV business has one CEO.
01:40:13
Speaker
LiveGuard is for which product category? LiveGuard is for all of batteries, energy transition, solar, power backup, motor controllers and EV drivetrains, all of that.
01:40:30
Speaker
So you have a B2B business also in Lipyard. Yeah, so this is Livgard. This is a separate company. Oh, Livgard is a standalone separate company. That's actually much larger than Lipyard. Actually, it's about 37-3800 crore revenue.
01:40:49
Speaker
Wow. But why did we talk about this? That's okay. This is much more exciting. The live peer story is, you know, it's not just revenue has its own color, right? I mean, consumer businesses are, have a very, very long life if you do it right. I mean, these businesses have 50, 100 year life. And if you keep doing the right thing and keep evolving, these are institutions that are built for a very, very long time.
01:41:19
Speaker
Obviously Hindustan Unilever is Unilever. So we shouldn't just compare revenue from complexity set. I mean those are two different animals. The opportunity size is different in that and opportunity size is different here and so on. So when you launch a new product category, you have like a
01:41:40
Speaker
entrepreneurial team doing it standalone, like you appoint a person who's running it in an entrepreneurial manner, like say when you launched mattresses or ACs? Yes, mostly. So we do a combination of many times we do a combination of internal entrepreneurs being put into the job. And many times we also do acquires and acquisitions to plug talent gap. So we are very comfortable doing both.
01:42:12
Speaker
We have across these various three businesses, I would say we have at least actually hired about seven or eight entrepreneurial teams into these companies.
01:42:22
Speaker
and this would be like a team building a product which is not scaling and so they are open to getting various reasons, various reasons they've got that they all come for equity in some sense and therefore they are essentially getting a larger platform to play with and resources and a management support structure which is much more which allows them to succeed sometimes it works sometimes it doesn't work it has both pros and cons but
01:42:50
Speaker
But in any case, that talent you can't hire just like that. That attitude is very different than hiring a talent of a normal kind.
Livguard's Growth and Strategy in Energy Transition
01:43:00
Speaker
Let's wait five minutes on Liveguard. When did Liveguard start and what was the journey for Liveguard?
01:43:05
Speaker
So Livgard started in 2015 and started with whatever we were permitted to do under our agreements at Luminous. We obviously could not do anything that was directly competing business. We didn't want to do anything like that. So we moved into those spaces that Luminous was not doing. Like automotive batteries and energy storage products for automotive applications was our starting point.
01:43:36
Speaker
And then gradually manufacturing setup like you were manufacturing energy, manufacturing setup, we started a new factory, which was started in 2015 for making 50,000 batteries a month, which is relatively a very small number compared to the big boys of the battery industry.
01:43:57
Speaker
But that was our starting point. Then we built from there, developed the product line, got it right, scaled. Today that company makes about 500,000 batteries a month. So 10x of what we started off in.
01:44:09
Speaker
And this is significant scale. And these are like lithium ion batteries for EVs? No, no, no. These were lead-acid batteries. So this is competing with the excites and the amarons of the world. And we started from there. And then we moved into lithium ion batteries in 2019. We started designing and started the R&D setup in 2019 and started getting into production only in 21, 22 actually.
01:44:38
Speaker
And now it is scaling in a meaningful way. What is the split between lead acid and lithium ion? As of now it is more lead acid but it is growing very rapidly on the lithium side as well.
01:44:54
Speaker
So we are looking at a 5x expansion over one year at this point in time. So it's now at that stage of takeoff. We've also got a lot of R&D done in the last three, four years through acquires, through acquisitions, through organic talent pool development. So there are about 200 people working on developing
01:45:19
Speaker
fully integrated, domestically designed, developed and manufactured drivetrains for EVs, two-wheelers and three-wheelers. And what's a drivetrain for someone who's not sure? Drivetrain means from a socket to the wheel, whatever comes in between for an electric vehicle. So you have a charger, you have a controller, you have a motor, battery, BMS,
01:45:45
Speaker
cloud analytics, the whole nine yards of that optimized to make the vehicle work well. Okay. Okay. And who are your customers for this drive trends? All two-wheeler, three-wheeler manufacturers will be the customers. Are you currently selling it or it's? Yeah, we are selling a little bit. It's early stages of revenue, but two, three customers, but it is going to expand.
01:46:10
Speaker
Okay, so there's again a manufacturing play, you manufacture the whole thing and supply it to a... Yeah, so it's mainly a design and manufacturing play and here the sales is B2B and you know, service is also a little bit distributed, so it's slightly different than a consumer business.
01:46:30
Speaker
Right, right, right, right. And then we have a third plane lift guard, which is essentially the solar and power backup business, which is somewhat overlapping with what happens at Luminous, which is a consumer business, again, and that is also a significant business, which is about. Is there a consumer business in solar? I thought solar was all institutional. No, no, no, it's a large, we do only consumer business in solar. And what is the consumer product in solar?
01:46:59
Speaker
So you have a home which has a roof. I can give you a net metered solar installation where you can feed power into the grid and your energy bill will be that much reduced based on whatever you feed into the grid, based on the tariff that is the grid. Or you could have a power backup with that. You can store that energy and use it and not draw from the grid.
01:47:25
Speaker
So, all of that and we have a sizable business, we have a, I think almost like 500 crore business in consumer solar in Livgard. What's your go-to market for the solar business? Distribution. Standard distribution through distributor-dealer network. We have about 25,000 dealers now even at Livgard.
01:47:50
Speaker
all states in the country, everywhere it is distributed. We cover, I think, about 60%, 65%, I would say, of all the SEALS in the country in terms of reach. OK. OK. Amazing.
01:48:05
Speaker
And is this like, is this a growing market? How big is this market for solar? Solar side of the business is a very rapidly growing market. In 2020, when we started, we had 20 grower revenue. In March 20, we are chasing 600 grower in 24. So in four years, you can imagine how fast. Wow, massive. Okay, that's amazing.
01:48:31
Speaker
And so in this solar unit is also house your inverters unit like yeah, so it has all of that. So there is inverter batteries, there is solar panels, there is other charge controllers, etc. Okay. I mean, there are so many products in Livgard. What do you think will be the dominant product there? I think see, Livgard is an energy transition company. So energy transition is a
01:49:01
Speaker
It is a global phenomenon, it is not our phenomenon as liveguard. Can you define energy transition? So energy transition is we have been using energy in some way and now as a globe we are transitioning to using and storing and generating energy in a different way.
01:49:25
Speaker
This is more green like more green energy usage is largely you know the generation is electric generation.
01:49:35
Speaker
And usage is either, you know, you are using it for consumption of devices of any kind, it could be industrial, consumer, whatever, or you are using it for mobility, which is where the petroleum products were largely being used or they were also being used for generating power from a diesel genset or whatever.
01:49:56
Speaker
So, this is where you were and now you are moving to a different environment where solar or wind or green hydrogen or whatever else is a lot more efficient and cost effective and clean. So, therefore, you are going there. So, mobility is also trying to move from conventional mobility to electric mobility of some sort.
01:50:19
Speaker
And consumption is also, generation is also moving towards greener sources of generation. But the problem with greener sources is that you don't have a possibility to generate on demand always. So therefore, you need to store. Therefore, energy storage is part of the energy transition story. And then the third leg for it is efficiency, which means that you consume less for the same job, which is the best way of reducing the carbon footprint first.
01:50:49
Speaker
So, that is where anything whether it is a BLDC fan or a LED light or for that matter energy efficiency in whatever you do, there are hundreds and hundreds of business models around energy efficiency that are emerging. So, Livgard sits in that energy transition space, it plays in these various pieces. In some parts, it's obviously not doing everything.
01:51:17
Speaker
I mean, these are all very, very big, like inverter is, as you are well aware, it's by itself a big category. Do you want Livgard to be competing with the Luminous and be as big? And again, you're already doing drivetrain and battery, you might as well start your own EV company.
01:51:36
Speaker
We do have one, which is not Livgard, which is a separate business altogether. This is like an onion. Each time I peel a layer away, I discover there's more inside. When you're a 50-year-old second-time entrepreneur, there is one thing that happens, which is that you know that you've got 15 years to build and
01:52:01
Speaker
scale whatever you want to do. And you know that it takes 10 years or more to scale something. So you want to pack as much as you can in those 10, 15 years. Maybe I've gone a little overboard. OK, tell me about the EV company now. No, no, no. So the EV company is still very early. It is making
01:52:28
Speaker
It is making mid-spec two-wheelers and three-wheelers, which have a bias for multi-utility. So they can be used for both passenger use or personal use, as well as for business use, so to say, B2B use. Like logistics. Like logistics, et cetera. So we have there our focus is to develop a full stack.
01:52:56
Speaker
of a fit for purpose EV or EVs models which are backed by an energy service capability behind it which means so because they are the range considerations and other things come in and therefore a full
01:53:13
Speaker
tech stack around energy service, whether it is swapping, whether it is fast charging has to support that ecosystem. So we are doing that entire ecosystem and that's the piece in which we want to play. We don't want to play in the overall EV market because it's too wide.
01:53:30
Speaker
Isn't it the same thing? Every EV needs energy service. It's just that for some EVs, the customer will deal with different vendors. True. No, but see, the point is that let's say you use a two-wheeler for your own personal use. Typically the driving distances for personal use are very small. Right. So it's a known fact that an average Activa gets driven for only 600 kilometers in a month.
01:54:00
Speaker
in a month. That's all that it gets driven. So if you take an 80-year-old activa, if you look at 180-year-old activas, you will find they have done 50,000 kilometers on average. Because two meters are not used for long commutes anyways.
01:54:17
Speaker
So a personal use case, if you have a battery which is even the small size battery, you don't really need to go out for a swapping application or you can come home and charge, you can go to office and charge. So there is really no need for an energy service business to back it.
01:54:34
Speaker
Energy service business is typically for higher utilization. And that is why we are making a product which is robust enough to handle multiple use, which can drive 2500, 3000 kilometers in a month and yet survive five years of operation.
01:54:55
Speaker
That's a very different vehicle from what has to run for 600 kilometers in a month and survive 10 years. So we want to focus on building something that is multi-use. And that's the niche in which we want to build our business. And we are focused on doing that. It's a business which now has a revenue in the range of 30, 40 crores a month.
01:55:20
Speaker
It's not big yet. Which models are out? Two-wheeler, three-wheeler, both are out? One two-wheeler and one three-wheeler. That's all that is out right now. And for what use case? What I described, personal use and logistics as multi-use. Like the two-wheeler could be used by Zomato and this kind of class. Yeah, we do have everybody from zip to EVs as a customer, including Flipkart.
01:55:49
Speaker
those people are buying. Last mile deliveries basically. Last mile deliveries and also consumers are buying. We have dealerships and people are using it for personal vehicles but also for use, to use cases. Okay. But our focus is around that.
01:56:02
Speaker
Okay. Okay. Okay. And the three wheeler is like, uh, competing with the, let's say this all the green and, uh, these three wheeler is actually that part of the three wheeler business is not yet out. The product is ready. It's in their home location right now. It will be out later. Uh, what we have out on the road today is, uh, L three, uh, level three electric three wheelers that is L five water, all the green.
01:56:29
Speaker
What is the difference? What are these? Lower motor power and lower top speed for L3, higher motor power and higher top speed for L5. Level 5 is what halting rate does. And what is L3 used for? Oh, everything from e-rickshaws to loaders to whatever. Okay. Okay. Okay. Okay. Okay. And what is, so you want to,
01:56:55
Speaker
Like this would be like a Gillette model where the money comes from the razors rather than the... I'll be honest with you, I still haven't figured out the business model fully. But I think it will have a layered up service income which will, as we go, become much larger. Initially it will be hardware income which will be larger and over time the service income will be larger.
01:57:20
Speaker
And you want to do battery swapping? Or you want to set up fast chargers? We are already doing some battery swapping and some fast charging. And our view is this, that it will be a combination. OK. Because in that space, so if you're doing a larger vehicle, fast charging could work better. But the kind of vehicles we are talking about, the battery is not large enough to permit very sophisticated fast charging.
01:57:48
Speaker
Okay, all right, okay, okay And why not just do battery swapping I think battery swapping would cater to 100% of the needs right No, I don't think that's how it will work because battery swapping is you know can work only if the asset
01:58:12
Speaker
utilization is very very high in the surplus assets. So today most battery swapping operations that are in operation today have not more than I mean not less than 30% of their asset stock
01:58:28
Speaker
sitting in, waiting to be used. So it is in a charge situation. With that, 70% is on the road. So as David, not 70-30, it's 30 out of 130. So maybe 100 is in use and 30 is in the swap, waiting to be used. So even with that, there is never a viable situation from a unit economic standpoint.
01:58:58
Speaker
with that utilization. But as the utilization improves, the viability can come. So you have to figure out use cases and clusters where that will happen. So that can happen only for certain type of applications. It cannot happen for all applications. Okay. So you're saying battery swapping is profitable only at scale.
01:59:20
Speaker
Of course, anything is profitable. Yeah, obviously. But battery swapping is an asset heavy business. It is all about utilization of that asset and life of that asset. But again, you could do operational lease there also, right? Yeah, but even that costs. When you take an operating lease, it is anyway comes to you at a fixed cost per month. It is just the nature of the asset treatment. Otherwise, the cost is the same.
01:59:50
Speaker
But with battery swapping, you could bring down the cost of ownership. You could sell vehicles without the battery. That is correct. Battery as a subscription. That you can, but why would you sell it without a battery? There is a famed subsidy on the battery, so it doesn't make sense to sell it without battery.
02:00:08
Speaker
So the subsidy is actually distorting the market, right? In a natural state, you would want to move batteries ourselves. In a natural state, it can work, but then we have to make sure that there is enough work done on battery and vehicle mating properly so that you don't get into safety risks and other issues. But yeah, I mean, but it's an evolving market. It will become a mainstream market very soon. Once this whole thing gets levelized.
02:00:35
Speaker
What's the brand name you're selling the EVs at? So this is called electrics L-E-C-T-R-I-X. From this month onwards it started appearing in the league tables of the Vahan portal because it started climbing up to about 500-600 vehicles a month getting finally used by consumers. It's growing up every month.
02:01:02
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.