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Earnings Call Analysis
Summary
Q3-2024
HIL India reported a 7% year-on-year revenue increase to INR 509 crores in Q3, with growth in every business segment. The Roofing Solutions and Building Solutions segments experienced a 10% and 6% increase respectively, while the Polymer Solution business grew 4%. Parador's volume and revenue increased by 10% and 7% quarter-on-quarter, with sales projecting at EUR 12-14 million per month going forward. The company remains confident, citing double-digit growth potential and better margins in the future. Underpinned by a robust financial position with total debt at INR 416 crore and a low debt-to-equity ratio of 0.33%, HIL India has signaled strong cash flows and an expanding performance footprint ahead.
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Ladies and gentlemen, good day, and welcome to the HIL Limited Q3 and 9 Months FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Mit Shah from CDR India. Thank you, and over to you.
Thank you. Good morning, ladies and gentlemen, and welcome to HIL Limited's Q3 and 9M FY '24 Earnings Conference Call for the investors and analysts. Today, we have with us Mr. Akshat Seth, Managing Director and CEO of the company; and Mr. Ajay Kapadia, Chief Financial Officer. We will have Mr. Akshat making the opening comments, and he will be followed by Mr. Ajay who will take you through the financial perspective.
Before we begin the call, I'd like to point out that certain statements made on today's call could be forward-looking nature, and the details in this regard are available in the earnings presentation, shared with you earlier. I'd like to invite Mr. Akshat to present his views on the performance and the strategic imperatives that lie ahead.
Thank you, and over to you, sir.
Thank you, Mit, and a very good morning to everyone on today's call. Warm welcome to HIL's Quarter 3 and 9 Months FY '24 Earnings Call. Thank you for taking the time to join us today, and I sincerely hope that all of you are doing well.
Today, in this call, we'll talk about the performance for the quarter gone by, reflect on the year gone by and also share a glimpse of the transformation agenda underway to chart out the phase of fast-paced value-building growth. Before I start, I would like to apologize in advance for my bad throat -- the coughing and the bad throat is in no way a reflection of the sentiment with which we bring in these results. The sentiments are very positive and confident of what lies ahead for HIL.
In quarter 3, HIL India witnessed a revenue growth of 7% year-on-year and 9.4% quarter-on-quarter, and we finished at a revenue of INR 509 crores, with a PBT of INR 8 crores. In Parador, Q3 saw the first signs of turnaround. And hence, the quarter-on-quarter story is more pertinent. Parador revenue in rupee terms grew 6.7% quarter-on-quarter to INR 275 crores. The PBT loss, I'm happy to report at Parador stood at INR 19 crores, which is down about 57% from the quarter 2 results.
Overall, our quarter 3 performance reflects an early glimpse of the ongoing transformation at HIL across segments and geographies. This transformation is anchored around the agenda of growth, value enhancement, building stronger consumer brands and a modern aspirational workplace. In India and at Parador, we have registered volume growth in most product segments. Strong efforts on sourcing, cost management and value enhancement initiatives have ensured improvement in profitability across the board, especially at the gross margin level. However, there have been headwinds in the shape of pricing pressure in India and the continued sluggishness in European markets, which has meant that the impact of these initiatives is not yet fully visible, but the first signs are there, and we'll talk you through them.
The most significant milestones of this quarter is the positive operating profits at Parador. Sustained effort on sales, branding and new product launch in our core and new geographies has meant growth in volume, about 10% on a quarter-on-quarter basis. We have gained market share in our core European markets and are also winning newer businesses in North America, China and Middle East, including with commercial clients.
Order intake is outpacing turnover, and that augurs well for the upcoming quarters. The expected improvement in consumer sentiment in Eurozone will further accelerate this turnaround. The revenue uptick is coupled with a positive margin story driven by a relentless push to manage costs across manpower, financing costs and so on and so forth to drive efficiencies and reduce working capital. Quarter-on-quarter, as I said, PBT percent has improved by nearly 1,000 basis points. In coming [indiscernible] continue to put on sales uplift as the #1 priority. Apart from the volumes, overall P&L is in a strong, healthy trajectory. I will reiterate that the short-term turbulences aside the mid- to long-term prospects of Parador remains strong.
In our Pipes and Fittings segment, we have delivered our highest quarterly sales volume in this quarter while also delivering top quartile sales realizations. This has come on the back of our expanding distribution network and an expansive product portfolio. Our Pipes and Fitting realization at about INR 159 to 1 kg. During this quarter, will rank amongst the top 3 in the industry and better than large players such as Prince, Supreme and Finolex. We have sustained a favorable 40% plus share of CPVC in our portfolio, and that would also be amongst the best in the industry.
Driven by value-enhancing initiatives across materials, supply chain, manpower and other costs, we are steadily increasing our profitability. It's a 100% improvement on a year-on-year basis on that count. Also, during the current quarter, we have received the prestigious GreenPro Award for CPVC Pipes and Fittings, which puts us in an elite list of industry leaders.
We believe PVC and CPVC prices have largely bottomed out and we expect a healthy market volume growth somewhere in the double-digit zone in the months to come. In this market, we are confident of outpacing the other industry players as we have done in recent quarters. The focus for us in this segment is to aggressively grow scale through both organic and inorganic needs and create significant shareholder value.
In Roofing Solutions, our brand Charminar has shown a volume growth of 1% and NSR growth of 5%. We are the clear market leaders with a 24% market share on a year-to-date basis, and we command a significant price premium over our peers. The strong brand equity of Charminar together with an unparalleled market reach are the strategic assets that drive this superior performance. We expect both volume and price growth in quarter 4 leading towards stronger margin performance. We will also be introducing some exciting new products in this segment to sustain our differentiated position.
In Building Solutions, we have seen a sharp volume growth for HIL. For instance, in Blocks, our volumes grew by 14% year-on-year. However, there were headwinds on pricing, which have led to a muted profitability this quarter. Birla Aerocon continues to be a truly premium brand due to its quality and continued efforts made by our technical sales teams, which helps us command our price premium over competition. We are excited at the role we play in institution building for the nation with prestigious projects such as IIT Bhubaneswar, the RBI data center in Orissa, the railway station -- the newly constructed railway station at Uri and scores of hospitals around the country.
Further, we continue to scout for opportunities for both inorganic and organic capacity expansion to accelerate our growth trajectory. The Putty business reported a strong growth of 10% in volume during this quarter despite the reduction in prices driven by increased competitive intensity. Structural fine-tuning, including realignment of the sales team and geographical expansion has started yielding results, and we expect strong growth coming in coming quarters as well. Efforts on recipe optimization and sourcing have meant our profitability in putty has improved significantly over last year.
Our Construction Chemicals business is on a strong growth trajectory with a year-on-year growth of over 100% and quarter-on-quarter growth of 20% plus. We continue to scale the business month-on-month and expand our product assortment and grow our footprint in newer geographies in South and East India. Overall, we expect Q4 to be the break-through period for this new business.
Before I conclude, I want to take a minute to give you all a sneak peak of what is happening behind the scenes at HIL. Things that don't show up as headlines when we talk of financial performance, but things that enable this performance and will determine our success quarter after quarter. Last time, I had talked about how our agile teams focused on new product development efforts institutional and government sales effort, net loss reduction and other such value initiatives. In this quarter, we have undertaken a comprehensive cost diagnostic and benchmarking exercise with an external partner to identify larger pools of value sitting within our P&L.
In Q3, we also initiated the project to double the capacity of our Chennai blocks plant. The challenge for our cross-functional team is to shave up 30% of execution time usually associated with such projects. Hence, we are confident that the full revenue impact of this expansion should be visible from quarter 3 FY '25 onwards.
Parador as a brand is known for being designed forward. Hence, the upcoming product launch of more than 150 new designs is a significant base in the calendar for flooring industry in Europe. It will be a big statement of intent from the brand and is expected to provide a strong boost to our sales efforts.
Let me now request our CFO, Ajay, to provide a detailed overview of our financial performance during the quarter and half year. And both of us will be available after that to answer any questions you may have.
Thank you for your attention and time. Over to you, Ajay.
Thank you, Akshat. Good morning, and thank you all for joining today's call. I would like to take this opportunity to present an overview of our financial performance and operational highlights for quarter 3 and 9 months of the year.
In quarter 3, HIL India has achieved 7% year-on-year growth in revenue to INR 509 crores as compared to INR 475 crores with positive volume growth in all business segments. The reported EBITDA for the quarter is INR 29 crores as against INR 48 crores in quarter 3 last year. At this point, I would like to highlight that the last year EBITDA included the INR 16 crore onetime reversal of provisions relating to inventory incentives and hiccups. If we remove this impact, the profitability is largely in the same zone.
The Roofing Solutions business grew by 10% year-on-year to INR 227 crores in quarter 3 FY '24. Despite sluggish demand, we continue to grow in volume and thereby further strengthening our market leadership position in the quarter and continue to enjoy customer loyalty. PBT margin in quarter 3 last year was higher on account of onetime reversal of inventory provisions of INR 10 crores. If we remove one-time adjustment, the year-on-year profitability remains the same. Our margins in this segment are the highest amongst all the 3 players by far.
The Building Solutions business grew by 6% year-on-year to INR 138 crores in quarter 3. Additions of new capacities in Blocks business by competitors related to lower ASP in the market, which has negatively impacted margins. However, we have been able to partially recover the negative impact by focusing on development of alternate supply sources to keep our input costs lower. We are confident of getting double-digit growth and better margins in coming months.
The Polymer Solution business grew by 4% year-on-year with revenue of INR 144 crores during the quarter, which -- with better operating margins. We believe that we are in the right profitability zone in this segment and will seek to further improve with growing scale.
In quarter 3, Parador sustained its volume and price compared to last quarter. The quarter-on-quarter volume grew by 10% and quarter-on-quarter revenue grew by 7% to INR 275 crores. We have for the first time reported quarterly positive EBITDA during the year. Our focus on working capital optimization continued during the quarter, and inventories are at the lowest level.
Our debt at consolidated level stood at would be INR 416 crore. Our total debt-to-equity ratio stands at 0.33% as on 31st December. We are confident in our ability to grow our performance footprint and create healthy cash flow going forward.
I would like to conclude my opening remarks. Now I request moderator to open the floor for questions. Thank you.
[Operator Instructions] We have a first question from the line of Satish Kumar from InCred Capital.
So just I have a question on Parador, whether the cost rationalization is now over? And can we expect a further cost decline or the cost will remain at the same level? And my second question will be, what kind of run rate you are seeing right now in the sales in Parador?
So cost rationalization, a big chunk of work has been done and that's showing up in better margins for us. However, as a topic, it's a continuous improvement topic, and we'll continue pushing on it. The third angle is from a raw material perspective. We feel that now from an external point of view, the cost seems to have bottomed out, so that's on the cost picture.
On revenue, we are -- what we are witnessing and in recent months and the order book is essentially suggesting that we are in the zone of EUR 12 million to EUR 14 million of sales per month. That's the absolute near-term outlook that's looking -- that's ahead of us.
And another question I had, if I had -- if you can permit me. Then what is -- how is the rural demand in India is looking right now? We were hearing a lot about the slowdown, et cetera. How are witnessing growth in this quarter, sales growth?
So what we've seen at least in the post-Diwali phase that there has been a certain level of hesitance in the -- as far as demand is concerned in the rural segment. Now some of it can be attributed to transient factors typically post-Diwali, there is a little bit of lull. There have been weather factors and so on and so forth. We are now watching -- this is now the period. So February onwards is where the vibrancy is expected to come back. But you are right the last 2 or 3 months, including what we have seen in January have been a little on the hesitant and sluggish side.
We have a next question from the line of Krisha Kansara from Molecule Ventures PMS.
Am I audible?
Yes. But can you use your handset mode, please.
Sir, you mentioned that Parador has turned EBITDA positive in this quarter, could you please tell me the number, how much was the EBITDA for Parador in this quarter?
It is INR 1 crore, Krisha.
Okay. Perfect. So sir, Parador sales were down by 6% if you compare Y-o-Y basis. And it was only slightly up on a sequential basis. So if you could guide us on the reasons for such performance in Parador. And along with the outlook of the Flooring segment going forward also? So has the demand shaping up? And how was it in this Q3 -- quarter?
So the 6.7% I mentioned in terms of volume growth is on a quarter-on-quarter basis. The context is important because the last 12 months, in the Eurozone, has been a difficult period from a demand perspective. Why this quarter is significant because this is the first time we have seen a positive trajectory. And I can speak from a Parador perspective of all -- at an aggregate level, this quarter, we have sold more volumes than in the previous quarter. Again, even if we compare 3 out of the 4 key product categories that we deal in, even compared to last year, there has been a slight volume growth.
The one segment which continues to be in the sluggish zone is Engineered Wood, which accounts for tougher quarter of our overall portfolio. What we are looking ahead to, the general consensus seems to be that as far as the demand and market outlook is concerned, we seem to be at the bottom end of the -- everyone believes that we have seen the bottom now how fast the recovery happens is something that we don't have to wait and watch. And there are some positive signs. The interest rate is now at its lowest. There will be no increase or signals around the increase of interest rate, in fact, to the contrary, there is expectation that there should be a decline. Sorry, I'm clarifying. The inflation is at its lowest, and that should signal a softening regime on the interest rate side.
So -- and what we have seen in our sales for last quarter, which is higher volume increase and also a more robust order intake and order book seems to indicate that we are moving in a positive territory. We would, of course, want greater momentum around it, but it is on an improving trend.
Correct. And so volume growth, you mentioned 6.7%, correct?
Volume growth is on a -- yes, I mentioned 6.7% on a quarter-on-quarter basis.
Correct. Okay. And my next question is on the Construction Chemicals side. So can you give -- hello?
Yes, yes, please.
So how much sales would be given this segment in this quarter and also for the 9 months of FY '24?
Yes, I'm just getting the numbers. So overall, for us, if Putty and Construction Chemical put together -- for this quarter, the number is Ajay...
It's INR 56 crores for the quarter.
INR 56 crores. Okay. And for 9 months?
INR 145 crores.
INR 145 crores, okay. Perfect. And sir, one last question. Do we still maintain our guidance that we gave for FY '26 regarding the margin, which is 12% EBITDA level or is there any change in that guidance?
There is no change in the guidance. That is the aspiration with which we are moving towards and a few of initiatives and early wins give us confidence that we are on track towards that guidance.
We have a next question from the line of Madhur Rathi from Counter Cyclical Investments.
Sir, I wanted to understand in our building products division may be the AAC Blocks. Last quarter, we guided that our margins were down because of strike at that cement plant. Sir, but consciously when we look at the longer-term perspective, our margins have underperformed our competitor. So why is that? And what are you trying to do to make sure that our margins grew on par as you've guided 10%, 11% margin, but still, I'm not -- if you could provide some guidance on that?
So in Building Solutions, this quarter, the margins have been softer, primarily because of pricing pressure we have seen in the market. You would recall that this quarter, especially the November to December period, there have been several factors that have played out. There have been construction bans in various parts of the country. There have been weather-related disruptions as well.
And there has been some additional capacity that has come to the market leading to greater competition. And as a result, the price realizations is where the margins have been impacted. As we now enter from a construction point of view, a better part of the year, which is February onwards, we expect those pricing to start resuming the normal trajectory and we get to a better margin profile. But all of the margin pressure in Building Solutions is largely due to the pricing-related factors in the market.
So when I look at our competitors, they are constantly doing around 20-odd percent of margins. So is it because in the Western region, there is a lower competition or is there something else that's affecting our margin in that segment?
So there'll be a few -- I think there are very few like-to-like competitors, for instance, there are players -- we -- for us Building Solutions is a combination of Block channels and Boards. And that blended percentage comes in. Second, there are players who are largely regional in nature. We are a national. So somewhere we are enclosed to different price points and cost structure across various parts of the country. But that said, apart from pricing, there are a few things that we are working on internally, which gives us some line of sight of nearly 200 to 300 basis point improvement on the margin in the short-to-medium term, but those are improvement initiatives that are being undertaken.
At sir, when can we see these improvements reflecting in our financials?
Sorry, Madhur, the line is not. It's hard to understand what you are saying.
Yes. So is it better right now?
Mr. Rathi, can you use your handset mode, please?
Yes. So is it better right now?
Slightly better, yes.
Yes. So when can we see this 2% to 3% margin improvement in our building product division?
Ajay, did you -- what is the...
When we'll get to see the margin improvement?
So it should start playing out in the next 2 to 3 quarters. February, we are -- so this quarter 4, we are watching out from a pricing perspective. Some of the structural things that we are working on internally will take a couple of quarters to start playing out and become visible. So my sense is Q1 to Q2 next year -- next financial year is what when this should become visible.
Okay. And sir, what was the capacity utilization of our different segments in this quarter, Parador...
You're not very clear Mr. Rathi.
Is the capacity utilization question with respect to Building Solutions or you were asking wider...
No, building division...
Madhur, it's hard to follow. I'm sorry.
We have a next question from the line of [ Pavneesh Kumar from Vivek Arch ].
First of all, I would like to congratulate and appreciate that HIL puts a brave face every time we get on a con call. I just had 2 feedbacks and questions [indiscernible] that is like in the market share of Charminar Sheet in the presentation. I would appreciate if you could give the market share for our other products also in the presentation.
Secondly, we give the -- revenue wise, I mean, you give -- they're in rupee terms. But if you could also mention the volume terms, that would be easier for investors to compare the performance Q-on-Q and Y-on-Y because the prices keep on fluctuating, so it is not wise to compare the revenue year-on-year, quarter-on-quarter. The volume would be a better parameter.
Understood. Okay.
My question is it is that like we had given a guidance of $1 billion enterprise by FY '26 and also some EBITDA margins. Are we still on track for that because as of now, it will be difficult to achieve even $0.5 billion of revenue in this financial year. So doubling from here in 2 years, I just wanted your views on this?
So I think the aspiration was for around FY '26, '27. But whatever -- I mean we, as it may what we are targeting and there is a clear breakdown internally for us as to how will we get there. But we are targeting to be double in 3 years. So in the next 3 years, that is where -- so the guidance and aspiration remains, there is no change in that one. And there will be a few things that will sort of we shared with all of you in coming months that will also give you a line of sight of some of these things as you can appreciate, some of them are currently under work, and you will get greater confidence in the months to come.
Okay. And just one more question, Akshat. [Foreign Language]?
I think the alternative is something that we should also consider, which is let's wait out. And you will also see a scenario where the Parador division is punching above its weight in the overall value creation of HIL. We are confident of it. We will request maybe just a little bit of patience around it. As I said in my previous calls, that picture maybe is about 12 to 18 months away, but you will start seeing signs of that. And I'm also not trying to paint a picture, which has not been done in the past. We've had -- of the 4 or 5 years that we've held on to Parador, a significant overlap was that -- with COVID. We've had 2 or 3 blockbuster years where Parador has contributed handsomely to the HIL story.
So let's not think of separating the 2, let's think of how the synergies can be built and how we can make it a powerful combination. That's at least how we are focused on.
Great to see the confidence, Akshat. Thank you so much. I was a worried investor, but I'm a loyal investor, and I would stay an investor.
Pavneesh, I know you've been a loyal investor for a long time. All I can say is don't be worried. Keep us honest, but there is no -- there is no reason to be worried. These are cycles and we navigate past the cycle. Hopefully, the last 12 months also gives you the confidence that we are trying to navigate what is not an easy situation with a great amount of rigor and diligence. So that will continue and that will -- that should give you more confidence and anxiety.
We have a next question from the line of Deven from Marcellus.
Sir, just 2 questions. First, on the Roofing Solutions. So if I see on a historical perspective, [indiscernible] back the margins within double digit. But now in this quarter, we are seeing the single-digit margin. So any reason for such low margins in Roofings?
I think in Roofing, what would help is if you look at the YTD picture because this is -- there are seasonality involved in this product. At the YTD level, compared to the peak, we may be 2% to 4% of -- from the peak margin level -- as I have explained in the past, there was a cycle of cost increase outpacing the price increase. The extent of that cost increase was about 5% to 6% on a P&L basis. We have recovered nearly 3.5% of that. The remaining 1.5% is expected to be recovered by the time we hit the next season, which is Q1 of FY '25. So the expectation is that we should resume the normal trajectory in the next couple of quarters.
By normal, you mean double-digit margins that we have seen historically?
Yes, yes, yes.
Okay. And are you seeing any pricing pressures specifically in last 2 quarters in terms of realizations?
Sorry, is the question that are there margin pressures in Roofing?
Yes.
So margin pressure usually comes from 2 sources, one inputs. I would say, on the input side, there is relative predictability and stability. So there is no surprise expected on that, nor has it played out in the last 6, 9 months. It is on the pricing side where we would want greater traction, somewhere as I was alluding previously, the slight hesitance in rural market demand in the last 2, 3 months has been a headwind. We expect that to recover and greater ability of the market to absorb higher prices. That is where the expectation is. So the margin pressure is essentially in the short run on pricing, not from an input cost effective.
All right. And if you could throw some light on the Building Solutions margins as well, which have reduced on a Y-o-Y basis. So what would be the reasons for that? And if you could just further breakdown into the blocks as well as the Boards and Panels.
So as I said, on Building Solutions compared to our previous peak performance the only delta is on pricing. And we've experienced in this quarter some headwinds on the pricing side as far as especially on the block side, which is why the margins are lower. At an operating level, we are looking at about 8-odd-percent which is off by about 3% to 4% from the peak that we've experienced. And that only 2%, 4% is largely attributable to the [ NSR ] or pricing.
Okay. Got it. And finally, on the revenue front, if you could breakdown building -- growth in Building Solutions between AAC Blocks and the Boards and Panel, like how much volume growth are we getting in both these product that is in Building Solutions on a Y-o-Y basis?
Building Solutions, the highest growth was in Blocks for this quarter, which was nearing the 15% mark. I mentioned 14.5% earlier in my opening remarks. On Panels, we have grown at about 4% to 5% and on Boards, we are largely flat.
We have a next question from the line of Nikhil Gada from Abakkus AMC.
Sir, my first question is on the Roofing part just to the previous participant's question regarding margins. Now when you say that we are -- the gap is around 1%, 2% and which should be sort of mitigated if the demand improves. But still, when we look at Roofing, which has been our bread and butter business, the margins have seen a very sharp decline over the last 2 years, from 20%, 21% margins. We are now -- maybe we will close around 12%, 13% in FY '24. .
So is there a glide path? Or do you see this sort of quickly going back to those 18%, 20% levels in the next couple of years? Otherwise, the overall guidance, which you're talking about 20% EBITDA margin looks a bit sort of difficult to achieve.
See from FY '23, the margin was around 15%, we are looking to close this year at around 12% to 13% level.
Correct.
Correct. And that's the 2-odd percent that I'm talking about 2% to 3% that will -- part of it is also there is -- anyways, let me not -- 2% price increase will help us bridge this gap, and that's the long-and-short of that story. What we are also pushing for is greater volumes in the market, so that will also help offset. We are reasonably confident that we will at least resume the FY '23 trajectory quickly.
Now with that, the 12% to -- 12% plus guidance that we have for HIL overall, it is not just Roofing, but other segments will also have to contribute hence Building Solution has to be in that zone. Polymer, as we are scaling up, we'll also start hitting that zone. That is when we will hit it. If only Roofing has to pull that weight, it will not reach that level. Including Parador will have to start hitting double-digit numbers. There is reasonable confidence in the system that we will hit it, there is line of sight in each one of them, the glide path is available for us internally. So the story of that 12% plus margin will have to be a contribution from each of the segments, it cannot be just one.
Yes. But so for the -- for us to achieve that 12% -- in terms of calculation, if you can give us a back of envelope calculation, what would be Roofing in that? Should it be 18%, should it be 15% is good enough? If we achieve margins of 15%, Roofing still will be able to achieve 12% margins?
Yes. I would say at a baseline if we achieve 15% or so in Roofing, we should -- and the others pull their weight in the desired direction then we should be okay. So in our own internal calculation, the blended of 12% plus assumes Roofing at about 15-odd precent.
Okay. Okay. Secondly, in Parador, so you mentioned -- sorry, I might be wrong if I heard it correctly or not. You mentioned that the monthly run rate is around EUR 12 million to EUR 14 million. Does that mean that we are looking at INR 340 crore, INR 350 crores sort of a sales in FY '20 -- sorry, fourth quarter FY '24 in Parador?
We from -- okay, sorry, from a [indiscernible] crore perspective. We would look at -- just give me a second. I'm -- yes, in the zone of about INR 315 crore, INR 325 crore.
Okay. And in that case, what kind of margins can we achieve? Is it around 5%, 7% margins that we believe that we will be able to achieve or it will be more than that?
At an operating margin level, that should be the range at the moment in quarter 3, we hit -- we were just about EBITDA positive, we should be comfortably EBITDA positive at that range. My sense is it should be in the 3% to 4% range.
Got it. Got it. And just on the Parador piece itself, you mentioned that we are also gaining market share in the European markets as well. But in terms of the overall outlook of demand from Europe, do you think that the worst is behind? Or do we see any green shoots per se from there? Because whatever you still heard about Germany and all the markets continue to remain very, very weak over there?
So several parts to your question, have we seen the worst and have we left the worst behind us? That answer is fairly consistent and unanimous that yes that seems to be the indication. Second, are we expecting -- are we seeing some green shoots at least in our business? We are. The fact that for the first time this year, there is volume growth is a green shoot, the fact that 3 out of our 4 product categories, we have done better than the previous year also in this quarter is a green shoot.
The fact that our order book is consistently for the last 3, 4 months, clocking at a higher clip than our revenue in that month is a green shoot. At a macroeconomic level, the bottoming out of the inflation rate is a positive trend. The fact that interest rates have not been increased, is a good trend. The fact that people are talking about a drop in interest rate is again a good trend.
What -- and let me offer a slight contrarian view, and there are now analysts who are talking about this, that Europe might actually surprise us in this calendar year. And there are a few factors that are contributing to it. One, unlike U.S. where a lot of the subsidies that were given out last 2, 3 years, where in U.S., people actually went in and spend that money in Europe, people have saved that money. So the savings rate is actually much higher.
Second, the impact of high interest rates has actually been absorbed in Europe and it was done in a hard manner over the last 12, 18 months. And that, again, is a positive sense. So if you look at some recent analysts including -- I think there was -- some things released by Ruchir Sharma, they talk about Europe positively surprising us. Now that, of course, remains to be seen, but I'm just saying that if that plays out, that's a big, big tailwind for us.
Okay. Got it. Just one last question on the Polymer side of the business. Firstly, I think you gave the numbers for Construction Chemicals and Putty in revenue. Can we get the same for the EBIT as well?
I think not -- we are not reporting that separately. So...
Any loss, if you can share in Construction Chemicals, what was the loss?
I think we are largely breakeven in Construction Chemicals. So there is no loss at the current levels.
Okay. And just on the Polymer part of the business as well. So we sort of mentioned the growth that you're seeing in Pipes business. Can you sort of share what are the -- I think you mentioned also about the branding initiative as well. So if you can sort of give a view for the next couple of years, how do you want to scale this business up? And what are the initiatives that you are taking for making this sort of a pan-India player?
So the initiatives have to be done in a 360-degree manner. First half, what is really the aspiration. And in that story, I think we were asked about $1 billion. We -- the effort that we are -- and the ambition is important to state because that will also put in perspective the kind of efforts we are putting in. We are aspiring to be 4 to 5x larger than what we currently are.
Now in order to do that, first, there has to be a strong effort on demand generation and brand build side. And that work is underway in not 3 months, but in 6 months' time, you will start seeing a lot of that. And this has been done both from a Polymer, Pipes perspective, but also at an overall HIL level. There is a big brand strategy work that we are doing, and you will see renewed momentum around marketing activities. That's point one.
On the sales side, there is extensive effort being done to increase the addressable markets. First, in the retail trade channel that we play in, we are growing into new geographies and growing deeper into the existing geographies, so there is effort around growing the penetration on the retail trade side.
On the B2B side, where we -- as HIL has strength in our Building Solutions and other segments, those are being cross leveraged. So B2B, there is renewed focus. Third, institutional and government sales is something that we had not done. We are opening that up as a new channel. The idea really is that we should be relevant in all those 3 channels.
The third angle on this growth story is the product and where we need to expand further the product categories that we are in. And that product category expansion has to pass through 2 filters, one is scalability and where volumes are available. Second, also look at niches which are more profitable. And again, I will urge each one of you to keep a watch on announcements from our side on the new product launches in the next 6 to 9 months. And you will see a complete gear shift on that front.
The fourth is then our own manufacturing capacity and the quality of products that we are coming out, there's a significant effort out there. And as we scale up, we will have to meet the demands -- meet the capacity demand also. So there will be investments on that front as well.
So it's a multipronged approach. It is, we are small, but we are aiming to be much bigger, and there is a huge amount of organizational effort that is going in that direction. What I would also like to assure and give confidence to this group is that Pipes and Fittings will remain as one of the key anchors of growth as we chart out the next 3- to 4-year journey for HIL.
We have a next question from the line of Nikhil from SiMPL.
Am I audible?
Yes, you are.
Two questions. One is on Parador. Now if -- even this quarter number, if you look at, it looks like we did around INR 275 crores of sales. This is still year-on-year lower by around 6%. And if I add, there are 2 aspects. One was the existing DIY retail market where we were already present and the new initiatives on the commercials and the new geography.
So if I do a rough calculation, it looks like the market in DIY is still down something like 20%, 25%. Would that be right? So if we have to say the revenue from new initiatives and from the existing geographies, how does this split up?
So I am not able to follow, how...
What I'm trying to understand is that, of this INR 275 crores, The new initiatives, which we started in last 1 year in terms of new geographies, commercial and all, how much of a revenue contribution have been done? And the markets where we were already present, is the market still down by 15%, 20%?
So let me explain. One, your question on how does the volume growth reconciled with the drop from last year on the revenue side. And one key element there is the product mix. As I said, Engineered Wood is still tracking lower volumes, and that is the highest realization may not be the highest margin, but highest realization products, and that's why there is a there is a mismatch between the 2.
To your question on these new initiatives and these new initiatives can be broadly under 2 categories, the new channel focus, which is on commercial and the second is on the new geographies of North America, Middle East and China. Now if you understandably these geographies were at a much lower base. but they have done almost 2 to 3x what we used to do previously in these geographies. So that is the early wins in that market.
On commercials, we have done better. But as you can imagine, commercial also takes a little bit of time gestation time for it to. So while the pipeline is strong and pipelines have started converting in places like Middle East, has it fundamentally altered the revenue profile just yet? The answer is no. So a lot of the recovery that we see actually comes from the Central European market and the DIY channels, et cetera, have also started coming back.
So in short, the new geographies are tracking ahead of plan. Commercial is tracking ahead of plan. These together will still be only about 15%, 20% of the total portfolio.
Okay. Okay. So the commercial new geographies, all these new initiatives should start contributing at least by first Q of '25, at least?
They are contributing even as we speak, the share of fees in the overall portfolio is steadily increasing.
Okay. And secondly, on the question on the 12% EBIT margin, you mentioned that we are doing multiple efforts. And I think we are walking the talk on that. But see, on a different -- on a contrarian view, if you look at it, many of these things like Building Solutions pricing or Polymer pricing, these have impacted us on and off. How much of that 12% margin achievement will be driven by internal factors? And how much of it is dependent upon the external environment has to play favorable for us to achieve that EBITDA margin aspiration?
So if you ask us from an aspiration point of view, the aspiration is that when we state that ambition, it is not dependent on what happens in the marketplace. It should be independent. And if the market forces are favorable, then we only do better. And there are a few things that are being done in that regard.
First, the efforts around brand build marketing is essentially to ensure that places where we have a price premium, we sort of maintain that. Again, there is effort on new product development, which will give us differentiators to play within the markets and also our margins start premiumizing the portfolio that we have. These are things which will give us an insulation from a lot of the market-related volatilities that are inevitable in the segments that we play in.
So the aspiration on margin that we stated is not contingent on 1 great year where everything is falling nicely from a market perspective and we hit that number, but it should be the baseline around which we operate. So I'll give you an example. You mentioned Pipes. Pipes, despite the ups and downs on the resin price, margins, now we seem to have had a good handle for 4 straight quarters, our margins are actually in a robust zone when I look at contribution margins and gross margins. But the choice of new product segments that we will get into will help protect greater -- will give us greater insulation on the margin side.
Sure. Sure. And last question. See, in Roofing, if I compare the performance, we have grown year-on-year, so around INR 15 crores, INR 16 crores of additional absolute sales base growth. You -- in last 2, 3 quarters, you've been mentioning that the RM cost inflation was very high and we were catching up on the pricing. And this quarter, we've said about 5% was the price growth. But still on the margin side, we are at 7%. And if I compare it, the quantum of sales and look at in 2020 or '21, even on this quantum of sales or margins were actually much higher than the 7%. .
So how are we looking at the margin profile improvement here? Because one thing you also mentioned that the RM is now stable. So the new contracts would probably -- there is not much price escalation. So in the pricing gap in RM inflation is also around 1% now. But the margins are still on the lower end. So what has to play out for us to achieve that 12%, 15% margin here?
So -- and we can maybe also, Nikhil, take this offline and get into a more detailed discussion on how these calculations work. But let me at least say that in Roofing to look at quarter-on-quarter margin, so in this quarter, you are looking at about 7-odd percent. It's probably not the right way of looking at it. At the YTD level and at a full-year level is where the comparison should be. Even at the current trajectory, if I take the full year last year, we were at about 15% margin. We hope to complete this year at about 12.5%.
So addition quarter-on-quarter, on YTD or a cumulative basis is an important exercise to be done. What will get us? At this moment, the only thing I can say is pricing. There is nothing else that is left there. From a cost perspective, from a raw material perspective, we feel, we are 100% optimized. We also feel from a comparative point of view, when you look at other players in the industry, we are already clocking much better than any of our peers. You will have numbers to sort of corroborate that.
So the good part is. Of the 5% to 6% impact that happened because of that price escalation, we seem to have recovered about 3.5%. It's now down to that last 1.5% to 2%. I will make one last statement on this. You started off by volume growth and so on. This volume growth this year that we have registered is actually in the context of what we believe is the industry degrowth this year. So at an aggregate level, that's why we have ended up increasing our market share. So somewhere the single-digit volume growth has to be seen in the context of a single-digit industry degrowth that has happened for this category.
The next question is from the line of Deep Gandhi from Astute Investment.
Thanks for the opportunity, sir, but my questions have been answered.
We have our next question from the line -- give me a moment, please. We have a next question from the line of Kushal Kapur, an individual investor.
My first question is, in the Building Solutions segment, what is the contribution of what is the product which is dragging the profitability of the Building Solutions segment? Like is it NSR or is it AAC Blocks? And the second question is regarding the capacity utilization of AAC Blocks right now.
The capacity utilizations, let me answer across our Building Solution category is in the zone of 90% plus across the 3 lines that we run. So that's on capacity. Your first question was, which is the lowest profitability or -- can you repeat the first part of the question, please?
Direct [indiscernible] profitability in the Building Solutions segment, what segment is it? Is it Boards, or is it Panels? Or is it the AAC Blocks? And what are the margins we are currently enjoying in the AAC Blocks at the moment?
So Kushal, the contribution margin, if we see in Building Solutions segment, it is lower right now is in Blocks business, Panels and Boards are -- got healthy margins.
Like exactly what is the margin in the AAC Blocks like? I think in the last quarter, it was -- we were around 8% to 10%, if I'm not from in the AAC blocks. Is it somewhere in the same range? Or is a little bit lower than that as well right now?
So it is in the same range.
8% to 10% right?
Yes.
We have our next question from the line of Sanjay Kumar from iThought PMS.
A few questions on Parador. Can you make the cost structure for this quarter, say, gross margin, employee costs and other costs?
For this quarter?
Yes.
So at the gross margin level. So material cost is now at about 55%. So material cost for this quarter is...
59%.
59%.
59%?
Yes.
In India operations?
No, no, sorry. We are talking Parador, so it's not...
Parador is 55% material, yes.
Employee costs and other costs?
Employee costs in Parador for the quarter is around INR 67 crores. Whereas other expenses are in the range of INR 59 crores.
And Akshat, we have spoken about EUR 2.5 million cost savings. Is all of it done or there anything more left in Parador?
It's on track -- those initiatives. I think we have now realized a big chunk of it. And by the time we finish this financial year, we are on track of -- track to realize it completely.
Okay. And why is the employee cost so high realistically to 18%, 19%, now it's higher because of lower sales, any levers to reduce the, say, automation or is the process [indiscernible], which yourself in this high employee cost? Or are you looking to shift to a low-cost geography?
So there are 2 parts to it. cost which is related to blue-collared workers there, it is basically matching with how the volumes are going up or down. So that bit is largely variabilized in nature. And we are taking proactive measures every month to either bring it up or bring it down in line with what the demand profile is.
On the non-worker side, there have been some investments we have done, and those are obviously by nature, you would agree, come ahead of actual revenue. In fact, these are largely on sales and promotion side. As we cultivate these new markets, there have been some new resources that have been brought into start pushing volumes in that, the impact of that and at this moment, because we are probably at our low edge from a revenue point of view, these percentages do not look flattering. But as revenue picks up, these numbers will fall in the right orbit.
Are we looking to reduce it? No. Are we at a stable state? Yes. These resources will start becoming productive in weeks and months to someday. They are already productive. And you will see a bigger impact of that.
And just lastly, so at INR 400 crores quarterly run rate, can we do 10% EBITDA margin or double-digit EBITDA margins?
At INR 400 crores, yes.
The next question is from the line of Harsheel Mehta from Mehta Vakil and Company.
Most of questions have been answered. I just had one question regarding the commercial on the pipeline at Parador. In one of the earlier calls, you stated was around EUR 85 million. So has there been any increase to this number? What would the figure be at currency?
It depends -- so the current pipeline and qualified pipeline will look to be in the same tune as that EUR 85 million number, this, of course, keeps into account that there have been a few conversions that have happened at least to the tune of 8 to 10 that we have already seen and some would have dropped off. So is like a constant addition, deletion that happens from the pipeline, but the current pipeline would be of that order of magnitude.
We have our next question from the line of Jagdish Sharma, an individual investor.
I have one question, which is like asbestos raw material prices have inched up towards -- like upwards after Russia-Ukraine war. How are they behaving now? And is there any scope for reducing those places?
Jagdish, the line is not clear. If I may request you to go a little slow, we could understand.
Okay. So asbestos raw material prices have inched upwards after Russia-Ukraine war, how are they behaving now? And is there a scope for reducing those prices?
If there is scope, none that is visible to us, they are now in a zone where there are the usual inflationary adjustments. There is no volatility or sharp spike that is expected on that. So one of the things that we constantly watch out for. One is, of course, the source cost, then there is the shipping cost. And you would be aware that in recent months, there have been some volatility around shipping with the Suez Canal issue, et cetera. Those are things that we continue to watch. But I will also ensure that the recent development have -- no, we've managed that situation well. So there has been no P&L impact on that. But these are risks that we continue to watch out for.
Okay. So when do you think it will come down. It's like any visibility you are seeing, like in 2 quarters or 3 quarters visibility or you're seeing, sir?
At the moment, costs coming down, there is no such visibility. There is no such outlook as well.
Okay. So one last question there. What is the EBITDA margin for this asbestos business, it just mean revert back to its own on average, like what is the EBITDA margin you expect?
Before I share the number, I do want to make a small correction. We are not in the business of asbestos. It is not the asbestos business for us. For us, we are in the Roofing business. And Roofing business for us at the EBITDA level does anywhere between 15% to 16% -- 15% to 16% margin.
We'll take the last question from the line of Deven from Marcellus.
Sir, just a follow-up question on the Boards and Panels. You mentioned that we had a single-digit volume growth in this quarter. So just wanted to understand what was the reason for this growth? And over a more long-term perspective, 3 to 5 years, what are our volume expectations -- volume growth expectations for this segment?
So again, important to keep the context in mind, in Boards and Panels, we are running at near full capacity. The next wave of growth in volumes from a sales perspective will essentially come with some capacity addition that will come, in Panels, we have some line of sight on new plant at Balasore -- Phase 2 of its ramp-up will happen in the coming financial year. So that should give a little bit of a step-up.
Over the next 2 years -- 2 to 3 years in Boards, there are conversations of putting up additional capacity, so that will also bring some additional volume. So here, the volume increase will essentially be a consequence of capacity additions, and there are plans to do that in the next 2- to 3-year time horizon that we talk about.
Understood. And if there is -- so I understand that there is no demand side issuance in this segment. So what is stopping us from ramping up capacities rapidly.
Overall, I think we, as a company, will have to -- there is a -- there will be capital allocation. We've already spoken about the 2 big areas of Pipes and Fittings where we are investing. Construction Chemicals where we are investing, Blocks where we are investing. Panels and Boards will probably come in that order. So we also want to remain focused in where we are growing rather than firing on all cylinders.
Thank you. I now hand over the call to the management for closing comments. Over to you, sir.
Thank you, and a big thanks to all of you for joining in. As always, it's been a pleasure interacting with all of you and your interest, your questions are extremely encouraging for us. We will request you that you please continue your support and guidance for HIL as a company and keep following this space, there will be a lot of action and a lot of updates that we'll keep coming back to you. Meanwhile, if you have questions, please reach out to our Investor Relations desk. Thank you so much.
Thank you. On behalf of HIL Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.