Prince Pipes and Fittings Ltd
NSE:PRINCEPIPE
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
422.8
759.95
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Prince Pipes and Fittings Limited Q1 FY '23 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vineet Shanker from JM Financial. Thank you, and over to you, sir.
Good morning, everyone. We welcome you all to the conference call with management of Prince Pipes and Fittings Limited to discuss the financial performance of Q1 FY '23 and business outlook. From the management, we have Mr. Parag Chheda, Joint Managing Director; Mr. Shyam Sharda, CFO; Mr. Anand Gupta, Deputy CFO; and Mr. Nihar Chheda, Vice President, Strategy.
I now hand over the call to Mr. Chheda for his initial remarks, after which we'll move on to the Q&A session. Over to you, sir.
Good morning. Thank you all for joining us on our quarter 1 FY '23 earnings call. The presentation and the press release have been issued to the stock exchanges and uploaded on our website. I trust all of you have had the opportunity to go through the same. Let me start by giving you a macro view of the industry, and then diving into the company-level performance and the strategic going forward. Quarter 1 of FY '23 has been a challenging quarter for the industry as agri demand continued to be weak, while the demand for plumbing and SWR was resilient.
In addition, the persistent softening in PVC prices resulted in a muted sentiment across the value chain, causing destocking amongst our channel partners. Despite the challenges, we continue to aggressively expand our volumes and increase our market share. During the quarter, our volume and value grew by 69% and 83%, respectively, led by outperformance in the Building Materials segment of our portfolio. However, as you are aware, the quarter witnessed inventory loss, led by constant falling of raw material prices, which have been a phenomena across the industry.
We were impacted to a greater extent due to the higher inventory as of 31st March. The inventory losses are likely to impact the second quarter as well due to the sharp price correction in PVC in the July month too. We now believe the prices have more or less stabilized and are close to bottom.
In the coming times, as prices stabilize, our channel partners will start restocking. We also believe that our margins will begin to recover from the December quarter. I would like to highlight that while the price correction led to a sharp inventory losses in the short term, the current price regime will create a strong demand environment for the industry. At these levels of PVC, we expect robust demand to be driven across segments of plumbing, SWR as well as agri. We strongly believe we are well poised to capture this growth due to, a, the new capacity set up at Jaipur and Telangana facilities as well as, b, widely expanding distribution network across the country. Furthermore, our business outlook continues to be positive. Prince Pipes continues its vision to aggressively grow the Piping Systems business and diversify into complementary verticals.
In May this year, we had launched PE-FIT Aqua, which is our HDPE Piping solutions and Corfit Manhole Chambers. I'm glad to share that both these products have received a good risk acceptance, and we are gaining steady traction for these in the institutional as well as private developer segments. We are now in the midst of implementing several growth-oriented strategic efforts, some of which were discussed on the last quarter call, like digitalizing our value chain, launching newer applications. And we thus continue to enlarge our product basket as our focus remains on growing our value-added product portfolio to the overall sales mix.
I'm happy to share that we have announced our foray into the bathware segment, making our presence in the front of the warm category and a natural extension of our business. This organic expansion of our product portfolio into faucets and sanitary ware allows us to leverage the strong equity of the Prince brand in the Building Solutions market, and will help our channel partners to expand their business. It is our endeavor to offer a wide choice of Bathware solution to Indian home owners and architects as we will roll out the latest range of products in line with global lifestyle trends. As per market estimates, the overall market size of Bathware segment is about INR 15,000 crores, with organized market in the range of about 65% and balance 35% being the unorganized market.
We are in the process of developing this vertical and have hired a seasoned professional with over 15 years of relevant experience. We are formalizing a progression plan based on building an asset-light model and capitalizing on our growing dealership network. We shall share further details at a later stage following the completion of regulatory and necessary approvals. I would like to also share that we have been making steady progress on growing our B2B segment. Even though we have begun to work with the reputed institutions and builders, there is a great scope on growing this business segment. We will continue to put adequate thrust to ensure that the B2B segment is a key growth enabler for us. Guided by a strong set of corporate values, a talented team and successful execution of our key strategies, we have been navigating the environment well despite industry headwinds.
With strong business fundamentals and an exciting [ India of ] opportunity, we remain optimistic as we leverage our strengths to achieve higher growth and create greater shareholder value. Thank you for your time and mind share. I will now hand it over to Shyam to take you through the key financial highlights.
Thank you, Parag bhai, and good morning, friends. I'll be taking you through Q1 FY '23 financials now. In this quarter, the company saw a revenue growth of 83% at INR 604-odd crores compared to INR 331 crores in Q1 FY '22. Volume grew by a robust 69% at approximately 31,250 metric tons. Coming to EBITDA, this stood at INR 44 crores for Q1 compared to INR 41 crores in Q1 FY '22, indicating a growth of 6%. EBITDA margin stood at 7.3% for this quarter. Profit after tax stood at INR 16 crores compared to INR 18 crores in the corresponding quarter. On the working capital front, during the quarter, the working capital days have increased to 88 days from 68 days in March 22, but our inventory days have improved to 78 days from 85 days at the end of March '22. Given the volatile raw material supply situation, we had higher inventory levels, which are being rationalized and we will return to normal levels by Q2.
With constant emphasis, our creditors has improved to 38 days and our debtors to 48 days. Our endeavors going forward is to further improve our collection, thereby reducing our debtor days. The company had issued and allotted 507 units of Commercial Papers of INR 5 lakh each, aggregating to INR 25.35 crores. The Commercial Papers was issued on May 11, 2022, and has been successfully repaid on August 5, 2022. With this, we would like to open the floor for the questions, please.
[Operator Instructions]
The first question is from the line of Dhaval Shah from Girik Capital.
Hello.
Dhaval can I request you to talk a bit louder, please?
Yes. Hello. I'm I audible?
Yes. Yes.
Okay. Just 1 question. Given the PVC prices are falling, the realization per kilo seems to be broadly stable. So when do we start seeing the impact of this in the numbers?
Sure. Thank you, Dhaval. So the realization impact of the fall in the raw material prices will be seen in the September quarter. And I would also, in fact, like to highlight that margin pressure will continue in the September quarter. And then from the December quarter, the margins will begin to normalize. This is because the -- if you see the trend of the PVC prices, the largest drop has actually been in the month of July. So July has been the worst month of the financial year. We do believe that PVC prices are now close to bottom, and August and September should more or less be stable, which bodes well for the business going forward in terms of an affordable PVC price regime should drive better demand going forward across segments.
Yes. So a comparison to -- so we saw last almost 6, 8 quarters, we were seeing an increasing trend of PVC prices just after the first lockdown. So before COVID, our realization per kilo used to be around INR 130, INR 125, INR 130 range. And now we are at INR 193 for the latest for the June reported quarter. Now with this, we've seen a transition with the share of CPVC increasing, share of fittings increasing, which are much higher value-added products. So on a like-to-like basis, if we were to see, a, where are the PVC prices compared to the pre-COVID like the December '19 or the March '20 quarter, and what would be the realization per kilo, if you keep the same PVC prices? .
So the PVC prices currently are obviously much lower than what it was over the past few quarters, but it is still higher than what it was pre-COVID. So traditionally, PVC prices would be in the range of -- I'm just giving a rough estimate, would be in the range of INR 70 to INR 75 per KG, which today would be around INR 93 to INR 95 per kg, which we feel is close to bottom for the next couple of months. So that's the differential. On realizations, I think I'll -- we'll not comment now, and is better at the end of the quarter, we would also have a better clarity on that.
So last question. So over September. So now -- what sort of drop in realization should we expect? So which is INR 193. So any broad direction if you can give?
So it will be lower than INR 193. If you're asking for a broad direction, it will be significantly lower than the quarter 1 realization because like I said, a large drop has happened in July quarter. I will not be in a position to quantify it because we are not even done with 1 half of the quarter.
But it will be -- to answer your question, broad direction will be lower than Q1.
Okay. And this -- and how would that be reflected in our long-term trend for EBITDA per kilo because we have seen, again, a very wide range in EBITDA per kilo also. So any long-term sustainable number as a company, what would you be looking at?
Yes. So if in the September quarter, the EBITDA will be under pressure because of the inventory losses extending into July month. But on a long-term basis, I think from December quarter, our usual EBITDA guidance of 13% to 15% seems achievable at this point.
And on a per kilo basis, around INR 18 to INR 20 per kilo would be a right figure?
It's a larger range than that. I think we would stick to a margin guidance of 13% to 15%.
Next question is from the line of Sujit Jain from ASK Investment Managers.
Nihar, if you can quantify the inventory losses in the quarter.
Yes. Sujit, the inventory loss would be in the range of INR 30 crores to INR 35 crores for the quarter.
Okay. And industry volume degrowth Q-o-Q. So we said that we could have gained market share. In your opinion, what would be the volume degrowth that would have happened Q-o-Q.
I think, Sujit, thank you for that question. I think it's important to highlight that in our industry -- volume growth cannot be seen on a Q-on-Q basis because quarter 1 is always going to be very heavy. And quarter 1 is usually light for us, especially since we are not very heavy on the agriculture segment. It's better to see volume growth on a year-on-year basis. And last year, of course, the base is really small. So that wouldn't be a fair comparison, either because of the impact of COVID, et cetera. But we -- if you see the last 2 or 3-year CAGRs of volume on an annualized basis, we have been gaining market share consistently.
In your sense, whichever number we may look at, and the industry would have fallen more Y-o-Y or Q-o-Q for the quarter?
So if you see Y-o-Y, there has been a growth for us, which we believe is higher than the industry.
[indiscernible] I'm asking industry would have fallen more Q-o-Q most likely.
What I'm trying to say is I think Q-on-Q is not really relevant because players who are having more dependence on the agriculture segment, which is a seasonal business, will always have a lower drop from Q4 to Q1 because Q1 is very heavy on the agri business. For us, it contributes to maybe only around 30%, 33% of our business. So Q1 is always going to be lighter for us basis Q4. So it would not be the right comparison to look at volumes on a Q-on-Q basis, except -- especially for Q4 to Q1. Historically, if you see the trend for us, say, over the past 5 years, Q4 will always be much, much higher than Q1, and that continues to stay true.
And now when I add back INR 36 crores to your OP, your operating profit margin would have been 13.1%. That still looks a lower side on the typical 13% to 15% kind of range that we target. Is there any other one-off or any other items you would like to highlight, which would have impacted the operating margin for the quarter?
So one, obviously, like you said, is inventory loss. The second is, obviously, the volumes are still not at the desired level because of the continuous fall in PVC prices, the sentiment in the channel has been negative, which leads to destocking, as a result of which there was not a very strong pull for sales, which is usually there. So in terms of operating leverage and cost absorption, also that has been impacted due to the, I would say, maybe suboptimal volumes as a result of destocking, which I think -- which I believe should reverse in now the coming weeks and months.
Right. And the net working capital increase despite your commentary last quarter, that was the peak. So how do you view the net working capital now?
Yes. So I think, Sujit, I prefer to look at working capital in terms of receivables because that's the only genuine reduction in receivables, which we are able to drive, which has gone from around 60 days to 48 days. The increase in working capital has happened because of a reduction in the creditor days, which really is not in our hands because it's a function of our buying pattern. And inventory also has reduced from 85 to 78 days, which will continue to reduce and will be at a much lower number as of the end of the quarter. So the genuine improvement in working capital is in receivables base on a long-term basis, I'm saying, which has incrementally improved from March, and we are not happy with where our current receivables days are. It has to improve, and we are very far from where our peers are. So that's something that we have recognized and appreciated internally. And over the long term, this will further reduce, maybe in the next 1 to 2 years.
Your current gross and net debt and your operating cash flow, if you can quantify that number for Q1?
So the gross debt, we had INR 177 crores of gross debt for this quarter. And in terms of net debt, it is close or INR 65 crores, INR 66 crores because we have a cash balance and also the investment in our mutual fund inventory. So net is around INR 65 crores, INR 66 crores; gross is around INR 177 crores.
Right. And the cash flow conversion for the quarter.
Cash flow conversion for the quarter, I mean, we have been positive and is around INR 4 crores to INR 5 crores.
The next question is from the line of Sneha Talreja from Edelweiss Securities.
Just wanted to understand, you said that margins will normalize from quarter toward onwards. What are the kind of margins that you look from quarter third onwards? And for Q2, are we expecting similar inventory losses to continue? Or will there be fall in inventory losses given that your inventory levels have come down. Or is it that the prices have fallen more? So just wanted to get some sense on margins here.
Yes. So I'll take the second question first. So the -- like I said, July has been the month of the sharpest decrease in terms of rupees per tonne. So the sharpest fall will be seen in the July month. Having said that, we are working on a lower inventory than we did in quarter 1. So I think margins should be in a similar range in the September quarter. And to answer your second question -- first question is, in December quarter, our margins will begin to recover and normalize, which would be in the range of 13% to 15% as per our long-term guidance.
Understood. And with respect to demand, how are you seeing demand trend, if I'm not wrong agrees almost on how was the year, and how do you see now even things panning out. Was there any substantial shift towards other polymers according to you, which will now come back to PVC, and your outlook on the volume growth does -- if at all there is some recovery that you all believing?
Sure. So Sneha, before I answer this question, just to build on the previous question, what I would like to highlight in terms of the PVC prices is that we are an industry, which, of course, raw material cost is a large part of our cost structure. And any volatility in raw material will have an impact on margins. Having said that, this kind of a volatility that we have seen in the past couple of months has been, I would say, unprecedented. It maybe happens once every decade or once every few decades. So it's not that we are susceptible to such volatility every 2 or 3 years. This is sort of a black swan event, and we obviously have been impacted more because of the inventory that we held -- a higher inventory that we had, which was a conscious strategy to keep supply chain security.
So this is sort of an anomaly of onetime hit that we have to take and move on. And to answer your question, we are not faced by this margin pressure or inventory loss. We continue to be extremely bullish on the core business and on volume growth across segments, which in plumbing and SWR, the building material part of the portfolio was already doing well. And now with a lower price regime that will continue to build and Agri will start to recover, because the past 2 or 3 years, we have seen muted agri demand. With this kind of price regime, I think across segments, PVC demand over the next 2 or 3 years should be robust. And today, we've set up those capacities in Jaipur and Telangana to take any advantage of uptrends in demand. And we are constantly working on the usual network expansion and brand visibility exercises. So we continue to be extremely bullish on demand in the medium to long term.
Got that, Parag. Lastly, [indiscernible] for your Sanitary and Bathware division that you have announced. What is the idea here, if I understood it correctly, it had asset-light losses. So will that continue for how long, any CapEx that you envision in this particular network? And what's the current network that is already dealing with and what's the synergy that you see in this business? And in this trend that how of your current network is already dealing with bathware product. And what's the direction here? Any numbers also that you want to give as a projection that company should look at in this particular business?
Sure. So before I answer in detail, to give you a more big picture view, the rationale behind this diversification is to leverage the brand equity and the distribution network that we've built pan-India. We still continue to remain bullish on the core business, and that will continue to grow. But given that we today have the management bandwidth, both at the family and the professional level, and the balance sheet strength, we have decided to diversify into a business which is very adjacent to our core business. And like I said, our brand equity and distribution network has a huge scope to be leveraged in this business.
Large part of our distributor network is already selling this product. And we have got very good feedback from our channel partners bases our announcement into this segment. It is very strategic for us to come front of the wall, becoming a front of the wall brand helps us truly connect not only with plumbers, but with homeowners across India. And this strengthens our connect to become actually a B2C -- a genuine B2C connect. And we have appointed a seasoned professional [indiscernible] as well as our existing national head in the Pipes division, Ashok Mehra, both of them have a combined experience of more than 20 years with the market leader of the bathware segment. And we have shortly -- this is going to be an asset-light model, especially for the first 1 or 2 years. And we have -- we are in the process of shortlisting our outsourced partners and the finalization will happen in the coming time. Parallelly with that, we are also working on the design conceptualization, which is going to maybe materialize soon. And we are targeting a product launch in the March quarter. And it will be a phase-wise product launch. We will start with maybe 2 zones and then get the right feedback from the market.
We are in no hurry to just drive numbers. We want to give the right product, the right design, it's a service-oriented business. We also recognize that this business is easier said than done. It's a business where some large players also maybe have not been able to do as well. So we recognize that. But basis our distribution network and internal management experience, we have taken this call. So we are in no hurry. We will be a phase-wise launch and basis the feedback, we will become a pan-India player in this category. So yes, I hope that answers your question.
The next question is from the line of [ Shrenik Bachhawat ] from LIC Asset Management.
So my first question is on the PVC drop, are we retaining any benefit on the PVC drop or the prices are fully passed on to the consumer?
Shrenik, in this industry, we usually pass on any increase or decrease to the channel with immediate effect. So when the prices were increasing, we would pass it on with full effect and -- in maybe 1 or 2 weeks' time. So we cannot be unfair when there's a decrease of similar business practice has to be followed in a upward and a downward trend.
Sure. And also, sir, our volume growth is around minus 2% from 3-year CAGR basis, which is similar to the industry leader of the industry. But I would assume on percentage basis, our performance should be better going forward because of a lower base, and also much higher distribution growth and new plant addition and various other measures we are taking. So is this a fair understanding that on percentage, we think we should outperform the industry leader? Or how should we benchmark?
Yes. I mean we will not only look at industry leader, but at all 3 or 4 players really driving the industry today. And if you look at the -- it's -- I don't know if looking at 1 quarter CAGR volume will be a right benchmark. I think the genuine volume growth has to be seen on an annualized basis. So if you see the past 3 or 4 years of volume growth CAGR, we believe that we have outperformed the industry. Having said that, we still are not happy with where we are. We are at maybe 6.5% to 7% market share with the industry leader maybe being at around 12%, 13% market share. So we are still have huge potential for growth, not only in terms of geography, be it South and East where we are ramping up distribution and retailer touch points, but also in terms of different product categories.
Of course, in CPVC, we have a large gap with the market leader. That gap has closed down in the past 1 or 2 years, but still a lot of work remains to be done, and we will be launching a few new products within the piping segment itself, which we think will help us cross-sell and ramp up the market share in the piping vertical.
And could you throw some light on the CPVC pricing -- any change on CPVC pricing or any -- what's the outlook there?
I think CPVC prices have stabilized. There was an increase in the past couple of quarters. And now I think PVC prices -- CPVC prices will continue to remain at current levels. I don't see any imminent increase or decrease going forward.
Next question is from the line of Rajesh Kumar Ravi from HDFC Securities.
My question pertains to -- first on the [indiscernible] numbers. Any -- could you give some guidance for FY '23, what sort of volume numbers you're looking at?
Yes. Thank you, Rajesh. I think in terms of volume, I think the second half of the year will be better in terms of operating performance, not only in terms of volumes, but in terms of earnings as well, will recover from the second half of the year. The first half of the year has been impacted by the sharp decrease. And like I said earlier, that not only impacts the margin performance, but it also impacts volumes because of the uncertainty and the negative sentiment in the channel. There is a phenomenon of destocking that is -- especially happened in the first 4 months of the financial year. I think things will stabilize from here on, and then start improving from the October to December period. So I think maybe at the end of the second quarter, we will be in a much stronger position to give a firm guidance for FY '23.
But any 10%, 15%, any broad outlook which you're looking at?
Yes. Like I said, I think we'll stick to the second half of the year being much better in terms of volumes and earnings. First 4 months have been impacted by the sentiment. So like I said, at the end of September quarter, we will be in a much better position to give guidance on volume. What I will say is on a medium to -- I understand what you're trying to ask. So on a medium- to long-term basis, volume growth should be there for the industry overall. And I think we will be leading the industry volume growth as we have over the past few financial year. We will be leading the industry growth. That's the internal target.
And I think it will be possible given this lower price regime and then internally, the capacities that we've set up to take advantage of any uptrends in demand. So on a medium to long term, there's double-digit volume growth is definitely achievable or a realistic target for us.
So when I look on a trailing 12-month basis, a 3-year CAGR, indeed, you are growing at 11% CAGR, which is relatively better off given the industry has not been doing good. So we want to continue with the Lubrizol brand tie-ups that you have, what sort of benefit you have seen on your volume push? And do you expect this growth can firm up thereon?
Yes. This is obviously the Lubrizol tie up is in 1 category, which is for CPVC. Overall, in volume terms, end of the date is only maybe 11% to 13% of our overall volume -- in metric tonne basis. So that will have a positive impact, and it's not only the Lubrizol tie up. Apart from that, we are doing a lot of other initiatives to grow overall, not only in CPVC, but in the overall building material space. FlowGuard is just 1 a small part of a larger overall strategy. Lubrizol may be more helpful in the B2B space. But in B2C, end of the day, Prince is still a larger brand, where we need to [indiscernible] initiatives. But yes, I think going forward, growth will be led by Plumbing and SWR. And like you correctly pointed out, over the past 2, 3 years, we've been doing better off than industry.
And again, to repeat, we are still not happy with that. We need to perform better. And internally, we are aspirational. And over the past 2, 3 years, we will deliver on that.
Okay. And sir, given the inventory loss you mentioned, you have already incurred INR 30-odd crores in Q1, and given that post June and there has been further sharp fall from June end pricing, the current realizations from INR 117 -- further down by INR 20 odd, more than INR 20. So are we looking at similar inventory losses in Q2 and hence, or how should we read the numbers? Because the -- 13% to 15% EBITDA margin, which you're talking about, which you can foresee through Q3, Q4, that still works to be close to INR 20 a kg type of EBITDA margin. So Q2 also will have a similar EBITDA -- EBITDA per kg, which we have done in Q1?
Yes. So as I stated earlier, Rajesh, there are 2 variables here. One is the per kg drop, which has been sharp in July, as we pointed out, which will ensure that, that September quarter margins are under pressure. Having said that, inventory levels are slightly lower than what we had at the beginning of the first quarter. So I think I would stick to a similar sort of operating margin performance as of now. We still have 45 days, more than 45 days of a quarter left, but should be a similar performance as the first quarter.
Okay. And 1 last question. If I look at pre-COVID margins, we are around INR 17, INR 18 a kg, and last 2 years have been very strong for you and as well as the industry. So going forward, what could be the normalized number? Is that INR 18, INR 20 is the normalized EBITDA margin, which one should build into or there have been significant changes in the product mix, whereby you can go up to INR 25 or even INR 30. What would be the normalized number one should look at?
So I think, Rajesh, we have typically always talked to margin guidance of 13% to 15%. Of course, there's better product mix, better pricing power in a consolidating industry will help us improve margins over the long term. And as volumes grow, profitability will grow because of the way our cost is structured, there will be a good amount of operating leverage as well. So I would stick to a long-term EBITDA guidance of 13% to 15%.
Next question is from the line of Praveen Sahay from Edelweiss Wealth Management.
Just a query on the agri side. As your -- I believe the Agri contributes around 35% of the volume, and as you also said that Agri is weak, Plumbing has done well for our sector. But still, I look at the peers, whoever has reported their numbers in volume, your number looks weak in terms of sequences. So like your Agri is lower, Plumbing is high, Plumbing did well as compared to PS. But again, your sequential volume is lower. So, can you correct me what I'm looking wrong.
Can you repeat your question?
Sir, my question is on the volume. So I believe that volume, 35% contribution is from Agri. And if you said that the agri sector is weak and the plumbing sector and the other segment has been [indiscernible]. But on sequential basis if I look at the other peers, who have reported their numbers, their numbers -- your number is weaker in terms of the volume on sequential side. So even they have a higher contribution of Agri. So Am I looking something wrong in that? How to look at actually?
Yes, yes. So the -- like I mentioned at the beginning of the call, that volume in our industry cannot be seen on a sequential basis. It has to be seen on a year-on-year basis. If you look at our past 5 years or past 10 years for that matter, Q1 is always going to be significantly lower than the March quarter. That's just an industry trend because quarter 4 is always heavy in terms of plumbing demand and in terms of distributors running for their targets and their turnover discounts, not only for Prince, but at an industry level, quarter 4 is always extremely strong because of this reason.
Quarter 1 for us is always slightly weaker because we have lower dependence on Agri. Hence, any volume performance needs to be seen on a year-on-year basis. Of course, last year, Q1 was impacted and the base is very small, and that comparison wouldn't be fair either. What I will say to conclude is that any volume performance has to be seen on an annual basis, not on a quarterly basis, that would be too much of a short-term number with too many variables at play. If you see the past 2 to 3 years on an annualized level, we have still outpaced industry growth. We have still been one of the fastest-growing in the industry, and that will continue over the next 2 or 3 years because of the capacity enhancement investments into branding and distribution and the new products that we are launching in the piping segment. We still are of the strong belief that we will continue to drive industry growth over the next 2 to 3 years as well.
Basically, that I am just comparing the peers, why you had given -- Okay. So the next question is again on the comparison on the margin front. There also, I can see that, sir, more attrition in your margin versus peers. So is it because of the inventory loss of the PVC racing largely for you? Or something else to also there?
No. I think we stated this at the beginning of the call as well that we were holding a higher inventory at the end of the March quarter. So as of March 31, our inventory levels were at a much higher level than industry or than our usual inventory levels as well. This was a conscious effort, and we have been stating this consistently over the past 4 quarters, that we are maintaining a higher inventory level because of the supply chain security issues as a result of the global supply chain prices. So it was a conscious [indiscernible] inventories.
The next question is from the line of Nikhil Agarwal from VT Capital. .
Sir, like we have been seeing that the PVC prices have been falling down. But if you compare sequentially -- The cost of raw materials [indiscernible] if you compare it sequentially. And so what explains that? Have we been taking more price cuts on the drop in PVC prices? Or is it because of some -- the volume mix or something?
So the prices have come off as a result of the raw material prices. It's a pass-through industry. The increase or decrease in raw material is passed on to the channel in terms of an increase or decrease in the finished good pricing. That is what has impacted the performance. Product mix is more in line to our regular product.
Okay. So -- and sir, like as CPVC products, they are higher-margin products for you? Like -- Is my understanding correct?
Correct?
Okay. Sir, like since PVC prices have been falling down, do we see the demand shifting to PVC more and hence having an impact on your margins going forward?
So I had traditionally maintained that even when PVC prices were going up and CPVC was not going up in that same extent, we had always maintained that I don't see much cross cannibalization across the polymers because for that to happen, there needs to be a long-term reduction in the delta of CPVC and PVC prices. Only then kind of structural change happen in the consumer pattern. This was only a phenomena for maybe 3 or 4 quarters. That does not really change end level or consumer level behavior. Such gaps have to be there for a longer period of time.
So I don't think the CPVC growth for us over the past 3 or 4 quarters has happened because PVC prices were higher. So similarly, now that the original delta has come back, I don't see any threat to the CPVC growth going forward.
Okay. Great. And sir, like could you like give us the volume mix of your agri demand, plumbing demand and SWR demand, historic? Like traditionally, what's been your volume mix. Just some figure on that?
So traditionally, in terms of revenues, Agri is around 30% to 35%; around Plumbing and SWR, which is the Building Material, is around 60% to 65%; and 2% or 3% is Infrastructure, which is the underground drainage pipes. Tank is still a very small part of the portfolio and only will start contributing in a percentage basis maybe in the next 1 or 2 years. And similarly, Bathware also will take some time before reflecting on the overall revenues.
Okay. And your CPVC and PVC in terms of volume and revenue, and value, of course.
So in terms of volume, it's around 11% to 13%. And in value is around 20% to 25%.
The next question is from the line of [ Udit ] from [indiscernible] Securities.
Majority have been answered. Just wanted to check, you mentioned that after July, there has been some steadiness in demand. So could you please explain at what was the dealer inventory for the past quarter and what it is now? And are we seeing any improvement there?
So the recovery, I'm saying is in terms of PVC prices, have stabilized in August, and we are close to bottom because of the sharp decrease in July. And as a result of this stabilization in PVC prices, we believe that demand in August and September should hold steady because this kind of a decrease, we have -- like I said earlier, we have seen maybe once every decade or once every 2 or 3 decades, this sort of a sharp fall. So I do believe that demand will stabilize in August or September and then start recovering from the December quarter.
Next question is [indiscernible] from Centrum Broking.
Yes. My first question on the agri side. You said Agri as a percentage of total volume is 35%, right? It's on the volume side, not on the sales side?
It's on the sales side, is around 30%.
Okay. On the sales, it is 30%. And volume it's 35%.
I mean this is just -- I mean...
A rough ballpark.
A benchmark for what it has been like over the past 1 or 2 years.
Sure, sure. Second, the CPVC prices, if I remember correctly, on last or last-last con call, you had highlighted that CPVC prices were at INR 200 per kg. What will be the current price scenario for CPVC?
It would be in a similar range.
And last on the Bathware segment, I just want to understand what kind of channels we are going to use because, of course, sanitary ware and faucet ware, the channels are slightly different as compared to the pipe because we need a better showrooms and all to display the product. So are we planning to invest anything on that front?
Correct. So before entering into this segment, a lot of research and homework has been done by my team. And one of the most encouraging things was a lot of our distributors today are key distributors in our principal markets especially, are already doing faucets and sanitary ware business, which will be a sort of a low-hanging fruit for us. Of course, we will not only be dependent on that. In some districts, we will have existing distributors that we'd be able to leverage. And in some districts, we would have to open up new channel, which will also help us cross-sell our core product, which is the pipe and fittings.
Usually, the trend that I understand is that in the larger Tier 1 cities is where there have company-owned showrooms. And in Tier 2, Tier 3 markets is where large distributors that have worked for us over the past many years, would invest in the showrooms, and we would maybe incentivize them for that because the margin in this business is going to be accretive for us relative to the core business. And design of the product and service -- after-sales service are going to be 2 key drivers for this. So we recognize that this is not going to be easy. We are not going to see overnight success. We have built the pipes business over the past 3, 4 decades. So similar investment of not only energy and resources, but also time needs -- patience needs to be given to these kind of divisions, which will pay off for us in maybe 3 to 5 years' time.
So similarly, how we have in Tanks, a long-term growth strategy. Similarly, we will see for the Bathware division. And what's important is our team is seasoned professionals, who has spent a lot of time in this bathware industry. So they know the opportunities, the challenges, the threats and that will really help us to build this business going forward.
Okay. And we are not planning to have any kind of in-house manufacturing in sanitary ware and faucet ware at this point of time?
I think we will, for the first 12 to 18 months at least, it will be on an outsourced model. What I'm -- it's still early days. What I'm given to understand is that investment would be at least required for the CP fittings business. Sanitary ware can still be a long-term outsource thing, and maybe after 3 years, we would need to invest. So the first investment would be towards CP, which is the faucets, which also will be in the next 12 to 18 -- after 12 to 18 months at minimum.
And we'll be using Prince brand, right, for both the products?
We will -- that is being under consideration currently. Whether we would be going with a dedicated brand for the bathware segment. Either way, we would leverage the Prince brand. So it would either be a name from the house of Prince or it will be a Prince brand. So at the right time, we will make those announcements.
The next question is from the line of Rahul Agarwal from InCred Capital.
Just 2 questions, both on the industry and partly they got answered, so pardon me for repetition. But firstly, on bathware, Nihar. Obviously, it's a known fact that large national brands are very bullish on the segment. Asian Paints is talking large things. Astra recently entered. Kajaria been trying to grow it, 4, 5 years now. COVID obviously had some kind of tailwinds for home improvement, and hence, maybe the demand was pretty high for faucets or sanitary ware. Now from your perspective, your internal research and study, I just wanted to understand any structural change are we seeing in the segment? Is that the replacement demand versus new demand? What is the kind of thought process you have over the next 5 to 10 years. If you look at industry growth, it's not about Prince specifically. But even on industry growth, do you think this segment basically grows better than plastic pipes. And obviously, as you mentioned, it's more going to be B2C now versus B2B front of the wall, needs more branding, and Akshay Kumar contract extension by the next 2 years also held.
But overall, long-term vision and your study, why bathware is so exciting even at a 5% market share at today's revenue at the industry level would be like INR 750 crores. I think that's a long journey. So anything you want to share on these some points? That's my first question.
Yes, I think thank you for that question. I think for us, what was important is we have been the only pure play pipe and trading manufacturers in the industry. So any diversification that we did has happened after a lot of brainstorming with the team within the family. A lot of evaluation, research, homework, a lot of study has gone into this because this is our maybe our first real diversification. I don't consider the tanks business to be a real diversification. So a lot of study has gone into it. I think what was very important for us is, one, being able to leverage the brand and the distribution network.
And the second is to get into a segment where eventually we would be -- maybe not a market leader, but amongst the 4 or 5 companies driving the market. We did not want to get into a business where there are already huge giant fitting and it's impossible even after 10 years to become one of the market leaders and have some sort of pricing power, scale and ability to drive the industry trend. So I think this was a good fit where at least we see in 5 to 10 years, we will be able to at least be one of the leading recognized brands at a pan-India level and build that for us. And that was one of the most exciting things. Second is this is an industry which is still 35% unorganized and 65% organized, similar to piping. And in piping, a product which is behind the wall is seeing such a fast consolidation with organized players, growing market share and the larger 4 or 5 players being able to grow market share, product which is behind the wall. So in a product that is front of the wall, we do anticipate that market will continue to consolidate larger players with an ability to invest in branding and ability to invest in the product design, to invest in a right service team, pan-India. Those sort of players will be able to drive the market, and we feel that in the next 5 to 7 years, we can. We are ready to make those investments into brand design, sales team, service team, et cetera, and have the distribution network to have an immediate rollout pan-India in a phase-wise manner. So these were the parameters that were studied and considered, which really excited us to get into this space.
And is it on the timing, like it's really coming all together that all brands who are already incumbent in the segment or maybe newer guys are trying to talk about to build this. Everybody is certainly very bullish on the segment. And I'm assuming the bathware faucets have to do well. The entire ecosystem of pipes along with tiles and along with the entire home market should do well. So is it like more related to the real estate cyclical recovery, which we are very bullish on over the next 5, 7 years in India? Is that the way to think about it?
Yes, because this diversification is not because we are not bullish on growth in piping. We continue to be bullish on growth in piping. And in fact, piping has been the -- the piping industry has been the fastest growing in the overall building materials segment. So we do believe that core business will continue to take the lion's share and we'll continue to grow. One of the reasons, you are right, is optimism on real estate. I think real estate is overdue for a good performance, and we've already started seeing the green shoots of a strong real estate market over the past maybe 4, 5 quarters. And I think this will be sustainable and good real estate growth, not only in urban India, but in semi-urban and rural India as well, where a large part of our brand equity and distribution network is present. So that -- the positivity in real estate also has been one of the drivers behind this decision and both new projects and replacement market have been encouraging in the bathware segment.
I have a small second question. Can I go ahead?
Sure. Sure.
So, Nihar, 1 question on pipes. Overall, obviously, there is bullishness around volumes to pick up clearly because the PVC price is now reasonable enough for the decisions have been pretty volatile from the customer perspective. Farmers have been pretty hazy in terms of investing into the fields. The last 2 years, obviously, COVID hit. Do you think a scenario wherein you're talking about volume recovery based on your past experience, 30, 40 years Prince has been around. Would you see that the volume can actually surprise? We know that 10% to 15% is a good range to work with. But 20% plus, is that real or possibility at current pricing? Or you still think that maybe if you go back to pre-COVID level of INR 70, INR 75 a kg, that's when we can actually see those kind of crazy numbers. So just a hypothetical question. But would you see a pick -- volume pick up, something like that? Could we expect that?
Yes. So firstly, this kind of volatility, you're right, doesn't happen every 2, 3 years. It happens once in 10 years. So it's very important that it does not phase us and then one has to remain patient and then believe in the market. So that is point number one. Point number 2 is, in terms of volumes. See, this price regime, I personally don't see prices going back to pre-COVID levels of that INR 70, INR 75 on a sustainable level. I think this current price regime, given the global trade flows today is very, very conducive to growth and high double-digit volume growth going forward is not, I would say, impossible. A lot of things have to go right for a consistently sort of 15%, 20% volume growth at an industry level. But maybe for the consolidated players, the larger players, it's more realistic. So it's hard to really quantify. But yes, this is -- this bodes well for good volume growth going forward. And we have set up the capacities in order to take advantage of such uptrends.
Thank you very much. I now hand the conference over to the management for closing comments.
Thank you to all who have attended today's call. Thank you.
Thank you so much.
Thank you very much. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.