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.
Earnings Call Analysis
Q2-2024 Analysis
Prince Pipes and Fittings Ltd
The company experienced a positive quarter, driven by an 8% increase in finished goods sales volume in the plumbing segment, culminating in a 3% rise in revenues year-on-year to INR 656 crores.
The company saw its margins normalize in the second quarter after a stabilization in PVC prices and implemented improvements in product mix and cost control. This resulted in a healthy operating performance with an EBITDA margin of 14.3% for the quarter.
Efforts have been made to fortify presence across various segments, and the Bihar facility is being implemented as planned. Growth is expected to continue, especially in mid and premium real estate sectors. Segmental revenues for Bathware are projected to begin in the December quarter with an INR 8 crores target in sales.
The company acknowledged a recent lag behind industry growth and is taking corrective actions to address this. Capacity investments have been made in HDPE, which should reflect in future volumes, and efforts are made to correct pricing strategies to align with peers. An ambition to return to industry-leading growth is clear.
The company is exploring emerging products such as composite pipes, which could see niche applications in luxury segments like villas and hotels. While these products signify higher cost per installation, they aren't expected to become commoditized and might only capture a small portion of the CPVC market share.
Finance costs have decreased by around 50% due to reduced short-term borrowing rates. Additionally, efforts are in place to optimize working capital with the aim to decrease the debtor days from 63 to around 50 in the next two quarters and reach mid-40s by the next year.
The company plans to maintain an EBITDA margin between 12% to 14% over the long term. Related to the CPVC market, there's potential for antidumping duties to strengthen as local manufacturing capacities increase.
It was reported that the Agriculture segment tends to show stronger performance in the March and June quarters, aligning with the seasonality of the agribusiness. As a result, the growth in the September and December quarters isn't as pronounced for agri-products.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Prince Pipes & Fittings Limited Q2 FY '21 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Pranav Mehta from Equirus Securities. Thank you, and over to you sir.
Thanks, Sima. Good morning, everyone. On behalf of Equirus Securities, I welcome you to the call with the management of Prince Pipes and Fittings Limited. As the management is being represented by Mr. Parag Chheda, Joint Managing Director. Mr. Nihar Chheda, Vice President, Strategy; Mr. Anand Gupta, CFO; and Mr. Carl Golla, Head Investor Relations.
I will straight way hand over the call to Mr. Parag Chheda his opening remarks. Yes, sir, over to you.
Thanks, [indiscernible]. Good morning, and thank you for joining us for our quarter 2 and H1 FY '24 Earnings Call. The presentation and the press release have been issued to the stock exchanges and uploaded on our website. I hope everyone has been able to go through the same. Our performance this quarter has been good, driven by higher sales volume in the plumbing segment. Finished goods sales volume for the quarter increased by 8% year-on-year to 41,529 metric tons, and overall, revenues grew by 3% year-on-year to INR 656 crores.
The correction in PVC prices in early October did lead to some destocking and deferment of volumes in September, but the prices have now stabilized with a slight uptick leading to restocking and supporting volume growth during quarter 3. Improving product mix, rigorous input cost control, efficient marketing strategy and good volume growth have translated into margins rebounding to normalized levels in quarter 2.
I'm glad to share that this was the maiden quarter of the Bathware segment, and we have received a very encouraging response from dealers and end customers. Let me share some highlights of our Prince Bathware segment post its launch in June 2023. I'm happy to share that our products have been well received in the market gaining positive sales traction and encouraging feedback. We continue to build a robust distributor base in Northern and Western India with brand launches in Tier 2 and Tier 3 markets like Srinagar, Jaipur and [ Varanasi ].
We plan to launch Bathware in Eastern India by quarter 4 FY '24. We have also started participating at exhibitions and events which have drawn a very good response. I'm glad to share that we have already undertook our first project in Mumbai, where our products have already been installed for the first phase of the project. As our tank business scales up, we will continue to leverage our multilocation manufacturing presence to scale this segment. In the next couple of months, we would set up manufacturing in Haridwar and Chennai, taking it to 5 of the 7 in-house locations.
With these efforts, we plan to establish a strong presence in all segments including pipes and fittings, water tanks and Bathware. Just to give you an update on our Bihar facility, the implementation is going on as per our plan. The layout has been finalized, and the work will start post Diwali as we commence construction at our latest integrated manufacturing facility at Begusarai in Bihar.
As we grow, we are investing in building a strong front line of our team in accounts, finance and HR to implement progressive strategies to help us achieve our long-term vision. I take this opportunity to welcome Anand and Ajay as we work together towards fortifying our industry leadership position. Anand is a qualified CA with over 20 years of experience in finance, commercial planning and efficient management of stakeholders, people, performance, risks and opportunities. Prior to Prince, he was associated with ACP Limited for 14 years in different roles and responsibilities.
In addition, I welcome Ajay Kumar our new Chief HR Officer, who brings comprehensive experience of 23-plus years in developing and executing strategic human resource policies. He has extensive exposure to large corporates with multiple manufacturing units spread across geographies in India and overseas. On an overall basis, several strategic efforts have been undertaken over the past few months, and we will bear the fruits from them as we progress ahead. Print pipes remain active agile and growth hungry to ramp up market expansion efforts. The long-term industry fundamentals remain strong. The real estate sector continues to remain point especially reporting good sales in the mid and premium category. In fact, rail to expect to record sales this year and unsold inventory is at a decade low, which augurs well for all building material consumption over the next 2 to 3 years. property developers expect wholesales to post a new high at more than 0.5 million units in the top 7 Indian cities this year amid strong demand and big launches planned by many imminent large developers. Several prominent launches for residential real estate are lined up for this festive season as sales numbers are expected to touch unprecedented levels.
We are closely monitoring every aspect of industry momentum and are excited about the untapped potential with several steps in the right direction as we focus on market penetration and expansion of PAN India footprint. We expect continued growth in the second half of the fiscal as we move ahead with an even greater commitment to transform and strengthen India' water infrastructure.
Thank you for your time and mind share. I will now hand it over to Anand to take you through the key financial highlights.
Thank you, Parag, for a warm welcome, and good morning, friends. I'll be taking you through the quarterly highlights. In this quarter, revenues for the quarter improved by 3% year-on-year to INR 656 crores. Our finished goods volume grew by 8% year-on-year at 41,529 metric ton. We delivered a healthy operating performance with EBITDA at INR 94 crores for the quarter, resulting to a margin of 14.3% for the quarter. A&P spend increased by 7% over the previous fiscal period and is at INR 15 crores. Further, our finance costs reduced by around 50% due to improvement in cost of short-term borrowing. Let me highlight the exceptional item for the quarter and first half.
The legal matter between drink pipes, Ruby Mills Limited and minesite Estates Private Limited has been amicably resolved, and the corporate office situated at the Ruby [indiscernible], Mumbai has now been registered in the name of the company. Based on the valuation report, the property was revalued and there is a net gain of INR 17.93 crores towards the settlement, which is included in exceptional item for the quarter and first half.
It is important to note that despite the exceptional gain, margin performance has been healthy. We continue to judicially expand our channel finance program. We have made steady progress since the recourse has shifted to distributors. And have increased the credit limits of our channel partners from INR 105 crores in quarter 1 FY '24 to INR 126 crores in second quarter of FY '24.
Commenting on the working capital for the quarter. Our inventory is stable at 62 days, while our trade hikes at 59 days and debtor currently are at 63 days. We acknowledge that there is a large scope for improvement in our database, and we are continuously working towards the same.
With this, we would like to open the floor for questions.
[Operator Instructions] We take the first question from the line of Mr. Rahul Agarwal from InCred Capital.
Sir, my first question was [indiscernible] trade. You obviously mentioned that October has been stabilized. You had some hiccups. Any thoughts on the second half outlook. Any known positive or a little bit of surprises that could lead to volatility into PSC, either the pricing or the demand, please?
So if I understand the question, you're trying to understand the demand outlook. .
Yes. And any non-positive negatives, which would lead to volatility in terms of performance?
I think [indiscernible], let me start from the raw material on PVC. I think we are well poised as an industry. I think it's extremely low-cost polymer today. And I think at least for the next couple of quarters, we foresee a very low level of volatility, both upwards and downwards. I think PVC will be extremely range, which is going to create an extremely growth conducive environment because of affordability and also more certainty in pricing will always help the channel to avoid any heavy destocking or restocking. So I think it is good going to be a more growth conducive environment with a more certainty and a better visibility of growth. And as far as the end market is concerned, I think real estate is doing well. Infrastructure is doing well. So there are positives on both sides. And from the medium to long-term perspective as well, we are confident and certain of the growth.
Got it. Secondly, 1 of the larger peers into pipes is acquired a facility which makes PVC pipes. What I understand is the margins are decent and the demand is -- looks like sustainable over the next 3 to 5 years given the drinking water problems in the country. Any thoughts on the product and your company's interest in doing this?
So we have been evaluating this product. It's a capital-intensive line to be in. And there is no application apart from infrastructure it's broadly going to be an infrastructure and an institutional sort of game, which traditionally we have stayed away from as an organization because of the credit cycles. But as the government's focus on credit cycles in the infrastructure and institutional business. So we will keep exploring any new opportunities like a couple of the new products that we have introduced within piping like PP, low-noise pipes as well as polypropylene surface damage product. I think we have seen very strong acceptance for these new technologies. Of course, sales numbers do take time whenever you introduce such kind of technologies because we are the first mover in these kind of products where we have to generate demand, do the concept selling. But in this quarter itself for both the products we have already received our first project orders for [indiscernible] as well as for Horizon, which has already been installed. So now with our modern plumbing vertical, we will always be sort of on the lookout for these kind of technologies, OPC being 1 of them. But I would prefer to focus more on products that have acceptance in retail projects as well as infrastructure rather than having products which are focused only on infrastructure and institutional.
Got it. And last one, one question was, we didn't expect to see [indiscernible] separately?
From December quarter.
[Operator Instructions] We take the next question from the line of Devansh Nigotia from SIMPL. .
Devansh Nigotia from Safe Enterprises. So if you compare our volumes with the peers, it has been relatively tepid. And also the base quarter was a weak quarter for us. So any thoughts if you can share why the volume performance has not been very robust .
Sure. Thank you, Devansh. I think it's an important question to address, and we want to sort of answer this question with as much transparency as possible because regardless of whether the performance is good or bad, I would like to not shy away from the performance. So yes, I accept that the volume growth in this quarter and past couple of quarters has not been at par with industry. And at Prince we have -- we are used to industry-leading growth. What I can share is that there is no or peculiar reasons for this. We continue to be focused on distribution, adding new products, investing in branding. -- focus on entering into the project segment. So the fundamentals do not change, and we continue to focus on the fundamentals and our entire effort and mind share of the professional team as well as the family is on that. I think a couple of places we feel that a segment like HDP, we have maybe been laggards with investing in capacity.
And those capacity investments have been made in the September quarter, which would start reflecting in the operational performance in terms of volumes from the March quarter, specifically for HDP. And there has been some corrective actions that we have taken on pricing, where we felt that the largest player has been more aggressive in pricing in certain markets. So we have tried to close down those pricing gaps and certain more corrections that we have done in the past couple of months as well. So I'm confident from a medium-term perspective, that we should be, if not industry-leading at least in line with peers in terms of volume growth.
And in case of bathed segment, other its comments, what are the fixed cost, which will be there in the P&L in terms of expected losses that you're expecting? .
So the cost regarding to Basel will be primarily on 2 aspects. One is the employee cost and the branding costs, which we'll be incurring in our P&L. So these are the 2 costs which will take in P&L .
So any expected launch contribution we're expecting this year, or let's say, for this quarter, how much would have been the contribution? .
So right now, you can see that around INR 3 crore to INR 4 crores is the branding cost in this quarter and around INR 1.5 crores is the employee cost that is sitting in the which you can factor for pipes, pipes and battle separately.
Okay. And the revenues for [indiscernible]
A rollout. So it's just the initial sales that have gone. So I think the -- in the next 3 months, the focus will be on setting up distribution. And from December quarter, we would share the segmental revenues for Bathware as well. So we would be targeting INR 8 crores of sales for bathware in the December quarter.
Just last question. How much is the contribution of infra pipes as a percentage of volume this quarter.
I'll allow me to -- Karl will get in touch with you after the call to share the specifics, I will not have that [indiscernible]
[Operator Instructions] We take the next question from the line of Pritesh Chheda from Lucky Investment.
I have a question slightly on the slightly longer side. What's your opinion on the composite pipes, which is basically polymer, aluminum, polymer or polymer steel polymer as a option where polymer aluminum polymer has evolved in -- has done some business in India. And can they be -- can the mix if you see eventually a redundant pipe eventually because it's quite unique that is India where PVC-based piping solutions are prominent, but globally, it's a different polymer and then there are these composite pipes. .
So globally, if you speak, there is -- one is composite, which is still not a very large market globally. You have PPR, which is novelly well accepted, in which we are market leaders in India, and we are seeing an acceptance of PPR growing apart from its usual base. It's still very small. But yes, developers today are looking for options outside of PVC as well as they are trying to upgrade their homes. I think average Indian consumer today, as disposable incomes increase, I think there is end user also is becoming more product conscious, more brand conscious for a product which is behind the wall. So I don't think it's specifically about composite pipes or not. It's about what alternate or what next after CP, if that's the question. I think CPVC will continue to have the lion's share of the market even on a 5- to 10-year horizon because of the ease of application as well as the cost structure. However, you will see certain niche polymers like PPR or composite pipes coming in, but I don't foresee it being more than 3% to 5% of the overall CPVC market. So we will invest in those kind of products because that helps us build a very strong brand identity and a first more advantage. So the way we have done for PP low noise where we are upgrading SWR drainage systems from PVC to PP. Similarly, we will upgrade water supply systems as well. But I don't foresee it to be a very large volume or top line driver.
So you mean to say that PPR plus composites will just be 5% of the market eventually, or individually 55%, 55% composites.
No, I think put together around 5% is what I see.
And does your existing infrastructure and machinery which makes the CPVC pipes can make the PPR pipe or you need a completely different manufacturing setup? .
It's completely different. It's a completely different setup. But we have been in PPR for multiple decades now. So we have capacity. We process more than 400, 500 tonnes every month of PPI. And we have been in this industry as market leaders since a couple of decades now. So that capacity for pipes and fittings of PPI. We possess -- and as and when the demand supply permits us, we will be adding capacity as required.
And any specific comment on PSP where when you put steel in between the 2 layers of polymer, one, the pricing also becomes competitive because steel is INR 50, INR 60 a kg versus polymer INR 80 to INR 100. So you get the strength of a steel and a life of a polymer, which can compete state with CPVC. Any specific comments there or it's too early to?
It's -- I mean, as a product, it's in a nascent stage, but as a market leader, it's very important for us to be ahead of the curve with these kind of technologies. So as far as cost structure is concerned, I think with composite pipes, the cost structure becomes 2 to 3x per bathroom, and the builder the way he looks at piping cost is on a per bathroom basis. So if you replace CPVC with composite, I think the cost per bathroom will not increase from a percentage point of view, but it will increase 2 to 3 times. So there is a market for it, but it's not going to become a commodity. Even in the long term, I see this as a niche where more applications would be in Bangla, Vilas maybe hotels. But your traditional high-rise buildings will continue to be in PVC and CPVC.
And just 1 question. I can get your answer. Why was your volume growth relatively lower than the industry for the last 2, 3 quarters now?
Yes. Like I said, the fundamentals don't change. We continue to be aggressive on distribution branding entry into projects. So there's no 1 or 2 particular reasons. And we don't want to shy away from the numbers, the numbers speak for themselves that we have been lagging industry growth. There is no 1 or 2 reasons for it. But we are confident that we will be back to industry-leading growth or at least in line with peers. One of the corrective actions that we have taken is investing in capacity in HDP, where we feel that we have been laggard. So that will be reflecting in our volumes from the fourth quarter. and certain pricing actions as well that we have taken in the current quarter, which should help us realign our growth performance. .
Pricing actually means you are way off in terms of pricing reasons with your peers in terms of premium or discount premium to peers, that's...
Yes. We feel that in certain markets, we have -- as a premiumization drive that we undertook 2 or 3 years ago in certain markets, maybe we have over premiumized. So we are correcting that to be aligned with our peers. So I don't want to put this all down to pricing. I think pricing is just 1 aspect, but we need to be sharper and more aggressive with this, and I'm confident that overall, apart from pricing, there's a lot of other factors apart from pricing that go into growth. This is not purely a commodity business. So I'm confident that in the next couple of quarters, growth will come back to industry-leading growth. .
The next question is from the line of [ Rita ] Kapadia from Valuequest Investments.
I have a couple of questions. My first question is, how has the CPVC performance been so far? And what percentage of volumes come from CPVC.
So we share a revenue breakup, not a volume breakup. CPVC would be around 20% to 25% of revenue.
20% to 25%. Okay.
Of revenue.
Okay, of revenue. And what is the outlook on the working capital days as of now?
So right now, debtors is at 63 days. And we are using channel finance as a lever as well as the trade policy we are reviewing wherever possible. We are trying to bring it down to around 50 in the next 2 quarters. And then we see further downside is possible. And by next year, we see that mid-40s should be the sustainable [indiscernible].
Mid-40s by next year. Okay. And any guidance on margins?
So just to clarify, mid-40 of the guidance for [indiscernible] days. Inventory and creditors will be a function of your procurement pattern and you're seeing right now creditors reduced because we are depending more on local, which could be the trend for the next couple of months. As far as...
Local in terms of your revenues.
Yes. Local players like Reliance and [indiscernible] Yes.
Okay. And what is the -- is there any guidance to margins that you would like to give?
I think we'll stick to 12% to 14% on a long-term basis. .
[Operator Instructions] We take the next question from the line of Akash Shah from UTI Mutual Funds.
So I had a few questions. One was on CPVC, [indiscernible] duty. So coming -- so in FY -- in August -- in August or September, the antidumping duty will get over. So I mean any thoughts whether it will get renewed or it may not come up for renewals.
I think it's tough to comment on these kind of things where the government is the decision-maker. But I think with -- as -- there's 2 parts to it as local capacities increase, definitely, there's a better case for protecting the local capacity of the domestic manufacturers. And we are seeing domestic manufacturers increase capacity as well as our partner, Luciole is putting up capacity in Gujarat. So as the capacity is locally increased, I think that builds an even stronger case for antidumping duty. Having said that, the lower cost of CPVC, the lower the cost, the better the growth. So it's -- we can't really speculate on what will happen with the government, but if capacity has increased, I think the case for duties will be even stronger.
Sure. Then just coming to agri non-actual mix any -- if you can share what was the mix in this quarter? And how was the growth on a Y-o-Y basis?
So we'll -- I don't want to give too much on segmental growth because of competitive intensity. But what I can say is Q2 is usually not very heavy on it. Agri typically, the agri season is more -- is it stronger in the March quarter as well as the June quarter. Typically, the September and December quarters are not as strong in agri because, as you know, Agri is a seasonal business. versus plumbing and SWR, which is more of a perennial uniform business. So most of the growth has been driven by the Building Materials segment in the September quarter. .
Sure. Coming to industrial pipe, sir. So we had tied up with Lubrizol and -- so we are tied up with Lubrizol. And we had launched pipes for industrial application using Corsan technology. So any thoughts -- I mean, anything that you can share on this front? I mean, how are we doing -- Yes.
Currently, yes, so this is a segment which excites us. because of the lower competitive intensity, higher barriers to entry in terms of access to technology and investing capital for a specific niche purpose. So today, we see ourselves as someone who replaces conventional products like MS and RCC. And the way we have been able to create value in TWC similarly, we want to do that with industrial CPVC as well. Currently, we are in the concept selling state. So these kind of order take and even higher gestation period than plumbing. Because a lot of concept selling has to be done. And when you have to replace metal with plastic in India, unfortunately, that mental perception is still very high. So I think next couple of quarters, at least, we have to still invest into interacting with stakeholders, creating awareness about these kind of products and then working on specifications and then generating sales. So it's a long process, but we enjoy that process because eventually then that gives us a very strong first more advantage and brand equity. And we have seen that entire cycle play out where the first couple of years, we were virtually working at very low capacity utilization. But we focused on concept selling, we focused on nurturing the market. and now DWC has become a very well-accepted product and Prince today is recognized as a market leader in this space. So similarly, we are wanting to play out that process for industrial CPVC. And the important thing is that this will not end at industrial we will keep looking for newer opportunities, newer products. We are not in a hurry, depth is more important than breadth. And whichever product we take, we will really give it a lot of mindshare and time and effort and investment in terms of people as well as branding as well as capacities.
Sure. Sir, if you can share what is the investment that we have done in this segment? I mean, have we invested in capacity.
Yes, we have invested INR 8 crores to INR 10 crores.
Okay, sure. And over long term, this segment would remain a niche? Or do you feel that this may contribute to a a larger percentage of the top line? .
So globally, this is very well accepted and has become more than just a niche, but these cycles take very long. It's not a question of 2 to 3 years. It's a question of 5 to 7 years before this becomes more than just a niche. But at least in the next 3 to 5 years, we see a good level of concept selling that we...
Sure. And just last question. New applications of plastic pipe. So just wanted to check how are we doing on, let's say, fire related -- I mean, the pipes which are fire return. So any -- or at any other new application that you would like to highlight with respect to plastic pipes?
Specifically, we have entered into the low-noise drainage and sewage systems with polypropylene, which is noise canceling, probably in drainage from Germany. And similarly, for surface Danet we have partnered with or tone for surfactant products where we will replace our CC purchase manage to PP service dang. These products are also made of 100% recycled poly properly. And we are seeing today builders becoming more and more green conscious and looking out for these kind of products. So with these kind of products, revenue is not the only metric that we need to see. We need to see the kind of brand equity that it helps us create a first more advantage, something unique that we're able to offer to the end users that are per -- and we need to -- and in the long term, the gross margins are really exciting when we would start in-house manufacturing for both these products, the way we have started in-house manufacturing for industrial PVC as well. So in the long term, a lot of value can be created, especially at the gross margin level. And this will somewhere help us become more competitive in our core products as well. so that we can -- that diversification within piping also helps us become more competitive in our core segments.
We take the next question from the line of Arun Baid from ICICI Securities.
You mentioned that going forward, we would at least be industry standard kind of growth. So a lot of our peers are talking of at least 15% CAGR growth over the next 2, 3 years. Are we trying to say that we match that number, if not more? .
So I think we have to look forward. H1, of course, at least Q1 was majorly disrupted by ERP. So whatever I'm talking about is from December quarter onwards. -- we need to be in line with peers. So I want to be as transparent and possible and take this question head on that, yes, the volume growth has not been in line with peers in not only past quarter but past couple of quarters, certain corrective actions that we have taken, which we have shared in the earlier answers. And now the numbers need to talk rather than us guiding for any kind of growth, I think the actions have to speak louder than words. And we are used to that internally as an organization in terms of having the highest growth in the industry. So rather than us stocking, I think the numbers are talking and we are confident that, that is going to happen.
Just one thing. Last quarter, we had some issue with regards to fitting sales. Is that sort out?
Yes, that is normalized in the September quarter, and that's reflected in our numbers. .
[Operator Instructions] The next question is from the line of Sneha Talreja from Edelweiss.
Congrats on good margin improvement. So just starting with the first question, while you've answered the market share loss related question, just wanted to understand where is we saw margin growth coming from?
Neha, one is our pipe fitting [indiscernible] -- so the question was on the margin performance. So 1 is pipe fitting ratios normalize from the first quarter onwards, which led to a normalization in margins Second, there was inventory gain, but which was not material. It was less than INR 5 crores of inventory gain. But mainly, it's the normalization of pipe fitting ratio as well as the product mix in Q2 is always going to be higher from the Building Materials segment. But overall, I will still stick to my guidance of 12% to 14% operating margin is sustainable in the [indiscernible]
But given that now your volumes in Q3 and Q4 are going to be even better Don't you take with operating leverage coming in, this is really a conservative guidance?
Yes. But like I also said earlier in the call that we have taken some pricing action as well in certain segments. So whether that -- whether the operating leverage could really offset that or partly offsets that is something to be seen. So I would much rather have 12% to 14% operating margin and growth, which is leading in the industry. So that's what...
[Technical Difficulty]
Second, I just wanted to understand from you, Nihar, where are we in terms of our HDD at this point of time? What's the contribution from there? And what's the outlook like -- are you now focusing more on that particular segment? Or you would still want to stay away given it's a low-margin business and higher working capital requirements.
So one is we will participate in HDP only if the working capital is similar because it doesn't make sense to stretch our balance sheet while we are tightening our balance sheet on the core portfolio. But we do see the value in participating in HPP. I don't mind if the margins are lower, but the credit cycle should be tight, which we are seeing as the government is increasing focus on infrastructure. I think more -- these programs are more funded and well capitalized. So there are certain investments that we have made in HP. This has been 1 of the reasons that we have lagged the industry growth. One of the reasons, not the only reason. And that investment has been done in the September quarter, and this will start reflecting in the volume performance from the March quarter, specifically from HPP.
So where are we -- today, currently, we would be hardly anything in this particular scheme of things as a percentage of our overall volumes or revenues.
Yes, it would be less than 3% in terms of volume.
And with this new capacity coming up, what's the vision where does it go?
This should be closed [indiscernible]
Understood. And lastly, in case you can just let us know what is the reason for working capital increase in this [indiscernible]
Sneha, you cut out. So I think the question was on -- am I audible? .
Yes, sir.
So I think the question was on the working capital increase. So majorly, the payables has reduced because sourcing has been more focused on domestic, where it works on advanced payments or cash and carry payment, which has led to pressure on the payables. And this may continue for the next couple of months. And I think on the debtor side, Anand has already guided on our short-term and medium-term goals for debtors. .
We take the next question from the line of Achal Lohade from JM Financial.
My question is -- sorry, I joined the call little late if it is answered, if you could repeat once again. In terms of the capacities where we are -- where competition is adding do you see an issue with the -- with respect to the geographical capacity footprint, creating a disadvantage start -- and what kind of difficult would that be with respect to the trade part of it.
For years, we have added capacity in Jaipur, which helps us cater to the North and West and Telangana in '21, which helps us cater to South and partly to the Southeast markets like Caesar and Ursa as well. So we feel that the manufacturing footprint is actually our strength and with our next greenfield project coming up in BR, which will cater to the entire Eastern market. So with the kind of capacity addition, we have done not only in terms of numbers, but also in terms of the strategic location.
I think we are well positioned for the future. And we will be adding capacities aggressively in Bihar after the first phase as well. And I can say on a long-term vision, 5 years from today, Bihar will be one of the largest manufacturing facilities for the organization. So that's how we see it.
Secondly, Nihar, if I understand correctly, there is no disadvantage you see with respect to our manufacturing locations vis-a-vis the competition? Have I understood right? .
Correct.
Okay. The second question I had was with respect to the CPVC segment. We understand that the CPVC prices have kind of hold off of it. Has that been the case with us as well? Or is there -- and with respect to any the disadvantage of what we had in terms of the [indiscernible], has that gone equity or is it still there?
Achal, can you repeat your question, there was some disturbance.
Okay. So the question is pertaining to CPVC segment. we see that CPVC resin prices have come off in last few months. Is that the case with us for our source and be Earlier, we had some disadvantage with to the cost, PVC costs. Has that normalized? Or is there a skill gap between us and the peers in terms of the sloping costs?
So costs have come down as PVC costs came down aggressively. CPVC was bound to come down because CPVC is derivative of PBC at the end of the day. As a result of which you have seen some destocking in the channel for CPVC as well. To answer the second part of your question, no, I don't think there is a further disadvantage. The kind of premium that we are paying to Lubrizol is similar. So of course, the base changes, but the delta relative to the market continues to stay the same.
The next question is from the line of Udit Gajiwala from Yes Securities.
Major questions have been answered. So just on volume, front, if you can give any specific number, what kind of growth are you looking for '24, maybe the specific year and upwards medium-term do you stick to that 14%, 15% CAGR that you have already mentioned, but anything specifically for this year?
Yes. So I think like I said earlier on in the call, we do recognize, and we want to be fully transparent and acknowledge that the volume growth has not been where it should be relative to the peers. We are used to industry-leading growth. There have been certain corrective actions taken on sizing as well as certain investments in HTP. So I want to stay away from sort of guidance at this point. I think the action should speak louder than words. And we are confident that growth will be there, and it will be in line with the industry. certain corrective actions have been taken. And we are hungry, and we are confident and we are putting up capacities aggressively with that belief. .
Understood. Understood. And sir, lastly, on your EBITDA per kg are the [indiscernible] like you guided. So with the price corrective actions that you have mentioned, do you see that these margins could suppress for next, say, couple of quarters or 1 quarter or so because your raising prices have also come down sharply in this quarter?
Yes. So I think rather than talking quarter-on-quarter could always go up and down, basis raw material prices, but I will stick to long-term guidance of 12% to 14%. I am confident, which includes the investments in Bathware and the kind of corrective action we have taken in pricing. Hopefully, the operating leverage from the growth and the cost absorption should at least partially offset the pricing action. It will take a couple of quarters. It will not happen overnight. But I will stick to long-term guidance of 12 to 14.
Sure. And lastly, on your Bathware business, can you give any number in terms of what kind of dealers are we looking to end this fiscal app? And what are the plans for next 2, 3 years, what number do you want to look at?
So this has been just the first quarter of launch, and our focus right now is on distributors. I think number of distributors, again, is not as important, the same philosophy that we use for pipe. It's the markets that we are able to do and the quality distributors. So you'll have to give me a couple of -- at least 1 quarter before we quantify target number of dealers, but our target for December quarter for Bathware is INR 8 crores of sales.
The next question is from the line of Rajesh Ravi from HDFC Securities.
Sir, first question pertains to your capacity data which you shared this quarter, there has been major raises in the capacities any specific region, your actual actual fittings capacity number has been scaled down. And similarly, there is a sharp increase in the capacity. Could you explain what is changes even terminate capacity has been down by 20%.
So Ravi, the overall capacity right now is around 3.28. So Chennai has gone down because of -- we have not replaced the NPA machine over there because we have in the region, we have Singareni. So for that reason, the NPA has gone down. We have not replaced. That's for Chennai. So Haridwar has added some capacity. So in net-net, there is only 5,000 to 6,000 kt, which has been added in the quarter. Yes. So that's how the split is. But yes, you are right. In some of the plants, the capacity has increased and some of the plant's capacity has gone down basis requirement of the organization. .
Okay. And second question for CPVC, you mentioned [indiscernible] 95% of the revenue is from CPVC.
Correct.
We take the next question from the line of [indiscernible] from Antique Stockbroking.
Sir, my question is on the CapEx guidance. Last quarter, we had guided for INR 100 crores CapEx for FY '24. In first half [indiscernible] we have already spent INR 85 crores. So is there any revenue in CapEx guidance.
So in the first half CapEx, there are 2 normal items, which are not the regular ones, which needs to be excluded while reviewing the overall CapEx for the plant. That is 1 is the Rubi number, which needs to be excluded and there is the behalf, which needs to be separately tracked. So INR 7 crores to INR 8 crores is we are right now, which will scale up in coming quarters. So that's how you have to exclude these 2 things for normalized spend on -- plant operations.
If you can please quantify the exceptional spends? And how should we look at the full year 2 number?
Yes. Right now, we are at 50, 50 for normal, which we have guided for 80 to 100.
Okay. And the client total CapEx would be over the next 2 years, '24 and '25?
So it will be around INR 150 crores, and Phase 2 is also lined up. which will come subsequent to Phase 1. We are just evaluating how to go out with it. But right now, INR 150 crores is something which we are going ahead with.
Understood. [indiscernible] Utilization on total level and Telangana facility?
So utilization at current level is around 50%, and Telangana would be around 40% of capacity utilization. .
The next question is from the line of Ritesh Shah from Investec.
A couple of questions. First, Nihar, I just wanted to have your thoughts on the retention policy from the top management. We had a view of sort of at the top recently. Any learnings from that and any retention policy. That's the first question.
Yes. No, I think there is no specific retention policy as such, which is over and above the regular policies, as we mentioned in the earlier remarks, Anand, who has been Deputy CFO with us for some time now is upgraded to the CFO position and new CHRO also has joined. And we believe now that with these changes in the leadership. We are better geared for the future for the kind of vision that we have to take the organization, not only in terms of market and growth but also in terms of organizational identity. So that's where we are. .
So would we be looking for some ease of policy, anything on the retention side or will continue status to .
So we already had an ESOP policy in place a few years ago. As of now, that's the status for...
Okay. My second question was more on the operational side. If you look at the realization per kg, what we see for print pipes, it has the least reduction on a year-on-year basis at 4% versus the larger peers where the reduction is pretty sharp, which is at 8% and 10%. So just wanted to understand, we have done pretty well on the price decline as compared to the peers. Can you give some flavor on the product mix? Was it less government sales, or there was a contribution from Bathware? How should we understand that?
I think Bathware [Foreign Language] contribution, it's too early to put that in here. But you're right, I think this is not majorly a function only of price. It's also a function of product mix. for us, Q2 is not very heavy in aggregate or a lower realization product, which will eventually drag down the margins at the organizational level. Today, it's not a very relevant capacity. In terms of volumes, it's maybe only 3%, 4%. So this will scale up from March quarter. And also, there has been some pricing action that we have taken in the core segments of PVC, CPVC, which should hopefully help us realign our volume growth.
Is it possible to give some color on the mix? Was CPVC higher? Or was sitting substantially higher on a year-on-year basis? Just trying to understand the operating metric.
So fitting was -- fittings normalized from quarter 2 onwards. In quarter 1, we did have some challenges for the fitting dispatches, which impacted our product mix. So in quarter 2, a pipe fitting ratio normalized and overall building materials also had a better contribution relative to irrigation.
Sure. And just...
Stick to my long-term margin guidance of 12% to 14% on a long term is attainable on a long-term basis. .
Sure. And just last question. I think the other Chheda family also uses the brand trends. I understand they are coming up with sizable capacities and which is due for commissioning. So is the brand logo are the rights with the company? Or how should we look at it in the marketplace because there could be some scope of confusion between the 2 logos. So what's the road map to actually address this?
Yes. The logo is completely different, and it has been like that for many years and that completely is with the company. with Prince pipes, differentiated logo and. And I think now that the gap is too big. And that activity is very volatile in certain quarters, it there if certain cost is not there. So I think the gap has become too big and now the market appreciates the range, the quality the newer products. So today Principe has a very strong branded entity, which was -- it's a very different scenario than what it was 5 years .
We'll take the next question from the line of Keshav Lahoti from HDFC Securities.
All you spoke about you have taken some sort of price correction. Give some sense, is it all across market? Is it specific to some market? What sort of correction you have taken? .
So some of the corrections we have taken some we are about to take. This is in certain markets, not pan India, wherever we feel that we need to be more competitive in certain markets and certain categories with driving action as we [indiscernible]
Understood. At company level, the impact would be 1% or 2%.
So I will stick to my long-term guidance of 12% to 14% of operating margin on an annual basis is achievable. Of course, for the current year, it will be ex of Q1 because of the challenges in the first quarter. But on a -- even for the next couple of years, I think 12% to 14% annual EBITDA margins are sustainable, including the pricing action because with that, there will also be volume growth. and result in operating leverage benefits, which could partially offset this at the EBITDA level.
Understood. You said that your domestic sourcing has increased. My understanding was earlier you were using 40% from domestic. So whether that is going to change on a permanent basis?
Yes. So this happens annually, the long-term -- the annual contract that we have to do with Reliance and Chempa. So at the beginning of this year, we had increased our domestic contracts on an annual basis. So that will be permanent. It was maybe not reflected in Q1 because we were not normalized as an organization, but that's reflected from Q2 because we have increased our volume uptake as we grow. And as the overall environment becomes more uncertain. I think it's always prudent for us to increase local and domestic offtake. So we will continue to import and will continue to be sizable share. But given the way we are growing, I think we decided at the beginning of the financial year itself that we would be increasing our domestic volumes. And even the local players were keen to work with us saying that we are -- the way we are growing across geographies. .
The proper understanding now your raw material salting will be 50% domestic and 50% imported.
For pipes? For the PVC pipes, yes.
Yes. Okay. One last question. lease CapEx of INR 150 crores, how will that be split?
So it will be -- you can take INR 60 crores to INR 70 crores in this year and the balance will be in FY '25.
Okay. Got it. So this year total CapEx would be INR 150 crore to INR 160 crore. .
Including Bihar, yes. .
Including east? INR 150 Crore, INR 160 crores including East this year CapEx, right?
Yes.
[Operator Instructions] The next question is from the line of Nikhil Agarwal from Vt Capital.
Sir, my question was on the [ Grasim ] plant that is coming up. Will they be supplying only to you and [indiscernible] will they be supplying to other players as the CPVC [indiscernible]
So historically, if you see [indiscernible] I mean, Lubrizol has always had 2 licenses. And as long as we are growing and we are able to fulfill our volume offtakes, which we are. I don't see the need. And historically, if you see they have always maintained 2 licensees because opening up the market may not it may end up diluting the FlowGuard brand. So we believe that it will still be a 2 license approach.
Okay. So would that like really procure on an advantage compared to the other players?
Absolutely. And this was one of our incentive to Signatures or when they had approached us a few years ago. There have been some delays unfortunately. But we still believe that once the plant is operational, we will be on a strong footing because local capacity, local cost structure with the [indiscernible] brand will put us in a dominant position, especially for CPC.
All right. And that -- the plant is expected to commence from 20, 25, right, if I'm not wrong?
Correct. .
All right. And sir, any reason why your employee benefit expenses have increased during the quarter? .
So it's a normal increment which has happened in the increment cycle. That is one. And -- and the provisioning of Directors commission is also there, which was not there last year because of the subdued performance. So that's the 2 reasons you will find the difference. .
Okay. So do we expect this kind of employee expenses going forward as well or any reduction? .
It's a normal increment cycle, which has happened and factored in the cost of employees.
The next question is from the line of Akash Shah from UTI Mutual Fund.
I just had one question. So after taking the pricing action, if you can share how much will our products be at a premium or discount to industry leaders? .
It will be at a parity to the industry leader. .
Sure. It would be for both PVC and CPC, right? .
So in CPVC, there would be a slight discount to the industry leader in CPVC. And in PVC, it would be at a parity. .
Next question from the line of Mr. Rajesh Ravi from HDFC Securities.
On this, Lubrizol, new plant coming up, you mentioned that you and [indiscernible] would be living most -- almost all of the CPVC from that factory. So if I look at your current volumes would be close to just ballpark like 160,000 volumes in FY '23, assuming 10%, 12% of that would be coming in from CPVC. [indiscernible] 15,000, 16,000 tons of volumes. And this plant would be how much, 1 lakh tons something?
First phase is 48,000.
Are you saying that you'll -- even if you get 30%, 40% of that of incremental volumes, do you see your CPVC portfolio significantly increasing over the next 3 years.
Yes, it has to. It has to grow aggressively.
Okay. And do you see any risk to -- with the CPVC, your Lubrizol capacity make money capacity and CW all venturing in CPC manufacturing, domestic domestically and these 2 players applying to even many other smaller players the CPC the high margin the CPVC market is enjoying that may come under pressure.
No, I think it's great news that there is local capacity coming in that will lead to growth of CPVC because we are today 95% dependent on import PVC industry, and that is not sustainable. If the CPVC industry has to grow the way PVC did over the past 3 4 decades. We previously needs to have local capacity only then will become -- only then will see PVC become affordable and only then CPVC will grow. So unless there is growth, there is no point of having very high margins. So -- and CPVC is a very different industry. It's much more brand conscious at the front end, where top 4 of us are controlling 70%, 80% of the market.
So I don't see that changing substantially. While having local capacity will really open up the acceptability of CPVC and growth. So I see this as a major positive.
Correct. But you don't see there are margins, which is 2x currently of normal PVC margins with more supply coming in the CPVC market growing at a faster pace. You don't see a risk to the margin profile coming off significantly.
Yes. What I'm trying to say is it will be more than offset by the growth. The growth will more than offset that, which is why we should see this as a net-net positive.
Correct. At industry level, this will be overall strong volume with slightly lower margin. But overall, the margins should narrow compared to where they are currently. Is this understanding correct?
Over the long term, a lot of...
Over the long term, obviously, next 3 to 4 years? .
Yes.
Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
Yes. Thank you, everyone, for joining the call.
Thank you. On behalf of Equita Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.