Sirca Paints India Ltd
NSE:SIRCA
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Sirca Paints India Ltd
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Welcome, everyone, and thanks for joining this Q2 FY '21 earnings call for Sirca Paints India Limited. The results and investor update have been e-mailed to you and are also available on the stock exchanges. In case anyone does not have a copy of the press release, please do write to us, and we'll be happy to send it over to you. To take us through the results of this quarter and answer your questions, we have today with us Mr. Sanjay Agarwal, the Chairman and Managing Director; Mr. Apoorv Agarwal, Joint Managing Director; and Ms. Shallu Arora, the Chief Financial Officer. We will be starting with the call with a brief overview of the company performance, which will be followed by a Q&A session. I would like to remind you all that everything said in this call reflecting any outlook for the future, which can be constituted as a forward-looking statement, must be viewed in conjunction with the uncertainties and risks that the company faces. These uncertainties and risks are included, but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual reports, which you will find on our website. With that said, I'll now hand over the call to Mr. Apoorv. Over to you, sir.
Thank you. Good afternoon, ladies and gentlemen. It is a pleasure to have you all here at our call today. I am sure that you all must have gone through the results for the last quarter. Without taking much time, I will quickly take you through the financial performance and the business update for the last quarter and then we can go ahead with the question-and-answer session. So I am pleased to share with you that in this quarter, we have successfully achieved the pre-COVID sales benchmark and have recorded approximately 1.4% growth in revenue from operations as compared on a year-on-year basis. We reported 8% volume growth in wood coatings and others category and almost a 700% increase on a relatively small base in the wall paints category. However, as per the unit realization in wood coating is much higher, wood coatings still contributes to the major sales in value terms. The EBITDA margins have taken a hit in this period under review, majorly due to 2 reasons. The major reason is the appreciation of euro, which led to the increase in the cost of procurement for imported wood coatings, which contribute to almost a major value in terms of the turnover. And the same was not passed on in the market immediately to the end consumer, keeping in mind the effect of COVID and the economy in the recovery mode at that point of time. However, the company has taken a price hike from 1st October 2020, to pass it on to the consumer, the increased effect of the input cost due to euro. Additionally, the company has also availed some special discounts from Sirca S.p.A. Italy on the temporary basis. A range. The second reason for the hit in the margin is the range of trade discount schemes and limited time offer were introduced in the market to induce the demand in the trade channel. These temporary offers also have been rolled back, and the effect of which will be visible from Q3 of FY '21. The company is strongly focusing in -- on reducing its working capital cycle through a combination of reduction in receivable days and the efficient management of inventories. Taking -- talking about the business update for the quarter gone by in the West and the South market, the demand has picked up and has been better than the previous quarter. However, it is still below its potential. We expect performance from this market to pick up in the coming quarters. In the North and the East market, especially the Northern market, are still at the forefront, driving sales and demand pickup has been really, really impressive. The Eastern market are also showing a good kind of growth in demand. The demand for manufactured wood coating is also an upswing now, although we have shifted the production to the original site, but the operations are still at optimum level due to the ongoing construction of the shed structure. Having said that, we remain confident of completing the same by end of December 2020, along with the finalization of insurance claim against the loss of fire incident. We are also witnessing a strong response for some new products like Wall Putty, which has primarily been launched in the Northern market as of now. We have also enhanced the production capacity of our wall paint to cater to the increasing demand of this range also. With this, we are open to the questions.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Murli Khandelwal, an individual investor.
My first question is regarding the revenue top line. Last September quarter, we didn't have any contribution from Sonipat unit, but this year we have production at that unit, even then, why is -- the revenue are flat? And my second question is regarding -- we have reduced our receivable days. But what is the impact of this due to these reduced days?
Okay. So your first question was that in last year, quarter 2, the revenue was majorly from the imported wood coatings. And this year, you are saying that why is it less? Because this year, the sales are also contributed with some other product range. Is that -- am I right?
I'm so sorry, but the participant has been disconnected. So we'll go ahead with the next question, which is from the line of Manan Shah from Moneybee.
So my question was how much of this would you attribute to pent-up demand? And are you seeing this sales momentum continue in the Q3?
Yes, 100%. The sales momentum is on the upfront and is on the positive side in the Q3 also. The -- in fact, Q2 have been good in terms of the demand side, especially from the northern part of India and picking up from west and south also for -- from the OEM business, and the same has been witnessed until now in the Q3 also.
Okay. And you also mentioned that we've taken a price hike. So is the pricing getting absorbed in the market? Or are we facing any problems on that side?
No, no, quite easily. It is more than 45 days now that the price hike has been imposed in the market on the products imported from Italy, and it was quite easily been accepted in the market.
Okay. Okay. And due to the lockdown, we were holding a fair amount of inventory of our imported goods. So now as things are normalizing, should we expect the inventory to come down?
Yes, considerably. And it has shown some reductions in the current Q2 financials also. And I think by Q3, Q4, there -- it will be much more managed, as we said that we are strongly working on and managing the inventories more efficiently. The effect has already been -- can be seen in the financials.
Okay. Okay. And my next question is on our receivables. So in our annual report, we mentioned we had given an aging of our receivables. And there was a substantial amount that was due for more than 180 days. So is it possible that you can give some light on that?
Yes. So most of that account were majorly against the LC. And now as per the new credit policy, which has been implemented in the market, now we -- in the retail structure, we have reduced our credit days from approximately 65, 70 days to almost 45 days. And in the OEM, we have reduced our LC time also to 120 days. And now -- until now, we were not discounted -- discounting it against the bank now. We are planning also to discount it so that the receivables are not shown in the books. So this, with every quarter, is showing a considerable and a noticeable improvement in terms of this receivable days, especially the 180 days above. So all these -- to be precise, all these payments are for short sales, but yes, these are the payments of some big clients working against LC like Indoline, Soundarya, MAS, big, big customers, especially in the south. And now with the new credit policy, obviously, we are seeing considerably a downward trend in terms of the receivable days.
Okay. Okay. My next question was on our dealer network. We've increased our dealer network sizably over the last year from almost 550 to 1,600 plus. So would it be possible to give a geographical bifurcation of the same? Because earlier, I think we used to give a bifurcation where -- are almost 400, 450 were in the north and balance were in the rest of the parts, east, west or south. So what would be the bifurcation of the 1,600 plus?
See, it's approximately about 70% -- more than 70% of the retail counters are again from the northern part of India. So for example, Delhi, Haryana, Punjab, J&K to Uttarakhand and UP. And then the rest has -- in the last quarter of last financial year, Q4 FY '20, a lot of retailers from our new depot in Kerala were added. So there were almost 120-plus shops added from the south. And also, we started the retail drive in the western part of India, like Gujarat and Maharashtra and some small towns like Kolhapur and Amba. So still approximately 75% of the retail counters are still, again, in the northern part of India where Delhi contributes to almost 180-odd shops. Punjab again contributes to -- the Punjab contribution to about 130-odd shops. Haryana, again, 115. J&K and Himachal together constitutes almost like 80-odd shops. So in fact, this whole [ city belt ] contributes to about 600-odd dealers along with UP and Uttarakhand, again, adding about 300-odd dealers. And now the major focus of the company was to be strong in the retail network in the west and the south region, where the drive was started pre-COVID. And a lot of dealers were added and the business was expected in good numbers, but the COVID had put some break on those areas, which now are again picking up. So there are no more retailers in terms of number being added in Q1 or Q2 of this financial year, but the business from the retailers which were added in Q4 of FY '20, the business from them are now being -- started to generate.
Okay. Okay. And you also mentioned that we've enhanced our wall paints capacity. So earlier, it was around 24 lakh liters. So what would it stand at now?
So it has almost been 1.5x now.
Okay. Okay. And on the fire, so where are we now at? Like are we now operating our new plant? Or there's still some time to -- for that to become like operational fully? And what sort of CapEx or what sort of expense will be required to reconstruct the plant that has been damaged by the fire?
Yes. So now we have started our -- restarted our operations in the existing plant only, the original facility of Sirca in Nathupur in the area which was safe -- which was actually safe and which was secured during the fire incident. So through that area, obviously, we are able to produce at the moment about 7 to 10 tonnes a day and majorly thinners, which were actually moving in the market. So we are making sure that we are not losing any current market, and we are minimizing the opportunity loss by producing such products currently. And the process of reconstructing the shed and coming back to the original plant is going quite fast. And we are expecting to close and complete the plant construction by December and with the CapEx of approximately INR 7 crores to INR 8 crores, which will be covered -- 100% being covered by insurance.
Okay. But how much CapEx will be required to reconstruct this plant?
INR 7 crores to INR 8 crores.
INR 7 crores to INR 8 crores. Okay. Fine.
[Operator Instructions] The next question is from the line of Ashish Rampuria, an individual investor.
Two key questions. One, I think in the last call, you had mentioned that in terms of EBITDA margins, both the high-end Italian PU business as well as what we manufacture in India will have similar EBITDA margins, right? Now does that mean -- because for the Italian business, we're importing based on manufacturing CapEx, does that mean you have a lower ROCE for the Indian PU business?
No, no. The gross margins for both the products are same. So the products which are -- which we are going to manufacture in India and the products which we are importing from Italy, the gross margins for both of them are more or less in the range of 40% to 45%. Italian is a little on the high side. But yes, the product which will be manufactured here also are more or less the same gross margins and will be moved in the similar distribution network.
No, sir, I understand. But the only thing, my question was, as you rightly said, gross margins are same. But the imported ones, there is no manufacturing CapEx, right? We have not put up a plan for INR 30 crores. There's obviously some inventory that we need to keep extra. But otherwise, there is an investment there. Whereas for all the Indian manufacturing sort of business that we do, anyway, there's a data less -- lower gross margin. There's -- also there's an investment that you have done of INR 30 crores, INR 35 crores. So when you do a ROCE calculation, does it mean the Indian business has a lower ROCE than what we have on the imported business? Hello?
There's a voice, it was echoing a lot, so we are not able to understand exactly. You are saying that will there be any -- you are saying that is there any impact of return on capital, ROC, on the Italian business against the product manufactured in India? Or like what?
Yes. What I'm saying is, see, you have similar gross margins and maybe a tad higher gross margin for the Italian business, right? Now in the Italian business, there is no CapEx involved. There's only importing, storing and selling purchase, right, which means it's needs lower investment, which means it gives a higher ROCE, return on capital employed. Whereas for the Indian business, along with relatively lower gross margin, there's also an investment required on the plant and machinery, which we did the CapEx of INR 30-odd crores. So what I'm trying to understand, does it by definition mean that the Indian business will have a lower return on capital employed than what the company used to have earlier? Because earlier, the entire business was only imported...
No, we did not. I don't think for that there will be a low ROC from the Indian-made products. The reason being that, number one, with the CapEx of INR 35 crores to almost INR 40-odd crores, we can generate from this plant a turnover of about INR 180 crores to up to INR 220-odd crores. So we are going to manufacture a mix of product here from NC products to melamine to PU thinner and to economical range of PU, with the average selling price at the current mix of about INR 160, INR 170-odd. But our future motive is to promote more of the polyurethane coatings and the plant being fungible down the line, we expect that 70% of the turnover or the production coming from the plant will be PU and NC and melamine would slowly and slowly, down the line in 5 years, disappear from the market. So at that point of time, with the CapEx of about INR 35 crores, we can generate a turnover at peak of about INR 230 crores to INR 240-odd crores, which sounds a very good return -- ROC in terms of the investment done. Secondly, the distribution network, as I told you, is identical. These products which are manufactured from this facility is going to be sold through the same network, same team. So combining both the effects, the ROC from the product manufacturing in India will also be quite good.
Understood. Okay. Two, you also mentioned in the last call that there were some discussions with the Sirca -- like Italy company to invest in the Indian entity, and I think that got put on hold given COVID. Has that discussion moved forward now?
Yes, it's still in discussion. And obviously, it was -- from time to time, we're seeing a lot of effects from COVID, and now they have also been streamlined. They hold a minimum equity at the moment of 3.6% -- 3.67%. And now we are in talks to -- with them to increase up to 10%. And I think that the -- this can be materialized, I think, by early next year that -- I think Q4 of FY '21, they might raise the equity in our company.
Got it, Apoorv. My third question was on the -- this -- the fire thing that happened. Because I think earlier it was told that there was minimal damage. But what I saw from the press releases and even in the last document, I think there's some INR 10 crores, INR 11 crores claim that we are going to put on the insurance company. Can you just -- sorry if this question has already been repeated, then sort of ignore it, I'll listen to the con call again. But if it has not been answered, if you could just answer this question in terms of the damage from the fire and the insurance status.
Yes. So majorly, the reason of this figure being increasing is the damage from the stock is minimal, about INR 1.5 crores to INR 2-odd crores. The total damage in the terms of the product being damaged. But unfortunately, the raw materials in our trade are quite flammable, and these products actually fueled the fires which resulted in the collapse of shed. So the shed actually collapsed due to overheating and due to fire spreading until the top because of the flammable materials. And the shed falling down after the removal of the debris was found that there are a lot of machine parts also which were damaged because the shed was falling on it. So they were not affected by the fire, but the shed, since falling on the machines, were damaging a lot of pipelines, a lot of automation work, a lot of parts of machines, which could have been replaced or been managed, but was better and advised by the machine advisers to change the product -- to change the machine as a whole, which was better. Talking about the [ RCC ] part which was 100% saved, where our finished goods were there in the repacking area, which currently has been used as the production area. So slowly, from the removal of debris, began the -- loss amount started to increase. But if we talk about overall material stock, only INR 2 crores loss was expected and some part of shed. But then yes, shed being so heavy, falling on the machine part affected in the replacement and some problems in the machine, which actually resulted in deciding for us to be -- these machines also to be claimed.
Okay. And we believe everything is covered by insurance?
100%, everything is covered by insurance.
Okay. Why -- when do we expect the claim to come back to us?
By December. So the files are almost on the final version. We are -- I mean, in a week's time, it will be in the insurance company, and they will take 30 to 35 days to release the amount. So we're expecting to be conservative, latest by December, we will have it.
Understood. We also sold as, I think, some space in Andheri in Mumbai. What was the reason for that? We sold a factory or a warehouse or office, right, last...
Very small office and...
We've taken a big -- there was just a very small office. Earlier, we were using it. But now we have shifted to Vasai. So we have taken a big [ go down ] over there, so we didn't require that.
Okay. Understood. Understood. And my last question, if I may, any update on the international business vis-a-vis the last call?
Yes. So international business are now also -- pre-COVID, we were in discussion with a lot of people in Sri Lanka, Bangladesh and Nepal itself. Nepal, we signed our agreement also with Reliance Paints. And a sample shipment has already been dispatched from India after the transportation facility has been opened, and it's just a trial order which has gone. So the business with Nepal has begun. The products manufactured in India has started to move to Nepal. Sri Lanka, we are already in talks with a guy in Bangladesh. Also, we are already in talks -- and guy -- and we are just waiting for our facility to ramp up and COVID situation to get better so that we are able to travel there and finalize and sign off our contracts and begin the business. So we expect that if the situation related to COVID and the travel eases up, we can have some numbers coming in Q4 of FY '21 also from the export business. Obviously, Nepal will show, but Sri Lanka, Bangladesh together can also contribute in Q4 if things go well.
Understood. And the Dubai one, the Middle East one?
And the?
Middle East one, the Dubai one?
The Middle East, yes. Middle East is still in open conversation. They are demanding a lot of economical range of PU products, which is where we are strongly doing the R&D again after shifting the facility to original place. And this is a business which is already in hand. It is just that we are now completely waiting for our facility to ramp up and produce those products. And that business, obviously, we are eyeing that for sure. In Q4, we will have movements of these certain 3 products majorly to -- in the Middle East.
Understood. So basically, if I'm hearing you correctly, what you are saying is we are not constrained by demand, we are constrained by production capacity?
Yes. So we are channelizing the production capacity initially to the demand from the local areas, especially from the northern part of India. And so that these are the areas which were actually -- where the products were floated once the facility started in the month of April, May and June 2020. And after this incident, obviously, we did not want to lose the market of this product in the area where we have already launched the product. So now in terms of the opportunity cost to minimize it, we are increasing our production every day. And once we are full with the demand in the existing area where we have already floated the product, we will move to the new market.
Understood. And one last just in terms of -- from my end. There are some models here in the south is not doing that well for us. It is my understanding...
Lead?
The south region is not doing that well for us, right? That's what I read from the investor release. Is it -- so is it -- so my question was, is it commensurate with the investment we had made in terms of distribution in the south? Or we have not invested so much in distribution in the south?
No, no. The company has started to invest in terms of the distribution and also marketing in the south from January 2020, and we saw wonderful numbers coming especially from Kerala and other parts of south in month of January, February and mid-March. And we were expecting these markets to go very strongly in the first quarter of FY '21. But due to COVID, there were a -- little stops. And now again, the momentum is coming. So even in the Q2, if you see the month of September and currently also in Q3, the numbers from south are growing. We are investing. We have one of our best guys, best team players in south. So the numbers are obviously increasing. What we thought is due to the COVID, the market were -- was reacting a little slow on the high-end product in that area, vis-à-vis north, which was reacting to the high-end product also very, very aggressively. So now the things are moving well also in the south.
[Operator Instructions] The next question is from the line of Parth Agarwal, an individual investor.
So my question -- I have just a few questions. So first question was regarding the distribution network. You seem to have 1,900-plus distribution network. Can you just share the split by region-wise, north, east, west, south?
So yes, the 1,600-plus dealer networks are the dealers. The paint shops where we sell the products, and out of which, 70% are from the north. So Delhi, Haryana, Punjab, Himachal and Jammu and Kashmir, together with Uttar Pradesh, Uttarakhand contributes to almost -- an almost 70% of the retailers, almost 1,000-plus shops where we are working this -- in this area. And then east have -- in last 1 year, have picked up in terms of retail. So from Kolkata to Siliguri to -- and in fact, Jharkhand and Bihar also have -- the retail footprint have increased for us in last 6 to 8 months, and which contributes to almost 10% of the retail stores. And other 20% comes from the Maharashtra and south, which were actually opened very recently in the month of January, February and March of -- in the Q4 of FY '20. And then the COVID, so businesses still has to be generated or has to be increased from these counters. And with the increasing demand after COVID in the months of late Q2 and Q3, the business from these retailers have also started to pick up. So there has not been any increase in terms of number of retailers in Q2 of current financial year. But yes, the business from these set of retailers have started to increase now.
And revenue profile would be on the similar lines, means 70% from north or it would be more?
Yes.
It would be more than 70%?
Sorry. Can you repeat?
So the revenue contribution from north would be more than 70%? Less than 70%? How it would be?
Yes, the revenue contribution is more or less 70% from the north.
Okay. Okay. My second question was since you recently added Wall Putty, so I just wanted to understand what -- I mean, how does it fit into a bigger picture for our company?
The Wall Putty, again, like wall paint, was a strategic decision to enter into this product range, complete the city of product with the final motive of increasing our footprint and increasing our sales of the luxury wood coating because a lot of markets were behaving in such a way that they were acquiring a bunch of products to enter the market, and we wanted Sirca to be present at each and every retail counter strong -- of the strong markets and almost geographically in every region. So Wall Putty, again, once we entered with the wall paints and there were a lot of projects which were coming to us and in the project, there was like foundation of the putty, also with -- of the same brand as wall paint, so we decided to enter also with Wall Putty to cater to these projects. And the demand has been good, as we said in our opening statement. And we are planning now from the north also to move to south and east with the putty production in those areas because the demand of wall paint in these areas are also increasing and vis-à-vis the demand of putty is there.
Okay. Okay. Fair enough. And any other new category that you are planning to add in the -- going forward in the future?
So as of now, the focus of the company is totally on the wood coating luxury plus the coatings, which we are going to manufacture from our facility.
Okay. And in terms of paint manufacturing plant that we have, what is the maximum revenue that we can generate at optimal capacity utilization?
See, at 100% capital, it can produce to almost 56 lakh liters. Just a second. So you were talking about the wall paint, right?
Yes, wall paint.
Yes. So we can generate from this facility at 100% utilization, about a turnover of around INR 40-odd crores.
Okay. INR 40 crores.
Yes.
And just the last few questions. So how is the demand recovery around Diwali? Is -- just to get a feel about the demand scenario.
The demand has been good. Obviously, 7 days before the festival and 7 days after the festival are a little on the lower side. But before that, the things were moving quite aggressively on both the wood and the wall front.
Okay. And just final question, so again, back on the distribution network, so since -- recently, 70% is from the north. So when can we expect needs not to drop below 50% in terms of distribution going forward 1 year, 2 years, 5 years?
Yes. So down the line, I think 2 years, 3 years, obviously, the contributions from the east, west and south in terms of the retail will increase and it's increasing. It's doing a positive trend. And vis-à-vis we also see an increase in sales also in the northern part of region. So we think that it will move to, I think, 60:40 because the sales from the north of the other product range will increase much, much faster than the south, west and east. So obviously, the contribution of the north will be still on the higher side, maybe the ratio can be 60:40. But yes, overall, the business from all the regions would rise.
The next question is from the line of Ritesh Badjatya from Asian Markets Securities.
So I have a couple of questions. So first one is like from our manufacturing unit, how much revenue we foresee in FY '22? And in FY '22, what can be the mix between Italian PU and local manufacturing products' contribution? Yes, so that is the first question.
See, in FY '22, obviously, the turnover from the manufacturing facility will be quite a good number. Maybe we will be operating at almost 40% of the capacity. So the turnover will be quite a sizable number in FY '22 is what we are expecting. And the mix of the luxury wood coating and -- the luxury wood coating, obviously, the business would rise at a decent percentage, so yes.
Okay. So about INR 80 crores, INR 90 crores, we can expect from the manufacturing unit, and about INR 130 crores, INR 140 crores from the Italian PU set?
Yes, more or less.
Okay. Secondly, also, we are hearing that government is considering to put import duty on the ready-made furniture. So what's your feel on that and how it will impact our business?
Sorry, the government is considering to?
Put import duty on ready-made furnitures.
No, increase the duty on the furniture, right?
Yes, ready-made furniture.
Yes. So obviously, the -- there has been some increase in last 1, 1.5 years also, which has been quite positive for us in terms of the demand because the local furniture industry rises. So the demand from the local furniture manufacturers and the demand for the local furniture, made in India furniture from the architecture has actually been increased a lot in last few quarters and that has actually increased our business of paints and coatings with them. So obviously, it is a positive sign for us in terms of business.
Okay. Okay. And secondly, in wall paint business-related question. What kind of the channel margin we are given as of now for the wall paint dealers to better shelf and to get our product presence in the channel? So what kind of the...
As the company policy and as the main strategy of the company is to give some decent and handsome margin to the retailers to promote our wall paint because wall paint is one area where the margins in some big brands are quite difficult. So with our company policy, we are giving them a handsome margin of above 10% to 12%, safe and secure margins to promote our product, which is giving a quite upward demand of these products in our strong markets.
Okay. So as of now, which geography we are tapping for the wall paint business?
So strongly, we are moving our wall paint in Uttarakhand, UP, Punjab and Haryana, which are the main markets we are moving strongly and some retailers of Delhi. And obviously, in the south part, Kerala and Bangalore has picked up. Kerala is one area where we have strongly been promoting the wall paints.
The next question is from the line of Riddhima Chandak from Roha Asset Management (sic) [ Roha Asset Managers LLP ].
Riddhima Chandak from Roha Asset Managers. My question is on that earlier we were planning to supply to the OEM players like Pepperfry or Urban Ladder, who are buying a lot of locally produced polyurethane coating kind of products. So what is the current status on that? As you already have sent samples to one of the OEM player in the Haryana called Alder, which you stated in our last call. So what is the status on that?
Yes. So OEMs like Pepperfry, Urban Ladder, which are heavily using some locally made NC products from Jodhpur are on our radar to be -- to try our locally made NC. And final motive is to convert them on the polyurethane coatings, the made in India polyurethane coatings. So it is still in the process because the products from the facility have not been strongly launched in the Jodhpur market as of now because we are still moving in our -- we are still feeding our strong markets, which are like Punjab, Haryana, J&K, UP and UK. And in that region, obviously, the Alder is there where we have got the entry through this NC and melamine products, and we are slowly and steadily converting them from NC and melamine to PU. So as I told you, the focus of the company is to sell the quality coatings, the PU coatings, the made in India PU and the luxury PU. But yes, obviously, as an entry, we need these products. So these products are acting as -- for us as a tool to enter. And with our strong experience in the PU coatings, convert them. So for example, Pepperfry and Urban Ladder are -- would be more than happy to use PU. But then obviously, their demand has to be created because Pepperfry and Urban Ladder has been so big, they want their furniture to be coated and ready and packed in 1 day, which is a little difficult in PU. That is the only reason they've been using this economical product of NC. But with our NC, we are quite sure we will enter, and we will give them the solution of PU with the right education. So it's in process. We will see business from these big accounts once the facility also ramps up.
Okay. And in terms of export, as we already sent our product in Nepal to one of the clients called Reliance Paints. So how much revenue contribution we are looking for in terms of export? And what would be your long-term outlook on this?
Yes. So long term, obviously, we are eyeing good businesses from all our neighboring countries like Sri Lanka, Nepal, Bangladesh. But yes, as of now, it's quite difficult to comment on the numbers for like how -- what we can achieve in this financial year because of the tough COVID situation and travel restrictions. And this travel restriction is actually avoiding us for -- it's becoming a little difficult for us to start business in Bangladesh and Sri Lanka also because our product need technical, has to be tried and tested in some regions, which is still a challenge. But yes, Reliance Paints, the communication started a little before COVID, and those processes were completed. So it was only about signing, which has been completed in the last 3 months and a small consignment has gone. So we can expect like a little -- a small business from Nepal in maybe this financial year. But yes, the -- in the long term, obviously, the business from these neighboring countries would rise considerably.
Okay. My next question is on the -- your working capital cycle. So what is, as of now, inventory days and the receivable and payable days in the retail side and OEM side?
The retail side now, with the new credit policy, our credit days are not more than 45 to approximately 60 days. We are trying to get them by the Q4 of FY '20 to approximately 45 days with the new credit policy being implemented very strongly. In the OEMs, yes, approximately 90 days.
Okay. 90 days. Okay. And in our Indian PU of -- which is in the name of Unico, so how much contribution we're expecting from this segment overall? As it is currently in the -- as in the last call, we said that we are getting very good response from the retail network, which we launched in the Haryana and Punjab in those 2, 3 markets. So how much revenue contribution we're expecting from this segment?
The response of the Unico products, especially the economical PU, has been excellent from Haryana, Punjab and now being introduced also in some parts of UP. But unfortunately, due to this very unfortunate event of fire, the production focus has been on the products which are already in the market. So we are not able to capitalize strongly on the opportunity of being -- launching it into other markets because we are just in the phase of ramping up our production in -- by December. And once it's ramped up in Q4, we will see a strong contribution of Unico coming from our total sales.
Okay. Okay. And just one last question. On our -- as we said that approximately INR 139 crores, INR 40-odd crores revenue contribution would be from Italian PU and remaining from our own manufacturing product. So what is a long-term growth guidance in the next 2 to 3 years? How much we are expecting from these 2 segments? How much growth we are expecting?
See, from the luxury wood coating, from the goods we imported from Italy, we're expecting almost a 30% -- 20% to 30% of growth every year. And from the Unico, the products which are made in India, especially the economical range of PU and melamine, once the facility ramps up, we are expecting in FY '22 to -- this plant to operate at almost 40% to 50%. So there will be a 50% jump in the revenue from the Unico side of range. So we are expecting a -- decent numbers coming from the facility in FY '22.
[Operator Instructions] The next question is from the line of Ashit Shah, an individual investor.
Quick question I had was now that you've actually started manufacturing, what are the EBITDA margins that you guys are getting in the -- India, in the domestic, like the manufacturing business versus the trading business?
EBITDA margin in the manufacturing asset trading business are more or less the same, in the range of 22% to 24%, it's more or less the same.
And this is both wall paints as well as the wood coating?
Yes. In the -- both wood and wall coatings.
Okay. Got it. And with the -- with you guys ramping up the facilities and maybe reaching 60%, 70%, 80% utilization in the next, let's say, 2 or 3 years, would you expect any growth in the margin because of operating leverage?
So obviously, down the line, in 2 to 3 years, with things going with the facility, I mean, you've been utilized at 80%. Obviously, we would see a marginal jump in the EBITDA margin.
The next question is from the line of Murli Khandelwal, an individual investor.
Most of my questions are already answered. I want to let -- that we have reduced our receivable days. What is the impact of it on our sales? Can you please...
Sorry. Can you repeat? The voice was actually echoing, so the question was not clear. Can you repeat?
I'm asking we have reduced our receivable days, and what is the impact of it on our sales?
See, with the new credit policy being introduced, the receivable days are going down. And it is strong. It is slowly and steadily has been accepted in the market on the good front. And as I told you, north has been a strong market for us and where we have a strong brand recall value. So the demand of the product is there, and this was the major area where we have been here for the last 15 years. And during the time, because of a lot of impacts like GST and all, the credit period from 30 moved to about 90. So it was like the going business with the retailers, with the relationship we had with them, the days were going up. But now since we are on the growing stage, and we have now strongly flipped the policies, they have understood the thing. Most of the retailers have been working with us for the last 15 years, and they understand that how the credit period had moved from 30 to 90. And now with the new policy, we are coming at back -- moving it back to 45. So most of -- I think every -- each and every retailer is understanding the situation, and that is why it is not impacting our sales.
But how it is impacting the -- on the new areas where you're trying to...
In the new areas, obviously, from day 1, we are introducing this credit policy. So it is not a big issue. It was majorly in the areas where we were doing big business. So for example, Delhi alone was contributing to about INR 48-odd crores, where the receivable days started from -- used to be 30 days in a year, FY '17, '18, '19, and has gone up, post GST to about 90. So these areas now has been revamped with new credit policy. If we talk about the new area, for example, if we are entering Kerala or east, there, only the new policy has been implemented from day 1. So acceptance, obviously, is there.
The next question is from the line of Manan Shah from Moneybee.
Sir, my question was on the gross margin. This quarter, there has been a substantial reduction in our gross margins, where there was -- earlier, we used to have -- be upwards of 45%. This quarter, I believe that's somewhere around 38%. So all led to the substantial fall in our gross margins. Then post this price hike, do you expect our gross margins to pivot back to 45% plus? And the second one on the price hike. Have our competitors also taken a price hike? Or it is only us that we've taken?
Yes. So see, as we said in our opening statement that the gross margins were nearly affected by the euro, and we have done the price hike, which will almost cover the loss of gross margins, which were -- which was experienced in Q2. So with the price rise -- and with the price hike and with some discounts from Sirca Italy, we are going to be back at our original gross margins percentage. And in the market, most of our competitors have now switched from making it -- importing it from Italy to majorly making in India. So major of our immediate competitors initially were importing 100% [ wood coating ] from Italy, now 80% has been manufactured in India. So they have not actually increased any prices in the market as of now because there, they have switched the business vis-à-vis our policy where we want to maintain the pure identity of the Italian brand. So we are continuing with our Italian range, and we are launching our made in India PU with a different brand name called Unico. So it was us who did the price increase, but it was easily accepted. Why? Because our products still remains 100% made in India -- or made in Italy, vis-à-vis other products which are now coming up with the tag of made in India.
Okay. But I believe we were already at a premium compared to our competitors. And now with this price hike, our products, would it be even more expensive? So do you exercise...
Actually, what -- not exactly. There is a marginal difference from a couple of immediate competitors. But if we talk about one of the competitors, they did a price increase with the new brand coming up because they wanted to position it is an Italian brand. So still one of our competitors is on the higher side of price even after the increase.
Okay. So you don't see losing out on any customers to our competitors because of this price hike?
No, no, no. Not at all.
The next question is from the line of Ritesh Badjatya from Asian Markets Securities.
Just in addition to previous question on the -- regarding the competition, I want to understand your view. Like overall industry size, I think about INR 750 crores until last year for the Italian PU. This year, how the industry size is and given a 10% to 12% kind of the growth we are seeing in the next 2, 3 years, so I think that industry will be about INR 950 crores to INR 1,000 crores. And our market share, I believe it was 17% to 18% until last year. What is the position right now? And in this cost environment, are -- do you see any peers who is doing the -- making difficulty in the...
The person you are speaking with has put your call on hold. Please stay on the line.
Hello?
Yes. So see, still at Sirca, we are enjoying almost a 20% market share in the Italian wood coating. And the market, obviously, as a whole, is on an upward front. And down the line, 5 years, we are expecting major, major, major increase in the luxury wood coating market. But on the contrary, there are a lot of other brands in the market as competition who have reduced the import from Italy and trying to manufacture it in India, which is actually on the contrary of our policy where we are maintaining the luxury -- where we are maintaining the pure Italian identity side. So we see down the line in 2 years, 3 years, our share in the imported PU, Italian PU will be increasing.
During this COVID environment, do you find any players who find it tough to continue? And that is color design and that share is -- or distributing among the existing players?
Sorry. Sorry. Can you repeat?
So during this COVID environment, do you find any players who is drilling in the Italian PU market only find difficult to running the operations and so that market share, which is vacated by that player, will be distributed among the existing players? Do you find any players that's finding difficulty?
So we -- actually, there were a lot of small brands operating only in a particular state, which were heard of that are finding it a little difficult. But as of now, no major brand has been heard of that's been -- find a lot of difficulty, and I think is trying to disappear from the market and then that market can be captured by us. Not any big names. Very small brand, which was -- the market was actually very, very, very small, negligible. It was just beginning, who have just disappeared. So there was a small brand entering Delhi, like Shivam has -- almost disappeared. But the market was actually negligible. So but yes, obviously, we are capitalizing. We are actually taking that piece of cake from the market.
Okay. And the last one is given make it in India government is focusing a lot. And we also find -- like you just mentioned that a couple of the players have started manufacturing in India, their Italian PU-related products also. And government is also considering import duty on the ready-made furniture. So in the near future or in the little bit of foreseeable future, do you think there is any possibility of imposing some duty on Italian PU also?
See, as of now, we don't see any beauty in terms of the -- any duty hike in terms of PU being imported from Italy because it is actually a part of raw material like hardware and plywood to make the furniture. So they are booming. They are promoting the Indian furniture industry vis-à-vis China, especially, not only Italy. So that is why I think that step has been taken by government. But yes, to make that quality furniture, obviously, they require some -- some quality raw materials, which can be hardware, which can be paints there. We don't see down the line, in near future, any rise in terms of the duties on this product.
Ladies and gentlemen, this will be the last question, which is from the line of Ashit Shah, an individual investor.
Just to have a quick understanding, what would be your major value-wise raw materials in your manufacturing?
I think value-wise, in terms of wall paint, obviously, it is the titanium dioxide, the white powder, which contributes to -- and in the manufacturing facility, currently, if we talk about these are majorly the solvents like butyl acetate, xylene or toluene. These are solvents and some resins like the UFs, the soya. So yes, these are majorly contributing currently at the major raw materials. So obviously, any product that we make, it may be PU or melamine almost to 50% other solvents and in thinner, 100% other solvents. So currently, our major buying in terms of the raw material are in the solvents and the 4 top solvents, which are like BA, the butyl acetate, toluene or the xylene, so yes.
Got it. Understood, sir. And also what has been your view in the last -- let's say, last 1, 1.5 months of the past -- of this quarter, is the demand sustaining? Or was it a tough situation of just pent-up demand in the previous quarter?
Yes. So demand in 45 days has been on the upwards trend only, has been increasing. Obviously, the 7 days before Diwali and 7 days after Diwali are a little on the lower side when people are shifting to their houses and the work on site go a little on the slower side due to labor also going to their hometowns. But otherwise, we have yet seen quite a good response in the market in terms of the demand for these products.
Got it, sir. And my last question would be, maybe I missed it, is there any -- in the next, let's say, 3 to 5 years, are there -- is there any CapEx plans? Including the maintenance CapEx, is there any expectation on how much you'd be spending?
See, no, there are no plans in terms of, I mean, raising the capital because any CapEx that need to be done, which can be done, I think, to increase a couple of facilities in south, the wall paint and the wood coating manufacturing facility in the south is on the card. But everything can be done by the cash in hand and by the internals -- internal approvals in the next -- in next year.
Got it, sir. Any idea on how much the cost of this CapEx would be?
For these 2 facilities which are in pipeline in next 2 years, which contribute to about INR 10 crores to INR 12-odd crores CapEx on the higher side.
Got it. So INR 12 crores put together approximately. Okay, sir.
As this was the last question for today, I would now like to hand the conference over to Mr. Abhishek Mehra for closing comments.
Thank you all for joining the call today. If you have any further queries, you can always e-mail them to us. Our e-mail IDs have been shared on the latest press release uploaded on the stock exchanges. Thank you all once again for your participation.