Sirca Paints India Ltd
NSE:SIRCA
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Sirca Paints India Ltd
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Good afternoon, everyone. I hope you all are well. Welcome to the Sirca Paints India Earnings Conference Call for Q4 FY '20 results. We have with us Mr. Sanjay Agarwal, Chairman and Managing Director; Mr. Apoorv Agarwal, who is the Joint Managing Director; accompanied by Ms. Shallu Arora, our CFO; and Mr. Chahat Mahajan, who is our Compliance Officer and Company Secretary. The results and presentation have been e-mailed to you, and they have also been uploaded on the stock exchange website. In case -- if you do not have a copy of the same, please do write to us, and we'll be happy to send it over to you. I would like to remind you all that everything said on this call that reflects any outlook for the future, which can be construed as a forward-looking statement, must be viewed in conjunction with the uncertainties and risks that they face. These uncertainties and risks are included, but not limited to what we have mentioned in our prospectus filed with the SEBI and with the exchange and also in the subsequent annual reports, which are available on our website.With that said, I would now hand over the call to Mr. Apoorv Agarwal. Over to you, sir.
Good evening, everyone, and thank you for attending this conference call. So today, myself, Apoorv Agarwal; and my dad, Sanjay Agarwal, are first going to take you through the financial summary of the last quarter of FY '20 and also with some business update. And after that, we can take up the questions.So as a common industry practice, a relatively large part of Q4 sales is recorded in the second half of March. And this is primarily because dealers and the contractors and the distributors, they try to meet their sales target in order to avail the annual turnover discounts, the incentives and the special schemes and discounts that happened for the whole year. We estimate almost a deferral of around INR 10 crores to INR 12 crores in sales to be booked in March 2020 on account of the nationwide lockdown. This factor led to a flattish growth of 0.4% in the sales in Q4 FY '20 on year-on-year basis. For the full FY '20, the company has recorded a sales growth of 16.3% compared year-on-year basis. This was supported by a strong volume growth of 36.3% in FY '20 compared on year-on-year basis. On the EBITDA margin front, we saw a temporary decline due to the following factors. The major factor was the loss of sale around INR 10 to INR 12 crores, which was -- could not be accounted because of the 2-week sale loss of March 2020, and due to which, almost a profit of INR 5 crores to INR 6 crores was deferred. And secondly, it was due to the ATR and trade discounts, which were booked in Q4 of FY '20 as major of the ATRs and the special schemes that are given to the dealer are taken in account in Q4 once their targets and all are completed Additionally, the company had offered higher trade discounts in the last week -- last few days of March to improve the cash collection. Also, increase in employee benefit expense from INR 2.55 crores in Q4 FY '19 to INR 3.97 crores in Q4 FY '20. This was mainly on the account of 76% increase in our sales and marketing team. Some personnel were also added in the manufacturing facility. However, there hasn't been any addition in the employee benefit expense compared on quarter-to-quarter basis. Increase in other expenses from INR 2.71 crores in Q4 FY '19 to INR 4.83 crores in Q4 FY '20 was mainly on the account of additional rental for newly added depots and branches, which were mainly being done for the pan-India presence of the company and the growth that we were looking at for the new horizontal and vertical expansion of the product line; and increase in the sales promotion expenses; and increase in the advertisement expenses, which were taken -- which took place very strongly in the southern part of India and majorly Kerala, where our last depot came.On the inventory front, the company had recorded a total inventory of INR 51.44 crores as on March 31, 2020, as compared to INR 26.77 crores as on March 31, 2019. A significant increase in inventory is attributable due to increased level of raw materials in Q3 FY '20 and increased procurement of Italian PU products from Sirca S.p.A. Italy to prevent any disruption at the early stages of COVID-19 that started in Italy. And also, the major reason is the subdued sales of almost INR 10 crores to INR 12 crores, which were to happen in March 2020, but could not happen due to the national lockdown.The company has been able to manage the trade receivables despite major payments getting deferred in the second half of the March 2020. Recently, the company has also implemented a 7-day payment policy, both on the dealer and 15-day policy on the OEM front for all the new orders which are taking place post-COVID operations. The company on this front is receiving a very satisfactory response from this change. And as a result, the trade receivable position is much, much better and superior at the present stage. The company is making constant effort to reduce its working capital cycle.As a business update, the major thrust was given on creating the physical infrastructure to support the growth of our sales products pan-India. A new -- a lot of new stock depots, stockists, studios and branch office were created across the country. The company also increased its branch and depots from 15 -- to 15 from 7 last year. There was a decent expansion in the sales team. The company continues to invest in its sales force to drive business development efforts and growth prospects. The total head count of the sales and the marketing personnel also at the end of FY '20 reached almost 146 compared to 83 at the closing of last year. In terms of the dealer network, we did a strong expansion in terms of increasing our dealer and the contractor database. And close to 1,600 dealers were on our books as on FY '20 compared to less than 600 dealers in FY '19.Looking at the impact of the COVID. All domestic operation were disrupted since the second half of the March due to the lockdown. The company had to shut down its headquarters, sales and branch offices and depots and also the manufacturing facility. But on May 5, 2020, after some relaxations in the lockdown and after obtaining necessary permissions from the local authorities, the company resumed operation at its manufacturing facility and also at different depots where the permissions were granted with a limited workforce and 25% production as compared to the pre-COVID levels.The company also partially resumed offices and depots and warehouse wherever the lockdown restriction were eased. After partial opening of the market, the company is -- it is witnessing a pickup in the demand from majorly 2 tier and 3 tier cities and the smaller towns due to relaxed restrictions and partial opening up of the market. Geographically for us as a company, the demand upticks for the company products has been slower in the western and the southern part and has been quite good in the northern part of India. Additionally, the company has observed demand inelasticity as far as the high budget projects are concerned. In many cases, clients are eager to get the under construction projects and ongoing projects completed as soon as the market opens up. Hence, at present, we are witnessing a good volume in our Italian PU segment as compared to the mass products.After a considerable disrupted Q1 FY '21, the company is confident of achieving sales at par with the pre-COVID levels in Q2 of FY '21 and the growth thereafter, provided there isn't a major second wave of lockdown or COVID -- or the restrictions, the country due to COVID-19.And now moving quickly to the couple of new launch products, which was done post the unlock has started. The product is -- the first product we launched is the HygienePlus, which is being a forefront of our innovation. Sirca through its R&D capabilities, we have developed and launched a series of additives containing sanitizing microparticles, active in reducing up to 99.9% of bacterial contamination on surfaces. So HygienePlus has been successfully tested in the certified CATAS laboratories and as per ISO 22196:2011 standards. This is a high-end product and has been recently launched in the Indian market and is receiving a great appreciation and response from the influencers in the industry.Also, the company has launched a range of hand sanitizers and surface disinfectants. Keeping in mind the need of the hour and the increased demand of sanitizing products, Sirca Paints has also decided to launch a range of products in the same category. These products will help us in serving a growing demand of these sanitizing products and which is becoming a part of lifestyle, which will be distributed in our own channels of the paint industry, which is a growing trend that was observed currently.The company also plans to principally cater to the demand of sanitization in its own distribution channel with no major marketing and sales efforts. Additionally, the principal focus is to sell these sanitizing products in larger packing for commercial enterprises, nonretail customers and to cater our OEM clientele.In addition to this, we had an unfortunate news of fire at our manufacturing facility in Sonipat, which was also intimated through NSE to all our shareholders. The fire took place on the 27th morning -- in the morning at 8:15 when the plant was actually not operational. And it started from the raw material area and spread across the shed. So the RCC part and the finished goods area and the finished goods and the laboratory and everything is safe. Only the -- only as of now, the raw material stocks and the shed is -- seems to be destroyed. But the survey is still on, and we are waiting for the approval to clear the debris, to know the exact amount and quantity of loss. But as of now, we know that the raw material and the shed has been damaged. Otherwise, in the first site, the machinery and everything looks fine, but we are waiting for the survey to give us the approval to remove the debris to ascertain the amount of the loss. The building was insured at the -- the whole premises was covered under the insurance at 100%. And in the meantime, our main focus is to resume the production that we were doing before this mishappening. And for that, all efforts have been made, and we have identified a place nearby where we are going to restart our production of the necessary items which were already moving in the market through this plant to avoid any sale or opportunity loss.So that's all related to the business update and the financial highlights. And now we are open to the questions.
[Operator Instructions] First question comes from the line of Mulesh Savla from M M Savla Consultancy Services.
My question is to Mr. Sanjay Agarwal. Sir, we could get the idea of past. We could also get some idea of the lockdown period. But we would be interested in knowing how the situation has improved since 5th May, our opening up. And how do you see this year, as a whole, we will be closing? Will we be able to achieve our targeted rise in the turnover and profit or there will be some scale-down in our target? That's my first question. And as you said that Italy is also badly affected by the coronavirus, what is the status of our getting premium products from Italy as of now?
Okay. So answering your first question, post-COVID -- I mean, post opening, like from 5th May when the operation restarted, April, obviously, for the Q1 of FY '21 is washed out. But from May, we have been receiving positive graph from -- especially from the northern part of India, means Delhi, NCR, Punjab, Haryana, Himachal, Jammu and Kashmir and even some rural areas in UP and Uttarakhand. And the sales pickup is a little slower on the southern part of India side and in Maharashtra, especially in Mumbai. But we expect that from July onwards, we will be almost still at par with our post-COVID sale percentage.So we are seeing a very positive momentum in terms of the movement of the product, and we hope that if there is no -- any future restrictions or any second wave of lockdown, we will be in a very quite safe position and to our levels of the pre-COVID sales. With that, we can obviously achieve our targets without affecting our EBITDA or any further margins because our gross margin has not been compromised, it is the same. And the increase in the expenses that was happened has happened. But now with these increased cost of expenses in terms of salaries and distribution expenses, we can achieve a good amount of turnover without increasing our expenses. So we are quite confident on a very good percentage of EBITDA, and we are quite confident on achieving a good number of sales if the condition does not deteriorate further and improve every day.Coming back to the second question that is Sirca Italy luckily never stopped working even during the COVID. We have shared also some updates on the NSE platform that they had the permission under some chapters of operating also in the COVID times. So with Sirca, we have no problem at all of stocks. And in fact, we have stocks and inventory with us for almost 8 to 10 months.If we talk about during the COVID period, we had almost 16 to 17 containers coming during the COVID, which was cleared between 8th May to 18th of May. So the inventory side in terms of the luxury product coming from Italy, we are not scared of anything. I mean, we don't have any fear from that side. We have enough stock for the next 8 months. It is just that we are praying that now we don't have any kind of second wave of COVID or lockdown, then things can get normalized and Q2 can show a very good positive sign of recoveries.
Excellent. Excellent. And you said if I not -- if I have heard correctly, that 36% volume growth was there in the past year, whereas our sales increased by 16%, I suppose. So there seems to be either a poor product mix or there seems to be higher sale of the local manufactured item or something like that. Can you explain or give us a little more color on that?
Yes. So it was majorly because of wall paint has been added in our product range. So wall paint, we did almost a sale of INR 5 crores -- I mean, last year, a little less than INR 5 crores because it was started in the month of September. But in terms of the volume, it was a lot as compared to PU because it is a little less than price average. Selling price of wall paint and PU is -- there is a big difference. That is why the volume sales shows more increase because of the wall paint becoming a part of our product range.
Okay. So going forward also, our product mix could be the same way? Is it -- or we are going to have a different product mix going forward?
No, the product mix will be the same now, the Italian high-quality PU products, the wall paints and the economical range of PU and melamine, which is going to come through the facility, the production facility in Sonipat.
So can you please give us the share percentage-wise in the total sales? How much will be the wall paint locally produced? And how much would be the PU produced by us and PU imported from Italy?
See, if we talk about the FY '20, the 95% of the turnover was coming from the Italian PU, and the rest, 5%, was something which was to be manufactured here or the wall paint. But going forward, obviously, we see that almost 10% of the turnover will be wall paint and another 20% from the local production that is going to happen.
Local PU production?
Yes. Local products, which will be PU and melamine.
PU and melamine. And [ 30% ]...
And the rest will be the Italy -- Italian PU.
Okay. Okay. Then in the current year, by and large, 95% you said is the imported PU. Then there should not be such a difference in the volume growth and the value growth.
See, we have -- see, as I told you, we did the sale of almost a little less than INR 5 crores of wall paint. So there was a major impact of volume coming from the wall paint was there because if you talk about the INR 5 crores -- I mean, the average selling price of wall paint stays below 200, vis-à-vis the average selling price of PU is 550. So the [ literage ] of wall paint coming in from the INR 5 crores still, when it was added in PU, the gross effect was coming out to be a little on the higher side.
Fine. And there is one more question on...
Sorry to interrupt, Mr. Savla. There are...
Just one, if I can squeeze in. You have said that some asset is held for sale. Can you give some information -- further information on that?
Sorry. On what?
Asset held for sale.
Assets have -- we have just sold 2 assets, 1 factory at Vijay Vihar -- 1 godown at Vijay Vihar and 1 godown at [ Barli ]. So those 2, we have taken the advance. So those we have shown as assets held on sale.
And there is some impairment loss also. Is it related...
Yes. There is an impairment loss in this -- both of them, a little bit in both because...
I see. [indiscernible] there are always depreciation in the...
No, no, because here, 1 godown was in Vijay Vihar. There, the prices have gone down.
I see. I see.
That's why we have sold it.
Next question comes from the line of [ Ashish Rampuria ]. He's an individual investor.
A couple of questions. You mentioned that INR 10 crores, INR 12 crores of sales in this year [indiscernible] because I think even if [indiscernible] to do an annual target at the end of March. But you also mentioned that the margins were lower because APL, et cetera, has to be given -- or ATD is expected to be given. So I didn't get it. If the sales didn't happen, then why did we end up giving higher margin to distributors?
Sorry, you were not audible in between. Can you repeat the question?
Sure. So I'm saying is we mentioned that INR 10 crores, INR 12 crores of sales were deferred in the second half of March [indiscernible]. It means the fact that distributors are not able to achieve their targets [indiscernible]. On the other hand, we mentioned that the margins were lower because a lot of incentives and ATDs were to be given to distributors. Both of these do not seem to match.
No. See, the sales loss that was happened was because obviously, in the last 2 weeks of March, we were not able to -- because of the closing, the distributors and dealers used to take heavy stocks to achieve the targets. But yes, due to the special COVID situation, it was the whole industry practice that happened that we had to give them the ATRs and the benefits that was promised to them on the pro data basis. Means that, for example, if someone was [indiscernible] a 5% turnover discount at x sale and he has achieved x minus 10, but we have given it on x on the basis of the pro data because that position of lockdown was not in hand of anyone. So it was done as an industry practice by each and every big major player in our coating and paint industry.So the ATR and everything was given on the sales that they made without considering the sale that happened in the month of March. Obviously, to compensate that, we will take some different steps in the current financial year. But that financial year, in terms of strengthening the relation with the dealer and everything, those areas and everything were given. And those main provision happened only in the last quarter of the financial year.
Okay. Got it. Coming to the inventory receivables side, I think our inventory went to 50-odd crores, which you mentioned because of certain reasons. This year, right, what should we assume would be a normal inventory receivables level in terms of number of days of [indiscernible]?
See, currently, the inventory is on the higher side because the -- we increased the number of depots. And we were actually planning a strong movement of our Italian product also according to which it was ordered across our branches because a lot of activity was done from January to March. Especially in the southern part of India and Maharashtra part of India where our retail was weak, a strong advertisement was done. But yes, the inventory cycle, considering the goods coming from Italy, the working -- the inventory cycle will be between 60 to 90 days.
Okay. This is SG plus RM together, right?
The finished goods coming from Italy and the RM, yes.
Okay. And receivables, given that you -- the new orders are in 7 to 15 days [indiscernible].
The receivables now, the new practice has been implemented in the market where we are giving 7 days credit only to the retailers, which was -- earlier was almost 45 to 60 days. And in the OEMs also, all the new sales are happening with maximum 15 to 20 days credit, which was earlier almost 60 to 90 days. Only the sales against LC are happening against the 90 days LC. So this way, we are bringing down our receivables and debtors to a great extent. And those -- the big difference can also be made at the current situation. And yes, obviously, after the H1, we can see a big impact of the same in our financial. And we are giving them additional 45 to 60 days' time to clear the old outstanding since the time we open up.So for example, the company did last billing on 22nd of March, and their bill was due, say, on 22nd of May. So from 22nd of May, we are giving them 60 days more to clear the old outstanding, and we are taking all PDT. So all the old outstanding will be clear by 22nd of July. And the new, we are trying to create a strong working -- strong credit system, which is currently being accepted in major part of India because currently, the dealers are also not offering any credit to their customers further. Earlier, we used to give credit, then the dealer also used to give credit further. But now the cycle has come down to only 5 days, 7 days, which we see that will be -- will become a normal practice in coming future and is done by more or less every company in the industry.
Got it. So are you seeing any bad debt here in the sense that people are holding a payment, given you have made...
No. And bad debts kind of thing, that is negligible. In fact, a lot of people are clearing because we actually ran a small campaign of 15 days post our opening where we were offering some percentage of discounts on different slabs of payment of the old payments that people were doing. And for the new payments, we have a 2.5 additional percent discount scheme going on. So against the old payment scheme, also a lot of people have taken advantage. And we see that in coming months, the receivable days will -- actually will come down considerably.
Got it. So just last couple of questions. When do you see the new -- the temporary plant up and running? That's one. And two, any color on the business that we thought we'll expand in Nepal, Bangladesh as well as Sri Lanka?
See, I think within 7 to 10 days, we will be able to start manufacturing the product that was already in process of manufacturing at the plant where this incident took place. And we have finished goods for 10 to 12 days, which was safe during the fire, took place from -- so that part is safe. So we have the finished goods. So we don't think that there will be any kind of sale loss due to this incident. And in 10 to 15 days maximum, we will be in position of manufacturing the goods that we were manufacturing pre this unwanted event.And secondly, coming back to our export. Yes, we have already signed the agreement in Nepal with the company called Reliance Paint. And the work of studio also has begun there on Darbar. We have procured a small space where our studio is coming up in Nepal. So Nepal, we see that within a month, the operations will start, and we will be able to send the first full consignment from our temporary facility to Nepal. And in Sri Lanka and Bangladesh, still the talks are going on. And we see that in the second quarter, we will have some movement. And Dubai, obviously, the commercial deals are going on, and we are just waiting the projects to restart in the Middle East because they are also going through some bad phase -- financial phase, the Middle East. So we are waiting for some financial approval. So we might have some good news coming from Middle East, Dubai also.
Okay. Just one request, if you can do this investor call at least initially a bit more frequently, at least then that will be useful for us.
Yes, we will keep that in mind, sir.
Next question is from the line of an [ Ayush Tandon ]. He's an individual investor.
Apoorv, just a question on the corporate structure. So if I see the promoter and promoter group in the shareholding pattern, it is you and your family. And there is another family of some Mr. Gurjit Singh Bains and some BGB Italia. Could you tell us who these people are and whether they are also involved in the management or are they relatives or what?
See, Mr. Gurjit Singh and Sanjay Agarwal, my dad, were the one who started this company. And they are friends since '96 and they only started the company when it was a proprietorship company, then converted to private limited and now limited. And BGB Italia is the company of Gurjit Singh only, and he majorly resides 6 months in Italy and 6 months in India. So he is an active member and active part of management and -- at Sirca Paints, and he is majorly handling the PR and the architect side of business. So yes, he is quite active in the management.
Okay. And just another question. Could you just give me a breakup of the distribution segment versus the manufacturing segment? And what are the EBITDA margins in both?
See, in the -- so EBITDA margins, I think, in both manufacturing and the trading business is more or less the same, between 25% to 27%. And sorry, the first question you asked is the distribution?
Breakup of the revenue primarily. I just wanted to check the scale of operations of both.
See, currently, our 95% turnover is coming from the imported business, the trading business. And the manufacturing just started in the late Feb, and then this lockdown came in March. And we have reached certain production levels. And we launched this melamine and Indian PU product by the name of Unico, which was our much awaited aspiration, and it was coming out with a good response. But we see that it will pick up and it will contribute to almost 20% of our turnover this year. And we see that it will -- in our old facility, it will start in next, say, 3 months or 4 months. But in the meantime, we are shifting quickly to the temporary place, and we will start the -- resume the production where we left and we'll make sure that there is no kind of sales or the opportunity lost.
Okay. So that's great to know. Any early signs of how is the perception or the response from the market on these domestically produced products?
See, the first response is very, very good. The products have gone majorly in Delhi, Haryana and Punjab, which are our strong markets where we have very strong demand of these products, and also in Kerala. And the response from all these market has been very good. And people were just waiting that this product come and they are able to sell it and earn good margins because we have defined a very good commercial policy for our dealers, which will create their interest. And they are going to sell this product with very good interest and, for sure, quality because the delay in the product coming out in the market was only because we were making ourselves very sure on the quality, and that has happened. And we see that the fruits will show in the -- by the end of H1.
Next question comes from the line of [ Anshul Shah ]. He's an individual investor.
Just a couple of questions. One was, from the domestic manufacturing that you've started in the PU range, are there any OEMs that are using it? Or is it all retail?
See, currently, we were supplying majorly to the retail. Obviously, our idea in future is also to supply to the OEMs like Pepperfry and Urban Ladder who are buying a lot of locally produced polyurethane and melamine coatings. But currently, we just recently started with this domestic PU, which was named as Sirca Unico series, and it was getting an enormous very good response from our retail network, especially from Haryana and Punjab, which are our strong markets where we introduced it initially. But now we are again picking up our production in the new place. So in the second set of our market activity, we are also going to introduce it in the OEM range.
Understood. And have you sent it to the OEMs for testing it? Or will that also be later on?
Yes, yes. So big OEMs -- in the big OEMs, we have sent. So there is, for example, in Haryana, a group called Alder, which has more than, I think, 60, 70 stores around the country. And they have the manufacturing facility in Haryana and in [ Bardi ]. So there, the samples were tested against some local -- or against some locally used product by them, and the result were excellent. The price was also acceptable.And in some other OEMs also like where we are supplying the quality PU, sometimes they have the mass project of finishing some affordable housing and doing the door paint. There also, we have supplied them, and the result is excellent. And the price per square feet is working out where they can use it as a product replacement from some locally produced products like [ Wembley ] or et cetera.
Got it. Secondly, earlier, you had mentioned that distribution and manufacturing EBITDA, you both expect to be around 25%, 27%. This manufacturing includes the economical PU and wall paints, both?
Yes, both.
Okay. Fine. And lastly, this -- the new strategy that you've decided on, which I think is very good to control the cash flow of only extending credit for 7 to 15 days, is this for all sales with everybody? Or is it only for with new people or new customers or something?
No, no, it is for all the clients of Sirca Paints, all the retailers, which were working with us or which are working with us or which will work with us in the future. So it is the common policy that we have implemented on a pan-India basis. In some parts of India, it has not been accepted on the first hand, but slowly and steadily, it has been accepted. But in the major parts of India, this policy has been accepted by our existing clients. And I think the whole industry is experiencing it. And we are offering an additional benefit also for availing this 7-day payment structure. So I think it will become a part of our business cycle -- it will become the part of our business cycle very soon.
Understood. And are you expecting to increase the sales and marketing and other expenses going forward? Or will you keep it at this level and now push the top line?
No, no. It will be at the same level now because all the expansion that was done with regard to sales and the distribution was done, keeping in mind the growth we were expecting in FY '21. Obviously, Q1 has been -- especially the April month has been washed out. But now we can reach quite a considerable turnover without increasing our expenses, tax, salary and distribution front.
Okay. Understood. So there's no more plans to increase any depots or any more...
No, no, no. We have enough of the infrastructure and the sales team to reach to a very good turnover from here.
[Operator Instructions] Next question comes from the line of Aakash Bansal from Kedia Capital Services Limited.
Apoorv, I wish to know how much production capacity of sanitizer has been set up, like you mentioned in your opening remarks. And what are the turnover expect -- what is the turnover expected out of it?
In terms of sanitizers, as I told you, we just -- our license only came in, I think, at -- on mid of June, yes. And we just started with producing it on, I think, 22nd of June. So only a week, 4, 5 days, we have done the production of almost 800 liters. We were expecting to do a monthly production of almost 6,000 to 7,000 liters and sell it majorly and majorly only to our dealer network where we are supplying the paints. Because it has become a part of our business cycle, a part of our lifestyle, all the sites, which are coming up there, this sanitizer is being used extensively.And secondly, we were -- also have started supplying it to the OEMs, the big, big OEMs where we have 500 or 600 workers working who are being sanitized at each and every point and each and every hour, and is going to become a -- we think that it will -- going to be a part of our lifestyle in coming times. If not the hand drop, means the liquid one, the gel one. That is why we were aiming to produce the gel one also. Unfortunately, due to this incident, obviously, we could not produce the sanitizer further until we are done with the survey report and removal of debris. But yes, we see that this product will give us a good response in the market within our network only.
Okay. So what's the average selling price?
See, the average selling price is approximately INR 150 per liter.
Okay. And one more question. There is a thing mentioned in the AR. Bigger players like Asian Paints through Renner Italy and ICA Pidilite have entered wood coatings market due to double-digit growth expectations. This is mentioned by you in the AR. So what measures the company has taken to protect its market share and like to increase it further?
See, as we talk about the Italian PU market, we are one of the leaders, along with Asian, Renner and ICA Pidilite. And this market, what we see is actually growing at a very faster pace than what is expected and what is the average industry growth. Because there is a major shift happening from melamine to Indian PU and Indian PU to Italian PU because of the involvement of the influencer architect and more global exposure. So we see that the market is growing enormously. So we are working -- so there is enough on the table for everyone to capture. There is no risk in terms of that anybody can take our share. There is enough in the market that we can take our piece of cake quite easily.So to have the biggest piece of cake, we are introducing a lot of policies, like we are working very strongly on the dealer margin and the contractor margin so that they have interest in selling our product. If a customer comes or OEM comes and he is the first one pushing Sirca instead of any other brand of Italian PU, so we are working at a very close strong relationship building with them. That is why in the first flow, we were giving them sanitizers for 3 days free with every billing. So it's just that we are trying to build strong relation with them and making sure that by selling Sirca products, they are earning good margins. So that their interest in selling our products never dies. This is the core thing that we have taken in account of building our sales going further.
Okay. Just one more thing. Like how -- what's the market share currently in the market for us in Italian PU?
See, Italian PU, we have more than 22%, 23% market share.
[Operator Instructions] Next question is from the line of Satwik Jain from Client Associates.
You had talked about like reducing the receivables by reducing the days in which the distributors have to pay. But like how would the sales be affected and won't the distributors ship to other competitors because the main part of the strategy was increasing the days in which the payment has to be done?
See, as of now, post COVID when the operations has resumed, most of the companies in our segment, in our industry has also introduced the same kind of policy because, see, the customer is not showing any disinterest with respect to this policy majorly and majorly because he is also not offering the credit to the customer which is coming to him now. So all the sales which has happened after 8th of May has happened on a 7 to 15 days credit policy and to everybody across India. And it has been majorly and majorly welcomed by the retailers because they also don't want to sell further at credit. If they are not selling in credit, they don't want credit from us also. These are small, small, small retailers, and that is why we have a big number of dealers.And above that, to actually add the interest of a dealer in paying in 7 days, we are giving an additional 2.5% discount also. So this has been done by other companies also. And with other companies with major players, if they are not paying within time, they are giving time, but then they are doing their loss in terms of the price that -- or the discounts that they get from the company. They have done a very complicated policies, may it be any of the top 3 paint companies.So dealer is also interested to work on this policy provided that we are -- he is also not giving credit in the market. So we don't -- we have not seen any kind of negative or any sale conversion on any hindrance in terms of introducing this policy. At this current point of time, it has been welcomed very well, and it is going further and we intend and pray that it becomes the normal practice of our industry.
Next question comes from the line of Deepak Poddar from Sapphire Capital.
I also just wanted to understand, you mentioned in one of the comments that we are through with our branch expansion or depot or the dealer network or the sales and distribution is largely done. And so we can increase the revenue without increasing any kind of that network, and we have got enough infrastructure. So what sort of growth that we are looking at over the next 1 to 2 years? So if you can throw some light given we are still at a low scale. And we have started our local PU and melamine, right, so that will add to our growth.
See, in the imported products, the products that we are importing from Sirca Italy, we are eyeing at anything above 20% growth in the business in the coming years. And obviously, with the wall paint also, we are eyeing good numbers, and we see that we can almost make 5x the phase of what we did in the last financial year and coming to, in fact, less than 3 years, 2 to 3 years. And in fact, the product that we are going to manufacture from the facility, like the economical PU and the melamine range, this also is going to add this almost 25% to 30% of the capacity turnover within less than 2 years.
So basically 5x revenue, you're looking at in next 2 to 3 years in combination of both imported wall paint and melamine, right?
See, it will not contribute to 5x. See, 5x in the wall paint segment. The PU segment, we're expecting -- the Italian PU segment, we are expecting to increase 20 -- above 20% every year. And the Indian PU, obviously, within 2 years, 25% of the capacity. So we expect within the 2 years' time line, we can easily double or a bit more our turnover.
Okay. Okay. Okay. Fair enough. I understood that point. And sir, so in terms of margins, your Italian PU imported versus your local PU and melamine, is that comparable margin, like we are currently doing about 25%, 26% margin, maybe it is lower, 24%? So can you throw some light on the comparison of margins between them and the imported product?
See, the gross margins for both Italian PU and Indian PU -- or Indian-made products are more or less the same, between 42% to 45%. And the EBITDA margin, again, would come out to be same for both of the products, the trading and the one which are manufactured. It is more or less the same.
25%, 27% range, right?
Yes. Yes.
Next question comes from the line of Punit Mittal from Global Core Capital.
Sorry, we are a bit new to the company, so I may be asking questions which you may have answered previously. Apologies for that. In terms of the raw material, I remember reading that about 50% of your raw materials are petroleum-based, and about 42% of that comes from China, titanium dioxide. So how does that shape up given the current situation in terms of the raw material procurement and hedging of the raw material prices?
See, all the raw materials that we're using to manufacture the products locally are available in India. And the pricing segment, if we talk about the raw materials that we're buying currently to make the -- especially the thinner and melamine and now in future, the PU, which was just started and then halted and now we are again going to pick up, are not fluctuating in a very big way. There is some positive signs of reduction in the petroleum byproducts, but certain -- because of this lockdown and because of this demand of sanitizers rising also which has some certain product also going into the sanitizing, the price was going up of certain solvents very high also. But yes, it's not a big fluctuation that has happened. Anything that has happened has happened on the positive front for us.
Okay. Then going into the pricing of these products, how is the pricing set in the market? Like for example, in decorative paints, we know Asian Paints is probably the price setter in the market. So in the PU segment, how is price -- how does the price dynamic work in the market?
Means that against the competition, how Sirca is priced in the market or like...
Not against the competition, in the sense that who is setting the prices in the market. As I said, in the decorative paints, we know that Asian Paints is a first mover of basically increasing or decreasing the prices, and all the competition follows them. So in the PU segment, what are the dynamics of how the market price is set?
Yes. See, again, yes, in the PU segment also, if we talk about the luxury Italian PU segment, it is us and ICA Pidilite who are driving majorly the pricing, and now also, to some extent, Asian Renner because now they have launched Emporio Regal. So Regal is priced even more. Emporio is a little less. So together, Asian Paints, ICA Pidilite and Sirca, they are majorly driving the quality Italian PU market pricing.But if we talk about the mass product pricing of wood coatings like melamine and NC and PU, it has majorly been driven by the top 3 companies, which is Asian Paints, Nippon and Berger who are driving the pricing for the same. And accordingly, with their base, we are moving up or down.
Okay. Sir, you mentioned that in your Italian PU segment, you have about 22%, 23% market share. And I guess your competition -- biggest competition nowadays, ICA and, yes, Asian Paints, do you know what is their market share?
See, Asian is quite difficult -- I mean, ICA Pidilite is more or less similar. Asian Paints is on the higher side because they will be, I think, this year, almost 40%, 50% higher than us. So yes, they are -- actually are the leaders in terms of the Italian wood coating also because of their vast distribution network. They are leading the show of the Italian PU also. But ICA Pidilite and Sirca have more or less the same market share.
Okay. Okay. So one question, which we've been thinking about, is in -- we understand that you have a strong edge on the PU segment. And so probably you have set up a local PU and melamine plant as well because natural extension of what you've been doing in terms of product line. But in terms of the wall paint, what is the strategy behind entering the wall paint? And how do you expect to compete in an already very competitive market there?
See, wall paint was actually launched by us after doing a very strong case study on the Indigo Paints, which is a player majorly coming from the southern part of India. And we did a very strong case study, how it grew and outperformed also in other segment of product other than wall paint in the southern part of India and also in Kerala because we were planning to go very strongly in Kerala. Because if we talk about Kerala, it is one of the biggest markets for wood coating for top 3 players and especially Asian Paints. So there, we came through know -- from this study, we came to know that, okay, wall paint is going to play a very, very, very important role to play, other products also at the southern India retailers and especially the retailers in the Kerala. So that is why we introduced and we did the study that is we introduced some luxury product, will it -- which are the high-margin products. Will it move also in our strong distribution areas like Haryana and Punjab? And there, the dealers were waiting to sell some good products where they can earn margins.So we did 2 studies. One, we wanted to enter the strongest retail market of Kerala in southern part of India, for which we needed this wall paint and [indiscernible]. And secondly, we did a very strong quality and pricing policy so that we introduce it in the other markets also to balance the sales and the profits and introduce a very good margins for dealers to earn by selling the Sirca wall paint also.So it was with the strategy of pushing our PU sale. My core business is polyurethane. But yes, to push this, I -- it is going to act as a catalyst. That is what we studied from Indigo Paints also. And it is coming out to be very good. The business from wall paint is picking up very well, and it is becoming an integral part of company now, this product.
That's very interesting. That's very interesting. And just last 2 questions from me. One...
Mr. Mittal, sorry to interrupt, I request you to please rejoin the queue.
Okay, that's fine.
Next question is from the line of [ Kushal from Investopad ].
Can you hear me?
Yes, yes, sir.
Yes. So broadly, we wanted to understand, when we say Sirca Italy, we are importing around 70% of the raw material or 70% of the sales is coming from Sirca Italy. So is that -- are the company that you had earlier mentioned on the call promoted by Mr. Bains or it is some different company? That is one. And...
No, no.
Sorry. Yes, yes. Go ahead, please.
Yes. That is -- so Gurjit Singh is actually the one who started this business with my dad as well. And he owns the company called BGB Italia. Sirca S.p.A. is owning almost a 2.9 -- he's a 2.3% shareholder in our company, and it is a company from Italy, a different company whose products we are distributing in India. So it has nothing to do with...
It's a completely different company?
Yes, yes, yes, sir.
It's basically a global OEM. And then what is the percentage -- any royalty or anything that we have to pass on to Sirca Italy? And what are the percentages? Or how is the schedule? Like was it like on the higher side earlier, going forward, it's going to reduce? Is there anything like a royalty listing?
We don't pay anything on the products that we are importing from Italy. So I think they are going to pay only on the PU products that we are going to manufacture here. And for the first year, it will be, I think, less than $0.15 per liter, and then further, it will reduce.
Okay. And presently, if I understand, 70% is imported and 30% is manufactured locally. So with the new CapEx, how is this percentage likely to change over the next couple of years for PU, one? And secondly, I understand that the CapEx is also taken for other products apart from PU. So can you just throw some light on that? What products will be manufactured locally and how the PU percent mix will change after the local production in a couple of years?
See, currently, more than 90% of our products are coming from Italy, and only the thinner part and some melamine are being manufactured here. None of the PU as of now is being manufactured from the facility. But yes, down the line, the PU products will be manufactured. But it will not be actually replacing any product from Italy as of now. It will be a different line of products, which will be sold under the brand name called Sirca Unico, which will be the economic series of polyurethane, which can be compared with, say, [ wood art or Asian pallet ] range of products. And this is pure...
Okay. Not the premium products, if I understand.
Yes, not the premium products. So from this facility, we are going to make economical PU, melamine and some thinners and NC products.
Okay. So even the paints are going to be imported down the line, I mean, in the foreseeable future?
The wall paint?
Yes, wall paint.
No. Wall paint will be manufactured here only.
Wall paints is here. So going forward also, majorly, our PU business is going to be here only or is basically going to be imported only.
Yes, yes. The high-quality PU will be imported only. Here, we are going to manufacture a different line of economical PU products.
Fair enough. And one more thing. When we say these OEMs we are supplying to Godrej, Jindal, so these are, what, for wooden products or these are for metal coatings?
The Godrej, we are supplying for wooden. They have the store by the name of [ Script ], if you have heard, which is a high-quality furniture that they are supplying. So they are using only our product, only and only our product. And the business with them pre-COVID was picking up very well, but they have restarted. And recently also, we have started supplying again to them. With Jindal, yes, they have this [indiscernible] and Jindal steel kitchens that they are coming in. So there, they're using only on the metal, SS and MS.
Next question comes from the line of Hiten Boricha from Sequent Investment.
Sir, you mentioned, by and large, we will achieve our revenue target for FY '21, right? So just wanted to understand, what is the revenue outlook for FY '21?
See, as of now, it's quite difficult to figure -- yes, figure out currently the exact numbers because the situation is still uncertain. We see that if the situation keeps on improving from now from Q2, we will be able to achieve almost the sales of the pre-COVID level. So year-on-year basis, we will have the same amount of sales. And then in the coming next 2 quarters, we can cover a further quarter 1 and achieve the target as planned. But yes, it will be a decent growth compared to FY '20, if the things goes well. But yes, it's very, very difficult to comment on the numbers as of now.
And our margins will remain intact here, right?
Yes, the margins will be the same. The gross margin are still the same and are on the higher side, around 45%, 46%. And going down the line also, EBITDA is going to remain the same because we have done the expansion in terms of distribution. And also the manpower, very strongly in the last quarter, a few quarters of FY '20, which can give us a decent amount of jump in the turnover in the revenues with the same network and the same team. Expecting our EBITDA to be very strong this year.
Okay. Okay. That was helpful, sir. And the last question is, sir, what was the CapEx in FY '20? And what are we planning for FY '21?
See, FY '20, our CapEx was -- for the plant and machinery and everything, which was around INR 32 to INR 34-odd crores. And this year, it will be 0.
We will take the last question for the day, and the question comes from the line of Lalit Rai from B&K Securities.
Sir, just on -- just a couple of things only. So one was on your tie-up with Sirca Italy. So their holding still continues to be pretty low in the company. So if you can share some kind of future road map on what can happen over there in terms of equity infusion from them or in terms of -- also in terms of future products that you can bring from this table to India. And second was on -- across the board because of this COVID issue, we are seeing a lot of cost cutting. So what kind of measures are you taking on that side? Do we see expenses reduced in some way going forward?
See, in terms of the shareholding of Sirca, we were already, pre-COVID, in talks with them, and they were planning to increase their shareholding up to 10%, and it was almost on the finalizing stage. And then this COVID came into place. And actually, Sirca plant, everything is going on, but we are actually affected by the global markets because they were supplying globally to the United States and Russia. And Russia, they are facing quite a big problem. So currently, their focus has shifted from this matter to some other countries' matter.With India, the situation is still better, but with other countries like Russia and United States, they are still facing some problem and trying to sort out. And currently, their all energies and management are focused on that topic. That is why this has been delayed a little. But yes, with times, we see that this is going to eradicate and we are going to overcome COVID, and this will come back to discussion. And I think it will soon be finalized. So it is on the cards.And coming back to your second question regarding the expenses fees. We have -- we were at the highest peak level of the expenses in terms of the distribution network of spending that we have done. We are trying to reduce on our current spending in terms of the traveling expenses that we're used to [indiscernible], and we have introduced a lot of trainings online, a lot of complaint solving on phone, on video call, which is reducing the travel thing, which is actually helping us to reduce some expenses on the travel front, which is also not advisable to do currently, but it can become a part of a lifestyle in the company.And as I told you, in terms of the expenses related to the human power, human resource and distribution network, it was at peak. And now the turnover, which is coming, any increase in turnover which is coming is going to be with the current expense structure. So it is not going to rise, and we are reducing in terms of the daily routine work to control it in this quarter.
I would now like to hand the floor back to Mr. Sayam Pokharna from The Investment Lab for closing comments. Over to you, sir.
Thank you, everyone, for joining in. If we have not been able to answer some of your queries, please send the e-mail to us. The e-mail IDs have been provided at the end of the investor presentation. And once again, thank you from the side of Sirca Paints India Limited for joining on this conference calls.
Thank you, sir.