Somany Ceramics Ltd

NSE:SOMANYCERA

Earnings Call Transcript 2023-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the Somany Ceramics Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.

[Navin Agarwal, analyst]

Good afternoon, ladies and gentlemen. On behalf of Somany Ceramics Limited and all of us at SKP Securities, it's my pleasure to welcome you to this financial results conference call. We have with us Mr. Abhishek Somany, Managing Director; along with Mr. Sunit Kumar, AGM Finance. We'll have the opening remarks from Mr. Somany followed by the Q&A session.

Thank you, and over to you, Mr. Somany.

[Abhishek Somany, executive]

Thank you so much. Welcome, ladies and gentlemen, for the earnings call of Q1 FY '23. As you can see, our sales have grown by about 66% -- 67% over last year. And in volume terms, we've grown at about 43%. The EBITDA and the other numbers are really not comparable to last year first quarter, which was last year first quarter was an aberration, so everything looking much higher. But just to take you through, our EBITDA was INR 37 crores and a tax stood at INR 24 crores at 4.5%. And consolidated was at INR 45 crores EBITDA, which is the right figure to see because we have a large interest in joint ventures and the PAT was 3.7%.

It has been a quarter of a lot of pressures in terms of input costs, especially in terms of gas. We have been able to hold our prices -- the price increases which we have taken. But at the joint venture level, obviously, the prices went up of gas and the part on did not happen there, and there were not able to increase the prices. So therefore, you see the difference between the standalone and consolidated. But the good news is that the gas prices seem to have stabilized in the last 1 month. And the scenario which we are hearing and seeing is that mostly the gas prices should be stabilized going forward, at least until we have any new surprises, which is something else in terms of the war.

As far as the northern gas price is concerned, we will have a small increase even now in September, because that's on a 3-month moving average. But that also with the Brent now down, should start evening out and in fact, going down by the mid of next quarter. All our plants, which we had expanded capacity and started, they were obviously delayed. I mentioned that on the call last year -- last quarter, which was because of the gas non-availability, but now they are all on stream. The last plant started in June. We have done many launches. We've done 6 launches since June end until 2 days ago in Delhi for all the 3 plants.

The Northern plant is fully sold out. The South plant is also coming on stream, and it should be at 100% capacity utilization in this quarter. And so will our West plant, which is the Kajaria for GVT. In all the plants, the plants started with the non-value-added product and now we've done launches for the value-added product also. So you should see a lot of benefit from the value-added products growing in both those parts. As you can see, the GVT segment moved up from 26% to 30%. Last year was 26% in the same quarter has moved up to 30%. And I think this would move up by another 2%, 3% within the next quarter -- within this quarter and the next quarter.

The average capacity utilization in quarter 1 has been approximately 85% in tiles and 88% in Sanitaryware and close to 95% in the phosphate segment. The brand spends have been in line with what we generally do. First quarter is slightly lower than the other quarters. The net dealer addition has been approximately 70 dealers. And we've otherwise plan to add approximately 300 dealers in this year. There have also been additions on our exclusive showrooms. So that is going well. The price increase is in mid-April and then mid-June was approximately 2.5% to 3%.

Our guidance, which we had given for the year looks to be still absolutely on site, which is high double-digit growth between around the 20% mark. So we should be able to maintain that. Yes, there is a surprise, which is coming up, the Morbi industry, there seems to be some announcement of a week, 10 days of a trucker strike. But hopefully, that doesn't happen. We would know that by the 15, 16th of -- in the next 3, 4 days, 15, 16th of August. But even if that happens, we should be able to make up at least some of it. It cannot be a very long strike. So that is also something which we've heard, but otherwise, things looking absolutely good and steady for this quarter.

We've done a lot of work on the value-added segments. We've done a lot of work on new product launches. We've done a lot of work on channel expansion. On the balance sheet front, things are looking good. Our debtor levels went down even more. And the stock has gone up a very small bit, but that again gets evened out towards the H1. Overall, personal reaction to the figures, obviously, it has been a challenging quarter. We could have done slightly better. And I think this quarter, you will see a decent increase both in terms of sales and both in terms of margins. So we're looking good and that is subject to no serious grass increase, which doesn't seem to be the situation going forward as we speak.

So overall, things looking good. We had announced the plant for Max, Somany Max for the slab plant that is also the machinery has been ordered, and we should have production by the end of Q1, early Q2 of next year. So that's also absolutely in progress. One more announcement is that in the faucet plant, we've done some balancing equipment and that faucet plant will double capacity from the early part of the third quarter, which means by October that would have double capacity, which would give us some increased margin and also more sales.

So on the Sanitaryware front also, things are looking decent and we should be able to give you the growth, which is -- which was envisaged and promised at the beginning of the year. So overall, things are challenging, but we seem to be in a decent position. Volume is coming through, and we are trying to catch more and more volume geographically, more in the north and more in the South. So we're trying to get more volume what we have missed out in the last year. We're trying to get ourselves to sign up more volume in these areas. Of course, there are not too many plants available. But whatever we are able to get our hands on, we're trying to get that capacity on stream.

So this is the highlights for our Q1. Q2 looks good. It's been a decent start in July, obviously, slow because of the June pressure. June onwards, the market has been slow. But on an overall basis, it's not been as bad as we would have expected to be, so looking good.

Other than that, I would look at -- open the floor to Q&A. Thank you so much.

[Operator]

[Operator Instructions] The first question is from the line of [ Reni Shah from Shah Group ].

[Unknown Analyst]

I have a question related to EBITDA margin for [indiscernible]. So I want to basically ask as Kajaria competitors having EBITDA margin of 15% and they are almost close to half of that 8% as of now. So what are the -- like what are we basically doing to have closed the gap between them?

[Abhishek Somany, executive]

Portion between his and ours is more or less in the same line from quarter-on-quarter. What we're doing to bridge it is obviously, there are a host of things, but the immediate key points are the value-added sales and also increasing the GBT percentage of our total portfolio.

[Operator]

The next question is from the line of Sneha Talreja from Edelweiss Securities.

[Sneha Talreja, analyst]

Congratulations on great set of ambers. Just 2 questions from my end. Firstly, related to the volumes. So now that Morbi is about to see 1 month of shutdown, any impact that is likely for your volumes, any difficulty in facing outsourcing materials? Or can that be smoothened out with respect to inventory levels?

[Abhishek Somany, executive]

So first of all, Morbi shutting that doesn't shut down our plants because they are in the organized sector in Morbi. The worry is not the shutdown of the Morbi plants that would be a good one for us, if Morbi shutdown, that should increase certain demand. But what we are worried is that with Morbi shutting down. I believe there are also rumors of 10 days, 12 day transport shutdown. If that happens, then it will be -- that will affect us for those number of days. But let's see, I mean, we've had this in the past also, and transport strike never last more than 3, 4 days. So we are hoping for the same.

But as far as the -- our joint ventures are concerned, 100% of them are running, and we have already not consented to this March shutdown of Morbi. So to that extent, whether it is ours or other industries, who have joint ventures there and even the larger slab plant and the export plants are all running. So the whole-- Morbi, I believe, is approximately 800 plants, out of which, 60 to 80 plants are going to keep running, provided the lorries are available for dispatch because you can't keep more than a certain amount of stock any which ways.

[Sneha Talreja, analyst]

So no worries with respect to your outsourcing partners as well as what I meant?

[Abhishek Somany, executive]

No, no, no. So we have stock there, so that's also not an issue. And anyway, our reliance after these 3 expansions have come up, most of our alliance is on joint ventures and not so much on outsourcing. And whatever it is there on outsourcing, we have a reasonable amount of stockholder.

[Sneha Talreja, analyst]

Perfect. Just also wanted to give clarity on your working...

[Abhishek Somany, executive]

But those are not to be majorly highlighted. I mean our joint ventures keep running. We're good to go.

[Sneha Talreja, analyst]

Sure. Got it, sir. Sir and, my second question was related to working capital base. I just wanted to understand how is the calculation made with respect to this 45 and 46 days, if at all, you could specify, maybe some lesser can take it up and just specific point that how is the calculation done on this 45 and 46? And what is the reason for sudden increase that you are seeing in terms of payables or I think inventory is what I think?

[Abhishek Somany, executive]

Yes. So that's a fairly simple calculation. I think we have explained that working as well on the slide itself that is purely the business working capital requirement, which comprises the stock and book debts on the current asset part. And on the current liability side, these payable, things has being considered. However, the cash surplus, which is not yielding any kind of return to business is not considered as far as current asset is concerned. At the same time, capital creators are not considered. So otherwise, it's a fairly simple the current assets and current liabilities adjusted by these 2, 3 things: the cash balance, the capital [ data ] and these short-term volumes.

[Operator]

The next question is from the line of Ritesh Shah from Investec.

[Ritesh Shah, analyst]

Sir, first question is, what is the rational for the March shutdown in Morbi? What are that they're trying to achieve?

[Abhishek Somany, executive]

Okay. I think this -- if you see across the world, we have 21 day to 1 month shutdown. If you have China, plus top of the 3, 4 large economies, which produce tiles, I can only compare the tile industry. China generally shuts down for approximately a month doing Chinese New Year, which is end of January to end of February. If you look at Italy and Spain, which are very large producers shutdown during the month of August, which is their summer and they generally do the routine CapExs, the routine maintenance sales, et cetera, et cetera, at this time.

So I think Morbi trying to follow the same, but I think it's been exaggerated the situation is exaggerated because of the lack in demand, although the demand and exports have gone up, but the Latin demand and the extremely high gas prices where they are not able to pass on the prices, especially the slow -- the smaller ones, there what they're trying to achieve is to create more demand by taking out 1 month of production pretty much every year.

So they want this to become an annual feature. And if it does become an annual feature, it will probably be quite decent for the industry because everything then gets planned. And maybe some of our plants, which we do ad hoc maintenances, we could also fall in line and do the maintenance at the same time. So I think if they do succeed 2 years in a row of this shutdown in August and why August because generally in Janmashtami, there are 2 times which Morbi generally shutdown for approximately 7 to 8 days any which ways, one is Janmashtami and the other one, because in the Gujarati community, Janmashtami a big one, and the other one is Diwali, which is soon after followed by Bhai Dooj and then the Gujarati New Year.

So these are the 2 times of the year, they generally shutdown. August seems to be a better month because there's -- half the India is under monsoon and there is Janmashtami, so from that point of view, they have chosen this month. Good luck to them, if they can, then a lot of the organized industries will also follow through maybe year 3 onwards. So that's exactly what they're trying to achieve, create more of a demand by taking 1 month out of the calendar. So automatically, that many percent of the capacity goes out. So create more demand and also hoping that there would be certain price increases when they start operating. This is what they're achieving.

[Ritesh Shah, analyst]

Sir, my second question is, just wanted to get some update on the fuel costing, what Gujarat did, if you have an MOU, is it on for spot base? And how does this compare versus propane after including all the taxes? That's the first question. And the second question is, how is our costing for different regions basically quarter-to-quarter and currently?

[Abhishek Somany, executive]

Yes. So yes, we have contracts with Gujarat Gas. Those contracts are 3-month contracts, unlike the contract which we have in our northern plant, which is a 20-year contract. So there, there are 3-month contracts. And the pricing they give us is a blended pricing. We don't have exact BIS to how they price the gas, but they price it between spot gas, or LNG, which they're buying from Qatar and various other areas and also some amount of APM. So a blended cost to give you an example. Currently, in Gujarat, there's approximately INR 65 a standard cubic meter for RLNG, which they're providing to us. Compared to last year's same quarter, it used to be INR 36. Let's not even get into what it's gone up from. So from INR 36 to INR 65, it's obviously gone up slowly and steadily. Even on quarter-to-quarter, it has gone up by INR 4.

As far as propane is concerned, currently, propane is approximately INR 7 to INR 8 a standard cubic meter cheaper. And a lot of the plants are converting to propane. Obviously, it has a large CapEx. The smaller guys may not be able to afford it. But for example, for some of our plants are moving to propane. It needs the yard, it needs the permissions from the authorities and it needs a CapEx of approximately INR 1 crore plus. So 3 of our plants are moving in this direction, 2 have already done it in the last 10 days. One is on route by month end, it should be done. So from that point of view, we are also moving whatever we can into propane.

On the other front, in the northern area, our gas price used to be the same INR 36 same quarter last year. Today is approximately INR 58 for the quarter. And if we speak as of today, it's approximately INR 64 a standard cubic meter. So as we speak in onward INR 64, same as Morbi. In the South, it used to be INR 34 same quarter last year. Last quarter ended what we are discussing the results was 71%. Currently, when we speak, it's at INR 90. So very, very significant sharp jumps in all of the gas prices as we speak.

[Ritesh Shah, analyst]

Sir, just last question. I'll just try to squeeze in. What percentage of capacity in Morbi has already moved to propane? Like is it significant to adjust the cost curve for somebody would have move to propane? Will it be a disadvantage?

[Abhishek Somany, executive]

So look, approximately 130, 140 plants have moved to propane. And what I believe is that 150 plants would finally move to propane. So it's not going to be a very, very large amount, considering there are 800 players there. Some don't have space, some don't have the ability, some don't have the permissions, et cetera. And I do believe that with every passing day, if gas prices start numbing in the next 3, 4 months, it will make less and less sense. So I think whoever had to move other than the 20, 30 more players, most of them have moved. And for them, it will be an advantage. So for example, our plants which have moved to propane, we will be producing titles that are INR 60-something to level INR 58 to INR 60 is giving me the level, whereas the other people are producing at INR 65 to INR 67 a standard cubic meter level.

[Operator]

[Operator Instructions] The next question is from the line of Keshav Lahoti from HDFC Securities.

[Keshav Lahoti, analyst]

So what percent of the Morbi will be shut down for this 1 month?

[Abhishek Somany, executive]

What we hear is that the total -- approximately 50 to 60 plants will keep running. And I don't have BIS as to how many have already shutdown and how many are going to shut down as a result of this March shutdown. But there are about 800 something players in Morbi, out of which 60 to 70, maybe 60 would keep running, provided the transport strike is not a very stringent one.

So just towards well, we have about 8, 9 plants. Industry leader is another 8, 9 plants and other organized players put together have another, let's say, 15 plants. So that's approximately 30, 35 of us and then there are approximately 3, 4 very large players there, Morbi tender, large players. That's another 40. And then other 10 plants which are making slabs, slab mostly get exported and another 10 plants which are 100% export-oriented not a single tile goes into India. So all of these 60 plants have no reason to shut down, and they have not even put their name as a consent on this March shutdown, which is very well known to Morbi. But this transport strike is a little -- is a new one. We're hoping it doesn't happen even if it does happen, it's a 2, 3-day strike up then Janmashtami which anyway is a muted period, let's say, everything was going okay, normal between the 15 August and Janmashtami any way it was going to be a muted period. So if that's the case, I think those 60, 70 plants will have no issue.

[Keshav Lahoti, analyst]

Okay. And how has been the gas prices, region was in North, West and South in Q1 and current prices?

[Abhishek Somany, executive]

I didn't understand. I'm sorry, can you repeat, please?

[Keshav Lahoti, analyst]

What is the gas price for Q1 in North, West and South and also the current price?

[Abhishek Somany, executive]

I just mentioned that the gas price in North Q1 was 58%, Morbi was 65%. South is 71%. The North has gone up to 64%. Morbi has gone up by INR 2 to INR 67, and South has gone up from 71% to 90%.

[Keshav Lahoti, analyst]

Okay. Yes. I wanted the South. That's it from my side.

[Abhishek Somany, executive]

But remind you, in the South, also we are trying to acquire gas at slightly cheaper rates from third parties. So we've already been able to succeed secure some large amounts. for a small amount, I should -- we should be able to secure some larger amounts, not obviously, substantially, people got cheaper than the current rates. So we're trying our best to see how you can get that. And this is, again, for the next couple of months. Hopefully, after that, it should start getting muted.

[Operator]

The next question is from the line of Aasim Bharde from DAM Capital Advisors Limited.

[Aasim Bharde, analyst]

I just wanted to check if you would like to talk about any margin expectations for the rest of the year, assuming gas prices stay where they are and your value-added mix moving up?

[Abhishek Somany, executive]

Yes. So as I mentioned in my opening comments, with these 3 plants going on stream and value addition coming up, if gas price remains at the current levels, we should see certain margin expansion. I'm unable to give you a figure right now because it is extremely volatile. But at steady state, it should be a small margin expansion for sure because the value-added sales would have kicked in.

[Aasim Bharde, analyst]

Okay. But still, I mean, that's what I wanted to check, whether is there any number in mind for the rest of the year, assuming things are stable. But okay. Sure.

[Abhishek Somany, executive]

I wouldn't want to give a number. It may be too early. Maybe next quarter, if things stabilize, we should be able to give some guidance. And the reason why I say that is because, generally, gas price moves up again in the winter months. So early days to say. It's so volatile over there, that it will be really futile to give you a number and then people forget everything else and just put that...

[Aasim Bharde, analyst]

Yes. I understand the worry. No problem. No problem.

[Abhishek Somany, executive]

At steady state, I do believe there will be a margin expansion. So let's talk of this quarter. This quarter, there should be a margin expansion because I don't see any surprises of gas prices in this quarter. Who knows what will happen next quarter?

[Aasim Bharde, analyst]

Fair enough, sir. Fair enough. So on GVT, you said 30% of revenue in Q1 is GVT and that can go up to 33% in Q2. Where can it settle off by Q4 end? And maybe FY '24, where -- are there any further levers to keep it? Sorry.

[Abhishek Somany, executive]

Yes. No, no. Absolutely. I understand your point. Sorry to cut you off. But I think closer to maybe 33% to 34% by this year-end, maybe a little more. But next year, we're putting up the slab plant. So that will push up by another 2%. So I think the 35-plus figure would be there by middle next year, maybe -- that would be the minimum. It would be probably more.

[Aasim Bharde, analyst]

Got it. Got it. And is this the value-added mix as well? Or is there something more to add to it?

[Abhishek Somany, executive]

No, no. Value-added mix, that journey keeps going. I mean, it's a work in progress. So that value-added mix will keep coming up. And that new slab plant is 100% value-add anyway. And for that matter, even the -- our Kadi is 50%, 55%, maybe more, 60% is value add. And in the South also, the GVT expansion, which has happened, approximately 50% to 60% is value-add. So obviously, when you start a plant, you start the plant with your basic material. Why would you make a value-added material?

And there are issues in the first 15 days, 20 days of any plant starting, any greenfield plant starting. So value-added mix has started coming up. You'll see that figure. When you analyze our Q2, you'll see half of Q2 would be giving me a good flavor of that figure and the whole of Q3 and Q4 will give me a good flavor of that value-added mix. And by that time, we should be ready with the slab plant, like I said, end of first quarter, beginning second quarter, we will have the slab plant in Morbi, which will also further augment our value-added mix.

[Kumar Sunit, executive]

Aasim, just one clarification, whatever this percentage we are talking about, this is percentage to total tile revenues. So don't replicate this to total revenue because that comprises 10% of non-tiles as well.

[Aasim Bharde, analyst]

I understood. I was actually talking about the tiles part only. [Foreign Language] And congratulations on a good performance in Q1.

[Abhishek Somany, executive]

Thank you.

[Operator]

[Operator Instructions] The next question is from the line of Sneha Talreja from Edelweiss Securities.

[Sneha Talreja, analyst]

Just wanted to understand 2 things. One is the decline in other expenses on a Q-o-Q basis, sir. I think on the opening remarks, you also mentioned that ad spend has seen some decline, which is usual in Q1. Could you give some other reasons also along with ad spend what has been the decline in Q1?

[Kumar Sunit, executive]

Yes, Sneha. So that's -- I think it was fairly covered in opening remarks as well. That's the obvious certain expenditure, which comes towards the end of the year as we progress. And that's largely the A&P part of it. Though we have been maintaining and it's roughly 2%, 2.5% type of range and that we have been consistently doing for this quarter as well. But if you compare with the Q4, I think the difference of roughly INR 4 crores, INR 5 crores at a standalone level is [ not ] much on it.

[Sneha Talreja, analyst]

Okay. So it's largely due to ad spend.

[Kumar Sunit, executive]

Yes.

[Sneha Talreja, analyst]

Also, just wanted to understand your depreciation part of it, despite the new plant coming up, we have seen decline in your depreciation. Any reasons for that on a Q-o-Q basis?

[Kumar Sunit, executive]

So actually, Q-on-Q basis is aberration. Q4 was aberration, to be honest, because there was certain machinery and equipments, which were flared up because of modernization and all these things. So that's why Q4 number is not normalized one. The number what you are looking for the Q1 and even the previous quarter, that's the normal one.

[Sneha Talreja, analyst]

So this quarter has a meaningful decline number. Like Q4 should be a normalized average run rate that we should look at?

[Kumar Sunit, executive]

No, not exactly. Q4 is not the normalized one. This quarter, even the earlier quarters, Q2, Q3 was the normalized one. Q4 was not normalized because it was flared by a certain amount because of the certain equipments getting written off or replacement under the modernization scheme of northern plant.

[Operator]

The next question is from the line of Pranav Mehta from Equirus Securities.

[Pranav Mehta, analyst]

Sir, just wanted to understand your thought process on selling out of one of the JVs in Morbi that is Amora Ceramics. So what is the strategy behind this? And just a related question on this is that, is ceramics as a product category being expected to gradually lose out to vitrified tiles and that is the reason why some of the organized players are more now focusing on outsourcing of ceramic instead of, let's say, own manufacturing and JVs? That was my first question.

[Abhishek Somany, executive]

Yes. Thanks for the question. I was hoping that question comes up. Even I forgot to mention it in my opening remarks. But -- so we had 2 JVs. We had Amora Tiles and Amora Ceramics. They were right next to each other. The reason for putting out Amora Ceramics as a separate company at that time were certain benefits, which we were getting for putting up a greenfield manufacturing. So one was producing 4 lakh square meters of tiles per month and one was producing 2.5 lakh square meters of tiles per month. So the total capacity between Amora Tiles and Amora Ceramics was 6.5 lakh square meters of tiles per month.

We never got on to use 100%. We were only -- when we put it, we were using more than 4 lakhs, but we never could use 6.5 lakh. We could only use 5.5 lakh square meters of ceramic tiles from there. After which we expanded the Kassar capacity, and we are also trying to tie up certain capacity in South, which we are currently not successful with -- in the wall tile segment. But the reason for this divestment is that what we are doing is we have added capacity. We've done balancing the equipment to the tune of INR 10 crores to INR 12 crores in Amora Tiles, which is the original joint venture from 8 years ago.

We have augmented capacities in that or rather we would have augmented capacity by November that will go on stream soon after Diwali from 4 lakh square meters to 5.5 lakhs. So that is what we've been selling. So what we were trying to do is get 100% capacity utilization from that one plant, which is 5.5 lakh square meters, which we are confident of selling and we are already selling and divest Amora Ceramics, which is a 2.5 lakh square meter plant.

And our partner was able to sell that in exports in various other areas. So they have gladly agreed to take that back into their 100% in their fold and simultaneously add capacity in the Amora Tiles, which again is the same partner. So they have also put in their money in their own share to augment capacity of 5.5 lakhs. So as far as Somany is concerned, we are not going to have a single square meter, which will go down. And even in Amora Ceramics, which we're divesting, first right of refusal for any incremental capacity will be ours. So this is the reason, and thank you for asking the question.

And your second question is, is ceramic going down? Ceramic is not going down as fast as PVT is going down. Polished vitrified tiles is going down further. There will be a reasonable balance, which is what we've seen in Italy, Spain, China everywhere between ceramics and GVT. Obviously, GVT came from a very low base. So GVT, we see it as a very fast-moving -- fast increasing segment -- sorry. So from that point of view, GVT also will start tapering off because it was on a small base now that the base has become larger. So I think there will be a healthy mix between GVT and ceramics, more in favor of GVT because ceramics anyway was limited to kitchens bathrooms, et cetera, even earlier. There, it is still the preferred product. So PVT has gone down. While more people are outsourcing, I think that is something which I had mentioned earlier.

In the South, some of the organized players have gone and tied up capacity for ceramics. I think we were just a little too late to catch that boat, but never say never. So we are also trying to get capacity. For example, we have been able to tie up more capacity for ceramics and GVT in the North very recently in end of July. And we are also tying up some capacity within the next 1 month in South for ceramics. So it's not that ceramics is going down or anything. And the divestment is very strategic. It's a win-win for all. My plant out of one plant, I need more than 4 lakhs. It will be able to give me 5.5-lakhs. And at 100% capacity utilization, you may appreciate that the gas efficiencies become also that much greater. So it's a win-win for all of us. I hope I've clarified the questions.

[Pranav Mehta, analyst]

Yes, sir. And sir, your guidance for Bathware segment growth and now that the new players also coming into the Bathware segment, and most of them are now targeting for outsourcing of capacities. I believe it would be mostly from Morbi and Sangadh areas only. Do you think there is a possibility that there would be a shortage of capacity in Bathware segment, particularly in sanitaryware because Indian exports are also going up quite well for last year 2 years, 3 years. So your thoughts on the same?

[Abhishek Somany, executive]

Yes. So we still have capacity for 1 year, and we also have outsourced capacity. So I don't think capacity is going to be a constraint in Bathware immediately. As far as our growth is concerned, we had said between 35% and 40% growth. And I think we are absolutely on that figure. We should be able to achieve that. And as far as our faucet is concerned, I've mentioned in my opening remarks that we've done some tinkering, balancing equipment, we should double our production.

[Operator]

The next question is from the line of [ Vinit Shah from Shah Group ].

[Unknown Analyst]

I have a question on similar lines from Bathware segment. So with this [indiscernible], Asian Paints [indiscernible] and acquired all these players. So what is our right to win in this segment? And yes, this is my question. Other question, you have already answered.

[Abhishek Somany, executive]

No, this has been asked in the past also. Thank you for your question. The right to win, I think the confidence is that everybody has their own set of dealers. We also have our relations for the last 50 years with our dealers. If you see currently, we have not even scratched the surface. We have approximately 2,900 active dealers and about 3,300 direct dealers, which then sell to approximately 10,000 sub-dealers. If you take even the 2,800 and something, so ballpark 2,900 figure, not more than 350 to 400 dealers are still keeping sanitaryware. So long way to go on that one.

And specifically to provide our product to all the shelves is where we believe that we would be able to become even more successful. And I think our journey has been quite successful till now. Then if we see the demand from the market, our products are light. In quality, our products are light in the variety. The variety only keeps increasing as we grow. Pricing is also, I won't say cheap, but it's competitive compared to industry leaders in that segment, which is the Roca, Kohler, Hindware, Cera, et cetera.

So from that point of view, I think we are okay. We still have a long way to go. Unlike the tile segment, where 80% of our product is retailed and the 20% is between government projects and private builders. Over here, still approximately 50%, 60% of our products -- 50% of our products are in projects. So we are not still as strong in retail, but that obviously will be the fact that it's still not recognized as a sanitaryware brand. But with every passing day, we are overcoming that effect.

And there are also, just to preempt another question, we are also planning some mega launches of new products in the coming quarter for the sanitaryware to build more awareness and build more awareness for the -- our product line. So that's where it is. And as far as Jaguar is concerned, I think they've been in the sanitaryware bath fitting segment for very, very long.

Astral is the new player, and there are 1 or 2 more players, which are coming up. Asian Paints, again, is somebody who had entered this space approximately 4 years ago or 5 years ago with the faucet plant, and they have now started also sanitaryware in a very small humble way. So I guess the other way to look at it is there are very few players for the last 30 years, 40 years in the Indian Bathware segment and now suddenly it's heating up. This area is also heating up.

[Unknown Analyst]

Okay. And I have one follow-up question regarding the dealership. So usually, I have seen like faucetwares are usually sold in hardware stores where tiles and these things are sold separately in different dealerships, right? So are we targeting any new sellers or something like that?

[Abhishek Somany, executive]

Let me stop you here only. That's not true at all. If you go and walk into any tile store, bath fittings, sanitaryware and tiles go in hand and glove. It's the geysers, which have 2 segments. They have the power segment and they have the hardware segment. But beg to defer there. The faucet segment is sold from the tile dealership only. So what we refer to is the accessories. So certain -- if you used -- I mean everybody uses faucets. So the -- if you see under your basin, there are those 2 knobs for hot and cold, which keep getting spoiled, those are little things which the plumber may buy in a hardware store also. They call it Bib Cock. But otherwise, those little small items are sold from a hardware, but the basic -- your shower cubicle of the lever over there and your main faucets and your health faucets, those are 99% sold out of tile showrooms.

[Unknown Analyst]

Okay. Okay. And considering the fact, as you mentioned, 50% to 60% is in faucets. So like what is the return on capital employed we are looking in this segment in the longer horizon, not in the short term?

[Abhishek Somany, executive]

I couldn't understand. I'm sorry, if you could.

[Unknown Analyst]

So what is the return on capital employed that we are seeking in this Bathware segment in longer term?

[Kumar Sunit, executive]

So return on capital employed, Bathware segment is definitely on a higher side, considering it's the margin equity business as compared to tiles on a blended level. But since it's a part of the same bigger companies, so difficult to dissect precisely the capital employed percentage for it. But in general, for us, the [ turn ] is also higher and margin is also on a higher side. And these 2 are the only function for a return on capital employed. So directionally, we can say it's higher as compared to tiles.

[Operator]

The next question is from the line of Ritesh Shah from Investec.

[Ritesh Shah, analyst]

Sir, my question is on, one, is sourcing of fuel in South. Can you provide some more color? The reason I asked this is, if I look at the headline numbers for [ Kochi ] in South for the fuel, we are on a higher side versus the largest player. And in fact, we are at the advantage in the other regions. So just trying to understand the differential if it's possible.

[Abhishek Somany, executive]

No, that's not true. Our prices is exactly the same as other players in the South, unless they're running on coal. So all the organized sector, industry leader, ourselves, we are at exactly the same price. There's no difference.

[Ritesh Shah, analyst]

Okay. I'll connect to you offline for this. So that's one. And sir, second, sir, [ contemplation ] if you can give on the trend in exports out of Morbi. As the Morbi is, say, shut for a month, what happens to the export trends? And secondly, is there any disruption in the global seaborne trade because of Italy and Spain probably facing issues on fuel availability or even viability issues over there?

[Abhishek Somany, executive]

So exports if you see, America, which used to be 0 has become the largest importer from India. So the single largest export, which is now happening in terms of value. I'm not sure of the volume because I generally get only value figures from customs, is now to the U.S. And earlier it used to be to GCC and Saudi Arabia, specifically. So now Saudi has become #2, and US has unseeded that space. So the exports is only going up. And in this 15-day outage, I believe there is a certain amount of stock at least with the export-oriented players, which will keep going. But otherwise, I really don't know how they're going to manage other than the 100% export-oriented unit. If the units close down, how they're going to manage the export commitments, and obviously, they must have thought of something from Morbi.

There would be a small disruption any ways. But overall, the export for India, as mentioned by in various forums by all industry leaders from our industry, we're looking at exports of between INR 17,000 crores to INR 19,000 crores. So last year was approximately INR 12,500 crores, which if you annualize considering we had 1 month of the Delta shutdown, it was about INR 13,500 crores, which this year should be anywhere close to INR 17,000 crores to INR 19,000 crores. So exports is something which is looking good. And this is, remind you, at a situation where freight rates are still high. Obviously, freight rates have started numbing and we do believe in the next 12 months, it will be even better. Exports will be a huge, huge plus point for the Indian tile industry.

[Ritesh Shah, analyst]

Sure. Sir, last question, if I may squeeze in. Sir, how should one look at the channel inventory right now given the Morbi the situation? And secondly, any color on the price increases if you have taken from the start of this quarter?

[Abhishek Somany, executive]

We did take some price increase in April and then in June, approximately 2.5%. But whenever we've taken a price increase, it's been eaten away by -- in immediate subsequent gas price increase. As far as Morbi is concerned, they are hoping that there would be a small price increase after this shutdown.

[Ritesh Shah, analyst]

Right. And channel inventory?

[Abhishek Somany, executive]

Channel inventory, nobody in the dealership is overstocking material. Even now, they're not overstocking because they have seen Morbi only reduced prices in an increased input price scenario, not really reduced price but giving better discounts to remove some old inventory, et cetera. So the channel inventory pretty much remains the same. Maybe it would have gone up a little bit in the last 1 week or as we speak going up because everybody knows there's going to be a 15-day shortage from Morbi. So they must be stocking up. But -- and a lot of those channels don't really deal with us. So the Morbi channel industry may have gone up a little bit, slight bit in the last 1 week or is going up in this week.

[Operator]

[Operator Instructions] Thank you very much. As there are no further questions, I would now like to hand the conference over to Mr. Somany for the closing remarks.

[Abhishek Somany, executive]

Thank you so much, ladies and gentlemen, for joining us for the earnings call of Q1. We hope to welcome you for the earnings call for Q2 and hope for the best quarter. Thank you so much.

[Operator]

Thank you. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.