Somany Ceramics Ltd

NSE:SOMANYCERA

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Good day, ladies and gentlemen. Welcome to Somany Ceramics Limited Q1 FY '25 Results 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. Thank you, and over to you, sir.

[Navin Agarwal, analyst]

Good afternoon, ladies and gentlemen. On behalf of Somany Ceramics Limited and SKP Securities, it's my pleasure to welcome you to this financial results conference call. We have with us Mr. Abhishek Somany, MD and CEO; Mr. Shrivatsa Somany, Mr. Ameya Somany; Mr. Sailesh Raj Kedawat, CFO, and Mr. Kumar Sunit, Head, Strategy and IR. We'll have the opening remarks from Mr. Somany, followed by a Q&A session. Thank you, and over to you, Abhishek ji.

[Abhishek Somany, executive]

Good afternoon, ladies and gentlemen. Thank you for coming on to our Q1 FY '25 conference call. So as you can see from our results, it's been a very tough quarter. There's been muted demand, and it got further aggregated with -- aggravated with the elections, extended elections across and the extent of heat, but it's been a flattish quarter.

As far as sales volume is concerned and also as far as value is concerned, the receivables, however -- the balance sheet however, improved. The receivables went down by another 5 days. Average realization has also declined very little Q-on-Q, it's only about INR 3 Q-on-Q.

That generally, we've seen because in quarter 1, most of the nonvalue-added product gets sold. So we've been able to maintain no serious discounting or anything like that. So on the flattish quarter, there was no pressure from our side to further improve the INR 10 crores, INR 20 crores of sales, and therefore, we've been able to further restraint our receivables. Realization has gone up, I'm sorry, Q-on-Q, I my misstated.

Capacity utilization, obviously, from Q4 has declined. But if you look at it from last year Y-o-Y, that's gone up to 81%. Last year Y-o-Y was 70% and this year is 81%. Q4 being the best quarter so that's always higher. So from that point of view, it's down from 89% to 81%.

Operating margins, obviously, as far as tile Industry is concerned, I've said that in the past, and I'll say it again, that most of our EBITDA comes through capacity utilization and the minute capacity utilization has declined, we have a fall in EBITDA consequently and so in PAT.

But having said that, we've been able to maintain our EBITDA, although our sales have been down. Costs are up, obviously, because the increments have already been given. So that's factored in, that an analyzed increment for all the people.

So from that particular the costs are up, but otherwise, we've been able to mitigate the other cost increases by efficiencies and better management. So we've been able to maintain the operating margin at 8.5% versus 8.7% Y-o-Y.

Gas prices have helped us. They've been largely stable during the quarter and going forward also, we believe that this would be largely stable. As far as the other capacity utilization is concerned, which is sanitaryware and faucets, sanitaryware ran at 96%, that is up from the previous levels.

This is more towards -- again, we're trying to push more and more towards value-added segments. And faucets has been at about 90%. But in faucets, I must remark that this 90% is on 1 shift. So we do have enough capacity built in if we had to run another shift.

But historically, we've been running only 1 shift. So there's more than enough capacity build in case the market had to turn for the better.

As far as our segment revenue is concerned. In Q1 FY '25, Ceramics was 35%. Y-o-Y, it's up 1%. PBT was 28% -- sorry, Ceramics was 35%, Y-o-Y is down 4%. PBT was 28%, which was flat. GVT is 37%, which Y-o-Y was 33%.

So this has -- Ceramics has been replaced by GVT. The brand spend is going to be maintained annualized between 2.75% to 3%. However, the brand spend in quarter 1 is generally lower. So it's at 2% in quarter 1.

Our working capital days have also largely been maintained at approximately 13 days in Q1 as compared to 8 days in Q4.

We are quite positive on this particular year. We have our Max plant up and ready. That's the only subsidiary, which is still the newest and it's at a capacity utilization of about 35%, 40%. We are seeing that, that is steadily increasing. So that's going to be the green shoot for next year, which will bring us value growth.

And otherwise, this year, we are looking at -- we're still looking at a double-digit growth, looking at mostly driven by volumes. EBITDA margins, like I mentioned earlier, with the caveat of gas prices not spiking, we should be able to improve 1%, 1.5% EBITDA, basically on the -- riding on better capacity utilization and better product mix and also a 10-plus percent growth, so double-digit growth over there.

There has been few green shoots out of the budget. The investment of INR 10 lakh crores under the PMAY for the 10 million new houses should help the tile industry in the future. Otherwise, all the new launches which have happened in the builder segment, in the private builder segment, which we've witnessed over the last 18 months, all that would come into play in -- from the end of quarter 3 onwards.

I would want to touch upon a little bit about exports. The exports have improved since the lows of January and February, where it had gone down to INR 1,300 crores, INR 1,350 crores levels. It's come back to INR 1,650 crores to INR 1,700 crores levels per month between April, May and June. So this steadily is going up.

This is also a very, very positive sign that when the freight rates are at record high, the exports have still come up from the INR 1,350 crores levels to INR 1,650 crores level. So this is something which will keep aiding the tiles industry from India. So this is as far as the opening statements are concerned.

I would now like to open the floor to any Q&A. Thank you.

[Operator]

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

[Keshav Lahoti, analyst]

Sir, this quarter, our volume has been more like a 1% degrowth, but possibly the industry leader have done a way good. Normally, we see you and industry leader grow in line. So what is the take on that? And what is your volume growth guidance for this year? And what sort of margin you are looking?

[Abhishek Somany, executive]

So if you see the industry leader, there has been a INR 17 decline in realization, our decline has been very little. They have launched a particular kind of a new line, which is a cheaper line. We hadn't done any such thing right now.

So it has been a tough quarter. My degrowth from a volume perspective -- I mean, from a value perspective is just about INR 8 crores, INR 9 crores. We didn't want to push the system. We didn't want to choke the system because we know we're getting into July and August, which are generally rainy months. So we stayed away from that. So our balance sheet is healthy, our payables are healthy, our my receivables are healthy. We're still looking at a double-digit growth, and I don't think there should be an issue with all our plants completely up and ready as far as we're concerned. So our DSO is down by 5 days, as you can see. And also our realization has been maintained.

[Keshav Lahoti, analyst]

Understood. We have been talking about pickup in tiles demand. Has anything played out so far? How has been the July month?

[Abhishek Somany, executive]

So July has also been a tough month. After the budget, it's been a tough month. But we do -- it's been better than May and June is what I can say, but it has been a tough month. So it's not that it's a wow month, considering that we are done with the elections and done with that, but it's not a great month. But it's better than May and June.

[Keshav Lahoti, analyst]

Understood. Can you please give the fuel cost in Q1 FY '25 region-wise?

[Abhishek Somany, executive]

Sure. So -- I'm sorry, just give me a second. The 3 regions which you are talking about, the North region; the West, which is Morbi; and our Ahmedabad plant; and also South. So Q1 FY '25, the Kassar plant is at INR 43; last year was at INR 45, INR 46 same quarter. Morbi is at INR 45 a standard cubic meter; last year was at INR 43, so this is up INR 2. South is at INR 47; and last year, it was at about INR 55.

[Keshav Lahoti, analyst]

Okay. Got it. And the current prices?

[Abhishek Somany, executive]

I'm sorry?

[Keshav Lahoti, analyst]

Current prices are same, current price levels?

[Abhishek Somany, executive]

There's been no change in the prices I've given for last quarter. I mean if there's a change, INR 0.50 to INR 1 plus or minus, but nothing, no significant change. Do consider that -- I would like to mention that do consider that more and more of our spray dryers keep moving to biogas and experimenting in cheaper and better biofuels. This is something which is new to us in the last 2 years considering that for 50 years, we've been running the plants on gas and partly on spray dryers and coal. So this is a whole new subject. We're keeping on experimenting on new fuels, new formulas to see how we can bring the cost. So that also comes into play here, not only gas. So do keep that in mind.

[Operator]

The next question is from the line of Pankaj Tibrewal from IKIGAI Asset Manager.

[Pankaj Tibrewal, analyst]

So 1 thing which we have done very well over the last few years is our discipline on working capital and hence, the cash flow generation. Can you just take us through this discipline [Technical Difficulty]

[Operator]

Sir, sorry to interrupt, but the volume for you has gone very low.

[Pankaj Tibrewal, analyst]

So I'm just saying that in this quarter, when it was a difficult quarter in terms of volumes, how has been your cash flow discipline as you navigated this difficult quarter. Can you just take us through that part? And second, when we speak on the ground, Simpolo seems to be doing quite well. We saw the volume growth of Kajaria. Does that mean that we may have lost a bit of market share in this quarter? Or probably it's not the case there. Some light on that. And from a 2-, 3-year perspective, how we should visualize the company in terms of size case because some of the unlisted players are also getting very aggressive on the market share gain? So these are the 3 questions.

[Abhishek Somany, executive]

Thank you. So I will take the first one, which is -- 1 part, I will take and I'll rest of the part, I will ask Sailesh and Sunit to pitch in. So as far as our cash flow is concerned, like you've seen our -- we've been able to maintain our average realization. We've been able to go down 5 days on DSO. The rest of the cash flow, which is the nitty-gritty of the cash flow, I would let Sailesh and Sunit pitch in, and then I'll come back for the next 2 questions. Go ahead.

[Sailesh Kedawat, executive]

Pankaj ji, for our cash flow, if you see, we have done close to INR 50 crores of EBITDA this quarter. And there's some money which has gone into working capital. The working capital days has gone up -- around INR 25 crores, INR 30 crores has gone into working capital.

We have been able to -- we made positive on operations, maybe around INR 15 crores, INR 20 crores is what we have been able to make from operations, and we have not done any major CapEx. So we have made that positive this quarter. There are no CapEx, which has happened in this quarter. And we are looking forward -- I mean the next 3 quarters, I think we are looking forward for a very positive cash flow because there's no major CapEx which are planned.

[Abhishek Somany, executive]

I hope that answers part of the question. The second question is on the market share, which you have mentioned 2 players, namely Kajaria and Simpolo. So my response to that is that Simpolo is completely separate segment in which he's growing, both value and volume. We are nudging up in that particular segment, which is a large format tiles.

So if you see Simpolo, he's probably would have a reasonable degrowth than the bottom end of the business. But it's top under the prism because he's been in this game for the last 5, 6 years, he's being able to leverage that. But that is something which I have said in the past that with our Max plant, which started in August and -- sorry, in third quarter and launched in December, we've been able to do a reasonable amount of sales there.

I can take you off-line small nitty-gritty number, which I would not want to do on public forum. But I would take that -- give you the numbers as to how we've grown in the big size segment. So there's been no market share loss there. In fact, we've gained market share as far as Somany is concerned because we sold a lot more of the big format, not as much as them.

As far as Kajaria is concerned, I think the answer to that is that they have launched a new product line which does not bear the name of Kajaria. There is a new brand which they've launched at the bottom end of the prism. That's driven a large part of the sales.

So have I lost any market share, Kajaria to Somany? No, I have not. So that is the answer for the market share perspective between the 2 brands which you mentioned.

The third question was how do we see the company 3 to 4 years down the line? I think our bread and butter is going to be the middle end of the prism. We are further solidifying that particular product portfolio. We're doing a lot of balancing equipment within our plants to further improve our line balancing, which we've spoken in the past to improve our ROCE, so any capital employed, which is not as well utilized or any capital employed, which is line vacant, we're doing some line balancing to make sure that how we can further fortify the middle end of the prism.

As far as the top end of the prism is where Simpolo is today probably the industry leader in that particular segment and there are 1 or 2 other very, very niche brands, that is something which will take a year or 2 where with our Max plant, we are going to even penetrate that.

But we're not getting super obsessed with that because the bread and butter segment is the middle end of the prism. So we are fortifying that. And these both put together plus the sanitaryware and bath fittings, where we are again fortifying the sanitaryware and bath fittings segment.

We're looking at many more SISs, many more showrooms, many more SIS showrooms, shop-in-shop and also exclusive showrooms. So we're -- both of these segments put together, which is rather 3 segments, the middle end of the tiles segment, the top end of the tiles with the Max plant and sanitaryware, bath fittings, we're looking at [Technical Difficulty].

[Operator]

Excuse me, sorry to interrupt. The line for the management seems to have disconnected. [Operator Instructions] We have now reconnected with the management. Over to you, gentlemen.

[Abhishek Somany, executive]

Yes, sorry. I'll just repeat the last 10, 20 seconds. So I was saying that [Technical Difficulty] that the top end of the prism driven by Max fortifying the middle end of the tiles segment and the sanitaryware and bath fittings put together, we should be looking at a double-digit CAGR growth for the next 3 to 4 years. That is how I look at the company, Pankaj bhai, where we're further fortifying the middle end of the segment. And I would -- happy to get on an independent call with you to explain a little more about this.

[Operator]

The next question is from the line of [ Aakash ] from UTI Mutual Fund.

[Unknown Analyst]

Yes. Just wanted to ask in tiles industry, I mean do you believe that from H2 FY '25 or let's say, by FY '26, certainly, I mean, there will be improvement in volume growth across the industry?

[Abhishek Somany, executive]

Yes, absolutely, fueled by export, which is growing and also fueled by all the new apartments and residential colonies, which have been announced, they will all start taking up tiles because currently, all of them are in the construction mode. So the next 3 to 4 years, great for the tiles industry. And volumes will improve on both ends.

[Unknown Analyst]

Sure. And sir, if we assume this that, let's say, by FY '26, things to certainly improve, then is there a possibility of we delivering close to 15% volume growth or it can be more than that or it would be a spread, I think -- any rough...

[Abhishek Somany, executive]

I think what I can stick my neck out is of a double-digit growth, whether it will be 15% or 12% or 18%, too early to say. So I would restrict myself to saying a double-digit growth.

[Unknown Analyst]

Right. Sure. And sir, I mean, if you can briefly help us understand the key levers that can help you improve margins to say, around 10%, 11% over the next 2, 3 years -- at least?

[Abhishek Somany, executive]

So if you're looking at margins at 10% to 11%, that is something which we have guided for any which ways. And the only caveat there is gas pricing not spiking and that doesn't seem to be. We -- I think the 3 levers are, of course, growth between the very high single digits to decent double-digit growth, which basically culminates -- I'm not saying that we will do high digit, but I'm just giving you the levers.

We -- at the double-digit growth, what happens is that your capacity utilization becomes much better. So capacity utilization is a big lever for EBITDA. And also, like I mentioned in the earlier question, fortifying the middle end and the top end of the prism, which is more for value addition. So these are the 2 big levers for us to bring our EBITDA.

[Unknown Analyst]

Sure, sir. And any thoughts around exporting tiles? I mean any thoughts around that segment of the market?

[Abhishek Somany, executive]

So export is largely Morbi phenomenon. As far as we are concerned, we are pushing as much as possible and export. But there are 2 issues: one is the Morbi guys gave extended credits and open credits, which we are not willing to do.

The second thing is there's a lot of Morbi players which are dampening the brand India because they're producing such pathetic quality for export and sending such pathetic quality abroad, that it is dampening brand India.

So I'm not saying all of Morbi is like that, but most of Morbi is like that. There are good people in Morbi, who are also getting affected like we are in terms of export. But I think as and how the export keeps growing, we would also get a small share, extra share of that.

The -- and 1 thing I want to highlight here is when Somany talks of export, we do not include the SAARC countries in our export unlike our competition. So for us, exports, for example, Nepal is not part of our export figures. That is something which I would like to point out, which has been pointed out to me by my finance colleagues Sunit and Sailesh, because all other competition, I believe, in their figures, Nepal is counted as exports.

[Unknown Analyst]

Right. Sure, sir. And we, as of now, are selling in Nepal also, right?

[Abhishek Somany, executive]

I'm sorry?

[Unknown Analyst]

Sir, we are also selling in Nepal, right?

[Abhishek Somany, executive]

Of course.

[Operator]

[Operator Instructions] We have the next question from the line of Ritesh Shah from Investec.

[Ritesh Shah, analyst]

Just 2 questions. Sir, you indicated the launch of one of the competitor at the bottom end of the prism. Sir, can you qualify or give some color on what exactly this means? And do you have...

[Abhishek Somany, executive]

Ritesh, I couldn't understand the question. Can you just please repeat? It was a little not very clear.

[Ritesh Shah, analyst]

Sir, in your prior remarks, you indicated the market leader, they launched a product at the bottom end of the prism. Can you provide some color over here? And would we have any plans to do something similar given probably that part of the market is growing at a faster rate. How are you approaching this? .

[Abhishek Somany, executive]

Yes, we are -- we do have a product, we're going to strengthen that going forward, but I would not want to comment and put any light on their strategy. It would be better you ask them.

[Ritesh Shah, analyst]

Okay. Sure. That helps. Sir, second, as you indicated on biogas. What is the underlying economics over here as compared to the blended gas price in what you indicated? And how much incrementally the biogas can increase on a percentage kcal basis, which can give incremental levers on the cost curve for us?

[Abhishek Somany, executive]

Ritesh, biogas can only and only be used as spray dryer. So most of our spray dryers are now moving slowly and steadily to biogas. I think about 70% of our spray dryer have moved to biogas and a little more is left. So I do not have the blended cost off hand, but I'll work that out and we can talk about it. But to answer your question, we cannot move our kilns to biogas. It's only the spray dryer which can move to biogas.

[Ritesh Shah, analyst]

Sure. And what would be the costing for biogas?

[Abhishek Somany, executive]

Kilns can largely run on any kind of natural, LNG or LPG or propane.

[Ritesh Shah, analyst]

Right. And sir, what will be the biogas costing?

[Abhishek Somany, executive]

Ritesh, very open-ended because we're using 4, 5 kinds of biogases. So every one of them has a separate costing in terms of adjusted kilo calorific value. So it's better that we could do that separately on a call, and I can explain that to you because it would be a very long discussion.

[Operator]

We have the next question from the line of Madhur Rathi from Countercyclical Investments.

[Madhur Rathi, analyst]

Sir, you mentioned that our competitor view because of realization decline so is there a situation where the competitive intensity is increasing and the competitor to gain volume is like reducing the prices and we have guided that we will not decrease our prices, so can we get an effect of this going forward for this year and maybe next year?

[Abhishek Somany, executive]

I don't think I want to highlight too much on pricing. Prices have been reasonably stable. We are only trying to see how we can improve our realization going forward. This quarter has been a tough quarter.

I didn't want to choke the system by pushing that extra INR 20 crores, INR 30 crores in the market because that's the data between my degrowth of 1% to my growth of 2% to 3%. It's basically at the end of the day, it's INR 20 crores, INR 30 crores delta.

So we didn't want to choke the system by either discounting or putting a product in, which is -- offer cheaper quality. So basically, that's what we do. So it's not that prices -- if I reduce prices, sales could have improved or anything like that. It has been a tough quarter. It's been a slow quarter across the industry.

So I could have done the sales, but then I would have had to repent that in July, where the July secondary sale would have happened. I think we're keeping a lot of watch on what is happening at the secondary sale and don't want to unnecessarily choke our dealers where receivables will become an issue.

[Madhur Rathi, analyst]

Sir, so we don't find that like the volume -- our volume targets we are very, very possible to achieve this for year, right?

[Abhishek Somany, executive]

Sorry?

[Madhur Rathi, analyst]

Sir, the double-digit volume target that we have for this year, it will be very much possible to achieve this -- for this year?

[Abhishek Somany, executive]

Yes.

[Madhur Rathi, analyst]

Okay. Sir, just a final question. Sir, in Nepal, we are and Kajaria are like adding around 8 million, 9 million of square meters of capacity in a 20 to 25 million market. Sir, So do we see this being a strain on our margin going forward or -- because there will be a very huge inventory coming into that market?

[Abhishek Somany, executive]

I wouldn't want to comment on Nepal. We had a plant. We bought land there. We were almost going to put the plant there. We've held it back because Nepal, the demand, which was estimating at 18 million to 20 million square meters per year has gone down to 11 million to 12 million square meters. And we have capacity now by the end of the year of approximately 20 million there. So good luck to people who put the capacity there.

[Madhur Rathi, analyst]

Okay. Sir, the Max plant that we have currently running at 30%, 40% utilization, so sir, what utilization can you expect our margins improving by the 11% that we did last year and 1%, 1.5% increase over that? So will it be at 80% that we can achieve a 12%, 13% kind of margin, maybe in this year or as the Max plant utilization improves?

[Abhishek Somany, executive]

Obviously, we're working towards bridging the gap between industry leader and us. So that goes without saying. So yes, that's work in progress. Now it's not only going to be the Max plant. If it was so simple, then everybody would have put Max kind of plant. But I think it's a host of many things where realization improves your brand equity in the market, how you're penetrating, what you're showing, your distribution, your middle end of the prism, how that is getting fortified, the Max plant, et cetera, et cetera -- capacity utilization. So it's not 1 level which improves EBITDA.

[Operator]

The next question comes from the line of Sneha Talreja from Nuvama.

[Sneha Talreja, analyst]

Just 2 questions from my end. I think firstly on your opening remarks, you mentioned that you were saying green shoots specifically coming from budget. But I actually wanted to understand this, are you seeing anything from the real estate uptick front. We've been hearing about lot of launches, new execution from all the builders. We haven't seen that amount of pickup from the tiles space, sir. When can you actually see that happening or are you already seeing that happening? That's the first one.

[Abhishek Somany, executive]

There's a lot of background noise. I can't really get what you're saying other than the green shoot part of it, which you asked.

[Sneha Talreja, analyst]

So basically, what I wanted to check with you is you mentioned on the con call, there are a lot of green shoots visible, especially from the budget front. What I wanted to check is are you seeing any green shoots from the real estate demand front? We've been seeing all the launches happening. Real Estate players reporting good numbers. But we have not seen that translating into demand for tiles? So that is the first question.

[Abhishek Somany, executive]

So Sneha, I mentioned the green shoot from a very long-term perspective. Obviously, it is announced -- the Finance Minister has announced INR 10 lakh crores for the PMAY, it is going to start culminating at some point of time. And the way the government is -- we've seen in the past, when they announce something, they get after it, whether it was the Swachh Bharat or whatever it was. So as far as the other -- the launches which have happened is what I gathered in your question, the launches which have happened from the previous year, there is going to be an upsurge in demand for sure because behind the wall if one put pipes, cement, steel, et cetera. I think, in front of the wall, which is all the finishing items, tiles, sanitaryware, bath fittings, we're all waiting for that demand to come.

And there are restrictions, et cetera, et cetera. These buildings will have to get completed. And there's hell a lot of buildings which have been announced and ready to be completed in the next 6 to 8 months. So I've been moving a lot in the market with projects and everybody is saying that all that demand is another 5 months away, 4 months away, 6 months away, 8 months away, stuff like that. So clearly, more than us, the entire tile industry is going to benefit from the real estate upsurge which has happened after a good 10 years.

[Sneha Talreja, analyst]

I understood, sir. That was helpful. Secondly, more on Morbi, given that there are 1,000-odd players and demand is weak at this point of time, both in domestic as well as in export is slightly on the muted side. What must be the utilization levels there? And what are those players doing? Are they shutting down plants or waiting for pick up to happen or they're cutting prices gradually? What's really happening on the ground?

[Abhishek Somany, executive]

They're doing all of the above. I think they're not cutting pricing, but they -- if you see either an SMS from Morbi from traders who have everybody's numbers, they all buy address books, but keep getting SMSs. So there's this new trend of something called a onetime sale. So they're taking advantage of this onetime sales when they get rid of a certain amount of stocks. Saying in another way that this is only -- this price is only limited for this particular stock, but it's become rampant to get rid of their stock and get their working capital.

Just in the morning, one of the Gujarati newspapers said that 200 units have shut down in -- sorry, 150 units have shut down, another 200 up for shutting out. As far as capacity utilization is concerned, I've given to understand it's between 65% and 70% capacity utilization. So there's more than enough capacity available in Morbi.

So they're doing, yes, pretty much everything from tax revision, to doing this onetime sale, to also shutting down plants interim. So considering that they -- generally, if you see, Sneha, in the past also, closer to the Janmashtami time, they generally have a shutdown of 1 month, 1.5 months. So that's what's happening. They -- news agencies just pick it up and blow it out of proportion. But I think this 300, 350, 400 units closing in Morbi at 65%, 75% capacity utilization is 1 thing, but the other thing is also around Janmashtami they anyway close every year.

[Operator]

[Operator Instructions] We have the next question from the line of Jyoti Gupta from Nirmal Bang.

[Jyoti Gupta, analyst]

My question is on the production side. We've had a CU level of 81% in tiles, 96% in sanitaryware, 90% in faucets. Now the demand in quarter 2 still remains weak, which I believe is weak. Do we see an inventory buildup? And do we also see that the utilization levels going down in quarter 2, which means either the EBITDA or, let's say, the revenues are going to be flat and of course, it will impact the EBITDA?

The second question is, when do you see the demand pickup happening in the third quarter? Is it after the Diwali, do you foresee or a little earlier than that?

[Abhishek Somany, executive]

So the major demand, of course, from the real estate and all will pick up H2 onwards, maybe quarter 4 onwards. But as far as we're concerned, it was a better month than May, June, August would be slightly better. September, obviously, will be better, much better than June. As far as capacity utilization is concerned, I do not think there will be a huge upsurge in capacity utilization as far as tiles is concerned.

Sanitaryware and bath fittings should be okay. Sanitaryware there is a caveat that sanitaryware generally goes down a little bit in capacity every year because of rains that affects the sanitaryware production, the more production, across the country. It's nothing to do with us.

So having said that, the rest of the production will be consumed. Bath fittings, no issue at all. Tiles would remain here or maybe improve a little bit. We have seen more than enough inventory for us to carry forward with the growth. So I don't think it will be a flat quarter for sure, having June -- having July already grown a little bit.

[Operator]

The next question is from the line of Udit Gajiwala from Y Securities.

[Udit Gajiwala, analyst]

Sir, one is that you are quite update on the double-digit growth this year, but that entails your 9-month ask rate to go into 14% to 15% kind of a growth. And with July, you just commented, it is obviously not flat, but you are seeing some growth. So does that mean that H2 will be something very robust that you are envisaging right now?

[Abhishek Somany, executive]

Yes, last year also H2 was robust. So we are looking at even a better H2. So yes, we are reasonably confident of that.

[Udit Gajiwala, analyst]

Got it. And sir, the demand that you are seeing, could you specify? I mean, is it the metros or the Tier 1, Tier 2 where you are seeing the green shoots to happen?

[Abhishek Somany, executive]

Yes, generally metros are a project market. So if you see Bangalore, Hyderabad, Pune, Bombay, Delhi, they're mostly project markets where large developers buy tiles. The smaller towns is where the individual homes, so -- which is what we call IHBs. So I think it's a host of both. Earlier, if you take prior to 2024, which is last year, I think all of our growth was driven by retail and mostly IHBs, but now we are seeing a lot of traction even in the larger cities where new launches have taken place and all the builders, the more disciplined builders have launched so many apartments. So there's a lot of traction even in the larger cities. So it's a host of both.

[Operator]

The next question is from the line of [ Vinamra Hirawat ] from [ JM ].

[Unknown Analyst]

Sir, my question was on gross margins. I wanted to know the reason for a big uptick in gross margins, excluding power and why power was a higher percentage of sales this quarter compared to last year?

[Abhishek Somany, executive]

Yes, I would let my CFO and Sunit come into to answer this.

[Sailesh Kedawat, executive]

Yes, so our gross margin has gone up on a Y-o-Y basis, it has gone up by 230 bps. However, since operating levers have not worked properly in this quarter, and we are at a low sales volume of almost INR 8 crores, INR 9 crores, whereas overhead has gone up on a Y-o-Y basis, largely attributable to employee costs because of annual increment. That's why EBITDA has come down. But if you talk about gross margin, it has gone up from 32.9% to 35.2%.

[Unknown Analyst]

Yes. So just want to know the reason for the increase in just your gross margins without power.

[Sailesh Kedawat, executive]

The input costs are the primary reason. We have been continuously working on the cost improvements and the stable gas price has also helped us to some extent. So these are 2 reasons primarily attributable to improvement in gross margin.

[Unknown Analyst]

Okay. I just had a question on government projects. Government is obviously pushing infrastructure massively. Are we targeting any government project. Our competitor recently has dedicated a whole team into targeting government projects pan India. What are the growth we're seeing there? And are we targeting [indiscernible]?

[Abhishek Somany, executive]

Yes. So government project is something which has always been our focus area, about 11% to 12% of our revenue comes from there. And we've beefed up our government projects further, specifically in the South because North is anyway very strong for us. We specifically beefed up the government projects' team in the South.

[Operator]

The next question is from the line of Utkarsh Nopany from BOB Caps.

[Utkarsh Nopany, analyst]

Sir, I just need few clarifications. First, like we have mentioned over the call that our realization has actually improved on Q-on-Q basis in this June quarter, but our calculation indicates that the blended time's realization has gone down by 1.3% in the June quarter. And like our realization has been under pressure for the past 3 quarters. So do you see that tiles industry pricing scenario is likely to remain big till the time ocean freight rate comes back to the normal level?

[Abhishek Somany, executive]

So I'll let Sunit answer the specific question, the first one, but let me tell you, tile industry is the only industry in the building materials segment that if you take a 10-year CAGR inflation and if you take a 10-year CAGR increase in price, tile probably is the only product in the building material, which has gone down in price between 60% to 75%.

And yet the industry has grown. There's been no inflationary pressure as far as consumer is concerned for tiles. So this is how tiles is. It's a volume game. And [indiscernible] it's largely a volume game. But to specifically answer your first question, I would let Sunit answer that. He has the figures.

[Kumar Sunit, executive]

Yes, Utkarsh, so just on clarity, see, I think I can sense that where the calculation you are referring to and probably that is not the appropriate. So earlier, we have been reporting the tiles volume performance segment wise on a stand-alone basis, whereas now we graduated to consolidated basis reporting from this quarter onwards.

And that's why I think you're comparing our last Q4 reported on a stand-alone basis versus this quarter reported on consol basis. If you look at the like-on-like basis, last year, Q4 consolidated gross margin coming to INR 317, 3-1-7, versus INR 320 for this Q1. So it's up of INR 3 sequentially.

[Utkarsh Nopany, analyst]

Okay. Sir, second question is on the collection period. Like we have mentioned that our collection period has gone down by 5 days. But based on the data, which is mentioned in your presentation, it indicate that our debtors period has gone up by 9 days from 36 days in previous June quarter to 43 days in this June quarter, and it has been trending up for the past 4 consecutive quarters. So where do you see our collection period to settle over the next, say, 1 to 2 year period from here?

[Kumar Sunit, executive]

No, no. Again, I would say there is a misreading in -- on reading the presentation now. So if you look at the debtor's number, which is given on our slide, Slide 6, it's clearly visible that it has gone down, absolute number of debtors. And you can early calculate the DSO based on that number. So it has improved by 5 days. On March, it was standing at 48 days versus 43 days in June. And in absolute terms, I would say the INR 337 crores debtor came down to [ INR 275 crores ].

[Utkarsh Nopany, analyst]

Sir, I'm saying on Y-o-Y basis, like on a Y-o-Y basis, our revenue has been down, last June quarter, our debtors was INR 231 crores, which has gone up to INR 275 crores and because of that, our collection period has gone up.

[Kumar Sunit, executive]

Collection period, how do you calculate collection period? Or I think if it is slightly granular in discussion, we can connect off-line, Utkarsh?

[Utkarsh Nopany, analyst]

Sure, sir. Sir, my last question is that for our Max plant, since we are operating at such low capacity utilization, we might be making very low margin from that plant. So just wanted to understand at what capacity utilization we can come to our company level EBITDA margin. That's one. And second, what is our ESOP expense book for the June quarter?

[Kumar Sunit, executive]

So Max plant, currently we are operating virtually very low capacity, it is around 35%, 37%, which is coming for this quarter, and it would be ramped up gradually over the next 2, 3, 4 quarters because it's a different product segment, which we have plans have been put in.

And it's relatively a niche product segment, and it will improve -- it will increase gradually over the period. So I believe a difficult to commentary numbers, but I can give you a ballpark number. So I believe the moment we reach to somewhere around 65%, 70% type of capacity utilization for this particular plant, I think this should give us a good breakeven or level.

[Abhishek Somany, executive]

So this a breakeven somewhere at the 60%, 65% level.

[Utkarsh Nopany, analyst]

Okay. Okay. And sir, how much would be ESOP expense amount?

[Operator]

Sir, I'm sorry to interrupt, we request you to please rejoin the queue for further questions.

The next question is from the line of Karan Bhatelia from Asian Market Securities.

[Karan Bhatelia, analyst]

Yes. So just to continue on the Max plant, I wanted to understand the average selling price compared to the average selling price of INR 320 at the company level for this quarter. How rich is the project profile at Max?

[Abhishek Somany, executive]

So the cheapest product at is about 50% higher than the average selling price of INR 320 and the most expensive product is double a little more than double. But we are at 35% capacity utilization. So therefore, if you see the JV, most of the loss from the JV is only coming from 1 plant, which is Max, everything else is reasonably profitable. So if you see last year same quarter, all the other JVs are also ailing. So we did a lot of work to bring all of those JVs in profit.

This we knew will be under stress for a couple of quarters because it is not a very easy plant to sell. So I hope I'm able to answer that question. That was, again, [indiscernible] for the lower segment and about double for the higher segment.

[Karan Bhatelia, analyst]

Great. That was helpful. And secondly, on the CapEx front, now that majority of our CapEx has been done, how do we see next 2 years CapEx shaping considering we are looking at double-digit growth, so what's the addition in the MSM that we're looking for?

[Abhishek Somany, executive]

So look, we're at 81% capacity utilization in tiles, and we were at 89% capacity utilization in quarter 4. So we have very little headroom. So I think for the next 12 months to 18 months, we're okay. And after that, we would need some CapEx coming in. So obviously, we started thinking about it. But there is no serious CapEx currently in the next 12 to 18 months in our plants.

[Operator]

The next question is from the line of Jyoti Gupta from Nirmal Bang.

[Jyoti Gupta, analyst]

Sir, I want to know what's the mix of GVT, PVT in Ceramics because apparently, the -- competition, Kajaria, it seems that they have increased their share of GVT and that's why there's an improvement as in their MSM. Where are we in terms of our product mix?

[Abhishek Somany, executive]

So yes, I did mention it in my opening statement, but I'll repeat it for your reference. I'm talking now Y-o-Y. Ceramic is currently this Q1 FY '25 was 35%. Last year same quarter was 34%. PVT is 28% -- I'm sorry, I want to repeat that.

Q1 FY '25, Ceramics is 35%; the same quarter last year was 39%. PVT is 28%; last year was also same at 28%. GVT has improved to 37% from 33%. Now having said that GVT keeps improving, there is no rocket science to improve GVT because the whole market is moving towards GVT. So I would think that the GVT in the next couple of years is going to inch above 50% also.

[Jyoti Gupta, analyst]

And will that not also improve your realization on an MSM?

[Abhishek Somany, executive]

It's not only the realization we should be looking at is the contribution. So yes, GVT has more applications. So it would improve contribution. But just by saying that from 37% in the next couple of years, it will go to 50-plus percent doesn't mean that the realization will go up by the same amount because GVT also has various segments. It has a low segment and the high segment, which I've said in the past also.

So it's a little more complex than just being simply understood like GVT goes up, so realization goes up. But GVT as a segment will keep growing. Worldwide, the entire market is moving towards GVT. In layman's terms, if I had to explain to you, it is moving from CRT TV to a flat TV. That is how it's moving. It's not that those TVs are not sold.

So the old fashion flat TVs to the OELED TV. So that's how the technology is moving. Everything is going to move only a notch up and notch down because the technology of GVT is becoming more and more easy to adapt and also cheaper and cheaper going forward. So all of ceramic in PVT -- not all, but a reasonable amount of ceramic in PVT, especially for the floor will move to GVT. So happy to get on the call and explain to you a little further on this.

[Jyoti Gupta, analyst]

Sure. I'll look forward to that.

[Operator]

The next question is from the line of Bhavin Rupani from Investec.

[Bhavin Rupani, analyst]

I just had 1 question. What are your expectations on industry growth for the year? And do you expect our growth will be higher versus industry?

[Abhishek Somany, executive]

Industry growth in domestic should be a little bit. Last year, we degrow. So there should be a little bit of growth considering that H2 onwards, we will have a lot of these residential real estate started picking up and buying materials. As far as export is concerned, clearly, there will be a growth. Last year, we did INR 19,500 crores to INR 20,000 crores export. I do believe that this should be slightly more than that. How much more than that will be really depending on the freight rates and the global scenario. It's not really only relying on the Indian dynamics.

So Morbi at 65%, 70% capacity utilization, freight rate goes down, this should move up to -- from INR 1,700 crores a month to at least INR 2,000 crores, INR 2,100 crores a month because a lot of the traders are waiting for the freight rates to go down, which is record high as what I've even to understand right now.

[Bhavin Rupani, analyst]

And what will be our expectation versus industry growth? Will be higher or...

[Abhishek Somany, executive]

No, we've been always growing higher than industry growth, which is domestic industry. So that's clearly going to be the case even this year.

[Bhavin Rupani, analyst]

Is it possible to quantify by 5%...

[Abhishek Somany, executive]

I don't know how much industry will grow. I can quantify what I will grow at, but I can't quantify exactly how much industry will grow, but will be -- it will be definitely under 5% because a large part of the industry growth will come from export.

[Operator]

The next question is from the line of from [ Vinamra Hirawat ] from [ JM ].

[Unknown Analyst]

Sir, I had a question on debt and debt reduction. In previous calls, we've guided, I think, for a debt reduction in term loans of INR 35 crores to INR 40 crores annually on a consolidated level. Are we still sticking to this?

[Sailesh Kedawat, executive]

Yes. So that is the annual refundment number, which is annually scheduled and that keeps getting amortized over the period, annually basis, that is what we told. And as far as debt level is concerned, it is the same debt level we are. So INR 335 crores consolidated we have in March, gross debt, and the same level is there in June also.

[Operator]

We will now be taking the last question for this afternoon from the line of Utkarsh Nopany from BOB Caps.

[Utkarsh Nopany, analyst]

Sir, I just want to ESOP expense number, which has been booked for June quarter?

[Kumar Sunit, executive]

Yes. Yes, Utkarsh. So it's more of a [indiscernible] cost, but what we have accounted for, for Q1 is INR 93 lakhs as a ESOP cost in our P&L.

[Operator]

That was the last question in queue. As there are no further questions, I would now like to hand the conference over to Mr. Somany for closing remarks. Over to you, sir.

[Abhishek Somany, executive]

Thank you so much, ladies and gentlemen, for joining us for the FY '25 Q1 call. We hope for a better quarter. And we welcome you for the FY '25 Q2 call and the H1 call in probably next quarter. Thank you so much.

[Operator]

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