Somany Ceramics Ltd

NSE:SOMANYCERA

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen. Welcome to Somany Ceramics Limited Q2 FY '24 Earnings Conference Call. Please note that this conference is being recorded.

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

[Navin Agarwal, analyst]

Good afternoon, ladies and gentlemen. As I said, apologies for this delay. 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. Sailesh Kedawat, CFO; and Mr. Sunit Kumar, 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,

[Sailesh Kedawat, executive]

Thank you, Navin. Thank you for joining us for the earnings call. This -- as you can see the results, it has been a muted quarter as far as volume is concerned. And obviously, in that case, the value is concerned. We've grown only by about 6% on sales. EBITDA, however, has gone up correspondingly PBT impact has gone up in a very handsome way. That's owing to 2 attributes. One is lower fuel costs, energy costs and also a slight bit of improvement in our realization that is mainly purely because of the extra value-added products, which has started kicking in.

As you can remember, we have put in significant capacity for GBT in the past 24 months. that has started only in steadily showing up in more value-added sales. Hopefully, this trend will continue. MAX plant, which was our latest GBT big format, large-format lab tile plant has started this quarter, and we should start getting the production from that in the fourth quarter of this year, which will again add to both volumes and also to value.

As far as our ceramic polish [indiscernible], which is GVT and [indiscernible] with this GVT segment is concerned. In Q2, the ceramic was at 37%, down 2% from[ 49% ] The GVT was almost flat from 28% to 29%, and the GVT has improved from [ 33% ] to [ 34% ]. But in H1, it has improved from 32% to 34%. So this improvement will spend will continue and we hope that GVT would be well past the 35% mark this year and closer to the 40% mark later in probably next year.

The [indiscernible] in marketing, again, with the muted demand, the center and the marketing also has been muted; However, in that, the [indiscernible] settings has done much better than Sanitaryware. The Sanitaryware growth has been 3%, whereas the Bathware growth has been [ 13% ]. This trend should balance out somewhat where the [indiscernible] also, we are hoping that would become much better in H2. The gas prices, the gas prices, which are firming up now closer to winter every year they come up. So that's coming up again for us. There has been approximately a INR 2 to INR 3 increase the average price of last quarter, which is in the current quarter.

As we speak in October, the firm up in GAAP has been maybe [ INR 2 ] to [ INR 3 ] per standard cubic meter from the average of the last quarter. However, this is still not an area of concern currently, we are hoping that no other global factor disrupt with me. The fourth part, which has led to slightly better margins is capacity utilization. If you can remember, in the first quarter, our capacity utilization was nearing the 70%. We are now closer to the 85%, 86%. Specifically in tiles. We have been approximately 82%, Sanitaryware is 52%, and the [indiscernible] or set, we are hoping that this will again move to ahead of 80% and charity where we should be in the [indiscernible] in H2.

We are hoping that we would better this -- the brand spend, that again, as I've always maintained that the capacity utilization is a big lever in the margins for any [indiscernible]. The brand has been at par with what we had maintained. That's 2.5% in H1. However, in Q2, it's a bit higher to closer to 3%. So overall, if you see in the year, we will be on the trajectory of about 2.8%, 2.9% of revenue as far as brands [indiscernible] is concerned. There has been a significant improvement in the new dealer additions.

We have added 130 new dealers net of what we lost in H1 and 22 new showrooms net of some showrooms which [ cross ] track. So a significant improvement. Large part of that has happened in Q2. And this trajectory, again, will get only better as we move in H2.

I would now come to the guidance. I think the guidance, looking at the muted growth in Q1, and we were hoping for a better Q2. And I was maintaining that we would be able to attain a good team growth as far as volume [indiscernible] is concerned, I think to be cautious as to how the demand has moved in the Q2. We are now very confident that we will be able to achieve a high single-digit growth as far as value [indiscernible] is concerned, so that is something which I have revisiting in this quarter. As far as the margins are concerned, we should be able to maintain current margins and keep the volume goes a little higher, margins will only improve some.

The only caveat there is there should not be any huge impact of oil and energy like we saw after the you [ bring ] up. So anything in the current range, $10 plus or minus, we're fine, but anything which goes crazy like last year, that would have an impact. But minus that, we should be able to maintain our margins. This kind of sales, which I'm projecting and this kind of margins which are projecting, it's needless to say that our balance sheet discipline will continue and we do not wish to have any compromise on any balance sheet [indiscernible]. If you see our working capital days stand-alone and consolidated that clear indication as our balance sheet is well under control. Exports for the industry has grown. In August, we annualized -- In August, the figure of exports from Morbi was INR 2,100 crores. So if I had to tabulate that and annualize that, we're looking at a [ INR 24 ] [ INR 25 ] crores we export for next change. And this year, we are quite confident that the stock from India would be closer to the [ INR 20,000 ] crores signal. So this is where the normal working of the company is concerned.

Now we move towards another new thing, which we have witnessed, which is that on [indiscernible] that is the [indiscernible] provision, which we had made about 3 or 4 years ago on the [ Prebon ]. Apparently, there has been a resolution from [indiscernible] we have got knowledge of that. We don't have 100% details on that. But whatever paper we have that says that we would be able to get back closer to INR 6 crore out of the INR 18.4 crores. This is yet to be realized, but the information, which has come from the authorities and NCLT tells us that we would be able to realize close to INR 6 crores out of our [indiscernible].

So the rest of it, which has been provided, we would then -- once the final resolution is there in place, we would then write off the balance amount, which is currently only provided. This is as far as the [ grade ] buyback is concerned, a bond is concerned. Another highlight, which I've already mentioned earlier in my call, is [indiscernible], very happy to say that, that started on time. And we should -- we are very looking forward to a launch closer to early next quarter or the last part of this quarter. So looking forward to [indiscernible] and looking forward to a much better H2 going forward. Thank you so much. I would now like to open this to Q&A. And before I say that, please happy Diwali to every one of you.

[Operator]

[Operator Instructions] We take the first question from the line of Ritesh Shah from Investec.

[Ritesh Shah, analyst]

Couple of questions. Sir, first is on working capital. If you could please explain specifically on the payable days, what is the change in strategy? Will it impact the interest cost or not? That's the first question. Second is on the cost curve, if you could give a regional flavor and specifically how it is faring for Morbi or West versus on a blanket basis. I think that's the second question.

[Abhishek Somany, executive]

I didn't get the second question, Ritesh. Can you please repeat that?

[Ritesh Shah, analyst]

So second question is on basically every quarter, you gave this number of rupees per SCM basis for different regions. So how would...

[Abhishek Somany, executive]

I would -- so the -- in my [indiscernible] plant, which is [indiscernible], we are at an average of approximately INR 42, INR 43 a standard cubic meter. In Morbi, it is the same, about INR 42 crores, INR 43 a standard cubic meter. And in our south plant, which is at 50 standard [indiscernible]. This is all gone up by INR 2 to INR 3 as we speak. Does that answer your second question, Ritesh?

[Ritesh Shah, analyst]

Yes, sir. And so when we say it is INR 43 for best should we read this that this would be a broad ballpark number for entire Morbi as well? Or will they be

[Abhishek Somany, executive]

Whatever gas we are getting, we're getting contracted gas -- so this is a ballpark number for everybody who is on the contract gas, whereas somebody -- some people in Mobi are not contracted, they are INR 23 is more expensive, but that's very clearly.

[Ritesh Shah, analyst]

Okay. Sir, if I have to just give a follow-up over here. I think one of our peers, the number, what they indicated for West was significantly lower than 43%. It was lower by almost INR 6 to INR 7 per -- probably I can check on that or circle back to you on this question. But there is...

[Abhishek Somany, executive]

In the west, it's impossible. Similar single source retire getting from unless that payer had access to some gas, which is the ONGC gas that I'm not aware but 9% or more is on GSPC and their gas will be anywhere between 40 and 42 depending whether they're using propane or LPG or natural gas. So it's not going to be more than a half difference.

[Ritesh Shah, analyst]

Sure. And sir, on a blended basis, Northwest South at a [ comp ] level.

[Abhishek Somany, executive]

44.

[Ritesh Shah, analyst]

44. Perfect. This is helpful. And sir, on the first question on working capital, specifically payable.

[Unknown Executive]

Speak to [indiscernible] that question.

[Abhishek Somany, executive]

So Ritesh capital, I think you are seeing a substantial jump in. You've seen a jump in pads, right, close to 10 if my numbers are right. I think that's your question around working capital. That's right. So Ritesh, what we were earlier doing was 'till last year, we were to vendors who wanted to get early trailing marks. We have given clear growing facilities from that we bill discounting was enabled for vendors.

And when they seek to come, get their build discounts in our line. So this was greater than last year. Interest in the end we have best continued the facility this year. What we have done is we have done a training arrangement for the vendor. So any vendor who wants to avail an early payments, they can reach the pay, they can get the payment and we may [indiscernible] So there is no pain payable date for vendors, the table they remain to sales. It's only change the format which has happened. The idea not people in the line. If they want to get to any payment [indiscernible]

[Ritesh Shah, analyst]

So sorry, you went a bit fast. You said now what we are doing, we are paying. The payable days remains the same for the vendors. I could not connect that.

[Abhishek Somany, executive]

See, the payable rate for India remains the same, any winter who wishes to get an early payment. Earlier, they were using our bank lines, they were getting their [indiscernible] Somany's bank line. So whenever they use our bank lines or bonding was going up and the tables are going down, interest on when they come. Now what we have done if any vendor wants to get an early payment, there's a paying a revenue which is made. They go to the payers, payer funds the banker, and we make payer funds together, and we will pay into the payer on the. So there's a shift which has happened from borrowing part on main which was there earlier, builds company line to vendor path special has happened. The winter payable days remain the same. There's no change there.

[Ritesh Shah, analyst]

So because claiming when we payable there in repayment, there is more change in project seat alpha. So whatever credit we are getting from for plant and without any jeopardy the regimen, it's the same. If anyone wishes to get early payment, they can go and use that arrangement which we have done, and we can give you early payment at their own process. So will there be any change in interest costs and...

[Abhishek Somany, executive]

It was not on -- it is not on our account recs.

[Operator]

The next question is from the line of Viraj Mehta from Equirus PMS.

[Viraj Mehta, analyst]

Congratulations for [indiscernible]. My first question is, sir, regarding the demand outlook. Obviously, in your opening remarks, you have you take guidance in terms of what you are thinking and what will happen. But sir, as far as exports are concerned, they are doing very well. So the whole industry was expecting second half to be better that seems to have been pushed out. What factors do you think have played out for that to happen?

[Abhishek Somany, executive]

So Viraj, I still maintain second half will be much better. If you've seen, we're looking at a 6% average growth for industry leader and us in the first half, correct?

[Viraj Mehta, analyst]

Yes.

[Abhishek Somany, executive]

And in H2, we are saying we are looking at high single digits, which means that we will grow at a much more significant pace in second half to get my average down to that high single digit. So I still maintain H2 will be good.

Which Morbi is the significant export from India. The branded players do not export even a fraction of what Morbi does. So if you look at the INR 20,000 crores the export, the top 3 players, which is which is [indiscernible] Johnson, would collectively not even export about [ 20 crores ], [ INR 250 crores, ] which is out of the [ INR 20,000 crores ]. So for us, is still building up. We do not give any open credit or we do not work on very, very, very long [ LCs. ] We do not work with [ LCs ] from unheard of banks. So all of those restrictions were very careful why we export because for 2 reasons: a, we don't want to disrupt our balance sheet B, we are also producing far better quality, and we get a brand premium in India. So export is doing very well. Domestic probably will remain completely flat as far as India concern.

[Viraj Mehta, analyst]

Right. No, what I meant for exports was this export do well, then the capacity in Morbi gets shifted there, and then we faced lesser competition domestically. That was the whole point I was -- I know we don't export or dara doesn't export.

[Abhishek Somany, executive]

That's -- you're right. But let me correct you. If you remember, about a couple of hundred companies came up in the last 18 months after COVID which started in Morbi. All of them were for export focused. They got in cash 22 because by the time they had started to fire up and come into production the Ukraine was pushed the freight prices absolutely to a skyrocket figure in the last 18 months to the breath rates have started coming down. So all of that capacity, which was actually built for them, we started getting consumed today. So it's not that we had a lot of capacity, which was 100% utilized and that is getting exported. It is the unutilized capacity, which is now getting disposed.

[Viraj Mehta, analyst]

Right. And sir, when you say that you're looking at high single digit, that means for the second half, you'll still have to do like 12%, 13%, 14% kind of growth. How much of.

[Abhishek Somany, executive]

It's a part we're going to try and achieve that. I'm saying that's the past. You're absolutely right, but we're going to try and achieve that.

[Viraj Mehta, analyst]

And sir, would be realization growth? And how much of that will be growth

[Abhishek Somany, executive]

Here or realization growth, there is going to be out of the value-added segment. And I think in fourth quarter, you will see a little more of that because the match plants would have started contributing to the realization, which is a product will be significantly higher than addition. So I do maintain that with the exports taking a lot of the load of more, I don't think realization is under serious pressure.

[Operator]

We take the next question from the line of [ Wanit ] Savla from Saba Family Office.

[Unknown Analyst]

Sir. Congratulations...

[Operator]

Take the next question from the line of Mr. Nikhil Agrawal from VT Capital.

[Nikhil Agrawal, analyst]

So my question was on the -- like what is your margin? What is the difference between margins in the -- between outsourced and your JVs and your own manufacturing? If you could help on that.

[Abhishek Somany, executive]

Sure. So Nikhil, as far as our product margin is concerned with respect to sourcing mix our own plant versus the JV of sorts, right, which includes JV at a stand-alone level and at consolidated level, own plants in JV and on sun together.

So the gross margin would be higher as far as the whole plan is concerned because traded also volume product at a total purchase for plus manufacturing margin of the oral partner.

But if you talk about the water level, which is more of a [indiscernible] level, which is the right metrics to value, then it's more of a product which makes the difference and not the sourcing mix. largely right -- so it's normal to say that if I manufacture the same product and if I also the sales product, then obviously, it will make the difference. But if a manufacturer or low-end product and also in product then it will be other way on and my margin would be better in outsource. So it cannot be penalized that much, right? So you have to take the providence of both sourcing mix as well as product fit. Then on the use [indiscernible].

[Nikhil Agrawal, analyst]

So the reason I'm asking this is because your outsourced outtaking in JV, which has increased and your own manufacturing and reduced quarter-on-quarter but still your margins have improved. So like going forward, if your own manufacturing as a percentage of [indiscernible].

Do you expect more margin expansion?

[Abhishek Somany, executive]

I'll tell you what is happening. When you are seeing the mix -- the revenue mix in own JV and also right . Yes, JV is taste. But when you look at the margin, increase the operating margin at a consol level, JV is not affected because we have treated as own plant in case of consolidated operating margin. Right. So you'll have to correct the investment and then integrated.

[Kumar Sunit, executive]

When you say JV in sales level mix graph, which is in our investor deck, right, it's not JV for the sake of consolidated financials. It's actually on because it's linen consolidation is in an entire manufacturing [indiscernible] getting captured. Including our margin.

[Nikhil Agrawal, analyst]

And sir, you spoke about the realization from the brokers this was related to [indiscernible] services, right?

[Abhishek Somany, executive]

No, no, no. A bond of 3 shipments of [ INR 18. ]5 crores repeat. So relocation plan is approved, and that was the update was shared.

[Nikhil Agrawal, analyst]

So you expect to realize INR 6 crores from that.

[Ritesh Shah, analyst]

Yes, expected.

[Kumar Sunit, executive]

There is a likely an expectation, let's see when we get these kind of projects.

[Abhishek Somany, executive]

That's what the authorities have told us.

[Operator]

We take the next question from the line of Sneha Talreja from Nuvama.

[Sneha Talreja, analyst]

Congratulations on great balance sheet improvement. Just a couple of questions from my end. Just wanted to understand on the demand front, we -- in this particular content factory seen strong show by a panel players, including plywood demand is plastic you've been continuing to see why cables are going well. Where is it that tire demand has not been able to pick up some sense there?

[Abhishek Somany, executive]

So I think it's to do with all the inventory which has got sold was all made inventory. So in the real estate now that a lot of new launches have happened, style demand generally picks up maybe 9 to 12 months from when the real estate starts getting bid. So you will see a lot of the tile demand coming in next year. So -- and in India, there has been I guess to consumers, the traders have diverted their funds to various other investments in properties is that in the other in the last 12 months. So that is also reduce the demand a little bit. But otherwise, there is no threat in the long term of any demand, which is for short.

[Sneha Talreja, analyst]

And then to the demand like metros are doing well, the smaller cities are not doing well or the new residential is doing well and renovation is continue how much this trend in case you can highlight?

[Abhishek Somany, executive]

So this time, the demand has been tepid or a little less pretty much everywhere. There is no specific trend that Southeast worst and north or north is watasouth. Neither has there been a trend between big cities and small cities -- it's an overall demand, which is lower, which is across India. So when demand picks up, it will pick up in the smaller cities, which are for [ IHVs ], individual homes. And as far as big cities are concerned, that will pick up for the builder market. So the builder market is more controlled by the cheaper builder market is more controlled by Morbi, but the [ IHV ] are controlled by the better brands.

[Sneha Talreja, analyst]

Understood. And the reason to also hearing that around [ INR 400-odd ] crores of investment, [ 4,000-odd ] crores of investment is again happening in is now coming in. In fact, on the basis of real estate demand cup that they're missing? Or is it the continued strong exports that we're seeing and you were talking about you're not it hitting INR [ 2,100-odd ] crores a month last month.

[Abhishek Somany, executive]

So a large part of that is for export. The balance is for renewing old equipment. So they are getting rid of older equipment and putting new equipment is not really a large capacity addition. So for example, let us say, they have 7,000, 8,000 square meter in that will go down and a 10 to plus setting will come up. So it's not going to be a massive increase in capacity. The third reason is, of course, looking at the demand in media. So if we are looking at so much more capacity being added, obviously, we're going to be looking at more times to be sold in future

[Operator]

We'll take the next question from the line of Amit Purohit from Elara Capital.

[Amit Purohit, analyst]

And just continuing with the same question on the demand profile I wanted to understand what is the class of customer, which is witnessing a good growth. So we quoted a 6% kind of volume growth. So what has led to this growth?

[Abhishek Somany, executive]

I didn't get your question -- could you repeat it?

[Amit Purohit, analyst]

Yes. So I'm trying to understand the profile of the customer, which is witnessing a good growth since the overall growth has been about 6% in volume terms. So what is it -- which segment would have witnessed a good double-digit growth for you?

[Abhishek Somany, executive]

The answer to that is that our process customer doesn't change. We -- 80% of our products go into retail, which is in [ IAB ] and some renovation for the upper middle class in that area. And the balance goes into projects and government and the rest of it, which is [ LAP ] goes into the corporates, which is the organized retail, et cetera, et cetera. So I don't think any specific area we have grown. All I can say is that -- this is a continued trend where the larger brands keep continuing to take market share from Morbi in the domestic sector.

[Amit Purohit, analyst]

Okay. So broadly, almost all of these 3 segments that you highlighted would have grown at a similar pace, you see?

[Abhishek Somany, executive]

Yes, absolutely.

[Amit Purohit, analyst]

Okay. And second, on the capacity that you talked about large labs. So the big tiles, which you are indicating? What is the total capacity in that?

[Abhishek Somany, executive]

So depending on what -- I mean, it's been rated as a formula we it plant, but then it all depends on our product mix between the 15-millimeter tile and the 9-millimeter time. So that is yet to be seen as to what orders kick in for us. As you can imagine, 15 millimeters obviously is a larger mark, so it will produce less of a meters -- so I cannot answer that question right now. However, the plant is rated for 4 billion standard, we have 4 million square meters at the 9%.

[Amit Purohit, analyst]

Okay. And what would be the realization difference between this on a per square meter basis versus the normal realization that we report?

[Abhishek Somany, executive]

So there are 2 things to it. Again, it would depend on how much the 15 mm and almost the month. So I wouldn't want to answer that question with more clarity next quarter when we start getting the orders and selling, it would be only gas work at this time because I do not have the product mix.

[Amit Purohit, analyst]

Okay. And lastly, I just wanted to know what is our current dealer count and sales team and strength in the organization.

[Abhishek Somany, executive]

The dealer count is approximately 3,200, if I'm not mistaken. The same so the last year account. Yes, about INR 3,200 crores is our deal account and the number of salespeople across sanity, marketing and tile is approximately 600, 750 people.

[Amit Purohit, analyst]

600 to 650.

[Abhishek Somany, executive]

Yes, I don't have the exact number.

[Amit Purohit, analyst]

Yes, no problem. And dealer, you said 20, 10, right, or 3.

[Operator]

We take the next question from the line of Keshav [indiscernible] from Counter PMS.

[Unknown Analyst]

So firstly, on behalf of all the shareholders, I want to thank you for the share buyback. And sir, we hope that this is the first but not the last year back and second. Sir, coming back to the demand question, you see all real estate companies are the volumes that they are doing are at all-time high. The revenues are at all-time.

So the concern is that, sir, is the polymer lowering substituting ceramic type sir, because [indiscernible] and many other companies have gone into polymer flooring. So what are your views on the same over the long term?

[Abhishek Somany, executive]

So we are extremely fortunate. And if you are a shareholder, you should be extremely fortunate that it's in a tire company and not a denial company. We cannot substitute. I'll give you 3 pointers. A, [indiscernible] has a restriction of sites they cannot make a size larger than, I believe, a little lesser than 2 or [indiscernible], whereas tiles are now being produced on a normal basis, which is 3 feet by 5 feet and on a very large basis, 6 feet by 10 feet. So that's an issue.

Apple-to-apple per square meter, the cheapest vinyl, which is really pathetic quality when coming in from China and they said in the other, not feels fun times, is between [ INR 80 ] to [ INR 120 ] a square feet. Whereas [indiscernible] is closer to INR 250 sir. Tiles, apple-to-apple comparison is between INR 30 to INR 40 a square feet. So there is absolutely no comparison. The design, the texture, the finishes the top service and all of that is greatly superior entire they cannot replicate so many of the natural stones and natural fabrics, natural goods, which styles can do. So it's not a substitute. In fact, I would think that we are going to be seeing tires taking over a larger part of most of the flooring materials and very soon, even the wall paneling material in the coming days. So no threat at all.

[Unknown Analyst]

Great, sir. So that was really reassuring. And sir, also wanted to understand, sir, the profits and the other non-tile business that we have started, sir, is there any product line which is making losses at the basically make sofas at operating level?

[Abhishek Somany, executive]

None at all. If you've asked a pointed question, but it is the latest introduction, but the losses there are so insignificant that it's not what we were mentioning. The losses in leaders on an annualized basis, we'll be about INR [ 30 ] lakh at all. So it is significant. And that also should start improving next year.

[Operator]

Next question from the line of Jody Gupta from [ Mermelbank. ]

[Unknown Analyst]

I have two questions. One question is we have a newish dealer [indiscernible] -- is there a dealer per dealer productivity, which is -- which you could look at because compared to [indiscernible] is 1,800 or you almost doubled in terms of the [indiscernible] -- and I mean, I was expecting a very good tie performance number that we didn't see that. So this net additional dealer, how are we seeing that in terms of improvement in terms of the sales and distribution in the Tier 2, Tier 3, Tier 4 cities. One is that. And second is.

Should come to the faint the construction and why you had good numbers in the protraction side, I'm hopeful that since size also requires a dryer season to fuselage. Do I see quarter 4 numbers performing better than the first or both the quarters, better at a because it looks like -- I mean single digit seems again, we'll have a single-digit number in the third quarter. I wanted to understand your point of [indiscernible].

[Abhishek Somany, executive]

So the first one, yes, there is a historic reason why there are lesser number of dealers, but much larger dealers in terms of number of crores, which each dealer does. That's what your question about between [indiscernible] and us. And they have been sales a agented until 2014. So they historically had very, very large dealers unlike ours. But if you look at the total count of the footprint in the -- at the ground level, their dealers and their subdealers, which is retailers are a good -- 3,000 to 4,000, maybe a little more than us.

We have 3,200 dealers, but approximately 10,000 to 12,000 touch points. They have about 23 -- 2,400 dealers that they have approximately 15,000 touch points. So the touch points are much, much larger than us -- but the historic reason does have an effect on the number of dealers and the efficiency. But that will start correcting out because they are also now aggressively making more and more dealers and the bigger dealers percentage is coming down.

The second question is that, yes, quarter 4 is a far better number. than quarter 3. And you're largely right. Although we are hoping that quarter 3 would be slightly better than our quarter 2, but quarter 4 will be the bigger -- we'll be backing the maximum as far as the growth is concerned with year. That will also be coupled with our mass plant, which will again give us whatever it gives us, that will be an extra amount, which will come to us in quarter 4. So all in all, quarter 4, you're largely correct. Will be far better than [indiscernible].Answer about the questions.

[Unknown Analyst]

Yes, you did. So do you expect a double-digit growth more in FY -- in the quarter 4 and maybe a single digit in -- because I personally see that since you have financial year construction closing activities, therefore, should be posting a very good number. But apparently, and second quarter, while there was -- I wasn't really expecting the number was monsoon because of high [indiscernible] everywhere stilling doesn't work that well.

Further approach should be good. But then I don't know the confidence in terms of performance seems to be lupron again in terms of a despite realistic .

[Abhishek Somany, executive]

It is a large part of it is exported. -- whatever growth you see reported otherwise, [indiscernible], I think we should be looking at much better growth quarter 4, 1, 2, 3 for next year. and thereon. Clearly, time has been muted as far as demand is concerned in the current [indiscernible].So it is under pressure, the only saving [indiscernible] is that our capacity utilizations have gone up, margins will keep getting we should be able to maintain margins.

And please don't also forget that we have added 25% capacity. So the utilization, which we are talking is on that capacity. Therefore, we showed for margins and for utilization in first quarter. If that starts improving, at least one piece, the balance sheet and the margin should start getting better and improved or sustained, now growth will kick in. I'm not worried about the growth in the medium and the short term, but the medium and the long term.

In the short term, you are very, very correct. There is pressure. And the reason to say that, I said that earlier on the call, in the next 10 years, we're looking at about 150 million to 170 million people getting urbanized, all will need homes, and tile is the preferred material today. So I'm really not worried on the medium and [indiscernible]

[Operator]

We take the next question from the line of Mr. Rahul Agarwal from InCred Capital.

[Unknown Analyst]

Abhishek, I had a question on all the new businesses. So basically, if I talk about India, which you are incubating right now. So Bathware this is in the Nepal joint venture as well as a large lab. If you could help me understand the next 3-year plan, largely in terms of how you want to build these businesses and I also assume that these businesses have higher margins than what we do right now in terms of the entire existing scale that we have, and they also have better payback periods. So just wanted to understand how does this business when the increase in terms of revenue share? How does the so many look like 3 years out?

[Abhishek Somany, executive]

Sure. So number one, the [ MAX ] plant, that is a tile plant. Now the payback will largely depend on how much of value added, I will be able to make sort of the [ MAX ] plan. So if I make very quickly scale up the value-added segment, then the [ MAX ] plant can pay back within 3, 2.5 years, if I don't, then it will be maybe closer to 5, 5.5 years. So it's EBITDA by 5.5%, it's a long payback, but it's a question of putting it versus not putting it, you've got to have this capacity. So it was one of those things, whether responsible brand needs to put in that investment and be ready for the future.

So that match plant, if we scale up capacity is fairly copy, we have enough land there to put up another MAX line in that location, so which will come at a much, much lesser cost than what it is today. So that is number one. So that's the trajectory that we have to first utilize the match plant at 100% capacity. Whatever we make there. Let's say we don't make 100% value addition, but whatever we want, we want to keep running the plant.

The second one would be to start substituting and removing the non-value added from the mesh plant and keeping on beefing up the value-added segment to get my payback much easier. So that's as far as the next 18 to 24 months would be concentrating on the big [indiscernible] 4 million square meters of big [indiscernible], easiest has been done. The same 4 million square meters, as far as volatile is concerned or my normal 2-feet, 4-feet [indiscernible] tile is concerned would have been consumed within 12 months. So this is going to be a tough one as far as value-added system.

So that's the 24-month outlook for the match plant. And once we do that, we would want to double that plant at the same location. As far as the new business, it is concerned, Sanitaryware, we are changing the value mix in the plant. And the idea is to scale up Sanitaryware in that plant with a better value-added mix, in which case, we would be ready in the next 12 months. to put another Sanitaryware line. So in the next 2 to 3 years, you would expect that we would be doing some investment in the Sanitaryware segment to scale up that capacity, by at least 50% of what it is today.

As far as bad fitting is concerned, we have already made a reasonable amount of investment, and we are in a position where in the next sorry, next 24 months, we should be able to double the revenue as far as Bathware is concern. And we have made an investment, they may be balancing equipment required of -- while we chug along for making quality better and also for enhancing the product mix again over there. That's as far as the Bathware is concerned. So these are the 3 primary businesses as of now, which is where the outlook is. So to answer your question in another way, tiles, we do not see any requirement of any expansion in the next 24 months.

However, in Sanitaryware, we do believe that there would be an expansion need in the next 12 to 18 months from today. But sitting again, we do not need any expansion in a very large way. Small balancing equipment will be required.

[Unknown Analyst]

Anything on [indiscernible]?

[Abhishek Somany, executive]

[ Adesis ] is something which is from the plant. So that keeps that's something which is a byproduct kind of a byproduct as far as we're concerned. We're using our tires to make the basis. So that will keep improving as and when the tiles keep getting used because a lot of the players have also got into [indiscernible]. .

[Unknown Analyst]

Perfect. Very nice. And secondly, just one last thing on margins. So apart from you increasing your manufacturing utilization, the energy cost benefit is largely done with for H2 at least in terms of percentage of sales. Is that a fair statement?

[Abhishek Somany, executive]

I'm sorry, I didn't get your last year in between. Could you please?

[Unknown Analyst]

My question is apart from increasing manufacturing utilizations, which can increase your EBITDA margin further, this 9.8%, the most of the energy cost benefit is largely done with H2?

[Abhishek Somany, executive]

Well, energy cost benefits, it's to do with price of energy and also capacity utilization. So it goes hand in [indiscernible] so the 3 level for EBITDA margin increase other than energy costs because that is something which is not under our control. But the other 2 levers are capacity utilization and product mix. in favor of value-added products.

[Unknown Analyst]

Yes, pretty clear on that. What I was asking was the energy benefit is largely done with because we're seeing some increase in pricing anyway, right?

[Abhishek Somany, executive]

Yes. I'm not -- I do not remember last year, same time, what was the energy cost. Just give me a second. Yes. So last year, Q3. So I'm not too sure of the Q3 energy cost. But I think if you compare it to last year Q3, we still are at a much better position than last -- but there will -- there are pressures on energy going to winter until February, March prices may go up another INR 2 to INR 4 a 10 cubic meter and then they will start softening.

[Operator]

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

[Ritesh Shah, analyst]

Sir, I just wanted to build into the energy costs. Would it be possible for you to explain what is the thought process to actually optimize the costs there are various variables double right? Basically, you have [indiscernible] there, you have biogas, you have coal you have [ spot ], you have LPG. So what is your thought process? And would it be possible for you to give some sense on how our mix is or how it has evolved in the past?

[Abhishek Somany, executive]

Yes. So in Morbi we have gone on our head with GSPC. So we have 3 options there. As far as our skills is concerned. So let's break it up into 2 segments. Let's break it up into the firing kids. And then let's break it up into the spray dimes, right?

In the kilns, there is no option but to use any gracious view which is LPG propane natural gas. At one time, there was all of that history. So right now in the still, we can only use natural gas, LPG or propane currently in Morbi with the propane and LPG taxation, which has gone up, it's almost at par with natural gas, which means we have only 2 sources. GSPC over than one of the suppliers of LPG propane, which could be HPCL, BPCL, et cetera, et cetera. We do not have access to any spot.

We do not have access to any IGX exchange gas. So GSPC does not allow that, PNGRB has not come up with any transportation tariffs. So therefore, we are only restricted to buy from GSPC. That's as far as the rest is concerned, all our best plans are in the same boat and all of Morbi in the same. Now in more the spray drives in Morbi drive can still run on coal biogas. So they are using either or depending on what is cheaper in a seasonal way, now let's move to the North.

In the north, we have accept to GAIL as -- and do we also have access with GAIL gas again. GAIL every now and then gives us cheaper gas, which is from the exchange. So that is something which we don't go to the exchange, but GAIL is able to offer us at every given time, every quarter, quarter-on-quarter. That like structure, they are able to give us some cheaper gas but we do not have access to [indiscernible] or JTC. So I'm not -- I can't go and contract they may be giving us the same gas, but I'm liable to take only from GAIL in a larger sense. I do have a little bit of gas, which we buy from [ IDS ]. Last year, we did that. So we do have access to [ IDS ] in the north because of PNGRB has clear tariff, which has been defined here.

And again, in the north, let's break up the spray dryer after the NGT order in the north, all our prayers are now on biogas. Coming to South -- South, we do not have access to any gas other than spot currently, which we are buying from IoT or a city gas distributor, whichever is cheaper currently. And the spray dryers in the South, again, are running on coal or biogas depending on what is cheaper in which see -- this is the breakup.

[Ritesh Shah, analyst]

Is very, very useful. Really appreciate it. And sir, is there any policy framework to optimize the cost or we decide this as a weaker basis based on the demand projections. How should we understand that?

[Abhishek Somany, executive]

Which cost?

-- so basically, whether you will go for coal also you indicated Galore mark all .

If gas is INR 2, INR 3 more expenses. So let's say, if it's within 10% more expensive, I would rather use gas. It's a cleaner more efficient fuel and also, it gives me slightly better quality. If it is -- if any of those coal slag biogas lag gas, if I have an option, then I would -- in the [ kiln ], we don't have an option we go for gas. But in the spray dryer, we ship drop between any of the depending on what the prices are. So the policy is very clear, not to be bullish pennywise pound pooling to buy the cheapest fuel and disregard quality and in regard life of the equipment. So 10% is kind of the ballpark under -- after which we need to make choices.

[Operator]

We take the last question for the day from the line of Aasim from Dan Capital.

[Aasim Bharde, analyst]

Just wanted clarity on how the 3 elements within working capital will move from here on? Receivables, I think you always said there is scope for improvement, but maybe a fresh sense on all the 3 line items or?

[Abhishek Somany, executive]

I think our receivables today are at optimum level. In fact, to give a little [indiscernible] -- we can always do a little bit more sales, but we are really tight on the service. And I think that's the first one which was mentioned on the balance sheet

So these cycles [indiscernible] is not going to go down for there. Maybe 1 or 2 days is still increase as we are at an operating level. As far as inventory grow, we are at 56 days a day. I think this is slightly higher. We have -- we are trying to reduce this. I think quarter 4 is where this should come down another 2 days so.

Creditors, once again, they are at optimum level. We are paying everything on new rates, there's more there. everything is paid on new dates. So whatever you are seeing a stable rates, we most

[Aasim Bharde, analyst]

The sharp rise that we've seen as of H1, that would continue to persist? Or would that at least come off?

[Abhishek Somany, executive]

I explained that in the beginning. So your benefit of [indiscernible] very, very quickly. So there is no change in payment terms for creditors. Earlier, 'till last year, codes were using our bank lines.

So getting the discounting getting tenants definitely discontinued now. So the table was what we've seen to be the [indiscernible], all those creditors who wants to get an early payment today. There is different payer emetic is done within at their cost. So they use the [indiscernible].

[Aasim Bharde, analyst]

The second and last question basically was on the Bathware business. I think I don't know if you guys have ever mentioned it, but what is the EBITDA margin of this business currently? And if you have any like goals of where that can settle on the future?

[Abhishek Somany, executive]

So both of them blended is slightly better than time, and that would only get better as and when that comes up

[Operator]

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

[Abhishek Somany, executive]

Thank you, everyone. I wish you a very, very happy Diwali and looking forward to the earnings call in Q3. Thank you.

[Operator]

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