Apollo Pipes Limited (531761) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Apollo Pipes Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note this conference call is being recorded. I now hand the conference over to Mr. Harsh Pathak, Emkay Global Financial Services. Thank you, and over to you.

Thank you, Yashasvi, and good morning, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Sameer Gupta, Chairman and Managing Director; Mr. Arun Agarwal, Joint Managing Director; Mr. Ajay Kumar Jain, Chief Financial Officer; and Mr. Anubhav Gupta, Group Chief Strategy Officer. I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.

Thank you. Good morning, everyone. This is Sameer Gupta, CMD, Apollo Pipes here. I, along with my colleagues, Arun Agarwal, JMD; A.K. Jain, CFO; and Anubhav Gupta, Group CSO; welcome everyone to the Apollo Pipes Q3 FY '25 Earnings Call. It's been an interesting quarter as the macro factors related to infra and retail demand remained weak. However, Apollo Pipes has given its best ever quarterly performance in terms of sales volume of 27,000 metric tonnes, registering strong growth of 43% Y-o-Y and 34% Q-on-Q. The reason for this performance was our aggressive sales strategy, which worked pan-India, and we could improve our market share after a gap of a few quarters. We continue to focus on sales push and increase our capacities across new geographies and new product categories. Please note that we are yet to receive contributions from 3 revenue drivers, PVCO pipe segment, Window Profile product segment, and Varanasi plant. This will drive our volumes higher in Q4 and FY '26. In last 7 quarters, we have incurred CapEx of INR 430 crores, including Kisan investment, and yet we remain debt-free. We have a plan to invest further INR 400 crores over the next 3 years to finish ongoing projects and set up a greenfield South India plant, which shall take up our total capacity to 3.6 lakh tonnes. And to fund this investment, we got commitment from an Oman-based fund, Kitara Capital, which is investing INR 110 crores at almost 30% premium to today's market price. This demonstrates the faith and conviction in our business model from their side. I want to reiterate here that Apollo Pipes will always remain debt-free, which help us to ride any slowdown smoothly. In Q3, our profitability got negatively impacted due to decline in EBITDA margin, mainly due to Kisan consolidation. At APL Apollo level, margins remained stable around 9%. Higher depreciation costs further precised our net margins; however, we are not much concerned over this as we are of a very strong view that once we ramp up our capacities, the margins shall reach low teens in the -- on the back of better product mix and operating leverage gains. The current focus is to gain market share aggressively. We expect good demand from agri and housing segments for the last quarter. The entire channel has been destocked seeing the continuous fall in PVC prices. As the prices have reached a low level, we expect demand recovery in Q4. Anyways, Q4 is always a seasonally strong quarter being the last quarter for completing infrastructure projects. Some green shoots are visible in terms of pickup in construction activity. We expect government trust on water infrastructure and housing to return after some important state elections are over. Our return policy -- our return profile in terms of ROE and ROCE looks depressed as of now due to reasons such as: one, low capacity utilization; second, ongoing CapEx expense; third, margin pressures; and fourth, weak macro environment. However, we are confident of achieving 25% of ROCE in the next 2 years as we increase our sales volume, 25% CAGR with margin improvement. This is from our side. Now we are glad to take questions. Thank you.

[Operator Instructions] We'll take our first question from the line of Utkarsh Nopany from BOB Capital Markets.

Sir, I wanted to know on the margin performance for December quarter. So we have seen a sequential contraction in our margin in December quarter. What is the reason for the sale? And have we booked any M2M inventory loss also in December quarter?

Yes, Anubhav here. So if you look at the Q-o-Q comparison, it is not comparable because in Q2, the volumes had fallen pretty sharply and oPVC had started contributing to Q2, which was like higher as a proportion, and that carried a very high margin as that's the product profile. So in Q3, when we increased our revenue from INR 250 crores to INR 310 crores quarter-on-quarter, so the overall product sales mix, which was there till like Q2, it ramped up, right? So that's why the margins, I would say, are more nominal now at around INR 10,000 per tonne at APL Apollo level, right? And Kisan anyways is ramping up. So Kisan is at INR 4,000 per ton. So blended, we are at INR 8,500 per tonne, which is like 8% at percentage level. And it is better if you compare it with like Q1 or last year.

Okay. And so we haven't booked any M2M inventory loss in December quarter. Is that correct?

Very nominal because the fluctuation was very little during the quarter. So no as such MTM losses.

Okay. And sir, what would be the margin guidance for both Kisan and for stand-alone operations, say, for FY '26?

Right. So see, I mean, right now, APL Apollo stand-alone is making around INR 10,000 per tonne EBITDA, right? Given that, I mean, the high-margin oPVC and Window Profile will contribute significantly in FY '26, so margins should be better by about INR 500 to INR 1,000 a tonne minimum, right? But then we also need to see that what is the intensity of market growth in FY '26 because as of now, the macro factors continue to remain pretty sluggish, right? And if at all the demand at end level does not pick up, does not pick up much, so the aggressive sales policy may remain basically, right? So -- but yes, I mean, we are confident that improvement of INR 1,000 to INR 1,500 per tonne is definitely on the cards, right? And at Kisan level, right now we are making like INR 3,000 to INR 4,000 a tonne, right? And -- I'm sorry, yes. At Kisan level, we are at INR 3,000 to INR 4,000 a tonne. The business plan what we have made for Kisan is that we shall ramp this up to INR 6,000 to INR 7,000 a tonne over the next 2 to 2.5 years because we just took charge of the operations, right? And anyway, the company was at negative EBITDA, which we have brought it to positive EBITDA within like a span of 3 quarters. So in the next 4 to 5 quarters, you will keep on seeing a jump in the margins.

Okay. And sir, for stand-alone operation, just wanted to confirm, you are saying that we are expecting an improvement to around INR 11,500 to INR 12,000?

Yes, INR 1,000 to INR 1,500 a tonne improvement should be there. Given that there is some pull demand because right now, like I said, the macro level demand has been very, very sluggish, right? So industry is under pressure on selling price, right? Everyone is trying to gain market share here, so even if we get some pull from the macro, which we should. Q4, we are already seeing some green shoots. So yes, this much of improvement is doable.

Okay. And sir, lastly, sir, how much CapEx we have incurred in 9 months FY '25? And what is our CapEx outlook for the current March quarter and for FY '26?

Right. So in 9 months, we have so far spent around INR 130 crores, which includes like addition in gross block plus capital advances what we have paid. And for next 2 to 3 years, including the greenfield South India plant, we may be investing another INR 350 crores to INR 400 crores, which is residual CapEx across the categories for us, plus the new greenfield South India plant. So how we're going to fund it is that, of course, you must have seen that there is a INR 100 crore pref, which has come in from an Omanis fund, plus INR 250 crores to INR 300 crores will be our operating cash flow generation over the next 2, 2.5 years.

[Operator Instructions] Next question is from the line of Pujan Shah from Molecule Ventures.

Sameer sir, my first question would be on the oPVC side. So we are seeing majorly for a few players are coming also with the China...

I am sorry to interrupt. Pujan, can you use your handset mode? Your voice is not very clear.

Am I audible now?

Yes, please go ahead.

So my first question would be on the oPVC side. So we are hearing more on the side that many Chinese lines have been coming and disrupting the market. So could you just state your views and what are the current industry dynamics? And what would be the potential dynamics could be changing out in next 2 to 3 years?

You're asking about oPVC?

Yes.

So it's a very new product segment, which has emerged in India in the last 1 to 1.5 years, right? It's a replacement of ductile iron pipes in the water infrastructure projects. If you look at the transition of PVC piping industry over the last 10, 15, 20 years, it's always been the shifting of metal pipes to PVC pipes, right, because of better handling, low cost, easy to install, et cetera. So wherever like earlier, the transition was in the low dia pipes in plumbing and agri. Now it is coming to large dia pipes, which are being used for the water infrastructure projects. So it's a national transition, which will keep on happening, right, from metal pipes to PVC pipes. And oPVC is one of the outcomes of this transition. And government focus on water connectivity, as everyone knows, has been pretty high in the country for the last 2, 3 years, and that remains very high for the next 4, 5 years. So we saw this opportunity and we got license from a player for the machine supplies who is authorized with -- or registered with Indian government. We got the capacity, right? We ordered 3 machines. Two machines are operational. One machine shall get operational in the next 2 months. oPVC has already started contributing just about like 4%, 5% of our revenue at APL Apollo level, right? And it shall increase to 7%, 8%, 9% over the next 1 to 2 years as the order book builds up and we ramp up our capacities. So yes, it's a new segment where very limited number of players have access to technology, right, from the registered vendors, and we shall ramp it up as the order book starts building up.

Okay. So all the 3 machines, which we have currently, which you are planning to ramp up, is it related to the Spain technology or we have any domestic procurement as well?

Arun, do you want to take this one? Yes.

So these are all Spanish technology. And, originally, there were only 2 manufacturers globally. So -- and these are the best-in-class.

Right. So any -- as we are planning to go to 7%, 9% of the revenue, so what are the plans ahead? How many lines we have been trying to procure from the Spain company? And what would be the time line of that potential line to get commissioned?

So already 2 lines are commissioned. The third line has already arrived, and it will take almost a month more to get commissioned. And the business has already started contributing in a smaller way, almost as already communicated, around 4%, it is contributing currently. And we hope next year, it should be contributing somewhere around 8% or so with the current lines also in place. So as of now, the market is growing at a rapid pace. So any new -- and currently, there are not too many capacities existing in the country. Whatever capacities will get added will still be a shortfall in the near future.

Right. But we are hearing about the Chinese guys also entering with this extrusion machine lines. So do you have any idea it could impact the margins or it could impact the industry dynamics as such?

Economics always plays like that. Whenever there is a high value contribution from any product or technology, in the long run, yes, it will get evened out, but not in the short term. It requires a lot of effort actually because it's a B2B government supplies mainly. So -- and most of the governments are opening up. Only 8 states approximately has currently started and another few are in the pipeline. So India being a larger market, we think at least for the next few years, the demand should be good.

Okay. And do we see any challenge in terms of fund flow challenge from the government end due to -- as the CapEx has been slowed down, there is a slowdown from the government end. So do you feel any impacted on that part?

No, government CapEx funding has been slower for the last almost 7, 8 months now. So -- and it cannot remain like that. And it is impacting across business segments and other billing segments also. So it has to change. How much time does it take? It's a matter of question to be guessed actually. But we hope from May onwards, things would start improving.

Okay, sir. And just one more question. Do we -- there is anticipation in the PVC side that there could be an antidumping duty. So do we feel any challenge out there due to might there would be a spike in our RM that could impact our realization? Is there any view on that part? Or it would be a stable sustainable margin because we can able to pass on to the customers?

No, resin...

Yes, please take it up.

If you see the margins of the PVC resin manufacturers, they are not enjoying very high margins. And because the world market is not working very aggressively, so we don't see very steep hike in the PVC resin prices in the near future, first of all. Secondly, that antidumping impact will also be not very high. Maximum to the tune of INR 6 to INR 8 per kg will be impacted as per the initial guidelines issued by the DGTR for antidumping. So we don't see very steep hikes, so because of that we don't see any major margin effect because of the resin prices.

And any expectation of implication of ADD, like any...

We all are waiting for that common notification. We don't know when it will come, but it should come in the next 1 to 2 months.

[Operator Instructions] We'll take our next question from the line of Neha Taneja from Nuvama.

Sir, this is Neha from Nuvama. Firstly, congrats on good volumes. Just wanted to gauge this particular quarter specifically, we have outperformed the industry. If I look at the volumes even ex of Kisan, it come out to be around 13% Y-o-Y growth. What is it leading to outperformance and versus the industry leader who has already given a number out? And how confident are you in terms of outperforming over the next 2 to 3 years? Some insights would be helpful.

Neha, there are like 2, 3 factors here, okay? One is that, I mean, if you look at our trade sales volume growth over the last 2, 3 quarters has been pretty strong, right? But on -- but when we report the numbers, because of poor demand from the water infrastructure, the numbers had been looking pretty bad, right? But our trade sales volume growth has always been in like high single digit or low double digit in the last 3, 4 quarters when you saw that our overall volumes were not growing. It's not that water infrastructure demand has revived, right? It has not -- that segment still contributes less than 5% of my overall volume, which used to contribute 15% like at its peak in FY '24. So what has -- so the focus was always to be aggressive in the trade, right, and continue to gain market shares, right? What we saw is that in Q2, the larger players because of aggressive sales price strategy, right, they were gaining, like they were doing better like for last 2, 3 quarters. And then at some level, market also absorbs like whatever price cuts would have been taken by the larger players. And then like we were always growing, right, without much of price cuts, right? So that traction was always there, right? It is just that Q3, the other players got a bit soft and we found the window because they had like pushed the channel with lower pricing strategy. So that got normalized and then we got our space, we got our window to place our products, right? Plus see, as the demand scenario has been bad, right? So the smaller players, players below us, right, at #7, #8, #9, so they also started to struggle, right, because the industry is not doing good. So as a stronger player, right, you tend to take market share from the smaller companies as well, smaller competitors also. So this is what has driven to the quarter 3 sales jump, right? And what gives us confidence for 25% revenue CAGR for the next 2 to 3 years is that still our Varanasi plant is yet to contribute, right? My oPVC just started. It's contributing only 4%, 5% to my overall revenue, which will ramp up. Then Window Profile segment, which we will start in next 3, 4 months, that will start contributing to my revenue. Kisan, it's been 3 quarters we took the possession. Kisan will ramp up in FY '26, FY '27. So we are fairly confident that in bad environment, we have been able to demonstrate whatever you see as our numbers. These 3 drivers will keep our momentum up and 25% revenue CAGR looks very much possible over the next 2 to 3 years.

Understood. So a couple of follow-ups. When you said demand from water pipes, that's related to HDPE demand, that's correct?

One of the products, yes, water infrastructure, that is right.

Another 2 things. What would be your pricing at this point of time versus leader because you mentioned that there was intensive price competition. So where are we versus leader in terms of pricing, maybe in one of the few geographies you can mention?

So depending on markets and depending on the product segment, we are like at retail level, my pricing is not very much different, Neha, right? The pricing differs at the distributor level, right? At retail level, if you go and buy for O pipe product or my completed product, right, the pricing will not be too much different.

What I understand is at distributor level, can it be something like double-digit difference also in terms of pricing, although that does not translate into retail.

No, no. Like I said, it's very market specific. In North, right, I would be at par with any of the top competitors. In West South, where I'm building my market, right, so there, the difference could be 3%, 4%, 5%.

Understood. Understood. Secondly, coming to your Window Profiles division, you said you're starting revenues next year. How is the competitive intensity in that particular space, which are the large players? Do you see basically capacity is increasing here? What does the margin look like? Some flavor here on that particular segment would be helpful.

Neha, the strategy to go there is to extend our building materials portfolio, right, home segment portfolio. Now like you would be tracking the construction materials sector. So what matters is, number one, capacity, yes. But then more than capacity, what you require is the brand and then the distribution network, right? So obviously, we know who is #1, right? And he is the first and he is the undisputed leader in this segment, okay? And after #1, then there is a big gap, okay? That's where we came and plug ourselves in that if #1 leader has built a market size of INR 700 crores to INR 800 crores, right, there is a potential for like pan-India player to reach INR 100 crores, INR 200 crores kind of numbers in 2, 3 years, if we have the right product, right mix. Brand and network we already have. So we leverage on that, right, and we build on to the capacities. So idea is to remain in like top 3, top 4 in next 2, 3 years as we start selling -- once we start our product sales. We have got a very good team to drive this business for us. And we are fairly confident that the way oPVC is going to give us revenue, same way, Window Profiles will be a top-selling segment for Apollo in coming years.

We'll take our next question from the line of Rahul Agarwal from Ikigai Asset Management.

A few questions. Firstly, to start with South India greenfield project. Just wanted to hear your thoughts on the broader thought on the complex, which you think should come up whenever you decide the location, and how would you want to take up this project? Can we do better in terms of product offerings, supply chain, input/output ratio for production and stuff like that? So just broader thoughts before the project actually gets finalized. What would you want to do in South India and what kind of products will you offer and things like that, please?

So Rahul, so this is also part of our overall strategy, which we have been following for the last 2 to 3 years, right? So if you look at Apollo in the last 5 years, okay, we had 1 mother plant in North India [Technical Difficulty] tonnes, okay? Where we were among like top 2, top 3 players in terms of market share, in terms of pricing. Then we had a smaller plant in West India, in Gujarat, very small plant with capacity of 15,000, 20,000 tonnes, even lower than that. Then Kisan in South, we acquired in Tumkur, right, which had capacity of like 15,000, 20,000 tonnes. We did some brownfield there. Now the capacity is like 35,000 tonnes there. And then Raipur in East India, Central India, again, which was like 10,000, 15,000 tonnes plant for us. So 3 years ago or I would say, 2 years ago, what we decided is that we must have similar scale of plants, pan-India, what we were having in North India, right? So that's why Varanasi came in, right? That's why we acquired Kisan, right, to cater to the West market. And now we feel that in South India also, if we have to be like pan-India player, compete with like top 5 players who are much stronger, who have been present into industry much before than us, right? So we need similar scale of plant in South India also to make a company with like, if not 4 lakh tonnes, but 350,000 tonnes capacity, right, by FY '28. So South India plant is part of that growth strategy, right? And as far as the location is concerned, it should be somewhere near like Bangalore, right, from where we can cater to all the 4, 5 major states in the southern part. Now we have started looking for the land, right, in next -- now that we have like funding commitment with us, right, we will be more aggressive because we already had like INR 250 crores, INR 300 crores of residual CapEx for the ongoing projects. We were a bit slow till last quarter, but with funding commitment, now we want to do -- lock the land deal quickly. And in next 2 to 2.5 years, we want to see that plant up and ready.

Right. So I thought 286,000 tonnes was the plan, including brownfield and Varanasi. So when we're talking about 360,000, the difference is basically around 70,000 is what the size should be for South India plant. Is that understanding right?

Right. So 40,000, 50,000 tonnes will be like the plant coming up, right? And then 20,000, 30,000 tonnes will be brownfield expansion in existing products, right? God willing, we do well in oPVC, we do well in Window Profiles, right? So nothing stops us from expanding those capacities, right? In North also, water tanks, right, we are adding capacities. So yes, I mean -- so now like from 286,000 tonnes, we want capacity of 360,000, 370,000 tonnes in 2, 3 years.

Got it. Related question was, obviously, we go out of our core market, we enter South. We obviously, we are there, but we still need to build a lot of brand and customer pools. Any thoughts because even if I map out, let's say, a 1 lakh tonne production or sale today going up to 2 lakh tonnes, let's say, in 3 years, but we'll still be very small from an overall pie perspective, right? You're talking about like 3.5 million tonnes of entire market size in India. So just to get more customer pull and improve brand perception because when we do channel checks, Apollo still doesn't figure out into top 3 across India in terms of brand perception. Can we work around that and have more customer pull? Any thoughts on that? How does that work?

So Rahul, see, that's why I told you, okay, that we were not ready with our capacities to attack West India, to attack South India, to attack East India or Central India, right? We had very small plants there, which were not having complete SKU range, right? Most of the products were being fed from my mother plant, right? So it had freight issue as well, right? When I would go to a customer, say, distributor, right, my sales team was not having the full SKU range, right, with itself to go and push for the product, okay? That's where we changed our strategy and became aggressive that we need larger plants similar to what we have in North India, right? So when you have -- and in last 4, 5 years, you see that, I mean, last year without Kisan, we closed at like INR 1,000 crores, INR 1,100 crores kind of revenue, right? Out of that, INR 600 crores was from North, but INR 500 crores contribution -- INR 400 crores, INR 500 crores revenue contribution came from like these small plants. So we already have our foot in the door, right? It was just that we did not have relevant capacities to go aggressive and try to take position like what we had in North India. So with capacities, right, we are much more confident...

Sorry sir, you are not audible. The last part, could you repeat, sir. I'm sorry.

Sorry?

Sir, the last part was not audible. We were losing your audio. Can you just repeat the last part again, please?

All right. I'm sorry. So with capacities, we are much more confident that...

Sir, we are losing your voice again. Ladies and gentlemen, we request you to stay connected, please. Mr. Anubhav, you can go ahead sir.

Sorry, Rahul. Some signal problems. Right. So what I was saying was that now with capacities with us, right, in all the major parts of the country, we are much more confident that we will be able to replicate our market share positioning in other parts of the country, what we have in North India. Because last 4, 5 years, we have been selling like INR 400 crores, INR 500 crores worth of products there with very smaller size plants, right? With larger sized plants, we should be doing much, much better.

Got it. And lastly, a question on the leadership team. Obviously, the top level is pretty much there. Just one level below that, let's say, SBU heads, the execution is something, which is going to be the major dependence on whatever plan we have. Capital obviously has been taken care of, so now we have capital to boost our production and sales. Just in terms of people, where are we in terms of SBU heads? What are we thinking? What else do we need to ramp this up and achieve our targets?

So I will let Sameer ji, answer this. But just before that, okay, so how we have segregated the team is that -- so we are growing -- one is geographically new plants and one is new products, right? So new geography, right, we have Arun ji, right, who joined us like now 2 years back. So he's taking care of all the like new projects, including Kisan, which we consider like a new geography for us, right? Then we are hiring right people, right, to drive the new products. So oPVC is there, Window Profile is there. So since we are growing like geography-wise and product-wise, so we have -- we are hiring team to manage that specific location or that specific product, right? That's how we have hired team in the last 1, 1.5 years. Sameer ji, you want to talk about like new hiring.

Yes, let me chip in Anubhav ji. Rahul, actually, if you see our structure that it's not like that only a few people are managing the show and rest of all not there existing. But actually, each and every team member in our company, they are involved, and each and every activity is properly defined and distributed amongst the team. The top level and then the backup plan to the top level and, again, they are there after the business heads or the product heads and the regional heads. Or you can say we are distributing that production into various parts, sales into various parts, other activities such as HR, IT, finance, they all are distributed. It's not like that 1 single person or a few people are completely managing the complete show, but it is a group of people that is managing the show. But a few people are actually coming in front of you, that's why you feel like that, but it is not like that. It is a group of people that is managing the show. And we have got very experienced professional people in our team who are managing the show. And they know that there has to be a succession planning along with that experienced people and new blood into the group so that we can fetch, you can say, results from them and have, you can say, result of their experience, whatever experience we have people with us who have got experience of 30 years or 25 years in the team, who are managing the show. Like in Window Profiles also, we are moving in the same direction. We are trying to fetch the best from the industry and trying to create a best team so that we can get results as early as possible. So you don't worry about that. We are actually taking care of the team. And apart from that, infrastructure also, we are investing too much like in IT or in other, you can say, other parts. So we are taking care of that.

Absolutely. I appreciate that. So where are we in that journey...

I request to join back the queue please, as we have other participants waiting. We'll take our next question from the line of Bhavin Rupani from Investec.

My first question is related to oPVC. Sir, you mentioned that we have 2 lines operational and 1 line will be commissioned in the next couple of months. I just wanted to understand how much CapEx that we have incurred for these 3 lines?

Close to INR 100 crores.

It is close to INR 100 crores.

Is it close to INR 100 crores.

Yes.

Okay. And how should one understand the margins of this oPVC segment? It will be obviously better versus what we are clocking right now, but...

Yes, it's a bit sensitive issue, right? We don't want to give the exact profitability numbers, but it is much more than what our other products are making. And this investment, we plan to -- like the return on this investment is like 2 to 3 years payback.

Okay. Sir, it would be fair enough if we say that margins are in a similar range of CPVC?

We don't want to comment on this, please.

Got it. And sir, can you throw some light on competitive intensity over here? How many companies are getting into this segment?

Arun ji, you want to take this up?

Yes. Yes. Actually, right now if you see the technology, it is available with 2 major players. One is from Netherlands and other is from Spain, where we have got our machine from, it is from Spain. And some of the Chinese -- these first -- these 2 companies have limited number of, you can say, customers. They are not giving their machines to each and every customer. So Molecor, from whom we have taken the technology, they are limited to 7 customers across India. And the other company, they are limited to only 1. Apart from that, Chinese companies are now coming into the picture, but the quality is still a question from the products that are manufactured from their machines. They are still not up to the mark and a lot of challenges are there, and the higher dia pipes in those machines are still not okay. So there are challenges in the, you can say, products. So right now, if you compare apple-to-apple, only 4 to 5 players are there who are working aggressively in this product. Apart from that, some more -- 3 to 4 more Chinese machinery manufacturers, they have entered the market, but they are still to establish their product. So in the coming days, you can say 10 to 15 manufacturers will be there. But with the reputed manufacture of these Molecor machines, only 5 to 6 numbers are there.

Got it, sir. Sir, last question is related to dealer financing. Can you give the amount of dealer financing as on Q3? And how many dealers are covered right now and what it was in the previous year?

Right now, around 10%, 15% of our dealers are taking channel financing. That's all.

And what was it in the previous year?

5% to 10%. Now it's 10% to 15%.

We'll take our next question from the line of Karan Bhatelia from Asian Market Securities.

Yes, with respect to the inventory levels in the channel now that PVC prices have not seen that much of volatility starting from November. So how do you see things at the inventory level?

Sameer ji, do you want to answer this?

Yes. If you see that the PVC prices are almost near to bottom. So the inventory levels right now, still there is a fear in the mind of our distributor or dealer segment. So inventory levels are quite low with them. They are not keen to keep any high inventories or high level of stocks with them. So it is normal or below normal, not high.

Right. And one last question from my side. Sir, our operating margins on the stand-alone business is holding good because the infrastructure contribution has come down significantly. But if government CapEx were to come back in the next 6 months, you think our margin estimates look a little aggressive on that part?

No. But then our other more profitable products like oPVC and window profiles, they shall start contributing, no?

Right, right.

[Operator Instructions] Next question is from the line of Rishab Bothra from Anand Rathi Shares and Stock Brokers.

Just wanted to understand, if possible, can we have the revenue share from UP? And do you think there could be meaningful contribution in the coming quarter because of the Kumbh Mela?

From which product you asked?

Overall, overall company revenues from UP?

Uttar Pradesh?

Yes.

Right. So see, North has been our main market as of now, 65% of our sales come from North. Obviously, with Kisan, the Western market started to contribute to our consolidated numbers. Kumbh has not been too much driver for infrastructure spending. In fact, it brings a lot of disruption in movement of in movement of materials, right, for -- whether it's residential housing construction private or it's government infra. Of course, I mean, for last 1, 2 years, government had been focusing on modernizing the railways there, right, the aviation, airports, et cetera, where we did supply materials. But then overall, we wouldn't say that there was like a spurt in revenue or volume from Uttar Pradesh because of Kumbh. It only brings disruption in movement of the material.

Got it. And secondly and, lastly, we have brand ambassador. How do we map what kind of contribution or growth momentum is there because of brand ambassador?

What? Sorry?

Brand ambassadors. So we have brand ambassadors who market our products in terms of advertising spend, so how do you monetize them? What kind of threshold do we have in terms of revenue achievability?

So see, I mean, how we see this as our ROI, right, whatever we invest, it's not just 1 brand ambassador, right? Whole lot of package comes with it, right? You have to make an ad film, okay? Then how do you promote that ad film. You go on costly media, which is television. You go on cheaper media, which is print media, right? Now social media is available, right? You want to go outdoor. So we don't evaluate as like how much we're paying to 1 celebrity. No, it's a complete package. So if you look at our brand spends, right, they have been like under -- just over 1% of our revenue, right? And again, it is divided into 2 parts. One is ATL, which is above the line. Second is BTL, below the line. Because of stress in the demand, stress on the margins, we decided that it doesn't make too much sense to go above the line. So our focus has been on below-the-line, BTL, where we are adding more plumbers to our network. We are doing in-shop branding at our retailer counters at hardware shops, right? Then we are engaging with our channel partners, right, to put outdoor hoardings near the main markets, right? So overall investment has been pretty low on branding in last 2 years because of market situation. And based on that, we think that the ROI on these spends is matching our overall company ROCE where we need to achieve 20%, 25% return profile.

[Operator Instructions] We'll take our next question from the line of Aditya, an individual investor.

Sir, my question is related to oPVC. Sir, are we facing some trouble selling into Chhattisgarh market? We were hearing some rumors that we got delisted from in [indiscernible] West due to some criteria, 3-year experience criteria. Is that correct? Are we facing this problem in other states also?

Moderator, if you could understand, can you repeat the question for us? Because there is some echo.

No, not clear. Aditya, your voice is not clear. Please use your handset.

Is it clear now, sir?

No Aditya, it is not clear. Can you switch to your handset mode, please? Aditya? Aditya has left the queue. [Operator Instructions] We'll take our next follow-up question from the line of Pujan Shah from Molecule Ventures.

Sir, my follow-up question would be on the oPVC side. So we broadly understand that the Spain or the technology has been -- the capacity has been limited. And even we -- and we say that the Chinese companies' extrusion machine are not up to the mark. So do we feel that in the coming years ahead, we'll start procuring from the domestic company, which might -- which they claim that they have cracked the technology as well. So do we start procuring from them? And what could be -- like is there any consideration for that?

Yes, Arun. Arun ji, if you can answer.

Yes, Pujan, actually, if you see the technology is evolving and that right now, as of today, the difference between the technology, what Spanish or the European manufacturers are giving are way above than what we are getting from the Chinese manufacturers. So it is -- you can say it will take some time right now for them to evolve and get them to the level of European manufacturers. Of course, they will get to this level in the coming years. But for the next 2 to 3 years, we don't see significant, you can say, upgradation of the Chinese machines to the level of European manufacturers machines. So we hope that you can say that difference will be there for the next 1, 2 years. Of course, after that, if the technology permits us to make a similar type of product from the Indian manufacturers or the Chinese manufacturers and the cost difference is there, then we will definitely shift. But right now, as of today, the difference in the quality, the productivity level, you can say the accuracy level is much higher in the European machines as compared to the Chinese manufacturers. And right now, in India, all are doing hit and trial methods to produce such machines. But right now nothing has been established -- technology has been there in India. So we are just waiting and watching the developments that is happening around us and continuing with the European manufacturers only.

Okay. And is there any clause or something from that Spain technological partner that you can only procure from them? Or it's nonexclusive, you can procure from even Chinese and even domestic, is it open for any source, right?

Yes. As of today, yes, there is definitely a clause that the Chinese -- sorry, the European manufacturers, they will not be supplying to any other manufacturer other than the 7 licensed partners that they have identified in India. And along with that, we also are not allowed to buy from any other machine manufacturers apart from them during that tenure. But as the market will evolve, as the market will grow, we think that there should be some change in the license. But right now we are restricted to take supplies from them only, and they are restricted to give supply to us only. So it's both ways contract. So both are banded to each other for the supplies and then the procurement.

Can you just state the time line, what would be the cost time line if there would be any modification on that part? So is there any time line till this date you have to procure from them?

As of date, there is no time line. It's a contract between both the parties. And we are bind to each other for the procurement or selling of the same.

We'll take our next question from the line of Akash from UTI Mutual Fund.

Yes. Just wanted to ask how is the traction in plastic faucet tap and shower that we have launched, any thoughts there? Just wanted to hear how that business is doing?

So Akash, we started that business 3 years ago, right? And we made a small investment to test the waters, okay? And we did build the business, which started contributing a little to our overall revenue. But then we realized that it requires much more bandwidth, much more investment into multiple SKUs, multiple molds for the complete SKU range, right? And we just like decided not to invest further in that segment, right, because the focus shifted more towards like larger volume products, which we found. oPVC is one of those or window profiles and then expansion in Varanasi and South India. So we just thought let's give a pause for...

I'm sorry, sir, we lost you.

Can you hear me now?

Yes, sir.

Okay. So I'll repeat, I'm sorry. So what I was saying was that we stopped ourselves from making further investments into that product segment because it required more bandwidth, more investment to have the complete SKU range, right, and more focused approach. So we thought that let us first get into more voluminous products, which we found in oPVC and window profile, right, and then expanding geographically Varanasi and South India. So once we finish with these expansions, then we'll see that how we want to take bath fittings as a category. I mean, in between, we were evaluating some inorganic opportunities also, right? A lot of small mid-tier brands are available in the market. So there could be some potential opportunity if we see that. But yes, I mean, organically, it is a bit slow to drive significant revenue for our company. So yes, going forward, we are open for an inorganic opportunity if we find a suitable fit.

We'll take our next question from the line of Manan Madlani from KamayaKya Wealth Management.

So my question might be repetitive because I joined the call lately. So what was the reason behind this pref issue?

Manan, can you repeat your question and use your handset mode, please?

Am I audible now?

Yes.

Yes. So I was asking what was the reason behind this pref issue? I mean, how are we using the fund?

So Manan, we have a CapEx outlay plan of INR 400 crores for the next 2 to 3 years, right? As per our business model, we shall be generating operating cash flow of INR 300 crores in next 2 to 2.5 years and balance residual INR 100 crores, which was leftover, we thought it is better to have an equity infusion rather than going for any debt. You would appreciate that we have invested INR 400 crores in the last 2 years so far and remain -- and yet we remain debt-free. So we want to remain as a debt-free company, right, while building aggressive capacity, right? The [ opportunity ] comes from -- right from like the origination of the group where we don't want to have debt on the books because whenever there is a downturn in the industry, the revenue is under pressure, the margins are under pressure at operating level and then interest cost also bring companies down, right? So we are very clear that we don't want to invest into capacities by taking bank loans. So that's why we did this small equity preferential wherein our CapEx is sorted for next 2 to 3 years. And then we don't believe that now company will ever require equity infusion because once we utilize our 360,000, 370,000 tonnes of capacity, we shall be generating INR 300 crores plus EBITDA every year. And with 20, 25 days of working capital cycle, 25% ROCE, all the future growth will be self-funded after this. Moderator, we missed one question from the participant. If he is there, we can take it. Otherwise, let's wrap it up, please.

Do you mean Aditya, the investor?

Yes. Or we take the last question. If Aditya is not there, we take the last question.

Aditya is not in queue. We have Chinmay Nema from Prescient Capital.

Just a quick question. On -- could you give some color on the receivables on the agri side? Do we operate on a cash and carry model? Or is there a credit cycle involved in that?

So I mean, see, I mean, 90% of our products are sold through dealers, Chinmay, okay? Now whether they sell to housing players or they sell to agri players, that's their purview, right? If you look at our receivable cycle, that's around 30, 35 days, which we have with our dealers. So yes, it doesn't matter to us whether a dealer is selling in agri or he is selling in housing. We don't offer more than 30, 40 days of credit period to our distributor from where, 90% of our sales are generated.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments. Over to you.

Yes. Thank you, team, Emkay and Chorus for conducting this con call. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarification or would like to know more about the company, please feel free to contact our team. Thank you once again for taking the time to join us on this call.

Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.