Astral Limited (ASTRAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Astral Poly Technik Limited Q1 FY '21 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nehal Shah from ICICI Securities. Thank you. And over to you, sir.

Thank you, Rao. Good evening, everyone. On behalf of ICICI Securities, I welcome you all to the conference call of Astral Poly Technik Limited to discuss the Q1 FY '21 results. From the management, we have Mr. Sandeep Engineer, the Managing Director of the company; and Mr. Hiranand Savlani, the CFO. I would request Mr. Sandeep Engineer to start the call with his opening remarks, post which we can then proceed with the Q&A session. Over to you, Sandeep bhai.

Hope all of you are safe and healthy and fine under this pandemic situation. And Mumbai is the city, which is highly affected by this pandemic. This quarter was equally challenging for us because we had many, many priorities, and our biggest priority was the safety of our employees. We had to start our operations, the plants, phase wise, keeping in mind the number of people allowed as per the government guidelines, their safety, take care of the social distancing and other norms. And we could safely do it in phased manner. And all the pipe plants became operational first in -- starting from April end till May first week in whole of India. The Adhesives business took a few more weeks to start because the Adhesives business did not fall under the essential category, and some of the areas, especially UP, was highly affected at the time when we had to open the plant. So adhesives plants came in operational in the second half of May. But today, all the plants are completely operational, running with full manpower strength, taking care of all the norms required for keeping our people healthy and safe. We have doctors at every plant. We have a senior doctor at the corporate level. We have compounders. We have health checkup procedures at all the plants. And we have completely done antibody test of all our employees in last 2 weeks by Thyrocare. So we were one company in Ahmedabad who conducted complete antibody test of all the employees. The migrant labor issues were there in some of the plants. But now most of these people are back in work. We have some people who are still not joined, but we have alternate labors to take care of the production. Looking through this quarter and bringing normalcy of operation was the priority. At the same time, we put some priorities in our business. The priority was, one, to take care of our cash cycles, very important. But we didn't want to overboard the system by giving huge credits because it was very important to take care of the cash cycles, and equally maintain the level of our profits, and at the same time, reduce the inventory. And this -- all these steps have helped us to get cash in the system and make the company debt-free. The Tier 1 and 2s, many of these cities, especially the Tier 1 cities are still not fully operational. There are lockdowns coming. Again, the city is opening, which is partly opening. And this challenge still continues, and I feel that this challenge will still continue for this quarter. And still, we are trying to get to the business level, which matches the sales in tonnages and value which we had done in the last year in the same month. And if you see the numbers, we have almost reached the 90% of our business in Adhesives in the month of May, June, July. And in the Pipe, we have almost done 95% to 96% in May, June, July in our Pipe business. And Adhesives has given us extraordinary growth of 26% in the month of July. The correction cycles, which had to be done in the Adhesives business, have almost been completed. It was almost completed in the last quarter, and now it is completely -- completed operational. And wherever the need of corrections are done, additions are done, deletions are done, are going on, but we are getting very good positive results out of this. But still, our challenges continue because in Adhesives as well as Pipes, there are certain challenges, which will come across in this quarter, which we feel maybe because of the ongoing pandemic. And we will be handling them, working on the growth numbers and working on the operations to keep the things rolling. In Pipe business, as we had discussed, our CapEx cycles will be done to the tune of cash accruals in this fiscal. We have started, again, the work of Odisha plant, which we are building a new plant. The construction work will start shortly. And we should be completing this in next fiscal and making it operational in next fiscal. The valve manufacturing unit, which had to be set up in Ahmedabad at Dholka, the work has again started from last month. The project has been delayed by almost 3 to 4 months, but we should be completing this project in -- by the end of this fiscal. Some of the additions of machines were required as we have added a lot of new fittings in our operations, in agriculture space, in the plumbing, in our Silencio and many other products will be done in this -- in the next quarter. So we'll be expanding our fitting base in the next quarter. We will be also working on expanding fitting base at different locations, and it would be in a phased manner, mostly done partly in this fiscal, but mostly will be completed in the next fiscal. The overall scenario of the Pipe business has its own challenges. But Astral being one of the leading brands, the brand advantage is coming, the smaller people -- the smaller manufacturers are still facing issues with the raw material, finance cycles, which is also giving great advantage to Astral. The new programs, which have been laid down or the IT-based programs, are giving us great advantage. And we would like and we would hope to cope up with the pandemic and be at a level of at least maintaining the last year's numbers and even get into the growth trajectory in the coming quarters. The rooftop solar project, which we had mentioned in our last calls, is complete and it is operational. And a part of it is operational in this month, and rest will be operational in the month of September -- part of it became operational in July, the rest will be operational in the month of August and September, sorry, one correction. So we will be having complete -- we will be having solar power and -- which will be helping us to reduce our energy costs. The Adhesives business, also, we have added many products. We have added a complete range of construction chemicals. We've added products -- rubber-based adhesives. We have added products in wood, white glue. We have added our product in epoxies. And these all are giving good results in the market. And the acceptance is very good. So with all these challenges, which we are passing through and what we'll pass through, and we all don't know what is ahead of us because this -- nobody imagined this phase to be ever passed in the globe, but Astral is very strong in its own way of working, in its own numbers, in its own performance. And we are sure the way our teams are working, the way we are working and the way we are taking care of the teams and still working, we'll be able to get on the track and do our best possible in this quarter and coming quarters. So I'll hand over the mic to Mr. Hiranand Savlani, our CFO. And once he is through with his numbers and presentation, we are -- we'll answer your question and answers. Thank you, everyone. Thank you.

Good afternoon, everyone. Hope you and your family members are safe in this difficult time. As Sandeep bhai mentioned that this quarter was full of challenges, so we were also passing through that challenges. But within that challenges also, I can say that the performance was up to the mark, what we were expected. The performance is even better than what we originally was thinking when the lockdown was announced and in the beginning of the April. As you know that the Pipe approval we got in the month of April, but actually the planned operation started from May first week. And our Hosur plant operation started from the second week of May because Hosur we got very late permission. So the effective working days in the Pipe operation was almost, you can say, 50 to 55 days kind of average working days was there. So we lost around 35 to 40 days kind of working in the Pipe business. As far as the Adhesives is concerned, Adhesives was falling under the nonessential category. So there, the working days are even lesser because we got the permission in the month of May, and then all these rules and regulation and whatever the government guideline we were supposed to follow, so because of that, the average working days were even less than 45 days. In spite of that, I can say that in both the businesses, if you can see, after opening till today, we have achieved almost 90% of the volume what we did in the last year. So comparatively, our volume loss is very low than what we originally planned. Secondly, we all know that Astral being a non-agri company, we are a plumbing company basically, so because of that, we were the highest affected because the construction activities were very slow, I can say many parts of the country was almost standstill. And May, little bit renovation demand started, and maybe in June also. And from July onwards, we are seeing that now the migrant labors and all are coming back to the work. So slowly and gradually, the new construction activity has started from July onward. So because of that, our performance was not up to the mark, which we're normally known for. But in spite of that, in the month of May, June and July, we crossed 90% plus volume. So that was a markable achievement by our team, that in spite of so much of slowdown in the construction activity, our team has done so hard work by focusing on to the rural side of India. And rather than focusing on to the metros and Tier 1, Tier 2 cities, they were able to bring the 90% volume. So once this -- now the metro city will start performing, Tier 1, Tier 2 cities start performing, we are of the view that the volume should start coming back to the normalcy. We don't know exactly how much time it will take because still many part of the countries are under still restricted lockdowns. Sometimes some cities are getting opened, and again they are going to the lockdown scenario. So very, very difficult to predict under this situation what kind of numbers will be there in coming months or coming weeks. So we will be not giving the exact guidance what we will be doing. But we are of the view that the situation should be normalized by this quarter end. And if the country will open fully by maybe September or so, then in the next con call, we perhaps will be in a good position to give you the guidance, that what will be the situation on the ground and how company can perform. As Sandeep bhai mentioned that last time when we published our annual numbers, we were having INR 55 crore of net debt on the balance sheet. So we have repaid the complete debt, and I am very happy to inform all of you that now Astral is officially a debt-free company. And not only debt-free company, in the month of June, when we completed the quarter, we were having INR 7 crore net balance on hand. And after that, because of the good numbers of July, we have repaid further INR 25 crore to the bank. So the cash position has further improved in the month of July. As Sandeep bhai mentioned that for us, the priorities were not only to just focus on the volume growth, but our priority was to control the working capital cycle. And we repeatedly communicating in our con calls and in our presentation that we are not only focusing on the growth, but we are parallelly equally serious about the quality of the balance sheet. And within the balance sheet also, particularly the working capital cycle. So the same scenario we have maintained in this quarter also. The receivable days, which drastically dropped in last quarter, is maintained in this quarter also. So today, our receivable days are below 30 days, at a group level I'm telling you, and inventories have also come down. Particularly in the finished goods category only, we have reduced the inventory to the tune of almost INR 62 crore, INR 63 crore compared to what was there in the month of March end. So inventory side, control is there; receivable side, a huge control is there. So working capital cycle will improve in this year compared to what we have seen in the last year. Our EBITDA margin was normal. Normally, if you see the Q4 number, we were at 18%, 19% kind of EBITDA margin. Same margin is maintained in this quarter also. If I do the adjustment of whatever the month of April, we incurred the fixed overhead, if I do the adjustment of that, then the margins are maintained at 18%, 19% kind of run rate because we incur around INR 8 crore to INR 9 crore of overhead in the month of April, and plus we lost around INR 9 crore to INR 10 crores into the PVC, because the PVC price dropped by 17% during this pandemic time. So PVC price dropped INR 13.5 and started recovering that gradually. So in the month of May, it recovered only INR 4 out of INR 13.5. So whatever we sold in the month of May, that was the inventory of our -- March. So because of that, we have to incur that loss. And similarly, PVC price recovered further in the month of June by INR 7, and further INR 1.5 in the month of July, and further INR 2 in the month of August. So whatever the INR 13.5 loss was there, that was recovered by August, but that was in a phased manner. So because of that, in the last quarter, we incurred a loss of close to about INR 9 crore to INR 10 crore. And that is the reason you will see that our GP margin has dropped to that extent. But otherwise, I don't see any problems. We are maintaining the same run rate of what was there in the Q4 of 18%, 19% EBITDA, if we do the adjustment of this. So I think with this, I think we want to open up the floor for the question-and-answer session. And over to you, Mr. Nehal.

[Operator Instructions] The first question is from the line of Ritesh Shah from Investec.

Sandeep bhai, my first question is, you indicated about the valve manufacturing plant. Sir, what is the CapEx over here? And what is the scope of this project? That is the first question. Sir, second question is, in the last call, you had indicated that Adhesives have 3 separate divisions now, maintenance, PVA, and construction chemicals. So just wanted to have some color on which segment is actually doing better? Like this 26% number is very encouraging. Is it on the back of channel filling or is it a particular segment, which is actually doing very well, like maintenance could be actually doing very well? So is there any particular thing that you are looking at and are hopeful about? Sir, these are the first 2 questions.

Yes. Ritesh. The first answer is the CapEx of this valve project would be around INR 50 crores, with all the machinery and molds. And part of it is already being done, as we had already placed the complete range of valves molds order -- molds orders of valve. So we already incurred certain CapEx, which is already there in the books. So machines have been booked, so there also the CapEx has been done because we have given advances. The construction side, whatever we have incurred as of now, is there, but the new construction and certain expenses -- also now the contractors are giving long-term payment schedules. But still, if we just made the right payments also, the total cost would be INR 50 crores to INR 55 crores, and our already INR 20 crores, INR 25 crores project cost has been incurred. So the rest is also only to be paid. Now regarding the adhesives part...

Sir, on the scope of this, like, we are incurring INR 50 crores...

Scope is good because we are extending our range in valves in plumbing up till bigger sizes. And similarly, we are coming out industrial valves up to bigger sizes. So there is a scope of -- industrial valve, we completely import and sell. So we'll be now making in India and selling. So we will give -- we will improve our margin and the sales. Similarly, we can do exports of these valves. And the plumbing part also, above 2 inches, we import and sell, which we'll be again making and selling it in India. We'll be making both in CPVC, PVC, all these valves. So this is a state-of-the-art plant, state-of-the-art technology and state-of-the-art design, and very state-of-the-art molds are going to come here. When you go to the adhesives question, there has been no channel filling. The cycles -- the cash cycle, which we maintain, so credit with the channel is very strict. It moves within the time frame of the credit days. Most of them -- 50% plus additives distributors now are on cash-and-carry basis. So there would be no channel filling pressure in pipe as well as in adhesives. We don't do any channel filling process -- pressure. So these are actual sales which happened to the dealer and actual which incurred from dealer to the customer. These are the actual sales. And we have got growth in all the 3 segments; white glue, the wood segment; the construction chemicals is also -- given us a good number and growth compared to the last quarter similar month; and the maintenance. So we have got growth across the core of all the 3 segments. As all the 3 segments have different verticals and different vertical heads, so there is a lot of focus now happening of everyone to make their division grow, and this is really helping us in a big way. So we have gone across the board.

Ritesh, I can add to what Sandeep bhai has said that regarding the channel side, on the contrary, what is our observation in the market, that the dealers and distributors are holding lesser inventory than normally they used to hold pre-COVID. So no dealer or distributors are in a mood to hold more inventory because of the working capital stress. I think, liquidity challenges are there at a higher level also. Secondly, we are becoming more tougher into the working capital cycle. So because of that, no distributor or dealers are holding even a regular kind of inventory. So suppose, hypothetically, earlier, they used to hold 3- to 4-week minimum inventory, now they are sitting on a 1-week inventory. So absolutely, whatever the ground level sale is happening, that is the lifting from us. So I don't think any single penny, I can say, the dumping is there in the system. So every dealers and distributors are very cautious in this time, and it's good for the industry per se.

Correct. That's very encouraging. And sir, a quick -- real 2 quick question. Sir, any update on the hedge backward integration? And there were plans to shift the Kanpur facility to Gujarat. That's one. And sir...

We have postponed this project for this fiscal. So there is no investment this year. Next year, we will look into that. And I already repeatedly said last time also, that project is very small in amount. Investment will not be more than INR 20 crore. So that's not a sizable amount. Very small project.

We have deferred the project. So next fiscal, we'll take a decision.

The next question is from the line of Sonali Salgaonkar from Jefferies.

Sir, my first question is regarding the margins. Sir, any change in pipes product mix this quarter, considering the disruption that we have encountered a margin of about 13% to 14%? I understand about the overheads. But also going forward, now that we have resumed 90%, should we expect a similar run rate of about 17% to 18% in the coming quarters?

So we don't see any pressure on the margin as of today. I don't know about future what will be the scenario will develop. But present times, see, 17% should not be the problem, in the piping sector. Regarding your second question of product mix, yes, normally, if you see historically, the first quarter is always more of PVC, less of CPVC. And the second quarter onward, the CPVC starts picking up. So that scenario is continuing this year also. So this quarter also, the PVC ratio was higher compared to the CPVC. This is the scenario of last 5 years. It is not this year specifically it has happened. So this is the -- normally, first quarter is more of PVC than the CPVC. But in spite of that, our margins are maintained. I already explained that if you can add this INR 9 crore, kind of, or INR 10 crore of inventory loss of PVC and plus April fixed overhead, that our margin will be 17%, 18%.

And we would like to add -- I would like to add that Astral has not given any cut or deduction in any salary levels. We wanted to maintain the moral and motivation of the team, which was our key priority rather than the pandemic making them suffer because of anything because it's not due to their mistake this thing is happening.

Got it, sir. Sir, in terms of product mix, I was also wanting to ask on the agri pipes. Sir, have we given any little extra push to agri pipes, considering it was a very good season for agri pipes?

So like agri contribution to our revenue is hardly anything. So even if I increase 10%, 20% into that side, it's not going to change any number to us. So our contribution from agri is really negligible. So I don't think any big push is there into that segment.

Understand. Sir, my second question is, you explained about the rationalization of working capital. Sir, any numbers which we could share in terms of what are the standing inventory receivable and creditor days as of Q1 FY '21 compared to the last quarter?

I don't have a number handy with me. But you can separately call me, I can share that numbers also to you. Not a problem.

Sure. Sir, and my third question is adhesives. I mean 26% year-on-year growth in July is a very, very notable number in terms of growth. Sir, any particular geographies which have helped or any new product launch in this particular segment? Or is it also to do with a little subdued base of last year?

So the new product side, I think only sanitization was there and some glass-related adhesives were there. Other than that, there was no big change into the product mix. But as Sandeep bhai mentioned that the growth was across, all the segments, we grown up. It can be multiple regions also. It can be a pent-up demand also. It can be a little bit gaining of share from the smaller player also. It can be a structural correction, which we did in last 12 months. And repeatedly, we were telling in our every con call that it will take some time to pick up the demand once we will complete all this correction. So the last con call, if you remember, I was telling that the KYC process is not a simple process because we removed all the stockists from the system. And then now every distributor will be directly dealing with the company. So we have to do the KYC for each and every one, and we have to enroll everyone in our role. So that process is a very lengthy process. So it took time to complete that thing. So now -- even still today, also it is not completed, I can say. Still, we are doing that portion. So a lot of new distributors are still joining. In coming -- I can say in 1 or 2 quarters, many more people will join into that agreement also. So this is the ongoing process for another couple of quarters, and then after that real number will come. So still we are in -- first phase we have completed removing all the stockists. But the enrollment process of the new distributor on the card is a continuous process. It will take some more time. And then after, we have to see how the number is shaping out. So I again repeat that 1 month is not the parameter that this month we delivered 26% growth, then you can presume that full year we will be delivering 26% kind of growth. So very difficult to predict on the basis of 1 month. The process is on, but we are of the view that definitely positive signals have started coming on the ground. So we have to see, wait and watch, and we have to observe the number how it is shaping out in the coming few months or maybe coming few quarters. After that, I think the trajectory will be clear. But as of today, I think we have to wait and we have to see how the situation is panning out on the ground. But a lot of corrections we have done, a lot of completed and still some is going on.

I can add to this. Let me tell you that we had answered many questions in last few quarters, at least maybe 4 or 5, about the structural corrections and things and the pluses and the minuses and the mistakes and things which we did in learning this business, I can tell you. We have learned completely. The whole mess is now behind us. The new systems, the new correction, the new way we are working, the way the teams are guided up, the way the new seniors have taken up and the way the clarity of the business has come to the ground level is completely perfect. And I am sure that now we are envisioning the business the way it should go. And we would work more harder to see that we keep the pace going. And I think things on the ground are perfect now, I can tell you in short that much. A lot of work still has to be done, and we'll do it in the right way.

Understand, sir. Sir, and my last question is, you talked about leveraging on your rural distribution, especially during this COVID time. So any ballpark number as in -- of the overall revenue mix, how much is from rural versus urban? And lastly, what is our CapEx expectation for FY '21? That's it from my side.

So you want this for the Pipe or for the Adhesives?

Sir, overall or segmental, whatever we would choose to share?

So like split, it is very difficult to give about the rural versus urban. But we can say that the sizable demand in this last 4 months was from the rural side because urban were not working at all. And Tier 1, Tier 2 cities, some were working, some were not working, some were started and again lockdown and all this up and down was happening. So a major chunk has come from the rural side of the demand, I can say. Urban, I think, will start now because now Mumbai and other metros have started functioning. So hopefully, they will try to settle down first in this month. So from next month onward, they should start giving us the reasonably better number, I can say, because ultimately they have to reduce their inventory also. They have to first focus on to their collections also. So we will not be pressurizing them that you lift from us. But it's always better that they clean up their books first and then they start the business with us. So rural side was the major contributor, I can say, but exact number it is very difficult to give. And normally, we don't share also, even if some ballpark figure we are having, but we don't share that number. And similar thing was happened in the Adhesives side of the business also. There also, the rural supported in a big way, metros have not supported to that businesses also. So hopefully, in a couple of months, things should settle down. Then whatever the number will come, that basis, we will be able to tell you how the directionally things are moving. But as of today, I think very, very difficult to predict the number in this environment because every week is different. This week, some geography is performing. Another week, another geography is performing. So a lot of ups and down, I can say zig-zag kind of things is happening right now. So very difficult to predict the number in this kind of environment. In some products, all of sudden demand comes, we become short supply also, in both categories; pipe also, in many category, we were short supply; and even adhesives also, we were in short supply because we never expected that kind of things all of a sudden will come from particular geography. So we don't have inventories at our depots also. So a very, very difficult time, I can say. I have never ever seen that kind of scenario, at least in the last 15, 17 years of working with Astral. But we have to ultimately pass through that phases. And hopefully in, maybe few months, things should settle down and then the regular things will happen. And then after, we will be in a position to say confidently. Right now, we can guide, but thing is that we don't have a high conviction from any of the geography or any of the product or any of the area. So we want to reach there ourselves to give the guidance at this stage.

Understand, sir. And about the CapEx?

CapEx, I think we communicated last time that this year we are targeting somewhere around INR 65 crore to INR 70 crore kind of run rate. So we will see how the going forward situation is panning out. So we will try to maintain that. Adhesives, we don't need CapEx, maybe a few crore rupees of maintenance kind of CapEx or something small packaging machine or something is required that we may incur. But Pipes side, almost INR 65 crore to INR 70 crore will be there, unless we are working on a few products also. And if that is going to materialize, then we may little bit add to the CapEx. But as of today, we stick to that kind of level. And if required, we will incur that CapEx.

The next question is from the line of Madhav Marda from Fidelity.

Sir, just wanted to understand on the adhesives side, are our product launches largely done or is there any more new products that will be added, say, in the coming 1 or 2 years? Or it's about scaling the current portfolio?

So I think we have still many products in pipeline. So product portfolio is still not completed. So we will keep launching the new products in the coming quarters.

See, basically, the products are of a specific category of, say, construction or wood or rubber adhesives or epoxies. So the family remains the same, the chemistries keep changing, and similarly in silicons and hybrids and all. So I think the complete chemistries we have completed, but upgradation of chemistry is always a thing which keeps on moving. And so this thing will go on. And it goes on globally also. But basically, we are there in every category now, every product line. And we are also there now in every segment, construction, wood and chemicals. And we have completed a good number of portfolio in last 1.5 years.

Okay. Okay. Got it. Got it. And sir, I see but -- I found it interesting that a lot of demand has come for us from the rural part of the country. I mean my understanding was that we were largely more of an urban and plumbing company. But rural India also, I mean, are we seeing more CPVC uptick there as well? I mean how did we sort of scale up volumes there in the last few months? Just curious to understand.

We had told around 2 years back that our focus is there on the Tier 1, Tier 2 cities, but we had moved to the rural market in a big way almost 2.5 years back when we completed our range of agri products. And the column pipes and the casing pipes and many of these pipes, which are actually used -- highly used in rural. Rural can be purely a rural, a village; and rural can be also a town in the 2 Tier, 3 Tier, 4 Tiers. Like if you say Ahmedabad is a big city, but a town next to Ahmedabad, Kalol is a rural because it's a town. But these towns are also growing. So there is a use of mix of the products in even these smaller towns, which are called as the rural towns or the 3 tier and 4 tier towns. So we sell all the product lines. We sell even CPVC there, the PVC, the electrical conduits go, the column pipes go, and our drainage pipe goes. So we can able to sell all the products.

Secondly, in plumbing, if you see the gap between CPVC and PVC ASTM standard pipe, it's not that high. So earlier that mindset was there that CPVC is only used in the hot water application. But now it is not like that. Even cold water also, people are using the CPVC. In many parts of the geography, like South and all, you go to the smallest of the smallest village, you will find the CPVC. The same thing here in Western part also. So it is not like that people are using CPVC only for the hot water application. Now people are using for the cold water applications. So now CPVC is a product for every home, I can say.

Even we got a good export order this year. We have now increased our focus on exports in a big way. And we've had a INR 12 crores export order and many smaller orders also. And we are working on a few big orders also in exports. Similarly, we had a lot of good work we did in the industrial piping segment also in the last...

And sir, export basically, of the 22,000 metric tons that we did, approx, how much volume would be from export, sir?

Export, it happened in July.

July at 50% we executed -- a single order was INR 12 crore. Out of that, 60% we executed in July and 40% we are going to execute in August. So these are the -- some trial orders are happening, and we will see and evaluate how it is going to work out. So based on that, we will decide our strategy for the export businesses. But so far, we were not giving focus into that direction because we were not feeling that the export carry a lot of share than the weight. So it will not be viable. But after entering into that market, we realize that our products are even viable for that market also. So this is the new avenues for us. So we are evaluating that thing. So I think we will see that how in future it is going to span out. But even if that export business can give us maybe INR 100 crore kind of opportunity over the next couple of years or 3 years, I think it's a big number for us. So we will keep evaluating that kind of option. So it's too early to say because these are the trial orders are happening. Few more countries, we started talking to them. And there also, we are going to execute some trial orders. So let's keep finger crossed. Things will -- how going to shape, but it's too early to say that how much opportunity will be there from the export. But yes, initial numbers are good and encouraging for us.

And sir, sorry, are the margins for export similar like our domestic margins? And which country are we exporting to, if you could share that?

So like country, I will not be able to mention that in con call. But margins are, yes, pretty more or less similar to the level what we are in the domestic market, maybe 1% or 2% here and there, not big difference.

Got it. And then last question from my side. Our free cash generation will be quite healthy this year onwards. You already are a net cash company. Do we have a specific dividend policy that you might want to put in place? Is there some thought around that going ahead?

So to be very frank, so far, we have not framed the dividend policy. But now looking to the future cash flow, yes, we are definitely. We have to work into that. And we have to see that how the best way we can deploy this cash flow. Because we are very clear that if we are having the opportunity, which can generate 15%, 20% kind of minimum ROC for new businesses, then only we'll keep deploying that cash flow. Otherwise, there is no point to deploy that cash flow, better to pay out to the shareholders. So we will definitely work out in the near term the dividend policy also. But right now, because we were in a CapEx cycle zone, so we will keep continuously putting money into the CapEx side. So we were not distributing the dividend more. But now looking to the cash flow, yes, we have to seriously look into that side also.

The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.

Congrats on a good set of performance. My first question is on the Adhesives business. If you can sort of share how have the gross margins trended in this business in this particular quarter?

So gross margin was around 1.5% lower than the earlier. So there was no much change. But gross margin on this 45 days of working is not the right parameter to watch. Because in this 45 days of working, even 1 product ratio gets disturbed here and there, then it can go up also, it can go down also. So I think the real number of gross margin, whether it is maintained, whether it is increased or it is down, will be evaluated in this current quarter, July, August and September. That will be the right number to evaluate because on 45 days basis, it is very difficult to say that how the growth was. Gap was almost 1%, 1.5% than the previous quarter. So no much gap, I can say, was there.

Sir, previous meaning is, are you referring to 4Q or on a Y-o-Y basis?

I'm referring to the Y-on-Y basis.

Okay. Okay. Sir, secondly if you can spend some time on in terms of how was the performance of your rex portfolio?

Rex business was comparatively slow in this quarter because project business were standstill. So -- but still, Rex team has done a good job, I can say, that in this environment also they were able to sell the products. But the kind of big-ticket projects normally we are used to work was missing in this quarter because governments were not having money to disburse the things. So because of that, big ticket projects were not there on the card. But now a lot of inquiries floating has started, a few orders have already come to us also. So hopefully, slowly and gradually, they will start coming back to the normalcy. So we are of the view that from October onward, they will be onto the regular kind of business. This quarter also may not be the same level of last year, a little bit lesser than the last year. But from the next quarter onwards, they should be coming back to the normalcy or maybe even a growth because a lot of inquiries are there in pipeline, so it depends how many we are able to close that thing.

And the last question was on your other expenditure. So there has been a sort of relative reduction of about 50-odd percent. If you can sort of quantify how much has been the savings on account of IPL? And essentially, what is the budget given that IPL is now supposed to be held in the third quarter.

So normally, we spend around INR 10 crore to INR 12 crore annually into the IPL event, and that amount is divided into 2 quarters, Q4 and Q1, because IPL start in March and it end in April end or May beginning. So normally, the expenditure is divided in 2 quarters. So you can say INR 5 crore, INR 5 crore each quarter. So if I can consider that mathematics in this quarter also, then the INR 5 crore kind of, you can say, can be saving into the IPL activity.

And are we going to spend this amount in the coming quarters, meaning in 3Q?

So IPL is there this year, but the budget will be very low compared to last year because we have negotiated hard with the IPL because this time the crowd will not be there. It will be a place, which will be playing into the stadiums. And more of the branding activity on the social media or maybe you can say, TV channels and all digital will be there, not on the ground side more. So we have negotiated hard. So I think this year budget will be not more than 50%, 60% of the last year budget.

The next question is from Tejal Shah from Reliance Nippon.

Just would like to understand a few things from you. If you could help us understand on the PEX pipes. How is that picking up? And on the RescueTape as well, and the launches from the advanced drainage solutions?

The PEX pipe is selling. I can tell you picking up is not so much, but it is much better because we are unable to make visits to the projects, we are unable to do regular marketing to go and meet customers, consultants and visit projects. So we -- whatever we have to do is to do our marketing sitting in the office, in the virtual way, and new products need people to be on the ground. But still, looking to the challenges of people not meeting customers and consultants, we are doing much better. Regarding the -- your next was...

RescueTape.

RescueTape, yes, RescueTape is again selling, but not to the volume it should because this also needs to make some plumber meets or carpenter, whatever the users' meets, educate them, educate the dealer how to educate their customers. And all these field activities, as you know, are almost at the standstill. All these businesses are done, I can tell you is, with the minimal field activity, maximum contacts and the maximum leverage of a brand. That is one of the key things which you should note that this leverage is the strength of the brand giving the reason. When this scheme of 800 people, 700 people in pipe and 800, 700 people in the adhesives go on the field, you will see much better results out of this. But yes, we are selling still at this level much better sales are coming for us. And the third thing...

Advanced drainage.

Advanced drainage solutions, yes?

Advanced drainage systems means which advanced drainage?

I don't know which...

Sir, of your company...

No, we have at present put that project on hold actually. Actually, ADS products, most of their products, the corrugated pipes and things which they make, we already have a company here. So we don't need -- we are only going to have a water recharge products from there. Again, these products needs groundwork. You cannot sell sitting in the office. So all these products, which you are seeing, are new technology, new products, which really need people on the field. And we cannot risk people to go to the sites or field at present. We don't allow them to move and meet people for their safety and for their health. So we'll get into these products once things normalize.

So basically, these are all the conceptual products. And conceptual products need a lot of interaction with the users. And in this environment, that is not going to happen. So because of that, we are not giving more time to that activity. And because right now their contribution to our sale is hardly anything, so we don't want to give our energy to that side, rather than focusing on our regular products, which are we can do sitting at home also. So that's the reason these activities are right now on standstill. And once this everything will normalize, then we will again start doing that activity.

But I can tell you that even with the minimal moment and the minimal context, the way the brand has performed and the way the distributors, dealers and the contacts and the team has done in the virtual way, and the method of working has changed totally, even your method has changed, maybe most of you must be sitting at home and taking this con calls. We have done excellently by the way. It is -- I am proud of the brand and the teams and the way they have communicated. We have done excellently well, and we are doing much -- excellently much better in this time. And in the coming months, you'll see the results once this thing is on the ground, it is going to be much better off. You can just imagine.

Sir, we can see ideally some incremental sales coming back from next year? Or would that be right to assume?

Let's see. You or I don't know when this vaccine is going to come. What is the shape of this pandemic. A lot of new things come. Somebody says, there would be a second wave, third wave, fourth wave. Things will settle. So it is a scenario where you live by the day, you work by the month and you live by the quarter. But our efforts are completely in there, and our soul and heart is completely in there. And I think we are the most safest company because we have removed a lot of challenges of debt and a lot of other things, which you can see from our balance sheet. But we are predicting -- we are in an era where even -- there is nothing. Even the best of the best developed countries cannot make any prediction. So we are much, much behind them.

Right. And sir, I wanted to understand, on the Odisha plant, how much would be the CapEx allocated for that? And while you highlighted that it will likely to come in next fiscal, which quarter can we expect that to get started?

See, things move the way things are moving, but the pace will be slow because of all these challenges. State governments play a role on allowing things, not allowing. But at present, if you -- the part of CapEx only would be done in this year, around INR 20 crores, INR 25 crores on the construction side. And total CapEx, as our CFO, Savlani sahib had told, will be INR 70 to INR 100 crores.

No, no, no. It's INR 50 crores.

INR 50 crores this, but it will take at least 2 fiscal -- 2 years.

For this year, we will be spending 50% because building will be ready by this year, and the machines and all installation will take place in Q1. So we are right now working that Q2 should be operational.

And land, you should make a note, we have already paid off the land, which is already incurred.

Right. So how much will be the total CapEx just for this Odisha plant?

INR 50 crores.

INR 50 crores.

INR 50 crores. Okay. And sir, just one more thing that if you could help me understand the revenue mix of the Adhesives business, if you could highlight on that?

We don't share individual numbers of the categories.

Okay. And sir, just one last thing from my side. While we've acquired lands in Hosur and Sangli and Ahmedabad, what is our eventual plan for that? Do we plan to add any extrusion pipes on the Rex side?

So like this is the policy of our company that whenever adjacent land is available, we always try to capture that because getting the adjacent land is always a challenge. Then if any business starts growing, at that time, if you don't have a land adjacent, then you have to go to the new place. And handling a multiple plant is another challenge. So that is the policy of the company that whenever adjacent land is available, we don't bother whether it's a dead investment or not, but we acquire that land. So like Ahmedabad, we added the land; Hosur, we added the land; Sangli, we added land. This -- Ghiloth, we have added the land. And another location, I missed. 5 location, we have added the land in last year. So we keep buying the lands adjustment to our plant, so that future expansion will be very easy for us. We don't want to put money immediate basis. But just by acquiring land, we are safe at least though. Any future expansion will come, we can quickly execute that thing. Today, I might be feeling being a finance person that it's a dead investment for me. But when actually need comes, your project will be very fast if you have the adjacent land available to you. And overhead will be very, very less, recurring overhead, compared to having a separate plant. So this is the policy that we keep adding the land, which -- whenever it is available adjacent to our plant.

Sir, when could we see extruders at the Rex plant?

Already there. Extruders are already there. We already installed.

At all the...

Yes, yes, yes. We have already added in Ghiloth, we already added in Hosur. Already sale has started from that location.

Which extruders are you talking of?

The Rex products.

The Rex products are already there.

Sir, at the Sangli plant?

Yes, yes, that -- I told you that we have already added the double-wall corrugated extrusion to all the 3 locations, Ghiloth, then Hosur and then Sitarganj. These are the 3 locations we have added the new machine over then, and these all the location it is operational.

Sir, when was this added?

Last year.

These were done last year.

Last year. And that is why you see the last year our CapEx was very high because we spend sizable money into the Rex-related products expansion. So the real benefit of that investment you will see in the coming quarters because now we will be saving a huge money into the logistics side because Rex products are very, very large in dia. So then the logistic cost is in the range of between 8% to 14%. The real benefit of that will come in the coming quarter by way of expansion in margin.

Sir, is it there at the Sangli plant as well?

Yes, Sangli was already there. Sangli already, it was there. So we have not added to Sangli. We have added to the other places. Because there, we can save the logistic cost. Sangli, anyway, the plant was there, the machines were there.

We'll be able to take one last question. We take the last question from the line of Deepa Rani from Pari Washington.

Am I audible?

Yes.

First of all, congratulations for the entire team of Astral for putting up this kind of numbers. I just wanted to have one answer. Last call, I remember you mentioned that Astral is working towards unfolding a new strategy towards pipes. So you said you'll provide some color in the next call. So can I have some color on that?

Unfolding strategy in Pipe?

I don't remember what kind of conversion you are referring. Sorry, I don't remember any such kind of conversion we have done. Can you just highlight?

No, no. Last time when Sandeep was mentioning that Astral is working towards something big in terms of strategy.

We are working on a few things in the IT-based programs, but we cannot declare at present due to the confidentiality. We'll let you know once it is fully operational.

Yes. Okay. And then I have one more question. Since we are facing frequent lockdowns in several parts of the country on and -- it's been on and off. Are you still faring any issues in terms of logistics?

As far as logistics are concerned, I think we have not faced any issue. It is going smooth. Maybe sometimes, the delivery time is more, but we don't face any logistic issues.

See, the beauty of Astral is that we have multi-locational plants, we have multi-locational depots. So even if somewhere some disturbance is coming, we are supporting from the nearest location. So that way our distributors are safe. They never ever being a short supply or any problem they are facing. The reason is very simple, that we have multi-location, not only at the plant level, but at the depot level also. So that is the biggest advantage that in this difficult time also we were able to capture the 90% of volume. The biggest strength was the multi-location. If you are working from 1 location or 2 location and all of sudden lockdown declared, then you will be handicapped. So in this environment, we don't bother about the logistic cost because in this environment, serving to our customer is more important than the logistic cost. So many times it has happened that some places, so many orders have come, we are unable to fulfill. So we were supporting that orders from the other locations also by incurring the additional logistic cost also.

Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

So we thank everyone, and we only -- the time is such that we just wish everyone to stay safe, healthy, take care of themselves and their families. And we would also take care of ourselves, our employees, their families, our families, and we work hard to see the company is moving ahead, and the economies and things are back on track, and we are back on the growth path as fast as we can. So we thank you very much for all the support you have given to Astral. And you will continue to give us the same support in this challenging time, which the whole human -- mankind is facing. So thank you very much. Thank you.

Thank you, everyone, for participating in this call. And thank you, Nehal, for hosting this call. And if any question is unanswered or any numbers which were not available to us, you are free to call me any time. I am sure you guys are having my mobile number with you. So you can contact me any time. Thank you very much.

Thanks. Thanks, everyone. Thank you.

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