Astral Limited (ASTRAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Astral Limited hosted by Spark Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Girish Choudhary from Spark Capital Advisors. Thank you, and over to you, sir.

Yes. Good evening, everyone. On behalf of Spark Capital Advisors, I welcome you all to the conference call of Astral Limited to discuss the Q2 FY '22 and first half FY '22 results. From the management side, we have Mr. Sandeep Engineer, Chairman and Managing Director; and Mr. Hiranand Savlani, Chief Financial Officer of the company. I now hand over to the management for opening remarks, post which we can open the floor for Q&A. Over to you, sir.

Thank you. Firstly, I take the opportunity to wish you all Happy Diwali and Happy New Year. As we all know that we are passing through a tough time of pandemic. Initially the COVID gave the challenges in the business and now the supply chain is equal challenges [ in this business ]. But under all the circumstances and challenges, I'm very happy to convey that the Astral team has done a remarkable job and delivered once again an excellent history-high quarter in top line. Our CFO, Mr. Hiranand bhai Savlani, will give details on all financial numbers post my initial remarks. To give you the brief of our expansion plans, which got delayed due to the closure and the ongoing challenges of COVID, are all going to start production in next few months. The much-awaited East plant is almost ready and the installation of machinery is going on. We are going to start the trial production in the month of December and the commercial production should be started -- will be started from January next fiscal -- next year. Our valve plant is ready and will start production from December. We need not require to take as most of the products have already been started and have been tested in our existing facility. As time goes, we will be adding a huge range of industrial plumbing valves in CPVC and PVC to be sized up till 12 inches, which would be the biggest valve ever produced in India in CPVC as well as PVC. Hosur plastic tank plant is complete, the machinery has been installed and the commercial production will start from the month of December. And the South states will be supplied water tanks -- plastic water storage tank from our Hosur plant December onwards. I also take the opportunity to brief you about the new launch, both in new launches in pipes and adhesives. In December, the company has planned to launch first time in India, a very ultra-modern state-of-art DWV, drain, waste and vent pipe system with noise insulation properties, which will be very cost effective compared to the existing polymers for drainage application. The key features are to save time and efforts for easier installation, giving noise insulation properties, will be maintenance free, will have high impact, improve occupational health and safety hazards, reduce risk of defects because of high impact strength, easy inspection for services and shock and vibration proof as well as will give a resistance to the -- UV resistance will be there in the polymer, which we will be using as a compound. In our Resinova, we have successfully launched a BondTite PRO epoxy in the Indian market. This is the first of its kind epoxy in the Indian market, and we are getting very encouraging response from the market. It is most advanced epoxy adhesive having 7x impact strength in comparison to standard epoxy adhesives and also it gives 20% high extra coverage. It is also having holding strength of 4 hours and gives better weather resistance. These properties make BondTite PRO an ideal product for bonding multiple product -- multiple substrates used for construction and maintenance purpose. Wood and plywood is the major component of making furniture since past several decades. And now the world has started moving to replace the wood with artificial boards to protect the forest and maintain the ecosystem. Plastic wood is also going to take a big shape in this sector. The major challenge is currently the world is facing to -- how to bond it properly and how to bond this artificial products which are made out of different materials and not wood. Even the traditional PVA in the rubber adhesives are not giving satisfactory results. WPC is winning battle in the same, but there is no specific adhesive is available in the Indian market. To under -- overcome this issue, first time in India, Resinova has launched and introduced 1 innovative product called Resiwood WPC Fix, which is ideal to bond WPC to WPC and other substrates like laminate and acrylic boards as well as WPC to other products like even metals and mortars or any other product to -- which has to be bonded with WPC. Looking to the excellent demand scenario in both businesses and pipes and adhesives, the company has decided to undertake a CapEx of INR 200 crores, which will be spent in FY '23 and FY '24. This includes a state-of-art plant of CPVC, PVC pipes and fittings at Telangana south, for which the company has already acquired a land measuring 98,970 square meters, which is almost equal to 10 lakh-plus square feet from Telangana government. We are planning to start production by FY '24 as our Hosur plant in the south will cross 80%-plus production utilization by FY '22. And this will be helping to grow and cover the south states in addition to the Hosur facilities which we have. Similarly, adhesive business, we are putting up one more adhesive plant in chemical zone at Dahej. The plant will be ready by FY '23 end and the production will be available by FY '24 onwards. The company is already having land measuring 67,000 square meters at Dahej. This -- till this production plant will be completed, the existing capacity will be substantially utilized in this 1.5 to 2 years. So we are preparing for additional capacity as the growth challenges -- growth is happening and the challenges will be faced in the future. So we will be answering most of your queries in your question-answer about our plans, about our CapEx, which we have told about the new product, about the product line, which we have almost announced to launch, the ceramic ware as well as the faucets, and we'll be covering that in more detail in our question-answer, and we'll give you a more clarity on the new product line, which we are going to enter and which we have -- already the planning is on and which we have announced to give the clarity as we have told that we'll give you complete clarity on this business in our con-call after the fiscal results. So we'll take up in the question-answers, and we'll brief you in detail on this subject. Till then, I will hand over to Hiranand bhai to go through the financials, and then we'll straightaway go to the question-answer session.

First of all, I want to thank all the participants for joining this earnings call. At the same time, we want to thank Spark Capital for hosting this con call. Wishing you all a very happy Diwali and Happy New Year. We hope we'll continue our growth journey in this new year and keep you all more wealthy and prosperous. As Sandeep bhai said, this quarter was once again a blockbuster history-high quarter in terms of growth the market dynamics are challenging. And within this challenging, we are giving lifetime high quarter, which keep our confidence more and more at a higher level. Now let's see the numbers, which is already there in the press release, but I want to take it to the few numbers, and then we'll highlight about this quarter. On a stand-alone basis, on the pipe business, the top line has grown up in this quarter by 60% and the similar growth was there in the half yearly, that was in the 61%. EBITDA has gone up by 47% on a quarter-on-quarter basis and a half yearly 67% compared to last year first half. As far as this adhesive is concerned, adhesive revenue has grown up by 36%. Little setback was there in the revenue because our U.K. plant was having little shortages of raw materials. So U.K. has grown up only 12%, while our Indian operation, Resinova, has grown up this quarter 47% growth. On a full year -- half yearly basis, U.K. has delivered 36% growth and Resinova has delivered a 70% growth. And we are continuing our guidance of closing INR 1,000 crore top line this year, and we are maintaining this guidance at this stage. Now coming to the consolidated number. An EBITDA margin of this adhesive business is maintained compared to last year Q2, that was last year was 15.1% and this year, it's 15% more or less same EBITDA percentage is maintained. On a half yearly basis, there is an improvement into the EBITDA margin. Last year, it was 13%, and this year, it is 14.5%. On a consolidated basis, if you see the number, the top line quarter-on-quarter basis has gone up by 54% on a higher -- on half yearly basis, it has gone up by 61%. Similarly, EBITDA has gone up by 48% on a quarter-on-quarter basis and on a half yearly basis, it has gone up by 72.5%. So with this, now I want to take you to the key highlights of this quarter. In spite of 20% volume growth, company was able to reduce its receivable days and control its working capital cycle. The inventory was high because of inflationary trend in the pricing of polymer, and we are expecting further price rise in the Q3. Hence, we have kept intentionally a high level of inventory, which we are confident that it will be reduced substantially by year-end. Because by year-end, we are expecting the polymer will start dropping the level. Demand scenarios excellent in both the segment that is in pipe and adhesives. Plastic storage tank is picking up momentum, month-on-month, will pick up further once our south operation will start from December. Polymer prices had an upward trend in October also. As you know, PVC price has gone up by INR 20 in the month of October itself. And we have passed on this to the market in October itself. Similarly, CPVC price rise also being taken by Astral in the month of October, which was very high price rise. From 1 October, we have taken 5% price rise and from 25th of October, we have taken another 7% price rise. So 12% price rise in the month of October in CPVC, which will improve our gross profit margin substantially in Q3. We have lost some gross profit margin in Q2 mainly because the pass-through took place in the CPVC with a lag. So because of that, we have to sacrifice the margin into the GP level. I'm sure you are keen to know about our new business vertical that is sanitary ware and the faucet business. We are working for the same in detail and will be ready with the plan by next con-call. We will let you know in detail about your question, which normally related to the products kind of products, SKUs, investment, outsourcing model or manufacturing plant, et cetera. All these questions will be answered in the next con-call till that time we request you to please have a patience and allow us to work on this plan. Housing side demand is good and booking numbers are coming robust from the developer, which indicate that piping demand will pick up further with some lag. CPVC demand was robust, mainly due to wood demand from housing side, and secondly, shift from PVC to CPVC due to narrow down of a gap between CPVC and the PVC pricing. There was a huge pressure on gross profit margin in last quarter, but we were able to maintain our EBITDA at 19%, which is the highest in industry. And we are expecting this pressure will substantially reduce in Q3 because we have already taken the price rise in PVC and CPVC in the month of October, as explained earlier. This is mainly because of pass-through took place with little lag. Similar pressure was in the adhesive business, too, there also pass-through took place with some lag. So because of that, GP was under pressure. But due to robust top line growth, we were able to maintain our EBITDA margin. Once chemical price will come down, we will see a good improvement in GP as well as EBITDA margin in adhesive business. Now I am opening up the floor for the Q&A session. Over to moderator.

[Operator Instructions] The first question is from the line of Nitin Jain from Fairview Equity Advisory.

I have just 1 question. So is it possible to quantify the inventory gain for the quarter? And what would be the price gap between PVC and CPVC now?

I don't think any inventory gain in this quarter. On the contrary, we might have lost some because of this late pass-through in CPVC, which I already explained that we have pass on 12% price rise in the month of October. So there is no scope for inventory gain in this quarter.

Okay. And post the price hike, what would be the price gap to PVC and CPVC?

So price gap, which was sizably narrowed down, so now it will further increase. But at the same time, PVC price has also equally gone up. So will not be that gap, more or less 2%, 3% gap might have been widened up with this price rise of PVC and CPVC.

The next question is from the line of Rahul Agarwal from Incred Capital.

Congratulations for the results. Sir, I had 3 questions. Firstly, to start with the entry into sanitary ware and faucet. Obviously, you explained that more details will come later. But just wanted to understand your thought process because the way I understand is the existing segments of pipes and adhesives were anyway growing. Next 5 years, you were expecting like 15% revenue CAGR and coupled with margin expansion, higher bottom line growth as well, right? So the aspiration of entering into a new segment is purely from a higher growth perspective? Or could you explain some thoughts, maybe Sandeep bhai can explain that what basically drives the entry into this segment? What is the need for the company to invest here right now? And what is the external environment telling you? That's my first question.

See, basically, you can say and you are correct that existing business has prospects and it is growing, and we are equally working on it. It is not that we have let down anything in that. When we were in pipe and when we entered the adhesive business, similar questions were raised, and we have proven ourselves to make headroom in that business, too, and at least make our mark in our adhesive business. Now we have a strong dealer network now, which is very active, almost close to 2 lakh active dealer network. And a huge network of distribution. We have almost -- with adhesive and with our pipe, we have crossed 12,000-plus distribution points. And the same is getting added up all the time. So this was the right product mix for Astral to get into to make it foray, use its brand. First is the strong brand equity holds with the users. Second, come out of the wall. We are behind the wall, now we'll be in front. And secondly, use this channel, which we have created, a very strong channel. And so this business was thought around, worked around for almost substantial time. It's not that overnight, we have just opened our eyes and said, "Come on run after this." More than 1.5 years, I've made my homework on this, done equal surveys of the market, our channel has been surveyed and then we have gone ahead with the decision. But still, we will not be rushing into anything. We don't want to rush and say a year, my cap is there. We will be making the product in the right mix, right pricing, right quality and then place it with the market. So the right plan of the product line, the ranges and -- plus the investment behind it, what we would be making, what will be outsourcing will 100% be given in total clarity, which Astral has always done with its investors as well as the analyst people and whoever needs this information will be completely disclosed, put in front of you, and then the business will be moving. But it has been -- this choice has been made with a lot of homework, not just like without doing any homework. And we, again, are there to make a right product and grow slowly. We don't want to benchmark ourselves against anyone and say that we would like to fight with anyone or become big, but we'll create a right impact in the market with this product. And it is going to give us a great leverage in the market.

Got it, sir. Sir, just to clarify, so this sanitary ware and facets, both will be metal part as well, right? I mean not only PVC fittings, right?

Metal, metal, metal.

Okay. Got it. Got it. Second question was on CapEx. So my sense is first half cash flow statement give the number of about INR 190 crores. I think this is substantially higher than what fiscal '22 guidance was, so just to understand what has drawn down this higher CapEx for first half, where have you spend this? And second is -- related question was, what is the revised number for this year? Because '23/'24, you already mentioned that you'll spend INR 200 crore. But I just wanted to understand this year CapEx? That's my second question.

So like this year, we have spent almost INR 40 crores to INR 50 crore for purchase of land. So like Telangana land was there, then we have purchased a land at Hosur. We have purchased the land at Rajasthan. We have purchased the land at Ahmadabad. Because all the lands which we have purchased except this Telangana, which were adjacent land to our existing plant. So that was the perfectly ideal for us to add the land bank because the kind of growth which we are seeing in the market and the opportunity which we can see clearly, the way unorganized players are getting affected and the way brand Astral is getting stronger and stronger day by day, that has given us the boost to acquire the adjacent land first, and then there is an additional land of -- to Telangana. So sizable amount, we have spent into that side. So because of that, I think CapEx has increased. And we will give you, again, the final figures with all this sanitary ware and all this investment because we have to keep in mind that the new business is also in mind. Like Sandeep bhai has said in the initial remarks also that we are coming up with the DWV also. So that product will be produced in Ahmadabad. So we needed additional land over there also. Plus, I'm very happy to say that we are also thinking to put a first state-of-art R&D facility. So far, whatever the CapEx Astral was doing or whatever the amount was spending, it was merged with the current CapEx and the expenditure were charged to the P&L for all this R&D-related activity. But now we are going to put up a separate R&D facility, which will be a state-of-art facility. And there, we are going to do R&D work for pipe as well as adhesives, and that facility will be separate from the plan. So there also, we are going to spend some money. So I think a lot of new plans are coming. So because of that, we have to spend a little more CapEx than originally planned. But with this additional CapEx, we are definitely going to give you additional revenue also and the additional growth also and additional new products also.

Sir, just to conclude on this, for fiscal '22, should we assume INR 200 crores as full year CapEx or it will be higher?

That depends how this sanitary ware and faucet plant is working out because there, we are still working. So once that amount will be freezed, I think that time will be the right time to tell you what CapEx will be there. But Initially, we have worked out that it should be somewhere around INR 200 crore to INR 250 crore kind of CapEx.

Right. And you said INR 200 crores will be spent on the new -- for expansion of pipes and adhesives in fiscal '23-'24. Just wanted to know what kind of volume capacity will be added in pipes and adhesives separately, if you could just give that number? And what kind of additional sales can we get from this INR 200 crores CapEx?

So like the pipe, we are targeting to add 30,000 metric tons -- 30,000 to 35,000 metric ton capacity at Telangana. And adhesive, I don't have a capacity number to be very frank, but that will generate additional close to about 6x revenue than what we are going to spend the money.

Yes. But in adhesive, always the capacities are very high. Because the packings are very low, and you cannot bring a small reactor today, then when it grows, you bring a bigger reactor, then bigger and then bigger. Always -- see, in adhesives, you will see that the capacity looks very high because the reactor size are very high and the reactors cannot be replaced year-on-year or 2 years, 3 years. Pipes, there are excluders which are added in the lines and then the capacity comes. So both businesses are different ways of calculating the capacity. Adhesives, I think, the right capacity can be calculated on your packing lines because you can make enough product, but how fast and how speed you patch the product is very important because it is sold in small packs. It is sold in tubes. It is sold in 100 ml, 200 ml, 500 ml packs. So capacity-wise, adhesive will always look a bigger capacity. Utilization-wise, it will look like you are utilizing this much. But ultimately, you have to see how much the guy is growing in volume terms. That is very important.

But the base part of the adhesive is that the asset turn is very high. So that is to give the comfort to the return point of view.

And secondly, the addition of capacities cycles are very long. You don't need to keep adding and investing so much money. Once a proper reactor and system is placed just for to keep adding the packing machines and that only keeps on increasing the capacity. So that CapEx, after a proper CapEx is done, is much less and substantially very low.

Sir, how much are you spending on adhesives capacity?

At present, not much because we will be going one by one in this Dahej, and it will be a phase wise. So first phase, we'll be adding around INR 40 crores to INR 50 crores, not more than that.

And land is already .

Land we are from .

[Operator Instructions] The next question is from the line of Sonali Salgaonkar from Jefferies India.

Sir, my first question is regarding the demand trends in October. You did mention that housing demand is quite strong. Would you be able to quantify the volume growth in October?

I don't have a handy number of volume, but it should be a double digit and the value growth was roughly about 50% kind of level, 5-0, 50.

This is the consolidated revenue, right, sir?

Yes. Consolidated only, consolidated only.

Got it. Sir, my second question is regarding the PVC scenario globally. You did mention that you expect the uptrend in PVC to continue even in the further 2 quarters. But just wanted to understand broadly is there any supply constraint globally? And just another part to this question is what is the current capacity utilization that Astral is operating in the pipes division?

So like -- Sonali, that we have not stated that this trend will continue for 2 quarters. We have clearly mentioned in the press release that Q3, this trend will continue because we are not sure whether it will continue in Q4 or not. As per today's situation, still, there is a short supply globally. So because of that, it looks that it can be extended in Q4 also. But at least for Q3, we have a clear visibility. The kind of new booking everyone has done for the import that is at a higher price. So that all material will land in India in the month of December. So till December, we have a very clear idea about the price rise continue. But how it is going to be further extended, that will be known only 1 month or 2 months down the line. But as of today, still short supply is going on. So because of that, we don't see any easeness in the pricing in PVC. Coming to your second question of capacity utilization. I think overall capacity utilization of a company as a whole is roughly about 61%, 62% at Q2 level and which will further accelerate in the coming quarter in Q3 and Q4 because CPVC demand is robust. But at the same time, there is a constraint of supply going on. So far touchwood Astral is able to manage that. But otherwise, there is a challenge of getting the raw material also in CPVC as well as PVC. But somehow we are able to manage because of our long relationship with the supplier.

Understand, sir. Sir, lastly, just 1 confirmation. You said CapEx INR 200 crores in FY '23 and '24, we mean per annum INR 200 crores, right?

No, no, no. INR 200 crore for 2 years for this adhesive and the pipe and plus, there will be a sanitary ware and faucet and plus anything add will be added by Astral if the new product launches will be there, which we can't disclose at this point of time because a lot of things are in pipeline, which we may launch. If we may launch the new product and in that case, there will be additional CapEx. Like DWC we have introduced -- the first question that this year, the CapEx is more? Because we are going to launch these new products and which is one of the best products available in the market when we are going to launch next month.

The next question is from the line of Bharat Shah ASK Investment Managers.

Continued excellence. Just a broader, longer term, wanted to understand your mind. Is it appears it is to be I think as a country, as an economy, we are poised for a very different kind of growth profile than what it has been so far? And relatively, infrastructure and other CapEx-related activity also should be picking up significantly rather than very and slow strength we have seen for the last several years. So given all of that, do we believe looking at our product portfolio and our entrepreneurial ability to keep identifying new opportunities, as we did time to time from pipes to adhesive and then to the tanks and now looking at the for sanitary ware activity. As we -- would it be fair to say probably, if we look at next 5 years, Astral is probably one of the best opportunities than at any other time in the past?

See Bharat bhai, exploring products, which have similarity in business and sales in the segment we are in the construction industry and the building industry, is always going on and opportunities come and go knock our doors, and we are always exploring. But whatever we have taken, if you have seen that pipe was our initial business, but adhesive as we took, we made it stable, we have put it on the path of growth and the systems have been in place. Similarly, now we have taken up to come into the faucets then, which also a lot of homework has been done before even we led the market in a large know at our internal levels at our management level and similar opportunities will always be continuously explored by Astral. And the leverage we will be using is 2 things. One is the strength of its brand and now the strength of its reach in the market, through dealer network, one; through distribution network and the strongest program and connect with the users. So you are, in a sense, right, that this process of exploring and getting into newer opportunities is there and it will continue. And it's too early to say that what is going to unfold in these 5 years or in the near future or the longer future.

No. My question was in the -- if you look at the last several years, we have grown because we have been more agilely, understanding and grabbing the opportunity despite the fact that external advancement is not being particularly supportive. My conjecture is that the external environment, the economy, the businesses and infrastructure, in particular, I probably -- we are going to see a remarkable change in the next 5 years than what we have seen so far. Therefore, what helped us to grow all along was our internal agility and capability and entrepreneurial ability to spot and fortify those opportunities. Now probably external environment also will aid to that strength, what is internally there. Therefore, would it be fair to assume or is it merely conjecture on my part that probably both externality and internality are at a happy kind of a holy union now?

Yes, you are very correct. And you are absolutely correct that the external environment is very conducive now for growth and the internal capabilities which we have created all around from -- right from the manpower, to the managerial levels, to the management level, to the senior levels and made our home and our in-house corrections and put things in the right place is going to help us the way the external things are moving in a positive direction. So you are absolutely correct. These 5 years are going to be the great growth drivers from both ends, and it will drive Astral to new heights. You are absolutely correct. And thank you for this understanding of demand.

Let me add Bharat bhai what Sandeep bhai has said. I think I'm the most bullish person in the history of Astral in this today's environment. I've been working with Astral for almost 2003, okay? The kind of environment, which we are seeing for the sector, it is really remarkable changes happening at the ground level. So we are very, very bullish internally. The second thing is that Sandeep bhai rightly said that the team, I think Astral was not having too many senior management people within the team. Now Astral has added the people from maybe from IIM or maybe having a good companies in India, peoples are waiting to join Astral. So biggest advantage Astral is enjoying that we are adding the strong team with the Astral. So that is going to take the Astral to the next level. Third thing is, I think, the biggest thing which we have done so far is the technology support. So we were not using too much of technology support in the business. But the way now we are using the technological support in the system and the way things are moving in the automized concept that I think going to take the business to the next level. Because with this technology only, you can take the higher volumes without getting more pains. So which is what I think Astral is doing today, all our distributors need not to call even our head office, sitting in their cabin, sitting in their office, sitting in their shop, they can do everything they want to do with Astral. So that is the biggest achievement Astral has done in this last 3 years, I can say. So that is the biggest advantage I'm seeing today. And that another thing which Sandeep bhai has rightly pointed out, the connect to the end user, that is our plumber, carpenter. We are connecting to each and every plumber with our system, okay? So today, in our loyalty program, each and every plumber is connected. I think that is the biggest achievement we have done in this last 2, 2.5 years. So we have developed so much of softwares and technology front that today, we are connected with all our channel partners, dealers, distributors, plumbers, everybody. So that is going to give us the edge in the industry, and that is going to give us a leap to grow at a faster run rate without taking too much of pain. So I think we are very, very positive about this current scenario.

Therefore, will it be fair to say that if you look at a base which has now become higher over last 5 years, if you look at next 5 years, even on these increased base, given the fact that we have -- we are adding new lines of activity, external environment is supportive and internally, a number of improvements have occurred in the character of organization and in the business, our growth rate even on these larger base should exceed compared to what we have done over the last 5 years?

I think you are rightly understood, Bharat bhai. And officially, where we have communicated in our last presentation that Astral is targeting to double its top line in next 5 years. Conservatively, we have given the guidance also. So we are quite confident that we will be doing much, much better in this environment and that we already communicated in our presentations also. And with this new addition of the products, there are high probability that we may cross that also.

Okay, fantastic. And just one last point, not to sound as a spoilsport, but actually to point out factual part. Hira bhai, you mentioned that this has been a blockbuster quarter. Indeed, it has been. You also said it's historically the highest. In turnover, yes, it is. But in profit, I think historically highest has been fourth quarter of the last year. So I don't intend to be a spoilsport, but I just wanted to factually put the point on the table.

I will accept it very well, whatever you are communicating. But Bharat bhai, at the same time, we cannot see only a particular quarter profitability because we have already clarified that pass-through took place very late in this industry. In the month of October alone, we have passed on 12% price rise in CPVC and equally close to about 12% to 13% price rise has taken place in the PVC also. So you wait for the Q3 number, and I'm sure I will prove myself that what we are communicating, we are communicating always transparently and positively to the market.

No, no. That there is not doubt. Congratulations. I was just pulling your legs, nothing else.

No issue. You have a full right. You are our oldest shareholder. So you have a full rights to do that part. Thank you. Thank you.

Heartly congratulations to entire Astral team.

Thank you, sir. Thank you.

Thank you.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sandeep bhai, if you can just talk about the overall opportunity from the overall valve space that you're talking about and your new capacity coming in, how big is the opportunity, what are the kind of asset turns, ROCs there? If you can just throw some light, it will be helpful, sir?

In the pipe and adhesive both or you just mean the valve?

Valve, valve.

In the valve, sir. In the valves.

Valve, valve. Okay, valve. Sorry. The valve has 2 opportunities. One is the industry, it's a huge opportunity because India -- industry -- in industry, the valves are mostly imported. Nobody makes CPVC and PVC industrial valves in India to the quality which industry needs. Today, also, we sell valves in industry, which are imported from USA. There are 2 global giants in the world, Spears and George Fischer, who rule in the valve market. So there is a great opportunity in the industry segment. And as you know, industry is growing, and especially the water treatment industry is growing very fast, which needs many, many numbers of these different valves. Second, when you go to the plumbing segment, absolutely, it is growing. So there has been -- there is a huge demand of valves and people -- above 2 inches mostly use metal valves. So it's a good quality of valve, we can also replace to plastic valves in plumbing in the higher sizes. So the opportunity of valve has -- is great in numbers and in growth. The best thing in the valve is the margins are very good one. And second, it is a tough product to make. But valve -- when you have to make a valve for the industry, it is a tough product to make, and it is a tough product to succeed because the valve has moving parts. And if you don't make it rightly with the right choice of material, the failure is very high. So valve has a great opportunity. .

And sir, will it be fair to assume that 15% of the overall pipe market could be these valves, which could be addressable by you all?

Yes, it would be around that, 10% to 15%.

Okay. Okay. And sir, my -- sorry.

The higher sizes are also moving with the smaller sizes.

Okay. Okay. Okay. And sir, my second question is, if you look at your -- because this quarter doesn't have any inventory gain as Hiranand sir, mentioned, and it may actually have some inventory losses. Despite that, if you look at your pipe EBITDA per kg into that INR 42, INR 43 per kg. Now if you look precrisis, this number used to be much lower in terms of EBITDA per kg. So now the base seems to have moved drastically. If you can just talk about the sustainance of this and the competitive scenario, which has helped you this? If you can just throw some light will be helpful, sir.

I think the sustainability will be arrived when the stability comes in the polymer price. Till the polymer price is not stable, it is very difficult to say what will be the sustainable level. These kind of margins are very high margins, which we have communicated in past also. But market is giving opportunity to us and our economy of scale is giving us the advantage. So because of that, we are able to get the advantage out of that. But when the polymer price will stable down and the availability will be freely available all the polymer, then at that stage will be the right time to arrive what will be the right number. But at this stage, I think still it will be high only because still the supply constraints are going on. And polymer prices are not coming down. So because of that, there are high probability that these kind of high margins will be maintained.

The next question is from the line of Kunal Lakhan from CLSA.

Sir, you mentioned that you've already taken price hikes of 12% and still expect polymer prices to go up. So have you taken enough sufficient price hike or because of the polymer price going up will consider further price hikes in November and December?

No. Like whatever raw material price has taken place, we have completely passed on to the market. So we are not going to take new price rise unless there is a price rise in the polymer. If the raw material price will go further from here, we will take the further price rise. Otherwise, whatever so far, the raw material price has increased, we have passed on to the market.

Sure. And the fact that your volume growth remained robust in October as well, the market is absorbing the price hike, right?

Yes.

Yes, yes, definitely. The Market is absorbing the price hike.

So just a related question on that would be, what is the price gap between, say, organized players and unorganized players today? Is it widened, has it narrowed?

See, price gap is not a question how much unorganized player is able to make and sell. Because of all these cycles, the availability of raw material, the price rise, all these issues have almost, you can say, that the unorganized players are in a very bad shape. Their working capital cycles have all been hay-wired. So it is the organized sector, which is being now growing. And there is some price gap, but actually, they are paying more to get the material and selling at a lower price. So again, you can understand what challenges they are facing. So now the question of this unorganized sector price gap is almost gone. Market is not even talking about it.

So let me add what Sandeep bhai has said that today, most of the time, if you see in last 3, 4 months, there is a gray market premium on polymer price, okay? So normally, the unorganized player has to source from the traders only, majority of the unorganized players. Few may be sourcing from the Reliance or maybe or something. So if there is a gray market premium going on on the polymer, and they have to source from them, then how can be they cheaper than us? It is very, very difficult for it to be cheaper than us. So this is a very, very difficult time for the unorganized player to fight with the organized player. And that is why you are seeing that all the organized players are doing good in the market and everyone is delivering the growth.

Okay. Great. That's good to know. Also just clarifying one thing. You said in your earlier comment that the gap between PVC and CPVC is about 2% to 3%. Is that correct?

No, no, no. I say that whatever the gap was there, it might have been reduced by a couple of percentage because PVC price has gone up by almost 10% kind of level and CPVC price has gone up by 12%. So to that way, a couple of percentage gap has reduced. That's what I said.

Gap is reduced somewhat, but not 2%, 3%.

Not 2%, 3%. Otherwise, everyone will buy CPVC only.

Yes. Correct. That's what I thought, yes. Correct, correct. And my last question is on -- sir, in your comment, you mentioned that in the adhesive segment, there was a shortage of raw materials in the U.K. plant, has the issue resolved or it's still going on?

Yes, yes. Right now, this has resolved, so we are expecting that this quarter should be better for them.

The next question is from the line of Rajesh Ravi from HDFC Securities.

My question -- first of all, congrats on a great set of numbers. And my question pertains to, first housekeeping, how much is the production number for Q2, pipe production number?

Oh my God, I don't have a healthy number, but you can call me separately, I will give you. It was roughly about, let me check if I have the number with me.

And second is how much would be the agri contribution in the...

39,000 something was there -- 39,500 or something like that, 39,500 or 40,000, something like that.

Okay, sir. I'll check that separately. Second is how much would be the agri Irrigation segment contribution to your pipes revenue, sir, broadly even if .

Hardly anything. We are not in agriculture business much. Even if little bit agriculture pipe, which we are selling, majority of them is going to the plumbing side.

Right, right. And that is reflecting...

[indiscernible] agri, but they are used in the pumping application.

Okay. Sir, this INR 200 crore CapEx Telangana project FY '24, you -- have you -- this is all encompassing in terms of the land cost is also included in that? Or -- the -- as you mentioned, you have incurred INR 40-odd crores to the land...

No, no, no. I think you are misunderstood. INR 200 crores include adhesive CapEx also. It is not only Telangana.

And land is not included. Land, we already have paid off.

Sure. So for Telangana project, would be -- for the pipes and fittings would be what size?

So it should be initially to start, which should be somewhere around 30,000, 35,000 metric ton and then later stage, we will add. Normally, what happened that we make the plant of a bigger size, okay? And machinery and all, we put as per the requirement. So like in south also, we started with 15,000 or so, then we added. Today, we are at 35,000, 40,000 in south. Similarly, -- I'm talking about Hosur. Similarly, we did in Ghiloth also, Rajasthan, that we started with a small capacity 20,000, but the plant was bigger. So because of that, now we have added the machine over there. So we are increasing the capacity over there. Like similar model, we will follow in Telangana also. Initially will be 25,000, 30,000 and then at a later stage, we can add another similar capacity. So originally, our plan will take care of 50,000 to 60,000 metric ton capacity, minimum. But machinery will be in a phased manner.

Right, right. So in FY '24, you would start off with 25,000 ton capacity and subsequently in the next few years, you will double the capacity over there?

Perfect. Perfect.

Okay. And for this year, excluding the bathware, which you are still to formalize the CapEx, what is the total CapEx one should look at?

I think this year should be somewhere around INR 250 crores or something like that.

Okay. And the bathware would we over and about that when as and when it starts. And for next year...

And this include our new launch also, which is going to be in the next month. That is the altogether, these products...

Right. So for that CapEx should have already been done in the first half, INR 190 crores?

Yes, yes, yes. We have already done the CapEx for that product.

Right, right. So INR 250-odd crores for this year and next 2 years would be spread by INR 200 crores spread over 2 years and normal maintenance and additional whatever expansions you announce going forward?

Correct. Because we deviated from our original guidance because this INR 40 crores, INR 50 crores additional we spend in the land, which we added at every location and plus this new product.

Okay. Great, sir. And lastly, on the margins, you mentioned that you...

Mr. Ravi, may we request that you return to the queue.

Sure. I'll just put in question and move on. Sir, this price increase in CPVC and PVC, which you have taken in this month, October. So are the margins now for this quarter, this is the current costing at similar level of the September quarter?

It should be better than September.

It will be better than your September quarter margin?

Yes. Because we lost some inventory loss because of the pass-through of CPVC took place very late.

Yes, yes. That is why I asked this. So you see margin expansions in the third quarter Q-on-Q. Great, sir, I'll come back in queue. All the best.

Thank you. Thank you, sir.

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

Congrats on great set of numbers. Sir, my first question was related to inventory at the channels. How are you seeing the inventory at the channel? And is there any resistance from distributors for picking up inventory given that prices are almost at an all-time high?

So I think if that is the case, we can't grow because we have grown 20% volume. So that clearly suggests that there is no resistance at the distributor level or a dealer level. But yes, there is always a cautious view at the distributor and dealer level. Whenever we do the announcement of price rise, at that point of time, they pick up a sizable quantity. And when there is a fear sector in the market, they sometimes reduce their uptake also. But underlying current is so strong from the demand point of view that today, even after so much of price rise, distributors and dealers are sitting with a very lean inventory. They are not sitting with a higher inventory. So we don't see any problem into the system because underlying current is very positive. So they have no choice but to buy a prevailing price because they are getting the same price from the market. So I don't think any problem into the demand scenario in the market.

And above all, with this, if they are holding it, our working capital cycle has improved. So obviously, they are further selling the product. The receivables are also very much under control. So which is -- there's no holding in the channel as of now.

No, right. And secondly, sir, any clarity with regards to implementation. We saw some impact of -- I mean, we've got a hold from Kerala High Court. But apart from that, are other geographies implementing it? And are you seeing some also because of that? Or this is the working capital issues and availability issues shift that you're currently seeing?

It will take a few more months to get into this. And at present even I think this coming out of this will take a few months. So it will happen. When it happens, it will help the organized players in a big way. It will happen at some point.

So we have to wait for some more time to have a more clarity because you don't know and I don't know how the courts start taking the decisions and how much time they are going to take. It is very difficult to give the timeline. But one thing is sure that government has taken the initiative so they will complete.

But looking to the polymer scenario and all the market challenges with the smaller players, the government is going to make it happen, but will take some time. And already, there is a sub judice matter on it. So it will take some time to get that implemented.

Got that, sir. And sir, similar to valves opportunity size that you discussed, could you also discuss about your other new product launch, which will be happening from next month that you said...

We cannot disclose. When it is launched, in the next call, we'll obviously discuss it.

Sure.

Let us first launch this product and then at that stage, we will communicate to you. But I can tell you this is a very big opportunity.

But at the launch state, we'll always pass a note to the stock exchange and also pass the detailed notes to all our investors and all our analysts at a large. So you'll get all the details at that stage.

The next question is from the line of Nikhil Agarwal from VT Capital.

Sir, could you help you with some growth revenue guidance and margin guidance for FY '22 and '23?

I think this is a very difficult time to give you the guidance about margin and all those things. So we don't know what is going to be the scenario at a globe level. One side, the polymer prices are going up; second side, supply constants are going on in the system. So under this difficult time -- chemical prices are going hay vague. So under this situation, I think it is very difficult for us to give you a guidance for the next year. Let first the things settle down. Afterwards, we are the most vocal company. So we will definitely come forward and give you the guidance also.

Okay. Okay, sir, no issues. And sir, like this, CPVC prices have been on a rise now in PVC as well. So do you see some demand being shifted to HDP where Astral does not how much of a presence?

Which -- shift to what?

HDP.

No, not at all.

We don't think so. And the majority of the product where HDP there, we agree and all, we are not there. So I don't think it is going to affect...

No. Plumbing-wise, it won't ever shift, so not at all.

Okay, sir. And So could you help me with the...

On the contrary, we are thinking positively that if this is going to be a scenario, CPVC will be more attractive, so Astral will be taking more advantage out of that.

I didn't get you. I didn't get the point. Hello?

I'm telling you that if this will be the scenario, then the CPVC product will be more attractive to the market.

If PVC prices would keep on going high, CPVC's demand would go more and more higher, and that will help us to sell more CPVC and grow our CPVC base, which is obviously growing much faster than the PVC base for us.

Okay. Okay, sir. And sir, could you help me with the current prices of CPVC and PVC business? And how much of it was at the end of the quarter?

[indiscernible] current price and all, we cannot discuss that.

PVC, I think, it is already there in the public domain. You can go to the Reliance website, you will get every price rise, every day-wise price rise. So today, it's roughly about INR 160 per kg is going on. CPVC depend on the every company sourcing from different places. So everyone has a different pricing. So it is very difficult for us to communicate our pricing to the market.

Okay. Okay. Sir, just one last question. This rise -- pricing rise in the CPVC reagent prices. So as you said, like the PVC price will rise, so it's better for you because the demand will shift to CPVC. So with the pricing rise in CPVC prices in the last few weeks, do you see the demand going back to PVC? And then impact on your margins, again?

Actually, PVC has grown much higher than CPVC.

CPVC price rise had taken place at a very small level compared to the PVC price rise? So even if the CPVC will go further from here, it is not going to affect much to that demand. Because CPVC price rise had not taken place at all in India.

And actually, if you go with this fiscal, this is the first time this price rise has been done and correction has been made in CPVC, whereas previous several occasions in several months, every month 2 or 3 times the PVC price rise correction has happened.

So do you have any long-term contracts with the plastic supplier or do you buy...

We not disclose, but we are in a very safe position of raw material, which I can tell you, but what contracts which have, our pricing are all confidential. And has to be kept confidential.

As Hiranand bhai said that we are keeping our fingers crossed, and we are blessed that we are having relationships and -- with the suppliers who are supporting us in both PVC and CPVC.

The next question is from the line of Saumil Mehta from Kotak Life Insurance.

So if I look at the Astral journey over the last many years, we have entered into categories which are more polymer or at least strong on chemistry, which has been a core strength. Now base adhesives or tanks and especially categories where there is a large unorganized present as well. Now if I look at the new category, which you are going to enter, does it mean that there is a change in D&A and will be now more open to other building material categories which might not be polymer based or something which is strong on chemistry, but some other factors?

No. See, we have communicated very clearly in many of our conversion in previous con calls that Astral is very clear as far as the growth journey is concerned, we want to focus to leverage our brand and to leverage our network. You look at any product which Astral is entering, 2 things we are seeing very clearly. One is leveraging the brand Astral; secondly, leveraging our network. So similar strategy we are following into the faucet and sanitary ware also where we are going to strengthen up our brand and secondly, to leverage our network, which is having a sizeable network with us. So because of that, we are entering into that business. We are not deviating anything our strategy wise. Five year before also we have communicated same thing. You can go back and see our earlier communication, our interviews, our con-calls, every time we have communicated 1 clear thing that we want to go ahead with this similar strategy, and we are continuing with that only.

But to add what I understood about things is that, yes, we would be open to keep on exploring where there is technology, there is a chance of growth and where there is usage of our brand, but, yes, technology-wise, we'll be playing a big role to see that we enter into a product line where we use our expertise, and we would remain in the product line which covers these 4 walls. So strategies are made, will be made and will be disclosed as the time comes. But here, we have one more product line which we have to work on.

Sure. And sir, in terms of any update on tanks business, it's been a few quarters, we have entered any -- in terms of from where the...

Tanks is doing absolutely well, the way we imagine and the way things are happening. But we are not going with any job work from anyone, from many of the smaller players. Astral is building its own capacities at different locations. So that is taking some time. As we first started off with Aurangabad, then the Ahmadabad plant came into production, then now last 1 month, over 1 month, the Ghiloth plant has come into production, giving north and now the south plant will come into production. And after South, the east plant will come into production. So Astral is growing, people -- to look a little slower at the base, but we are going with a strong foundation of giving the product manufactured within our own premises. So we are not compromising on quality of the product and giving the best product to the market and market has really appreciated the Astral tanks. And we have a unique technology of patent, which we have brought for the first time in tanks. Inner layer is made with a special compound, which has -- which is like -- which has some copper inside. And as India, the copper vessel, when the water is stored, it keeps the hygiene of the water intact. So Astral has brought this new technology in the tank and which is for the first time this technology has come in the inner layer where the water is in contact with the -- in the tank with the layer.

Sure. And my last question is in terms of there seems to be at least the expectation was there is going to be a significant pickup in the CapEx activity both at the central and the state level. Where are we in terms of DWC business or maybe also the Jal Jeevan Mission, are significant orders coming back? That's my last question.

DWC, we are a little low. As you knew that the CapEx cycles of government were on the lower end. But last few months, it has picked up, and we are doing excellently well on the DWC and the and other products, which are with the infrastructure. So we are doing very well in that. And secondly, with the Jal Jeevan Mission, we have got a lot of approvals now and we have started supplying HDPE to Jal Jeevan Missions in some projects. But again, Astral undertakes the government projects, infrastructure projects, either through distribution to secure its own finances or to supply to the contractors where the finance is very safe or else takes the bank guarantees or finance reassurance and supply. We can go faster, but we are keeping 2 things in mind: growth, value and at the same time, securing our payments with the government contractors, government bodies and giving with products. We don't want to break our finance cycle and rush into any business.

The next question is from the line of Securities.

Congrats on great set of numbers. First question is on organized and unorganized. So I just want to see the gap. I believe this quarter is very good for organized sector while unorganized sector continue to face issues. So can you throw some light on that?

See, basically, no unorganized sector or no organized sector can be wiped out. And we or nobody is here to wipe off anyone. But as it is very crystal clear, you can say, and that the polymers have gone very high, hay-wire, the supplies are in restrictions, the finance cycles are disturbed, the working capital cycles have gone into a spin. So obviously, the organized sector with stronger financial backups are gaining money. But I don't say that unorganized sector has been wiped off. So this is not -- and this is not what we wish and which would happen. So yes, it's obvious the cycles are clear and very transparent.

Again the similar question, if we look at it in the past couple of quarters, in fact the market happen in a big way, and the smaller player continue to disturb -- continue to get out from the market. So any -- and let's say any ballpark figure how much they can -- how much the share of unorganized can reduce going ahead, if you can throw some light on that?

See, somewhat the share may be taken, but nobody was disturbing each other. The brand was playing its own role and the unorganized players were playing its own role in the rural. But when you go to the urban cities of the B town, C towns, the organized, people are getting conscious about the qualities delivered. And people are getting more conscious about using the right mix of the product. So obviously, this is going to help the people who make the best of the product. And again, I'm telling you organize and unorganizing the plastic, especially business or any adhesive business, the supply chain is very important. The unorganized supply chain is only restricted to 1 state, 2 states, whereas we have a supply chain with a strong backup system throughout India. Elbow is elbow, tea is a tea. If it is available, it is your product, if it is not available, anything can be used. So your supply chain, how fast you supply, how fast you can give the product, how fast you can service the market, how rightly you service the market and the quality you give. Lot of things are happening, which is helping these companies who have location, plants and different locations and make the right product actually. We have to make the right product at the end.

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

Congratulations on the numbers, specifically on the volume growth. Sir, I failed to figure one particular variable. On the gross margin, you indicated that the pass-through happened with a lag. Sir, can you please explain this why this phenomena? Because as the industry always a pass-through has been pretty quickly, be it a fortnight or in a week. Is there any basic reason for this?

The basic thing was that we had some inventory, which was old, but some inventory, which was new. And I wanted to gain the markets very short. I wanted to get to the maximum level of the market and the retail chain. My expansion of retail chain and the market has substantially helped me. And it was -- the volumes which we were delivering the value, which we are delivery was a compromise a few numbers in the profit, but the game on the other hand was much higher. So either I could take the game to reach to the corner of India and to every builder of India, every retailer of India, every plumber or else to take that. And that has helped me and it is something which was strategically done to close the last quarter and then take this price tick.

So should one assume this as a short-term phenomena for market share gains? And is it...

It is not short term. There is nothing short term. Once the gain has happened, it's happened.

Okay. So -- but to get the gain...

Going forward [indiscernible] actually, everyone has rise on the price. So where obviously, there is -- again, there is no issue on that. If it is not that I only increased the price. Everyone has increased the price. But it's not a short-term gain. It's a gain where actually helped us to create in loads in many towns and many places in the retail chain. And it's never a short term because all these data, all these are connected to us. And this is really going to help us, and it's helping us today also actually.

Correct. That's useful. Sir, second question is you did touch upon availability for CPVC (sic) [ PVC ] and CPVC. Can you highlight what is the status over here? What I understand is CPVC availability is specifically is tight even for the larger players. Is there an accurate dearth of the material right now in the market? Are we better placed? Or how should one look at?

Yes. Again, I cannot comment on what the others are facing. It's not my job to comment on it. But as Hiranand bhai said that the relationships which we have and the relationships we have maintained and the amount of confidence we have, I cannot say confidence, amount of commitments we have from these relationships, we are on a safe track for the raw materials. But tomorrow after 3 months, I look, I see predicting today the future is the toughest call of this fiscal.

The next question is from the line of Nitin Jain from Fairview Equity Advisory.

Yes. My question has been answered. Thank you.

As there are no further questions from the participants, I would now like to hand over the conference to the management for closing comments.

We thank, everyone, and stay safe, stay healthy and looking forward to seeing you again after one more quarter of hard work and Hiranand bhai will give the closing comments, please.

Thank you all the participants for joining this con call. And if any question is unanswered, my mobile is always available for you 24x7. You can call me any time. And thanks to the Spark team for hosting this con call and wish you again all the best for the coming times because now it looks that we all are coming out of this pandemic issue. And hopefully, India will be growing much, much faster run rate than what we have grown up in the last 2 years, and that is what we are expecting. So that everyone can grow with us also. Thank you very much. Bye-bye.

Thank you.

Thank you, sir.

Thank you. On behalf of Spark Capital Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.