BirlaNu Limited (BIRLANU) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the HIL Limited earnings conference call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karl Kolah from CDR India. Thank you, and over to you, sir.

Thank you, Margaret. Good afternoon, ladies and gentlemen, and welcome to HIL Limited's Q3 and 9M Results Conference Call for investors and analysts. The call has been hosted to discuss the financial performance and share operating highlights of the company with you. Today, we have with us Mr. Dhirup Roy Choudhary, Managing Director and CEO of the company; Mr. KR Veerappan, CFO; Mr. Manikandan G, Company Secretary and Financial Controller; and Mr. Ajay Kapadia, Head, M&A and Investor Relations. Before we begin the call, I would like to highlight that some statements made on today's call could be forward looking in nature, and the details in this regard is available in the earnings presentation, which has been shared with you. We would like to have Mr. Dhirup Roy Choudhary make the opening comments, followed by Mr. Veerappan, who will take you through the financial perspectives. I would like to invite Mr. Dhirup to present his views on the performance and the strategic imperatives that lie ahead. Over to you.

Thank you, Karl. Good afternoon, ladies and gentlemen, and a warm welcome to everyone to our 9 months FY '20 results con call. I thank you for taking out this time to join us on this call. Q3 has been a very challenging quarter for HIL in all perspectives. The economic slowdown witnessed by the country has affected the real estate sector the most, with 13% reduction in new project launches. The rural sector faced severe liquidity crisis and political disruptions. Sand availability and NGT bans in selected states continues to [ pose ] a slowdown to our business. Amidst all of these challenges, [ hike-in, bought-in trousers ] for fiber and some other critical raw materials aggravated the business situations. However, many of these headwinds were estimated by our management and steps taken towards containment of business impact. Actions towards reducing cost and increasing operational efficiencies have resulted in a stable business performance. Our consolidated revenue grew by 26.6% (sic) [ 26.4% ] to INR 1,960 crore this quarter, and EBITDA stood at INR 208 crore. We continue to expand our innovative nonasbestos cement-based roofing business, Charminar Fortune, which is a unique offering and the only one of its kind in the market. It continued to receive a positive response from a spread of institutions and government customers. As you are aware, we have not brought this particular product [ full ] sector as yet. Our R&D is continuously working towards further enhancing these products, technical capabilities and making it more competitive. Our building materials business, Birla Aerocon holds a leadership position in the market and has maintained a robust revenue performance this quarter. The company is operating at more than 90% capacity utilization in regards to this segment. We are also planning to spend CapEx on augmentation of the capacity as we consider it to be a judicious step towards growing its profitability. Further actions are being contemplated to enhance this business through systems selling, encompassing complementary products and solutions. Our hopes and actions to enhance polymer business remains robust. We continue to focus our efforts on branding and a wide bouquet of SKUs to strengthen our presence in the focus markets. After acquiring Parador about a year back, our major focus was towards financial and cultural integration, which has been extremely smooth. On the business front, we wanted to improve the efficiency and profitability of this business while striving to enter new markets in a much more concerted way. The major sales of Parador comes from Germany and Austria. And amidst a degrowth of flooring markets in these countries, we have achieved a high single-digit growth in these countries. The company is now focused to penetrate in China, Spain, U.K. and U.S., amongst other markets by strengthening our sales capability and last leg connect. The sales in China JV is growing quarter-on-quarter, and it is an EBITDA breakeven in the first 6 months of the year. The implementation of Six Sigma and operational efficiencies throughout Parador have shown a significant improvement in cost reduction, thereby delivering significant improvement in operational profit. HIL is embarked on a digital journey to enhance its operational connectivity and improved productivity. We are amongst the first manufacturing companies to implement end-to-end connected digital shop floor in India in our Chennai plant. This will be replicated in other factories in India as well as in Europe going forward. This lays the foundation for industry 4.0 by connecting all the machines on the shop floor and giving a real-time visibility of plant and operation and help us in preventive maintenance. Further, robotic process automation has been commenced in [ finance, ] resulting in reduced manual interventions and further strengthening compliance [ indiscernible ]. In our very first attempt, I'm happy to share that we have been ranked amongst the top 30 of India's best workplaces in manufacturing 2020 by Great Place to Work institution. The new product innovation is being pursued with lot of vigor in Parador, and I'm happy to share that Parador has received gold award in European Product Design and Iconic Award for innovative architecture and interiors. Thank you very much for your patient hearing. I would now like to hand over the discussion to my CFO. Mr. KR Veerappan.

Thank you, Dhirup. Good afternoon, ladies and gentlemen, and thank you all for joining us on the call today. I would like to recap the financial and operating highlights of the business during 9-month FY '20. The Roofing Solutions business degrew by 15% year-on-year due to slowdown in rural economy, as indicated earlier. The Building Solutions segment grew at 1.3% and the Polymer Solutions segment grew at 14.4% amidst challenges faced in the real estate sector. Our philosophy of cherry-picking orders have paved very well towards controlling receivables and improving profitability. Immense focus on cost reduction has been the genesis behind the robust set of numbers delivered by our company in the last 9 months. You would note that we continue to deliver highest profitability amongst the competition. The year-to-date consolidated EBITDA stood at INR 208 crores as compared to INR 212 crores for the same period last year. The consolidated PAT showed 11% increase and stands at INR 82 crores. While continuing to grow the HIL brand in India, we have spent INR 27 crores in advertisement and marketing activities during the first 9 months of the year as against INR 34 crore in the same period last year. Going forward, our major focus on marketing spend will be on BTL activities around the product brands. As already communicated, we have entered into a business transfer agreement towards the sale of our industrial insulation business, HYSIL, for INR 80 crore being a noncore in nature. We will utilize these sale proceeds post-tax towards prepayment of our long-term debt. Our efforts will continue to optimize working capital and reduce our debt going forward. We reassure our investors once again that your company is taking the necessary steps to maximize the return of the investor while improving the profitability and sustainability of the organization at all levels. As you would note, the consolidated EPS on a YTD basis is up by 10%, INR 110 versus INR 99 last year. With this, I would like to conclude my opening remarks. I request the moderator to open the floor for questions.

[Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital.

I have 4 broad questions and in the interest of time, I'll [ hand them out ] together. Firstly, the weakness in the roofing business for us set us [ -- setting ] around the same time last year. Given we've completed more than half of Q4, how does your channel placement and volume look on a Y-o-Y basis? And in the same breath, given how fiber prices and cement prices have trended up, what's your outlook on margins and volumes for the year to come? Are you seeing renewed competition? Secondly, congrats again on the sale of your noncore business, HYSIL. If you could recoup your thoughts on the road map to deleveraging and how exactly in the time frames within which you plan to do that? And if I can request you to hazard a guess on the time lines for the sale of your land parcels, if any? Thirdly, the polymer business, in spite of reasonable scale today continues to struggle in terms of earnings, an outlook would help. And lastly, growth in Parador in Q3 was flattish. Was this a one-off phenomenon, your comments and outlook? And along with the comment on how things are looking in China, given that China is an emerging market for you as far as Parador is concerned?

Thank you, Mr. Sarkar. Thank you very much for your questions. All are very relevant questions. Yes, the roofing market has seen real bad weathers, I must say, last 2 quarters, if not more. And January has been a reasonably lighter month, though we have grown over last year, similar times. We do hope that in Q4, which is supposed to be a stocking quarter for primary stocking, this would see an upside. We also definitely hope that next year should be more positive with good crops, and some of the business policies that I believe government should be taking now from a rural sector point of view. These are hopes and the hopes are very favorable at the moment. Prices are very, very tough from a cost basis because fiber costs have gone up nearly 20% for us on a Y-to-Y basis. Though the availability of fiber is not an issue, but the cost of buying it plus the R&D composition that they work have led to quite a cost increase for us. Cement is also not low enough. I mean it's very, very volatile, and it's higher than last year. That continues to push the bottom line. But we are hoping that we would be able to pass on something on the selling price. HIL today stands almost at INR 7 to INR 15 above our competitors in all the markets, and that leadership position will never be lost for us. We have raised our prices in January a little bit and hope that we should be able to do this continuously for the rest of this quarter and thereby exit this quarter at a reasonably [ rebel ] selling price. R&D is pushing the composition to use lesser and lesser of fiber, so that we are able to make up for the huge cost that we have on fiber. That's about the roofing. On the leverage front, yes, this HYSIL was a very good business for us, and we are very proud of what they have achieved. But we did not see a forecast for ourselves for HYSIL. It involved a lot of investments for new technologies to take it to the next leg, and it had absolutely no synergy so far as our business is concerned because HYSIL was mainly into the industries for the thermal insulation. Therefore, this decision was taken. I'm very happy that HYSIL will get a very good home where they're going because they are 1 who would nourish this particular product and the people. We are also very happy that we have got more than 2x to our revenue on a stand-alone, and I think that would help us in deleveraging. The attention that your management has is at all times to see how Indian loan that we have taken for Parador acquisition continues to come down. And we are hoping that particular activity goes on. Yes, there are some other noncore assets that are in the process. We will abreast you as soon as we reach that stage. We are also going to use some of these proceeds as we keep selling some of our noncore assets towards enhancing the business and growing the Building Solutions by adding more capacity. We believe Building Solutions has reached a level where the EBITDA has definitely gone up to double figures, and we hope that it will go on further. We are cherry-picking our orders on Building Solutions also because some of the real estate customers do not pay in time, and we don't want to land ourselves [ into see what ] problems on that receivables. So that is a continuous effort that we are doing. Polymer business has been challenging, but I'm very happy that the market is recognizing us. And we are fighting amongst some big guys in the market. The modest growth that you see in polymer, again, you must realize is without any big, big dealers who have come on [ fray ] because they normally would not like to come out [ indiscernible ] of the big guys. But we are doing with smaller guys. Our main attention now is not focused on building big dealership, but rather going to plumbers. And that activity is on fire, I can tell you. And I'm very, very hopeful that you would see in the next 6 months, a definite upside, much favorable to your expectations on polymer. We are working towards building the team in a big way also. And enhancement in every aspect, specific to areas where we want to focus and not go pan India at all [ base is on. ] Putty is doing very well. So all in all, this business still has a lot that we need to do, but we are on it. So far as Parador is concerned, yes, the -- our biggest focus was not top line. I had mentioned that from the day 1. We would first work on the bottom line to take out cash from where they [ stuck. ] And I think to a great level that has been achieved. I think about the profitability, I think we have gone up by 50% over last year same time on Parador's EBITDA. And we hope that now the networks that we are trying to create on the sales side will work on. We are focusing on Nordic countries. We are focusing on Spain. We have looked at Middle East also. We are looking at the United States. And China, of course, we have the JV. The JV is continuously growing, but the base is very small. So you would not see it really in a big way till we have reached that leg. About 35 new POS has been created in China in different parts of the country. What China is going through at the moment is really tough, in way of the virus, and I have my full empathy and sympathies to the people who are suffering it. But I can tell you that none of our colleagues or our dealers or retailers have been affected with this virus. We are also doing major business through e-buying using digital networks, so our business is, therefore, continuing in China. And our product can be self-installed, as you are aware. So therefore, they do not require much of a human interface really. Yes, we will have to wait for another couple of months to see how this virus really stabilize and comes down. But business-wise, it's less impact to us because it's a small business at the moment. We also don't do too much procurement out of China. And therefore, China virus is not a critical aspect for HIL's business going forward. I think I've covered all your questions.

Sure. Just a quick follow-up. In terms of the pricing actions that we're taking in the domestic roofing segment, is it fair to assume that the EBIT segment margin that we've seen for FY '20 would be a bottom? Or would you advise caution?

Q4 should see an upside. To what extent? I don't know, we'll have to see because we are pushing enough. The last [ leg ] connect is helping us in getting a little more than our competitors. I must say, last year was a very, very wonderful year for HIL. This was one of its kind, but if you compare the profitability of HIL stand-alone over the history, this year, even amidst all the tough weathers that we are going through, we are second highest on profitability. Our roofing segment should try and milk as much. I'm unable to give you a real number at this stage on this.

So -- and would you hazard a guess on where your leverage position would likely to be in the next 12 months, given the cash flows from HYSIL and, of course, the operating cash flows from domestic business?

I think we would bring it by about 50%, 60% or more in the next 1 year.

The next question is from the line of Ritika Garg from Aequitas Investment.

Sir, I wanted to know the fiber price, the fiber contracts that are reset are for what period of time?

Ritika, the prices that we have is normally valid for a year, but we don't lose an opportunity to go back to them for a reduction in case we are able to strengthen our position. At the moment, the suppliers are very strong.

Okay. And fiber makes up what percentage of my raw material cost?

It's about 20%, yes, Ritika. It's about...

20% of my raw material costs. Okay. And what is my capacity utilization in pipe? And...

So pipe's capacity utilization depends on the product mix. So in some of the products like column pipes and pressure pipes, we are very high, we are close to about 80%, 82%. Some of the CPVC, et cetera. Overall mixed, if you ask me, pipes and fittings, we are at about 30% utilization at the moment.

Yes.

Okay. And where do we see this in FY '21?

So I think you watch the next 6 months, Ritika, there has been some very, very important steps we have taken. I'm really hopeful that we should double our revenues here.

Okay. And then Parador, what is the kind of growth that we envisage for FY '21?

Growths in Europe, and let me just remind all of us again that majority of revenue of Parador is localized in Europe, about 75% of the revenue comes from Europe. And Europe is degrowing at the moment. There are lots of issues Europe is facing through, all of us must be aware. Therefore, even a growth in Parador is considerable. Therefore, we are looking at outside Europe in a big way. I think -- and I'll caution all of us to have a little more patience on Parador. We should not expect a growth more than 7%, 8% in Parador on the top line, but we will continuously see how to get the profitability up.

Okay. And in Q3, there was an increase in employee costs in Parador. Is that like a yearly phenomenon that takes place at the end of the year or...

So -- yes, I mean I had mentioned this earlier. So I think it's exactly in line with what I said. We are building the sales capability in some of the countries. We have brought in our new Sales Director in Parador. Those were -- all that I had spelled out last time. And these costs, what you're seeing is in line with that.

Okay. And so what is the -- so do we plan to reduce the euro debt also?

Euro debt is not much -- yes, the answer is yes to you, but euro debt is not my concern really because we are [ indiscernible ] less than 2% on that and that's really not hurting us. Mostly, we want to reduce the Indian debts. I know my bankers won't be very happy hearing this, but that's an important part for us. We want to reduce that part more.

So in FY '20 and FY '21, how much do we expect to reduce debt by? I think we reduced this by INR 30 crores in H1?

I think I gave a little bit of a glimpse in the last question by Mr. Sarkar that we should reduce our...

60%.

Yes, debt by 60%, 70% in a year, 1.5 years.

And when do we hope to close the business transfer agreement for HYSIL by?

This is in the process. There are some CPs that are needed to be made up, especially the plant -- the land has to be bifurcated. So [ indiscernible ] has to be approached and all the [ rest also ]. Those are elements, which takes time. They are not really fully in our hands because we didn't want to sell the whole land. The land is very, very important for us, and we wanted to carve-out only that much that is needed to be sold. So all of that would take around 2 to 3 months. I think we will get the money soon thereafter.

[Operator Instructions] The next question is from the line of Amit Doshi from Care Portfolio Managers.

Sir, you told that we have raised prices of asbestos sheet recently. So whether that will cover our raw material cost rise?

Doshi, I wish that was possible. And it all depends on how our competitors look at the market and their own costs. I'm surprised that they don't look at it as much as we do. We are really hopeful that part of it should get covered by the raise. I'm not hopeful that the 100% will come through though.

Sir, whether your competitors also have raised prices?

I'm not sure. This you need to ask with them, but what we've seen from the market is they aren't. So our differences are very, very high, as I said, about INR 7 to INR 15 per meter. Raising any price beyond that compromises volumes, and therefore, we have to -- we are working through a very, very close look at how much really we want to get volumes versus price. So this is a continuous effort. I don't think the competitors have raised price as much yet.

Sir, whether overall asbestos market is falling? And what is our market share, is it reduced?

So the total market, I think, over annualized basis should not go below 3.6 million metric tons. It was about 3.7 million metric tons last year. Our market share always reduces in quarter 2 and quarter 3. This is a cyclic issue and we pick it up in quarter 4 and quarter 1. And therefore, overall market share, we will not allow it to reduce.

Okay. Sir, in case of building blocks, what is our revenue and what are our expansion plan?

Building blocks, when you talk of building materials, we are talking about blocks -- are you only asking blocks or panel...

No, only blocks.

Blocks at the moment, the revenue is about INR 156 crores on a 9 monthly basis. We have grown by 10% over last year in the blocks. The profitability is definitely showing further up, quite a lot up. And therefore, we are looking at the blocks, profitability has gone up by 46% over last year. We are looking at how to, therefore, because we are almost at 90%, 95% capacity utilization in blocks. We, therefore, are going for the digital bit in the blocks, so 4.0 in the Chennai blocks plant was towards that so that we can have more efficiency in the block plant and deliver more from the present CapEx. CapEx is very heavy in blocks because we had German machineries in Chennai and Jhajjar and Golan, which are very heavy CapEx. The Timmapur plant that we created with Chinese machinery and did our own augmentation in the engineering division at our HIL has paid very well for us and the profitabilities are very high. We are trying to replicate that when we are going further CapEx. And therefore, CapEx will be further spent in blocks to gather momentum in this business.

Yes. Sir, you said the Parador business grew by around high single digit. So whether that will continue in Q4?

Yes, it will.

[Operator Instructions] The next question is from the line of Nikhil Upadhyay from Securities Investment Management. Please go ahead.

And I should appreciate you on the performance which you have delivered in tough environment, especially along the challenges which are existing in the market. Hello?

Yes, Nikhilji, and thank you for this wonderful comments because normally it doesn't come when the business is so bad. So I do not really feel I'm credible to take this compliment at this stage because Q3 hasn't been as good as what I wanted to deliver, but thank you still for boosting up us -- our morale.

Sir, a few questions. One on the Roofing Solutions business, if I consider -- if I -- so starting off, if I look at our stand-alone gross margins and even sequentially considering the cost increases, which we were talking of in asbestos, the gross margin has not fallen off significantly. So has it like the increase in the asbestos prices has been compensated by fall in prices in other raw materials, as a result we are still above -- around that 50% gross margin level?

So Nikhilji, very minute look by you, compliments for that. Yes, we have taken a lot of actions towards improving our cost base or rather reducing our cost base. And Six Sigma, as I have mentioned about a year back, was 1 movement that has brought in huge. TPM is another movement. We have got now certified all our factories by TPM. And therefore, the cost base is continuously coming down, efficiencies are going up. Our lines in AC sheet, you believe it or not, has reached a level of 550 metric tons per shift, per day in a line production, which is a world record, no one else. In fact, I'll be tempted to see what our competitors do in India. But my reckon is 500 metric tons itself will be a stretch target for them. So all of that calls for a big applaud to our operations team, who are working continuously on this. No, the -- the material costs haven't fallen down. This is all compensated through our efficiencies.

Okay. And so effectively, if we look at it, so with the price increases which you are mentioning and also we are entering a market where -- the seasonally strong market in Q4 and especially on the second point, which we see it is like most of the agricultural companies and the agricultural ecosystem companies are talking of a favorable or improvement in the market environment with better sowing and better reservoir levels, which means better income levels for the farmers. So do you think that the market at the ground level or at the rural level is probably improving some bit over what we had seen over the last 9 months? Or what's your reading of the market?

Probably is the right word. And I highlight that. Yes, our expectation is that it improves. This is the time when the primary stocking happens and the trick is very simple there. We have to keep raising our prices so that our partners understand that if they stock today, they'll be benefited than stocking tomorrow. So that trick has to work. But if our competitors keep on reducing prices, then it doesn't give a favorable impression to the market. So it all depends on how the complete ecology work around this. I'm really hopeful they understand that their material costs are anyway going up severely for everyone. So if they are conscious on that and do not make negative bottom lines as they did many of them. I'm hoping to see the price rise, and I'm hoping the market should be a little better for us in Q4.

Okay. Secondly, sir, the fall in -- at the segmental level, if I see, so if I go back in history, in roofing, like over the last 16, 20 quarters, now even in a challenging quarter like this, when the growth was -- has been impacted and overall RM cost has been bad, we've still done better than what we used to do historically. So do you think that now -- and I think a lot of efforts which you have taken on the operational side and reducing the cost of operations, so do you think that this is the worst case margin level where the company can report and probably, as the environment improves, we will keep on improving from over this, irrespective of the price increases?

Nikhilji, I would love to say yes to you. I'm -- the only concern or the black box that I have in front of me is fiber price. I won't know how the Russians and Kazakhs reacts going forward. But if that has more or less stabilized, then I would say yes to your answer.

Okay, sir. And secondly, sir, on polymers, the pipes part of the business. Now in last 2, 3 years, we've done a lot of CapEx. We've increased our capacities across the board in terms of the SKUs, which we wanted to bring in. Are we at a point that we have the full bouquet of product? That is one. And secondly, if we look at in the market, there has been some stress, which has brewed up and some of the companies, large companies are either facing bankruptcy or facing operational issues. So do you think that the market is accepting our product on the dealer level, distributor level, is it giving us an option to increase our marketplace presence?

Okay. So polymer is, at the moment, the focus -- focal point for me, and I have no hesitation in saying my expectations from the polymer business would have been better than what we have delivered. Having said that, our actions are absolutely robust. We have brought in -- we had a huge attrition, if we go back 6 months in this business. We have brought in a new COO to drive this business. Somehow we were not successful. And therefore, we have decided to make a change there. And I'm personally owning up this segment while we look for a new COO into this business. The last 3 months has been very, very favorable. I'm not saying I do any magic, but it's how you hold the team and groom them together. Our attrition in the last 4 months in the whole team of polymer has been only 4 people. And that's a very, very pleasing factor because that's where you train people and bring them in. We have an excellent product basket, but we do not have full because for project orders, they require many more SKUs, which we don't. I'm not at the moment looking at investing in CapEx to develop them. So we're looking at sourcing them and packaging them to make up for the basket. But I think the SKUs we have is enough to drive this business forward. I asked for another 6 months from you because there are quite a few initiatives we have picked up, you would see polymer in a different league in the next 6 months.

And lastly, sir, any new CapEx plan in any of the businesses as of now or the next 1, 1.5 years?

We are already having a CapEx in [ SU1 ] for the fortune non-asbestos roofing plant. We didn't have any dedicated line for fortune. We had converted 1 of the lines in -- 1 of our factories in south. So now we will have a dedicated line. The necessity for that is as follows: fortune at the moment is fantastic -- first of all, it's a fantastic product. There is no failure in the market. Number two, it is [ indiscernible ] the funnel is developing very well, so a lot of new customers are coming into the fray. And every them -- every one of them are liking the product. The color variance that we have [ brought on ] with fortune is just wonderful. If you want any part of these pictures, we can share with you to get you a feel or you could go and see the site. The product is at the moment priced around the steel sheets. As I've given you last time, just an idea, it is about 2x to the asbestos roofing. And the cost is high because of operational inefficiency, if I can say, because we can't make more than about 150 metric ton per day in a single line owing to autoclave technology that we have. Autoclaves have a restriction of number of quantity they can process in a day. So by having a new line in Faridabad, we would be having more trials to see how to come out of these constraints on autoclaves and look at a much more rigid formula to give fortune a much more rigidity in the product. Today, the fortune product [ miles ] up to the IS standards, which is for non-asbestos, which calls for 350 LBC or 350 kilogram per meter, and we are at 400. So we are higher than IS. But our AC sheets are 550 LBC. That's the IS for AC sheets, our asbestos sheets. I want to see if we can deliver 550 LBC in non-asbestos roofing. And those trials are necessitated, and R&D has come up with 16 attempts that they have made. They are all looking very positive. I think you would hear very, very good news on the non-asbestos roofing solution that we are trying to develop in-house.

Okay. But other than that, no other CapEx?

Other than that, it will be some CapEx in the Building Solutions that we will add for blocks and panels and we would keep sharing as we come to that.

So the overall quantum would be what 100, 120?

Yes, we should try and keep it sub-100.

The next question is from the line of Sanjay Nandi from Ratnabali Investments.

Sir, just 1 question from my end. Like in the walling section and in the roofing section, the cement is our main product, right? And of late, the cement prices are at its peak. So what is the procurement cost if you can just share in this particular quarter vis-à-vis last year? Like we can get in quantum of increase that has happened in this quarter and this outlook going forward?

So we are marginally about 7%, 8% higher than last year same quarter on cement.

Is it possible to share the procurement cost, like in per ton basis, if possible, sir? Like at what price we procured?

I would recommend that we don't share these numbers because you will well appreciate your company wants to have an [ upstart ] vis-à-vis the competition. So we -- I can only assure you, we are the best -- we have the best relationship with UltraTech and their likes, and we also have several local players in so far as different factories are concerned to get the maximum out of them. And our procurement policy is very, very rigid. We have also introduced ARIBA, which is a fantastic procurement tool, which is giving us good stable returns on procurement costs. So while not sharing the number, I can tell you we are definitely amongst the lowest.

The next question is from the line of Jigar Shah from ICICI Securities.

Firstly, on polymer business, what would be the pipes and putty revenue breakup for Q3 and 9 months?

About 50% each.

Okay. And by when you expect to double the revenue in pipe segment going forward?

Our aspirations is 1 year, but let's take 1, 1.5 years, just to be on the safe side.

And what are the steps you were talking about, I mean any distribution increase or -- and by like how do you plan to do the same, I mean from, say, INR 30 crores you want to go to INR 60 crores in pipes, that's what you mentioned? Or INR 60 crores would go to INR 120 crores?

You're right, you're right. That's the number per quarter. What I'm trying to tell you here is 2 aspects. Number one, we have pegged the price of our pipes equivalent to the best brands. So therefore, our prices for pipes is not lower than the likes of [indiscernible] in any of our segments, in any of our SKUs. We have pegged the quality to be higher in our own way. I can say it is much higher than any of our competition. And this is what the market also accepts. Where we are failing in pipes against the big guys is they have created the market over many, many years, and the brand has been developed to a level where their synergies with big dealers have made the pull into the market. We are yet at a push level. And therefore, the pull has to come from plumbers. And that's exactly what we are trying to do. We are doing far more with the plumbers than possibly some of our other competitors would be doing. And that pull is going to help us to get this business up. And other than that, no compromise on quality. We will definitely improve on profitability by -- it's a number game in pipes. The more you are able to sell, the better you are able to get price realization from your suppliers. Efficiencies are being looked at, at every stage. If you do a comparative of -- and we have done it on the material costs. We aren't too low to our competitors. So it's all about volume. And once the volume picks up, your profitability will pick up as well.

What would be the breakup in terms of different polymers like PVC, CPVC or some...

I don't have those numbers sitting here, but we can always share that with you later.

The next question is from the line of Mahantesh Marilinga from Finquest Securities.

I just had a couple of questions. Like the price of the AC sheets are going up, like on a similar level like the steel price, how are they looking at? I mean for the customer who is seeing value, like what will he choose? Are we on par now? Or [ what's the ] price differential in a similar category?

I'm not sure I understood your question. Are you saying how does AC sheet compare to steel sheet?

Yes, yes. Since the prices are increasing, like I mean 1 or 2 years back due to the GST cut, you benefited in a big way due to the price disparity between steel sheets and asbestos. Now since the prices are increasing, so what's the price differential? And how is the demand in terms of steel sheets now? Are people shifting to steel sheets or...

There is still a big price differential between steel and AC. I think it's the utilization which is different, so they are -- they cater to different segments. If you look at steel sheet, they are preferred by institutional segment, they are preferred by very big hall roofs like warehouses, et cetera. Whereas for all the rural requirement where you talk of pens for the chicken or the cow sheds and for individual houses, AC sheet is preferred because they have the benefit of thermal being not so conductive on temperature as well as sound as well as longevity. Our sheets live for 70 years, we say, because our company is 70 years old. So all of those benefits definitely add to the [ indiscernible ]. So I'm not seeing AC sheet volumes reducing from beyond this. There will be these ups and downs because of several market conditions, but we are hoping this business is definitely going to pull up -- pull back.

Okay. Sir, coming to the last 1 or 2 quarters since the price of the fiber has increased, what is total quantum of the price hikes that you've taken vis-à-vis the raw material price increase?

So we haven't been able to take a price hike in the last 2 quarters, that's precisely our problem. And the reason is we are already 15% to 17% higher in many markets than our competitors. If they are not able to raise their price, our gap is only growing, and that will have a hit on the volume going forward. So we are having a very close look at the volume versus realization. We are clear that if we reduced, say, INR 5 or INR 10 today, the volumes will be huge pouring in. But the profitability gets a hit, the brand gets a hit, and that's not our strategy at all. So we haven't raised the price -- we haven't been able to raise the price last 2 quarters. And the bottom line has continued to -- or rather, the pressure on the materials have continued to go up. And that's where you see a contraction in the EBITDA volume -- margins.

Sir, you just mentioned 15% to 17% rise in the raw material price? I just missed that sentence.

No, I couldn't hear your question, Mr. Mahantesh?

In the starting of this answer, you just mentioned 15% to 17% price rise in the raw material cost?

17% is the premium we have in the market on selling price of our product per meter over our competitors in many of [ indiscernible ]

Okay. Okay. Okay. And what about the competitors, sir? They have been like maintaining same price? Or how is that?

No, they have reduced. And I think their numbers would talk about that. So I would not like to talk about our competitors. They are very, very worthy. And in their own way, they run their business. But you should see their numbers, and you would see really where they are going.

Like on the contrary of increasing the price, they have reduced the price you mean?

Exactly from their numbers.

Okay, sir. Sir, and coming to this, well, coronavirus impact, like you had some [ roadshows ] in China and all, like has this impacted a little bit on the flooring business?

I mentioned this in the first part of my note and I would once again say, coronavirus will not pose any big threat to HIL.

Okay. Even in the flooring business?

Even in the flooring business. It will have a dampening effect for a quarter or something, but it will not pose a serious [ attempt. ] And in any case, China business is only a small fraction of the total flooring business at the moment.

The next question is from the line of Ritika Garg from Aequitas Investment.

Sir, I wanted to know what is the sales of fortune as compared to the full roofing segment?

Ritika, it's a small fraction at the moment. Fortune has done about 6,000 metric tons so far this year as compared to about 1,300 metric tons that we did last year same time. So there is a continuous growth in fortune volume that we are able to see. Sorry?

And in terms of revenue?

Sorry?

And in terms of revenue?

In terms of revenue, it is definitely drawing double the price of AC sheet, but it's small fraction of the roofing segment.

Okay. And what percentage of our sales in pipe business is through plumber?

Majority. Our B2B segment is less than 10% at the moment. So it's all through plumbers.

B2B is 10%?

Less than 10%, yes.

And the entire [ thing ] is to plumbers? Okay. And what is our ad spend expected for FY '20?

It will be in similar levels, Ritika, because as I mentioned, we are not going to do big budget spending next year. We have done for the first 2 years after I came in for bringing the HIL into a different platform. We were known only as an asbestos company or a Hyderabad company. We wanted to bring it to an HIL level. So our alignment with CSK and Mr. Dhoni and all the rest was towards building that. I think we have reached a level where now the brand pride has come up, both with our employees and with our associate partners. And therefore, we will continue to spend as much as is needed in the BTL, mainly for the product brands like Charminar and Birla Aerocon and Birla HIL Pipes and putty, and minimal on ATL. So the spend would [ be ] similar level as this year.

For 9 months is INR 27 crores. So can I expect for the full year it's going to be INR 36 crores?

Yes, about INR 35 crores, INR 36 crores is a good estimation.

And it would be in line for FY '21 as well?

Yes.

The next question is from the line of Sreemant Dudhoria from Unifi Capital.

Yes. A question on the fiber prices, sir. Given that the regions that supply and also the number of players that supply the fiber is getting fairly consolidated now. What we have seen in the past is there used to be annual revision in the prices. As the industry is getting consolidated, should we expect more than once the price hikes to be taken by the raw material suppliers. Is that a fair assumption to make?

Okay. So I can -- I wouldn't know how the future will work out for us. You're right, it used to be an annual contract. But last year, we have seen already 3x the price is getting revised. And part of it was due to the freight charges changes and part of it, of course, due to consolidation of now 2 players against 3 players earlier. I would assume, and this is just my assumption, that they know that raising the prices of fiber too much would destroy this market completely. And India is amongst the very few countries still in the world which [indiscernible] to asbestos sheet business. And I don't think it will be to their interest, therefore, to destroy this market. Indian consumption would be about 30% of their total production or more. And therefore, I don't foresee they would be as irrational to raise or correct the prices as often as they have done this year. And already, the prices are almost 20% higher at a same like-to-like basis. That's my answer to your question.

Sure. And in terms of the demand and supply for the fiber globally, is it possible to give a broad number how it's looking like?

I think I'll not be able to share this detail in greater comfort because we are not at their position. They would know it better. But what I keep hearing is India is a steady market for them, about 30%, 35% of their total production is utilized in India. I mean roughly about 350 million, 400 million metric tons of fiber, so that gives you a feel of the total market.

The next question is from the line of Mahantesh Marilinga from Finquest Securities.

Just coming back to the fiber prices. Sir, can just give me the quantum of the price hikes taken by the fiber players in the last 2 quarters?

At about 20% is the price rise to us...

In the last 1 year.

In the last 1 year.

1 year. Sir, now also you're going for annual contracts or it will be like short contracts now?

It's an annual contract. Whether they'd like to change it again in mid-term, I wouldn't know because we are in their hands, honestly.

Okay. And what's the near-term outlook? Sir, any idea? Or no [ indiscernible ]

At the moment, the prices are firm. I am hoping that the prices won't get reviewed again by them. As I mentioned in my last answer to the last question, that they also have to be conscious of the fact that the market will get destroyed if they don't [ block it, yes. ] They can't -- it's like the golden egg and the chicken, you can't have all the golden eggs by killing the chicken.

Yes. Sir, apart from India, which are the other major countries where the asbestos sheets are used?

So AC sheets are used in Indonesia, in Sri Lanka, in Bangladesh, in Russia, of course, in China, but we don't have the numbers of China very clearly, and there are some local players in China who still have an open pit mining in China. And some -- I think, Cambodia and some other countries, but primarily, these are the countries.

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

Thank you, Margaret, for addressing this very well for us. Thank you to all. It has been a pleasure interacting with all of you over this call. We thank you for taking time out and engaging with us today. We value your continued interest and support in your company, HIL. If you have any further questions, or would like to know more about anything, kindly reach out to our Investor Relations desk. I hope I have been able to answer your questions diligently and look forward to your continuing support. We once again commit that we will continue to grow investor value at all-time in your company. Thank you. Bye-bye.

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