BirlaNu Limited (BIRLANU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HIL Limited Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to HIL Limited's First Quarter Results Conference Call for Investors and Analysts. Today, we have with us Mr. Dhirup Roy Choudhary, Managing Director and CEO of the company; Mr. KR Veerappan, CFO; Mr. G. Manikandan, Company Secretary and Financial Controller; and Mr. Ajay Kapadia, Head, M&A and Investor Relations. We will first have Mr. Dhirup Roy Choudhary making the opening comments, and he would be followed by Mr. Veerappan, who would take you through the financial perspective. Before we begin, I would like to highlight that some of the statements made on today's call could be forward-looking in nature, and details in this regard are available in the earnings presentation, which has been shared with you. I would now like to invite Mr. Dhirup to present his views on the performance and the strategic imperatives that lie ahead. Over to you, Dhirup.

Thank you, Vikram. Thank you, Siddharth. Good morning, ladies and gentlemen, and a warm welcome to everyone to our Quarter 1 FY '21 Earnings Conference Call. I thank you all for taking out this time to join us on this call. Quarter 1 FY '21 continued to see the world gripping by the COVID-19 pandemic. The lockdown is being lifted in phased manner in different parts of the country. The red, amber and green COVID locations are changing from time to time, which puts an added responsibility on the management to monitor this on a daily basis and ensure business continuity and safety. This pandemic is far -- by far over. And the coming couple of quarters will be even more challenging. In quarter 1, the management team stood behind me and the organization in converting the crisis into an opportunity by showing huge tenacity and passion. We have focused on rebuilding the momentum of our business and have been fairly successful in that respect. However, construction activities, to a large extent, is still on hold, thereby adversely affecting the real estate sector. Unavailability of labor is also an issue that has been persistent since last quarter, putting pressure on manufacturing and logistics activities. Our goal at the moment is to adapt to the situation and make the best of it. We have been working tirelessly to outcome the bottlenecks that have resulted from this pandemic. Our robust infrastructure, the implementation of our smart digital systems and processes fueled by undaunted commitment of employees have enabled our recovery. Our teams have been working on ways to optimize sales in a constrained economy on one hand, while on the other hand, providing materials on time. Our organization has been streamlining cost structures so that we are on track to achieve our long-term goals. As an organization, we have been highly adaptive, agile and innovative in our bid to overcome this mammoth challenge while maintaining our margins and ensuring the health and safety of our people. As a result of this, your company has posted a 34% year-on-year growth in consolidated net profit to INR 50 crore against INR 38 crore last year, despite 7% degrowth in consolidated revenues to INR 699 crore as against INR 751 crore last year. The consolidated EBITDA stood at INR 107 crore as against INR 96 crore last year, a year-on-year growth of 12%. Our AC sheet manufacturing units have worked at far better utilization levels to meet the demand for roofing products. All in all, despite missing out an almost entire month of production, we have had an encouraging performance in Roofing Solutions segment this quarter, thanks to the innovativeness of our team that has successfully matched demand spread out in small pockets of unlocked zones across key markets with materials through a complex logistics operation. Rural demand has been very good for these products, and we have utilized this opportunity efficiently and to the fullest. While the growth of profitability may seem to be low in quarter 1 this year, as quarter 1 FY '20 was also a good quarter for us, one must evaluate that we have still delivered 28% PBT in roofing in quarter 1 this year, the highest by any manufacturer. We have also gained good market share, in excess of 20%, a delta increase of 1% over last year and remain #1 by big margin. Our R&D team is working tirelessly to reduce the fiber content in our products since we continue to face problems related to cost of fiber imported from Russia and Kazakhstan. We are confident of overcoming this issue effectively during the year. Charminar Fortune continues to be a leader in its space for nonasbestos roofing solutions with its strong brand and optimal pricing. R&D team has been consistently working to improve the productivity of this product while also reducing the cost. We have further evaluated mechanisms to increase the product efficiency and robustness and have registered the new patents as well. Building and Polymer Solutions segment has been affected due to the prolonged slowdown of real estate sector, especially in big cities that have been declared red zones, construction activities has come to a near hault. Using live digital techniques, we have been focusing on Tier 2 and Tier 3 cities and towns that are green zones and been able to achieve 50% capacity utilization in Building Solutions. While the overall number has been lower compared to last year in Building Solutions, credit has to be given to the team for being agile and looking at newer businesses from COVID centers and labor hutments to maintain a decent level of business. Pipes & Fittings business have also changed their focus to greener zone and have grown by 28% in May and June over same time last year. Parador has been moving from strength to strength. Having integrated well with HIL on the culture and financial levels, they have outperformed in many aspects. We have increased our efforts directly towards growing into newer geographies and increasing utilization levels. Introduction of e-business and focus on DIY clubbed with the brand Parador have fueled the success for a consistent performance, while the entire Europe and the rest of the world were literally closed due to COVID pandemic. This has led to a good growth in orders and profitability during last quarter. We remain confident that Parador will be able to manage well in these challenges and achieve the goal of expanding its newer territories as soon as global situation improves. We at HIL place a lot of confidence to our team and our product offering. We are sure that we will come back and return strong as the pandemic situation passes. We have been adopting the 0-based cost model in order to make the most of the current situation by redefining our organization structure and costs. In this process, our attempt has been towards leveraging technology to reduce costs and make our processes more efficient. The implementation of an end-to-end connect, connecting digital shop floor, IoT 4.0 across many of our plants, along with integrated robotics process automation, is promising to deliver good results in the coming quarters. We have also trimmed our advertisements and promotional spend considerably, using digital media to connect with customers. Our focus on cash management has helped us to redefine the way we do business and conserve cash. This has led to a good repayment of loan this quarter. Your company has shown a lot of resilience in these tough times. Our agile, adaptive and bold business model has enabled us to stand up to the challenge. Over the last few years, we have greatly reduced the risk profile of the organization by diversifying our product portfolio. To conclude, I would like to say that we are certain of emerging stronger from this situation that we all find ourselves in, owing to our strong product portfolio and our hard-working and resilient team. Thank you very much for your patient hearing. I would now like to hand over the discussion to my CFO, Mr. KR Veerappan, who will take us through specific numbers.

Thank you, Dhirup. Good afternoon -- good morning, everyone, and thank you all for joining us on the call today. I would like to take you all through the financial and operating highlights of the business during Q1 FY '21. This quarter faced severe challenges due to lockdown in various states during major part of April and in parts in May and June. There was a couple of complete washout of business till end April. However, the team at HIL converted this crisis into an opportunity by redefining the working capital norms in the business and aggressively driving the costs down. The zero-based cost approach, along with the day-0 planning helped the organization to overcome the challenges faced during the quarter. The opportunistic approach by the team helped the Roofing Solutions business report revenue equivalent to Q1 of last year, despite a complete washout for a major part of April. The Building Solutions segment degrew by 64% and Polymer Solutions segment degrew at 23% due to challenges in the real estate sector as a result of a lockdown. We have remained focused on profitability by carefully choosing projects. We have tried to strive to reduce our costs and improve our margins. This strategy has consistently proved to enhance our profitability, and we continue to deliver the highest profitability in the industry. During the first full year of Parador's acquisition, due attention has been paid to the smooth financial and cultural integration. Our focus is now on improving profitability and sales. Operational excellence using Six Sigma, zero-based planning for cost and lean manufacturing processes have led to a decrease in cost in Europe, which has greatly increased Parador's profitability. A substantial increase in the operating margin can be seen in this quarter. Consolidated EBITDA came in at INR 107 crores as compared to INR 96 crores last year. The consolidated PAT stood at INR 50 crores, showing an increase of 34% year-on-year. All of our manufacturing units are now operational, albeit at lower utilization levels except for Roofing Solutions. We have ensured that we work within the framework of the guidelines set by the authorities and are closely monitoring the situation in order to maximize efficiency and performance. We do not expect any major impact on the carrying amount of inventories, intangible assets, trade receivables, investments and other financial assets as we continue to monitor the economic conditions closely. During the situation as the one we are in, cash is important, and we enjoy a comfortable liquidity position. Our cash balance was also boosted by the healthy collection starting from the month of May last quarter. We have created teams that have been working to maintain liquidity, profitability, customer and vendor connect and employee connect and to monitor people's health and safety. We have taken a host of measures to make sure that we are able to leverage this opportunity as much as possible. Cash flow management was spot on during the quarter, and we have reduced the borrowing of the company by INR 122 crores at a consolidated level from 31st March 2020. Debt-to-equity ratio stands at 0.77 as against 1 as on 31st March 2020. With lot of perseverance, the sale of HYSIL business was closed under extreme difficult circumstances in the month of July and the sale proceeds of INR 80 crores already received will be used for repaying the long-term debts this month. The long-term borrowing at HIL India is expected to be reduced to INR 100 crore level by 30th September 2020. Our constant endeavor is to consistently boost our investors' returns by enhancing productivity and sustainability. To that effect, our consolidated EPS came in at INR 67.25, growing by 23% year-on-year compared to INR 54.38 last year. With this, I would like to conclude my opening remarks. I request the moderator to open the floor for questions. Thank you.

[Operator Instructions] We have our first question from the line of Bharat Sheth from Quest Investment Advisors.

Sir, congratulations on good set of numbers. Sir, just I have 2 questions. One is from Indian business perspective. We have already built a leadership position in the Roofing Solution and which is a sort of a cow -- cash cow business. Whereas in Building Solution and Polymer Solutions, still, we are, I mean, lagging much behind. So can you give some color? I mean how do we really want to build and play out these 2, 3 business in India, so that it can be a more sustainable and more, I mean -- as well as improving the profitability and -- for the year, color on profitability for this Building Solution and Polymer Solution?

Thank you, Bharat-ji. I thought you had 2 questions. So I was waiting for the second one.

Okay. Second is on the Flooring Solution, which I will like -- first finishing this India business, I would like to take it up.

Okay. Perfect. So let me answer the Indian business question to you. Thank you, Bharat-ji, for your compliment. Yes, we are #1 in roofing, and we have outscored our all competitors by a big margin in Q1 as well -- by a big quantity and a big margin. So I want to reinstate that point once again. On Building Solutions, Bharat-ji, let me just bring up to your note that in AAC Block, we are #1 in India. In panels, we are #1 in India. In panels, we have about 60% market share. In AAC Block, we have close to about 19%, but then there is a big element of companies which are small and bids which are not monitored, but amongst all the monitored company, we are #1 in India. Boards is -- has never been our specific focus, and therefore, we have not monitored the market share there. We were fully up on our production before COVID settled in, and we were at 97% utilization of our capacity with the profitabilities that have gone up by big numbers in the last few -- couple of years. We hope that this will continue as soon as the pandemic recedes. This business comes primarily from the real estate and big construction activities, which have been subdued at the moment, big cities are also subdued to a great extent. Give us some time. As the pandemic recedes, this business is again going to show its color. A lot of costs has been reduced in this businesses. Also the product efficiencies have gone up. We would go for M&A, either organic or inorganic growth for this business. So Building Solutions will remain #1 for us for the office growth and leadership in India. On polymers, yes, it's a new business. Honestly, we have just picked up in a big way last 2 years in the polymers, last 3 years, if I can say. Yes, it's taking a bit more time, but we are seeing positive indications since October. Since October last year, the business has been really spreading itself well and consistently performing on Pipes & Fittings. Let me tell you that in May and June stand-alone, as compared to last year, we have grown by 27% in Pipes & Fittings, and July has also been a good month for Pipes & Fittings. We are hoping that because of the brand visibility that now market is able to see, the product is far excellent and the costs have also gone down, profitabilities have come back. So we have had profitability in this segment also in July. We are very hoping -- we are very much hopeful that this business is going to grow. We have very big aspirations around it. Putty also, we have started doing big numbers. And while we were focusing in West by big ways, that particular market did not do well in quarter 1. But hopefully, that will come back very soon. We have done very good numbers in North. And East and South, where we don't have manufacturing facility, we have started our presence of putty. We want to be pan-India. So for all these businesses, Bharat-ji, rest assured, your company will be #1.

So sir, is it fair to the -- I mean, this Polymer Solution has started becoming EBIT positive from July. So full year, I mean, then we will be able to make some kind of a contribution -- positive contribution from Polymer Solution? And Building Solutions, when do we expect, I mean, to turn it around, I mean, positively -- positive contribution?

Bharat-ji, if I had known how the COVID will span in Q3 and Q4, I would have guaranteed to you, yes, what you're asking for will happen. If COVID doesn't really spoil the market further, we are very hopeful that we are going to deliver very good results for these -- both these segments by year-end.

Okay. And sir, second question is on this Flooring Solution. You said that we have been really doing wonderful since last few quarters. So can you give some 3, 4 -- 3 to 5 years, your -- I mean, reason for this business? How do you really want to play it out? And what kind of a sustainable EBITDA margin we would like to see for this and the geographic expansion?

Yes, absolutely. Thank you very much. So I won't say we are doing marvelously well. So I would apologize if that's the point that has gone to you. We are trying our hard to make a good meaning out of this investment, and we are very happy with the way it's progressing. There's a lot more to be done. Look, whenever we take a European company, first thing and foremost is the cultural integration. That has gone extremely well. Financially, we are both absolutely through as -- fully connected and same auditors are auditing us. So everything has been streamlined. We have now developed the business model. We have got new Head of Sales for Parador, Director of Sales. And we have also critically examined some of the countries in Europe and added sales staff especially in Spain, in France. We have also looked at a commercial joint venture in the Nordic country. So Denmark, we have had a commercial joint venture signed recently and we've got a big order for the wood flooring from them for our Austrian factory. China, you already know that we have a JV. China has gone through real bad times due to the pandemic. While the numbers are not growing as far as news is concerned, the market isn't fully back. But let me tell you that the brand Parador in China is very well recognized now over the last 1 year's time. And we have already developed 42 POS, point of sales. So 44 -- 42 retail counters exhibiting our products have been set up in different parts of the country. And we are hopeful that by Q3, Q4, as a business return there, you would be able to get very favorable results coming from China. Middle East also, we have now very close to signing a contract, wherein we will get some good orders. U.S., another segment where we are focusing. So United States also we are looking at. So all of these are areas where Parador will spread. Just to give you a feel, historically, Parador revenues were all concentrated in Europe, about 75% or 80% of it came from Europe, only about 20%, 25% came from rest of the world. We want to definitely look at the rest of the world in a much more detailed manner so that the business can be ramped up and we can use all the capacity that we have in Parador to pick it up. Our long-term -- short-term strategy is to reach the $200 million revenue levels at Parador. We are about $170 million at the moment, and then we would be investing more into this business and taking it further. So I do not see a problem there. The cost has been brought down, as Veerappan already said, by several positioning. And our team from India are helping them in many aspects, and they are working rigorously in cost side. So hopefully, the profitability will look good. But again, how COVID really plans out in the next 2 quarters will be a decider, but we are all prepared to take this business to big numbers.

[Operator Instructions] We have next question from the line of Baidik Sarkar from Unifi Capital.

Mr. Choudhary, trust all is well at your end and given the circumstances, phenomenal quarter of execution. And congratulations to you, your R&D team, Mr. Veerappan, Ajay and rest of the team. Given the numbers, I have a rather long sort of questions, I'll prioritize them to the best of my ability. Starting with the gross margin profile in the India business, predominantly the Roofing business, we've come off a very strong base in FY '19 and '20 with gross margins upwards of 52%, 53%. And of course, there's been a series of headwinds after that with fiber pricing, sourcing and the like. Where are we in that cycle today? I also understand we're looking at China as a source of fiber import. So any update on both these parameters would be very helpful. Yes, over to you, sir.

Thank you, Mr. Sarkar, and I hope you are safe as well. So far as the margins for our Indian Roofing business is concerned, it's absolutely buoyant and strong. And we do not see that dipping at all. We are making further impact on the cost structure to make it even better. Fiber will never come from China, sir. So we have still got the Russians and the Kazakhs as the 2 suppliers for fiber. However, we are in touch with Brazil once again, and they have some quantity of fiber, which we are able to bring from them. And because of our long-term relationship, we are getting priority over all the rest at a decent price. So that's something that we are looking at. So I am confident that fiber price will get equated over the years, and we will not have it as a negative point in Q3, Q4 as the average price balances. On the cost, we are working very well. So we will continue to deliver good results on roofing as well.

Sure. And in your opening remarks, you had mentioned on your R&D initiatives in reducing the content of fiber. Could you give us a ballpark of what the content reduction has been? And what's -- what are we endeavoring towards?

So fiber is a very big element in the total cost base. So even a couple of percent reduction, 3% reduction is a big, big gain that we get. So when we started buying from Russians, we were highly disadvantageous to 1 or 2 of our big competitors because they had a very big relationship with Kazakhs, and we knew about that. And the fiber quality also Russians and Brazil's are different. So we tweaked it. But at the moment, as I saw R&D has already come out with good efficient mechanisms of reducing the fiber intent by a few percentage, which will add on to the bottom line. And I also mentioned that the nonasbestos roofing part is also being developed in a very, very strategic fashion. And we have registered further IPs on that. Believe me, this product costing is now quite close to the asbestos' costing. And we would take another 6 months to get the confidence up and then we will be able to make this product in all the manufacturing units of roofing. So we will have a lot more diverse portfolio in times to come.

Lovely. Godspeed on that. Parador, obviously, continues to execute very well. And I understand your 3D printing has been a major contributor of this success here. But obviously, there is a currency attribution when we look at the India numbers. So in terms of your Q1 performance, would it be possible to summarize what your reported euro numbers were so that we can kind of track your endeavored revenue of $200 million vis-à-vis where we are today? Would that disclosure be possible?

Sure. I hand it over to Veerappan and Ajay. Ajay? Can I get back to you on that, sir?

Sure. I'll be in touch. And will I be right in assuming that our endeavored margin profile at an EBITDA level in Parador would be closer to 14%? Is that assumption right?

No, the EBITDA level will be sub-10%, sir. I'm sure about that. The quarter has...

Dhirup, the EBITDA margin is...

EBITDA margin is 11%.

8% to 9% for full year. But in Q4 and Q1 this year, it is in -- between 10% to 11%. Normally, Q1 and Q4 is the better quarters, whereas Q2 and Q3 is suboptimal quarters because of summer holidays in Europe and the Christmas holidays in quarter 3.

Yes. No, Ajay, my question was in terms of our endeavor. I understand where we are today. But I think after the acquisition, I mean, please correct me if my understanding was wrong, I thought our endeavor was to lift this up to about 13%, 14% over the next 2, 3 years. Is that understanding right?

No, no. When we acquired the margin was 7.4%. And we have told that our -- yes, Dhirup.

Ajay, I'll take that question. So from about 7-odd percent EBITDA margin, our first endeavor is to bring it up as close to 10% as possible, Mr. Sarkar, and then it will go up further. The way that it will go up further will be to utilize the capacity more. And that's what I was alluding to that we are looking at different zones to expand the sales. COVID has brought us a bit of a setback on that, and that's inevitable. Everyone knows about it. But very soon, our endeavor to improve the sales is what will bring the profitability up, but 13%, 14% is a bit too much at the moment to think about. I think we'll be happy once we reach the 10% and then look further.

Sure. And did you, Mr. Choudhary, say our utilization in Parador was closer to 65%, 70%?

Yes. It was 65% earlier, as you rightly said, it will definitely go up. You see again, COVID has put a bit of a setback in everything. So the top line hasn't grown as much in quarter 1. And as we talked also, July has been a robust performance month for Parador amidst all restrictions. Just to give you a feel, all our competitors in flooring in Europe are collapsing while Parador is 1 that is continuing to deliver. So we are very, very thankful that we have taken certain leads on the e-business and DIY is keeping us on. I'm confident that as soon as COVID relaxes a bit, we are going to jump on to all these newer greener pastures as we have already defined ourselves. The strategies are on, and we will ramp up the production.

My last question before I jump back to the queue on the bookkeeping side. Mr. Veerappan, where are you on gross leverage today? And given the cash flows from HYSIL, how should we see gross leverage playing out for the rest of the year? And...

Right now, we are at 0.77. We are at 0.77. That's what in my opening remarks, I had said, from 1.0, we have brought down to 0.77 and that will further come down. We'll be -- the long-term debt will be repaid to the extent of -- we'll bring it down to INR 100 crores by September. The entire proceeds of HYSIL will be repaid for the debt.

And in the short term, where do we endeavor to be, sir, by September?

Short-term is something -- see, that depends on the business cycle and the way the COVID, this thing. So I'm not too bothered about the short term. I think more importantly, the long-term is what are high cost debt and that is what we are reducing, and that is going to come down to INR 100 crores. Short-term will be depending on the business cycle. It will keep coming down, going up...

[Audio Gap] our tax rates because I'm given to understand there's a disallowance of interest on the principal related to Parador, so once we repay this INR 100 crore relating to Parador acquisition, what will that do to our tax rate for the rest of the quarters?

Tax rate [Technical Difficulty].

Yes, Mani.

Yes, Sarkar, this -- our average tax rate will be close to 25.5% there after the interest is fully paid out, disallowance is fully paid out so far.

We have next question from the line of Kush Gangar from Care PMS.

So depending on -- so based on our [Audio Gap] improved monsoon outlook and improved rural income, what is the outlook for fiber cement volumes for the current year? Because last year, there was a degrowth, so the base is also lower. So do we expect to increase the volumes by a decent way in this year?

Mr. Kush, thank you. Look, for fiber cement roofing sheets, quarter 1 is the decider for the year. And then quarter 4 is the biggest win. Quarter 2 and quarter 3 are always subdued after the rain. It starts picking up around November. Since we have had a good quarter 1 and the rains have been good, I do not see why this year, the volumes will be depressed. I definitely feel that the volumes will be good this year.

Okay, okay. And as you said, Q1 is the main quarter, so the pricing set for Q1 should be carried forward for the full year. Is that assumption right?

So I would like to clarify your words of carryforward because the price definitely doesn't remain constant for the whole year, sir. The price...

So [Audio Gap] said the benchmark is set. The price is highest in quarter 1 because the demands are high and definitely expect the right base for quarter 2 and quarter 3. So discount of prices then happens from a high level at quarter 1. And this year, therefore, we are getting that benefit.

[Operator Instructions] We have next question from the line of Jigar Shah from ICICI Securities.

Congratulations on a good set of numbers. My first question would be on Roofing Solution. Can you just give a breakup of how much was the volume decline and how much was the realization increase in Q1? And whether this was purely a pent-up demand or -- since there was a closure in March and April? Or do you see this as a very good year or a cycle change for -- in at least 1, 2 years, considering the rural focus of government and higher farm income?

Thank you, Mr. Shah. I hope you are doing well. Mr. Shah, I'll take the second question first. So yes, we had literally a washout in the last part of March and almost the whole of April. So therefore, the demand was good in the rest of April and May and June, and it was basically been how well positioned to cater to the demand. Yes, pent-up demand seems more likely in this case. However, the demand continues to be reasonable. So definitely, month of July are always half of where we leave June at. So we'll have to see how it works. On the volume front, I'm sorry, I'm not prepared with the numbers at the moment. We can take it up further with you. And on the price side, I think about 10% to 12% rise in prices is what we have seen so far in quarter 1.

So your July was higher than last year or July was lower than last year?

No, July has been decent. It's very difficult to, at the moment, talk specific of July other than saying this has been a decent month, sir, and we look forward to working hard in making this quarter good in itself. We are being opportunist, wherever possible, and we are working more on costs and detailing on the digital road map to keep ourselves connected with the customer.

My second question would be on the margin of Roofing Solutions. The thing is that first quarter would have seen a lower cost since the annual contract of asbestos fiber changes every year. So -- and due to INR depreciation, it would have risen for Q1 cost and plus cement prices have risen and logistic cost must have gone up. So what is your outlook on margins going forward? Whether more than 20% EBITDA margin is sustainable? Or it will come down to 15%, 16% for the overall year?

Sir, costs have been very high in quarter 1 for all materials, and it's normally like that, while the selling prices goes up because of the demand. The costs will come down a little bit in quarter 2, quarter 3, so far as cement is concerned, again, it's led by the demand. Fiber, I think we were disadvantageous to many of our competitors in quarter 1, but that should ease out assuming the profitability to stay above 20% -- I think HIL has been always the leaders in pricing throughout the country, and we will continue that spree while the costs are coming down. Hopefully, we'll post decent results.

And what about the demand continuation, whether you see whether it will be for 1 or a year -- 1 year or 2 years? How do you see demand going forward?

Sir, normally, the demand follows the rainfall. And last year, we had good rains. Rabi crop was good again for this year. So we saw cash in hands of the rural sector. This year also, the rains have been good. So I'm positive about next year as well.

Okay. So you see both 2 years of good demand going forward...

It's normally that way. It's about 2 years good demand, 1 year then it dips. So there's been a cycle if you follow, I'm sure you follow that. So hopefully, next year will be good, sir.

My next question would be on Pipes & Fittings. You said that you've grown by around 25%, 26% in May and June. So what has led to that demand in Pipes & Fittings specifically, I mean, strong double digit?

So Mr. Shah, the total market of Pipes & Fittings is huge, and we are absolute small price into that market. So any bit we are able to get significantly looks a higher growth, looking at a small base that we have. I think what I'm really happy to announce is the way that the team has worked on heat maps, looked at district mapping and run through the entire country back and seen where really the business can come. So I think the way they have explored the business, relooked at greener pastures while keeping themselves and everyone safe, I think, is enormous. So that has given that growth. We have definitely worked very hard at pumper engagements and stuff, and hopefully, that should continue for us.

We have next question from the line of Dhananjay Mishra from Sunidhi Securities.

Sir, many congratulations on very good operating performance. Veerappan sir, just wanted to know what is our raw material breakup in terms of fiber and cement cost-wise and other raw materials?

I didn't get your question, if you can just repeat?

Out of -- let's say, INR 100 crore raw material costs, so what would be the cement cost, what would be the fiber cost and other costs in terms of...

It will around 20%, 23%, yes.

Sorry?

20%, 23%, it will be.

Veerappan, on the material cost, it will be higher. On revenue, what you're saying is right. On the material cost, it will be higher. So fiber and cement almost equates to the major part of the cost of material.

So as a percentage of sales, it will be about 20% for fiber and maybe 12% for -- 12%, 15% for cement?

Yes, it will be higher than that, sir, on a material cost percentage that you are asking. So if 100 is your total material cost cement will be about 30%, 35%, fiber will be about 50%, roughly.

Okay. And sir, could you provide the breakup of product-wise, like panels, boards, pipe, putty, what -- in terms of value for this quarter?

So Mr. Mishra, I'm not prepared with these numbers. Can you reach out to my colleagues? Subsequently, we can give you all these information.

Sir, last question, what is your current market share? I mean we have improved our market share in fiber cement. So what is the group market share as of now?

In quarter 1, we would have done close to 21%, and we are -- we have gained market share by 1% at least over last year. And we hope to continue because the differential -- volume differential between us and our competition will be far in excess for anyone to come closer to us. And that has been a fantastic achievement by our team in mapping out 572 districts that they have done. And I think that is going to help us going forward.

21% you said?

Close to. Yes, sir.

[Operator Instructions] We have next question from the line of Nikhil Upadhyay from Securities Investment Management.

Congratulations on very good set of numbers, sir. And really appreciate the way the team has performed in such a challenging environment. Sir, I have 2 questions. One is on Parador. And if I read through our annual reports and our Q4 commentary also, I think there is a lot of execution improvements which we have taken, and we have done a lot of work in order to meet the demand. If you can just help me understand, so there are 2 parts to it. One is like you mentioned, we've entered newer places like Nordic, we have got an order in France and some of the -- so of the 70% which we say for Parador Europe was contributing, is that like there were 2, 3 countries which were contributing significant and most of the other countries had a lower contribution and as we are opening new distribution areas or new offices, we are getting higher demand? And secondly, what kind of changes to the execution model that we have brought in post the COVID as a result, we've been able to get the demand and able to meet the demand better than what competitors have been unable to do?

Nikhil-ji, first of all, thank you very much for your wonderful complements to me and the team. That takes us a long way. Parador, I think I'll repeat just for -- some part could be a repeat. We have definitely focused on [ Europe ] in a big way. We have enhanced the sales team. We have got some senior staff into the sales to pep up the sales. E-business is another activity that we started. We focused on DIY. So there was a 3-stage model earlier, where we were pushing the volumes to distributors, then through DIY to the customers. We have now shortcut one of the lines. So we have directly gone into the DIY bottle. In Germany, that has helped us immensely during the COVID. While the country borders were sealed, while people were [Audio Gap] at home, they wanted to spend a lot of money to renovate their houses, that as you know, in Europe, mostly people do it themselves. So this is the time they wanted some suppliers to supply them material. And I think this is where Parador has stood up absolutely. So they have changed their logistics mechanism of lifting the product and sending it to the customers directly. The brand Parador has really stood up in big times by us. All our factories were running full up, while many of the factories, as you know, in Europe were closed down. So we were running with full safety, with full social distancing. That's all helped us. On a spread of revenue, you asked that question. So out of 100% share of revenue Parador, 50% comes -- used to come from Germany and Austria, 25% -- I'm saying just rough figures, 25% used to come from rest of Europe, and the other 25% used to come from rest of the world. We have -- what we have seen, of course, during the COVID situation is because the borders were all sealed, rest of the world was more or less closed, all the commercial activities were closed, projects were put on hold, shipments were not happening, and therefore, we had to primarily focus in Europe -- and Germany, Austria and Europe. And that's worked very well for us during this time. So we are very hopeful that, for instance, countries like France, Spain, even United Kingdom, Austria, Germany, all of that are presently doing well as I speak to you. The order intake has been good for Parador. We have, therefore, shortened summer breaks in Parador, which is normal in every European company, as we have -- people have come back to work already. And we are hopeful that with these joint ventures that we are planning and executing one by one, the sales would definitely show up in the coming quarters, if COVID settles down.

Sir, just continuation on those, like, if you say 25% was coming from Europe, while if you look at the countries by the per capita consumption and ability, would these countries be equivalent to the size of Germany as a market? And as we are improving our distribution or ability to reach, that is helping. So is it like Europe itself is a big opportunity for us to grow our revenue base? Or how should one understand that?

So Europe itself is quite a good market and big tier for brand, and that is where Parador really comes up. As you would have seen through our net, we also have very clear alliances with very high end, well-known interior guys. So they kind of design the product for us in Parador. About 50% of the revenue of Parador gets changed every 3 years by new products that get designed in our R&D site. So definitely, that's something that many other companies are not doing. Europe is a big market and Europe market has good demand, but there are lots of players in Europe. So unless and until you have a USP which separates yourself against the rest, whether it be brand, whether it be designed, whether it be the connection with the customer, whether it be delivery to the customers, all of that supports this drive. And I think we are looking at all of that together in bits and pieces to bring up a story which will help us to excite Europe. So Europe being one, the rest of the world, we don't want to forget. Parador has started exporting to 80 countries, 8-0 countries. And we believe that United States is a big market. We believe that Middle East is a big market. China, of course, is a mammoth market because that's the biggest middle class there. So all of that are creative thoughts that we have, and we are executing that 1 by one. As I said, COVID has brought a slight bit of break into it, but we are going to be back.

We have next question from the line of Amit Vora from PCS Securities.

Congratulations once again to the entire team. My first question is on the costs that have reduced during Q1. How much of them are not going to come back? And what portion of that would come back?

Mr. Vora, thank you very much for your compliments. On the cost side, we have looked at both -- so there are 3 costs -- there are 3 or 4 cost elements that we are focused on. One is people cost, and I'm going to talk about that. The second is material cost. The third is variable cost and the fourth is other fixed costs. So we looked at all of them. We have looked at decimals. We have line item wise cost structure monitoring at each of the factories, which we are doing live. So which means every day, those papers are with every one of us. And we are able to see where we are. Now on the people side, of course, there has been a discretionary reduction of salaries that we have all taken during this severe times to support the company's performance. Those will come back as the performance betters. There are a lot of releases in manpower that have happened, not many, but about 50, 50-odd people have left the organization. Some of them have resigned some of them, the positions were no more required, so the jobs were not really needed. So all of that has been done to streamline the organization better, that won't return. So that is a permanent cost saving that has happened. On the material side, of course, there is a fluctuation that keeps on happening, but our strategy through R&D has been always to reduce the material cost consumption and that is continuing. On the variable and other fixed costs, we have made lots of efforts to see how to run the factories with minimum workmen, with minimum power costs, source and spares costs and all the rest. Advertisements and promotional costs, along with traveling and conveyance costs are again, discretionary, which at the moment, we have stopped it. As situation improves and as the business would need, we may have to bring some part of it back. So majority is a long-term cost out. Some part of it will definitely come back.

Okay, okay. That's really helpful. The second thing is on the geographies that would have done well for us on the roofing side. Is there a particular part of India that you focus? I'm sure you did mention about you did have a heat map and you were tracking. But is there a particular geography that you have really focused and that has -- there where you have taken market share?

Every geography, we have taken market share, let me tell you that with full confidence. We have looked at every state. We have looked at every district, zilas, everything. It has been mapped to the last leg. There was a difference by which HIL was performing earlier, which was pushing the volumes through big distributors and then penetrating it into the market, that has changed. So we have used this pandemic to our advantage. And now we are pulling the business through our reach to the last consumer. I think that's been a dramatical change in the way the sales has really done. And we have mapped pin codes. 572 districts, as I said, pin codes have been mapped. So we have a complete understanding of where our customers are, where the market is, which part of it, the volumes are there, which are green zones as per COVID. That's a live map, which is modified every day. And through these BI tools, we are able to direct our complete audience to the volume. So yes, all of that is continuing, not only for roofing, but for other businesses as well.

We have next question from the line of Pritesh Chheda from Lucky Investment Managers.

So just one question on Parador. When you mentioned that the aspiration is to reach from $170 million to about $200 million revenues and take the margin from whatever 10%, 11% to about 13%, that vision of yours is achievable in how many years is the vision?

Okay. So thank you very much for your question. No, I would just modify your question a little bit. This is our vision jointly with Parador. The profitability from 7.5% would come closer to 10% is what I mentioned at EBITDA level. So anything above 10% is going to be difficult as we stand today, but not impossible. We will definitely work for that too. This should come in the next couple of years, is my -- in fact, it should have been closer to that had COVID not affected the business. But we will definitely strive to get this business up by that much in the next couple of years.

And this $200 million business is doable on the current capacity? And if we have to add any new assets, what is the asset turn in this business? And what is the incremental ROC?

So all that are plans which are there. At the moment, we are not adding any asset because of COVID, but we will do it incrementally. There'll be just small deficiencies here and there that we'll have to add. No major CapEx will be needed. $200 million capacity can be delivered from the machines that we have with minor modifications.

What is the incremental ROC in the business?

I don't have that number at the moment. Can we get back to you on this please?

Okay. So your -- okay. I can just ask, what is the working capital cycle in this, so I'll figure out the other things.

Ajay?

So working capital in Parador is close to 13%. The main working capital item is inventory, where the inventory alone is for 2 months.

So working capital cycle is 13% of sales?

Yes, 13% is the net working capital.

Okay, okay. And this $200 million revenue, what asset would have been put on the ground for generating this $200 million?

Sorry, that's the question you asked earlier. Do we need further CapEx into it? As I said, not much will be needed.

But what is the amount invested for this $200 million revenue? What is the asset block?

What's the net block you are asking?

Gross block, actually, not the net block.

Gross block. Okay. Ajay?

Yes. So see, the assets are old. We have revalued and the current block is EUR 45 million for CP other than intangible. They have intangible assets of goodwill and brand also in that business.

Actually, just clarify it is euros.

Yes.

EUR 45 million you said?

Yes.

We have next question from the line of [ Ritika Dua ] from [ Aequitas Investments ].

Congratulations, sir, on an excellent set of numbers. Sir, I wanted to know how did the industry grow in the Roofing segment in quarter 1? And what is the likely growth for the full year for the industry as a whole?

Ritika-ji, same comments to you. I hope you are doing well, and thank you very much for your wonderful comments. The Roofing in quarter 1 has not grown because we were deprived of about 20 days of sales. There was a degrowth in the Roofing segment. We have -- definitely, we are at par in Roofing over the last year. So we are the only company where the revenues have been met over last year.

Sir, what is the volume degrowth for the industry?

The volume de-growth for the -- Veerappan, would you have that number with you?

Yes. It will be around 11%.

11% degrowth.

And sir, how do we see realizations for the remaining -- for this quarter? I mean are they higher year-on-year?

Definitely because we have exited quarter 1 with a good NSR. So certainly, Q2, at the moment, as we see, the realizations are better, and it's needed because the prices of raw materials have gone up also. So it's very much needed for sustainability of the organization also.

Okay. And also, sir, could you give us the volume for Roofing business for HIL?

I mean, we can pick it separately, if you don't mind?

Yes. We will -- Ritika, we will get back to you.

Okay. And I wanted -- one last question regarding Parador. You mentioned that a lot of competitors have shut down in Europe. Who would you consider as your closest competitor?

So there are 1 or 2. One is HARO, for instance, in Germany, which are big names, then Tarkett is there in -- another big name there. So there are some of them. I didn't say they have closed down fully, I've said they have reduced their production substantially.

We have next question from the line of Anish Moonka from JST Investments.

Congratulations on a great set of numbers, given the economic scenario. Sir, how does the consolidation in the real estate industry affect us? What happens in the gestation period in which it pans out? And how does our pricing power gets affected? If you can share your past experience?

What was your third question?

Sir, what happens in the gestation period in which it pans out, the consolidation? And how does our pricing power gets affected, if it happens? Sir, if you can share some past experience regarding this in any of the markets?

So real estate, you see, we are [Audio Gap] manufacturing company and definitely real estate is very close to us. While the Roofing segment primarily comes from the roofing sheet replacement or new projects that comes in the rural sector, the roofing normally goes for animal husbandry, it goes for the pens for the chickens, it gets into the roofs of various construction houses as well as godowns. It's primarily a rural demand B2C business. In so far as building products -- the Building Solutions segment, the SBU-2 is concerned, we sell blocks, panels and boards, and that gets into the A, B, C class cities, to big builders, to real estate, to commercial projects, to COVID center, to labor huts, and we have done fantastic in diverting that particular business over the last 2, 3 months into where it's really happening, which is the COVID center and labor hutments, about 45% of our revenue has come from that. So that's like diverting your attention to where it really needs. So far as the real estate is concerned, it's very much still down. I think it's going to take another minimum 2 quarters for it to come back because there are lots of unsold inventory, free cash flow is very difficult in that sector. Labors are not available, laborers are a problem, material availability, transportation, all of these issues are there. So I do not see, I'd say, the real estate really coming back so soon. But however, the construction is happening. The government funds are going for roadway constructions, for many other low-cost housing, and we are focusing ourselves towards that to see how we can get the mileage out of it. Sorry, I couldn't get about the gestation part of it, so if you're saying where our products goes, at what time? Is that the question?

No, sir, it's about the -- till -- how much time could it take for the real estate industry to consolidate? So normally, it has not recovered in the last 5 years, so something on that terms?

Sir, very, very difficult for me to make a prognosis on this. We'll have to see how COVID pans out, but real estate will remain depressed at the moment is my answer.

Sir, one question, do we face any receivables problems from the real estate players do we -- that we cater to?

So I think in the opening remarks of Veerappan, he made an allude to this, that there is none that we believe is going to be a long-term problem for us. But short-term, in Q1, for the Building Solutions segment, we definitely had some problems in getting collections done because some of our long-term, well-valued customers had problems with cash flows because their business did not come back effectively. So -- but we are hopeful we'll get all of that selected this quarter. So I don't see that there will be a problem in so far as those are concerned.

We have next question from the line of Arpit Shah from Care Portfolio Managers.

Yes. Sir, excellent set of numbers. Heartiest congratulations. And a majority of the question has been asked, sir. Just 2 follow-up questions. One, is there any amount of bad debt in Indian business or in Parador that we have written off? Second, in the -- you said that in Parador in Europe, many players in the flooring business are collapsing. So any reason -- particular reason for that or like receivables or inventory management or something and we are better on those aspects? And sir, last is on the CapEx. Any CapEx guidance for the year?

Thank you, Mr. Shah, and hope you're doing well. So bad debt in India, honestly, I mean, about INR 3 crores or something at the most is there, which is a long-term bad debt that we have. I don't see any immediate or recent deliveries are turning into it. But we are hopeful that we will be able to recover some of that. In Germany also about...

These have been provided for?

Yes, they have been all provided for. In Germany also, there is about INR 3 crore of bad debts. I'll not say bad, I'll say old debt, but we will get that back I'm also hopeful. They are also -- they have also been provided for. So far your question, sorry, on...

The competitors and other players in the Europe in the flooring, not all...

Europe, honestly, the problem that has happened is the big stores or dealers have all been closed. So therefore, government has allowed small stores DIY to be opened more from continuity of life. And since we had diverted our attention towards DIY sale, I think that has helped us well, while the others could not get that benefit. Second is, I don't think everyone had the opportunity of a well framed logistic support for shipments that were to be lifted from the factory and delivered to our customers' home. So we did that. And I think that has helped us immensely during the lockdown period. So it's basically that during the lockdown, movements were restricted, borders were more or less sealed, and they had lots of problems. So some of them could not do the revenues as much as probably they wanted to, but Parador continued it. So...

So sir, this can be attributable only to Q1 or even Q2 or right now also we are gaining that market share or we are -- so they are still unable to deliver? Or what is there now?

I think the problems have come down of bit in Europe. So countries are opening up. With the opening up, I'm sure their businesses will come back. But we have taken the best out of it already and continuing also our business looks to be on solid grounds.

Okay. Sir, CapEx guidance for India or European -- so European you have already said no. But in India, do we -- I'm seeing somewhere in the presentation that we want to plan some CapEx?

So in India, the big CapEx items, which was to enhance the capacity for Building Solutions segment has been put on hold. We will come back to it once the business comes back after the COVID. So India will be mainly maintenance CapEx in all the businesses, which are needed. Some of the machines are old. Some of the plants are old, they will need some bit and 1 or 2 CapEx, which are fall over from last year. I would consider that we will limit our CapEx in India to be around INR 60 crores, INR 65 crores, not more than that. In Europe, again, maintenance CapEx by far, except for a little bit addition here and there. So I think about $3.5 million is what we are hoping in Europe this year as CapEx.

Sir, just last question on the Charminar Fortune, taking the feedback from the institution, like we understand that it has not taken off as we expected. So sir, what makes you believe that changing the strategy that what we want to see that it increases the share or it reaches out to the people and there is a demand for this kind of products?

Mr. Shah, this product, I was very, very clear right from beginning that this product was more to get us out of asbestos if the need arises. So it's more to secure ourselves for future in case there is a problem with asbestos. We had an issue with this product when we first made the first version of it where we use autoclave, and therefore, we needed autoclave to process this and that limits your manufacturing capability per line. So while just giving an example, if one line of AC sheets can deliver 500 metric tonnes in a day, and we are the only ones doing that incidentally, the others would be at 350, 400. Using autoclave, which automatically gets restricted to about 150 metric tonnes even with 4 autoclaves. So those restrictions for the first version of Fortune that we made. Therefore, the costs were high and the efficiencies were low. We have now worked with R&D to look at alternatives to do it without autoclave. These IPs are getting registered, and therefore, I can't talk too much loud on that. But as soon as we are able to prove all of that, we will be able to make this from any of our lines of AC sheets. This becomes then a sustainability plan for in case asbestos goes off. Also, we can utilize once the efficiencies have gone up and the costs have come down, we can utilize this much more in the market for customers who do not want asbestos. So you would see the better part of Fortune coming up in the next 6 months’ time after we have proven this new R&D concept that I just alluded to.

We take the last 2 questions. We have the next question from the line of Bharat Shah (sic) [ Bharat Sheth ] from Quest Investment Advisors.

My all questions have been answered.

We have the last question from the line of Ritika Gupta from Aequitas Investment.

Sir, [ Subham ] here. Sir, for the quarter, we -- in the presentation, it was mentioned that in Building Solutions, we did a capacity of around 30%. So I wanted to understand at what capacity will we breakeven in this segment?

Mr. Shah -- sorry, [ Subham ], let me tell you that our entire focus has been at breakeven, first at the EBITDA stage, and this business did not breakeven at EBITDA stage in quarter 1, but I'm happy to say that we have reduced the cost immensely and you would see better results in quarter 2.

Okay. Sir, and in Polymer Solution, so out of INR 48 crores, what would be the contribution of wall putty?

About 50-50.

50-50, okay.

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

Thank you very much, Vikram. 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. If you have any further questions or would like to know anything more about your company, kindly reach out to our Investor Relations desk or reach out to me, and I'll be most happy to answer any of your questions. Thank you all, and stay safe.

Thank you very much, sir. Ladies and gentlemen, on behalf of HIL Limited, that concludes today's conference call. Thank you for joining with us, and you may now disconnect your lines.