BirlaNu Limited (BIRLANU) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to HIL Limited Q2 and H1 FY '21 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; and Mr. Ajay Kapadia, Assistant Vice President, Finance and Accounts. We will first have Mr. Dhirup Roy Choudhary making the opening comments and he will be followed by Mr. Veerappan, who will take you through the financial perspective. 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 details in this regard are available in the earnings presentation, which has been shared with you earlier. 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 very much. Good morning, ladies and gentlemen, and a warm welcome to the quarter 2 and first half FY '21 earnings conference call of your Company. I thank you all for taking out this time to join us on this call, and hope all of you are safe. During the entire H1, among several headwinds that the industry witnessed, the management team stood behind me and your organization and has converted the crisis into an opportunity by showing huge tenacity and fashion. We have all worked tirelessly to overcome the bottlenecks that have resulted from COVID-19 pandemic, maintained profitable growth of the Company, both in India and in Europe, while ensuring health and safety of our team were our major priorities. The implementation of smart digital systems, business intelligence platforms, heat maps, pin code wise customer tracking and connects, acquisition of hundreds of new counters and implementation of robust daily review process fueled by undaunted commitments of our employees have enabled consistent business performance. As an organization, we have been highly adaptive, agile and innovative in our bid to overcome this mammoth task. Our senior management team and central response teams have together monitored health of our employees and our families 24/7 by holding rigorous awareness sessions and prescribing hygiene and distancing norms in all our facilities, which has kept all our factories free of COVID. We have adopted the zero-based cost model in order to make the most of the current situation by redefining our organizational structure and costs. In this process, our returns has been towards leveraging technology to reduce costs and make our processes more efficient. The implementation of an end-to-end Connect Digital Shop Floor IoT 4.0 across many of our plants along with integrated robotic process automation, institutionalization of Lean Six Sigma and CPM are all promising to deliver good results in the coming quarters as well. It was imperative that while we have totaled our travels, we don't lose employee connect during these times. A program called Man Ki Baat, MD Ke Saath, a new open house series has been rolled out where I spend time with small groups of employees and address their concerns. Another innovative new platform called YourDOST has been introduced where external counselors are speaking to our employees to address their well-being and stress. All of these have resulted into our topline growth of 22% year-on-year on consolidated basis for the quarter, with the revenue of INR 704 crores compared to the INR 575 crore last year. EBITDA grew from INR 68 crores in quarter 2 for the year '20 to INR 99 crores this quarter, posting a growth of 72% on YoY. The rural economy has seen good sustenance during this quarter, which has positively impacted our roofing solutions business. The fiber cement sheet business witnessed a high single-digit growth during the quarter, while HIL was able to grow in double digits, thereby improving the market leadership further. We are hopeful to see a positive traction in this business in the coming quarters. Building solutions segment is seeing slight revival with the increase in economic activity, the lack of construction activities in real estate sector in Tier 1 cities, posed a huge threat to our business during the last 6 months. Tier 1 cities were the most hit and hence the business had to be agile and refocused their sales towards Tier 2 and Tier 3 cities and towns using live digital techniques. This has enabled us to recover our volumes substantially in the last couple of months. The teams were very agile in recognizing target cities and opportunities in the construction of COVID centers and labor hutments, which had contributed towards faster recovery of business. We believe by Q4, we will be able to come back to our last year's level. However, we have ensured during these times that the profitability is maintained at a higher level for all the quarters. The pipes and fittings segment is performing very well, the wide manufacturing footprint, strong brand presence, and our process efficiencies. We have achieved [ 48% ] growth year-on-year during this quarter, and have been able to acquire several new counters during the count -- during the quarter. Parador has been moving from strength to strength, exactly in line with our activations. Introduction of e-business and focus on DIY clubbed with the brand Parador have fueled the success for consistent performance. While the entire Europe and the rest of the world were literally closed due to COVID pandemic for most of the time, your factories were fully running. This has led to a good growth in order and profitability during last quarter. As the global situation improves, we are confident that Parador will be able to spread to newer geographies like America and Middle East through JVs or direct presence. Parador China is also coming back in good pace and has delivered higher business than earlier years in the last quarter. In conclusion, I would like to reiterate that your Company has demonstrated a great deal of resilience in these turbulent times. Our agile and flexible business model has allowed us to rise to the challenges. Over the past few years, we have substantially reduced the risk profile of your Company by diversifying into new products. We hope to continue this performance in the coming quarters as well. Thank you very much for your patient hearing. I would now like to hand over the discussion to my CFO, Mr. KR Veerappan to take us through specific numbers.

Thank you, Dhirup. 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 Q2 and H1 FY21. With the easing of the lockdown, the financial and operational situation of the Company has also improved year-on-year during the quarter. Additionally, the resilience of all our teams has also helped to give a boost to our recovery. Roofing solutions business grew 27% year-on-year during the quarter and 9% year-on-year on a half yearly basis, while the market has de-grown in the last 6 months. Building solutions was down by 13% year-on-year for the quarter and by 40% year-on-year for H1. Polymer solutions business grew 48% year-on-year during the quarter and 12% year-on-year in the first half of the year. Capacity utilization for all our business segments are now on the upward trajectory returning to their pre-COVID levels and even better in case of AC sheets, pipes and fittings, and putty businesses. We are constantly working on curbing our costs and optimizing our processes to improve margins. The strategy has proven highly effective and gives us confidence in abiding by it in the future as well. Coming to Parador, having completed a smooth acquisition and integration last year, our focus was on improving profitability and sales. We have implemented various tools of management like Six Sigma, zero-based costing and lean manufacturing processes, which has led to a reduction in cost, thereby increasing profitability. Operating margin has been healthy and has grown compared to same quarter last year. Consolidated EBITDA from continuing operations came in at INR 99 crores for the quarter as compared to INR 58 crores last year and INR 206 crores from INR 153 crores for H1. The consolidated PAT stood at INR 49 crores during the quarter, showing an increase of 63% year-on-year and INR 99 crores for H1, growing by 47% year-on-year. The sale of thermal insulation business was concluded during the quarter, resulting into total PAT tripling during the quarter from INR 32 crore to INR 94 crore. I'm also happy to inform that at the consolidated level, we have surpassed the last full year PBT and PAT in the first 6 months of this year from continuing operations. As all of you are aware, the business in India was completely shut down in the month of April this year. And hence, these numbers have been literally achieved in 5 months span period. We do not anticipate any significant effect on the carrying quantities of inventory, intangible assets, paid receivables, investments and other financial assets, as we continue to track economic condition closely. In a situation as we find ourselves in currently, having cash is critical and we are very comfortable with our liquidity position. We also built the teams that have helped preserve liquidity, profitability, linked consumers and suppliers, linked staff and track people's health and safety. We have taken a range of steps to ensure that we are able to make the best of this opportunity. We have reduced the Company's debt to INR 529 crores at the consolidated level from INR 741 crore as on 31st March, 2020. Cash flows are healthy as well. The debt to equity ratio stands at 0.59x compared to 1.0x as on 31st March, 2020. We reduced the long-term borrowing of HIL [ India ] further by INR 90 crore during the quarter and INR 212 crore in the first half of the year. EPS from continuing operations came in at INR 132.46, grown by 47% year-on-year in the first half of the current year. It's our constant endeavor to maximize profitability to boost the returns of our investors. To that effect, this quarter has been extremely satisfactory. With this, I would like to conclude my opening remarks. I request the moderator to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Naresh Katariya from MoneyCurves.

Congratulations, Dhirup and the entire team. Super performance, especially the balance sheet improvement and debt repayment, so superlative performance. My question was related to the expansion. I think we are rapidly using up our capacity. What are the capacities which are coming up this fiscal and next fiscal in various segments, divisions we have?

Thank you, Naresh, for your kind remarks. Yes, we are definitely considering at all stages for organic growth of capacity. I think building solutions is one segment where we had already decided to expand the capacity last financial year. However, due to the onset of COVID, we have taken a dip. We are going to reach our full capacity in this segment by quarter 4. And therefore, we have already initiated once again our discussions in that regard. We will be setting up newer plans for both Board as well as panels in parts of India, where we are not present. East is one zone where we are not there at all at the moment. And as you know, blocks can only travel 200 kilometers economically. So that's an area we're looking at. We may strengthen our Southern Bank further because we -- though we have a factory in Hyderabad and in Chennai, I think the demand and the brand presence in south is exceptionally good. So we may look at that. So you would soon hear more details about this as and when we finalize and get an approval from the Board. That's on the building solutions. On the roofing, of course, we have enough capacity, and we have recently in the final stages of adding our capacity in Faridabad for non-asbestos roofing because that was not there earlier in Faridabad. So I believe by end of December, early January, we will be upon running there. On the polymer business, we have enough capacity in Golan. At the moment, the capacity utilization has already gone up this last 6 months. So Faridabad is full up for polymers. Timmapur is full up. In Golan, we are about 50%-plus users -- usage. So we have some more time before we take a decision of adding those capacity. But if there are new product ranges that we want to bring in and that needs certain specific small capacities to be added here and there, we will definitely look at that. Parador has excess capacity, yes. And therefore, there won't be a major capacity enhancement there. There will be some normal CapEx that definitely will be spend. So our CapEx spend therefore I do not see will be exceptionally higher, not definitely this year, but even for next financial year.

Dhirup, that was very, very comprehensive. I was just surprised positively to see on your Twitter handle a new product called tile adhesive. I have not heard or maybe I missed you discussing in any of the con calls. Is it a new product? And how big is the market? And are we focusing on it quite aggressively?

So Naresh, it's slightly premature to discuss this at the moment because we have just thought about it. There are certain teams that have been formed to look into this. I believe the market is good and definitely that will be able to get channelized through our existing channel, and therefore, the B2C route will be far useful. Give us another quarter or 2, and we will get back with more details.

Super. My last point is on how is the business climate generally you are seeing for H2 because we're getting good traction from cement from housing, several segments or economy the rural side. So are you seeing the momentum continuing to H2 for our Company in India?

Naresh, I'm very positive looking. So yes, I would hope that we don't have a severe headwinds COVID -- due to COVID in India. Europe, definitely is slightly deteriorated over the last one month, you must be noticing that. And certainly, the rest of the world hasn't opened up in many ways in the construction sector. And therefore, the Parador business from the rest of the world has remained subdued. But I'm hopeful that in India, we should be able to work our ways through. We have done a lot of enhancements to work during tough times. As I was saying, the smart digital business that we're doing intelligent platforms, heat maps et cetera. We are getting prepared even if COVID was to continue to drive the business in the most efficient way. So I don't see we will be extremely concerned about that, though COVID really takes a complete different route no one can say, but I'm positive.

The next question is from the line of Amit Vora from PCS Securities.

Congrats on a very good set of numbers. First is, on Parador of course, because it is the second round of lockdown that has started in Europe. Has there been any impact on our business?

Thank you. Amit. Thanks for your kind comments. You can -- we have been able to adopt a far superior and efficient sales model within Parador over the last year, enabled by e-business, DIY and brand strategies, which has allowed us to outperform, I must say, all our competitors during these challenging times. The second round of lockdown does continue to post headwinds to our business, especially in the international market segment. As you are aware that 25% of our business comes from outside home country, which is Germany and Austria, and another 25% comes from rest of the world. We are definitely not growing as well as last year. So there is a degrowth there for Parador, but we're having a very, very good tailwinds in Germany by the way we have structured ourselves. And I'm hopeful and confident to continue doing better businesses this year over last year, while these challenges will continue to ring the bells.

Okay. Okay. The second question is, we have done very good on the cost saving part. What part of this is sustainable and what part do you think might come back again?

Okay. So we have definitely -- we can confirm to you very definitively that your organization has converted this crisis into opportunity and utilized it to reprocess organization structure and cost thereof. While most of the costs that have been taken out are sustainable. Some of it are discretionary like salaries, travel costs, marketing and branding costs, which in due course will come back in small scale. But overall, this cost saving drive certainly cleaned up our P&L to a great extent and should be something that will sustain in the business profile.

Okay. Okay. Okay. And one last question, and then I'll jump back in the queue. Is there a target that we're having for the debt repayment for the second half? Is there anything that is there internally or if you can discuss that?

Thank you. We have, as you know, reduced about INR 212 crore debt in H1, of which long-term debt was reduced by INR 120 crore. The break-up of INR 120 crore is INR 113 crore has been repaid in India and INR 7 crore has been repaid in Germany. As you are aware, we're not in a hurry to repay the debts in Germany because they are at a substantially low interest rate. While we will certainly repay INR 32 crores in H2, I can confirm that because that [ was a repayment schedule ]. INR 14 crores will be reduced in India and INR 18 crore in Germany. Depending on further cash flow and how the business really turns around, we will take a call to reduce this further. I've been always transparent and this is the way you will hear your company always. I must caution you that we may add on a little bit of working capital there as time goes because we have a full season that we foresee coming up in the next financial year from April. So we will add on to the inventories and others. But that will be a short-term debt. So yes.

Yes, but that will be more for the upcoming business season, which is looking very robust and very promising as of now because of [ excellent amounts ]. So is that the right way to look at?

I agree. Inshallah, let it be like that. Thank you.

The next question is from the line of Baidik Sarkar from Unifi Capital.

Mr. Choudhary and Veerappan and many congratulations on the phenomenal quarter, especially in the circumstances, there seems to be an execution on every aspect of the P&L, balance sheet and my complements with that to you. Couple of questions. Would you reckon there is a one-off-ish kind of tailwind that benefited our roofing business this quarter, stuff like rural sentiment? And to that extent, not entirely replicable, say, in the same time of next year. Would you reckon that your market expansion is organic and the volume tailwinds remain, as we enter the next season?

Mr. Sarkar, I hope you're doing well. Thank you for your question. To answer your question, let me give you a little sweep into how the market and market shares have done this quarter. Fiber cement roofing market according to me has grown by single digit in quarter 2, while it has de-grown in quarter 1. And overall, in H1, it has de-grown by about 4.5%, partly because of the April loss of volume. Your company, HIL, has however gained about 250 basis point to 300 basis point market share in Q2. The implementation of smart digital systems and heat maps, pin code, acquisition of hundreds of new counters et cetera have all helped us in this. I think as we also see, there was a pent-up demand in Q2, owing to the demand continuation from Q1 because of the loss of one month almost in April. That has definitely slowed down. But the rural business is continuing to dominate the overall GDP of India. And I think that's the positive sense for us. The Rabi and the Kharif, both have been good. Rains have been good. So next year also promises to be good. So I'm very, very positive, if you ask me that the demand will continue. And in any case, HIL is gaining market share, and will continue to do that.

Sure. That's very [indiscernible]. So we're about 3 months away from comparing for Q1 of next year. Any pricing levers in the roofing segment that you believe can see us through next year? And how is the peer group thinking about pricing as things stand today?

Mr. Sarkar, your second question is difficult for me to answer because sadly, I do not discuss prices with them and the peer group. But what we see from the market is they are not very consistent. So there are players who have been lowering their price even when let's say the demand was good in Q2. But that's their business practice. I honor them for their business. So far, as HIL is concerned, we have definitely lowered our prices in Q2 over Q1. And that's quite a regular affair, owing to coming out of the season in Q2 once the rain comes in, but we're definitely still doing better on our NSR over the last year. HIL owing to its established brand and pan-India presence as well as their connect to the last leg have continued to dominate the market on the prices, and are the leaders for both quantity and prices even in quarter 2 and for many years now. So I think now is the time, maybe in a month or something the price will start going up. And I would see that quarter 4, therefore, we will enjoy a better price and selling price than quarter 3. And we'll prepare ourselves for the next season.

Sure. I came to understand from your commentary after Q1 that the green roofing product was about 6, 7 months away from commercial launch. How is that looking? And can that be a potential volume disruptor for the industry, say, for the next financial year? And are you facing any challenges on the feedstock front and fiber, your comments to that?

So this business, Charminar Fortune as we call the non-asbestos corrugated cement-based roofing, has been stabilizing fairly well for us. And with each quarter, strengthens our own belief on non-asbestos technology. Our R&D is relentlessly working towards even better technology using humid cure in place of autoclave drawings towards improving the operational costs, making this product even more stronger, so the LVC would be stronger as well as allowing flexibility for future to make this product in any of our roofing plant, so we will not be again extremely linked to one particular plant. So this, as you know, is our strategic direction forward. And we're -- we have established a new product range or new product range with humid cure and that files have been very successful about 700 metric ton, 800 metric ton has gone into the installations also and doing extremely well. So while our older Charminar Fortune variant, which was autoclave has been doing fairly well, the newer version of humid cure also is posing to be far superior in many ways. And the Faridabad plant, which will sum up will be dedicated to this. So I think this is our technology for future. I don't think we have reached the level of business where we should start talking about the numbers et cetera today, but we're very hopeful that in the next couple of years, you will see a good traction of this business into the institutional segment.

Sure. In the Parador business, if you can help us understand apart from the DYI, which is a pull phenomenon. So from a push perspective, what you've done that seems to be working so well for us? And does our margin aspiration of about 14%, 15% in the EBITDA level in Parador, how...

So Mr. Sarkar, I must once again impress upon everyone who is listening to us that because we were well prepared with our e-business, DIY, that is the digital shop that is there for Parador where people can use our software called [indiscernible] and order directly for the product. They can visualize their own floors at the home and decide what they want and order it. That has definitely helped us. I don't think any of us competitors had it in that established way. They go through in Germany in a very rigorous old fashion way of distributor, retailer and then consumer. They lose touch with the consumer. I think we've gained them immensely. So we didn't have to really push, it was more a pull in Germany during these COVID times where people invested a lot towards renovating their houses and therefore they needed the material and they had Parador right at the flick of a button to order and we were ready to deliver it at their door step. Therefore, all of that supported this business. We have done extremely well in Germany and actually have improved immensely on our market share and reach and in Austria. Rest of the Europe has also grown, but not so much because again the second wave of COVID that it is impacting it as we've seen. On the margin side, let me once again caution you Mr. Sarkar that the margin that you're seeing today may not be a sustainable margin. I would still say there is an impact of conversion that we would see. Margin, of course, has been very good because of certain product range that we have been able to get through Germany as it goes outside through the rest of the world. There will be a different set of products where the margins need to be slightly lower. But I would say on a sustainable basis, I had given you this earlier also that consider the range of 10% as the margin range of EBITDA, and that definitely we will be able to meet. We will try to do better than that.

The next question is from the line of Ritika Gupta from Aequitas.

Congratulations on a good set of numbers. Sir, I wanted to know what was the volume growth in Parador.

Ms. Gupta, the -- thank you very much for your comments. It is very difficult to track volume in Parador because there are different sets of products altogether, and they have the various variants that we do. So it's best to look at from the revenue growth itself and that's how we do it.

Okay. And sir, I also wanted to know what was the volume growth in the roofing segment that we witnessed in Q2?

So roofing segment has seen a good volume growth in quarter 2. The volume for HIL has grown by 25% in quarter 2 and 3% in the half yearly basis in roofing, while all other competition, I think, has de-grown in a half yearly basis.

Okay. And sir, my last question is regarding the polymers business. So we have putty as well as pipes in this business. So would it be possible for you to -- is a breakup -- revenue breakup maintained at 50-50 in this quarter as well?

Yes. More or less you can take it that way, it will be 48-52 at times, but it's more or less same.

And sir, how do we see the pipes business growing going forward?

So pipes has certainly done that for, I must say that, last 8, 9 months has been steady growth for pipes from October last year. We have looked at the organization far better and driving it. We don't have a business since last October, because we felt there was a need to get a little myopic into it, and try and look at every angles. I think that's doing well for us. Now we will get a business that definitely will stabilize this further. We have done about INR 50 crore revenue in pipes during quarter 2 with a 57% growth over last year. We have seen a huge volatility in the material part, but the business has been positively impacted because of that, because the resin prices were going on improving and that has improved the business. I definitely see that the activities that we have taken in enhancing our last leg connects to Tier 2 and 3 cities, adding lots of distributors, product enhancements as well as R&D contribution towards reduction of costs and enhancing quality, and growing our sales in pan India. I think all of that will continue to positively impact this business. My aspiration, as I've mentioned earlier, is about the INR 350 crore, INR 400 crore in the next few years’ time. And hopefully, we should stay with that, but that will not be all. We will definitely grow this pipe beyond that, so we will be in the lookout for even in organic growth in this direction.

[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investment Advisors.

Congratulation Dhirup and your whole team for an excellent performance in this challenging time. Sir, I mean to understand a little more on this profitability of these roofing solution since last year, I mean from second half, we had a feedstock problem. And even Q1 also to some extent. Now how do we, I mean, whether we had to go for some sourcing from different country. So how the things are playing out. So in view of that, how do we see second half, I mean, profitability wise for these roofing solutions?

Bharat ji, thank you. Your blessings are needed for your company always.

We are always there with you, sir.

Thank you very much, sir. We are very happy with the way we have structured roofing business for ourselves, even though it's historic business, legacy business for us. The way we have been innovative during these times in reaching out to the last leg, we are no more depending on pushing the products to our big dealers, we are rather doing the last leg pull through various digital mechanisms. I think that's working very well for us. Price wise also, we are doing well. So price realization has been good. From the market, we are the leader and we will continue to be the leaders on prices, because the brand plays very well. I see H2 also positive, if you ask me. And you can certainly expect that on the top line, we will be better than last year in H2 unless COVID really impact the rural sector severely. And on bottom line, of course, there are lots of cost saving not only as, let's say, the operation part where every element is being looked at. We are also looking at all addressable point. So hopefully you will be pleasantly surprised also with the bottom line. So I hope that we will be able to do genuine benefit to the investors in way of both top line and bottom line going forward.

Okay. On this Parador business, you made a comment that there will be some conversion cost and because of that this margin is not sustainable. So can you give a little more color on that what exactly? And currently, see EBIT margin which is 7%. So from here we'll keep on improving, but 10% EBITDA that you said will be the maximum that we can achieve in our next 4 quarters or 6 quarter, whatever time frame. So in that sense, what will be EBIT margin will remain?

Sir, what I said and let me just once again reiterate -- thank you for bringing up this question, is that Parador will make the margin by growth. The revenue has been growing, therefore, the profitability will grow. I said this last time also, there are certain fixed cost in any European companies. And the trick of getting more on the bottom line in any European companies is to expedite growth of top line while continuously working on the bottom line. We are doing a lot of actions in Parador. We have -- literally, we are very happy that the team has converted itself to be more Indian than European in many ways. They have accepted the Lean 6 Sigma, they have expected IoT 4.0 efficient management systems in the south floors, which are all helping in cost reduction. I only said that the EBITDA margin today looks to be very, very high. I'll be very happy if we can continue developing and generating such EBITDA. But it looks unlikely. Therefore, as a guideline I said, please consider that the EBITDA margin will be in the range of 10%, that's been my guideline even earlier. I would not change that guideline in a hurry. Let another quarter go, let us see how we established Q3 on the EBITDA margin, then our confidence will be further. So it's easier for me to say, please take these margins as ongoing, but I would never do that. So that's where it is. I think on the -- when we took this Company, we were at 7%, 7.5% EBITDA. So we have come a long way since then. But hopefully we'll be able to continue the present margin, but it is better to be slightly conscious of that.

Okay. And on Parador, sir, just if I because of lockdown and we were well prepared, so we have been able to grow, whereas other people might not have been able to grow. So heavy -- I mean, they are also increase the market share and now with lockdown, I mean, no more there in Germany. And so over a period, again, the second half will be a some kind of a vis-a-vis first half was slow down on the top line?

I would not say that because normally Q4 is a good quarter for Parador. Just like roofing segment Parador is simple you can say it's like the roofing segment of HIL where quarter 1 and quarter 4 are the best quarter. Quarter 2 and quarter 3 are low. Quarter 2 is low because of summer. Quarter 3 is low because of Christmas break. So I don't think that we will be too much worried in H2. We should perform well in Parador. I think we are doing well.

Okay. And sir, -- and this polymer solution we have already expanded the piping capacity in H1, is that correct understanding?

The expansion of polymer solution, you are talking about the sales or the capacity in view of factories?

Capacity.

Capacity was established even earlier. So we have a good capacity in polymer solutions, which can deliver up to INR 350 crore, INR 400 crore from the existing capacity.

Okay. Sir, I mean this you are talking only for pipe, I mean, INR 350 crore to INR 400 crore or including…

Yes, sir. No, only pipes, Bharat ji, we can go up INR 350 crore to INR 400 crore from the existing capacity with the product range of CPVC, UPVC, SWR, column, and pressure pipes and putty.

And how is, sir -- I mean, because in H1, lot of, I mean, all paint company also have been able to grow these putty business, including non-paint company. So how do we see this business and since we are expanding it geographically also our presence?

Sir, putty business is a very, very interesting business for us. I must say my heart goes out for it because it's a negative working capital business for us. We make putties in 2 location. One is Jhajjar which is our existing putty plant. We have 2 machines there. And then we have added one more putty line in Golan, which is in western India. We are -- in past we have been only focusing on north and west, but now we have started focusing on east and south as well, but we are not in a hurry setting up manufacturing plants of putty we are rather doing outsourcing, but using our own people to supervise manufacturing and quality at the source of manufacturing. And therefore, a lot of new distributors are being set up in east and west -- east and south as well. So Bharat if you ask me, I'm very bullish about putty as well like I'm bullish on pipes. So we should be able to grow this big time.

So even pipe when we are seeing INR 350 crore to INR 400 crore, so putty will be in the same range or it will be higher?

Yes. Our focus is more on pipes. Putty should follow. I don't think it will be as big as pipes because there are big players there. We'll have to see once we go beyond the level what kind of market forces work on it. But you can definitely look at say INR 250 crore, INR 300 crore in putty in the next 2 to 3 years.

Just one question. Last question. Sir, we are largely a B2C company in large part of the business like roofing and flooring solution. But still we are not able to command because of ESG compliant of the roofing solution business, asbestos. So what exactly we can look forward, I mean, you are being a ESG compliant company, so we can start commanding B2C kind of a premium on the stock market?

So Bharat ji, I do not understand stock market. So I leave that to you and your guidance.

Fair, sir. I understood.

I understand the business very well. Even though we do asbestos roofing, we are extremely conscious on the way we do it and therefore we guarantee to you there is absolutely no impact on the health of either any employees who work or our customers who use it. That is point number 1. Point number 2 is, we are also generating through R&D, sustenance model of non-asbestos products so that if there is any hindrance to the asbestos market, we have a ready product to be launched at any time even in the rural sector. Point number 3 is our entire business model is moving more and more to sustainable products and therefore the percentage of revenue at one stage just 3 years back was about 70% coming from asbestos product, now it's the other way around. Only 30% of our revenue comes from asbestos. So therefore the Company has moved a long way in sustaining itself and let's say, growing in non-asbestos product range and we'll continue that effort. So we do not see a problem with HIL. Now whether the market realizes this or not, I will leave it to the guidance of senior colleagues like you.

The next question is from the line of Arpit Shah from Care Portfolio Managers.

And sir, Dhirup ji, Veerappan ji, excellent set of numbers, sir. Heartiest congratulations. Most of the questions are answered, just one small question, sir, that we were supposed to get some low cost fiber from Brazil. So any update on that, whether we have received that and that has helped us to improve margins in this quarter?

Arpit ji, I hope you are doing well. Thank you very much for your kind comments. Yes, the Brazil route has started well for us. They are our old associates and big way, our partners. We were quite unnerve last year when we had to switch from Brazil to other suppliers more because of our relationship. Even though we have good relation with the other suppliers. The costs were very high. Brazil has started once again supplying to us and therefore over the year, you would see the new prices settling down into our average fiber prices in SAP as it reflect. So we keep getting benefits of that. However, let me give you 2 cautions on that. Caution number one is Brazil has changed in terms of payment to entire advance and therefore, our working capital has gone up and will continue to be there. But the interest arbitrage on carrying a higher inventory -- sorry, higher payables as against benefit of price we are getting from them is still on our side. Therefore the business is definitely going to get rewarded while the working capital will be high. The second thing is we are not getting the type of fiber that we need -- the grade in fiber that we need because historically something we were getting, but now as the mines are going down and down, the quality of fiber has deteriorated, which is having an impact on sustainability of our product quality and usage of fiber, that has increased a bit of material costs but R&D is working and we will find a solution on that. So overall it's a positive news for HIL.

Sir, source is now permanently open or there is some clearing of inventory from their end?

I think it is permanently open. At the moment the court has approved them to once again continue with this.

Great. Sir, another part is that building solution now that unlocking is happening and India rural and Indian construction industry is doing well. So do you expect that building solution will surpass last year top line and probably with the same level of margins?

At the moment building solution is below last year in way of top line. And I can only say in the next 2 quarters, our attempt is that we are able to go better than last year same quarter. But to make up for the whole year will be a difficult challenge because our existing customers, especially the big guys in Class 1 cities haven't really come back to their business as usual, so those will take time.

So Brazil you are expecting better H2 than H2 of last year, but full year maybe -- we may see at the same level or maybe some down?

On the top line. On the bottom line we will definitely try to do as much as possible.

The next question is from the line of Shantanu Basu from SMIFS.

My first question is with respect to the balance sheet line items, which falls under other intangible assets, it's called service concession arrangements. So I want to understand the nature of this intangible asset because this is also being shown as part of your revenue. So if you can explain the nature of this service concession arrangement intangible asset plus [ price/cost spread ]. My second question is with respect to the Golan putty plant, so what was the CapEx for that plant and how did can you fund it? And lastly, I want to clarify, Mr. Choudhary's comment that he just made that you will be getting a sustainable supply from Brazil because my understanding was that Brazil has stopped exporting fibers and maybe they would sell from the inventory in the next 1 or 2 quarters, and then the supply would completely come to a halt. But since Mr. Choudhary mentioned otherwise, or maybe I heard it incorrectly. I just want to clarify that.

Sir, I'll take the last question first and then I will request my CFO to answer the first 2 questions for you. The last question, we are getting very positive news from Brazil that they have been allowed to operate the mine in a substantially lower deliverable format. And I think we are still enjoying that news. Let's see how it comes out. At the moment our product is coming steadily to us. Veerappan, can I request you to answer the balance sheet questions.

Yes. This service concession…

Sorry to interrupt, sir. But Mr. Choudhary, do you expect sustainable supply from Brazil in the next 1 or 2 years as well?

At the moment, that's exactly what I said. We are hoping that we will get sustainable supplies unless the rules suddenly change.

Yes. On the service concession agreement, let me just clarify, that the income, which you see is on the revenue generated from our business. We have around the 6 [ business ] in 3 states. And based on the -- in this for the last 3 years, what are we are recognizing that as the agreements for future years with respect to state governments that is shown as intangible assets.

Sorry sir, I couldn't get you. What with respect to the state government?

Agreement for future years. We have a long-term agreement with the state government. So I need to recognize that as an intangible asset based on the [ indices ].

Okay, sir. And with respect to the Golan plant, the CapEx and how it was funded?

It was through internal accruals.

Okay. And what was the CapEx?

It's around INR 10 crores to INR 11 crores.

Sorry. INR 10 crores to INR 11 crores?

INR 11 crores. Yes.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Congratulations on a good set of numbers. Mr. Choudhary, I did not understand your comment about revenue growth this year being lower. Because if I look at your consolidated H1 numbers…

Sir, I'm not able to hear you. Mr. Rajesh, I'm not able to hear you. Sorry to interrupt. Could you change the way you are holding the mic or something, Mr. Rajesh?

Sure. Am I audible now?

Yes, you are audible, please. It's slightly better go ahead, please, Mr. Rajesh.

Yes. So my question was Mr. Choudhary sir, I did not understand your comment about the revenue growth, because when I look at your first half numbers on a consol basis, you grow -- you grew about 5% and then you said you will grow in the second half also. So did I did something wrong in your commentary?

No. You got it right. Our attempt is that we will grow in the second half as well over last year and that's how the organization planning itself through various digital connect, as I said, both in India and in Europe, sir.

No, sorry. Let me intervene here. I think his comment was with the respect the Building Solutions segment. There, meeting the last year will not be…

No. I said in building solutions we will not be able to match up for the whole year but for second half, we should be able to do as good as what we did in the second half last year.

Understood. Okay and then my second question, Mr. Choudhary, is on the EBITDA margin. Your first half year on a consol basis has been about 14%. And I'm assuming that you have some advantages because of less travel, less marketing cost et cetera, et cetera. So do you foresee this margins sustaining in the second half as well as next year or do you expect it to come down to a lower level?

Sir, in a different way I've answered this question, but I'll repeat that some of the cost drives that have been taken are sustainable and therefore that will have a continuous impact -- positive impact on the P&L. Some of it will come back as you rightly said, travels or marketing, other things, but overall margins should be better than last year. I'm not very happy giving exact numbers though we have them as our target for the year. But hopefully I'm saying you would be happy to see the margin, sir.

I got my answer. And the last question very quickly, with Parador business, how much will be sold in India or is it primarily a Germany-based business?

It is a global business. Germany and Austria contributes about 50% of their business. Historically, though over the last 6 months they have done better in Germany and Austria than 50% and the balance of the business comes from the rest of the world for them. In India, we have definitely settled down slowly. And as we speak in the last one year we have done about INR 8 crore business in India with about 250 installations that have been done. Each installation is a brand for ourselves for future business. And it's really been taken well. Last 6 months there is a slight headwind in India owing to the construction, the big construction guys not really at their prime, so real estate sector. So it will take a little time once again to start firing. Hopefully by Q4, we'll start firing. But we are also consolidating in the South East Asia part, so Nepal and Sri Lanka. We are hopeful to get a very big order from Sri Lanka, very prestigious order in the coming 1 months’ time. So Parador is now slow from Germany to export to the rest of the world because of COVID, but they are doing very well in Germany, Austria. And also structurally consolidating themselves in the rest of the Europe.

Ladies and gentlemen, we take the last question from the line of Nikhil Upadhyay from SiMPL.

Am I audible?

Yes, Nikhil. Please tell me.

Yes. Congratulations on very strong number sir, and a lot of improvement on balance sheet, which we have seen across last 2, 3 years. Really appreciate the work the team has done. I have one question on the polymer side of the business. Now as I understand because on the pipe, specifically, we were seeing that the PVC prices were increasing and there was issue with the availability of raw material. If you can just one thing break our revenue growth between volume and value? And continuation on that, because of the unavailability or the stress in terms of availability of the RM PVCs, did we see some impact on our business as a whole, which means that we could have grown more than what we have already delivered? If you can just share those 2 points. And lastly, if I look at the margin profile of that business, I think we've broken even and made good profits on the EBIT level. But there would also be lower promotions and advertisement costs which were basically impacting the margins in earlier quarters. How do you see the profitability sustenance in that business now as promotions and ad spends comeback.

On the polymer business, let me tell you that while the resin prices have continuously increased, we have been able to handle this business rather well and done alternative sourcing, which have complemented the profitability of this business. As the resin prices were steeply going up, market was reacting positively to it in way of additional volumes. So it has helped us to grow also. Whether this is a pent-up demand and it will start coming down as the resin price starts going down, we'll have to wait and watch because there is a huge turbulence in the raw material prices. So future is very difficult for us to predict, but we have done the ground level bit by enhancing our distributor networks and presence as well as our sales teams presence pan India, so hopefully, all of that will help us to do sustenance of the business. On the profitability side, yes, we have done far better than even our own expectations and part of it has come from our intelligent material cost procurements strategy that we had as well as the cost reduction that we have done in marketing, branding and all the rest of it. I would honestly request all of you to look at this business slightly different than the roofing or building solution or even Parador because this business is a growing business. It's newest baby. And it's a baby with wants to grow to a much bigger size and therefore there will be time to time requirement for additional funds into the business either by marketing expenses, landing or whatever. So as the business needs we will take those calls. But we will keep you fully informed about this effort. On both the projection and profitability, I won't be able to give any guidance by exact numbers, but I will only say that our attempt was to bring this business to a profitable business and we are happy that we have been able to do that and the growth will be here after also quite well.

Just give a breakup of volume growth and price growth for the pipes business?

Sir, again, I'll say -- first of all, I don't have the numbers with me right now but it's also not the right way to do it because there are lots of mix as you see. If it is a CPVC order, the prices are much higher, the profitability are much higher. If it's a column pipe order, both the value of the order and profitability is lower. So it's a mix you see, so I would rather go by the top line, sir.

And just one last question, sir. So now if we look at the market and I think we've done a good job in terms of expanding our capacities across pan India, which basically takes care of the freight cost. But if we look at most of the companies have been like regional or some specifics of invest, you could have one large company or in middle part, there could be one large company. And there are already incumbent players with strong brand name and strong followings among the dealers and the customers. Now if we have to understand for us the growth, is it basically in the deeper parts of India where we are getting the growth or where there is like unavailability of the product to some extent that is where we are getting our market shares or so how should we look at this?

You are again on polymer business, I'm hoping.

Yes, polymer business.

Yes. So polymer business we do not have a pan India manufacturing base first of all. We have only 3 factories. One in North, which is in Faridabad; one in West, which is in Golan; and one in Central South, which is in Hyderabad. So these are the 3 factories we have. But freight costs for these products are not very high and therefore there are lots of companies you would see which are analyzing the supplies out of one factory alone. Now we are spread pan India though because our brand is well established. Birla there is only one Birla pipes and Birla is a very good reference name by any standard. So but dominant business comes from west and north. We are structuring ourselves very well in East and South now to get bigger volumes to come from these zones in near future. And if needed, we will set up new factories there but we will keep you fully informed on that. So our strategy in the last 6 months definitely has been moving out of the class cities to tier 2, tier 3 cities because we were earlier focused only on big cities, so that strategy has worked for us. The way that we have our presence in the rural market in the tier 2, tier 3 cities, our brand presence, our B2C connect, all of that are very positive USP for your company, HIL. I think every company has its own USP, they have to dwell on that, we are dwelling on this, so it's working for us.

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

Thank you very much all of you for your patient hearing. It has been a pleasure interacting with all of you over this call. We thank you for taking time and engaging with us today. And I hope that you could get a transparent view about your company as is my interest at all time. If you have any further questions or would like to know anything more about your company, kindly reach out to our Investor Relations. If you want to connect separately with me, I'm most happy to do that. Thank you very much and please stay safe and all the best.

Thank you very much, sir.

Thank you.