BirlaNu Limited (BIRLANU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to HIL Limited's Q4 FY '23 Investor Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.

Thank you, Nirav. Good morning, ladies and gentlemen, and welcome to HIL Limited's Quarter 4 and FY '23 Results Conference Call for investors analysts. Today, we have with us Mr. Akshat Seth, Managing Director and CEO of the company; Mr. Saikat Mukhopadhyay, CFO; and Mr. Ajay Kapadia, Vice President, Finance and Accounts. We will first have Mr. Seth making the opening comments, and he will be followed by Mr. Saikat who would take us through the financial perspective. Before we begin, I would like to state 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 and is also available on the stock exchange website. I would now like to invite Mr. Akshat to share his views on the performance and strategic imperatives that lie ahead. Over to you, Mr. Akshat.

Thank you, Siddharth. And good morning, everyone, and a very warm welcome to HIL's FY '23 and Q4 Earnings Call. Thank you for taking the time out today to join us and understand how the performance has been for us and how do we see the next few quarters panning out for us. So in this call, we will share and cover 2 things we talk about the performance in the just concluded year and quarter and how are we poised in the short run. We will also use this occasion to share a glimpse of how we are steering HIL towards an era of fast-paced value-building growth. So at a consolidated level, HIL reported a revenue of INR 3,479 crores, with a PBT of INR 117 crores for the full year FY '23. This includes revenue of INR 863 crores for quarter 4 and a PBT of INR 4 crores for the same quarter. Overall, despite a difficult year, this performance reflects HIL's inherent agility and resilience. And I'll talk about how this has panned out at -- for our various business segments. Within this consolidated picture, HIL India delivered its highest ever stand-alone revenue of INR 2,155 crores. In fact, this is the first time we crossed the INR 2,000 crore mark. And this represents a healthy growth of over 9% compared to the previous financial year. The PBT was at INR 164 crores for the India part of the business. For quarter 4, the revenue stood at INR 512 crores, with a PBT of INR 21 crores. Breaking the India performance down to the various segments. The first segment is our Roofing Solutions segment, and I'm proud to share that we have delivered the highest ever revenue of INR 1,115 crores, representing a healthy growth over the previous year. In doing so, we have extended our #1 position in the market with significant improvement in volumes and pricing. A lot of this performance was driven by the Charminar brand, which has a rich 75-year plus legacy of trust and is a big, big calling card for us in the market. We remain at the cutting edge of product quality and innovation and are deepening our distribution and reach to more remote locations, including deployment of digital tools and e-commerce for reaching out to our customers and end consumers. The start of this financial year '24 in April saw slower volume offtake due to the festive season and high volumes of rains, and this meant a slightly muted demand sentiment at the start of the season. However, recent trends indicate that the season is picking up, and we believe that this will offset the slow start. And in the next 4 to 6 weeks, we should cover the deficit from the soft start that we experienced in April. Overall, last year, the high delivered cost of raw material did impact margins adversely. And it will remain a factor in this quarter as well. The Building Solutions segment, our second big segment, remains a strong pillar of our trust for future growth. Last year, we ran at near 100% capacity utilization, and we grew our top line by 27% compared to the previous year and crossed the INR 500 crore milestone for the first time. There were strong efforts in driving operations in logistics efficiency, which is delivering for the company's significant gains in profitability in this segment, and we crossed the 9% profitability mark for the year. And this trend, this upward trend is likely to continue. In this segment, we will continue our growth push through both organic -- through both inorganic and organic means. Last year, our successful integration of FastBuild is a case in point. In this year, in FY '24, new greenfield capacity for panels and brownfield expansion for blocks in Golan and Jhajjar will drive further growth. This will be followed by a new greenfield capacity for blocks in the Southern region. Moving on to our third segment, the Plumbing segment. We achieved an impressive volume growth of 23% in this year in a market that witnessed once in a generation meltdown and volatility of input PVC resin prices. We are aggressively growing our channels, so we are increasing our reach and investing to expand our product range. We already have a portfolio of 1,500-plus SKUs of pipes and fittings. We have recently entered the underground drainage segment by commissioning a state-of-the-art facility for foamcore pipes at our Thimmapur plant. As we enter the second month of FY '24, PVC prices remain in a soft territory, and that has had an impact on demand and prices. However, we believe that at these price levels, PVC prices seem to have bottomed out and that demand recovery is around the corner. And we believe that the outlook for demand for the rest of the year looks healthy. The Putty segment has been marked by intense competition and a soft price regime. In this scenario, our team has focused on the twin plans of cost reduction through R&D efforts and improving the price positioning with increased market pull and brand pull. As a result, we have expanded our market presence to South and East India through new trading locations closer to those geographies. . And finally, Construction Chemicals, which is our exciting new foray in that space, which offers both high growth and profitability. It is building on the channel strength that we have already built and acquired for putty, and we are driving synergies on those 2 segments. In the last year, we have built a solid platform, so FY '23 was the first year for this product segment. And in this short time, we have built a platform with diverse product assortment. We built our own proprietary recipes and a strong network of vendors and partners that is driving the growth. At this moment, we are focused on the North and West market. And eventually, we will make it a pan-India footprint for us in this segment. I'm moving on to our European footprint with Parador, where we reported a revenue of INR 1,324 crores, INR 1,324 crores for FY '23 with a loss of INR 40 crores. The geopolitical crisis, high inflation and uncertain demand presented a challenging year for us in Europe. However, the company and our team was sharply focused on demand fulfillment and costs, while we were leveraging the inherent strength of our product design, innovation and quality, and that meant that Parador actually outperformed its peers in the market. The good news is that coming off quarter 4 and early part of April and May, the cost pressures have started easing out and the demand is picking up. We are optimistic of Parador's prospects going forward. In fact, we at HIL are committed to deepening the Parador brand and its presence beyond Central Europe to other parts of Western Europe, North America, Middle East and Asia. In this pursuit, we have incorporated a new legal entity in U.K. during the year. At HIL, and this includes both India and for Parador, we believe that our product segment and the markets we play in offer a significant headroom for value-building growth. In line with this belief, we at HIL are investing in capabilities that will enable us to realize this growth potential. And these investments are for the medium to long run. We are investing in our brands and building a deeper connect with our customers and consumers. We are investing in building capacity and competency of our teams on the shop floor at the front line and at our R&D centers. We are also investing in modernizing our manufacturing facilities in R&D to drive quality and innovation in our products. To fund these investments, we have doubled up our focus on value extraction from our operations. We are driving operational efficiencies and continuous improvement in our cost structure. And a key lever for that is digitization of our shop floors. There are IoT-based solutions that have been deployed in the last year, and we are continuing in that direction. We are using data and analytics to drive decision-making and an organization-wide thrust towards applying Lean Six Sigma principles to derive further value. In conclusion, short-term headwinds aside, the fundamentals and prospects of HIL's business remains attractive, and we remain on course to achieve our FY '26 ambition of $1 billion turnover with robust profitability. On this note, let me invite our CFO, Saikat, who will provide us a detailed overview of the financial performance for the year. And we are available to answer any questions you may have post Saikat's remarks. Thank you for your attention.

Thanks, Akshat. Good morning, everybody, and thank you all for joining the earnings call today. I'd like to take this opportunity to provide an overview of our financial performance during Q4 and FY '23. As Akshat mentioned, despite the stiff challenges which were posed by the geopolitical situation and also the resulting headwinds that we faced, our team really worked very diligently to minimize that impact on our financial performance during the year and the quarter. I'm very pleased to announce that our consolidated revenue for the year stood at INR 3,479 crores with an EBITDA of INR 248 crores and a PAT of INR 97 crores, thereby reporting an earnings per share of INR 129.09 per share. In terms of business segments, our Roofing business grew by 7% in FY '23 year-on-year and amounting to INR 1,115 crores, indicating a higher market share which has strengthened our leadership position in this segment. We continue to expand our geographical reach in Tier 2 and 3 markets to enhance digital connect with our customers. We also continue to enjoy highest margin in Roofing business amongst the competition. Similarly, our Building Solutions business grew by 27% year-on-year during FY '23, surpassing the INR 500 crores for the first time. This segment has made a good progress in the last couple of years. We are confident of continuing this growth by adding additional capacity as we move on. Our Polymer business also showed positive growth with revenues amounting to INR 526 crores during FY '23, an increase of 1% from last year. Increasing capacity, utilization and demand for these products are driving this business, and we are on track to make it a pan-India brand offering by expanding our distribution network. Finally, on the Parador -- Flooring Solutions business, it generated a revenue of INR 1,324 crores during FY '23, which saw a decline of 15% over the last year due to challenging geopolitical situation at Europe. At a consolidated level, our debt is at INR 407 crores, and the debt equity is at 0.33. We are confident that our debt levels will not hinder our growth initiatives or our ability to navigate through the challenges in the marketplace. To tame inflation RBI has announced multiple rate increases which had impacted the overall finance cost during the year. The similar impact was also seen in Parador due to rate hikes by ECB resulting in an increase in Euribor, which was earlier negative to 3% now, more than 3% now. We are committed to invest in upgrading our existing infrastructure, augmenting health, safety and environment setup and also invest in modernization of our existing plant and machinery. Over and above normal maintenance CapEx, we will also expand capacity in existing blocks and panels plants and invest in introducing new SKUs for pipes and fittings. Overall, we are planning to spend around INR 150 crores CapEx during the year, of which 70% will be funded through internal cash accruals. In Parador, we will spend on sustaining CapEx close to EUR 3 million to EUR 3.5 million. The company's network has further increased to INR 1,242 crores at the end of FY '23. On 31st March '22, the similar number was INR 1,166. With this, I would like to conclude my remarks and hand it over to Siddharth.

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

Akshat, welcome to the fold, wish you great success. A couple of questions. There seems to have been a complete meltdown in the Roofing margins the last quarter. We were given to understand from the industry that the rate as such took reasonable price hikes towards the end of February, March, but obviously, that doesn't seem to have stemmed the flow. Could you please deconstruct this fall in margins across the different cost heads for us because there have been multiple headwinds on, right, from fiber to cement to freight and all of that. And on pricing as well, right? Where's all the this stress coming from? And in Q1, I'm sorry, I missed your comment on the margins expected going forward in Roofing. And on the same note, on Parador, there were initiatives to grow the market in the Western, Northern Europe under the group starting Q3. Of course, we haven't spoken Q4, so the numbers per se don't indicate any material derisking from an existing geography. So what's happening there? What's your sense of revenue and profitability? How are you imagining the next year for Parador?

Thank you for that. So on Roofing, large part of the story has been around the input cost increase. In fact, in the last 3 quarters, beginning August, there has been an increase of nearly 25% depending on which raw material, overall between 20% to 25% increase in the raw material cost, and that has resulted in a shaving of nearly 10% from a contribution and margin perspective. The price increase that has happened and within -- it was quarter 4 has been in the range of 3% to 4% for various players, including us. And depending on the region, there have been differences, so that's managed to offset a part of the increase, but it has not covered the entire cost increase that has happened. So I think that's been the reason why the margins have eroded. In this quarter, that same trend of -- I think given Q1 last year was good from a cost perspective, that impact will be felt this quarter as well. There have been...

When this is normalized?

I think our expectation is -- so let me just complete the quarter 1 picture. Early part of quarter 1, there have been very small price increases. I think we are talking in the range of 1% to 2%. And given the demand offtake was soft, there was less opportunity to pass on more. As demand picks up, there might be some opportunity, but overall normalization might take a few quarters. It is unlikely to happen in the next few weeks and months.

But what's the delta, Akshat? Because Q1 is when the bulk of your profit pool from roofing accrues to you, right? So if you missed the season, FY '24 is pretty much gone off, right? So what's the delta? Because your volumes are the highest in Q1. And there really is no reference range between Q4 and Q1, right, because of the difference in volumes. So assuming we see average -- 25% on an average the previous 3 years, right, '21, '22, '23, what's the ballpark you're looking at this year?

I think delta and margin, roughly, we are looking at about 4% to 5%. We are hopeful as demand picks up, that we should be in a position to cover part of it, but that's the envelope that we are looking at, at the moment.

That's all right. So basically, what you're saying is we should expect something in the ballpark of 17% to 18% as far as Q1 is concerned, for roofing?

That's right. And again, we are watching the situation as demand picks up and there is opportunity to pass on price to the market, this might look better than what we just spoke about.

Would you reckon that there's been a very strong increase in the supply side as well, which is hampering pricing, not just for us, the entire industry? Is this more a supply side issue or still more a cost side issue?

I think it's largely a cost side issue, and there is a lag between -- so the increase that happened for a combination of reasons, it was availability, it was sea freight. It was also a ForEx exchange impact that came in. It happened in a very small period of time, and the prices obviously could not be passed on at that same speed. So there is a little bit of a lag there. I don't think structurally, there is anything at a disadvantage overall. And in the next few quarters, we would expect the normalcy to be restored.

Sure. And given that we've taken multiple price hikes the last fiscal, assuming volume growth to be in the range of 1%, 2%, would you reckon that the revenue growth in Q1 could more be in the range of 5% to 6% or even would that be a very optimistic scenario?

I think that will be the top end of what one should expect given April was off to a relatively softer start. That's why we are slightly cautious, but we are cautiously optimistic on this. Because in the last week, 10 days, the key markets have started showing signs of picking up and that is good news. And the expectation is that the next 4 to 8 weeks, we will be in a position to get the season back on track, like you said, Q1 is important for us.

Okay. And your comments on Parador, please?

Yes. So Parador, I think we are aware of the situation in Europe found itself first half or first 3 quarters of last year. The good news is that on macroeconomic parameters, things have bottomed out and are looking in the positive territory. So consumer confidence index, first signs of it, recovering. Inflationary pressures and cost pressures have eased out and in fact, even if we compare for Parador from its peak around June of last year, the material costs have dropped by nearly 25%, and that is showing up even in our numbers. Of course, it comes with a little bit of lag given the inventory buildup and so on. And the third, on the demand side, things are picking up. In fact, the last quarter was -- represented a better performance than the previous 2 quarters for us. So there is a change in direction. Even within the last quarter, month of March was a great month for us, and that trajectory and that direction will continue. So that's as far as the short run is concerned and as the inflationary pressure comes down as the consumer index goes up, I think demand will only strengthen from where we stand today. So the outlook remains strong. What we are also doing, and this is now from a medium to long term, you also mentioned there were -- in our earlier calls, we have shared that there is a whole growth and diversification of markets that we are putting in place. I think we have used this time to add momentum to those efforts. There is a bunch of 6 to 7 markets that we have identified as priority markets outside our home of Central Europe. These are in Western Europe, in North America, Middle East and Asia. And we are building these markets not just from a tactical play of being a sales output -- outpost, but almost building it as independent producers and the focus really is on -- in each of these markets, getting the product assortment right, getting the brand and our brand positioning right, getting the pricing right. And that's why in the last quarter or so and we continue to do that, we are building teams that will service these markets almost on a dedicated basis. So that's the foundational work that is on, and I think the results will start showing up in the next few quarters. Already the order book coming in from these markets look much better and very healthy and all goes well for what the prospects in the future will look like. Overall, just for this -- if I may just conclude, overall for this year, we are far more optimistic than the performance of last year. Last year was an aberration. If we go back to the year before and -- or the 2 years before that, we have to restore the trajectory that we were on, and I think we are fully confident of getting there in this year. Sorry, there was a question .

Yes. So I mean just the last question before I get back. So will Q1 see breakeven? Or should we wait till Q1 -- till probably Q2 for that?

I think we will have to wait for Q2 and Q3 for that. There are also -- so it will be breakeven. Definitely, I think at an EBITDA level, we are already breaking even. We did breakeven in Q4 also. And at a PBT level, Q2, Q3 is where we should look at.

[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, I'll ask 3 questions because I have 1 each for the 3 divisions. In the Parador business, you mentioned that cost pressure started easing out, and you've also mentioned that the 25% drop in material costs from the peak. Yet, when we see the EBITDA absolute, there is an increase in loss. So if you could reconcile that? And when do you see yourself moving back to the peak EBITDA that you had seen in Parador business? That's the first question. And I'll ask the other questions on the other 2 divisions after this.

I think the cost on Q4 is largely due to a onetime employee cost that was adjusted at the end of the year. So it is onetime in nature, and that should not influence the numbers for next year -- next quarter and in this year. So that's on the first one. I think it will -- the first focus for us is to restore the revenue trajectory and there are investments we are making in building these markets to come back exactly to the profitability that we were at a couple of years ago. I think we are looking at 3 to 4 quarters to get there.

Which means if you do not clock INR 400 crores of revenue, you do not clock the older margins at INR 350 crore revenue at max, you are basically breakeven? Is that the assessment?

That is correct.

My second question is on the asbestos side. Any impact of this season of no rains or lower rains and substantially lower asbestos volume roofing sheet volume by any chance?

No, I think it's -- I think we have to see the season as a period of 3 to 4 months. There is enough optimism in the system, and there are signs indicating that, that as a season, we'll be all right, despite a slightly slow start which in early part of April, apart from rain there was the festive season, which kept people away from markets, but I think the signs in key markets, which are important for us, are all very positive.

But is there any historic correlation between lower range and asbestos volume by any chance?

There is, but it comes with a lag. So bad rains or relatively poorer rains this year will have an impact on the season in the following months and in the following season.

And my last question is on the Polymer business. Competing companies in the piping have communicated about restoration of margin, while lower PVC prices. Will we see the same where our EBITDA will entirely get recouped in FY '24 because of the PVC?

That's the outlook for us. I think the price levels that are there and as volumes start restoring and demand picks up, the expectation is that it will come in that. In fact, early indications from April also indicate the same -- actually confirms the outlook that we are looking at.

Next question is from the line of Subham Agarwal from Aequitas Investments.

First of all, congratulations on your new role. My questions are limited to Parador and Building Solutions division. So firstly, on Parador, sir, we have been talking about breaking into new geographies since quite some time now. So I wanted to understand the specifics related to what kind of revenue we have already started generating and what outlook do we hold for the rest of -- in the coming 2, 3 years for business ex Germany? That's one. And on the second question on Building Solutions. So in your opening remarks, you mentioned a few CapEx that are expected to come this year and few greenfield expansion also you mentioned. So what is the plan overall? If you can elaborate on that, it will be helpful.

On Parador, I think the international part of the story is rolling and you will see that gathering momentum in the months and quarters to come. I will also like to inform that already today, we are selling to over 80 countries. And the international part of our business has grown steadily at double-digit growth rates for the last 3 years, and we are only strengthening that momentum. Today, nearly 35% to 40% of our revenue contribution is coming from international markets and markets outside our Central Europe home base. So as we stand, the situation is growing stronger, and we are expecting that this growth momentum will continue. The market that we have chosen, as you can imagine, for seeding these markets, and the aspiration for us is that like Central Europe is one major fortress for us. We create at least 4, 5 such markets, which are seen not just from a sales perspective, but there is a whole business that we are running in these countries, and that's the approach with which we are going. In setting up those businesses, inevitably, there is the element of getting the right team in place, both sales and others. It is about getting the right products in our portfolio because the product demand and aesthetics of each market is different. Sometimes the mix that a market prefers between, let's say, engineered world, laminate, luxury [indiscernible] that mix is different. So we have to -- the channel predominance in these markets is also different. Some are more commercially focused markets, some more retail-distribution-led markets. The price structures and the incentives in those markets are different. So that is where a lot of effort is going on. And some of the early wins that I just highlighted in terms of double-digit growth is essentially coming from the first efforts that have already been there. We are in many markets also setting up logistics centers and actual infrastructure to also augment the customer service that we are offering there. So these results will start showing up in the next few quarters, but the base work and the foundational work is in full swing and the early signs and early wins give us the confidence that it is headed in the right direction.

So on -- just to elaborate on this point a bit more. So I think we entered China as a market 3, 3.5 years back. So how has been the response for our product in that market? And how has that market matured for us over the last 3 years? This will give me a better integration of our strategy.

I think China from when it started in and somewhere -- the last year in China is an aberration. We are all aware of the situation that it was in. So I will keep that out of the equation. But from the time we started about 4 years ago, it's steadily grown to a volume of nearly EUR 7 million to EUR 8 million of sales which, in our market, and also we are positioned as a premium product in that market. It's a robust growth. As things resume in China, there is -- the order book has started building up, and we are hopeful of resuming the trajectory that we were on till about 12 months ago.

Okay. Okay. And what is the potential that you think a market like China is for our product?

I think in the short run, we are at least about 50% of where we should be.

Got it. And my second question was on Building Solutions regarding the CapEx.

So on Building Solutions, and let me break this down across the 2 main product segments here. In blocks, the total additional capacity that we are looking at -- and some of it will have a full year impact this year. So it was commissioned late last year and we'll see the first -- the full year impact this year. And some are new capacities that will come on stream in the first and second quarter of this year. The total additional capacity is to the tune of nearly 240,000 cubic meters from a blocks perspective. The impact in volume will be about 120,000, so there's a delta which means some of which has been commissioned. So the actual nameplate capacity will grow by, 240,000 but the volume impact this year, you will see will be about 120,000 cubic on the block side. And these are capacities that are coming up in Golan, Jhajjar, Cuttack, Thimmapur where we have already sort of executed these and commission these new additions. On the panel side, there is about 36,000 that is coming through in Balasore in the next couple of months, and some new capacity that we commissioned late last year to the tune of about 35,000 across Thimmapur, Faridabad. The full year impact is about 45,000, which will be shown and reflected in this year's financials. So that represents nearly a 20% growth in the panel capacity, both blocks and panel capacity across -- if we compare it with previous year.

Got it. So overall, 20% for FY '24, we can assume that will be available.

That's right.

Next question is from the line of Rajat Setiya from iThoughtpms.

Am I audible?

Yes, you are slightly muffled, but I think it should be okay.

Is it better now?

Yes.

Sir, are we facing any raw material availability issues on our roofing side? Or is that all smoothen out now?

There is no availability issue. Of course, the situation is dynamic and requires a fairly alert set of eyes to look at that. We have a diversified base, so we source from all available sourcing declarations across the world. There is no -- while we continue to monitor it, but there is no foreseeable risk on availability.

If I'm correct, right now, we have sources coming in from just 2 countries, right?

No, it's from 3 countries: South America, Kazakhstan and Russia.

And sir, the last year that we -- the CapEx that we did around INR 135 crores, could you please break up or give a breakup of this, which segments -- so how much of CapEx?

Yes, Rajat, this is Ajay. So out of this INR 150 crores CapEx, the major CapEx we will do...

I think the question is for last year.

Actually for both year, if you can share one by one.

Last year also, we spent major CapEx in Building Solution segment where we set up a new panel plant, and we acquired a FastBuild business in Cuttack. We also spent CapEx in capacity expansion in panel plant as Akshat mentioned just now. [indiscernible] Also, we are spending major CapEx in Building Solutions, where we are expanding our blocks capacities in Golan, Jhajjar. We have already announced setting up of a new plant in South -- Southern region for blocks business. These are also -- we spend CapEx on the number of SKUs expansion in the pipes and fitting business. Apart from that we have, on an average, INR 40 crore maintenance CapEx, which we do every year for all the business segments.

Sir, could you please break it up in terms of numbers? Like how much went into panels or how much on into blocks?

It is around INR 50 crores CapEx, we will see in Polymer business and around INR 40 crores to INR 50 crores CapEx in addition to the greenfield project, which we will do in paint building, Solution business. So roughly INR 25 crores, INR 30 crores CapEx, which is more maintenance CapEx in roofing business and the older plant of Building Solutions business.

Okay. Understood. And last year, what was the breakup?

Last year, majority CapEx we did in Building Solution business. Again, INR 30 crores, INR 40 crores you ought to take it off for maintenance, which is mix of all the plants.

And 1 more question about -- if you can help us share the numbers by sharing the numbers of different product verticals, say, pipes and putty and construction chemicals for the last year.

So we did close to INR 350 crores in pipes and INR 175 crores in Putty business. Construction Chemical is more reported as the channel which we use that is part of Roofing and Building solutions, but it is small numbers. We did around INR 29 crores, INR 30 crores last year. The [ EBIT ] is in the range of INR 4.5 crores to INR 5 crores a month.

Okay. And so pipes and putty, is it possible to share the -- similar numbers for pipes and putty for the year, let's say, FY '22 or FY 2019.

Yes. So the earlier -- the pipes in FY '22 was close to INR 320 crores, and the putty was around INR 200 crores, the year before.

And 2019, sir?

I don't have that number right now. You can connect with me after this.

[Operator Instructions] Next question is from the line of Nikhil from SIMPL.

Yes. Am I audible?

Yes, you are.

A few questions. One is, if you look at last year for HIL as a whole, we had the losses on the Polymer business and because of the inventory and also on the Flooring business because of the cost inflation. If we -- so first is, can you spell out what were the inventory losses for the pipe for the Polymer business as a whole for last year?

Nikhil, it is -- there are twoway impact. One is the inventory losses as well as when the prices came down, the contribution is -- we also lost contributions on the immediate sales. All put together, we lost around INR 25 crores to INR 26 crores in the first 2 quarters of the year.

Okay. And Akshat, you mentioned that in the Flooring business, last year, we had the cost inflation because the MDF prices had gone out of the roof and then there was the ForEx and everything hit parallel negatively. Now -- and the freight cost also hit us negatively. Now, since June, Jan and Feb, what we are hearing, MDF, even the domestic MDF players are saying that the prices have gone down by 20%, freight has also largely come back to pre-COVID around that level. But for our [indiscernible] our gross margins are still around less than that 40% level. So why is it not completely replicated in our P&L for this quarter because the cost deflation has started happening since December and January. So was it some inventory holding issues? Or is it like we've not -- so what impacted our profitability in this quarter and the gross profit level?

I think it will start showing up when you look at the Q1 results, it will start showing up the 20%, 25% drop is almost at a March end level. So the impact of that will start showing up and playing out in the numbers in this quarter and the next quarter. So when we internally do our weekly, monthly numbers, it's beginning to show in those .

And you mentioned in Parador, there was some onetime employee cost adjustment. Sorry, I couldn't get it for this quarter, that's why the loss. Can you spell out what was onetime cost impact, employee costs related impact?

Nikhil, the impact is in the range of INR 6 crores to INR 7 crores for this quarter -- in this quarter.

And what was this relating, sir?

These were -- I think there were a combination of new talent being brought in and restructuring of the team, which -- onetime costs that were incurred.

Okay. But the talent cost and everything will remain. So this is more of a regular employee cost, right? So what was onetime in nature?

So when you are acquiring talent, there are associated costs in hiring that get incurred. Similarly, if there is a separation, there might be some onetime costs, so it's of that nature.

Okay. And lastly, Akshat, in your starting remarks, and even in your conclusion, you said that the goal or how you see HIL is a value accretive growth. Based on the current businesses which we had -- and if we can keep FY '23 aside because it was a odd year in terms of our performance. But where do you see majority or major levers for improving the profitability lies in HIL among the 4 or 5 businesses? And if some of the businesses are not operating at a profitability level, are we open to shutting them down and this is more over a 3 to 5 years than and the continuation, would you also look at adding more businesses or we would consolidate among these 4 or -- 3 or 4 businesses?

I think, there will be -- so let me answer this at 2 or 3 levels. First, when we look at a company as a whole, there are a few themes that we are driving. One is -- and that will add at least a few percentage points on the profitability side is how can we premiumize the products and command a better price positioning in the market. So there is a range of initiatives that are on that side. So that essentially will drive better realization for the production that is across the board, including in our Flooring business in Europe. So that's number one. Number two, in certain segments, it's a function of the scale. So Polymer business, as it is ramping up, certain parts of our Flooring business in international markets as it's ramping up, when it reaches a steady-state scale in the next 12 to 18 months, the profitability will start looking better. So that's the second lever. Third, there is an element of automation and technology infusion that we are making in our operations, which is driving efficiencies. Each program that we are introducing has a solid business case and ROIs that are attached with it and is actually delivering value on ground. Fourth is on operational efficiencies, which start from procurement-related and sourcing-related efficiencies to the conversion and manufacturing. And these are 3 or 4 themes that we are driving consistently across all our businesses. To your question on whether some businesses are less interesting or more interesting, I think at the moment, the portfolio we have, we feel very bullish about this portfolio, and we are committed to growing them. What we are also looking actively are adjacencies, which can piggyback on the existing infrastructure, both in terms of manufacturing and our sales infrastructure and that can bring more operating leverage for us. So overall, we see significant headroom for growth both on the top line and bottom line with the product portfolio that we are playing in and also the markets we have identified for ourselves. So that combination of products and markets is what gives us confidence that the journey ahead is interesting for us. And along the way, as we look and evaluate opportunities, things which are adjacent, which are complementary to what we are doing, we will continue to pick up those as well.

Okay. Just 1 last question from me. One is you mentioned that they've opened 4 or 5 new, if we say, branches in Parador in new markets, would you say those branches or those new areas which we have entered, would they be breaking even at this point in time or there would be a drag on the overall P&L at Parador? That is one. And secondly, the 4 points you mentioned on procurement and operational efficiencies, what different can we do then what was not done earlier? Because as I understand and -- is that -- they work a lot on improving the operational efficiencies and a part of it was always visible on the Roofing business where our profitability even on bad period was much ahead of all the competitors. So where do you see -- so if you can just spend some more time on what differently or what avenues you believe we can do differently which can probably give this advantage on the profitability or the margin side?

So on Parador, I think the short answer is they are not a track. They are individually making positive contributions to the P&L. The beauty of that business is manufacturing is still centralized at the moment in Germany and Austria. So that is where the big investments start coming in. So with that as the hub -- and there is enough capacity available to take us to at least 2x of where we stand. So each of these countries, the way we are scaling them up are being done in a positive contribution manner, not in a way that they are a drag on the P&L. So that's number one. The other piece that we are doing in these markets is essentially on building the brand. And you are aware that the whole brand build journey takes a little bit of time. It's not an overnight exercise. So there, we are making conscious investments. Coming to the cost part of the story that you were asking about. I think the frame of what was not being done earlier and what new has been done probably is not applicable to us. I think what the last 2, 3 years have done is they have changed the context in which we play. So solutions that were already deployed 3 years ago, 1 year ago, just given that the global scenario has changed, the supply dynamics have changed, those solutions may not be applicable anymore and may not be the most optimal solutions anymore. So there is a need to refresh those strategies, that I think is 1 clear win that we see for ourselves. The second piece, which is interesting and where, again, the available options have improved and increase is on the technology side. And there, again, we are deploying tools which are helping automate our lines further, which are driving more uptime of our plants and mines and driving better conversion efficiency. And there are simple things, and I'll give a very small example. Every time we introduce a new product in the market, there is a cycle time that it takes where we need to do trials in the market and so on and so forth. Now if there is a technology assisted way of doing it and that time can be reduced by 50%, and that improves our agility and our response time to the market. So these are the kind of interventions which are driving greater sense of efficiency in the organization.

Next question is from the line of Satish Kumar from InCred Capital.

My questions has been answered. Thank you.

Sorry, but your audio not clear.

I was saying my questions has been answered.

I think the line is not clear.

He said his all questions are already answered.

Thanks, Akshat. But my questions has been answered.

Next question is from the line of Nikhil Gada from Abakkus Asset Managers.

And just a few questions, firstly, on the Parador part. While we are trying to bring in a lot of efficiencies, and we are seeing that the cost pressures are easing, just wanted to get a sense in terms of where we are in the cost index, if we can say so, as in when we were in a normal situation and when we saw this entire rise. The reason to ask this is that our gross margins, if I just do consol minus [ 10 ] and assuming that, that is of Parador business, still remains -- there is an impact of 800 to 900 bps, 8% to 9% on the gross margin. So just wanted that perspective?

And your question is in the context of Parador?

Yes.

Yes. No. So I think I probably answered this in an earlier question as well. The cost pressure and the elements going into the gross margin has started easing out around the March time frame. They are currently not reflected in the numbers that have been shared because there is a certain lag effect that we...

Yes, I understand that so that the benefits will be visible from the next quarter. So what I'm trying to understand is that if those benefits are factored in, how much of a gross margin improvement we will see in the coming quarters? And when will we get back to the 48%, 49% sort of gross margin levels?

It will be in the range of 4% to 5%. That will be on account of material cost reduction.

Understood, sir. And do we expect this to further improve in the coming quarters in terms of how the RM pressures are easing of?

It's a continuous process like the contracts are negotiated every quarter. So we will try all our best efforts to further bringing it down.

Got it. Sir, my second question is on the Building Solutions segment. Over year as well, we are seeing consistently the EBIT margin levels are sort of going down. So any specific reason why we are seeing such kind of low EBIT margins even when we are doing such high capacity utilization and do we see this improving first quarter?

I think, overall, as we see on the Building Solutions, at least our view is the margins are in a positive direction. So if you compare the full year versus the previous year, we've actually improved by about 200 basis points. I think your commentary is correct for quarter 4. There were certain onetime issues that cropped up, especially with our Golan plant, and there was some pullback on the Chennai plant for a period of time, which is why this particular quarter it is lower. However, at the full year level, the trajectory is in the positive direction, and we are confident that this will only go up from here.

Got it, sir. And sir, just a couple of more questions. On the Construction Chemicals part where you mentioned that you want to leverage the putty channel and also more brand investment will go into it. Could you highlight the products that we are -- sort of earmarked to scale up in this particular segment?

I think it's a wide array of products. At the moment, we've got nearly 65, 70 SKUs that are there. They belong to...

Yes, it's mainly into tile additives, primers, coatings. We are also now trying to enter into waterproofing solutions. So more SKUs are in this particular product segment right now.

And all will be in the B2C space itself, right? We will not do any B2Bs per se?

It will be a combination of B2B and B2C.

Okay. Sir, and just last question, can you give some kind of ballpark guidance for the full year '24 for the company level in terms of where we can reach?

Normally, we do not give any guidance, but it will be positive from this year's number. So we will report a growth...

We will do better than '23? That's all we have to...

Yes, that's it.

Next question is from the line of Keshav Garg from Counter Cyclical PMS.

Sir, I just wanted to understand that in each of the divisions, like you mentioned that in Parador, with our existing capacity, we can roughly double our revenues. So what about the rest of the division? If you could just indicate that what is the maximum revenue we can generate if you operate at full capacity and by when do we reach to -- basically to reach the same? And also what kind of steady state operating margins in each of the segments do you expect going forward?

So I think overall, and maybe the capacity utilizations will give you an indication in Roofing, we are at about 80% -- between 80% and 85%. Building Solutions, as I mentioned, we are running at full capacity, but this year, we are adding nearly 20% to 25% on top of that and that effort will continue. On Polymers side, while we are at about 65% capacity utilization, but the volume growth that we have seen in the last few years and we hope for this year are high numbers, and we are already contemplating adding more capacities in this segment. At Parador, I mentioned already that there is headroom for nearly 40% to 50% more than what we have done.

Sir, and margins, steady state margins in each of the segments?

Yes. So if we think -- in Building Solutions, we expect the margin will go -- gross margin will be better than the current numbers. We will expect it will be in the range 12%.

Yes. I think Building Solutions, the aim internally is to start hitting the low teens as the first milestone and then see where we can go from -- and add to that. On Polymers, again, I think the lower teens is the range that is the first milestone for us to cross. Construction Chemicals, we believe from a mid-teens perspective is the milestone that we are aiming at and where it becomes interesting for us. Flooring, the first milestone for us internally is -- and again, it comes from a combination of the choice of markets, product mix, is to start hitting or inching towards double-digit mark.

Sure, sir. And sir, lastly, wanted to understand, sir, that is there any possibility that, sir, we can move the manufacturing of Parador to India and maybe export to the European and other markets from here, sir? Is that a realistic possibility?

I think on the manufacturing side, the evaluation is a continuous one because we also need to understand the markets and the products that we are serving, what is the best place to serve that. So it's not just India. I think within Europe, we continue to evaluate. Elsewhere, we continue to evaluate. And as our geographical footprint increases also on the market side, there might be opportunities for us to diversify the manufacturing capacity from our current location -- or manufacturing capacities beyond our current location. But that's a subject of constant evaluation. At least in the short run, we do not envisage that should [ be ] to India at least.

Keshav, one more on the margins, which we just mentioned it's operating margins and not the PBT model.

Next question is from the line of Ashwin Reddy from Samatva Investments.

Congrats, Akshat, on your appointment. So my first question is, so Akshat, you come in fresh and then are you seeing the company, right? So where do you think is the biggest scope of improvement, Akshat, the company is? Meaning, how do you want -- so where would you want to spend the most amount of time in the next weeks to come, 6 months to 1 year?

I think -- I'll say it, and there are broadly 3 themes. First is there are pockets and engines that will be the driver for growth. Getting those growth engines fully primed up and firing at 100% level is the first priority. And that's why which product mixes, which geographies we are operating in, what more capacity needs to be added in is, of course, the first one. So the growth piece is number one. I think there is a second piece where we are focusing a lot of our energy is to build a stronger customer connect, and that has 2 implications. One is having stronger brands that resonate with these customers. Having a product portfolio which is closer to what the customer needs are and that in turn hopefully allows us a better price position, so that's the second thing. The third focus area is getting the right team, not just across the board and across functions, which can enable this growth. So the people front is something that is a key focus area. And I have to say on that account, HIL, in the last 4, 5 years, has done strong foundational work. In fact, we are widely recognized. This year, we are breaking into the top 50 of great places to work. We are rated -- and this is the fifth year running that we've achieved this milestone. We are rated #1 in the Building Materials and Cement category, which is a recognition of the strong people practices that exist. But getting these teams ready for the phase of growth and the elements and initiatives that we are driving is the third focus area.

Got it. Got it. Got it. And my second question is on the Roofing part of the business. So in the Roofing part, could you outline what is the concentration like in terms of the states, say, what would the top 4 or 5 states in the country contribute to your Roofing segment? And what would these states be?

So I think in the north, UP, Bihar are key markets for us and that -- you want to, Saikat, talk about it?

So UP is one of the key areas that we have. Apart from that, Haryana, Punjab, these are the emerging markets, and we have done good business out there. East -- and Bihar definitely is the -- and Bihar, Jharkhand is definitely one of the key markets that we are operating. So primarily, the northern sector is our sweet spot as far as these markets are concerned.

So these top 4, 5 states would contribute what? 50% of the sales or more than that?

More than 50%...

Hello?

So we are saying more than 50% of the sales, in the zone of about 55%, yes.

Okay. Got it. Got it. And finally, again, on Roofing, sir, the -- so any comments on Charminar Fortune brand which was there with the previous management, they highlighted. So what is the progress there? How do you -- how would you think about it? Any investment on this? And what is the progress on this Fortune brand?

It's a product for the future. On technology side, I think there has been rapid strides made internally where the product stability and the features are at a level where we have a good client base. And it's also now been in installation for some time, so we know post-installation results also. And we continue to drive it. There is a dedicated team that is developing clients and market for it.

Sir, right now, what is the proportion of Fortune to the overall Roofing segment, in terms of the percentage contribution to the Roofing segment?

It is still small and somewhere -- it's partly our effort, it's also how the market evolves because there is still a price differential that comes in. And the adoption of the market is also a function of how customers sort of adapt to it. From our side as a company and just given the focus on sustainability, we are making our efforts to make sure that there is greater awareness for this product. We are inducing a lot of trials, especially in institutional clients, and steadily -- in fact, last year, we did about 25% more than what we did previous year on the Fortune name.

Next question is from the line of Deepak Poddar from Sapphire Capital.

I have 2, 3 queries. Now first up, I think we did mention that we are on course for $1 billion revenue by FY '26, right? I mean, that effectively means around 20%, 25% CAGR in our revenue over next 3 years. But do you think that it's a little more optimistic than what I think we have seen over last past 3 years? I mean, some comments on that -- in this regard would be quite helpful.

It's ambitious. It's a stretch, but it's an ambition that we are all committed to. So yes, we are trying to break away from the growth rates that we have seen in the past. So that's a conscious choice. Within that, I think we have broken down what are the steps that will get us there. And one key lever we see is inorganic which I think in the past has contributed in a small way, may have to contribute in a slightly larger way as we go along. But it's an ambition that we are all fully committed towards.

So it includes inorganic ambition also in this -- I meant, it's not the organic growth we are talking about when we are talking about $1 billion kind of a...

It's a combination of both organic and inorganic. The relative proportion of that will have to play out as we go, but it does include an inorganic element also to this.

Okay, understood. And I got it. And when you mentioned that in terms of steady state margin, right? So you mentioned segment-wise. So ideally, what -- 12% to 14% could be a -- at a consol level, would be a steady-state EBITDA margin that one can look at, I mean, over the medium term?

It is there, in the range of around 11% to 12% operating margin.

11% to 12%. And that is a target over what? Next 3 to 4 years or sooner?

For the next couple of years.

Yes, I think at least -- if I look at it in a 2- to 3-year horizon, that will be the right keys aspects to keep given that this is also a growth part of our evolution. So there is an element -- so we need to consider that reality as well.

So 2 to 3 years, right?

That's right.

And the last thing that you mentioned on the Roofing as well as on the Parador side. So quarter-on-quarter, we do expect some benefit, right, in terms of cost pressure easing out in Parador. And in the Roofing segment, because of the price hike, we do expect some delta in margin, right? So ideally, it would be a right way to think that this quarter, our margins have bottomed out and there is only one way up as we move into coming quarters in terms of profitability specifically?

I think at our gross margin, certainly.

EBITDA margin. I mean EBITDA margin at 4.5% that we did. So ideally, it would be right to assume that it has bottomed out?

I think from this quarter -- I would say between this and the next quarter, you should see the trend that you were outlining yet.

Bottomed out, yes, from this quarter or next quarter?

That's right. This quarter.

Next question is from the line of Manish Dhariwal from Fiducia Capital.

Akshat, I congratulate you on coming on board and leading the company from hereon. So I was, in fact-- am I audible?

Yes, you are. I was just saying thank you for your kind words.

See, we know that you've been associated with the group for the last couple of years but I think on the health care side. So basically, I wanted to understand that you know the businesses that HIL is in is rather different, like brick-and-mortar, actually literally. So what has been the experience at your end? Have you been able to completely like come onstream? You got like a handle on the builder network? It's a very [ ground ] kind of work. It's a very -- a lot of action happens on the ground. And so you know like the nuances that this business require and their specific challenges and issues. You did mention that the earlier target of reaching $1 billion FY '26 like remains. So I guess on that line -- and then you also mentioned that you -- or the focus is going to be on the inorganic opportunities. But on the core business is something that I wanted a handle on. It's a big management change. So I wanted your comments on that.

Yes. No, I think -- first of all, thank you for your kind words. It's been a great start to my stint here. And the good part is I've been with the group. This is my ninth year with the group. And I started off at the Group Office leading growth in strategy for all our portfolio companies. In that capacity, I have worked extensively with HIL in the past. At that time, we were just about starting out our pipes business, so the polymer foundations were being laid at that time, and scaling it up so I was quite closely involved on that one. I was involved in a few M&A acquisitions that were done at that time from a Building Solutions point of view, so I had a chance to work with the business there. So HIL is not entirely new. The HIL team is not entirely new. And I think when it comes to group companies, there is a fairly close interaction that all of us have at our leadership level. We are aware of the dynamics of each other's business and closely synergizing that. So the -- I hope I've hit the ground running. And I think you guys on the call, looking at the numbers, and I think the teams can say whether I've done it or not, but the attempt has been to hit the ground running. And in this time, I've spent a fair amount of time not just with our channel partners that, of course, are very important, but also at our manufacturing locations with our teams. The good part is -- coming into HIL is that there is a very strong team in place. The leadership team at the BU level, at the corporate level is strong, has had a long vintage and track record with HIL so they have obviously held in this transition. I think I feel very, very optimistic about the prospects of the company. I think there is the task of setting the ambition, and I think that's already done. But the task of achieving the ambition is on us, and we are confident of making it happen.

That's very, very -- that's very good to hear. So see, Akshat, we are like long-term shareholders in the company. And what matters to us and obviously the company as well is the shareholder value which actually, in the last couple of quarters, has taken a hit. And basically, that's emerging from the operational challenges that the company has been facing and continue to face. . So you -- you've shared your strategy on Parador, where you're looking at setting up 4 or 5 citadels, I won't say, like as strong as Germany, but this basically can be the new outposts around which the business can grow. And if the margin can improve to double digits from -- which is double from what we've had here, I think that, I think, will be a very, very big [ thing ]. So other than -- so see, one is the inorganic strategy, right? You mentioned that you were like kind of the driver of acquisitions that we've done in the past. Now so -- but see the core business is the Roofing business, right? And in the last 2 years, you know that the whole texture in fact, the whole kind of the profitability, the costing, the whole thing has changed drastically. So -- and to note that the new businesses that the company has gotten into, they are actually low-margin businesses. So like in Roofing you've had 25 plus margins and the new business like 11%, 12%, 13%. So -- capital allocation being a critical factor, meaning -- you coming from a rather macro perspective, you had a bird's eye view of where the company was going. And now you're kind of hitting the micro level, meaning what are your thoughts that could like convert us shareholders in terms of that now the company is kind of taking a turnaround?

Okay. What are the kind of thoughts that you would love to hear from me which will give you the comfort?

That's for you to tell us. And so maybe on the operating side of the businesses which are -- which the company already has in the Roofing side, what kind of changed? The last 2 years, the margins are completely kind of -- got decimated. Obviously, there were like external issues, but see that's where the strength of the brand and the strength of the company which is kind of -- being here for so long that kind of comes to play. So but what are you -- so maybe some thoughts there would be like helpful.

I think -- here are some thoughts, and please do tell me at the end of what I have to say whether they are comforting or not. But this is how at least things are panning out for us. I strongly believe -- I think there is learnings from the past, but we can't dwell on the past too much. Second, change that we are bringing in is an element of impatience and aggression in how we look at the future. And there is a strong burning desire to make this happen. 80% of the path is cleared and 20% will get cleared as we go along. The third thing is while ambition is there, I think the opportunity for us is to also review and reassess the strategy that will lead us to that path, and that's something that we have done in the past few weeks and continue to do so. A lot of the elements are getting crystallized, we shared on Parador, but that kind of exercise has been done literally for every small segment that we are looking at. And it is that assessment that is giving us confidence that we are in the right products and market. So there is a fair amount of confidence on that front. The fourth element is that -- and I think you made a mention that they are inherently the products that we've been -- have returned lower profitability. I think if we look at the larger industry context of the product segments that we are in, they are not less attractive product segments from an overall industry perspective. So I think the focus for us is to get to the industry-leading profitability levels and growth percentages there. So I think that's the fourth point. The fifth point is, yes, in the past -- and if I rewind back to 5 years ago, the center of gravity of the organization was around the Roofing segment. It is important today, but a lot of our growth will come from things beyond Roofing. And that's an important fact to acknowledge and recognize. Much of our growth plans are around those segments. And the idea is to diversify both from a product mix perspective and also the markets that we play in. So I think those are some thoughts. Overall, we have a strong legacy to fall back on, but we obviously need to do a lot of things differently to chart out a successful track from here for the next 5 to 10 years. And if I may just add one last comment. I think the way we see ourselves as HIL is not just a roofing and a building solutions company. We see ourselves now as a comprehensive one-stop shop when it comes to the entire range of building products. And that's where I think more things might get added. And to build our brands which are recognized not just in India but at a larger scale.

Ladies and gentlemen, that will be the last question for today. I now hand the conference to the management for closing comments.

Yes. Thank you, and my heartfelt gratitude for everyone to -- for having joined this call and for hearing us patiently. It's been an absolute pleasure for me to interact with all of you and answer some of your queries. We thank you for taking your time out and engaging with us. Please do remain plugged in to HIL. Please do keep sharing your thoughts and ideas with us. These interactions are valuable for us. And if there are any further questions coming out of today's call, please reach out. Our Investor Relations desk, all of us are available to address them. Thank you very much.

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