Cera Sanitaryware Limited (532443) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Earnings Conference Call of Cera Sanitaryware Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devrishi Singh of CDR India. Thank you, and over to you, Mr. Singh.

Thank you. Good morning, everyone, and thank you for joining us on Cera Sanitaryware Limited's Earnings Conference Call for the third quarter and 9 months of the financial year 2025. The earnings of this period were announced yesterday. We have with us today the management team comprising Mr. Vikas Kothari, CFO; and Mr. Deepak Chaudhary, VP, Finance and Investor Relations. We will start with brief opening remarks from the management, following which we will open the call for Q&A. A quick disclaimer before we begin. Some of the statements made in today's conference call may be forward-looking in nature, and a detailed note in this regard is contained in the results documents that have been shared with all of you earlier. I would now turn the call over to the management for their opening remarks. Thank you, and over to you, sir.

Thank you, Devrishi. Good morning, everyone. On behalf of the management team of Cera Sanitaryware Limited, I would like to welcome you all to our earnings conference call. I will begin by sharing some updates on the operation and strategy, following which our CFO, Mr. Vikas Kothari, will run you through the key financial highlights. In Q3 FY '25, while we initially witnessed early signs of demand improvement, market conditions remain challenging as persistent headwinds continued to suppress growth. As a result, demand did not pick up as expected previously. Despite these headwinds, we achieved a 2.9% year-on-year growth, increasing revenue from INR 437 crores to INR 449 crores. EBITDA for the quarter stood at INR 71 crores, reflecting a 5.2% degrowth on Y-on-Y basis. Our Sanitaryware and Faucetware segments contributed 50% and 37% to our revenues with the B2B segment gaining traction even as retail demand remains subdued. Our strong brand equity, diverse product portfolio, operational discipline and inherent strength help us navigate most of these macro-led demand challenges to a large extent, reducing the impact that would otherwise have been more significant. Cera, our flagship brand, continues to demonstrate resilience and is expected to sustain its growth trajectory in the long run. At the same time, we continue to take necessary initiatives to strengthen our presence in the growing luxury segment with Senator emerging as a new horizon alongside Cera Luxe. These brands cater to evolving consumer preferences with a diverse range of offerings, including Red Dot award-winning electronic toilets, designer art basins, colorful sanitaryware and faucet fixtures, thermostatic diverters and high-performance showers and a comprehensive range of wellness products such as Oxy Spa and air and water massage bathtubs. Our product development efforts are progressing well. And in Q3 FY '25, we successfully developed 158 new SKUs in the Senator brand and launched 104 new SKUs under the Cera brand. Alongside continuous innovation, we are expanding our exclusive store network and enhancing product displays. By the end of 2025 -- FY '25, we aim to establish 20 to 25 exclusive Senator stores. And thereafter, we'll establish another 50 stores in the following year, enabling scaling up to 75 stores by FY '26. In existing stores, we are ramping up displays with Luxe products set to be showcased in over 100 existing stores by the end of next year. Further, we are strengthening our tile offerings with a focus on high-end value-added products, including large 6/4 slabs. While our expansion in the luxury segment will take some time to translate into significant results, we are confident that our strategic efforts will position us well to capitalize on its long-term growth potential of this segment. The expansion of our Faucetware manufacturing capacity to 4 lakh units per month continues to yield positive results with utilization rates improving sequentially. We see strong replacement demand in this segment, which presents a significant growth opportunity. While demand in the Sanitaryware segment has remained subdued in the recent months, we are confident that the growth trajectory will regain momentum as the overall market environment improves. The B2C segment has been sluggish, but with evolving consumer preferences, urbanization trends and the gradual recovery in the real estate combined with regular cycles of renovation and upgradation, we expect demand to pick up over time. The union budget announced on February 1, 2025, introduced several positive measures aimed at boosting consumer sentiment and discretionary spending. The reduction in income taxes rates are expected to enhance disposable income, thereby increasing homebuyers' affinity to spend and hence, stimulating demand in the building materials industry. Additionally, the allocation of INR 15,000 crores under the SWAMIH Fund to complete stalled housing projects is anticipated to accelerate the completion of over 1 lakh housing units, further supporting the real estate sector. These initiatives are expected to positively impact market demand for our products. On the production front, our focus remains on optimizing production efficiency and balancing inventory. Faucetware capacity utilization stood at 91%, while Sanitaryware capacity utilization was 90% during the quarter. These levels ensure that we are well positioned to meet anticipated demand in the future. Our planned CapEx for FY '25 stands at INR 25 crores with INR 15 crores already deployed during 9 months FY '25. These investments are directed towards manufacturing enhancements, retail experience improvements and IT infrastructure advancements, all aimed at strengthening our operational efficiency and product quality. Our advertising and marketing spend for the quarter stood at INR 14 crores as compared to INR 22 crores in Q3 FY '24. The company continues to reap the benefits of these sustained efforts it has undertaken in this area over the years. Our brand ambassador, Kiara Advani, along with our advertising tagline, "CERA, This is your space, Play it your way," has played a key role in enhancing brand recall, while targeted advertising across multiple platforms ensures widespread visibility. Additionally, we have increasingly leveraged social media platforms such as LinkedIn, Instagram, Facebook and YouTube to reach niche audiences. Collaborations with social influencers have further amplified our brand presence, driving deeper engagement and increasing visibility among younger, digitally savvy consumers. The retailer loyalty program remains a key initiative in strengthening our engagement with channel partners. As of Q3 FY '25, we had enrolled 23,000-plus retailers with more than 4 lakh invoices recorded under the program. Retail sales linked to the program contributed to 42% of the total retail revenue, reinforcing our strong retailer engagement. While demand in the B2C segment remains sluggish, the B2B segment continues to gain momentum, contributing 35% of the Q3 FY '25 revenues. This shift underscores our ability to cater to institutional buyers, developers and large-scale projects, reinforcing Cera's position as a preferred brand in the industry. Maintaining an optimal mix of B2C and B2B sales remains a priority, allowing us to enhance sales predictability while capitalizing on diverse market opportunities. To summarize, Q3 FY '25 continued to reflect a sluggish demand environment. However, as we are reaching the end of the fiscal year, we anticipate closing the year with lower single-digit growth only. Going forward, Cera is strategically positioned to capitalize on the anticipated recovery. Our diverse product portfolio, continuous introduction of new SKUs and extensive dealer network enable us to meet evolving customer preferences effectively. With over 4 decades of industry expertise, a well-established brand, strong management, a robust balance sheet and disciplined financial practices, Cera remains committed to upholding strong corporate governance. Furthermore, our in-house manufacturing and R&D capabilities strengthen our capability -- our competitive edge, ensuring we are well equipped to navigate short-term challenges and create long-term value for all stakeholders. With this, I would like to hand over to Mr. Vikas Kothari, our CFO, who will present the operational and financial highlights for the quarter ended 31st December 2024. Thank you, and over to you, Mr. Vikas Kothari.

Thank you, Deepak. A very good morning to everyone. I will now provide a brief overview of the company's financial performance for the quarter and 9 months ended 31st December '24. In Q3 FY '25, revenue from operations stood at INR 449 crores as against INR 437 crores in Q3 FY '24, registering an increase of 2.9%. EBITDA, excluding other income, in Q3 FY '25 stood at INR 59 crores on the same lines as Q3 FY '24. EBITDA margins, excluding other income, for the current quarter stood at 13.2% as against 13.6% in Q3 FY '24, registering a marginal decrease of 40 basis points. This decline in margin was mainly on account of increased operating expenses, which is partially offset by favorable publicity expense. Gas prices remained favorable during the quarter. The average gas price from GAIL was INR 28.29 per cubic meter in Q3 FY '25 as opposed to INR 28.78 per cubic meter in Q3 FY '24. The average gas price from Sabarmati, which rose from INR 55.41 per cubic meter in Q3 FY '25 from INR 47.56 per cubic meter in Q3 FY '24. This positive trend is further supported by increased drawal of gas from GAIL reaching 81% in Q3 FY '25. The weighted average cost of gas in Q3 FY '25 was INR 33.53 per cubic meter, which is notably below the industry average. Gas cost constitutes 1.56% of our total revenue. For the quarter under review, revenue contributions were as follows: Sanitaryware at 50%; Faucetware at 37%; Tiles at 11%; and Wellness at 2%. On a Y-o-Y basis, Faucetware revenue increased by 6%, Tiles by 5%,Wellness increased by 24%, while Sanitaryware revenue marginally decreased by 0.3%. The Sanitaryware and Faucetware segments remain the cornerstone of our business and have contributed 87% of the total revenue. In Q3 FY '25, 44% of our sales were in premium category, 34% in mid and 22% at entry-level category. Profit after tax was INR 46 crores in Q3 FY '25 as compared to INR 51 crores in Q3 FY '24, registering a decrease of 9.9%. EPS for the quarter stood at INR 35.56 versus INR 39.12 in Q3 FY '24. In terms of the working capital management, inventory days increased from 79 days to 85 days, receivable days from 27 to 33 days and payable days decreased from 46 days to 42 days. Consequently, the net working capital increased from 60 days to 76 days in Q3 FY '25. Regarding the sales distribution, Tier 1 cities accounted for 35% of our total sales, Tier 2 cities 21% and Tier 3 cities led with 44% of total sales. For the 9 months ended December -- 31st December '25, the company reported net revenue of INR 1,337 crores, registering an increase of 1% on a Y-o-Y basis. EBITDA, excluding other income was at INR 185 crores, a decrease from INR 202 crores in 9 months FY '24. Profit after tax stood at INR 161 crores with a slight decrease from INR 164 crores in 9 months FY '24. Overall, the company maintained stable revenues and profit on Y-o-Y basis. As on December 31, 2024, our cash and cash equivalents stood at INR 662 crores, marking a decrease of INR 106 crores or 13.8% compared to the previous corresponding quarter. This reduction was mainly on account of buyback offering during the second quarter. In conclusion, I would like to reiterate the company's confidence in its ability to improve overall performance going forward. As the demand cycle strengthens, we are well positioned to capitalize on improving market trends. Cera remains committed to maintaining strong financial discipline, optimizing resource utilization and further enhancing its financial performance in the coming quarters. With this, I would now request the moderator to open the line for Q&A. Thank you very much.

[Operator Instructions] The first question is from the line of Archana Gude from IDBI Capital.

Sir, I had 2 questions. Firstly, on the margin front. So this is a consecutive second quarter wherein this B2B segment has done better for us compared to retail. And given overall commentary by the even other companies, it doesn't look like the recovery will be very sooner than expected. So in that context, achieving margin of 16% to 17% in near term will be challenging. Your comments on this would be helpful, sir.

So, Archana, regarding the margins, like we have already addressed many times in the past also. So despite these challenging market conditions, the company maintained the consistency as far as the performance in preserving the margins are concerned. If you see EBITDA without other income for the quarter, it stood at same lines with what was there on Y-o-Y basis, reflecting our stability in earnings. And when we talk about the marginal decline, which is there of -- on an overall basis to maintain 16% so largely, it is the demand factor. So we think that once this demand will improve, definitely, the margins will come back to the estimated 16% to 17%.

Sure. But sir, any tentative guidelines you would like to give us maybe somewhere H2 of FY '26, we will be back to that kind of margin?

Yes. So we are just -- as far as our efforts are concerned, even if we are not seeing any substantial growth as far as revenue drive is concerned. But in terms of the margins, we are quite confident that we are going to achieve this 16% to 17% in the next 1 or 2 quarters.

I'd like to just mention one other thing apart from what Mr. Vikas said, a large portion of this drop in margin is coming on account of a little bit of extra discounts, which is going on because of the sluggishness which is prevailing in the market. As soon as the market starts improving, you'll find that we have kind of already toned down on the discounts. We have taken it like at a bottom level right now. We're not increasing discounts any further. But with the improvement in the margin and with the -- sorry, with the improvement in the sales, you'll find that as soon as we start rolling back the discounts, those margins which have dropped by, let's say, we are at 13.5% right now, will again go back to that levels which were earlier 16% to 17%.

Sure. That was helpful, sir. Sir, secondly, the price hike what we took in Q2, so were the challenges on getting it absorbed given the demand is very sluggish and maybe was it that it was the wrong timing by our end?

So regarding the price rise what we have taken in the last quarter, mainly in case of Faucetware. So the Faucetware, if you see the segment, it has consistently growing as reflected in our past performances in few quarters also. In this quarter, quarter 3 financial year '25, we recorded a Y-o-Y growth of 6%. But while this growth appears lower compared to the quarter 2 financial year where we have achieved roughly 20% growth in Faucetware, it is important here to note that the last quarter's performance was partially influenced by a price increase in faucets. So ahead of this price adjustment, dealers stocked up beyond their immediate requirement, which is roughly contributing an increase of 8% to 10% of additional sales in quarter 2. As a result, some of those excess stocks were liquidated in quarter 3, impacting growth figures. Despite all these, we still achieved a healthy growth of 6% on Y-o-Y basis, which reinforces the strength and demand for our Faucetware segment.

Okay. And sir, lastly, I'll just squeeze in one more question.

As explained in the previous con call also when we have taken the price increase. The primary reason for taking the price increase was a sharp movement in the brass prices, which is a constituent of -- you can say, a predominant constituent of the total cost of the Faucetware. It was an increase of something like 20% in the first 3, 4 months. Then it stabilized, but still it will be in the region of 8% to 10% over the March numbers. So that price increase was kind of absolutely essential, not only for us, but for all the players in the industry, they want to maintain any kind of decent margins on the product.

Okay. And sir, maybe lastly, and I'll ask one more question. So we had this flattish net sales in 9 months of FY '25 on Y-o-Y and given the situation. So are we still sticking with this higher single-digit kind of sales growth for FY '25 full year?

No, we'll not be ending with a higher single-digit growth for FY '25. We will be more in the lines of lower single-digit growth.

And sir, how has been Jan and half of Feb has done for us?

Jan and Feb till date has been better than what was there in the last -- on a year-on-year basis. But still we don't anticipate we'll be ending up with higher single-digit growth as we projected earlier. It will be more in the lines of lower single digits.

The next question is from the line of Mithun Aswath from Kivah Advisors.

I just wanted to understand the sense we are getting when we listen to companies on the paint side are seeing demand may have bottomed out, and they're seeing some green shoots in Jan and Feb and actually may have started in December. Are you seeing similar trends where maybe the demand has bottomed out and there is some pickup in demand even at the consumer side? Or is it too early to say that demand is starting to improve?

So taking your question, which is futuristic one. So as far as demand is concerned and especially when we talk about the building material industry, as such, we do not showcase this thing that whether the bottom has come or not because still the challenges largely in the retail segment is going on. So projects, no doubt, there are increase in the project bank. But as far as retail market, which is largely impacting the slowness or sluggishness in demand is still continuing. And our understanding is that, with the recent budgets, what has been delivered by our Finance Minister and after that, the relaxation in interest rates, which has come through RBI, so this will bring some sort of a strong momentum in terms of the spendings which were hold for a period of time. But still it will be tough in the coming next 1 or 2 quarters.

Right. And I just wanted to understand, I think it's been now maybe a couple of years where there has been stagnation of growth. In your own history, do you see a trend maybe post-COVID, there was this big bump up which happened across the building material side. And then you've had maybe 2, 3 years of sluggishness. Do you see that cycle typically in your history? And then are you seeing maybe rural demand being better than urban right now though?

See, like you're correct that there has been a boom just after COVID. And the sluggishness started roughly Q3 of financial year '23-'24. And it has been something like 4, 5 quarters now that the sluggishness has continued. So as Mr. Vikas said, there has been some green shoots which have come up on the project side. And we are expecting that with the kind of budget and the interest rate reductions, which have happened, it should start improving on the retail side also. But it will be very difficult to have any kind of prediction till it actually starts reflecting on the ground level. So we'll have to wait maybe for Q4 and maybe after the Q4 con call, we'll be able to give you a better idea in respect of how we are anticipating the immediate near future, like how we anticipate it to go out for the retail segment.

Sir, just one last question was on your expansion. You had identified some land and you were looking to put up a facility. Obviously, considering the demand conditions, you may postpone that. But considering our healthy balance sheet, do you think it makes sense for us to be ahead of the market and to expand? Or what are your thoughts there? And have you been able to gain market share against the competition since there has been a sluggish market? Just wanted your thoughts there.

So regarding the greenfield part, so I think we have already addressed in our Q2 con call also. So as far as the land acquisition is concerned, the land acquisition with respect to greenfield is completed. And the projected completion once it will start, it will take roughly 18 months from the 0 date. But as we have informed that it is not expected from our side that the expansion will start in the current financial year, looking to the market unstability. The start date we will revisit once the end of the financial year. Now, coming to the question that in future, if there is any going to be any sort of demand and this can be the better opportunity to get the plant constructed at this stage? So we have the mitigating plans already built up which can be catered through 3 arms. One is the inventory base, what we have built up can suffice the requirement in terms of shoot up of demand. Second is the capacity utilization. So currently, we are smartly managing our production and inventory. And this is that we are not utilizing our plant capacities fully, so that can reach out to the fullest level. And thirdly, we have the very flexible outsourcing model, which can support in terms of whenever there is the shoot up is there in demand. So all these factors will make us more comfortable in terms of meeting the demand. But bringing the plant at this point of time, we will address this thing once we end this financial year. And then we will take a suitable decision in terms of the operating plans, what we are going to prepare for the next financial year and how we see and drive the growth in the next coming 2 years. And on your second question with respect to the market share, so as such, if you have seen, all the peer companies are delivering the similar -- more or less the -- they are all facing the demand pressure and the numbers are not good. So market itself has shrunk. So I don't think there is a question of any sort of decline in market share or something which has gone out of from one sector to another sector. So this is a short term, whatever the influence which is going on across the industry is the pain has been taken by all of us. And we are quite hopeful that with this real estate business, where the project banks have increased. In our case, it has increased by 15% if we compare with March. And their conversions will soon start from the next financial year. So things will be getting back to normal. But retail market, which we see that is still it is sluggish, still a few initiatives which are taken by the government and the RBI. So we are hopeful that they will be converting into the demand scenarios being picked up.

Got it. But typically, you've historically not done too much of...

Sorry to interrupt you Mr. Mithun, may we request you to please rejoin the queue. [Operator Instructions] The next question is from the line of Praveen Sahay from P L Capital.

So the first question is related to your commentary that you had mentioned extra discount given, which has led to some contraction while -- in the margin, while I can see that your gross margin on the sequential basis has up, whereas your operating margin has down. So is that an increase in operational expenses has led to the contraction in operating margin or the discount?

So it's a mix of both, like the discounts have gone up. And obviously, because of the passage of time, inflation also plays a role. And so, the other costs which are post the gross margin, they have also gone up. So both have played a part. But as of now, we -- if you compare on a year-on-year basis, our margins would have improved had the discounts that we are passing on right now not been at the same -- at the levels at which they are right now. So it's a mix of both, you're right.

So basically, that discount is continuing from the last 9-month and that's the interpretation we can assume because sequentially, it's not a contracted gross margin.

Correct. Like the discount -- increased discounts has started from Q3 FY '24. So they have continued from that point of time. And we have kind of bottomed out right now, the discounts are not increasing.

Okay. And also, if you can give the 9-month price hike in the Faucet and the Sanitaryware? And also on the guidance, are you sticking to INR 29 billion by March '25? That's it.

Deepak, you may... Okay. So regarding the price hike, the price hike what we have taken is average 6% in case of Faucetware, and 1% in case of Sanitaryware. When it comes to the appearance, it may be seen that 6% Y-o-Y growth, which is in 3 was solemnly due to this 6% increase announced in price rise, but this is not entirely the case because a direct 6% price hike does not immediately translate into 6% increase in average realization. This is because largely project orders have pre-aged pricing and the new rates will only apply for fresh orders only. So if we see in terms of the real conversion of price rise in quarter 3, so effective price rise realized in quarter 3 was approximately 2%, and remaining was the growth driven by volume, that is 4% to contribute to total 6%, indicating that the demand remains stable despite the market conditions.

And the guidance, sir, guidance you are holding this INR 29 billion by...

Regarding the guidance, so definitely, this question needs to be answered. So we are optimistic and committed in terms of meeting our projected target what we have set INR 2,900 crores by March '27. This is supported by our strong project pipeline. And with the improving -- with the improvement if it comes in the retail growth, we are confident that we are going to achieve these growth targets. However, there is a caveat that this is contingent upon the market recovering as expected. More, we will come out when we will be having a better visibility and we will -- at the end of the financial year, we will be having better visibility and we'll provide a more detailed assessment at that point of time.

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

Sir, my first question is, what is the captive and outsourcing mix for Sanitaryware and Faucetware for Q3, 9-month?

Yes, Deepak, you can answer.

For Q3, the -- you're asking for Faucetware, I'll give you figures for both. Like for Sanitaryware, the mix was 58% outsourced and 42% was manufacturing. And for Faucetware, outsourced was 48%, manufacturing was 52%.

And sir, for 9 months?

For 9 months, it was, for Sanitaryware, outsourced was 57%, manufacturing, 43%. And for Faucetware, outsourced 48%, manufacturing 52%.

Sir, just a related question, given you indicated the land expansion it's already done and 0 date commissioning will be 18 months. Are we okay to increase the outsourcing pie to, say, 50%, 55%, 60% if we have to meet to our stated revenue numbers of INR 2,900 crores by March '27? So till what level can we increase our outsourcing? What is the comfort level that the management has over there?

See, how this functions is that, typically, we would -- as of now, the plant -- you would be aware that the plant capacity utilization has also gone down. Like we have gone up to something like 120% of capacity utilization earlier. Now, we are functioning at something like 80%, 85% in the last few quarters. And current quarter was something like, I think 90%. So what has also happened once we have, one, come down from 120% to 85% kind of a capacity utilization, plus the mix has also undergone a change. Typically, what we used to do was that most of the value-added and more complex pieces were manufactured in-house, whereas the simpler pieces are outsourced. So once the capacity utilization started getting impacted to keep the plant running, we have changed the mix also. So we have bought in some of the materials which we were earlier outsourcing, we have bought them in-house. So once the demand starts improving, we'll have first scope for, again, changing the mix, taking those products which we have taken in-house will be again outsourced. And once that mix we are again back to the normal mix that we want to manufacture within the plant, then we can start increasing capacity and take it again to the levels which were there earlier. So if you really think about it, within the plant at the right optimal mix, we have scope for increasing capacity by, you can say, roughly 50% to 60%. And then we would have the outsourcing also where we have a lot of scope for increasing kind of volumes. So we don't see any challenge in terms of next couple of years can be easily met with the kind of plant capacity which we are having right now in Sanitaryware, as well as in faucets.

Sure. And sir, my second question was on working capital deterioration. If you could please explain each of the line items on why the number of days either have increased or decreased?

I'll just give you the -- Mr. Vikas had mentioned this during his remarks also, but I'll just give you the figures again. Like the total working capital days have gone up by 16 days, 60 days to 76 days. Now, inventory days has gone up from 79 days in Q3 FY '24 to 85 days in the current quarter. Now this, as we have been explaining earlier also, we need to kind of keep a kind of balance between the plant utilization and the inventory level. So with the demand not really picking up, we have to do the plant -- keep the plant running at a particular level. So inventory has gone up slightly, but we don't see a challenge over there because once the demand picks up, this can be liquidated on a -- we can say, over a period of time. The receivable days has gone up from 27 to 33. This has happened primarily because of the fact that we have changed our cash discount policy slightly during this quarter due to which the proportion of CD sales has gone down from 76% to 70%. Now, the working capital days, the receivable days has increased, but it is also giving us benefits in way of the amount of cash discount that we are passing on. So we are reviewing this on a constant basis. And if we feel that the benefits are not being outweighed by the cost, then maybe we'll revert back to the old policy, and this can again be brought back to the levels which were there earlier. Now, the payable days have gone from 46 days to 42 days. This has primarily happened because of the change in the vendor profile. In the last few quarters, the larger mix of our vendors have come in from the MSME sector because of the fact that in the MSME sector, you have to pay within 45 days. So that is why you find that the payable days has slightly gone down from 46 to 42 days. So we feel that inventory days are quite manageable as of now. We don't need to worry about it. The receivable days are again on account of this factor which I mentioned to you. And payable days is again within that 45 days kind of a margin, which is set by the government for the MSME sector. So we don't see too much of a challenge in case of working capital.

Sorry to interrupt. May we request Mr. Ritesh Shah to please rejoin the queue. We have participants waiting for their turn. The next question is from the line of Resha Mehta from GreenEdge Wealth.

So on the demand front, you've highlighted that the project side has been doing better than the retail, right? So if for 9 months FY '25, you could just quantify what has been the growth in both Sanitary and Faucetware separately for projects and retail?

So I think as far as projects and retail are concerned, so largely the composition is 65% to 66% is in retail and 34% to 35% is in projects. And especially the breakup between sanitary and faucet, if you see in case of sanitary, faucet, it is more or less the same what I have reiterated on the total basis.

Okay. Okay. And this share has remained similar year-on-year basis or would that...

On 9-month basis, if you see the project portion has increased. So on a 9-month basis, if you see sanitary and faucet, retail is 62% and project is 37% and 1% is exports. But we see in terms of the quarter 3 FY '25, it is somewhat 65:35. So overall, Y-o-Y basis on 9-month criteria, the proportion of projects has increased by 2%.

And on an historical basis, if you talk about in a larger context, you'll find that typically, our project to retail ratio used to be normally 30:70. So now from the 30:70, it has gone up to something like 35:65.

35 to 37 correct.

Right. But for 9 months, it's 32%, right?

37%.

37%, sorry. Yes, yes. Okay. Okay. The other one was on your 2 brands, Luxe and Senator. So what would be the revenue salience of these 2 brands currently in our portfolio and the margins? And also when we look at ad spend, since now we have 3 brands, right? And the luxury brands, the premium brands are also focused, how do we decide to spend between these 3 brands?

See, both these brands, the Luxe and the Senator brand, these have been just in the process of being launched. So as of now, the revenues are not too great. So it is more about -- we talk about the future. We have projected that once maybe down 2 years to 3 years down the line, both these brands, the Luxe and the Senator should be constituting something like 10% of our total revenue. So over like by March '27, we are projecting INR 2,900 crores revenue for the company. So the Luxe and the Senator brand should ideally reduce roughly INR 290 crores to INR 300 crores by March '27. Now, Senator is in the process of being launched. We -- the target is that, by the end of March, let's say, month of April, we'll have roughly 20, 25 stores, which will be launched for the Senator brand exclusively. These would be completely separate from our current display stores which are there. They will be at a premium location, the kind of display that it will have, the kind of selling experience that it will offer to the consumer will be completely different from what is being offered for the current Cera franchise. For Luxe, we are targeting something like 100 stores in the next 1 year. By financial year '25-'26, we should be having 100 stores, which will be earmarked for Luxe. They would be mostly existing displays, which will be upgraded and kind of stocked with the Luxe product profile. So the road map for these 2 are that we should be having roughly 75 stores for Senator by FY '26 for Senator and 100 stores for Luxe. Now, the margin profile for Senator and Luxe would be significantly higher than what is there for the current Cera portfolio. But the exact things would be most -- it will take us more time to give you more concrete numbers because the pricing positioning, et cetera, everything is being planned out. So maybe by Q4, I'll be able to give you more numbers in respect of how different the margins would look like.

The next question is from the line of Udit from Yes Securities.

Sir, I just wanted your comments and understanding that we have seen new catalogs coming in from the large conglomerates into this segment into the bathware space. So how do you see the competition panning out? And does that dent your margins going ahead given it could be a volume push scenario for coming couple of years?

We have had these conglomerates coming in for quite some time in the past also. And we have found that all it has been very difficult for them to translate their success in their respective fields on to the Sanitaryware and Faucetware. We have had the paint companies which have come in before. We have had tiles companies which have come in before. We have had tiles companies which have ventured into the space. They have not been able to do too great. We find that they go up to a certain number, let's say, INR 40 crores, INR 50 crores kind of a number is what they typically achieve. But then they start finding that the kind of the margins and the kind of growth which they were anticipating is not really forthcoming in this sector. Now, this is a real tough sector to crack, and we don't see too much of problems from the new incumbents apart from being more of an irritant. So we are more concerned with the existing players and the demand scenario, which is currently playing out right now rather than the new entrants which have already come in or which are planning to come in.

Okay, sir. So, sir, in the same lines, the price hikes that you have taken for the first 9 months, what would be the average price hikes which your existing peers have taken?

In Faucetware, you'll find that most of the players have taken a similar kind of price hike apart from maybe 1 player who did not take a price hike. In Sanitaryware also, we took only 1% price hike, but our competitors have taken in the range of 4% to 5% price hike. But what really happens is, even when you're taking a price, right, with the kind of scenario which is prevailing right now, most of it by the competitors is being passed on as discounts.

The next question is from the line of Samyak Jain from Marcellus Investment Managers.

Just one question. So you mentioned that the stock levels have increased and that is done to maintain the plant utilization at a minimum level. So let's -- yes, and let's -- if we consider that the demand scenario is weak currently and if we see that it continues for, let's say, 6 months, 9 months down the line, so are we still planning to continue with this strategy higher stock levels or we might change it going forward as per the demand requirements?

See, I'll break it up -- break up this question into 2 parts. One would be for faucets and other would be for Sanitaryware. In case of faucets, you'll find that changing the plant capacity utilization is something which is extremely easy in the sense that most of the process is machine-driven and most of the labor is also on a piece rate kind of a basis and on a contractual basis also. So cutting production over there is not too much of a hassle or a challenge. The proportion of fixed cost within the Faucetware facility is also quite low as opposed to the Sanitaryware facility. So you'll find that in Faucetware, we don't anticipate too much of inventory building up going forward. But in case of Sanitaryware, it's a slightly more difficult kind of a situation. It requires a stricter kind of a balancing. The reasons are because in case of Sanitaryware, it is not easy to scale down on the kind of beyond the particular minimum level. One would be because of the fact that skilled labor in this particular category is very difficult to come by, especially like in the casting process, you'll find that the labors are highly skilled and difficult to come by. So even if we decide that we want to scale down on the production levels, it will not be really possible to let go of the skilled labor. So over there, there's a higher kind of a challenge in respect of kind of reducing the production levels beyond a certain point. But we are monitoring it on a continuous basis. That is the reason that we had, as I mentioned earlier, changed the mix and taken some of the outsourcing products to the in-house manufacturing because we want to maintain it at a particular level. But you are right that if it continues for a very long period of time, then maybe we'll have to take again a review of -- as to how we can manage the inventory levels and again, the plant utilization also. But this is, as I mentioned earlier, more challenging for the Sanitaryware and not so much for the Faucetware.

The next question is from the line of Akshay Chheda from Canara Robeco Mutual Fund.

Sir, just one...

I'm sorry to interrupt. Mr. Chheda, can you speak a bit louder? We are unable to hear you.

Is it audible now?

Yes.

Yes, sir, just sorry, but coming back to the demand. So, I mean, we have changed our mix from 70:30 to 65:35. B2B share is going up. Sir, I understand that even from that 65%, that is the retail piece, we would be serving the B2B clients via the retailers. So effectively, if I understand, the demand driver for us would be, say, 70% from new construction and 30%-odd should be from the replacement side. So, sir, why this retail side softness is impacting so much to us? Logically, there should be some uptick because you also said that B2B is doing pretty well for us. So even from the retail piece, B2B might be getting soft. So still why so much softness is there? And the related question is, is it that the competitive intensity has increased so much from the incumbents and, say, the Morbi players or the MNCs that is impacting us? So if you can talk, sir?

I'll address the second part first. Like again, as I mentioned earlier, it is not so much about the competition intensity. Of course, they are coming at the fringes and taking away, small, small numbers, which would have otherwise maybe come to us or the unorganized sector. But it is not so much the competition from the new incumbents, but more about the demand situation, which is playing out right now. To address your question that the bulk of the demand comes in from the new construction. So we have kind of found that the new construction portion, even for the -- like apart from the metros, for the second and third tier towns, the construction activity has also slowed down, which is kind of affecting our demand over there also. So post this budget, we are hopeful that the spending should be increasing over there, and we should see an uptick, but we'll have to wait for a couple of quarters to see whether it actually translates.

The next question is from the line of Onkar Ghugardare from Shree Investments.

Yes. In this tough environment, how are you making sure that you increase your retail footprint so that you can at least tap that kind of market, which is untapped as of now from your side?

See, once the outside is tough, the most we can do is try to see what we can do within the company. So within the company, we have been doing quite a few things in order to optimize costs. Like I mentioned earlier that the discounts that we were offering have bottomed out. We are taking a lot of measures for cutting down costs. We have started looking at logistics, which constitutes something like 9% to 10% of our total cost, how we can bring down the logistic cost. We have started looking at how we can kind of bring down our labor cost. We have already initiated steps towards that direction. Like earlier, most of our labor costs used to be in the nature of fixed cost. Now we are consciously trying to get it more towards a variable nature so that whenever we want and if you want to cut down on production, we can actually bring down our labor cost also along with it. We have been looking at kind of reducing our insurance costs, which comes to something like INR 16 crores, INR 17 crores for our total on an overall basis. We have brought it down significantly and looking to bring it down even further. Benefit in respect of gas will continue because gas is something we take a lot of it from GAIL, which is not really impacted by the ups and downs which happen on the market rates kind of a thing. So main idea is that, while the outside continues to remain tough, we kind of keep on looking inside and see where we can do better. We have also been trying to look at the areas that we are weak, like these markets where we are not doing too well, like East continues to be an area where we have not been doing too well. In the South, typically, we do well, but Tamil Nadu is the kind of weak market for us. So we are looking at during these times that we continue to look at the areas that we are weak and try to improve upon those areas. So the idea would be that till such time that the market outside starts improving, we keep on doing cost optimization and improving on the areas that we are weak. We started looking at the premium segment by way of Senator and Luxe in a very serious manner. And we have given the road map that we should be constituting 10% of our total revenues by 2027. So like idea is that, continue to do within ourselves till the time that the outside is tough. I was just reading a phrase the other day. The success is the sum of small efforts repeated day in and day out. So small, small efforts we will continue to do till the market improves, and then we'll be able to capitalize on the improvements that we have already done.

Another thing is that, how are you adding retail network, like what's the strategy behind? I mean, to what level you want to grow or like how it is growing?

For the retail network, like on an each year basis, our target is to add something like 300 to 350 display centers. So typically, when we talk about the display center, it means taking a space within the dealer showroom. So as of now, Vikasji, you have the numbers like retail showrooms, how many we have done in the current year, in the current quarter also?

Just gave you the numbers. Retail shop number. So currently, as on December, we have around 1,682, 1-6-8-2, which is again categorized based on the size of the stores. So Cera Style Gallery, we are having around 280 stores. Then we have Cera Style Hub, 191. And then the smaller versions that is Cera Style Centers, it is roughly around 1,273.

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

Thank you, everyone, for attending this call and for showing interest in Cera Sanitaryware Limited. Should you need any further clarification or would you like to know more about the company, please feel to reach out to me or CDR India. Thank you once again for taking the time to join the call. Thanks, and bye.

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