Hindware Home Innovation Limited (HINDWAREAP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Raut. Thank you, and over to you, Mr. Raut.

Thank you, Inba. Good day, everyone. On the behalf of Dolat Capital, we welcome you all for Q2 FY '22 Post Results Conference Call of Somany Home Innovation Limited. We are pleased to have a senior management team from the company, represented by Mr. Rakesh Kaul, CEO and Whole Time Director; Mr. Rajesh Pajnoo, President, Pipes Business; Mr. Sudhanshu Pokhriyal, CEO of Building Products; Mr. Sandeep Sikka, Group CFO; Mr. Naveen Malik, CFO; Somany Home Innovation Limited. I would like to hand over the call to Mr. Naveen Malik for his opening remarks. Over to you, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the Somany Home Innovation Limited Quarter 2 and H1 FY '22 earnings call. I hope you and your loved ones are safe and healthy. I have with me Mr. Rakesh Kaul, the Whole Time Director and CEO, Somany Home Innovation Limited; Mr. Sudhanshu Pokhriyal, CEO, Bath Business; Mr. Rajesh Pajnoo, President, Pipe Business; and Mr. Sandeep Sikka, Group CFO. I will begin the call by taking you through our financial performance for the quarter and half year ended 30 September 2021, post which Mr. Kaul, Mr. Pokhriyal, Mr. Pajnoo will discuss the key highlights of their respective businesses. We have delivered a strong performance over the quarter, as can be seen by our financials, both consumer appliances and building product division delivered good growth, which was ably supported by the Retail business. We delivered positive EBIT for the quarter. [indiscernible] [demonstrated stem] from our [strong brand alliance] innovative product portfolio and wide distribution network. Before I share the financial, I would like to state that the calculations made for concluding year-on-year growth in revenue, EBITDA and EBIT for the quarter and half year are based on management reported number was adjusting the water heater business here which was offered under slump sale to Hintastica Private Limited, now 50-50 joint venture with Groupe Atlantic. Starting with the quarterly performance. Our consolidated revenue from operations stood at INR 617 crores, registering a robust growth of 56% (sic [66%] year-on-year and 80% sequentially. EBITDA for the quarter stood at INR 58 crores, having grown by 41% year-on-year and 2.4x on a sequential basis. Despite absolute growth in EBITDA, margins were slightly lower on account of the elevated input prices. In order to mitigate the impact, we implemented price hikes across product categories during the quarter. The full impact of which will be visible in subsequent quarters. I will let Bath business head share further details on the same. Profit after tax for the quarter came in at INR 25 crores, registering a growth of 28% year-on-year. The sequential comparison may not be a fair representation given that Q1 included the exceptional item comprising recognition of gains of INR 66.11 crores from our investment in Hintastica Private Limited on account of loss of control of subsidiary and gain of INR 34.75 crores on account of slump sale of water heater business undertaken by the company to Hintastica Private Limited. For H1 FY '22. Consolidated revenue from operations stood at INR 959 crores, growing by 58% year-on-year. EBITDA stood at INR 75 crores, growing 1.6x over H1 FY '21. Profit after tax came in at INR 129 crores, a substantial growth over a loss of INR 5 crores in H1 of last year. Let me now take you through our segmental performance. Revenue for the consumer appliances business was INR 112 crores, up 35% year-on-year, hence, 66% sequentially. EBIT for this business stood at INR 7 crores, growing by 7% year-on-year, and on a sequential basis, it has grown from an EBIT loss of INR 5 crores. EBIT margins stood at 6.2% in quarter 2 FY '22. Building products. Building product division revenue came in at INR 484 crores, registering a growth of 66% year-on-year and 82% sequentially. Our innovative product portfolio, coupled with improving real estate demand has aided this stellar growth in revenue, EBIT stood at INR 40 crores, growing by 48% year-on-year and 1.6x sequentially. EBIT margin for the Building product business came in at 8.2%. The Retail business. The Retail business, the debt is INR 21 crores, growing by 6% year-on-year and 1.2x sequentially. EBIT came in at INR 2 crores as compared to EBIT loss of INR 3 crores and loss of INR 1 crore in quarter 2 FY '21 and Q1 FY '22, respectively. EBIT margin for the quarter was 9.8%. Profitability for the Retail business has returned to being positive after the previous quarter EBIT loss due to the COVID-induced lockdown. We remain confident that the business will maintain its profitability in the coming quarters. Quarter 2 FY '22 was yet another quarter wherein the company demonstrated strength and resilience by delivering strong growth and profitability. We will strive to maintain this performance and improve upon it going ahead. We continue to drive our business on the back of regular innovative product launches and our robust distribution for business. I would now request Mr. Rakesh Kaul to take you all through the Consumer Appliances and Retail businesses. Over to you, Rakesh.

Yes. Thank you, Mr. Naveen Malik, and a very good afternoon to everyone, and welcome to SHIL's Q2 and H1 FY '22 earnings call. I sincerely hope that all of you and your loved ones had a pleasant Diwali and you're keeping safe. I'm happy to report that SHIL grew its revenue at a healthy clip during the quarter, indicative of a strong demand for our products. We have seen a steady pickup in demand in sales with the easing of various lockdowns across the states due to the subsiding of the second wave. The business, however, in line with the sector faced challenges with regards to rising input prices. In order to protect our margins, we announced price hikes for some of our products. We actively implemented various strategic initiatives such as new product launches, expansion of our distribution network and our marketing campaigns to make the most of the resurgence in the demand. We launched several new products in Q2 FY '22 designed with innovation and aesthetics in mind. These product launches were supported by major marketing campaigns, which were well received by the market and helped us to connect with the consumer during the festive season. Revenue and the EBIT for the Consumer Appliances has delivered a healthy growth rate on Y-o-Y basis, adjusting for the share of the water heater business. As you may all recollect, this business was part of our then wholly owned subsidiary Hintastica Private Limited, which after capital infusion from Groupe Atlantic France became a 50-50 JV with them. The said adjustment has been made to make the Q2 and the Q2 FY '22 and Q2 FY financials -- '21 financials comparable. Comparing to the financial performance during Q2, revenue witnessed a healthy growth of 36% year-on-year and 66% sequentially. EBIT stood at INR 7 crores compared to INR 6.5 crores in last year Q2 FY '21, an EBIT loss of INR 5 crores in the previous quarter. EBIT margin stood at 6.2%, slightly lower than 7.8% in the same quarter last year, owing to high input costs. To counter this, we have taken frequent price hikes across categories during the quarter and benefits of the same are expected to be realized in the coming quarters. We are monitoring the situation clearly with regard to commodity prices, ocean freight increase and are prepared to undertake further price hikes, if and when required. Coming to the retail business with increasing demand for real estate and home innovation, this business has seen growth in its revenues as well as profitability. Revenues grew by 6% year-on-year and 1.2x sequentially. EBIT has been positive -- back to being positive, after a minor blip during the first quarter of this financial year, largely owing to the lockdown related issues. Barring Q1 FY '22, the business has shown resilience with regard to maintaining and driving profitability. We are happy to see the business return to that trajectory this quarter and we're confident that it will continue to strengthen in the coming quarters. EBIT margin for the quarter stood at 9.8%. In terms of PBT too we are profit-making entity. We continue to focus on expanding our online presence, and our franchisee stores through the pillars of brand and a strong product focus. Before I hand over the call to Sudhanshu, I'd like to share that SHIL was also recognized as the great place to work by the Great Places to Work Institute, India. It's an honor to be a part of this list and is a testimony to our efforts to ensure that the organization feels like a second home to all our employees, providing them with an environment that is conducive to their physical and mental health as well as their productivity. With increasing demand, we are confident of growth in our top line, and the bottom line will improve with input costs returning to normal. With this, I would like to hand over the call to Mr. Sudhanshu Pokhriyal.

Thanks, Rakesh. A very good afternoon to everyone on the call. Thanks for joining us today. The Bath business has delivered a stellar growth in quarter 2 FY '22 as can be in financial. SHIL is the fastest-growing player in sanitaryware and faucets over the past quarter. I'm very happy to share that with you. The strong growth seen in both revenue and EBIT during the quarter stems from improved realizations, innovative launches and strong demand in the real estate sector. We've also seen much higher sales volume in Q2. We've launched SKU of products and designs during the quarter. Many of these address the need at the current time and are based on the idea of contactless usage. We continue to complement these launches with strong marketing campaign around them, which are making waves across platforms. I'm sure you would see me...

Mr. Pokhriyal. Sorry to interrupt. This is the operator. May we request you to just move the device a little closer to you, because the audio sounds like muffled right now.

Yes, sorry. So I'll just repeat what I said. So we have launched a SKU of products and designs during the quarter. Many of these address the needs of the current times and are based on ideas of contactless usage. We continue to complement these launches with strong marketing campaigns around them, which are making ways across the platform. I'm sure you'd have seen our faucet business around touch free, et cetera. Coming to the performance during the quarter. Revenue from operations delivered a robust growth of 66% year-on-year and 82% on a sequential basis. EBIT too displayed a very healthy growth of 48% year-on-year, and 1.6x sequentially. EBIT margin for the quarter stood at 8.2% as compared to 5.7% in the previous quarter, which is higher by about 250 bps. However, when compared to a year-on-year basis, margins are compressed by 100 bps, largely owing to rising commodity prices. However, we've undertaken price hikes in both sanitaryware and faucets in the last week of August, and the benefits of the same are expected to be realized in the coming quarters as well. To conclude, Q2 FY '22 has been a tremendous quarter for the Bath business, a period wherein we've seen good improvement in realizations as well as volumes. The business is regaining its fast momentum as evident in the growth of revenue and profitability over the last few quarters, and we are very confident of maintaining the same. Let me now invite Mr. Pajnoo to take you through the Plastic Pipe and Fittings Business. On this note, where we have been the fastest-growing business in the sanitaryware and faucet business in the last quarter. Rajesh, over to you.

Thank you. Thank you, Mr. Sudhanshu, and good afternoon to everyone here. Thank you all for joining us on this call. The Plastic Pipes and Fittings Business continues to perform well, maintain its revenue momentum, having grown 74% year-on-year and 82% on a sequential basis, to report a revenue of INR 158 crores for the quarter. Demand for our products continues to remain strong in addition to the revenue momentum, the pipe business contribute positively to the bottom line. The strong growth in the quarter came on the back of the launch of new SKUs and expansion of our distribution channels. The increasing real estate demand is helping widen the market side and have given a major boost to our sales in this quarter. Increased demand led to robust sales volume growth. The strong wave of real estate demand has also been a key contributor to the growth of this business. We are also seeing healthy traction in our institutional and project businesses on the back of registrations and various authorities. We have been working towards maintaining a strong connect with the influencer community and have made steady progress during the quarter by reinitiating the plumber connect program through physical needs. In this quarter though, we connected with our 20,000 plumbers, and we will continue to engage them in the coming quarters. We also continue to organize training programs for our various stable partners, influencers as a strategy that has delivered results in the past and are hopeful that it will continue to do so. Before I end my remarks, I would like to reiterate that the Plastic Pipes and Fittings Business continues to clock a healthy run rate. We are confident that the ongoing real estate sector demand will create instrumental in helping us maximize sales in the coming quarters as well. We believe that the robust housing demand and the high input costs for PVC will provide a boost in demand for CPVC segments as well. Thank you very much. And I would like to conclude these opening remarks and open the floor for questions and answers. Thank you.

[Operator Instructions] We'll take a first question from the line of Chetan Gindodia from AlfAccurate.

Congratulations on a great set of numbers, especially on the top line. Firstly, I wanted to understand what is our -- what would be our EBIT margin or EBITDA margin in the pipes business? And what is the trajectory over the last few quarters?

So basically, if you see on the Pipes Division, we did a sale of INR 158 crores during the quarter. EBIT margins [indiscernible] overall basis for the building products business, so separately we are not disclosing. But if you see broadly, the margins are in the range of around -- the EBIT margins are in range of around 7% to 9% -- 6.5% to 9%.

6.5%, 9% is for the overall building materials segment or for just for pipes?

Broadly for pipes.

Okay. Okay. And where do you see this margin going over the next 2 years, given that now sale is also increasing to INR 150 crores -- INR 150 crores plus revenue run rate?

So we still have a lot of operating leverage to use on because this is a separate business internally, and there are separate vertical, wherein we have separate sales team, separate supply chain costs. So as the sales volume keeps enhancing, the margin expansion will keep happening. And just to give a background, this is just around a 3-year old business. So we started the commercial production and sales into the market in August 2018. So the success of the business is based on the last 3 years of performance. And we feel that this performance will continue to grow. And year-on-year, we have given already the number that on the pipes, we have grown by around 74% to 75% in quarter 2, year-on-year basis.

Okay. And with respect to margin in the building material overall basis, so even though on the revenue front, we have substantially crossed both Q3 and Q4 numbers, but we are still quite low on the margin front. So how do you see overall building material EBIT margin when -- have we passed on the total RM inflation and -- Can we return to normalized margins from Q3?

So here, you have to see from 2 points. First point is Brilloca, which is a wholly owned subsidiary of SHIL where the results get consolidated for building products. This entire margins are without any manufacturing margins, because manufacturing is not part of Brilloca. Most of the analysts, what they do is, they try to compare us with the other producers or the other competition, wherein they have the manufacturing margin also built into the business. So we are today buying material, both from third parties as well as one of the group companies, as we have historically told on online basis. And then we do rest of the branding business, after sales service distribution. So all the entire gamut of activities we do in SHIL. Margins, as far as Brilloca is concerned on an overall basis, if you see, we have an EBIT margin of around 9.2%. But in quarter 4, we had 11.9%, but that's -- one of the best quarters we have with the highest turnover comes in to the picture and also a lot of fixed cost gets absorbed. But we feel that right now, margins are slightly around 1% down due to the raw material input, raw material inflationary trends, which we expect that in the next 2 quarters or so, we should be able to iron out and regain back the margins. This is despite the fact that we had taken 1 or 2 price hikes in the last 2 quarters continuously, and along with we are seeing the market and how the market behaves. So accordingly, we are taking the price hikes also.

Okay. So our normalized margin for FY '23 onwards, would be, say, around EBIT margin of the material plus 9% is what we are targeting?

9% is quarter 2. This is what I told you.

Okay. Okay. And with respect to our Consumer Business, so our revenue print is below last year's number. So I just wanted to understand -- sorry.

Yes, please go ahead.

Okay. Okay. So it is excluding water heater business. So if you can explain what is driving the growth in the Consumer Business. And if you can give the segment-wise revenue within consumer as an kitchen tops, appliances separately, it would be helpful.

So generally, if you see kitchen appliances, today contributes almost 45% to 48% of the sales of the Consumer Appliance Businesses. And as far as the market growth is concerned, Rakesh, I would request if you can address to this question, how the market looks like, and maybe we can...

Yes, sure. The growth in quarter 2 has been largely driven by our Kitchen Appliances segment. We continue to grow stronger in this category to be among the top 3 players in the market as of now, particularly in the category of kitchen hoods, kitchen chimneys, kitchen hobs and as well as cooktops. So I think the growth has been primarily driven by our focus on technology and innovation, as you would be well aware that we were India's first IoT chimney we launched last year, Hindware and Optimus iPro for which we did a massive campaign on TV and print recently. That has turned out to be one of our best sellers in the market because the consumer is feeling it much easier to use an IoT chimney, no else in the competition has that. Although at the same time, our continuous focus on research and development to create innovation in this category has resulted in creating the largest range of silent chimneys in the country. So now we can easily boast of a range of chimneys, which is the most silent. In fact, our chimney in Optimus iPro is 32% more silent than the most silent chimney in the competition. This again goes from the fact that we do an intensive consumer research in terms of what are the needs of the consumer. And through this research, we found out many of the consumers actually don't switch the chimney because it makes it too much of a noise. So hence, going back to our research and development, I think focus on innovations, focus on technology and creating feature-rich products which can make the lives of the consumer easier has been the hallmark and benchmark of Consumer Appliances and that's what will continue to give us growth. However, one part of our business is also air cooling business, which suffered a massive jolt in quarter 1, this year, as well as last year, primarily because of COVID-induced lockdowns. And as you know, cooling products predominantly 60% of the sellout happens in quarter 1. So having said that, we hope that COVID is largely behind us, and we will register significant growth in the cooling category as well in the coming times. I hope I answered your question.

[Operator Instructions] Our next question is from the line of Pritesh Chheda from Lucky Investments.

Yes, sir, the question is on margin side. So let's say, when you were commenting on quarter 4 versus what you saw this quarter, I think the key difference on a similar size of revenue is the gross margin impact number. So we were at kind of a double-digit margin in quarter 4 for a INR 600 crore revenue and we are a single-digit margin in quarter 2 for INR 600 crores plus revenue. So the question here is, first of all, is this assessment correct? And which part of the building product is where the gross margin pressure is there. What are the efforts that we are taking to offset these gross margins? Because some of the competing companies in building products in our similar product line did not have pressure to such extent? And where are we on the journey of improving sales, driven leverage, driving the margin of our overall business. These are my broader questions.

Yes. Broadly, I think your assessment is correct that on an apple-to-apple basis, on a turnover basis, the margins has a little bit shrunk as compared to the quarter 4. But as I told you, like markets have been very volatile over the last 6 months in terms of the price hike for the input raw material. And it is not possible for business to immediately in the -- just try to analyze brass. So brass moved a [indiscernible] kilogram to almost INR 480 a kilogram now. So every player who is into the brass and brass for the purpose of manufacturing process. It's a good input cost. The cost factor goes as high as 60% -- 60%, 65% for certain products. So most of the companies, what they do is, they wait and watch and how much is absorption in the market. Price hikes can happen anytime, but the volumes, growth as well as the absorption of the price hike into the market has to happen. So similar sort of trend is there. So this is where we have told that in coming few quarters, despite the price hike, which you have already done, we expect that in the next 2 quarters or so, we'll be further looking at price hikes and so able to bring back the margins and retain the margins what we had initially.

On the longer horizon of improvement of margins to double digit, which we have been commenting all these quarters on improving sale, any thought process there? Any changes there?

I think one good event, which we did is, if you see, we were very high on the working capital. But if you see the numbers now, we have been on the building products side on an overall basis, we have been able to reduce the number of days by around 20, 25 days. So we had given guidance to the market that we are working on it. And some of the things have already started appearing and coming through.

I saw that the -- will this working capital now sustain because there's a significant improvement at least that we see in this quarter? It's a reduction to 90 days, which you had earlier mentioned, from 110 days. So this 90 days, you think it will sustain?

Yes. We are still working on it. We continuously taken a number of initiatives to improve the return on capital employed on the overall business as such. And this is one of the key event which we are doing in terms of bringing back the good level of ROC number into the picture. So considering this, if you see on Q2 ROC basis, if we just -- on a consolidated results basis, Q2 if we analyze and get the ROCs, we are at 35% ROC today.

Our next question is from the line of George John from Equity Intelligence.

So my question is regarding our share of profit from the water heater business and how it is panning out in the new entity?

Rakesh, if you can take this?

Yes. Water heater business, we have registered a growth and double-digit growth over the comparable period when the water heater was a part of the earlier SHIL business. And even in profitability, while the input prices have increased tremendously as steep hike in water heater business, we have registered certain price increases, which has led to more stability for our brand and also the fact that in the recently concluded quarter, we became the #2 brand, #2 and #3 brand, #2 brand in [indiscernible] and #3 brand overall in e-commerce, which has helped us sustain our margins and sustain our revenues as well. There is largely if you see water heater business as an industry has suffered a minor degrowth in the first 6 months actually. So from that perspective, I think we are on the right path. At the same time, in that company, we've also introduced heating products recently. So that will also bolster the revenues in the coming quarters in the key season of winters.

Okay -- That was helpful. And have you had any market share gains in the consumer appliances segment?

Yes. I think if you would see that we have grown in the category of kitchen hoods. So while kitchen hoods is not covered by registered market agency -- registered in well-known research agencies like GfK, but our internal market estimates say that we have moved from 17% to almost 18.5% in the category of kitchen hoods. And in kitchen hobs also, we have broken into the top 5, registering a gain. In case of air coolers, the market has degrown in quarter 2 and quarter 1, whereas we've grown by 7%. And our e-commerce market share has moved to 16.7% by value as per GfK there. And in water heaters, our market share has moved to 7.3 -- sorry, 12.3% on e-commerce and overall at 7.3%. So we have made marginal gains in market share in water heaters and air coolers and substantial ones in kitchen chimneys and kitchen hobs.

Our next question is from the line of Sriram Rajaram from Ratnatraya Capital.

A couple of questions.

Sorry. Mr. Rajaram, we are not able to hear you clearly, if you're on a hands-free, please switch it to handset?

So a couple of questions from my end. One on the pipe business, based on your half year numbers, what is the volume growth? And my second question is on the consumer product business. So if I look at the first half numbers, like we have crossed about INR 180 crores. And if I look at the pre-COVID period, which is H1 FY '20, we have done about INR 175 crores. Now if I were to normalize these 2 figures, I just want to understand what is the growth on H1 to H1?

Pipes. Your question is on pipes or your question...

My question is first on pipes. That is what is the volume growth for the first half.

Volume growth until now we don't give separately for SKU wise because it varies from SKU to SKU and the product mix. Like on building materials, some of the time, some quarters, we sell bigger pieces, some quarters we sell smaller pieces. But if you see H1 to H1 of last year, our overall growth is 85%.

That is the overall growth.

Yes. On the pipe. This is the pipe.

Yes. Okay. And on the consumer product space, sir, if I go to compare H1 of FY '22 versus H1 of FY '20, like normally for water heater and all those things?

Yes, comparable basis for -- sorry, sorry, [indiscernible] go ahead.

Yes. If you net off the water heaters, it is 44%.

44% growth on H1 FY '20. Am I right? I'm not talking about H1 FY '21. I just want to get an understanding of H1 FY '20 versus '22.

So it is 44%, and this is apple-to-apple without water heaters in both columns.

No, I think Mr. Sandeep Sikka, he wants to know the pre-COVID period. So which means '19,'20 -- financial year '19-'20. Am I right, H1 of '19-'20.

Right now, not in front of me, to be very. We have to get back to you on this.

Okay. I'll connect with you offline on that. And sir, my last question, like if you can give the breakup for the Consumer Products business for the current set that will be useful for pipes.

Breakup means what? Breakup by mix?

Yes, segmental wise.

On the overall consumer product, which we have, still consolidated, like I told you like 48% -- 45%, 48% is water heater on this [indiscernible] . And balance, generally 15% to 20% is water heaters, then 15% to 20% is air cooler and rest are the other products.

So this 15% to 20% has gone out, right? So that's not on of the [indiscernible].

Then you have to adjust accordingly. Because last year, it was there as a part of the business operation and this year, it is not. So I'm just trying to.

We'll take a next question from the line of Prakash Iyer, from Haldiram's Family Office.

Are you able to hear me?

Yes, yes.

I wanted to understand from the management that what is the percentage of group company buying. I'm just looking at it from a corporate governance standpoint, arm's length is very well understandable. But to get comfort on the governance aspect is what I was wanting to know, Mr. Sikka, on all the businesses, piping, as well as kitchen appliances and so on and so forth.

So I'll start from the top. Like on kitchen appliances and the entire business of Somany Home Innovation Limited stand-alone. Today, now we don't procure anything from other group company, all is from the third parties. For Brilloca, sanitaryware and faucets on an average, we buy around 65% from our group company, SHIL. And on pipes, almost 98% is sourced from SHIL. And this is based on a Big 4 transfer pricing, which is benchmarked on our report -- of one of the Big 4, which is taken up by audit committee report.

And this is done quarterly, the...

Benchmarking is on an annual basis, not on a quarterly basis.

Our next question is from the line of Sonal Minhas from Prescient Capital.

This is Sonal. I have just a bookkeeping question. Just want to understand your effective tax rate for the period. And just want to understand like for FY '22, '23, what we should factor in as an effective tax rate because the number varies quite a lot?

So I think if you see on a consolidated -- I understand where your question is coming from. If you see our consolidated results, the effective tax rate may look higher, because Brilloca during the quarter paid a dividend to its parent. And since parent has not paid out the dividend as of now in this quarter. So as for the tax loss, we have provided the tax on it. But when you consolidate the figure, you have to net off, since it's a transaction between parent and the subsidiary. So dividend is not coming as a consolidated, but the incidental tax is coming. So that's why it is looking higher. Brilloca is under a regime of 22% plus surcharge and SHIL is under the regime of 34% plus surcharge because SHIL -- we made some investments initially in the SHIL and until that recovery happens, maybe for a year or so. So on a weighted average basis, you can assume almost 30% -- maybe 28% around the average tax rate.

That would be tax rate for the period...

For next 2 years, maybe.

Next 2 years. And the JV that we have done, that the profits for them also are getting accrued below the PBT number, right? -- or that's not getting accrued yet?

[indiscernible] 50-50 JV, and we have taken equity method for it. So the net profit from the JV, they are reported below the PAT.

[Operator Instructions] Our next question is from the line of Puneet Khanna from BOB Investments.

So I just wanted to understand about building products line. What is the breakup of sanitary and faucets? First question. Second question, what is the mix of retail and institutional sales? And third question is what is the plan for the next year? And what is the market shares we are aiming for the building products segment.

Okay. So first question, sanitaryware and faucets, you want to separate, just one figure, I could just see. You want a share? Yes, yes. Yes.

This is Sudhanshu. So on the 6-monthly basis, we have about 32%, 33% is our faucets sale and the balance is what is categorized is sanitaryware. And similarly, on the 6 monthly basis for the financial year, our retail sale is about 74% and 26% is our project sales. We typically don't give a specific number here, but we believe that we will gain market share, and we target 1.5 to -- 1.5 to 2x, the market growth rate, our overall growth rate. And like we said, we've been growing in the past quarters, and we are the fastest growing company in sanitaryware and faucets. We believe that we will continue that trend and continue to grow at 1.5 to 2x the market growth rate.

Our next question is from the line of Pritesh Chheda from Lucky Investments.

Sir, just on the -- pure sanitaryware and faucetware side of the business. So when we try to compare a couple of years back numbers, or maybe we were in a streak of low growth or losing market share. Now between half yearly this year, and let's say, half yearly a couple of years back, the products would have -- the business which would have added and improved would be the pipes business. So adjusting for pipe business, what is the growth rate that we have seen in sanitaryware -- pure sanitary ware, and faucetware. And where are we on that market share table now?

So I think we disclosed that number, like on the -- if you go the segment results, the sanitaryware, faucet together has grown by around 65%, 66% based on quarter 2 Y-o-Y. And the pipes have grown by around almost 74%, 75%, quarter 2 Y-o-Y. Sudhanshu has already spoken about it. And in fact, we have been giving guidance for almost now 6 months that we expect that will beat the market growth by almost 1.25 to 1.5x. And this guidance was given earlier this year and even in the month of May this year. And I think we are proving what we had said historically with these numbers. And today, Sudhanshu has already spoken about it, you can compare us with the other peers in the market who work on sanitaryware, faucets and the similar industries, like Cera or something. And today, we are the fastest growing company in this sector -- in this industry today.

So for us, what is the half yearly growth?

Half yearly.

56%, we just mentioned.

Half yearly, sir.

So half yearly, overall growth, if you see is 76%, which we have done. And sanitaryware, faucets, if you take on, this thing is around 69%.

And we are taking -- now we are improving market shares or?

So number shows it. I think we are very aggressive in the market now.

Okay. And on the pricing side, sir, how much price increases you have to take to come back to a double-digit margin if one would have assumed at the INR 600 crore revenue number. So what kind of pricing actions you have to take on this portfolio?

Your question is good, but it's not that easy to answer, to be very frank. So I'll just take you back that in the last 2 quarters on sanitaryware, we had taken 2 price hikes. And on faucet, we have taken one price hike. Maybe another 1 or 2 price hikes, that's what we said we'll be able to retain the margins. But again, we have to see how the input prices keep moving. So input prices can go up or can come down over a period of time. But the price hikes, despite the price hike, the input keeps -- raw material keeps moving. We'll have to further evaluate and further do the price hikes in the market. So the guidance -- broad guidance is that maybe next 1 or 2 quarters, we should be able to iron out the differential in the margin, which is due to the input material price hikes.

Sir, my guess is the input inflation is only on faucet. It's not on sanitary ware, right?

We use -- while manufacturing sanitaryware you have to use, you have to bake it in the kiln, which is a major cost -- fuel is a major cost. The gas prices, they have gone very high. It's almost doubled actually in the last few months.

Yes, additionally, there is a use of PP, polypropylene, which is basically also -- there has been a huge price increase in all the raw materials, which is used for largely the seat covers, as well as [indiscernible] , and that also constitute nearly 15% to 20% of the total cost. So there is a substantial price hike over the last 12 months on that raw material as well. So gas as well as PP, and brass. These are the 3 key ones. And about 14%, 15% of our total sanitaryware is imported from China, and we all understand what's happening in terms of the overall increase in freight -- ocean freight, which has actually gone up by more than 5x. So there is an overall price increase in the raw material, as well as in freight, which is impacting even in sanitaryware category, not just faucets.

So I think the biggest deviation there is the imported part, between us and the other competitors listed, and the faucet side of the inflation, because what we understand is, power costs may not swing so much as a percentage of sales in terms of increase. So what are we doing then on the faucet side, where the inflation is there? And on the pricing of it, because competition seems to be suggesting that they have taken the price hike. And on the imported sanitaryware side, are we now developing any alternatives to it? Or -- any other options do we have?

Yes. So like Mr. Sikka said, we've taken 1 price hike in faucets in the year and 2 in sanitary ware. We intend to take 1 more price hike in sanitaryware in the month of -- by the end of November. And we are continuously evaluating if we need to have another price hike in process. We have strategically moved to reducing our dependence on China for imports, which used to be nearly 20%, 21% of our total sanitaryware requirement, to now less than 15%. So we've reduced our dependence on China. So that's one aspect we have done -- And that is done by developing local vendors. So like -- very rightly asked by you, we have increased our production within our facilities to SHIL, and also through domestic vendors. So both these actions have been taken, along with the increase in prices. I'm also happy to share with you that we have undertaken a lot of cost reduction initiatives which are also -- which we believe will also start giving us -- efforts as we go forward. These initiatives are in product reengineering, they are also in process engineering, and overall value chain improvement. So we believe that in the next 1, 2 quarters, we would be able to mitigate most of the price -- input price hikes, which have come into our P&L right now.

Okay. Sir, lastly, can you quantify the price hike? What has been taken so far in last 6 months in faucetware and sanitaryware?

I think 2 price hikes ranging between 8% to 10%.

2x. 8% to 10%.

Yes, on sanitaryware.

And faucet?

Broadly in a singular range.

Faucet was about 10%, and sanitary ware was first 5% to 8% and the second one was 8%.

So 16% in case of sanitaryware and 20% in case of faucetware?

10% in case of faucet.

You said 10%, 2x no?

Faucet is only one time.

Our next question is from the line of Sriram Rajaram from Ratnatraya Capital.

Sir, my question is basically on the arrangement with HSIL. Now that I understand that there are 2 parts to it. So basically, one is that we purchase products from them. And also, we also receive some kind of income in the form of management fees. Now I just want to understand, how -- what are the basis for these? And if you can disclose like what are the ballpark margins retained by the HSIL. And how do we arrive at the management fees and so on, it will be helpful.

So basically, if you see the big quantum of related party transaction is sourcing from HSIL. And you can see the results of HSIL on the building products segment. And you would know how much they are selling, was entirely, their entire sale is to Brilloca. On a broader side, the EBIT margin range between around 4%. So this is the EBIT level margin, which is charged by them in terms of as an OEM production. HSIL doesn't impart any management services post demerger in the entire group. There were some common services like finance, accounting of IT, legal, so all these things get allocated broadly, broadly-broadly in terms of ratio of sales to the other group companies. So that we bring efficiency into the system. And there also the markups and other things is all approved by a Big 4 as a part of the related party transactions.

We will take the next question from the line of Gaurav from [indiscernible] Capital.

Sir, just one question, taking queue from what you said earlier in the call where you said that it'd be unfair to compare our margins to companies that are manufacturing by themselves. So in the past couple of quarters calls, we've mentioned that we -- in the next 3 to 4 years, we intend to get to a 14% to 16% EBITDA margin. So how do we get there without manufacturing and outsourcing a lot of our manufacturing -- Because those EBITDA margins are quite comparable to what these other companies are doing while manufacturing?

So if you see, like as I told you, there are some newer businesses inside the overall SHIL consolidated, like consumer business, pipes business, they are fairly new businesses. There is an element, wherein the volumes for each of these businesses are increasing. And when we are asking third-party vendors to manufacture it for us, we feel that there will be some volume discounts, which will get built on. I'm just normalizing the input cost here. Apart from it, if you can see, we still have higher employee cost as a percentage to sales, because these newer businesses, these are separate verticals internally. So there is some sort of an operating cost or our operating leverage, which we'll use as the volume expansion happens. With that, we feel that margin expansion will come down. So these are the 2 key points and some internal efficiencies, some working on design to value, some improvements in the product -- some value addition to the products by -- like Rakesh talked about IoT products, wherein with some incremental expenses, so we are able to change the whole game and charge incremental -- make an incremental gross margin -- So there are -- there's not one initiative. There are subset of many initiatives, wherein we had given a guidance that over the next 3 to 4 years, we should be able to expand our margins by around 3% to 5%.

We still maintain that despite not manufacturing, we can get there. Because my doubts came from the fact that if you look at, so in the pipe segment, everyone is doing 17% -- like top companies are doing at 17%, 18%. In the consumer appliances, it's broadly 10%, 11%. So how -- that's what...

Yes, it's very easy. Like the margins which we leave in HSIL, which they charge from Brilloca. They have been transparent to you. You can go to HSIL results and just pick up the building margins and add to us. So you would know, because if you see on a pre-demerger basis on sanitaryware or faucets together, we were in a range of around 18% to 20%. Pipe business was not -- had not started during that time on a pre-demerger basis. So the margins which we are retaining there, so let's say, tomorrow, if we have a manufacturing with us, we feel that margins will be still more stronger. Our directionality of our discussion was not that that 3% to 4% incremental margin will come with the manufacturing in-house. It is purely relating to economics. It's also leading to efficiencies which we'll bring in. So if manufacturing is acquired one day, like that will be a top-up.

So that's an option that you keep open that you could manufacture as well.

Yes.

Your next question is from the line of Puneet Khanna from BOB Investments.

Sorry, just to have another question is, what is the price of natural gas we are right now buying for sanitary? And what are the sales from Tier 1 to Tier 3 cities?

So we don't buy any natural gas, as we don't have any manufacturing facilities. So we procure it from third parties who buy the natural gas, but definitely, it's passed on. But the broad numbers which we have is that natural gas prices on an average in the last 2 quarters has moved from INR 25 to almost INR 50 that's almost doubling of the price. Depend on state to state, and on the sort of agreement of these vendors have with the agencies. What was the second question?

Tier 1, Tier 3.

Tier 1, Tier 3, if you see sanitaryware, faucets, if -- just go to the top few cities. Metro constitutes almost 30% of our sales and then non-metros, first Bangalore, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, Pune. So they constitute around 30% and rest of the country constitutes around 70%.

Our next question is from the line of Deepak Poddar from Sapphire Capital.

I just wanted to check that like in the previous call as well, you have been talking about maybe 20% kind of a revenue CAGR over the next 3 years. Whereas the kind of group that we are witnessing right now is another trajectory. So is there any kind of revision that you want to do on the CAGR that we were looking for over the next 2 to 3 years?

So I think the guidance which we gave around 6 to 9 months back was based on that market condition. But post that, many input raw material prices have moved. So they may drop over a period of time also, but our growth -- our numbers today stand in the same value, like what we have spoken about the expected growth on consumer or the pipes or on the building -- on the other rest of the building products.

Okay. Okay. So we are kind of looking at same range, 20%, 25%, is what you're thinking?

Yes. But I think there is an element of more bullishness here. So we have a chance of doing more also. This is based on how current market condition.

Yes, because even the price hike is closer to maybe 10% to 15%, right?

Fair enough.

Our next question is from the line of from [indiscernible] from Quest Investment Advisors.

Just one question. What would be our component of gas in manufacturing of building products, like sanitary and faucetware?

So as I told, we don't -- in Brilloca, we don't have any manufacturing.

Right. But just broadly, if gas -- I just wanted to understand the component of...

Basically, if you see, while manufacturing sanitaryware, the kiln is used, not much used in faucets. So average production cost to the overall gas cost is somewhere around 22% to 25% of the production cost -- of the production cost, yes.

All right. All right. And just last bit on the sanitary and faucetware business. So what I'm trying to understand is, FY '21 was lower base and on that base, growth looks really high. So do you think we will be able to cater to the demand that is there? And are we really confident of 25%, 30% kind of growth rate?

So based on the current market condition, I think today, like last quarter, we have 66% growth. Definitely, there is some element of last year forward impact. But based on the current market condition, we are very confident on the numbers we are talking of, at least we can do for the next 2 quarters.

We'll take our next question from the line of [ Ajit Goel ], an individual investor.

I actually had a question, again, related to the current market conditions. So if you can give your comments on the current festival season that has just gone by for our different lines of our businesses and how do we see closing out FY '22, that's it.

May I request Rakesh to take this question, please.

Yes. Thank you, Sandeep. Yes. So the recently concluded festival sales was a little bit different in the sense that we have seen lesser number of consumers moving up the -- lesser number of consumers having shopped in the recently concluded festive sales, but they have moved up the value chain. So which means that higher ASP products have got sold more during the recently concluded festival. And we still see there is a little bit of resistance towards the mass-based products, which shows the core impact on the lower and the middle class is slightly more. But having said that, it gives us an opportunity for a company like ours, because we focus on technology and innovation. And we -- since our majority of the products, which we got sold during the recently concluded festival sale, the sizable portion of that remains smart products and connected appliances, which gives us a lot of scope and focus, a lot of scope and a lot of hope that the subsequent months would turn out to be better, and we might eventually increase our ASPs as well, not only because of price rise, but because of higher and the premium products selling more during this festive season.

And what about the Building Products segment and the Retail -- How has that been performing currently?

So retail for Consumer Appliances Business or retail...

Yes. I mean the retail subsegment that we classify, I mean...

I think what we have done in the retail business for SHIL stand-alone, we have moved -- because we had 2 big pillars. One was brilliant product in the furniture business and also the brand, which is Evok by Hindware. So we realized the potential of the brand by getting into a very - a very light -- asset-light model where we're [indiscernible] fixed cost, -- and subsequently reduce the count of our stores, if you remember well from 15 to 2 last year. And these 2 stores, our own store, and we have subsequently increased the franchisee stores to 29 by the end of quarter 2. Let me tell you that we have grown by more than 185% in our franchisee business over last year. And even if you take for like-for-like franchisee stores, we've grown by 50% in H1 despite the COVID induced lockdown in the first quarter. So our model of -- our recalibration of the model in retail has helped us to a significant extent. At the same time, we have a very strongly focused D2C approach in the retail business, which is Evok Drop-In, which has more than 800,000 visitors, unique visitors coming onto the website every month. And we believe that in future, we will optimize our digital capabilities by going hyper local. And we are also working in such a way that many of the consumers who are logging on to evok.in, we are now getting them delivered through franchisees across the country. Thereby, making the offline as well part of the inclusive growth as such. So I think from that perspective, the EBIT margins of retail has shown a significant improvement than what they were earlier.

Sir, just a quick clarification. When we say the Retail as a subsegment, we include online and offline as well, right? Or is this only the physical franchisees that we have?

So while the physical franchise and the physical stores are part of the Somany Home Innovation Limited, but we have a 100% subsidiary called HHRPL Limited, which is basically the B2C, which looks at the digital D2C business, which is evoke.in.

And this comes under the Retail sub category.

Yes. Yes. This comes under the Retail sub category. If you ask me now etail and retail are merging, so while we are fixing this, our focus, our future focus will remain B2C. So while in Somany Home Innovation, HSIL also for consumer appliances business, we are looking at B2C to be a big, not only to drive revenues, but to make brands more aspirational and give the experience to our consumers about our products and offerings, and have a great brand experience through delivery to the customer, through brilliant deliveries to the customers. So I think there's a merging of etail and retail, so to say. But yes, you are right. The evok.in, the e-commerce business, the B2C part of the business of retail falls into a 100% subsidiary called HHRPL.

Okay. Okay. And sir, finally, regarding the Building Products segment, I mean, in your competitor's call, you seem to suggest that the second half of the financial year is going to -- they're going to end on a very strong note. So are you seeing similar trends as well? Any thoughts and comments?

Sudhanshu?

Yes. So in the sanitaryware and faucet business, we are seeing extremely good market response. We believe our performance is going to be exceedingly good in H2 as well. So I reiterate the demand, which is there right now, which has been there from the real estate market, both for replacement as well as new demand. We have no doubt that the business is going to be robust in the H2 as well.

Thank you. Ladies and gentlemen, that was the last question. I now hand over the floor back to the management for closing comments. Over to you, sir.

Yes. Just thank everybody for joining us on this call today. Markets have turned out to be very good for each of the segments in which we are operating. We are very confident that Q3, Q4 will give us further impetus for growth. And we have given long-term, medium- to long-term guidance to the market. Based on the current market condition, we feel that we are walking the right path of that trajectory of growth, which we have mapped for us. And we can further improvise and improve on the numbers as we move forward. Thanks. Thanks for joining again. And we are very happy to answer all your questions as we move forward. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.