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

Ladies and gentlemen, good day, and welcome to Q2 FY '23 Earnings Conference Call of Hindware Home Innovation Limited hosted by PhillipCapital Private Client Group Desk. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Apurva Shah from PhillipCapital Private Client Group Desk. Thank you, and over to you.

Yes. Thank you, [ Inba ]. Good morning, everyone. On behalf of PhillipCapital Private Client Group Desk, I welcome all of you to Q2 FY '23 Post Earnings Conference Call of Hindware Home Innovation Limited. We take this opportunity to thank the management of HHIL for giving us the opportunity to host the post earning conference call. From management, we have Mr. Rakesh Kaul, Whole-Time Director and CEO, HHIL; Mr. Rajesh Pajnoo, CEO of Pipe Business; Mr. Sudhanshu Pokhriyal, CEO of Bath Business; Mr. Sandeep Sikka, Group CFO; and Mr. Naveen Malik, CFO HHIL. I now hand over the call to Mr. Gavin for further proceedings. Thank you, and over to you, Gavin.

Thank you, Apurva. Good day, everybody, and thank you for joining us on this call. I'd just like to add that many statements -- that statements made during this call maybe forward-looking in nature and are subject to risks and uncertainties. The management or the company does not take any responsibility to revise these in the interim or make any changes. I'd now like to hand over to Mr. Naveen Malik to start, who will you give his opening remarks. Over to you, Naveen.

Thank you, Gavin. Good morning, ladies and gentlemen, and a very warm welcome to Hindware Home Innovation Limited Q2 and H1 FY '23 Earnings Call. I will start the call by taking you through our financial performance for the quarter and half year ended 30th September 2022. Post which, the business CEOs will discuss the key highlights of their respective businesses. On an overall basis, we are pleased with our performance, especially if one considers the challenging inflationary environment we had to operate in. Despite a subdued demand environment, both our Building Products and Consumer Appliances businesses have reached a healthy growth. For the quarter, consolidated revenue from operations came in at INR 715 crores, up 16% year-on-year. Consolidated EBITDA for the quarter stood at INR 64 crores, having grown by 11% year-on-year. Margins too were understandably under pressure on the back of higher raw material prices and subdued market sentiment. Launch of new products, distribution and retail expansion has continually delivered industry-leading growth performance. Consolidated PAT after considering the results of JV for the quarter stood at INR 16 crores. Figures are on consolidated basis and rounded off. For H1 FY '23, consolidated revenue from operations stood at INR 1,393 crores, growing by 45% year-on-year. EBITDA stood at INR 131 crores, growing 75% year-on-year. PAT came in at INR 27 crores compared to INR 28 crore in H1 of last year. This is after excluding exceptional gain of INR 100.86 crores. Our strong brand recognition, innovative product offering and broad distribution networks have all contributed to our resiliency while company maintained top line growth during the period, margins, as mentioned earlier, were impacted by elevated input and competitive price disruption across the globe. Moving on to our segment performance. Our Building Products segment delivered yet another encouraging performance during the quarter. In quarter 2 FY '23, revenue from operations stood at INR 576 crores, registering a growth of 19%. Our diverse product offering, together with growing demand has contributed to its -- to healthy top line growth. EBIT stood at INR 33 crore. In H1 FY '23, the Building Products business reported revenue from operations INR 1,111 crores, registering a growth of 48% year-on-year in H1 FY '23. EBIT stood at INR 76 crores, up 38% on a year-on-year basis. It is pertinent to note that EBIT for the corresponding quarter and 6 months last year does not consider in-house manufacturing, which commenced this financial year post the purchase of manufacturing assets from AGI Greenpac. To combat the impact of rising input prices preserve our margins, we may consider revising our prices in the coming quarters. Demand for our fast-growing Plastic Pipes & Fittings business remains steady, underpinned by solid fundamentals and our resilient business model. We reported revenue worth INR 197 crores for the quarter, while EBIT was adversely impacted by a fall in PVC prices. In quarter 2 FY '23, our Consumer Appliances business reported revenue of INR 125 crores, up 12% year-on-year and EBIT stood at INR 7 crores. In H1 FY '23, segment revenue grew 42% year-on-year to INR 254 crores and EBIT stood at INR 10 crores. This performance has been achieved against the backdrop of inflationary pressure, increase in food costs and a challenging macroeconomic environment and enhanced focus on premiumization combined with the benefit of price increase taken in preceding quarters saw improved EBIT in quarter 2 FY '23. Our retail business revenue stood at INR 14 crore in quarter 2 FY '23. Going forward, we remain focused on improving our operational efficiency and minimizing input costs by implementing prudent cost reduction measures. We continue to grow our business by launching new innovative products on a regular basis and maintaining a strong distribution infrastructure. We are confident about our future performance and are committed to achieving our goal of delivering sustainable profit and revenue growth. With that, I would like to call Mr. Sudhanshu Pokhriyal to take you through the Bath business. Over to you, Sudhanshu.

Thank you, Naveen. Good morning, and welcome, everyone. Our Bath business delivered yet another quarter of industry-leading growth and continue to gain market share. In quarter 2 FY '23, revenue from operations stood at INR 379 crores, registering a growth of 16% year-on-year and EBITDA stood at INR 48 crores registering a growth of 13% year-over-year. In H1 of FY '23, the business recorded revenue from operations of INR 743 crores, registering a growth of 48% year-on-year and EBITDA stood at INR 96 crores, up 92% on a year-over-year basis. We've been able to deliver strong growth on the back of new product launches, distribution expansion and increased reference to our brand. Towards driving revenue growth, we continue to strengthen our distribution network. We've added 75 plus additional distributors in quarter 2 to take care of our white spaces, focused on launching new brand shops and tap new markets and strengthen our brand. Our Bathware division is experiencing an increase in key raw material prices as well as fuel and power prices in quarter 3 of FY '22, and thus impacting our margins. Global volatility in input and energy pricing has in part mitigated the benefit of moving the manufacturing business in-house following the acquisition of Building Products division of AGI Greenpac Limited. While raw material prices are fluctuating, they still continue to remain elevated, which may necessitate us to undertake future -- further price hikes in coming quarters to preserve our margins. I'm happy to share that we launched a slew of innovative products and designs during the quarter. We will continue to complement these launches with strong marketing campaign across all platforms, a few marquee bathroom products, including Easy Clean, which is a self-cleaning basin, and Ellipse, a basin that's safe for you to leave items such as toothbrushes, toothpaste, et cetera, which were launched recently and have been very well received by the consumer. To conclude, we have delivered a strong quarter for our Bath business during the quarter, a period wherein we have seen good improvement in overall volume and realization as well. We continue to focus on driving growth and are confident of sustaining the same in the future. I would like to now hand over the call to Mr. Rajesh Pajnoo to take you all through the performance of Plastic Pipes & Fittings business. Over to you, Rajesh.

Thank you, Sudhanshu. Good morning, everyone. Despite the challenging environment, I'm glad to report that the Pipes business registered revenue from operations of INR 197 crores for the quarter, registering a growth of 24% year-on-year. EBITDA stood at INR 6 crores. In H1 FY '23, the business reported revenue from operations of INR 367 crores, registering a growth of 50% year-on-year. EBITDA stood at INR 18 crores, up 12% on a year-over-year basis. Q2 continued to witness a steady decline in PVC prices, resulting in destocking by channel and inventory loss for most of the players across the country. But despite these challenges, I'm happy to report that we have seen a growth in volumes over the past 2 quarters, largely owing to a higher share of CPVC pipes and fittings, contributing over 3% to the business revenue complemented by growth in volume. In quarter 2, we added more than 200 new products, increasing the SKU we offer to more than 1,500. During the quarter, we continued to connect with plumbers and conducted multiple training sessions for our general channel and influencers. We will continue to engage in similar activities over the coming quarters as we all will look to consolidate our presence in this category. While the challenges may linger in the near term, we will continue to work towards product innovation and widening of our distribution reach. Our expansion strategy is aligned with our planned objectives and include both brownfield and greenfield initiatives. We are on schedule with our brownfield capacity expansion project at Hyderabad with expected completion in this -- next month, December 2022. Additionally, the greenfield project in Roorkee, Uttarakhand is progressing as planned with the purchase of the factory land already completed. I would now like to hand over the call to Mr. Rakesh Kaul to take you through the consumer appliances and retail business. Over to you, Rakesh.

Thank you, Mr. Pajnoo, and good morning, everyone out here, and thanks for joining this call. So let me take you through the Q2 performance of Consumer Appliances and Innovative business at HHIL. So in quarter 2 for FY '23, our revenue from operations in Consumer Appliances stood at INR 125 crores, registering a growth of 12% same quarter over last year. EBITDA stood at INR 11 crores, registering a growth of 9% over the same last year quarter. However, in H1 FY '22, the business reported a healthy revenue operations -- from operations of INR 254 crores, registering a growth of 42%. And year-on-year EBITDA at INR 16 crores, increased by 119% on H1-to-H1 basis. Our continued investment in the research and development has enabled us to register more than 33 patents and we have already got 2 patents provided to us since the inception of the company. We have devoted creating a compelling and cutting-edge product portfolio with innovative features. In quarter 2 FY '23, we added new products, increased the SKUs, we offer across chimneys, cooktops and water heaters and also expanded in our reach in metros Tier 2 and Tier 3 cities by opening up more than 133 distribution points across both the businesses. And also, at the same time, we -- our increased focus on the premiumization of our products resulted in increased sales of our silent range of chimneys and also the MaxX Auto Clean, the patent technology chimneys. We have seen input prices moderating post to the last price hike in quarter 1, which provided us the leeway to retrieve our margins and thus, we did not take any price hikes during the last quarter. During the quarter in H1, our Retail Business revenue came in at [ INR 14 ] crores and INR 28 crores, respectively. Given the impact of the inflation on the discretionary product categories like furniture, the segment has been witnessing sales headwinds. Further, our online and off-line sales in this category has been modest in line with the overall muted demand environment. However, we have added 4 franchise stores in the quarter as of September '22. We had a total of 34 franchise stores and 2 owned stores. However, we are optimistic about scaling up our revenues and believe the segment's margins will drive us to previous levels as challenges surrounding raw material prices and inflationary abates. That concludes the opening remarks, and I would like to ask the moderator to open the floor for question and answer session. Thank you so much.

[Operator Instructions] The first question is from the line of Ritesh Shah from Investec.

I had a bit of more generic question. First is, basically, what is the company strategy when it comes to cross-selling products across different divisions? Is there an overlap in the distribution channel, how should one understand this? That's the first question. And the second question is, what is the minimum hurdle rate that the company looks at while deploying incremental capital in any of the new segments? .

So if you see today as Sandeep Sikka just said, we have 3 distinct distribution channels to the market. So one is the traditional Sanitaryware and Faucet channel, which is more of a display channel. Today, most of our products are premium products. And they sell by look and feel and people have to experience the product in the showroom. So one is brand distribution channel. Another distribution channel, which we touch is the hardware channel where the most of our CPVC, PVC pipes stand. But this channel is run through the distribution model, whereas the Sanitary and Faucet, we run with the combination of distribution and a dealer model. Some of the distribution channel -- some of the hardware counters do keep the sanitaryware product. And primarily, they try to do the low-end segment because most of the hardware shops will not have that much area for the display of the products. But they are essentially hardware guys, but they will have water tanks. They will have low end are low-end forces also for display. As far as our kitchen segment is concerned, which is a very distinct channel, maybe some overlap. Some. Some of the building material shops like sanitaryware and faucets, they don't have kitchen chimneys and hobs as a display. But today, as we run business, there is -- when you say overlap, there's not much overlap today as such. In terms of your second question, that how do we look at investing into these businesses historically...

Sir, can I interrupt, sorry, sorry. So I just had a follow-up question on the first one. We have a pretty solid brand. Then how does the management think of basically cross-selling products across different categories?

I just want to understand what do you mean by cross-selling? Because we are extending our brand right now to multiple categories, right? And so what do you mean by cross-selling here?

Correct. So I think what Mr. Sikka explained is the 3 different channels that we have in the marketplace. My question is specifically if a guy is buying a faucet ware us, how do we compel him to buy a pipe, a TRUFLO pipe, also from us? Is there some strategy in place to cross-sell either to a carpenter or a plumber or any other applications?

Yes. So now I understood your question. So what we do is we have -- between -- if you look at the pipes business as well as the faucet business, the Sanitaryware & Faucets business, the influencer is common, which is a plumber. So what we do is, we share our plumber database, and we have not exactly same, but a very similar loyalty program for plumber. We do that. So there's a lot of synergy between both the divisions there. Similarly, if you look at the institutional buyers, like for example, there are few people who are builders, who are architects, who recommend brands when they take up a project. Again, our institutional team can go and actually recommend our water heater business as well. They also can recommend our pipes business as well. So there is the influencer team. The institutional team is able to actually manage and use the cross-selling of our product to the influencer segment, to the architects and the builders. And finally, of course, do the selling to them. So that's how we use it right now. But if you see broadly like what Mr. Sikka said, that the large part of the business or, let's say, for water heater, for kitchen or if it's pipe, they are from distinct retail outlets, which are very separate when you go into the market. So the usage is actually happening more at the influencer level and at institutional level. I hope that answers...

That's helpful. That's helpful. Sir, second question was on capital allocation, hurdle rates.

So I think this question has been asked to us a number of times over the last 6, 7 years, especially given the fact that we have ventured out into the 2 new business segments, especially on the consumer products and also on the pipes. So internally, we feel that we have a benchmark in our mind. The sort of business which we do, one that we should become a leader in that business. When we say leader is in a highly fragmented market, which would be among the top 5. And when it's not a fragmented market, we should be amongst the top 3. So we should historically in the Consumer Products, we are #2 player on kitchen chimneys, hoods and hobs after Elica. And today, we have made a mark there that in the 6 years, 7 years of our operations, we have been able to establish ourselves. Even on the water heaters, we are right now amongst the top 5 or nearing top 5 there. Even on the pipes, if you see today, it's a highly competitive market. We are still the company which has the highest growth in the market. Although we started on a low base in 2018, it's still around 4 years. I'd say not old, I'd say a 4-year young business, but it's making the invade into it. Apart from it on the financial metrics, we see on a long-term consistent ROCE of -- ranging between 15% to 18% in a normalized market, it's something which we look at. But the leadership position is very critical for us. I hope I've answered your question.

Sure, sir. And just last question, sir. We see working capital -- actually, working capital days have bumped up across business segments. If you can provide some color over there, I think it would be useful specifically for Bathware and Plastic Pipes? .

Yes, if you go historically, like we had given guidance last year that we'll optimize our working capital by around 15% to 20% and we did it. But if you see last -- till 31st March 2022, our operations were in 2 companies, like manufacturing was in AGI Greenpac and here we were doing the nonmanufacturing part of the business, right, from branding to marketing, sales, distribution, marketing, et cetera. So after the consolidation, the inventory of -- even the manufacturing is now part of Hindware Limited. And now we are working on it that how we can further reduce it. If you see, there has been a substantial improvement on the data side, which we have done in the last 2 years. We have really worked on it. And now we have been able to bring it around almost 30 to 40 days for the -- for our Building Material products on an overall basis as such. The next target, I think with the acquisition, we have given historical guidance also that we'll be optimizing inventory going forward in next 12 to 18 months. There's an opportunity that we should be able to further reduce it by another 15% to 20%.

The next question is from the line of Nikhil Gada from [ Abakkus CMC. ]

Sir, my first question is on the margins, specifically for the Building Products and specifically for Sanitaryware & Faucets. Now this is the second quarter where after the manufacturing has come in that you're seeing margins in this range. Can you give us a guidance in terms of what are -- in your sense what are the best possible margins we can achieve now that we have got the manufacturing division in our hold inside Sanitaryware & Faucets?

Okay. Thanks, Nikhil. I understand your question where it is coming from. I think if I just inversed your question, I think your key question is that with the acquisition of manufacturing, how the margins behavior, is that? But one thing I think I'll just for the rollout, we acquired this manufacturing on 1st of April 2022. The margins which are relating to manufacturing, they are accruing as a part of the overall P&L. But what is happening is if you see in the last 6 months, input prices have been really very volatile, especially when we talk of sanitaryware, the gas input is -- the main key for it is input gas and that has increased substantially. And like last year, we used to get a gas at INR 20, INR 25, which is now coming at around INR 60 to us. We feel that prices -- we have taken a price hike in the last 1 year, which is ranging around 13% to 14% on sanitaryware. We have now taken price hikes in the second -- third round of price hikes now on the sanitaryware side. And we feel that, to a large extent, we should be able to offset. But if you see, we have continued our momentum in terms of growing more than the market as such, which is very evident, I think, on the sales number. I'll also request Sudhanshu could briefly talk on it that how the margins should pan out going forward because we feel that giving the guidance and an absolute number right now is a bit difficult, Nikhil. But we feel that on a long-term basis, we should be -- once the whole thing gets normalized, we should be able to expand our margins, which should be in a range of almost 15% to 17% on Sanitaryware and Faucets.

Yes, look Sikka -- we have already taken up the pricing in this quarter, though we're discussing quarter 2 right now. But on 1st of November, we've taken up prices on Sanitaryware 15% to 17%, so I believe that the quarter 3, we will start seeing that impact getting passed on in terms of margin [indiscernible]. I think the largest component of it, which we have got on the margin is actually because of gas. And all other prices at this point in time are stable. So I think it would be taken care of. And like as Sikka said, we can expect a significant improvement in margins as we go forward.

Understood. Got it, sir. And sir, on the pipes front, can you call out what has been the inventory losses for the second quarter and for first half as a whole?

Yes, Nikhil. So in the first half, we had inventory losses ranging between INR 6 crores to INR 7 crores. And in quarter 2, it is around INR 19 crores to INR 20 crores. But going forward, the prices have still come off what it was on 30th of September. And I'll request Mr. Rajesh Pajnoo to further talk on this.

Yes, this is Rajesh here. Nikhil, there has been a continuous decline in the raw material prices of the PVC. And CPVC has not been impacted by this. It is happening over the last complete 6 to 7 months. So there has been a decline of around 42% in raw material prices. So that is where the inventories have got hit across the spectrum of the industry. So as Sikka said, that we had a total inventory loss of INR 25 crores. And further -- going further, we just will have to wait and see when there is a price correction in the raw material prices. Or otherwise, if it doesn't happen and definitely because last month also there has been -- post Q2, there has been a decline 2 times in the raw material prices. So we are seeing some inventory losses. If the correction doesn't happen in future.

But I think this has given us a very good opportunity, the recent fall in prices. We -- as a matter of a natural outcome of the whole processes that our share of CPVC, which is a high-margin game has increased substantially.

42%.

Yes, it's now CPVC for the quarter 2 in terms of value, it's more than 50%, which has grown over Q1 also, and it has grown even year-on-year versus Q2 of the last financial year substantially. So we are seeing this new phenomenon that the acceptability of -- higher acceptability of our product mix in the market. And that's why you're seeing a better growth, you are seeing good volume growth on the CPVC side. So we are very confident on this business going forward. I think the price is one event which is -- which has technically created a sort of a disruption in the overall market, a sudden steep fall in the CVC prices. But going forward, business looks very robust based on the current market conditions.

Got it, sir. And just the third question is on the Consumer Products division. Now while the margins have sort of come back up, when we look at the growth over there, it's been a double-digit growth, but still on a low base. We expected that the growth would have been much sharper. So your views on that? And how do we see the margins in this business from the next couple of years' perspective now that we are sort of back to that run rate that we were looking for?

Nikhil, yes, you are right. So we had a relatively modest double-digit growth. But if you remember, one of our categories is a fan category which is undergoing a complete industry -- an industry change because all the fans will get -- all the nonrated fans will get discontinued from 1st of January. . And hence, there is a huge muted performance across the industry in the fans industry as such because majority of the players are now trying to move to the rated fans. Hence, there was potentially a degrowth in the category of the fan. But overall, our kitchen appliances business and our air cooling business have done very well. Our kitchen appliances has grown by 30-odd percent and the air cooling business has grown by triple digits. While we have retained -- while we come back to our EBIT margin in the vicinity of 7% for this quarter, we believe in the medium to long term, we should be at double digits for sure. I hope that answers your question.

And sir, on the growth front, do you think the second half would be similar to what we have seen in this second quarter in terms of growth?

So what has happened, Nikhil, is that there is a huge inflationary pressure towards the mass segment -- mass and mass premium segment in the market right now. So consumers are putting away their spend on the discretionary products as such. Our product category falls all under the discretionary part. So what we've seen is a muted festival period recently. But going forward, we expect since the inflationary trend has normalized a little bit in the month of October, at the end of September, we do expect the demand revival to happen more towards the later half of quarter 3. And hopefully, in quarter 4, we can have a much robust demand pattern coming in. But in the long run, which is 6 months from now and 2 quarters from now, we continue to believe that this business has much to offer to the entire organization as such.

Got it, sir. And sir, I just have one last question, if I may.

Yes, please.

Sir, just lastly on the balance sheet front, We are seeing that the debt levels on a quarter-on-quarter basis have seen a sharp increase, especially on the Plastic Pipes front. And also the finance cost on the P&L has seen an increase. So can you help us guide in terms of what would be the peak debt level that we might see from year onwards? And what kind of quarterly run rate we see in the finance cost?

If you see today, the finance cost is an impact of 2 things. One is the overall interest rates for us as well as the market when you try to compare this with last year. Because if you're trying to compare finance costs with the last year, definitely, the increase is on 3 accounts. One is the increase in the interest rates. For us, the increase -- the effective increase has been around 1.9% to 2%, in line with how the market trends of interest rates are. Second is the acquisition of the Building Products the plant and machinery, which we have done for our manufacturing businesses. So there is an interest cost for that acquisition for which the new loans have been taken. We had given guidance that with the profits which we are going to earn in the next 2 to 3 years, a major part of this long-term debt will get paid off. Third point is that if you see, there has been some increase on the inventory side right now, which we feel that which will be diluted in the next 1 or 2 quarters and which will further reduce the overall interest as such. So today, if you see for the quarter, we had on a consolidated basis an interest of 18%. We feel that this is again a function -- putting a number on a medium to long-term range is difficult, but you can -- I iterate that if we pay off some part of the loans, which we feel that in the next 24 months, we should be able to pay off around INR 250 crores of debt from this with the surplus cash which we're going to generate in the business. So accordingly, the debt level will also come down. And one element of more is that, if you remember on the slum sale, we had taken certain land and building, especially at [indiscernible] and also the spot on a long-term lease rental. And these rentals were approved by the shareholders of both the companies as a part of the process of the slump sale. So that the rental depreciation and interest also gets accrued to both depreciation and interest part under the Ind AS. So this will continue, but I think that on the interest loan side, we should be able to pay off around INR 200 crores to INR 250 crores in the next 18 to 24 months with the profit approvals, which we generate.

Our next question is from the line of Forum Makim from Equity Capital.

So I wanted to learn the contribution. The brand-wise contribution for the sanitary and faucet ware business, like contribution from Hindware, Hindware Italian and premium brands like Queo.

Generally, if you see our premium ratio, which starts at the Italian is almost 50% of our overall portfolio. And faucets, we are doing around as a percentage to overall Bath products is around 34%, 35%.

Okay, sir. And sir, could you give a breakup like city-wise like how much would metro cities be contributing? How much Tier 1, Tier 2 and like [ Dino ] would be contributing to our revenue?

So basically, if you see on the [indiscernible] side just 1 minute, I'll just give you the data. So if you see the top 9 cities -- top 7, 8 cities, which is Bangalore, Chennai, Delhi, Hyderabad, Kolkata and Mumbai, in this quarter, 33% of sales goes to metro and 66 goes to nonmetro. And similar, the trend is there on the 6 months for the year or the YTD of this year.

So where would Hindware as a brand be very strong, like in which of these areas ?

So when -- the -- Hindware as a brand is a 60-year-old brand. And I think if you look at from a marketing parameter standpoint, awareness level for the Hindware brand is at 100% level. So everybody knows about Hindware brand. It's basically where y look into consideration, it may change for various product categories. So for example, we are extremely strong -- I would call us extremely strong for the sanitaryware. I will call us in the top 3 brands for faucets. Similarly for every single product category in that sense. So from a marketing standpoint, if you ask me in one word, if you ask, Hindware as a brand is an extremely strong brand, yes.

Which would be a focus area like metro or nonmetro?

So we are growing at this point in time in Tier 3, Tier 4 markets at double the rate of metro market. And that's also because the nature of growth of the market is also in a similar way. Tier 3, Tier 4 markets are growing at a faster rate. So I hope that answered your question.

Sir, would we also be selling our premium brands like Italian and available in the 3 and -- Tier 3 and Tier 4 markets?

Yes. Yes, we have both the Italian and Queo available in Tier 3 and Tier 4 markets as well. We have seen increased demand for premium products in Tier 3 and Tier 4 markets right now.

Okay, sir. Sir, also could you give me a breakup of like data between North, West, South and East, is that possible?

South is the biggest market for us as such. For Sanitaryware and faucets business, the largest market is actually the North market for us. And yes, and the second largest market will be South. Third would be East and the smallest market is the western part of India.

In pipes and Fittings business, the South is the largest market with 47% market share. North is the second number, which is 30%. West is at 18% and East is 5%. For Consumer Appliances, I'd say it will be a little bit slightly different. Our -- while we do get the figures from the e-commerce, our e-commerce is a leading category in terms of contribution to the business followed by North, followed by East, followed by South and followed by West. But if you put the e-commerce sales into each of these regions, then North is the largest region for us as well.

Right. So sir, in terms of dealer additions, where are we more focused like, I've seen, South is a little bit weak. So are we adding more dealers on that side?

For dealer addition, how we look incurred -- for example, we are doing more dealer addition as well. For both of them, the way we look at it is actually white spaces. So white spaces mean in cities which are not having a dealer right now, and we are basically targeting every single 1 lakh per town, OLP town as we call them. So we had -- in the beginning of year about a list of 60-odd towns where we are not available. So we've gone ahead and opened in majority of them, our distributors already done. And at this point, our coverage is actually expanding across the country. So -- but I would still believe that our coverage is the weakest in the Western part of India, which is rural Maharashtra, Madhya Pradesh where the markets still have to grow faster. But yes, overall expansion is happening across the country. It is not that only one specific market is being expanded right now.

Yes. So we are seeing like a lot of increasing competition even from pipe players that are entering the Sanitaryware space and even the existing players, the top 3 or 4 players who are going very strong on sanitary and faucet, but -- so how is our -- what is the strategy exactly to where we maintain or increase our market share in this tough environment? And what gives you the confidence that we would be growing at 1.5 to 2x the industry growth rate?

Yes. So you're absolutely right. I think many of our other building material players have entered into Sanitaryware & Faucets business. And many of them believe that this is an adjacency in terms of -- because it's in the building materials. However, what we have seen is it's not an easy business to [indiscernible]. One of the leading global company like Kohler is taking more than 10 years to even get to a reasonable revenue in India. And it's not easy even for companies which are into other categories, for example, pipes and coming into -- getting into Sanitaryware & Faucets and create this business. This business requires a lot of efforts, especially on the side of service, consumer service because they are products where water passes through it, there are issues with some, we have to get resolved. So we believe customer service is a big competitive advantage, which we have. Secondly, this is not a business which is solely done through plumber. This business is largely a brand business. A consumer wants to buy a brand and wants to put it in a bathroom. And it's not a product which goes behind the wall and which is not seen by the consumer. So to create a brand for a product, for a company which is not selling brand, right now to consumer is going to take a long while. Thirdly, we have to invest in large brand stores, brand shops where consumers can go and experience products. Again, new competitors, it's not very easy for them to do that in a very, very short period of time. So we believe that it's not at all easy for all the competition, which is coming in to actually establish themselves in the market. But we welcome them all. I think it's great for the consumer at this point in time. And lastly, I think lastly from on our side, we are looking at all these aspects and becoming extremely strong, be it on the brand side, be it on the customer service, be it on the distribution side, be it on product innovation side. So we are thinking ahead of them to make sure that we remain in the game. And our last multiple quarter results in comparison to all the new players is a key indicator to you that we have been successful in our strategy until now. I hope I've answered your question.

[Operator Instructions] We'll take our next question from the line of Sunny Gosar from MK Ventures.

My first question is on the status of our transaction with AGI Greenpac. So we had some pending purchases from the -- from AGI left. So is that completed? Or what's the status of that?

So basically, we had stated in the last call that we had to pay around odd INR 100 crores around to them. So of which till September, we have already paid INR 50 crores. One transaction relating to land transfer is already completed, another is about to get completed. So I think within this quarter -- within this month or within next month, I think we should be able to settle the entire thing as such. So businesses have been transferred. So that's only the certain formalities which are relating to the transfer of the entire title deeds and other things that's getting completed now.

Sure, sure. And in terms of our net debt, we have come up to about INR 750-odd crores. So can we assume that this is a peak number in terms of the absolute debt? Or do you think that debt can go up materially from here?

So debt won't go up materially from here. One, we have already talked about this and that there should be some dilution on the inventory side, which we are targeting. We have optimized our debtors. There is some expansion plans, which are there, like we had declared a Roorkee plant on the pipes. The plant will get completed in 18 to 24 months from now. It's not that immediate. The spend will be there. So the CapEx, which I believe which should annually should be ranging between INR 60 crore to INR 70 crore as such. And -- but we are confident the EBITDA -- right now, the EBITDA numbers which are there appearing in Q2 and Q1, it's not the normalized EBITDA as such because of all the fluctuations in the input prices. But going forward, we feel that EBITDA trajectory should get stabilized. And with the surplus generation of cash, we'll pay off -- we'll start paying the debt.

Sure, sure. And in terms of the absolute CapEx, so I think the company has spent about INR 70-odd crores in H1. So what's the absolute CapEx outflow in FY '23 and likely outflow in FY '24?

So I think on an average, if you see on a yearly basis, around INR 70 crores, INR 80 crores, you can assume as a normalized stuff, which will come through. This is, again, contingent on certain factors like some of the times, the focus is like right now, we are driving a focus to open more visual distribution points on the sanitaryware counters. So the investment is also going through that, which is backed by the commitment from those people, our dealers and distributors, to further enhance the sales. So it depends on the type of initiative which we are doing. But broadly, in terms of the main CapEx, which is there, we have already disclosed that it is -- it would be relating to the Roorkee plant, which will set up over a period of time in next 18 to 24 months. And we feel that the plant should come up in Q3 or financial year '24, '25 -- Q3, Q4 of '24, '25.

Sure. And one last question. So freight rates have come off significantly globally. So have -- what's the benefit -- likely benefit out of that in terms of the imports on the consumer appliance side? And has that already come in the second quarter? Or there is benefit left to come through in the coming quarters?

Yes. So I think that's a fair point wherein we've seen the ocean freight has actually come down substantially. Of course, for all our new imports which are happening from this month or on the previous months, we are getting these benefits. So of course, we're also sitting on some inventory, which aim at when the freight rate was pretty high. So I would expect the benefits to actually come into our P&L only from Q2 onwards and I would not really expect this benefit to accrue to us in Q3.

Finally for the Consumer Appliances business also, we were sitting on inventory which the freight rate had come at a higher cost, particularly during the quarter 1 and towards the later half of quarter 4 of the previous year. As articulated by Sudhanshu, we'll be seeing some definite growth on that area in terms of margins towards the end of quarter 3 or early part of quarter 4.

Our next question is from the line of [ Vikas Vijaywargiya ] from [indiscernible].

Two of my questions is answered. On the presentation, Page #11 regarding the Plastic Pipes, the existing capacity as per my knowledge is 35,000 metric tonnes this year. But then on the Q2, this one, you just showed is 37,000 metric tonnes. Were there any enlargement in the [indiscernible] or certain kind of improvement?

See, we have installed 2 new machines during this period. So that is why it has gone to 37,000 metric tonnes. And we are in the process of adding up machines. So we believe that by this quarter end, we'll be having a capacity of 39,000 metric tonnes.

39,000?

Yes, sir.

On the end of the Q3?

Yes, at the end of Q3.

Okay. And another question is there in the presentation, 20, which I was asked in the last time also. In the plumber, this is the technician which is service network of 650 technicians. What is the ratio of the female and male technicians?

Sorry, your voice is not clear.

On the presentation, Page #20..

Mr. Rajah, is there on a speaker mode and hands free. Can you switch to handset and speak and repeat your question please.

On the presentation, Page 20, the service network of the 650 technicians is there in Pan India. What is the ratio of the female and male technician?

I think it should be less than 2% because this field is still predominantly controlled by men because it requires a lot of manual work. We are in touch with people so that we can excite the female genders also to be part of this. But there are some constraints like we get installations -- there are installations, there are manual lifting and other stuff, which require the -- but the initiative is to bring more balance to the overall thing. But Rajesh?

Yes, it's like what happens is in the construction activity, all plumbing activities happen in the shaft. So people have declined the shaft -- so from a safety point of view and from manual labor, which takes place. It's more predominantly is dominated by the male segment only.

But the improvement is possible in this area?

It is very slight, very minor. Earlier, we hardly used to see anything. It was 0%, but now we can say it is 1% to 2%.

So we also run a plumber program, wherein our outside plumber is enrolled into a loyalty program, which we run -- I'm telling our experience, we have not even seen even 1% of the whole enrollment from there from women. So the general population, which is actually in this field is actually predominantly male. So that's how we are being able to get only male who have been working for us as plumbers.

[Operator Instructions] We take the next question from the line of Puneet Khanna from BOB Investment.

So first of all, I just wanted to ask about the Sanitary and Faucets business specifically. I want to know the volume growth for the quarter 2 and H1 business? That is my first question. The second question is the capacity utilization of Sanitaryware & Faucets plant? And what is the yield production yield coming out of it for the plants? And I think, yes, that's it.

So thanks for the question. Generally, on this volumes on Sanitaryware is sort of a misnomer because Sanitaryware comes in different sizes and different forms. So we don't generally disclose any number on the volume side. Like on the faucet side, again, the faucet types are very different. Like in a particular month, we may sell more of diverters. And other months, we may sell more of other things. So it is generally considered the market takes it from the perspective of the value only. On the pipes segment, there is a good volume growth which we have achieved. We disclosed that on the CPVC side, there has been year-on-year 40% plus volume growth, which is there as such. So what was the second question on that?

What is the capacity utilization...

Sanitaryware has been almost 90% plus. And on the faucet side, it's odd 55%. But on the overall, on the pipes, it's again 80% plus as such. So we still have a capacity in-house, but we are working on outsourcing model also on Sanitaryware & Faucets which is there.

Sir, on the volume side, can you tell us the price increase impact, at least for the Sanitaryware & Faucets business? What is the price increase impact?

What is the price increase in last 1 year on Sanitaryware side, we have taken 13% to 14% on Sanitaryware. And on the Faucet side, again, around 12% to 13% on an average on the Faucets in the last 12 months.

Okay. And can you tell about the yield? What is the yield coming out of it for the Sanitaryware plant and Faucets plant?

So actually get to micro question actually to be very frank. And generally, we will not disclose this. And I would like to give it a pass. Thanks.

Our next question is from the line of Pushkar Jain of Sequent Investments.

I would just like to ask you like what will be our post the INR 50 crores of payment more or less is settled, but what is the consistent ROE and ROCE that we are looking on a long-term basis given our equity credits changed a little bit?

So we strongly feel that on a medium to long-term range for all businesses together, based on -- again, it depends on the market conditions some time to time. But we are confident touching ROCs ranging 18% to 24% on an average in a normal market conditions for our business. The combined business.

Right. And then the consistent margins that we have in mind for all the combined like consol level when the input cost pressure stabilizes and everything is normal?

Yes. Sorry, I missed your question. What is the question?

Yes. So the consistent margin that we like that we try to gain, then there is the fluctuation of input prices is less than. What is the margins that we think?

Generally, we don't give any short-term things. But on a medium to long term, again, on a consolidated basis, we have spoken that our EBITDA margin should be ranging between 14% to 16%, again on a consolidated basis.

Our next question is a follow-up from the line of Ritesh Shah from Investec.

A couple of questions. So first one is you indicated a long-term ROC that we chase for new businesses. I just wanted to get a sense like after how many years of being into a particular operation or launching a new segment would you aspire for that number? Like is it the discussion of 18 months, 24 months? How should one look at that?

So I believe this -- for a new business, most probably the incubation period is around 5 years because if you see like Consumer Business, it's a distinct vertical inside the company. Similarly, when you look at the pipe business, it's not that the same Sanitaryware & Faucets team is doing the business. It's a new team led by separate leadership and a separate distinct market distribution channel. So there is a fixed cost to the business. We need to set up the entire supply chain. We need to set up the entire manning for controlling the business. The sales and marketing teams, the portfolios to the market, what's going to the distribution points and tailing points. So there is an operating cost. But if you see we are slightly delayed on few of our businesses because in 2 years, last 2 years, COVID impacted. And now there is a spot in the -- like post-COVID, there was a spot in the shipping freight cost and now the input price rises. So market has been disruptive over the last 3 years in some form or another. I think otherwise, the momentum on the growth, the momentum on the margin distribution was consistent as per the plan before all these disruptions came into the picture. So that's why like generally, we avoid giving anything on a medium to short-term because you can't control anything on this as a company. But we have given guidances fairly, and we are still maintaining those guidances for the medium to long term.

Sir, if I have to just rephrase the question, if you are deploying a certain capital upfront, what is the tenure during which you would like to recoup the capital?

I've answered that, 4 to 5 years.

Sure. My second question was specifically on the Bathware side. Can you indicate what percentage is captive manufacturing versus outsourced for faucets and sanitaryware separately, please?

Yes. So for us, about in-house manufacturing within Sanitaryware is about 66%, yes. And about 50% -- 45%, 46% of faucets.

I would presume this is on value terms?

Yes, this is on value terms.

Okay. And can you give some color on the balanced sourcing that we have, the sort of arrangement that we have given the competitive intensive the market is increasing? So I would presume that the other players will also be sourcing via outsourcing of the more. How should we understand the consistency in the supply chain and the margins which we give to our vendors over here?

Yes, we have about 15% of our sanitaryware, which is actually imported from China. And the balance, which is outsourced -- domestically outsourced sanitaryware is largely procured from focused 5 or 6 vendors, which are basically based out of Gujarat and Rajasthan. While -- if you look at faucet again, we've got 5 to 6 vendors, which suppliers. They're all strategic vendors, with suppliers, the entire outsourced material which we buy domestically, there's hardly any import which happens for faucets.

Sure. And that's helpful. And just last bookkeeping question. Would it be possible for you to quantify what is the average cost of inventory of PVC resin that you are holding end of the quarter? I'm just trying to get a sense of inventory loss, if at all, for the next quarter.

So basically, the losses quantification process is still continuing to be very fast because the prices which were there at odd-INR 90, around INR 90 to INR 100 for the PVCs on the quarter end, it still come down. And Rajesh?

Yes, we are holding an inventory of say around...

So the inventory which we have in our hand, we feel that some losses will still come through because the current prices are in the range of around INR 78, INR 77. So quantification, I think, right now is slightly difficult for us. But definitely, the market has also given guidance that there will be some losses still to come through because it's all depending on how the prices pan out.

Ladies and gentlemen, that was the last question. I now request the management to add a few closing comments. Over to you, sir.

Well, thank you, everybody, for joining the call today. I think the markets are very volatile. And it has been volatile, as I spoke that especially on the few of the product prices are increasing, few of the product prices are coming down, like for the pipes, the PVC prices are coming down, on the gas side the prices are going up. I really understand for any analyst community, they have to really go through them deeper into the data to really expect the whole thing. So I think the questions have been very, very logical, and we have -- I hope we've been able to respond to all of them. Thank you again for joining the call. Thanks.

Thank you. Ladies and gentlemen, on behalf of PhillipCapital Private Client Group Desk, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.