Orient Bell Limited (530365) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Orient Bell Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. We have with us today on the call from the management from Orient Bell Limited, Mr. Aditya Gupta, Chief Executive Officer; and Mr. Himanshu Jindal, Chief Financial Officer along with Stellar IR Advisors. The management will be sharing key updates and financial highlights for the quarter ended June 30, 2024, which will be followed by a question-and-answer session. Please note that some of the statements made in today's discussion may be forward-looking in the nature and may involve risk and uncertainties. Orient Bell Limited will not be in any way responsible for any actions taken based on such statements and undertakes no obligation to publicly update these forward-looking statements. Documents relating to the company's financial performance are available on the website of the stock exchanges and the Company Investors section. Trust you have been able to go through the same. I now hand the conference over to Mr. Aditya Gupta for his opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to our quarter 1 FY '25 earnings call. This has been a slow quarter with the postponement of exports, coupled with sluggish domestic demand. This has put topline pressure on all players resulting in a price cut to shore up volumes. OBL has adopted our two-pronged strategy, increasing discounts to stay competitive and aggressively pushing our GVT portfolio. The net outcome of this strategy has been a 4% growth in volumes while maintaining ASP, which was down -- which was just down 1% versus quarter 1 of last year, and 3% up versus quarter 4 FY '24. The progress made on cost-saving initiatives has helped to maintain our gross margins in spite of passing on higher trade discounts. A big win for us has been maintaining a smart fuel mix combination at our manufacturing plans, coupled with rate negotiations and consumption efficiency. On the company's performance for the quarter ended 30th June 2024, OBL has registered net sales of INR 147.5 crores as against INR 143.2 crores in June 2023, a rise of 2.8% and a volume gain of 3.5% over last year. As mentioned earlier, the company has been investing in building brand OBL since the launch of our maiden TV campaign in December '23. Our investments on news channels in quarter 1 has delivered high viewership during the Lok Sabha election and helped drive awareness. This 360-degree approach of new products plus sales push plus advertising, has driven our vitrified tile salience to 56% versus 46% of last year quarter 1. Within vitrified tiles, the gains have been made in GVT, where we have grown by 54% over last year quarter 1. Our marketing spend continues as part of our previously committed strategy. However, there is still a lot of work to be done here, considering the media spends by the top players. We are committed to see this strategy through and continue on our path of making tile buying and selling easier. With this, I request our CFO, Himanshu Jindal, for the financial and other updates. Over to you, Himanshu.

Thanks, Aditya. Good afternoon all. On the revenue front, quick positives. As Aditya shared already, our volumes are -- have grown over the last year. More importantly, the Dora GVT plant addition mid of last year, helped us grow the sell-ins of GVT by 11% Y-o-Y. Thus, despite the price erosion with more discounts coming into play in quarter 1, this improved product mix in a way, arrested the overall ASP decline supporting margins. On the cost front, too, we had a better performance in quarter 1 versus the last year, largely on account of 2 reasons. One, there was very clearly a tighter focused control on consumption KPIs, so our cost of production was roughly 7% lower versus last year on a like-for-like basis, which is at constant product mix and energy costs. New and more efficient lines, especially at Dora, also helped. The second reason, very clearly, again, was inflation cooling off, finally, reducing the cost of purchase of raw materials and fuel. Thus, driven by improved product mix and lower costs, our gross margins expanded by roughly 1% on a Y-o-Y basis. While the EBITDA too improved by roughly 2% versus last year. Again, on a like-for-like basis, that is without considering the impact of additional spends that we've done to rebuild or -- or build more or create more awareness on brand OBL via TVC. As we reiterated on our last 2 calls, we continue with our agenda of more investments in building brand OBL. Quarter 1, the spends being 4.2% of revenues versus 3.3% last year. With the higher like-for-like EBITDA at 4.7%, the PAT loss was largely due to 2 reasons again. One is higher spends on TVC, as I mentioned. The other is more depreciation and finance costs coming into play post capitalization of the new line at Dora. On the balance sheet side, we stay comfortable with net debt at INR 41 crores, largely money borrowed to fund the new line, the Dora DVT line. Repayments against this will commence only after 1 year. So we have a lot of time available in terms of the moratorium that is available from the bank side. Our working capital requirements did increase mildly to support ongoing sales initiatives. Additionally, as you all know, we have entered into a solar PPA of 7 megawatts of the Sunsure Solarpark Sixteen Private Limited, for our requirements at Sikandrabad. Happy to share that the power flow commenced on the 19th of June, which should help us save more money going forward for our biggest manufacturing facility in north. With this, I would request the moderator to open the line for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Miraj from Arihant Capital.

Just a few questions. Starting first with the business highlight if I wanted to understand that we've also recently started a subsidiary in which we're going to do some trading. We are going to do exports mainly of trading products only. So if you could just share the highlight. I believe you in the opening remarks sir did say that the exports have been a bit weak. So how are things shaping up now?

Miraj, so you know what happened year-on-year for many years on exports going at 20% CAGR. Last year was no exception. In fact, exports do much more despite the challenges in the Red Sea, especially in quarter 3, quarter 4. Right now, as I know, whatever little I have seen, April, May numbers are already there in the public domain. A little softer than what it was last year, but I think it's more value erosion, not volume erosion. May -- June figures, we don't know. But what we know for sure, ocean trades have gone up. They've kind of exploded 4x, 5x. I assume this is more of a temporary challenge. Things will get sorted, right? More importantly, the export market is very different than the domestic place, yes, you need different products to cater to the export market. The intent of opening this wholly-owned subsidiary was only to be able to cater to things that we were not -- or markets that we were not catering to earlier. You rightly said exports. You know that we already have a facility at Dora, which does GVT, from where we can export now. Otherwise, in the past, we only had landlock situations or plans. And more importantly, we had only ceramics, yes, very close to the coast of our own. So we have done that with that intent that yes, we need to trade more. We can sell from Dora now more importantly, again, Proton, which is a JV that we have in Morbi. I explained in the last call they have put in investments. They have a 5 or 6 million square meters of additional GVT now available. The trials are going on. So that additional piece will also be available for OBL to sell in the markets in case we want to. So knowing that there are opportunities, I think we created this vehicle only to be able to do more volume-based trades in the export market.

Understood. So just a clarification on this part. Proton facility, that was my next question, actually. That will be used for exports or domestic? Or is that a mix of both, the new capacity that is going to come in?

We need to test waters. Very early to say anything. But yes, the intent is largely exports.

Understood. Okay. Sir, next is, if you could just guide me how have the fuel costs being this quarter? And what is the average cost if you could guide me for that?

Pretty flat sequentially, to be honest. Whatever little joy we are getting is on account of, like I said, consumption KPIs. More importantly, yes, we have made certain switches in terms of the fuel that we use, so we are trying to take as cheap as possible to be able to run our kilns more profitably. Yes. So on an average, our gas cost would have been between INR 40, INR 45 across locations. If I count my blessings on AFR, et cetera, biofuels, et cetera, that we use in our spray dryers, you can say INR 6, INR 7 cheaper there as all.

I didn't understand the last, but could you please come again?

So you know in our space -- spray dryer operations, we do use alternative fuels, yes. Something that we have been using in FBCCs, right? So that's always cheaper than the gas that you consume in your kilns. The mix of it, the blend is what I meant on energy has gone down. If I count that in, it would be cheaper by INR 5, INR 6, INR 7.

Understood. Okay. Okay. Got that part. And sir, our ASPs that I'm looking at, our ASPs have actually gone up year-on-year and quarter-on-quarter as well. No, sorry, year-on-year, our own has come down a bit, but quarter-on-quarter our ASPs have gone up. So what is the differential in discounts that we've given, have our discounts increased a lot by significant? Or how have that been?

The ASPs are a mix of multiple variables. So one is pricing, then there is discounts, then there is -- there is a third layer called product mix, right? So what Aditya mentioned already. I also mentioned there have been price erosions very clearly. One way or another, you change the list price, you change discounts, you change of additional discounts, you get more excursions out, whichever way, yes, you incentivize people to sell it. Discounts have gone up very clearly. And our discounts are not too different versus what others are doing in the market today. Yes, there is a very clear beneficial impact coming in from the higher GVT that we have sold in this market this time in this quarter. Like I said, GVT is up 11%, having a positive impact overall on ASPs and the contribution margins.

Okay. But I just wanted to understand that the discount that we give out, if I'm not wrong, we would be putting that in our other expenses or we would be deducting it from sales directly. Even if I look at year-on-year or quarter-on-quarter contribution margins have gone up. So is the main contributing factor over here, just the fuel cost, which has remained stable or I'm still not able to understand that point, sir?

So Miraj, it's not 1 factor. It's a contribution of these 2, 3 factors, which we talked about. On the ASP thing, as I said, we have a very conscious strategy that while we will stay competitive in the market and do what needs to be done on discounting. However, we are also going to do it intelligently. And secondly, we would -- we had decided to push very aggressively on GVT. That's why our GVT volumes have gone up by 54% in quarter 1 versus last year's quarter 1. And so whatever price erosion, ASP erosion, which has happened because of discount, we do net of these discounts from our top line, has been compensated by the increased mix of GVT. So that's one. Your second part of your question was on contribution margins. So contribution margins always maintained one of the best contribution margins in the industry, close to 30%. And -- close to 35%, sorry. And the reason why that kind of stays -- we stay good at it because while we have been passing on these discounts, we have done a lot of work at the back end to ensure that we get some good savings from our manufacturing plants.

The next question is from the line of Rohit from Samatva Investments.

Sir, my first question is on the industry per se. What is the demand right now overall in the industry because Kajaria India in their latest call said that things are looking good on ground for the entire year going ahead. I just wanted your outlook on the same.

Sorry, I didn't get your name, please. Can you just repeat?

Rohit.

Rohit, as I said, I think April and May were bad. And since then, we feel that the demand is kind of going back. In the first quarter, there was a lot of postponement also because of the elections and everything. A lot of people would have kind of gone back to their native villages and all for voting and stuff like that. So I think for multiple reasons, quarter 1 was not as good as what we had hoped it to be. But definitely, I see the demand coming back. And we are also seeing some capacity in Morbi kind of getting -- some of the plants getting closed. We expect in the month of August, with Janmashtami and all, some plants in Morbi are going to take -- they will be shut for a week in Janmashtami, but we expect a number of them to take a longer shutdown for maintenance and because of low demand and all. So I think quarter 2, we expect it to be -- that from the demand side to be better than what quarter 1 has been.

Got it. Sir, my second question is, I just wanted some clarity. So these export-oriented facilities in Morbi. So these guys don't apply to the Indian market, right? They will be purely for exports. And since exports are not doing well, will these guys be dumping into the domestic market? Or will they take a shutdown? Just wanted to understand that part.

So Rohit, none of these units are export-oriented units, which have an obligation of supplying only to the export markets. So there are no such units in the industry. So this is very much the choice of that vendor whether how much supply is in exports versus India? We have seen that capacities do get diverted to the domestic market. A lot of one-time sales happen because of export consignments or products stuck up, not able to sell them off. So they do a one-time sale at available cost as kind of our model and in the domestic market. So it keeps happening. There is nobody -- there's hardly anybody who is totally into exports. Morbi has -- they maintain a good mix of export and domestic market.

Got it. Understood. So just one last question was on what is the fuel cost for this quarter, absolute numbers? I missed that number.

The blended gas cost across the locations would have been between that INR 40, INR 45. You can see INR 43 types. And if you're asking the energy or fuel in total, we do use biofuels. We do use alternate fuels in our spray dryer operations. If I count that in, you can say roughly INR 6 or INR 7 saving there on a blend.

So what will be the mix of biofuel that you're using right now?

So we use multiple fuels, whichever is more economical, whether it's in Sikandrabad or in Dora, Hoskote, we have a dry process plant, so there is no spray dryer operation there. You can say net-net INR 38 -- INR 36, INR 37, INR 38 in that range is what we spend on fuel altogether.

The next question is from the line of Gunit Singh from Counter Cyclical PMS.

So I just want to point out that one of our competitors, Somany, their revenues have grown at about 10% CAGR since FY '22, and they have maintained 10% operating margins whereas our operating margins have fallen from about 9% to 3% currently. And our revenues have remained flat since FY '22. So I just want to understand, despite of taking all the initiatives that you mentioned in energy efficiency and whatnot our margins are still at 3%. And in spite of that, here, again, even if the business is not doing very well in terms of margins, we are planning to spend more on marketing and advertisement. So I just want to understand, I mean, overall plan of where do you want to take the company in the coming 2 to 3 years. And I mean would we continue this marketing spend considering the kind of margins that we are generating. And by when should we expect solution of these marketing initiatives that we're taking, number one? And also, I mean, by when do we expect to -- I mean, move out of this the INR 650 crores, INR 700 crore revenue that we have been seeing over the last 3 years?

Okay. Thanks. See, if you have been attending, going back into our results that you have clearly been checking. We have historically been very heavily loaded in favor of ceramics, all our manufacturing plants. I mean, the first GVT manufacturing plant came up in 2018. And we were largely a ceramic player historically. Even today, the bulk of our capacity in our own units, there's more ceramic than the GVT, which is totally out of line with what the industry has done. So the industry moved into GVT a lot sooner than we did. And we continued selling ceramics, which has -- which is not growing as fast as GVT has been growing. So that has kind of different results. So if you see, I did mention that for example, GVT, we have grown by 55%, but the loss on ceramics -- the ceramic overhang has been so high with us, that has been negating all the gains which we have made on GVT. The second point, which I want to share with you is our regional competition. We have been historically more into projects and more into North and East market and very low salience on South and West. And in all building and construction categories, South -- especially South has grown much faster in the recent 5, 6 years compared to North and East. And as having a very small market share in South has kind of impacted our overall revenues. On a margin guidance, we don't give our margin guidance going forward. But as I said earlier, we had a bad last year, where we were, I think, 3 or 4 quarters, we were negative on volumes and top line. Fourth quarter of last year was when we kind of did better. We put up growth. Again, in quarter 1, we have put up a growth, a small growth and all. And looking forward, we see the markets improving. We see some traction happening. We now have -- for the last few quarters, the GVT line in Dora, which has been made for South market. So we expect things to keep on getting better with every passing quarter. Thank you.

And in terms of the marketing spend, I mean, when do we expect to -- I mean what sort of traction are we getting with regards to the marketing campaigns that we're doing? And what kind of gains do we need to target because of these spends?

So we just completed our annual brand awareness campaign, which we take a sample across some 10, 11 cities nationally, all over the country. So it has shown that our marketing, our TV campaign started in December '23. And this fieldwork was done in March and April of '24. It shows that we have 50% increase in our brand awareness. We still have a long way to go. We are -- so we are seeing good initial results of this campaign in terms of brand awareness. Another parameter, which we track very closely is the website traffic, which since the campaign has broken has grown substantially. So between these 2 things, we feel that the campaign is working for us. As I mentioned earlier, our ability to kind of maintain our ASPs and to grow so aggressively on GVT, which is a very, very competitive market is, to some extent, helped by the brand expenses and the awareness going up.

I'll try and add Gunit. See you know whenever the times are good, people end up spending more on CapEx, right? This industry also in that way, put up a lot of capacity over the last 2, 3 years between branded and nonbranded and OBL also invest heavily into building up more and more CapEx, especially GVT, which is what consumers want. And most of these investments have come up at a time when the markets, unfortunately, have slowed down. There have been price drops. There have been other things which are, in a way, directly indirectly impacting consumption. Now on top of it, the intent is that we do more of branding, something that we didn't do earlier. We were doing, but we were doing more digital spends. We were not doing mass media. So we've supported the digital pins now via mass media to create more and more awareness. As the markets improve, I'm sure this is going to help. I've been looking at allied industries in terms of what they are doing, what have we done in this quarter, how are things changing. And I'm seeing very clearly some signs -- initial signs and you know the markets better, you know -- you're seeing good traction coming in from products which are used in finishing now, right? So if the finishing products per se are growing, there is a very strong chance for tiles, which come at the far end of construction to do well in the coming quarters. So we are hoping for that and to be able to do more and more on retail which has not been a great strength at OBL in the past. We were more projects. I think this will help. And this is why I believe we are continuing to pour in money there. Does it help, Gunit?

[Operator Instructions] The next question is from the line of Miraj from Arihant Capital.

Sir, so in the previous quarter, we had seen that the channel partners were not stocking up inventory. How has that been now given that it's the monsoon season? And how has demand moved in the current month August as well -- July and August?

You said how is demand panning out in July and August, Miraj, is this the question?

That as well as how are things shaping up in the channel inventory with the channel partners because in the last quarter, the sequential quarter, they were not stocking up inventory. So I want to understand if they have started stocking up or how are things at that front?

So Miraj, you are absolutely right, there was -- as prices kind of went south, the channel partners were billing purchases and kind of down stocking which did happen in quarter 1. There has been 2 small increases in gas prices in Morbi over the last few months. So to that extent, capability of Morbi to kind of drop prices is less because a, the steep drop, which has already happened, and b, the gas cost is slightly higher than what it was in April or May. So I see that, plus, I did mention that August, we'll see some shutdown because of Janmashtami and everything. So overall, we see that -- we feel that the demand is improving, and kind of optimistic that -- cautiously optimistic that the channel partner is going to now start stocking up again in anticipation of the demand and the season is approaching now.

Again, I'll just add to Aditya. You see Morbi what we are picking up, and I'll get to know more once I'm there on the Sunday. But what I'm picking up very clearly from vendors, a lot of these guys are shutting down again, especially GVT lines, especially flats, wherever the utilizations are lower, knowing that in the exporters on the export side, the ocean rates have gone up much more. So I'm sure with that happening as well. Supply is getting curtailed. The situation should improve.

Understood. But sir, when we say that there are units of Morbi shutting down, is this related to the lack of demand? Or is this because they want to take the maintenance shutdown and the rates are going up?

No see -- if you see, last 4 years of data, 4 years of actual, what happened. They have shut down 2 times in the past. Last year, they did not. They didn't take an active shutdown. This year, they are again taking a shutdown. So I think lack of demand, lack of being able to evaluate material into export markets, et cetera, all of that is contributing. They know the price erosion as well. They are the ones who actually move the market one way or another, yes. So I'm sure they are taking a very conscious call knowing where the situation is. Janmashtami is the right time to do so, they take holidays. So it gets combined with maintenance, et cetera, et cetera. So all of that works together. One way or another way, like I said, supply curtail is good in an environment like this today.

Understood. The next thing is regarding our project sales. I believe they stood at roughly 25% for FY '24. So how are the things looking now in project versus the retail sales? If I'm not wrong, you just mentioned that you are focusing more on detail sales now to answer the previous participant's question. So how is the order book looking on project sales?

Yes. So we did 20% in quarter 1. Just on. Just hold on. Miraj, we have to get back to this as I look at the data, I can't find it. We will just get back to you. We will pass on this information to Stellar and they can just feed it to you.

No worries, no worries, sir. And sir, just one clarification. Proton is adding 5.5 million square meters or 5 million square meter?

Yes, 5.5.

5.5.

Okay. Okay. Understood. And so if I exclude the new capacity that Proton is adding, so this is in GVT, the 5.5 million square meter that they're adding is in GVT. If I exclude that, just looking at the current GVT contribution, which is close to 38%, is it fair to assume that this is our level of contribution from GVT from existing facilities?

No, no. We can do more. Once this Dora GVT came online last year, last financial year. we have capacity to grow this. And we are also trying various initiatives in our Sikandrabad plant to get more than the stated capacity out of that line. So definitely, there is -- even without considering Proton from our own manufacturing, there is substantial capacity that we have built up over the last few years, we have to take GVT up.

Okay. Because I think the last time we spoke in the previous call, I was under the assumption that 40% is the total capacity that we have GVT out of the total capacity. So that's not right. That's not correct, right?

No, you're right.

See Miraj, you're right. We had a vitrified capacity of 40%. Obviously, Proton is adding more capacity. But what we are missing is trading. From trading, I can buy and sell whatever I want to, right? So that's an exponential market tab, which is -- which can continue to flow and I can take whatever I need to. So my aspiration very clearly is that, yes, we should do more and more GVT. This is what is demanded by the market. This is where the cream is. We all are aligned. Our sales are -- Aditya, me all of us are aligned.

Understood. Perfect. And sir, on the Dora facility in Q4, when we spoke, the facility was still ramping up. So what kind of utilization are we seeing? I mean, are they up to our expectations right now? Or is there is still improvement spending on that facility?

No, no, it is not up to our expectation. Obviously, there's a lot of work to be done, and we are doing that. So let's hold on to that question for some time. Maybe in the next 2 or 3 quarters, I should be able to give you all numbers properly, yes. But right now, there is a huge delta that I need to do out of Dora specifically also, very clear.

Understood. And just looking at the current capacity that we have right now, only one facility that is coming up is in the associate entity where we are actually not putting in any money. So for us, there won't be any CapEx for this year, right?

See, unless I want to do something material, maybe a greenfield, for example, maybe in M&A, for example, maybe a brownfield at a later end of the year, yes. These are questions or these are things that we keep discussing because like I said, our aspiration is to give what the customer wants. Today, my balance sheet is still pretty decent. Yes, I can borrow more. So we have to decide at the right time as to what we want to do more. Accordingly, we'll come back once we frame our mind, once we all agree, we align, once it gets formalized, we come back to you and tell you transparently.

Understood. But sir, as of now, as on date, there is no CapEx planed, right, as of date?

Nothing on the table right now. Nothing on the table.

Okay. Understood. Yes, just one last question. You mentioned that on the Sikandrabad unit, you put solar power plant, so -- which will help us a lot in cost savings, it started on 19th June. Is that the only unit with the solar power plant or other units already equipped?

Hoskote was always with the solar PPA. But the savings there are now less, yes. This is more captive where I put in investments. In the other case, it's more like a contract where I don't do any investments and I get that the cream. So that's been there in existing for long. Dora, we are still seeing what we need to do.

[Operator Instructions] The next question is from the line of Ashwin Reddy from Samatva Investments.

So firstly, could you talk about the current revenue split between North, East, West and South? And what was the number, say, 3 years back? And how has that changed?

Ashwin, you'll see at this point in time for us to be able to give that detail out is a little difficult. We are holding that data back for certain reasons at our end. Maybe in the next few quarters, we'll be comfortable sharing then we'll share.

Okay. Got it. Got it. Okay. So moving on, sir, regarding the OTBs, what we've been -- I mean because have been increasing there the competition has been increasing and all. So firstly, I wanted to check what has been the feedback from our OTB franchisees/dealers from us, which -- and what are the key focus areas, say, within OTB for the next 2, 3 years? So what is -- I mean, I'm sure when you started to now something would have changed and then the feedback would have come in. So what is it that we can do better in the OTBs, what is the feedback? What is the general mood like on the OTB front?

So the overall feedback is in -- the feedback is good, it's positive because it ties in nicely with our strategy to premiumize. I spoke about GVT going up and all, and these are all display products. These are end consumer products. The architect comes in, takes a look at them, the consumer takes a look at it with our family. So you need a very good display and this -- the OTBs are not seeing. The dealers are seeing a lot of support from the company coming in with new products, with new sizes, with new designs, we had launched our touch and feel new series from SKD, Sikandrabad in April. We have replicated the launch in Dora in the month of July. So a large number of new products, new surfaces, new sizes are being now made available OBTB to help their sales. The percentage of OBTBs to our overall sales of the company has been growing. So that's another indication. The third thing which our OBTBs are really loving is the tools that we are providing to them, which is in terms of our realization tools, a quick look and trial look and all, which is something unique that they have, and it's helping them convert more and more consumers. So overall, positive, we did 19 new OBTBs, Orient Tile Boutiques in quarter 1. We expect to do better in quarter 2. We have a robust pipeline for this. So positive about this. And overall, a very important part of our strategy because as Himanshu also said, we are thinking more and more to sell premium products and these premium products need displays. That's where OBTB kind of fits in very nicely with our overall initiatives.

Got it. So then is it safe to say that there are certain products in the portfolio plus the tools which are available only to the OBTBs and not to other -- not to the other channel, is that also there?

Yes. That's a fair this thing. Tools, I would say, close to 100%. They are with OBTBs and not with others. Even on products, for example, if I'm selling a 4 feet by 6 feet tile, somebody who does not have the capability to display that tile, just cannot sell it just to do a secondary. So the kind of products that we are increasingly getting into more GVT, more larger sizes and all. It is a prerequisite to have a display, so it kind of just falls in -- falls together.

Got it. Got it. So then the margins in the OBTB are now higher than the normal margins here at the gross level? What would be the gross margin for you within OBTB versus the margin? And it need not be the exact number, but the differential is what I'm looking at, the difference between the OBTB margins and normal margins.

I think a person or dealer who has got a good display and a good range -- a good display and is like a focus on more on retail sales would be getting, I would say, almost close to 10% better margin than somebody who is not into displays or is totally getting into kind of project scope contractor kind of a customer segment.

But at your level, what is the margin difference for you?

For us, for Orient Bell? So we -- see, at the product level, the margins are similar. We have not calculated it separately for OBTBs. We do calculate margins at the product level, but not at OBTB or contractor level and all.

What I mean to say, for example, there is a dealer who order franchise for you in OBTB. So the margins that you make in the product that you sell through OBTB versus the normal channel, what is the margin difference that you have is what I'm trying to understand?

There won't be any difference, it would be similar. It will be similar. It would not depend on OBTB. So if will not depend on OBTB. We do give some extra support in terms of like I told you tools, we give them some extra support in terms of events and stuff like that. So...

No, but the point I'm thing to understand is, so because we're spending the extra resources and effort, so if it is not resulting in the extra margin then what is the rationale that's what I'm trying to understand? Or is it higher sales? Or is it like more secured sales? Or what is the reason for doing this is if you don't get higher margins from OBTBs?

No, I have not understood. Why don't we get higher margins from OBTB? Is that the question?

Yes. So basically, if we are putting in higher efforts, higher resources into OBTB, which I'm sure where higher costs are involved, what is the rationale for the OBTB? Is it the more secure sales or what is or better working capital for us? Or what is the reason for us to have a OBTB if you're not getting better margins through these?

So the market is demanding. The market wants to look at the product before buying it. And if you don't have a place to showcase your product then how will you sell it. So it is not about...

It's more like a branding that showcasing is where it's playing a role versus anything else.

It's a customer demand, the customer wants to see the product, touch it, feel it, visually see it before she decides which tile to buy. And with so many new sizes and so many new finishes and all the customer is spoilt for choice. You need space to be able to display a whole range across sizes and finishes and designs and whatnot. So it is -- so the choice would be -- either you sell a totally undifferentiated very utility kind of a product, a very small tile, only focus on that. Then you don't need displays.

Right, right. actually again, not to criticize, but I mean I was just trying to understand the margin difference because of the OBTB, that is one. And then second thing, sir, right now, what proportion of our sales, say, through OBTBs or outside channels, would be driven by the architecture versus the retail customer buying directly? What -- and how is that mix changing? Because I understand maybe the architect-driven pace is going up, but where is the current ratio in the industry? And specifically for you, what is the role of architect? I'm trying to understand more.

So we do about slightly less than 50% from OBTBs, the total sales at OBL. Regarding architects and all, I'm yet to see any authentic figures, I don't know of any tile company, which is actually actively tracking what is the sales from architects simply because in the tile business, it's a very primary led business. And once stock lands at the dealers point, how he sells it, when he sells it, to whom he sells it, is not something which the company -- manufacturing company has a visibility on. So I wouldn't be able to share any numbers with you. If you have any numbers for any other players and all would love to kind of understand that better.

Got it. Got it. Got it. And the last question, sir, is on the balance sheet side because in the past, we had a slightly more levered balance sheet, and then we became completely -- completely kind of like net debt free. And now we have like a small debt and all. So up to what kind of leverage on the balance sheet is okay with you? Because there is some rumors, I believe. But what is the -- what's your thought prices there on the right amount of debt that you want to take? And what is the maximum -- maximum debt you don't mind taking?

See, there is no limit to maximum. There is no limit to minimum. It all depends on how much you can generate in terms of cash flows, yes. So if your underlying business is strong, fundamentally strong producing loads of cash flow. You can have more and more on your balance sheet also, right? INR 40 crores is nothing, right? In the past also with less capacity, we were sitting on INR 100 crores when I joined the company. So very honestly, anything with good business model. Anything which sells which produces cash flow. I'm happy to fund it. And today, OBL, by God's grace is very sound to be able to do so.

Right. But because the reason I ask is at some point in the past, remember you saying that will remain net debt free. This is around the COVID time after you repair and all. Now, I think it is -- I think it has changed now. So I'm just trying to understand what prompted the change. And hence, and I'm just trying to understand the whole background of...

I'm sorry, I'm interjecting. We pushed in investments to be able to grow sustainably. Aditya explained, we need more GVT this is what the consumers want. We need more different players, a lot of more money going out into strategic objectives. And therefore, we did what we did. We produced healthy cash flows, we were debt-free. And then we borrowed to be able to build this capacity. So I'm unclear. If I see there is a possibility to be able to do more by borrowing. I'll do that without a second thought, right?

So let me answer it another way. I think if I look back, that is not a short-term discussion point. If I look back to the last 5-6 years, we would have paid maybe close to INR 100 crores of debt. And we have created additional capacity of about 7-odd million square meters, 7.5 million square meters in the last 6 years. And 7.5 million square meters of capacity would be easily costing about INR 150-odd crores. But the debt we have on books is about INR 40-odd crores. So you do the math, and you'll see...

I understand. Sir, actually, the point is, I completely I'm with you. I understand that you need -- you definitely need debt to fund the CapEx and when you're growing, why not? I mean, you have to use that to grow. I am just trying to understand an investor from a balance sheet risk point of view, what is the maximum risk you're willing to take?

I'm trying to answer that. I'm trying to answer that if you would listen. The point is, I think the important point, as Himanshu said, is not the amount of debt. The important question is what is that debt being raised for? And where is that money going? So I think that is -- and we are very disciplined in that way or even the debt that we have is always going into very productive assets in building capacity. Yes, the markets have not been as good as what we expected them to be. Yes, it's taking us time to kind of build up the new capacity to get the market going for that. But the debt is going into direction, which is a productive asset.

The next question is from the line of Hena from Dam Capital.

Can you hear me?

Yes, yes, Hena.

Yes. Sir, just one question from my end. It is around demand basically. So what I was able to conclude from the call was things are still not improving at this point, even in -- today and which would make sense that Morbi will be taking on a planned shutdown. But I just wanted some flavor from you in terms of -- in terms of metric projects on the private and are we seeing increased inquiries. And if anything on government projects is that demand, are we seeing inquiries on that end, if you can just give some flavor on that? And when we expect demand to actually recover, I think in the last call, you did say that it would probably be second half of the year or FY '26. So just wanted some flavor on that.

So Hena, I think, the government business was -- has slowed down because of the election cycle and all. Our new government is in place and the have their new plans and all. So we expect that to going to get better. There is some news of newer projects being sanctioned and they being discussed by the government. But tile kind of comes in at the penultimate stage of the project execution. So it will not -- I mean any new project will not have an immediate impact on tile demand. But you said, I think, overall, we do expect a positive push going forward as the demand picks up, including projects.

Okay, okay. And in terms of private projects, have the inquiries moved up over there just as initial sign that demand is coming back?

So you're talking about project inquiries or you're talking about...

Both. So I said government projects, and now I'm just asking on the private projects side. If we see inquiries have gone up, which would convert into demand in the second half of the year?

Yes. So we keep bidding for new projects and all. So I wouldn't -- and I'm talking about large residential projects. I'm not talking about small 2, 3 [indiscernible] kind of projects and all. So I haven't seen the July numbers on project inquiries and all. But overall sense which I am getting talking to people is that they are more positive going forward than what quarter 1 was.

Okay, okay. And also on the retail end, has there been any sort of recovery in demand?

I mentioned that general sentiment is positive. It is better than what it was in Q1, and we expect quarter 2 from a demand perspective to be -- to be better, stronger than Q1.

The next follow-up question is from the line of Miraj from Arihant Capital.

Sir, I have a question mainly towards the Morbi unit. So in the previous call, you had explained that out of, let's say, roughl 1,000 units, 50% of them were shut, a lot of them are permanently shut and they were operating at very low utilization levels also. And I think smaller units had been shut and nothing new was coming in. In the same context, can you explain if the number of shut units have increased now or the ones that are -- okay. Okay. No, they have shut more, okay. So how much -- how many more have shut, sir?

See, I think if I remember correctly, last time, it was 250, 260, the number that I saw for July, I think it was 290-odd. So yes, 40, 50 more shutdowns, permanent shutdowns.

Okay. And this would be in ceramic only, right?

Largely ceramic. I think...

Largely wall.

Yes, largely wall.

Ceramic and wall, okay. Okay. Understood. And sir, if you could just also let me know the run rate for exports for April, May, June, the average run rates monthly.

I don't have it. Miraj. You know...

Let me answer that. So Miraj, we are getting estimates of about INR 4,000-odd crores for quarter 1.

INR 4,000 crores. Okay. Okay. Rough figure, okay.

So it was a kind of slightly lower because these are just guess estimates, you talk to kind of different people. But the overall sense is that it has been lower than what it was in the first quarter. But because demand is not there, more because people are kind of postponing shipments, hoping and waiting for the freight rates to come down. So that is the issue.

This will be only Morbi figures, right, INR 4,000 crores?

That's what we are hearing. But again, these are like kind of very rough estimates. So rather than going by a INR 4,000 kind of crore number, I would go more by the sentiment that general feeling consistently across whomsoever we have spoken to is that the exports this quarter are weaker than what they were in last year, first quarter.

Understood. Okay. And sir, on the ad spends that we have and the ads that we are running, so that is expected to continue throughout this year as well, right, for -- throughout FY '25?

Yes. So we are currently on air. The channel strategy, which channel we're advertising, which markets we're advertising on, that kind of keeps changing. So as I said, we want to consistently invest on that. We're also looking at what is the best way to kind of -- so we continue to spend on marketing. We'll continue to spend on building brand awareness. The exact mix of how much TV we'll do versus how much digital we will do in that particular quarter would change depending on the opportunities that are available at that point of time. But consistently, we will -- we will continue to invest in building brand OBL.

So this figure would remain close to 4% mark that we have been doing or move towards 3%?

No, I think we would like to maintain into that 4% odd number. But let's see, for us, 0.5% plus minus maybe quarter and all would change depending on -- as I said, depending on what kind of properties are available and what are immediate term requirement.

Understood. Understood. And sir, the next question is regarding the -- just circling back to the discount part, if you could just quantify somehow that how much discounts have increased compared to quarter-on-quarter or, let's say, year-on-year? Just quantify how much in percentage terms, how much more discounts are you giving now? Just wanted to understand that.

So I don't have the numbers.

Let me try and answer. Sequentially, 1%, 1.5% more versus what it was in March quarter.

Okay, understood. Okay. And sir, just my final question, is that last quarter, we spoke about the patented products. We had, I think, antimicrobial product tile or antiviral tile that we had received. If you could just explain the contribution, what kind of contribution you're seeing or what kind of performance of these patented tiles you're seeing? And if there are any new patterns that we've received?

So see Miraj, this is a very special tile. So we are talking about the antibacterial tile that we had patented, the first patent right? So this is something -- this is not a -- you're talking about that particular tile I'm assuming?

Yes, the antibacterial tile that we received in Q1, yes, sir.

So see, this is not a product which is going to sell in the retail market. The -- so this is what we are focusing at towards the institutional market, the healthcare segment. And work is on in terms of meeting various architects, decision-makers, administrators, government officials and all. So that is going to be a slow one, but work is on, there are teams who are working on that to kind of get it specified as a required product. Like everything in government and all the hospitals are largely government and all, it will take time.

So this will still take some time to quantify how the performance has been?

It will take time and it will be a slow one. It is not going to be -- so it's more of having a technological to do something which is different and which is nice. But not something which is going to like contribute to, say, this quarter or next quarter's revenue dramatically.

Understood. And any other new patents that we've been granted sir?

No. We have been standing on this for a long time, 2 years, 3 years now. No, no, nothing new.

Ladies and gentlemen, we are taking this as a last question for today's conference call. I would now like to hand the conference over to Mr. Aditya Gupta for closing comments. Please go ahead.

Thank you, everybody. Thanks for being on the earnings call, and thanks for following Orient Bell and investing in Orient Bell. I look forward to meeting you again next quarter.

On behalf of Stellar IR Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.