Prince Pipes and Fittings Limited (PRINCEPIPE) Earnings Call Transcript & Summary

On behalf of Edelweiss, I welcome all the participants logged in for the conference call of Prince Pipes and Fittings to discuss their Q3 FY '20 results and industry trends. From the management, we have Mr. Parag Chheda, Executive Director of the company; Mr. Nihar Chheda, AVP Strategy; and Mr. Shyam Sharda who is a VP and Group CFO. Good morning, gentlemen.

Good morning.

Sir, first of all, thank you very much for giving us the opportunity for hosting this conference call. I will just request you if you can first share the -- our current quarterly results and also the trend in the industry, and then we can follow it up with a question and answer session, sir. Thank you, and over to you. Please go ahead.

Sure. So hello and a very good morning to everyone. Thank you for joining us for the quarter 3 FY '20 earnings call. I'm Parag Chheda, the Executive Director. Today, I'm joined by my son, Nihar Chheda, EVP Strategy; and our CFO, Mr. Shyam Sharda. Firstly, I would like to express my sincere gratitude to you and all our investors for the oversubscription to the IPO and showing your strong faith in us. Let me give you a perspective on our strategy before I ask Shyam to take you through our fiscal performance. I'm pleased to announce that the Jaipur plant has commenced commercial production in H1 FY '20. Jaipur plant will be our state-of-the-art manufacturing facility with fully automated compounding facility. It has always been Prince Pipes' core philosophy to have a strategic multi-location manufacturing network. This is because, as you are all aware, freight cost is a significant part of our cost structure. Thus, it is our clear strategy to move closer to the market that we are trying to penetrate through efficient supplies and timely service. Furthermore, we have recently struck deals with outsourcing partners in Odisha and Andhra Pradesh to help us reinforce our service to the eastern and southern markets. The timing of this market consolidation has been favorable in the sense that our capacity addition has coincided with the market consolidation while we are not sure about the extent of the actual demand growth, the lack of supply from the unorganized sector and parts of the organized sector that fuels this growth. What makes this growth sustainable is that we have been able to attach new distributors who have shifted to us from these regional and fringe national players. Network expansion along with a multipronged marketing strategy will help us achieve my goal of being a preferred brand amongst brands. My single line objective to the branding team has always been winning in many India's. It is my conviction that Prince has a strong command on a combination of urban, semi-urban, Tier 2, Tier 3 towns as well as rural markets. This is what makes us unique in the industry, the ability to win in many India's. For example, we have a majority market share in a metro like Mumbai. We are parallelly able to enjoy strong brand equity in rural markets of states like Haryana and UP as well. Our Brand Ambassador, Akshay Kumar helps us to achieve this goal to have an impact on homeowners, plumbers, farmers and borers across the country. We have used a multi-medium strategy of branding apart from the usual hoardings, shop boards and plumber needs, we have used 2 unique mediums for brand building. Firstly, we have used what I'd like to call a multi-state single strategy of transit media. Across different geographies, we targeted the most popular regional mode of transport to build the brand. For example, the Delhi Metro, Mumbai local trains, buses in South India, et cetera. Furthermore, we also created a film co-branding strategy with Akshay Kumar's film, Mission Mangal in this fiscal. We believe that this brand-building exercises will not only help us sustain this newly found market penetration, but also help us in the quest of garnering higher market share across many India's. I am also glad to announce that we will be utilizing renewable energy sources at multiple factories, renewable energy has the dual benefit of helping us attain not only our sustainable goals, but also reduce our operational costs. We started with our Chennai plant where we started connecting wind energy and plan to start harnessing solar power through the OpEx model. This solar power project will be completed by Q1 of the next fiscal and almost 25% of our Chennai plant will be running through the renewable energy and will lead to savings on our conversion costs. Furthermore, through the next fiscal, we will also be using a combination of OpEx and CapEx model to harness the solar power at Haridwar, Jaipur, Dadra and Athal plants. These projects will be conducted in a phased manner, and my goal is to complete this by the end of H1 in the next financial year. Hence, as you are all aware, that a provisional anti-dumping duty has been announced on CPVC resin imports from certain sources, while this will result in further market consolidation and aid the big getting bigger in the long run. There will be a short supply -- there will be a short-term uncertainty on cost structures. Fortunately, we will -- we were importing from multiple sources including not only from Korea and China but also from Europe and Japan. Post the provisional duty announcement, we have increased our allocation to Japan and Europe as well as the domestic sources. I want to clarify that we have not been facing any problems in securing our volumes, given that we are one of the top 4 processors of CPVC in the country today. Until the actual duty is formally announced, there will be a slight uncertainty on CPVC margins. Even though frankly, CPVC only contributes to less than 20% of our top line, we have been conservative and realistic with our guidances for the overall fiscal performance. We continue to maintain our guidance on the EBITDA margins that we started of the fiscal with. In the past quarter, we've also added in-house capabilities for manufacturing of plumbing ball valves of the running sizes in the Haridwar plant. This project should conclude by quarter 1 of the next fiscal. We shall continue to trade the slow-moving sizes. However, valves being a value-added product, we want to eventually be able to manufacture the entire range in-house. We are very excited to become an integrated manufacturer of pipes, fittings, solvents and now valves as well. It is our fundamental goal to have this in-house production capabilities, which will transform us from being a pipe processor into an integrated system as well as an end-to-end solution provider. Now coming to our new favorite topic of the discussion, which is the DWC pipes. Now everyone is aware of the macros and the huge scope of the business growth. For example, more than 70% of our waste today in India is through the open gutter channels. Developed countries like U.S.A. and Europe are talking about the waste treatment, which is actually a faraway dream for us. We need to actually start with cutting our waste as a country. As you are aware, Prince is the early mover in the underground drainage segment to have a comprehensive product portfolio. We have the in-house capability of manufacturing pipes in the range of 100 to 1,000 millimeters in diameter. Furthermore, I'm extremely glad to state that we have received a patent for our innovative and technological superior product design for the DWC Coupler in this fiscal. Using the product range and the product design as a brand differentiator has always been at the heart of our strategies, and we've done the same by being the first mover with a wide range of DWC products. However, in the last couple of quarters, the ground reality is not as black and white. The delayed monsoons and the election period led to a slowdown in the demand for the DWC in the H1 period. This is because all the digging activities have to stop during the rains, which were overextended. Furthermore, EPC contractors at large, who are the primary consumer of these funds have been facing funding issues as a result of which, DWC has got more capital intensive than envisaged. This is contrary to our goal of constantly improving our capital cycle. Essentially, DWC has a short-term challenge and is going to have a higher gestation period than projected. I strongly believe the secret sauce lies in the product. I'm very clear and confident in stating that DWC is the technological and economically more superior product than RCC pipes. In the medium run, we will mature as the economy and as a country and evolve into making DWC a mainstream product. At Prince, we have leveraged our multi-location manufacturing network being the first ones to manufacture DWC at all our plants across the country. This will help us significantly improve and become more competitive than our peers and establish and demonstrate our execution capabilities and intent to the market. I'm pretty confident that these differentiators of the range and the network, we will be the front runners of leveraging this opportunity in underground drainage system in the medium to long -- in the long run. Lastly, the technology is a key focus area for us. We believe that technology is an important tool to drive change and increase our efficiencies. Accordingly, we have made investments in the past few fiscals across manufacturing plants. First, automation in the pre- and the post-extrusion process to reduce the manpower cost. Second, the real-time and the live data capturing and monitoring through our SCADA systems to avoid the manual feeding process. Third, we have also adopted automation in noncore processes like pipe lifting and product packaging to further optimize the cost. So above listed are the various initiatives that are part of the overall project of using technology as not only a cost optimizer, but also a disruptor. All of these initiatives are part of our overall strategy that will propel Prince Pipes into being a preferred brand amongst brands. Thank you, folks, for your time and mind share. I would now like to hand it over to Mr. Shyam Sharda, our CFO, to quickly walk you through the fiscal parameters.

Thanks a lot, Parag Bhai, and good morning, friends. I will quickly take you through the numbers of the results, which is under review. As you're all aware, we have got our listing done for the period under review. We have raised total INR 606 crores, which included INR 356 crores, including a pre-IPO of INR 106 crores of primary money for setting up the plant at Telangana, upgradation CapEx and also for repayment of the debt. Since it was the end of the quarter, we were not in a position to deploy the funds. We have repaid a portion of our debt and are repaying more than in the current quarter. We have taken a conscious decision to pay our debt in the coming quarters to further strengthen our balance sheet. The CapEx required over the next 2 or 3 years will be undertaken through the IPO proceeds as well as from the funds which have been raised. Before I take you to the results, I would like to highlight one key point. The Ministry of Finance issued notification letting provisional anti-dumping duty under the Custom Tariff Act on the import of CPVC resin from South Korea and China. As all of you are aware, before this duty announcement, we were sourcing CPVC resin from multiple sources, including Korea, Japan, China and Europe. The company has paid INR 7.5 crores of a provisional antidumping duty to the government. Please note that this is only a provisional duty and investigations are still on. In order to avail that delta within the provisional duty and the actual duty, which will be announced post investigation, we have treated this as an account recoverable from the government in our books of accounts. I would further like to highlight that we have stopped purchasing CPVC resin from Korea and China, but this was like a onetime occurrence. On receipt of the final order, the company will assess the same and account for it in the books of accounts. Now I would like to move on to fiscal performance for 3 months ended December vis-à-vis the last 3 months ended December '18. The revenue from operations grew by around 10% to around INR 396 crores vis-à-vis INR 361 crores on a year-on-year basis earlier. Volumes have grown by around 5% at around 31,122 metric tonnes vis-à-vis 29,617 metric tonnes in the previous period. EBITDA has grown by around 23% to INR 53 crores vis-à-vis INR 43 crores, which was in the earlier period. The margins have improved by around 150 bps to 13.5%. The depreciation increases owing to the commissioning of the Jaipur plant. For the 9 months number, on the overall financial performance, the revenue from operations grew by around 12% to INR 1,205 crores, vis-à-vis INR 1,073 crores. The volume growth has been 11% at 99,676 metric tonnes vis-à-vis 86,533 metric tonnes during the corresponding period. Despite the challenging environment, we have been able to manage and deliver performance on our key segments. We have started manufacturing incremental range of PVC fittings at Haridwar facility to serve our northern markets in a better way. This will help us reduce freight costs, penetrate the market more effectively and improve our serviceability. EBITDA has grown 36% to INR 171 crores vis-à-vis INR 126 crores in the earlier corresponding period. The margin improvement is around 250 bps to around 14.2%, owing to a favorable product mix. Our Jaipur plant has been commissioned during the period under review and the production is getting ramped up. CapEx for the period has -- is at around INR 140-odd crores, which includes around INR 100 crores, which is towards our Jaipur plant. Our tax rate is at 25.1% for the period and we have adopted to the new revised tax rate structure. Our long-term debt as on date is around INR 64-odd crores, and we intend to further reduce the same in the next quarter. Our debtors days have been on an improving trend and is presently at 37 days owing to the stringent credit control norms that we have adopted. We also have facilitated channel financing for our key vendors, which have further helped us in improving the debtors days. The working capital days is at 51 days, which is increasing owing to the higher inventory days and the gross debt to equity as of today stands at 0.37x. With this, we would like to open the floor for a Q&A session, and would be happy to answer your queries please.

[Operator Instructions] The first question is from the line of Devansh Nigotia from SIMPL.

Congratulations on a very good set of numbers. Sir, in terms of volume growth, if you can help us dissect it between Agri and non-Agri that would be really helpful?

Devansh, thank you for your question. So firstly, the total volume growth on a quarter-to-quarter basis has been around 5%. We will -- as a company policy, we cannot give a breakup of those categories or polymers, but I can give you a directional thought. So in terms of the reason for the margin expansion, it has been due to a favorable product mix. So our goal always is to grow faster in the plumbing and sewage range of products as opposed to the agriculture range of products. And we have been able to achieve that, which is the reason that it has also led to the margin expansion.

But in that case, I mean, because since there's a 5% volume growth and directionally if there is a strong growth in housing vis-à-vis Agri. Is there -- would it be right to interpret that there will be volume degrowth in Agri? I mean, directionally, I'm not talking for exact numbers though.

Sorry, go ahead.

Yes, because, I mean, like we highlighted that there is some consolidation in case of Kisan and Jain Irrigation. So it sounds quite counterintuitive because if we look at -- compared to last year, we were there in market, but gradually they are phasing out of market. So I mean, if you can just help understand in terms of how volume growth has phased out?

Sure. Sure. So I would like to clarify, there's not degrowth in the agriculture segment. It has been slower than what it is in plumbing and drainage. Also, to be honest with you, we would have grown at 2% to 3% higher than we actually have, but then we would have to throw credit because a lot of these distributors, the regional players or these international players are used to credit cycle, which we simply do not want to entertain because in such times, quality of the balance sheet is something that is very important to us and our sole focus of growth is going to be sustainable growth. So the fact that we've been able to grow in value at 10% and volume at 5% and still decrease debtor days, you know I sleep a lot well at night knowing that I have been able to do that.

Yes. And in terms of I mean communication with our distributors, in terms of the way we used to give credit, I mean, how that has changed? I mean, the whole communication -- I mean, channel financing has something to do with it. But other than that, I mean, if you can just help a though process because there's a significant change in debtor days?

Sure. Sure. That's a good question actually. So what I would like to clarify is that with the market consolidating not only unorganized moving to the organized, even within the organized, they are getting bigger. So here we have a lot more leverage than we had maybe 2 or 3 fiscals ago. So as a result of which, not only have we used channel financing to improve receivable days, but we've also fundamentally reduced the credit policy that we were giving to our distributors. So this is a very clear messaging that happens to the channel at the beginning of the fiscal when they sign their sort of targets and MOUs with us. We are able to assign the fact that we are going to be giving lesser credit to the market and still want to grow, but grow in a sustainable manner.

Okay. In terms of other expenses when we look at a percentage, there's a significant delta around 1.5% to 2%, if you can just help us -- I mean, in other expenses as a percentage of sales when we look at year-on-year?

Sure. Yes. So basically, in terms of the overall expenses and also, there will be a couple of heads which has actually gone up. One is on a couple of -- we had some power in fuel which actually has got significantly up. And also because we have put up some other job work sites also. So there is an in labor cost as well. And further, we have been emphasizing, the planning cost also has been going up, so we had -- that also has steadily contributed to the increase in the cost.

Because -- since our ad spends is like when we look at 2018 against 2019, our ad spends, there was significant delta in that period. I mean, what numbers are you working in terms of ad spends for FY '20? I mean, in terms of absolute amount?

So we should be closer to around INR 35 crores to INR 40-odd crores maximum overall in terms of overall ad spend.

So the number is same as compared to last year?

Broadly yes.

INR 40 crores to INR 41 crores was the amount?

Yes. that should be in a similar range.

Okay. And in case of Jain, I mean, can you just help us understand, I mean, are they still in the market? What is the quantum of Agri pipe business they were doing? Any thought process you have on that? Or I mean...

Sure. So of course, like you have correctly mentioned, Jain was a very popular processor with a lot of market share, especially in the irrigation segment. I think as everyone is aware that there are balance sheet constraints, and there has been market share that has been up for grabs. But that is probably only in the Agriculture segment, mainly at least while our focus is more towards dumping and drainage. I would not be having exact quantities of what their volume or market share was that has definitely benefited. The entire sort of top 4 or 5 processors have benefited from this consolidation. I think that is evident in the performance.

Our next question is from the line of Ritesh Shah from Investec Capital.

Sir, you did indicate on the uncertainty around CPVC volumes and you also did indicate that we are looking at alternate sources besides China and Korea. Sir, can you allude on to your strategy over here? And is there any inventory that we are maintaining right over here?

Sure. So thank you for your question. Firstly, I think we didn't say that there is uncertainty on CPVC volumes. I think what we said was that there's uncertainty on the CPVC margin because there is currently only a provisional antidumping duty and the investigation is ongoing. And the actual duty will be announced post the investigation conclusion. So the volumes are intact. We have grown in CPVC. We have -- while I don't want to quantify it, but we have double-digit growth. And what I also want to add to that to answer your second question is that we have no problem in securing volumes today since we were not only sourcing from China and Korea. They had multiple sources of CPVC resin even before the duty was announced. So as opposed to being able to -- we didn't need to find new sources of procurement of the CPVC resin. We just had to increase our allocation.

Okay. So can you give some breakup of what China and Korea account for versus the rest of the regions? I'm just trying to understand how the pricing or the sourcing cost will actually play out for us in the forthcoming quarters on back of this?

Sure. So while we cannot quantify that because I hope you can understand, PVC 65% of the market is organized, whereas in CPVC, 70% of the market is controlled by 4 or 5 players. So the competitive intensity is very, very high. What I can say is that yes, Korea and China were significant sources of CPVC resin for us. But today, if you see the market is large, right? India is the only consumer of CPVC resin. So any of these -- while the number of CPVC present manufacturers are lower, the only customer actually is India today. And we are the fourth biggest processor of CPVC pipes in India. So we have a significant leverage not only in the trade, but also in the sourcing part of it.

Right. That's exactly what I'm trying to understand because you did indicate that market consolidation is one and there could be a short supply and it could hit cost structure for the smaller guys. So we want some comfort around the sourcing arrangement that we have in place ex China and Korea? And did we have any price benefit given we have a reasonable size we are among the top 4, top 5 players in the country. So will we get the benefit? And will we be able to source CPVC at the right price?

Sure. So yes, we will be able to source CPVC at the right price. And like you correctly mentioned, having this sort of quantity leverage over the rest of the market will help us differentiate our costs vis-à-vis smaller players or even regional or even small national players. And securing of volume is not going to be a concern at all. There will be uncertainty until the final duty is announced. And I think that is the stance for the entire industry. And I think it's very important to understand that in the long run, this is going to be leading to market share gains.

Are there any time lines for the final antidumping duties? At what stage this working is on DGTR?

So quite frankly, there has been some time lines. But from what we understand is usually these investigations are prolonged and could have delays. So I think it was announced in the month of August, if I'm not wrong. And at least broadly what we were going to understand it is you should take 6 to 8 months to be announced.

Sir, my second question is on sourcing, specifically from Lubrizol. What we got to understand from the market sources is that we had some temporary sourcing from Lubrizol. Now is it something that we are looking for a tie-up for the company? Or is it something one-off which was there? How should one look at this?

Yes. I'm sorry, like I said, we cannot give this kind of information when 4 players are essentially controlling 70% of the market. What I can assure you is that there is no problem in securing of volumes. And whenever there is an announcement to be made, we will make an announcement.

My last question is on you did touch upon the margins. Is it possible if you could give numbers on fittings as percentage of total volumes, specifically on PVC and CPVC side as even fittings do contribute a significant margins and I think that has been our focus area in the past as well. So any color over here would be useful?

Sure. So there has been -- we have sustained the pipe to fitting ratio that we have delivered in the past while I will stay away from quantifying it again. But we have -- that is the reason that we have even actually improved our margins, if not sustained, and the pipe fitting ratio is intact.

Any number that we target going forward over here? Or are there any incentives that we give out to our distributors and dealers to make sure that the fittings ratio is in our favor going forward?

Sure. So if you look at the pipe fitting ratio of Prince Pipes already I think is the sort of benchmark in the gold standard of the industry. So I don't think we are trying to increase this ratio, our goal is to constantly sustain this ratio. And yes, we do regularly give quarter-on-quarter schemes and incentives to our channel like our peer set does as well.

Okay. And just last question, if possible you can give some qualitative description on how our market share has actually played out in the marketplace given unorganized sector definitely they will be facing problems on resin procurement going forward and you had players like Jain, I think, Prince SWR and Ashirwad, also moving out of the market with change in promoters. Has it absolutely benefited us on the market share? How do you see it so far? And how do you see it going forward?

Absolutely, without a doubt, we have been able to garner a significant amount of market share. And I think as Parag Bhai mentioned in his opening remarks, not only have we grabbed this market share, but we have been also able to add new distributors from these companies that have moved out of the market, which shows you that this increase in sales is going to be sustainable because there is going to be an increase in the number of distributors. As a result of this, we have absolutely been able to -- this growth that has come from this consolidation. And we think that this is going to be sustainable.

Can we have a number on number of distributors and the revenue per distributor, any metrics that we look at?

Sure. So we can give you a number of distributors maybe at the end of the fiscal because this process of adding new distributors is an ongoing process. Having said that, there is a criteria we very strongly follow when we try to attach new distributors, and I can maybe walk you through that. So firstly, we always want to ensure that they are good paymasters. So a lot of the distributors of these players were used to extend the credit cycles which we do not want to entertain. So we always make sure that they're going to be disciplined paymasters. Secondly, they need to have a robust infrastructure where they're able to have a strong retail network and the right infrastructure that is needed to keep the right amount of stock because availability of product in the secondary market is very important. And thirdly and most importantly for me is that the hunger of the distributor has to be parallelled to the company's hunger and only if he is on the same wavelength of growth and has a very ambitious target of growth is the wavelength going to match. So that is the foremost important criteria that we look at while trying to add new distributors.

Just last question, if I may squeeze in. On Slide #25, we have given that we intend to outpace industry growth by at least 2% to 4%. So how do we differentiate versus our peer set in the marketplace? Is it like more discounts, more credit or more SKUs? So what is our strategy over there?

Sure. Good question. So like you said, the scope of product differentiation is fairly minimal amongst peers, because they are -- that is essentially all governed by BIS norms. So the game for us today has become how do we become a preferred brand among the brands. So there are 2 ways in which we do that. One would be a range of product portfolio. So today, if you look at us, we are across multiple polymers, across multiple applications, be it plumbing, irrigation, sewage, boring, underground drainage as a result of which we become a one-stop shop for our channel, and we have a very high number of exclusive distributors, higher than our peer set as well and it comes as a result of the high product portfolio range that we have. And secondly, I would say is our benefiting network, where we have 6 plants as well as multiple job working units across the country. So we are able to minimalize our freight costs and efficient -- and penetrate the market more efficiently by minimalizing these freight costs. And lastly, I would say is what the theme Parag Bhai touched on during his opening remarks, is the strategy of winning in many India's. And we are very proud of the fact that we are able to have a majority market share not only in urban markets like a lot of our peers, but we are also able to enjoy a very strong brand equity in semi urban as well as rural markets of India.

[Operator Instructions] Next question is from the line of Sonali Salgaonkar from Jefferies.

Sir, my first question is, could you help us with your product mix in terms of PVC versus CPVC in your topline?

So as indicated by Nihar, so basically, we would not be in a position to provide that though we actually track it internally, but for a better guidance perspective, we will be able to position to give you overall volume growth, which is like a 5% on a quarter-on-quarter basis and also the value growth, which is 10%.

Just to add, while of course, we have various segments of Agri, Plumbing, Drainage, Rain Water Harvesting, I -- what we can also just inform is that our company will continue focusing on the plumbing and drainage products. In drainage, there are 2 again, one is above the surface and second is the underground drainage systems. So the company shall continue focusing on plumbing and drainage products very clearly.

Sir, in terms of your revenue split, what would be B2B versus B2C portion?

Sure. So our -- more than 90% of sales comes from the B2C portion. So if you look at -- if you had to ask me what our biggest strength is today, it would be our distribution network where we have north of 1,400 channel partners across the country today. We actually traditionally have stayed away from the project and institutional side of business, and we will continue to do that. And this is because our sole goal, like we have mentioned previously, is on the quality of the balance sheet. And with the projects we are usually exposed to higher working capital cycles, and we want to keep that exposure to a minimal. So whatever projects we do participate in would be through the channel. So it still ends up that we sell to distributors who then eventually will sell the project. So essentially still a large part of our sales comes from B2C where the value chain is as follows, the company sells to the distributor who then sells to a wholesaler or a retailer who would then eventually sell to the end consumer, be it a homeowner, plumber, farmer, borer, et cetera.

Understand. Sir, my third question is, would you be able to help us with your total installed capacity in the region wise mix of that?

Our total install capacity is around 2,41,000 metric tonnes. And this is likely to further go up to maybe around 2,60,000 metric tonnes because with our -- the plant of Jaipur fully getting -- touching around 20,000 metric tonnes by March, we should have been a portion to go at that. So it is exactly INR 252,000 metric tonnes as on 31st of December 2019. It is various -- it is categorized into all the 5 plants that we have. So broadly, that would range between, if I have to tell you a percentage or maybe the overall thing, it is like 59,000 metric tonnes for Dadra plant, around 77,000 tonnes for Haridwar, Chennai accounts for 62,000 metric tonnes, Kolhapur is around 20,000 metric tonnes, and Jaipur plant as on December 31 touched around 17,000 metric tonnes. So that is broadly the overall 2,52,000 metric tonnes that we have as an installed capacity as on 31st of December.

Sure. Sir, and my third question is you mentioned your ad spend, sorry, I missed the number. What is your ad spend to net sales as a percentage right now?

So it will be like range between 2% to 2.5% on an overall basis.

Got it. Sir, my last question is on an industry basis. So what are the demand drivers that you are seeing going forward in terms of any end user segments or probably housing and infrastructure?

Sure. So there are multiple drivers for growth. These drivers would be across segments. So let me walk you through the main 4 drivers of growth for us. One, which is a substitution demand from the metal pipes. So as you are all aware that there is a significant technological advantage of PVC as opposed to metal. So that substitution market still goes on. The second being the government initiatives, so the setting up of the Jal Shakti Ministry and Nal Se Jal scheme, which offers basically the single-line mission of Nal Se Jal is to bring piped water access to every rural household in the country. So it's going to be Prince Pipes and our peers who are going to be direct beneficiaries of such programs. In fact, we are also -- I'm glad to state that we've already started seeing demand from Nal Se Jal programs at a state level in certain markets, which is actually publicized with you earlier than we had envisaged as well. And of course, there is the usual real estate leading to the affordable housing and the organization that is taking place. And lastly, in terms of new frontiers for growth, I think there are 2 new frontiers for growth for us, one being the underground drainage segment. So like I mentioned, that more than 70% of waste today is actually not even piped, it is open gutter channels. So if you are talking about global benchmark in U.S. and Europe, you're talking about how much percentage of their waste is treated. For us, waste treatment is a faraway chapter. We have to actually begin with piping our waste. So underground drainage, I believe, is going to be a very significant vertical for us in the coming fiscal. And the last frontier of growth from a geography point of view would be East India. I think given that it is an important part of our cost structure, it's important to have a local manufacturing presence. And additionally, the top 4 or 5 manufacturers have stayed only in the West, North, eventually than the South. But there has been a very small footprint in the East. So 4 years ago, we actually started a job work manufacturing in Patna, which has worked out very well for us and helped us garner a very good market share in the Eastern markets. And we have also struck an outsourcing deal in the past quarter in Balasore, Odisha to manufacture pipes, which will help us fortify more markets in the Eastern markets.

Sure. Sir, you mentioned that Nal Se Jal you are seeing some demand in select markets, could you elaborate in which markets you're getting the demand from?

Absolutely not. I don't want my competitors to know.

Okay. Sir, and any account of retailers that you would like to share with us because you just mentioned you have 1,400 channel partners. So any retail touch points?

Yes. So I think as you mentioned, yes, we have more than 1,400 distributors all across the country. I think more important is to understand that more than 80% of our distributors are exclusive for Prince Pipes. So that being our USP. Now to answer your question on the number of retailers, the number of retailers would vary from state to state, from region to region. On an approximate basis, we would calculate that one distributor on an average could be catering to about 400 retail outlets. So which means it is 1,400 into 400. That is the kind of touch points that the company has.

[Operator Instructions] The next question is from the line of Zain Iqbal from Alpha Invesco.

So I just wanted to know the year-on-year top line grew 10% but quarter-on-quarter, it declined by 8%. What's the reason for this decline? This is the first question. And the second is, what will be your debt position by the end of the financial year? And if you could give me a breakup of short-term and long-term trend?

Can you please repeat your question, you were slightly inaudible.

So the topline grew year-on-year by 10%, right? On a quarterly basis, it declined by 8%. So I wanted to know reason for this weakness for the decline in the topline?

Sure. So let's go question by question. So on the first question, I think your numbers are accurate. And if you look at the industry at large, quarter 2 usually tends to be a stronger quarter than quarter 3. So there would be a decline across. Furthermore, I think quarter 3 saw overextended monsoons as a result of which the demand was tepic especially in October and November. Apart from that, there was also a festive season in October and parts of November. As a result of which, if you look at in materials as a whole, quarter 3 has been not that exciting. So we are glad that we have not only been able to grow but also been able to cut the receivable days growth has been sustainable.

Okay. So what is your debt position for the financial year?

So overall, the term loan, even as on today post December is around INR 64-odd crores today. And we have a working capital limit, which is like INR 175 crores. And also non funded limit of INR 250 crores. So we should be in a closure of around INR 465-odd crores as an overall basis including non-fund.

Okay. And lastly, how much can you improve the EBITDA margins from here?

So, I think the goal what we are guiding at is 12% to 13% EBITDA margins. We want to be very conservative with our margin guidances. What I can give you is a directional thought process in terms of the levers for margin expansion or contraction. So the first one being product mix. So there are certain polymers and certain applications that have better margins and realizations as opposed to others. The second would be the pricing leverage. So as I mentioned with the market consolidation that is happening, we are able to pass on whatever increase or decrease that is happening in the raw material immediately, and with full effect and in certain times even more than what the increase has been. So that also can lead to margin expansion. And the third reason potentially is when you have the kind of volume and value growth that we have been having, there are always operating leverage benefits which leads to margin expansion. So those 3, I would say, are the cornerstones or the levers for margin improvement.

The next question is from the line of Arafat Saiyed from Reliance Securities.

Yes, sir. Congrats for a good set of numbers. My question -- my first question is on the debt which you had with Express Infra. I think that INR 200 crores already paid, right?

Correct. Absolutely. And we have also been able to -- the pledge has been come off. So as we had committed within 24 hours post listing, so promoters use these funds to pay off KKR in full, and the pledge, as we speak today, is 0%.

Okay. Fine, sir. That's great. And sir, secondly, I just want to understand which are the macros we need to track for tracking these kind of CPVC. So it may be, let's say, the company which is having CPVC will get more higher margin and valuations or the number of distributor or the plant, so which are the main macro we need to track, sir?

Sure. So I think like you correctly mentioned, there are going to be certain value-added products. So for us, those are CPVC, PPR, those are our 2 value-added products, which aim to have better margins and realizations than other polymers. Of course, HDPE is a nascent polymer for us. So we are able to -- we are actually just trying to get a grasp of what margins will be in the long term on HDPE. And that is as far as polymers is concerned. As far as application is concerned, I think like we have mentioned before, plumbing and drainage have a better value proposition than the Agriculture segment and the focus is on that. And in terms of network, I think 2 networks that are very important is not only our distribution network and the spread of that distribution network, but also the network of your manufacturing facilities. So I can walk you through the advantage of that. In 2008, we were the first movers to put up a manufacturing plant in the North, in Haridwar, whereas most of the processes traditionally stayed in the West. As a result of this, we have been able to garner a very strong market share in the northern markets of India today. So this is purely a function of being able to minimalize freight costs and being more competitive in the market. So not only is it important to have a very robust distribution network, but also to have a very strong manufacturing network and very strategically located plants. And after the movement to the north, in 2012, we acquired 2 plants from Chemplast Sanmar who are actually our resin manufacturers and our vendors as well. We acquired the 2 plants in Chennai and Kolhapur, which helped us fortify our market -- our presence in the southern market as well.

And the last question on margin side, although you have guided that a margin expansions on that have better product mix and margin leverage is able to pass around to increase the margin. But sir, this happens across the companies be it Supreme, but it Astral, all the companies are showing significant margin expansion in the tune of 100 to 110 bps also. So my question is, can this sustainable for going ahead also? Or can we say 13% of the margin is what an industry can do?

So I cannot comment on any of our peers' margins and whether they are sustainable or not, I think that's for them to answer. What I can tell you is that while we are guiding at 12% to 13%, we want to be very -- we are hungry for margin expansion, and we will try to work day and night to improve our margins, but we want to be very conservative with the way that we give you any commitments or guidance.

The next question is from the line of Dhaval Shah from Girik Capital.

First question is, a, what is the current debt? And how do we see it over next 2 fiscals? And second question is what is the cash flow generated for the first 9 months before -- after paying taxes and interest?

So the first question is on debt. Yes. So as I said earlier as well, the term loan outstanding as on today is around INR 64-odd crores and there's a good chance it will further come down by March end as well and while considering our other limits as well we expect overall exposure of around INR 450-odd crores by March 31, which includes our non-fund based limits and also working capital utilization.

Sorry, can you repeat the number, what did you say?

Around INR 450-odd crores overall which included of fund base limits as well as working capital requirement limits.