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

On behalf of Systematix, I welcome all on 2Q and 1H FY '21 earnings call of Prince Pipes and Fittings Limited. From the management's side, we have Mr. Parag Chheda, Joint Managing Director; Mr. Nihar Chheda, AVP, Strategy; Mr. Shyam Sharda, CFO; and Mr. Anand Gupta, Deputy CFO. Without much ado, I would like to hand over the call to the management for the opening remarks, post which we can have a question-and-answer session. Thank you, and over to you, Parag.

Thank you, Ankit. Good afternoon to all. Thank you for joining us for the quarter 2 FY '21 earnings call, and I hope you all are safe and healthy. I'm joined by Shyam Sharda, our CFO; Anand Gupta, our Deputy CFO; and Nihar Chheda, AVP, Strategy. The presentation and the press release have been issued to the stock exchanges and uploaded on our company website. I hope everyone has had an opportunity to go through the same. Before I start, I would like to give the following disclaimer. The business, industry and economy at large had been impacted by the lockdown in H1 of this year. The business performance is therefore not comparable to the corresponding time period. Thank you. So let me start by giving you a strategic view of where Prince is and where we are headed. You are all aware that in the past quarter, we decided to collaborate with Lubrizol and launch our range of Prince FlowGuard Plus products. The level of excitement and passion within our sales team and channel partners has been very encouraging. We were able to successfully commence commercial production in mid-October. As we speak, the first few batches of the product are being rolled out in the market. The initial feedback that we have received on the quality of Prince FlowGuard Plus has been encouraging. I'm highly confident that the quality and brand equity of FlowGuard Plus, combined with the network and the reach of Prince, we shall reach a high level of performance. While the enthusiasm is high, our focus is on giving the team time to execute our strategies. We do not expect overnight miracles since sustainable success can be achieved only over the long run. The first phase of our sales team training by Lubrizol has been completed in the past month. Now we will initiate distributor training programs over the next few quarters. We see our distributors as our extended arms, hence, training them about the technical parameters of Prince FlowGuard Plus and how to upsell and premiumize is key to creating a sustainable ecosystem for the long-term success of Prince FlowGuard Plus. As a part of creating this sustainable ecosystem and to set up the long-term success of Prince FlowGuard Plus, we will be significantly investing in branding over the next year. We need to see branding not as an expenditure, but as an investment, an investment that will yield results and help us create value in the long run. With our tie-up with Lubrizol coming in, an effective branding strategy is now more important than before. Our branding strategy is two-pronged, ATL activities to increase the brand equity visibility and BTL activities to strengthen the connect with the stakeholders like retailers, plumbers and consultants. We have consistently invested in branding over the past 3 years, and we remain committed to branding even in the current uncertain environment. Secondly, this quarter, we were able to expand our footprint for Tank manufacturing. We have identified principal markets where we want to launch the Prince STOREFIT tanks. These are markets where our channel has given positive feedback on the market potential for tanks. The rationale behind entering into tanks was that we would have to spend no time or mind share into building a new distributor network. We intend to market Prince STOREFIT within the existing network of our pipe distributors. We have built a road map internally for the next 18 months for footprint expansion. We will use a combination of in-house and outsourced manufacturing to move closer to the market that we intend to penetrate. For me, depth is more important than the breadth. That means the scalability of business is the key metric that we will always stay true to. Next, I would like to highlight our organizational goal of working towards the triple bottom line. Triple bottom line includes not only financial bottom line, but also environmental and social bottom line. In the past few quarters, we have started working towards adopting solar power across our facilities. I'm excited to share that in this month, we were able to officially commence solar power adoption across multiple plants. With solar power adoption, we will be able to curb our carbon footprint and also be future ready in fulfilling the renewable energy obligation when enforced. The solar energy generated shall be equal to approximately 1,200 metric tonnes of coal burned each year. In propositional terms, the carbon appropriated is equivalent to 40,000 seedlings grown for a decade. Furthermore, I'm glad to announce that we have also taken measures to reduce our greenhouse gas emissions by 23% over the past 4 years. Our manufacturing excellence team has been able to achieve this result by replacing conventional high energy consumption equipment with energy-efficient equipment. Secondly, we concluded regularly the energy audits at our manufacturing facilities and thus curbed energy leakages. Thirdly, we improved equipment efficiencies, and as a result, maximized the machine output. And lastly, the most importantly, we procured green energy across plants. This quarter has been a key quarter for us. Despite the headwinds of market going in and out of lockdown, we've had a healthy revenue growth of 7%. While the first half of the quarter was slightly tepid due to uncertainty in markets, the second half of the quarter witnessed a timely recovery. The sales team worked closely with the channel partners on ensuring that we are able to capitalize on the market consolidation. In terms of way ahead, India has witnessed a robust monsoon, which will lead to a higher income per capita in rural India. As a result, there could be increased expenditure towards Agri and Real Estate in the smaller towns and villages, which will be a positive for our Agri as well as our Building Materials segment. We have been able to post a healthy growth in this quarter, despite our key urban markets like Mumbai and Delhi being tepid. Once these markets start to perform, the volume growth and resultant operating leverage could be very encouraging. At the heart of our strategy lies growth, growth in distribution network and growth in product portfolio. We are looking to penetrate markets more effectively, and within each market, we want to increase our penetration for multiple applications. It is easier to add more distributors, since today Prince has a unique ability to be a force to reckon with across SWR, Agri and now Plumbing. Distributor network expansion, coupled with product portfolio expansion, is a strategy that has got us where we are today and will get us where we aim to be tomorrow. Today, the piping industry has reached a stage that we can chase volume growth without compromising on brand equity and pricing power. The dual goal of brand monetization and volume growth can be achieved in such a consolidating market. This performance has not only been pivotal in terms of business recovery, but also in terms of balance sheet quality. Our working capital requirements have normalized since we were able to liquidate inventories and get a solid control on receivables even in such tough times. Quality of balance sheet continues to be the top priority for us as a team and as the organization. Lastly, I would like to highlight on the Telangana facility progress. As we have indicated in the past that apart from the natural delay due to COVID, we are sticking to our time lines for Telangana facility. We are aiming to commence commercial production by quarter 2 of next fiscal. I'm personally working closely with the team to get Telangana started as early as possible, so that we can further capitalize upon accelerated market consolidation that we are witnessing. Today, the fittings for South India are being catered from our Haridwar facility. With Telangana coming in, we will also witness decentralization benefits as well, which has proven to be a lever for margin expansion in our model, which is sensitive to logistics costs. Hence, a key goal for us is to commence commercial production at Telangana as soon as possible. Thank you all for your time and mind share. Over to you, Shyam.

Yes. Thanks, Parag, and good evening, friends. I will quickly take you through the numbers of the results under review for Q2 FY '21 vis-a-vis Q2 FY '20. Before we speak on the numbers, I will take a few minutes in discussing on the quarter under review. Parag has very clearly explained our strategy is being implemented in detail, which we truly believe will enable us to become a preferred brand among brands and seize opportunities arising out of market consolidation. We are better placed than before to effectively penetrate newer markets and cater to certain niche segments owing to these strategies. During the Q2 FY '21 quarter, the unlocking of market has begun. However, metros like Mumbai and Delhi, which are amongst our key markets, continue to remain slow for the period. It is heartening to mention that we saw a good response with unlocking taking place throughout the country. We believe it is now only a matter of time till the situation normalizes. Having said that, we continue to remain cautious given the unpredictability of the pandemic. The performance in this quarter was especially encouraging with the growth being delivered. It has reinforced our conviction of winning in many Indias and being able to garner market share arising out of market consolidation, which is reflecting in our sales. Coming to the manufacturing. Utilization levels have normalized, which is visible given the business performance during the quarter. A healthy spread has been observed between Agri, Plumbing and SWR segment. Now I will be taking you through the Q2 FY '21 financials. I would like to highlight that Q2 of last financial year was extremely robust quarter, hence, the base for the comparison is quite significant. Now during Q2 of current financial year, revenue from operations grew by approximately 7% to INR 459 crores vis-a-vis INR 429 crores in Q2 FY '20. With reference to the uploaded investor presentation, we would like to make a small clarification with regard to the volume reported of Q2 last financial year. Volume growth of 1.7% from 35,142 metric tonnes in Q2 of current financial year versus 34,553 metric tonnes in Q2 of last financial year. This minor revision has been updated in the investor presentation as we speak. The 5% difference value growth and the volume growth indicates a significant improvement for us for the following 2 reasons: first, due to the sharp hike in the PVC prices, and secondly, with a better pricing power that we have gained due to market consolidation. Coming to EBITDA, which was at INR 80 crores in Q2 FY '21 vis-a-vis INR 65 crores in Q2 FY '20 translating to a growth of 23% and margins were at 17.5%, vis-a-vis 15.2%, and expansion by 230 bps. Margins increase has been due to the following 3 reasons: one, inventory gain due to increasing trend of PVC pricing. Second, better pricing power due to market consolidation. And third, operating leverage benefits owing to volume growth in such times. Our cost optimization continues, and we are working on reducing cost on a continual basis to improve manufacturing efficiencies and various other cost control identification. Given the current business scenario during the quarter under review, we have been able to decrease our finance cost by approximately 40% due to repayment of long-term debt. Also, we reduced our short-term requirement given our healthy cash position, excluding the growth capital raised through IPO. It will be our endeavor to closely monitor and look at the possibility for the further reduction. Average cost of capital for Q2 FY '21 is at around 8.4% as against 10.1% in Q2 FY '20. Profit after tax for Q2 FY '21 is at INR 47 crores vis-a-vis INR 33 crores, translating to a growth of 42%. Commenting on H1 FY '21, revenue from operations have contracted by approximately 6% to INR 761 crores vis-a-vis INR 809 crores in H1 FY '20. The contraction was owing to the lockdown phase in Q1 FY '21. The volume decreased by around 12% to 60,132 metric tonnes vis-a-vis 68,653 metric tonnes in H1 FY '20. Better pricing and product mix have led to lower value decrease in comparison to the volume decline. Coming to EBITDA, which was at INR 112 crores in H1 FY '21 vis-a-vis INR 118 crores in H1 FY '20, a contraction by 5%, and margins were at 14.7%, vis-a-vis 14.6% in H1 FY '20. There is a margin improvement by around 10 bps for H1 FY '21, owing to the robust performance in Q2 FY '21. PAT for H1 FY '21 is at INR 58 crores vis-a-vis INR 60 crores for the corresponding period. Coming to the balance sheet. Term loans, including current maturities as on 30th of September 2020 stands at INR 42.2 crores. Short-term loans as on 30th September was at INR 143.7 crores. The total debt as on September 30, 2020 is at INR 185.9 crores, and the net debt is approximately INR 105 crores, as we are sitting on approximately INR 80 crores of cash. Over the past 1 year, we have reduced debt from more than INR 322 crores to INR 185 crores, translating to a debt reduction of more than INR 130 crores. Currently, we are net cash, however, excluding IPO proceeds, net debt-to-equity stands at 0.1x. As on September 30, 2020, we are sitting on more than INR 80 crores of surplus cash over and above the growth capital raised through IPO. This cash has been generated in the past couple of months of our operations. Our top priority this year is to continue to strengthen our balance sheet by deleveraging the borrowings and focus on improving our cash management cycle. CapEx cash flows for H1 FY '21 was between INR 45 crores to INR 50 crores, which includes utilization of IPO funds and internal accruals. We shall continue to maintain the course of CapEx during the year as scheduled. CapEx will be done through the growth capital raised from our IPO for our new Telangana plant and upgradation of machinery at our existing plants. Commenting on working capital. Our debtor days has largely been in check despite the growth. Our debtor days has normalized to around 41 days. Despite delivering a healthy top line, we have been able to normalize our debtor days owing to disciplined debtors management, which is our key focus. We are monitoring receivables very closely in the current scenario to ensure no distortion for us as we ensure we do not put pressure on our channel partners. Our inventory has normalized during the quarter, owing to effective market penetration. Working capital is at 53 days, which is an increase largely owing to lower creditors days. Given the healthy cash generation by the business, the Board of Directors of the company, at its meeting held on November 3, 2020, have declared an interim dividend of INR 1.5 per equity share of INR 10 each for the half year ended September 30, 2020. We have recently rated our long-term and short-term facilities by CRISIL and have been assigned A minus for our long-term facilities. Though the business recovery has been healthy, we will refrain from giving any revenue or margin guidance as the COVID impact is still unpredictable and dynamic. While the business looks good, we would remain cautiously optimistic given the current situation. With this, we would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Chirag Lodaya from ValueQuest.

First of all, congratulations for all-round performance. Sir, my first question is on growth. So if you can just help us understand what relates to such a sharp recovery in the later part of the quarter? And how big would be Mumbai-Delhi market in our overall scheme? And how one should extrapolate with this September month trend going ahead?

Yes. Thank you. Thank you for your question. Bombay and Delhi -- while we would stay away from quantifying what each market is for us, but Bombay and Delhi would be within our sort of top 5 to 7 markets for us, pan India. The growth has been across segments in both PVC, CPVC and -- as well as the HDPE. Especially in quarter 2, anyway, Agri does not have a good role, so it is largely to do with our SWR and Plumbing sales, which has picked up well. And in terms of way ahead, while, of course, the performance in Q2 has been encouraging for us, it's hard to give guidances given the overall uncertainty in the environment. But I think the quarter 2 has been encouraging for us. Once urban India really starts to perform, we are pretty bullish on the overall business performance that could be achieved.

Can you call out what was the growth in the month of September if that is possible?

I would not have the monthly numbers handy, but there has been a growth year-on-year for us in terms of revenue. I will not have the exact quantity. We can get back to you on that later.

Right. And secondly, on margins. So can you call out what is the inventory gain for the quarter? And how one should look at margins going ahead in terms of sustainability of margins?

Yes. Yes, that's a good question. See, the 2 reasons for -- if you look at the margin expansion that has happened for us has happened primarily at the gross margin level itself, which shows that this margin expansion hasn't happened because of some add of cost-cutting measures or anything like that. It has been genuine gross margin improvement due to 2 reasons. One is, of course, there has been an inventory gain due to a sharp increase in the PVC prices. I think the inventory gain would be around INR 8 crores to INR 12 crores for the quarter. And the second reason has been better pricing. We are working very closely, both the marketing and the finance teams, to identify markets where we are able to enjoy a better pricing power, where we can close the gap between our pricing and our peers' pricing. Wherein certain markets where Prince is strong and we have heavily invested in branding, we have -- also charging a premium compared to our competitors in the PVC segment. So it has been something which has not happened overnight. This is something that we've been highlighting in the past 3 or 4 quarters. It is only that in this time, both the inventory gain and the pricing leverage have resulted in a compounding impact on the margin. But the pricing power, which has improved for us, has been happening for the past 3 or 4 quarters. And we will continue to try to identify these markets and applications where we can improve the pricing power that we have.

Right. Sir, if I just exclude inventory gain from this quarter, then there is a compression in gross margin. So that's the point you made about pricing being better in this quarter is not reflected in Y-o-Y numbers there. So how should I look at it for the quarter? And going ahead, is it right to assume that whatever we did in, say, FY '20, our gross margin, it should be substantially higher going ahead, gross margins?

So see, we will -- while it has been a very encouraging quarter, I think we have been very conservative, and we will continue to be very conservative as far as guidances are concerned. Let me answer your question. In terms of -- even if you consider inventory gain of INR 8 crores to INR 10 crores, there would still be around INR 5 crores to INR 7 crores further on the gross margin level, which is owing to the pricing leverage that we enjoy. So it's not completely wiped off after the inventory gain. And while we are being conservative with guiding, because of the uncertain environment, I don't want you to confuse that we are not being conservative internally. We are very aggressive internally in terms of chasing volume growth, in terms of chasing a higher margin. So internally, we have very high aspirational targets that we are working towards, but as far as guidances are concerned, we will be conservative.

Okay. Just lastly, clarifying. When do you see this PVC price trend reversing? Can we expect anything soon or it's difficult to comment?

It's difficult to comment. It's been like since the past 3 months that I've been thinking that it should correct, it should correct. It's not happened yet. But I think it should -- it looks like it's here to stay for a while. PVC is not sustainable at this level. I think that is pretty clear. So there should be a correction. But when it corrects, it's a golden question.

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

Congrats on a good set of numbers. Yes. So my question is on EBITDA margin. I know you've reported very good number across the board and strong margin expansion despite the pandemic and all. So I just want to know can this type of margin of, let's say, 17%, 18% is sustainable or can we factor around 14% or 15% margin?

See, like I said, I'll repeat the point. We are aggressive in terms of trying to improve margin. It's something that we want to structurally improve our margins, and we are hungry to improve our margins. I think over the past 3 or 4 quarters, we have been able to demonstrate that, but it's hard to comment on margins going forward. We will try to be conservative as far as guidances are concerned, but we'll work closely towards maintaining a robust margin profile.

And sir, my next question is on CPVC. Can you quantify the revenue and volume from CPVC segment for the quarter and half year?

No. I think we've been pretty clear in the past and we'll continue to be very clear that we will not be sharing any polymer wise or segment-wise breakup. I think that's an industry norm now. But I can just -- again, I will give you a directional thought process, because I understand why you're asking that question. CPVC, even in Q2 of this quarter, has been around 20% of the overall sales top line. And that is encouraging, because despite such a sharp increase in the PVC prices, we have been able to maintain a 20% contribution from CPVC. And in fact, like we said in the opening remarks that the FlowGuard material has started to enter into the market. The key distributors have also passed on that material to their secondary market. We have started getting repeat orders as well. And the initial feedback, not only in terms of sales numbers, but in terms of quality of the Prince FlowGuard Plus pipes, has been extremely encouraging.

[indiscernible] is normalized. And my question is can we -- we also gained some inventory gains during the quarter. Can we expect some inventory loss in the next quarter?

Yes. I think -- see, if you look at PVC as a whole, every annum it tends to normalize. I think maybe not in quarter 3, but in 4Q of this year, there could be -- there should be an inventory loss. I don't know how much. It's tough to quantify today. But maybe in the Jan to March quarter, there could be easing in the PVC pricing.

The next question is from the line of Sneha Talreja from Edelweiss.

Congratulations on very good set of numbers. Just a couple of questions from my end would be, so basically, I wanted to understand how much of the CPVC price increase that we have taken into the system? And what sort of price increase are you planning to take going ahead, so that our margins are at current level in the CPVC? If at all, you can give some guidance on the same?

Yes. Thank you, Sneha. We have taken a 3% hike for our CPVC portfolio. So the Prince FlowGuard Plus products will be 3% higher than our CPVC initially. We need to take further hikes, but what you must realize is margin, at the end of the day, is a combination of pricing and quantity, keeping in mind operating leverage benefits. So we have worked out a few sort of permutations and combinations in terms of what price hikes we need to take, vis-a-vis what sort of revenue needs that we need to generate. So in the coming quarters, we will look at further increasing the price, but we also have to remain market friendly. So this is something which cannot happen overnight again. It will take 3 or 4 quarters. If we are able to generate that sort of growth, that would be great and would not put that much pressure on the margins, because of the cost absorption. And we also have to look at the overall demand scenario. And if that helps, then it's obviously easier to increase prices. The good thing is now with the ADD coming in, it's a fairly consolidated market. There is a shortage of material for the smaller players. And we are seeing a good -- a favorable demand-supply equation today and moving forward.

That was helpful. My second question was related to your distribution network. Of course, you've focused a lot in the initial remarks that you are focusing on the distribution. And then in fact, you are getting traction from even the distributors of unorganized segment. Could you give some color that where does our distribution network stand today versus, let's say, 6 months back?

Yes. So we have been adding distributors. For us, number of distributors, like we've said before, is not that important. We usually -- as you add distributors, you might also lose distributors in certain markets. So we would like to track the number of distributors on an annual basis. So by the end of this annum, we would see where we are vis-a-vis where we were at the end of FY '20. But we have been able to add a lot of distributors. Especially after FlowGuard Plus, people realize that now we are not only strong in SWR and Agri segments, where we've traditionally been strong, but now with Prince FlowGuard Plus coming in, we will be able to truly become a one-stop shop for the channel. So we continue to add distributors, but this is something we want to be selective with. We want to focus on distributors, who are good paymasters, who will be able to range sell for us, and sell our CPVC products, not only our SWR and Agri products, and distributors, who are hungry for growth. So that is as far as distribution expansion is concerned.

Sure. My third question was related to our Tank business. So in case -- of course, in the initial remarks that you said that now you're planning to introduce it in other regions, geographies. In case you can give us what sort of turnover we've achieved in this particular business so far? And in how many manufacturing units are we producing it? And you also mentioned about outsourcing in this particular segment. So I mean, where do you see that outsourcing mix going? Some qualitative as well as quantitative comments on that.

Yes. See, revenue in this year in tanks, it's very small. It's been only a quarter since we've launched. So it's not even worth sort of mentioning. We have said that it will take some time, maybe a year from today or 18 months from today, till we can have a significant part of that revenue. We have got very good feedback from the market. We have got repeat orders as well. And like we mentioned, we have identified outsourcing partners across the country in multiple zones, be it West, South and East, in all 3. But by the end of this year, I think we'll be able to give you a clearer picture in terms of where we are with respect to in-house capacity, outsourcing capacity, revenue that we foresee. So give us some time, so that we are able to give you a clear picture, once we have a clearer picture ourselves.

The next question is from the line of Utkarsh Nopany from Haitong.

I have just 2 questions. First is on working capital. We have seen a good reduction in inventory and debtor period in second quarter. So I wanted to know whether this can be maintained on a sustainable basis? And is there a scope of further improvement from here on, say, by way of increasing the sales backed by channel financing facility and as there is no requirement of input of CPVC resin in future?

So yes, I think, see, inventory, of course, is a function of how strong demand has been in that quarter. So this year, of course, inventory was high during the March to June period, because of the unexpected lockdown. And because there was a good demand that the sales team was able to generate for us, we were able to liquidate a good part of the inventory. So if demand supports, I think definitely inventory at this level is sustainable. We are also working on making investments in the right technology to work on inventory management, where the focus not only is in decreasing the inventory days, but keeping the same inventory, how are we able to improve our service levels to the market also is a key focus. Because in our industry, amongst the brands, availability is king. So we are working towards better inventory management practices internally. As far as debtor days are concerned, I think, yes, focus has been on sustainable growth. We don't want to grow by just extending credit to the market. Like we keep saying, as the market is consolidating, it gives you ability to sell at your own terms. And we find that we can get growth at our own terms, be it in terms of price or in terms of credit. Definitely, there is further room for improvement as far as debtor days are concerned vis-a-vis our peers. I think there is a good scope of improvement in the medium to long term. It's a fine line at the end of the day, because you don't want to choke your channel. While you don't want to extend liberal credit to your market, you also don't want to cut off credit overnight. It's something that, again, has to happen structurally over the long term, which a lot of it has happened over the past 2 years -- 2, 3 years for Prince. And there is further scope over the next 1 to 2 years as well.

Okay. So what proportion of our sales is currently made through channel financing? And how much this ratio can increase, say, over the next 1 to 2 years period?

So around 20% to 25% would be through channel finance. We don't want to now -- with channel finance, we don't want to just keep adding distributors. I don't think there is a further increase in number of distributors that we'll put on channel finance. Of course, the key distributors that we have on channel finance might -- will grow. So the level will grow, but we want to be very selective with which distributors we want to give channel finance to.

Okay. And what is the channel financing amount outstanding as of September?

So around -- so as on 30th of September, it is around INR 73 crores to INR 74 crores.

Okay. And lastly, on dividend policy, given that we have a strong balance sheet with healthy cash flow from operation and our future CapEx over the next 2 years is likely to be funded out of equity raising, which we have done through IPO. So what would be your dividend payout policy, say, over the next 2 to 3 years period?

Yes. For us, debt repayment is a top priority as an organization. So that's the first priority for us. It's only after 4 quarters or 4 quarters of consistent debt repayment, have we looked at dividend. So it's very clear that debt repayment is a top priority. I think the numbers speak for itself. Having said that, we do understand the value of giving out a dividend, and we want to be consistent with debt repayment -- with dividend payout to the shareholders. It's not even been a year since listing. So we are trying to formulate a healthy dividend policy, so that we're able to be consistent with debt repayment -- with dividend payout every year. So that's the core focus for us.

Okay. So like a follow-up question over here is that like our peers are having a pretty healthy dividend payout policy in the range of 30% to 40%. So once we pay off the long-term debt, say over the next 1-year period, whether we will be able to increase our dividend payout in that proportion, say, over the next 2 to 3 years period?

Yes. So looking at the overall market scenario and obviously, the profitability and the cash flow availability pursuant to our repayment as well, we will keep on exploring the option of making a higher payout. As Nihar has indicated, we are formulating that policy, which will anyway be -- over a period of time, will be sustainable. And constantly, the endeavor of the company is to increase or possibly look at the option of increasing the payouts on account of dividend.

The next question is from the line of Hiten Boricha from Sequent Investment.

Sir, my question is on the Telangana facility. So I just wanted to ask what is the total CapEx we are spending on like facility and how much we have already spent? And on the follow-up on that is, what is the asset turnover we are expecting on that plant?

So for the Telangana plant, we have earmarked INR 184 crores to be spent over a period of maybe almost like a year from now. We so far have spent close to around INR 22 crores to INR 25 crores. And over a period of next 3 to 4 quarters, the remaining amount shall be spent on the Telangana plant.

And the asset turnover, typically in our industry is 2% to 3%.

2.5% to 3% is what the normal trend is. So initially, for Telangana, it will take a while for it to reach, but on an average, we are around 3.5% as of now.

2.5% to 3, am I correct?

Yes.

The next question is from the line of Nikunj Agarwal from White Whale Partners.

Congratulations on a good set of numbers. My question was on the Tanks parts, sir. What is the size of opportunity we are looking in the tanks? And you also mentioned about the disruption within the markets in your presentation. So can you just talk about it a bit?

Sure. Thank you. I think according to our estimates, tank market potential would be around INR 4,000 crore to INR 5,000 crore market, out of which 30% is organized, 70% is unorganized. So it's a largely fragmented market. I think including us and some other quality national players also look like they will be coming into this business, which is good. It's always going to be a disciplined approach to pricing and quality when there are quality national level players coming into the business. So that is good for the overall industry. There is definitely disruption in this market. I think everyone is aware the incumbent is obviously going through some constraint. Hence, there is a vacuum in this market. In fact, it was our channel partners, who encouraged us to come into this business. Because today, Prince has not only the distribution network, but also the manufacturing network, where we'll be able to be cost competitive across the country. And for us, scalability has always been very important. For the past 3 decades, we have been true to our core business of pipes and have been able to scale it up to this level from where we were. I think a similar philosophy in tanks where we'll focus on distribution network on giving a quality product and a consistently quality product to the right distribution network. And that's how we aim to create long-term value and get scale at a pan India level.

Okay. Got it, sir. And sir, a few of our competitors are also entering into the tank market. And recently, they have also announced some of the capacity addition for the same. So do you feel like over the coming years, the market will be much more competitive and there will be more players, as you say, some international players are also coming, which is healthy for the markets.

Yes, that's what I'm saying. Today it's an extremely fragmented market where we have to compete with regional players, who don't give a consistently quality product and hence, are able to undercut the organized manufacturers in terms of price by 15%, 20%, 25%. We welcome quality players. We welcome national level players to come into this business. We are anyway competing with them in pipes and are able to coexist and everyone is able to thrive. I think the market is a big ocean. And we are happy to compete with players, who have a disciplined approach to quality and a disciplined approach to pricing, a disciplined approach to credit. That's okay. So we are not scared of competing with big players. I'm scared of competing with smaller players.