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

We welcome you all on behalf of Dolat Capital to the conference call with the management of Prince Pipes and Fittings Limited to discuss the financial performance for Q3 FY '21 and business outlook. Representing the management, we have Mr. Parag Chheda, Joint Managing Director; Mr. Shyam Sharda, Chief CFO; Mr. Anand Gupta, Deputy CFO; and Mr. Nihar Chheda, AVP Strategy. We now hand over the conference to Mr. Parag Chheda for his initial remarks after which we could move on to the question-and-answer session. Over to you, sir.

Thank you, Nidhi. Good morning to all. Thank you for joining us for our Quarter 3 FY '21 Earnings Call. 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. I will be keeping my opening remarks in brief so that we can have longer time for Q&A. It has been a top priority for the management to address the governance-related points as soon as possible. Thus, we as management set out with the goal of delivering clear intent and actions on these governance points. In continuation with a series of such efforts over the past 4 quarters, the last piece of the puzzle was also completed. As you are all aware, we have now paid a major portion of the Prince marketing capital advance to the company and will be paying the remaining amount in due course as well. We believe these actions give a clear direction and intent to all. Furthermore, on channel finance, my team is working towards moving partial recourse from the company to the distributor. In the next 1 or 2 quarters, we aim to resolve this point as well. This will not only improve the quality of the balance sheet, but will also add power to our brand identity. We have been able to address and resolve these points in the 4 quarters post listing. We continue to believe actions speak louder than words. Our goal is to not only address governance-related issues, but to actually have strong governance and transparency as strength of Prince Pipes. Now let us purely focus on the strategic view of the business. Firstly, we are glad to commence commercial production at the Telangana facility ahead of schedule. We were working very closely with the team to start production way ahead of the schedule. I believe that the pipe industry is at the cusp of an aggressive growth phase. And with the Telangana unit, Prince will be a major beneficiary of the industry tailwinds. The initial capacity is fairly small but expanding. Fittings capacity was an important move for us. We will have the next 2 to 3 phases of the capacity expansion coming in based on the demand scenario. Moving on to the union budget. The Finance Minister announced an outlay of more than INR 50,000 crores for the urban and rural water supply scheme, which is over 4x the previous budget. This mission aims to supply water to 4,378 identified urban local bodies with INR 2.68 crores tap connections. We believe this will provide an acceleration in the government's mission of Har Ghar Jal, which is to provide piped water access to rural households across our nation. This could be a major demand driver for us over the next few years. Next, this was the first proper quarter for Prince Flowguard Plus products, and the response has been exciting. Our strategy that we had set for ourselves was two-pronged: first, gaining traction in the B2B project space; second, cross-selling CPVC products within our existing retail network. I'm glad to state that the progress on both the fronts have been in the right direction. We have also started to work with the top developers across the nation, which was never a part of our model in the past. Of course, we are doing this selectively and want to work with developers without compromising on the receivable cycle. We have been able to build stronger brand equity with our retailer and plumber fraternity for our CPVC range. Not only have we improved our secondary network, but also after Prince Flowguard Plus has been launched into the market, a very high number of distributors have approached us to get associated with Prince brand. This response has truly been overwhelming, and we have been able to add approximately 250 new distributors this year, out of which more than 100 distributors have been added in quarter 3. This expansion in distribution network is reflected in our robust volume growth of 18% and makes this growth to be more sustainable in the future quarters. While I believe it is too early to declare the collaboration successful within 1 quarter, we have been moving in the right direction as far as CPVC market penetration is concerned. To bolster our product mix, we have made a conscious decision to ramp up branding initiatives. We have significantly increased branding initiatives across cities, towns and rural villages. We have always maintained that we see branding, not as a cost, but as an investment. As a result, our advertising and promotion spends have gone up to INR 19 crores versus INR 10 crores in quarter 3 last year, which has almost doubled. The intent is clear, brand building and perception building continue to be the top priority for us as we try to move from being value focused to premium in the long term. I shall now hand over to Shyam Sharda for the financial summary.

Thanks, Parag, and good evening, friends. I'll be taking you through the Q3 FY '21 financials. In this quarter, the company saw a robust revenue growth of 39% at INR 549 crores in Q3 FY '21 compared to INR 396 crores in Q3 FY '20. EBITDA was at INR 103 crores in Q3 FY '21 compared to INR 53 crores in Q3 FY '20, indicating a growth of 93%. EBITDA margin is at 18.8% in Q3 FY '21 as compared to 13.5% in Q3 FY '20, indicating a margin expansion of 526 bps. The 4 main reasons for this significant margin expansion were: there was an inventory gain of INR 20 crores to INR 25 crores during the quarter, which was driven by higher PVC prices. In view of this gain, the management during the mid of the quarter decided towards investing a part of this gain in advertising and publicity, which is in line with our long-term brand building strategy, which is focused towards premiumization post Lubrizol tie-up. We invested a part of this gain towards A&P, which was INR 19 crores in Q3 FY '21 vis-à-vis INR 10 crores in Q3 FY '20, translating to an increase of 90%. Secondly, we continue to command better pricing power given the market consolidation tailwinds. Thirdly, a favorable product mix as the growth was largely driven by value-added products, like our plumbing portfolio post our Lubrizol tie-up, which witnessed an overwhelming market penetration. Lastly, a robust volume growth of 18% led to a healthy operating leverage benefits. Profit after tax stood at INR 67 crores compared to INR 24 crores, translating to a growth of 179%. This was owing to an overall improvement in performance of EBITDA level aided by a sharp decrease in finance cost by 61% due to the debt reduction. Our gross debt as on December 31, 2020, was INR 119 crores compared to a gross debt of INR 186 crores as on September 30, 2020, indicating a reduction of INR 67 crores from the previous quarter. Cash on books from internal accruals is at INR 156 crores, excluding IPO proceeds. The net cash position, excluding IPO proceeds, stands at INR 38 crores. CARE rating outlook has improved from stable to positive during this quarter. On our working capital front, our debtor days are largely in check despite delivering a healthy top line. This was achieved due to a coordinated cross-functional effort between finance and marketing teams. Our inventory liquidation has happened during the quarter due to close coordination with our sales team in selling stocks, which was aided by healthy product demand in the consolidated market. The working capital days is at 27 days. Quality of the balance sheet remains our topmost priority. With this, we would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Nehal Shah from ICICI Securities.

Congratulations, sir, for a very good set of numbers and industry-topping volume growth. So a couple of questions here. The first one on your EBITDA margins. So if I were to adjust your inventory gains, which is close to 4%, 4.5%, and your incremental ad spend, your margins come closer to almost 16%, which is significantly higher than your average margins of last 4 years, which is somewhere around 12% to 14%. Now you also have further levers up your sleeve going forward with, I think, your Telangana facility coming in, which has already commenced partial operations. I think that, that decentralization benefit in a market, which is in South India, where you are one of the weaker brands today because you don't have any facility there, I think that's one of the bigger moves going forward as far as margin expansion is concerned. Plus your CPVC mix is likely to improve with the current Lubrizol licensing, which has come in. So I think with these kind of levers in store over the next couple of years, where do you see your margins going forward? And one more important thing is the current quarter, the first quarter, with the new Lubrizol licensing coming in, and there was additional cost pressures also. So despite that, you have come in with very, very strong margins of 16% adjusted of -- with the couple of items, which I discussed. So just want to understand where do you see your margins going forward with the current cost pressures and with the likely improvement going forward? Yes. So that's my first question.

Yes. Thanks, Nehal. So let me give you a detailed dissection of the margin performance. So EBITDA was -- EBITDA margin was at 18.8%. We obviously had an inventory gain of around INR 20 crores to INR 25 crores. If I adjust the inventory gains, that would bring the EBITDA margin to around 14%. However, in the middle of the quarter, we realized that the PVC prices continue to rally and the inventory gain would be significant. So we decided to actually double up the branding investments for the quarter from INR 10 crores in Q3 FY '19 to INR 19 crores in Q3 FY '20. So if I adjust for that as well, our net EBITDA margin would be at around 16%. I think that sort of performance has -- is due to multiple reasons. The first and the most important reason for us is superior pricing power. We continue to look out for markets where we can eliminate the pricing discount versus our peers. Secondly, we are also looking at markets in which we can start charging a premium versus our peers while still growing our market penetration at the same. So pricing power has been and continues to be a key lever for margin expansion for us. Second reason I would say is product mix. In this past quarter, plumbing and SWR obviously led the growth for the entire portfolio. So the product mix has been fairly favorable as well. And the fourth reason is the operating leverage sort of benefit that we saw due to the double-digit growth. Like you said, I would like to highlight that this margin performance has been delivered despite the cost pressure post the Lubrizol tie-up. So overall, we have traditionally been very conservative with sort of margin guidances. While we have always been and continue to be hungry for higher margins, the performance in this quarter is a testimony of our hunger for higher margins. Going forward, we will continue with conservative projection, but with the product mix improvement and operating leverage benefits due to aggressive network expansion, I think we have enough and more levers for margin growth going forward.

Yes. I think that's very helpful. Secondly, as Parag bhai also mentioned, the kind of budgetary outlook, what has been coming in from the finance minister with respect to rural and urban JJM, I think we are looking at a big, big driver even for -- even as far as branded players is concerned, considering that there's a big consolidation drive, which is continuing and which may exist for some more time. So what kind of opportunity are you looking for the top 4, 5 branded players going forward with this kind of budgetary outlay?

So see, before I get into specifics, I would like to say that this kind of government thrust on the piping sector can potentially be a game changer. The government's vision to provide piped water access across urban and rural households could genuinely accelerate volume growth opportunities in the coming quarters. See, broadly, the outlay for this project is expected to be around INR 1 lakh crores. Based on our experience in the past, we understand that material cost tends to be around 8% to 12% of the total budget allocated, which means out of the INR 1 lakh crore allocation, potentially, INR 8,000 crores worth of piping would be required. Now let's assume a bare case scenario that only 30% of this actually takes place on ground. I think that still puts us at around INR 2,500 crores worth of piping system requirement. Broadly today, our industry size is around INR 30,000 crores. So we believe that even in a worst-case scenario, the addressable market size would increase by 7% to 8% only due to this Jal Jeevan mission across urban and rural India. Now I understand that with these sort of big picture policies, there often is a gap between the policy and the on-ground reality. And even we are usually skeptical about such initiatives. But I think this time is different, and we are more bullish than usual. And I'll tell you why. I think, firstly, such orders are generally catered to by regional players, who have moved out of the market post COVID due to major inventory losses and now inability to source PVC. I think these orders are now bound to come to big branded players like Prince, and we've already started seeing green shoots of demand in the past quarter. Secondly, we also now have a very strong manufacturing network with 7 plants across the country. Now we can be competitive across all the markets of the country and strike these orders. Hence, I think this time, we are more bullish than usual about the Jal Jeevan mission opportunity, which could potentially increase the size of the market by 7% to 8% in the worst case scenario as well.

Great. Another follow-up here would be whether this mission would -- that the requirement of this mission would be BIS standard pipes or probably the requirement would be lower quality products? Any sense on that? Because that's where, if at all, the requirement is on the quality side, that's where I think top brands will come into contention.

Yes, absolutely. The government is always going to be BIS governed. So that's a good thing for us as well.

The next question is from the line of Achal Lohade from JM Financial.

Congratulations team for the great show on the P&L as well as balance sheet. My first question is with respect to the industry growth, can you help us understand what has been the industry growth in the third quarter as well as 9 months in your opinion? I know it's hard to put a number, but still from a direction perspective, is it looking better or it is a fairly steady what it was in the second quarter? And in terms of the CPVC product, is it possible to put any number in terms of the contribution post the Lubrizol tie-up?

Yes. Thanks, Achal. So the first question, in terms of industry growth, see, I'll -- I can give you a direction here. I think quarter 1 and quarter 2, obviously, the semi-urban and rural part of the country was doing better. And I think what has happened in quarter 3 is that, that part of the country continues to do better and urban India has now started doing really well as well. Everyone knows the kind of bounce back that real estate has had in the December quarter. I think that has had a compounding impact. As far as what -- where are we versus industry growth, I think for the past 2 or 3 quarters, at least, we have been able to significantly outpace the industry growth. I think majorly due to the 2 reasons. One is, of course, the Lubrizol tie-up, which gave us a further boost in the Plumbing segment and the SWR segment overall. And second is we have been on an aggressive network expansion drive, where, like we mentioned in the opening remarks, 250 new distributors added year-to-date and 100 new distributors added approximately in the third quarter. So I have no idea in terms of trying to quantify industry growth. But I think things are moving in the right direction, especially with real estate, the way it's rebounding. I think this looks to be more sustainable than just 1 or 2 quarters of pent-up demand.

That's great. Any particular number you have in mind in terms of what kind of distributor addition you're looking at? And are these in pockets where we didn't have a presence? Or is it also going to lead to a little bit of cannibalization in your opinion?

Yes. See, I think, like I said, 250 new added in the year and out of that, 100 in quarter 3, which puts us -- we've done some rationalization as well. So this puts us at more than now 1,500 channel partners across the country. Whatever distributors we have added largely, I would say, is in pockets where we were weak. We keep saying that quality and reach of the network is more important than number of distributors. And we have added distributors in markets where we've been typically -- had minimal network or very weak network. So I think that's a positive in terms of sustainability of growth going forward. Of course, you tend to add distributors in markets where we are strong as well. But the intent clearly is to add distributors in markets where we are not that strong, which, of course, is -- it's obvious that we would obviously want to add distributors in markets where we are weak, but that's not as easy to do because our brand presence is not there in those markets in certain pockets in certain states. So it's going to take time, but we are patient with it. And I think it will definitely start -- it has already started reflecting in the performance, I would say.

Right. In terms of the -- you said about the weak presence, is it possible to point out which specific pockets do you think where there could -- we could see a fair amount of addition in terms of the distribution?

Sure. I think East, of course, is one important market because it's the fastest-growing market. It has been for us over the past, I would say, 3 to 4 years, and there are still pockets where we need to improve. And I think parts of Central and South India also is where we need to focus. Of course, North and West is our -- we've always maintained that those are our -- if I can use the word, our home markets. So traditionally, we've been stronger in those markets just as a function of where our manufacturing presence has been. So I think East, of course, is a focus because of the kind of results it's been driving for not only us but for the industry, I would say. And Central and South is markets where we need to improve versus what market potential is or versus where competitors are today.

[Operator Instructions] The next question is from the line of Nitesh from Birla Mutual Fund. Mr. Jain?

Yes. Nitesh over here. And congratulations, Parag bhai, Nihar and Shyam for the, I think, wonderful performance, and really happy to see the way company is progressing. So I have 2 questions. #1 is on the CPVC side. I know you won't be able to comment or give an exact number, but I would like to ask is the CPVC segment growth for Prince during Q3 is higher than the industry growth? At least that much, I mean, you can share as directionally, I want to know. This is point number one. And secondly, on the ad spend, which you did from your remarks, it looks like it was opportunistic in the sense there are inventory gains, and you deployed those gains into, I mean, more advertisement. But going ahead, Nihar, would it be a run rate that we are looking at? Or again, it will be like it will come back to a normal level of INR 40 crores, INR 50 crores per annum size? These are 2 questions.

Sure. Thank you, Nitesh. So firstly, on CPVC, I think there is -- absolutely, we have, I think, beat industry growth for quarter 3 in CPVC overwhelmingly in the B2C and the B2B segment. Because in B2C, we have started cross-selling in at least markets where we are strong. And B2B, which was not a part of our deal, actually, we have started working with a few developers in urban India. So definitely growth, I would say, undoubtedly would be higher than the industry growth. And the response has been very overwhelming as we said earlier. So that's on the CPVC bit. As far as branding investments are concerned, I think that's a good question. This is definitely was opportunistic because we course corrected in the middle of the quarter looking at the inventory gain. So I think going forward, we will be committed to branding. And the good part about branding, at the end of the day, it's discretionary. So we always have that sort of lever to pull -- when to pull, when to stop, went to push in the middle of the quarter depending on how the performance looks like. So if there continues to be -- if these sort of levers of margin expansion continue to play out for us, we will not shy away from investing in the brand. But I think broadly or I think the next 1 or 2 years for us are very crucial in terms of building the brand for the long term. So we will not shy away from aggressive branding investments as long as the business model supports us. Post the Lubrizol tie-up, I think this is, as far as we are concerned, a no brainer for us that if the business model is supporting us, we will go ahead and make those investments. And like I said, we can pull back if the quarter has been lean or anything like that.

Wonderful. Fantastic. And I would also like to comment, I mean, what Parag had mentioned in the opening remarks of a very, very clear focus to resolve the legacy issues and we can clearly see a single [ focus ] part of getting out of all this.

Thank you, Nitesh. Thank you so much.

The next question is from the line of Madhav Marda from Fidelity International.

Congratulations on a terrific performance. Really happy to see the way the company is executing last few quarters. So my question was actually in the -- on the government program that we are bringing about. What kind of products typically go into such projects by the government? Are there more HDPE pipes or PVC pipes? What product gets used here? That was the one part of the question. And the second part was why were traditionally regional players catering more to this demand? Is it because government sort isn't -- the pricing isn't great for this project, or really happened?

Sure. Thank you, Madhav. So on the first part of your question, it is a mix of -- so PVC pressure pipe on the plumbing and the agri side are what we have typically seen being used for such water supply projects. And like I said, we've already started seeing in the previous quarter, and that has largely been PVC for us. There also could be HDPE, which could be used. But until now, we have seen PVC largely being used for being such a versatile polymer. Secondly, as far as regional players, one, of course, having local manufacturing capabilities always helps because PVC is freight sensitive, logistics sensitive. So they will definitely be more competitive because of their local presence. Some government, I would say, in my experience, also have it in their tenders to have -- they would give a preference to plants in the local state or in and around that local state. So we have also seen that. So the 2 reasons largely are one is the competitiveness due to the freight factor. And second is some government would also like to sort of foster the local industries, and then would give at least a preference to the manufacturing plant within the state.

Understood. Okay. And my second question was could you just help us understand the demand items that you would have for especially for plumbing pipes going into this year? Do you think given that metros, et cetera, are just starting off now, so could there be an element of pent-up demand in 2021? And also on the water tank side, any sort of thoughts how the business will scale up in the coming years?

So I think plumbing going forward, the way the past few quarters have been, I think, we are fairly optimistic, I would say, going forward. And like you mentioned, I think urban metros seem to have -- now are not only recovering but are growing. And then whatever interactions we've had with our key developers who we work with, that seems to be more sustainable and not just an affair for one quarter of pent-up demand. So I think big picture, we are fairly optimistic for plumbing and SWR part of the portfolio going forward because of the sort of recovery that urban India has seen. And the good part is we have the entire range now right from our PVC plumbing pipes, SWR pipes, PPR, we've always been market leaders in. With CPVC, we have the best-in-class product with Flowguard Plus coming in. And what we've noticed is that these developers want to work with one brand and who is able to give them an end-to-end solution for the entire basket of products. So I think we are fairly, I would use the word optimistic, going forward on the plumbing and SWR market. The second question was on tanks. So what we have done in the past few quarters is we have used a combination of in-house and outsourced manufacturing. Tanks being even more freight sensitive, I think it's important to have the right manufacturing sort of network. So we worked on building that manufacturing network. Of course, the sales number right now is too small to even make a material impact on the balance sheet. We do have our internal road map as to where we want to be. But I think for the external sort of stakeholders, I think we would be able to give a better flavor or better color on the way forward and when this would start making a meaningful impact on the balance sheet by the end of this year. I think by March, we would be comfortable giving sort of visibility on where we could be 2 or 3 years from now.

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

Congratulations for a good set of numbers. I have two questions, one on growth and one on margin. So during your commentary initially on your stress on this Jal Jeevan mission plus drinking water and the all buzz in the housing segment, do you foresee a situation where this 18% to 20% volume growth might sustain through for a couple of years?

Yes. Thank you, Pritesh. So Pritesh, as far as volume growth is concerned, see, we are definitely are very bullish on the Jal Jeevan mission being a great demand driver for the entire industry, I would say, just given the pure scale of the opportunity relative to the market or the industry size today. And since we've already started seeing demand on ground, I think that is really, really encouraging for us. As far as volume growth going forward is concerned, it's hard to, again, quantify it. Is it possible for this type of growth to continue? Absolutely. I think that's what we are hoping for. But that's not something we would like to guide people at. But that's definitely, I would say, a possibility given the sort of demand drivers we are seeing not only from the Jal Jeevan mission, but also in terms of recovery from real estate that we are seeing across the country today.

So I'll put differently, at least the trajectory of growth that you saw in the last 3, 4 years and the trajectory of growth that you see in the next 3 years will be higher, at least directionally, it should be higher. We can conclude that much?

Yes. That's a tricky question. I think is there a possibility -- is there a good possibility? Absolutely, given the opportunity that there is. But we would not want to sort of guide at that rate.

My second question is on margins. So you mentioned that there are a few levers whereby the margins can be higher than 16%. Just trying to put the other way, we did about INR 21,000 per tonne as the EBITDA on the portfolio that we had, adjusting for the inventory gain at that 16% margin. Now this number is about INR 3,000, INR 4,000 higher than what we would have done last year. And then we mentioned that we have CPVC flowing through the margin. When I'm looking at the peer set who do CPVC alone, the margin is about 14% to 15%. So should we take this INR 21,000 per tonne as a number incrementally for the margin? Or do you want to help us otherwise?

Yes, I would like to sort of give more color there. I think we'll continue to be conservative with margin guidance going forward. So there are -- see, there are multiple levers, but they all need to play out. And then we'd rather let the numbers do the talking. I think as of now, we would still like to be conservative with margin guidances, I think, like we have. And then we are happy to sort of exceed expectations, but I think we will continue to be conservative with margin guidance.

Just one clarification. Does the Telangana facility, which comes up down south, helps you on saving logistics costs? And if yes, how much of extra EBITDA per tonne of margin does Telangana facility gets us? I'm hoping that the southern market must not be serviced by Telangana. Is that fair to assume?

No. So the Telangana facility will mainly be for South India and parts of East India, states like Odisha and West Bengal. So today, these markets are serviced by the Haridwar plant, especially for the fittings part of the portfolio. So a couple of advantages there. One, of course, decentralization will help us as a lever for margin expansion. And second aspect is that it will also improve the supply chain by giving us faster deliveries to our distributors. And they can focus then on keeping lower inventory and optimize their working capital. End of the day, if our channel working capital improves, our working capital will improve as well. And with those sort of local suppliers, that also usually bodes well for market penetration as well. So definitely, it's going to be a lever for margin expansion. Once the sales ramp up closer to our higher capacity that we want to build there, which will have -- happen in a phase-wise manner depending on the demand scenario. So it's really hard to sort of quantify what EBITDA per tonne benefit that we will get from this. But there will definitely be a benefit on this not only on the margin but also on the balance sheet and also on the volume patriation once our sort of phase-wise expansion is completed.

What freight cost do you save instead of sending it from Haridwar?

So I'll give it you in percentage term. Freight traditionally could be anywhere between sort of 4% to 6% from any plant just as a thumb rule. That could be brought down to 2%, 3% with local supplies.

The next question is from the line of Varun Arora from [ Safe Enterprises ].

My question is regarding working capital. So we've seen a sharp improvement in working capital for the company as well as for the industry, I mean, all players have reported a significant improvement in working capital. So I just want to understand what is leading in this working capital. Can you comment regarding the sustainability of this working capital improvement? And if you can give some guidance or target that you have in terms of working capital days looking ahead?

So see, on working capital, I think there are 3 parts to it, obviously. One major reason has been that we've been able to have a disciplined sort of data management despite the kind of volume growth we've delivered. One of the major reasons for a sharp decrease has been the inventory that we've been able to liquidate. So inventory days traditionally is between 60 to 70 days, which this time has come down to 46 days. Is 46 days of inventory days a sustainable number? No. we would like to keep more than 2 months of total inventory given the nature of the industry. So I think anywhere between 45 to 55 days of working capital should be a fair guidance going forward. Of course, we are working very closely to bring this number as down as possible. I think we've been successful to structurally improve our working capital over the past 3 or 4 years. And the intent is to further reduce it from here. But realistically, in the immediate term, working capital requirement could be anywhere between 45 to 60 days.

Sure, sure. And you mentioned that you basically are looking to tie up with the developers, some of the developers selectively. Can you give some more color in terms of what kind of these developers are, their geography price, where are you focusing? What does it mean for your receivable days?

Yes. See, for us, as far as B2B is concerned, it's very important for us now given that this is not a part of our base at all. Or maybe around only 10%, 15%, which is not the industry norm. So obviously, we need to sort of bring it higher than what it is today in terms of contribution to the top line. This will not happen overnight simply because we are being selective with the kind of distributors -- the kind of developers that we want to work with. And a lot of this is actually relationship building and building that sort of PR with that value chain. Our current value chain, we're more focused on our relationships with our distributors and retailers and plumbers. Whereas this segment, of course, the key influencers, I would say, are the plumbing consultant, contractors, and in some cases, the developers themselves in maybe smaller Tier 2, Tier 3 cities where the decision-making is done by the developers themselves. So anytime there's relationship building involved, we are not going to see immediate ramp up in terms of having an impact on the balance sheet. But I think in 2 or 3 years from now, I think our B2B contribution for our overall portfolio should be significantly higher than where it is today. I don't think it will have a material impact on working capital as far as receivables are concerned, simply because this is something we are very, very selective with. We will -- that is a top priority for us. So we will not do anything which would sort of risk our receivables sort of pattern in a significant way.

The next question is from the line of Dhruv Bhimrajka from Bharti Axa General Insurance.

Congratulations on good numbers. Sir, if you can give me the advertisement and sales promotion expenses for the first 3 quarters for each quarter, if you can give that information, please?

Yes. Just give us 1 minute, please.

Yes, sure.

It will just take us for a minute. Do you have another question until we get that data point?

Yes. Just one thing. Sorry to ask again, is that you just said that the working capital cycle, which for 9 months FY '21 has been 28 days, do you see it coming back to 45 to 60 days band, is that correct?

Yes.

Okay. And you -- how do you see that range coming in? Will it take you another year or 2 years? Or should that be back in another 2 quarters? How do you see that brand coming again in how much time line?

No. So let me give you some more detail here. 28 days right now is because inventory is at 46 days. That is not a sustainable number because our finished goods were very, very low, our finished good inventory was very, very low at the quarter ending simply because of the kind of demand that we were able to drive in that quarter. Inventory tends to be around more than 2 months at least. So that's the only difference. We will continue to have very strong discipline on the better days.

Okay. Okay. Sure, got it. Yes.

So we'll -- unfortunately, we're not able to get that data point. We'll come back to you one-on-one post the call with the Q1 and Q2 A&P spends.

Okay. No problem. I'll drop a mail to Mr. Sharda and maybe then he can reply with the numbers, whatever they are.

Sure. Thank you.

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

Congratulations on a great set of numbers. My question was more pertaining to the growth segment-wise. So in this particular quarter, is it safe to assume that plumbing has done much better, which has also added to benefit? And especially if you could give some direction on the CPVC growth, how it has been after Lubrizol tie-up?

Yes. Thank you, Sneha. Demand has clearly been driven by the plumbing and SWR because of the kind of real estate performance that we've seen. Agri, of course, I think industry-wide, it's been -- anyway, Q3 is a lean quarter and given where PVC prices are, I think some of the agri demand definitely have been postponed, and waiting for a price correction. So that so far, I think it's very clear that plumbing and SWR have driven the sales, which is why the product mix also has been favorable and contributed positively to the gross margin. Your second question on CPVC. We have received an overwhelming response on CPVC and that response is reflected again in the performance. We have been able to cross-sell very well. Retailers who are only buying PVC from us previously have also started accepting our CPVC because of the kind of brand power that we've been able to build. And more importantly, as far as PVC is concerned, is after this tie up, a lot of distributors across industry have actually approached us, which is why we've been able to -- we already have a high base in terms of number of distributors, but we have been able to build on that because of this kind of response that we've got from the primary distribution network as well. Simply because for them as well, it is very important that they have -- they are associated with a company that has the entire range that is not limited to their product catalog, but is actually selling in the market. Our PVC obviously is doing very well in the market because of our first mover advantage. And now with the FlowGuard tie-up, even distributors recognize that this is potentially a lethal combination of having Prince's first mover advantage in PVC and FlowGuard strong brand equity in CPVC. So as far as B2C is concerned, it's been an encouraging sort of growth that we've had at both the primary and secondary level, which sets us up very well for the next 1 or 2 years. And secondly, on the B2B side, like we've been saying, we've started to work there with a few developers, but that will take some time to trickle in.

So that number would be very low, right? Project sales as of now for you as a percentage of your sales?

Yes, it has improved from where we used to be, but we have a long way to go.

Any cost number that you can see because earlier, if I'm not wrong, it was almost 0?

No, it was around 10%, and it would still be -- given the way the B2C also has done for us. I think it would not be very much higher than that number, maybe 10% to 15%.

Sure. My second question was related to distribution. So you have shown impressive growth in terms of additional distribution. Just wanted to understand a few more points on this. Was it mainly in South India? I think you clarified of East and focus on Central and South India. But could you give some sense at what would be the addition in South India? And second most important thing, the number of distributors that you have converted for even CPVC pipes, for example, existing PVC distributors who have, right now, even started taking CPVC from you. Some number there?

Yes. So let me clarify, when I'm talking about cross-selling that happened at the secondary level, all our distributors even previously used to buy our entire range. It's just that now at the secondary level, the retailers who buy from my distributor would maybe rely on Prince only for PVC and were relying on other brands for CPVC. Now with FlowGuard coming in, our cross-selling has improved at the secondary level of the value chain. In terms of number of distributors added, I would not be able to give you how many distributors are added zone wise. But overall, 250 for the year, 100 for quarter 3. And quality of distribution network is something which is very, very important for us, and we want to be aggressive with network expansion going forward in the long term as well.

[Operator Instructions] The next question is from the line of Siddhant Dand from Goodwill Warehousing.

Most of my questions have been answered, and congratulations on the good results. I just wanted to know, do we have any plans for backward integration? And why do we not have any major backward integration unlike our competition?

So as far as I know, it only -- it is not a trend that people are backward -- firms are backward integrated in this business. We have no plans of backward integration. Our focus is on expanding the distribution network, expanding our product portfolio. I think going forward, we want to introduce some niche products, which will be high-margin products, which would again be a lever for margin expansion. So we are not exploring backward integration at the moment. I think there is enough supply of PVC globally. And as far as CPVC is concerned, now we are associated with the strongest brand who plans to even improve their supply security in India even further from where we are today. So I think as far as supply security is concerned, we are very, very strong relative to the industry today. And backward integration, being fairly capital intensive, I think we would like to stick to what we know best in terms of improving our network and improving our range of products that we are offering to the market.

[Operator Instructions] We'll take the next question from the line of Rajesh Kothari from AlfAccurate Advisors.

Parag bhai, Nihar bhai and the entire team, congratulations for the great set of numbers. I think management has, time and again, proven the execution capabilities, both in terms of not only delivering industry-leading growth, but also very importantly, efficient working capital management. Parag bhai, my question is if you look at from next 3, 4 years, how do you see the company in terms of volumes? And how do you see the sustained profitability levels? And my question is also with reference to the East market where, as you rightly mentioned even in your presentation, that it's a fast-growing market. And of course, all eyes are on the East market. But currently, we do not have, right now, plant in the Eastern market. So are you now planning for the next level of capital expenditure as the growth continues to remain high? And then second question is with reference to the government demand, what you mentioned, I think, about INR 2,500 crores. I understand that will be spread over 5 years and not 1 year. So it will be 2% of the industry rather than 6%, 7%. Kindly correct me if I'm wrong.