Somany Ceramics Limited (531548) Earnings Call Transcript & Summary

[Audio Gap] Thank you, Aman. Good afternoon, everyone. And thank you for joining us on the Q4 and FY '20 Earnings Conference Call of Somany Ceramics Limited. We have with us the management team of Somany Ceramics comprising of Mr. Abhishek Somany, the Managing Director of the company; Mr. Saikat Mukhopadhyay, the CFO; and Mr. Sunit Kumar, the AGM Finance of the company. We'll begin the call with opening remarks from the management, following which we will have the forum open for the Q&A session. I would now hand over the floor to Mr. Abhishek Somany for his opening remarks. Thank you. Over to you, sir.

Thank you, Nehal. Good afternoon, ladies and gentlemen. I hope everybody is safe and well firstly. We're -- to start with, we are up and running. We've been in office now from mid-May and slowly ramped up our attendance across the offices, except a few places, which are still in the containment zone and the red zone, namely Pune, Bombay. Rest of the offices are all up and running. This is our conference call for Q4 and also to give you the flavor of the entire year. So historically, we, at Somany, have had a skew towards the second week and the -- sorry, the third week and the fourth week of billing. And therefore, we started locking down around 15th of March. We lost a substantial amount of sale and, therefore, the decline of 30%. Had it been a week later, week and a half later, this would have been substantially better. Like I said, our skew, historically for the last 5, 7 years has been towards the third and the fourth week of maximum billing. And in March, it even -- it gets exaggerated even further because the skew gets exaggerated even further. Namely, we degrew by 30% in the month of March. And subsequently, on the -- subsequently, all the parameters went haywire because the economies of scale, the other fixed expenses, et cetera, are all accounted for, whereas we had a very substantially lower sale. We have started toning down our production from the first lockdown, which was announced on the Sunday before the actual lockdown was announced. So we started putting down our plants. It took us about 10 days to completely put down a plant. So in effect, the gas was still burned for the entire month of March and so were all the expenses for the entire month of March. You can appreciate it's a continuous process plant, so we can't switch off and switch off -- switch on and switch off. The results are in front of you. As a result of the 30% degrowth, everything else has a cascading effect and a much larger effect. On the year, if you see, we were growing fairly well, better than industry and better than our main competition also. We were at about 4.7% growth until February. And March also we were expecting a similar kind of growth, which would have taken us to a figure, which is approximately somewhere between INR 1,790 crores to INR 1,800 crores of revenue. And you would have seen a substantially better result as a result of that than what we are showing currently. So on the year, we degrew by 6% in sales and a similar amount in volume, which is 4.5%. So although last year was under tremendous pressure, for us, it's been 1 of our unfortunate years. We had in the month of August suffered an exceptional loss, which you all remember. And coupled with that, we had also pressures of a very lackluster performance by the real estate industry due to which the entire industry was at a lower capacity utilization and, therefore, costs were going -- had gone up as a result in percentage terms and also Morbi industry, which constitutes approximately 70% of volume, a little more than that, 70% of volume. They were underutilizing their capacity to the tune of -- by the tune of approximately 30% to 35%. And as a result, this cost -- this put a lot of pressure on pricing, especially in the GVT segment. In the ceramic segment, not as much. In the PVT, a slight bit, but GVT was the one which was under pressure last year. So that also took a toll on our margins. Other than that, we did not lose focus on creating more dealers and spending more on the brand, because the exceptional item and the pressure from Morbi cannot be looked at from a long term. These are -- this is -- the Morbi pressure and the underutilization, the lackluster performance of the real estate, is all part of the game. We were in a down cycle. Therefore, we did not lose focus on making more dealers. We netted approximately 130 dealers from the ones which we closed down and the ones which we opened. We opened about 400 new counters, but we lost about 270 counters. And that, too, some of them are already in revival mode. If you can recall, we were very strict with our receivable cycle. Our receivable cycle dramatically improved last year. And due to that, also, we compromised a little bit on our sales. The Sanitaryware and Bath Fittings, [ wall tiles ] also were in the same percentage of decline. So to that extent, we declined approximately 9% on the Sanitaryware segment. The gas prices were maintained last year. It, in fact, went up in Q4 for -- since January in Morbi and in our Northern plants. Our branding spend was in line. In fact, it was slightly more than last year in terms of percentage and also in absolute terms. So we spent about 3.6% of our revenue last year, which is about INR 60 crores. And due to the reason that we -- our revenue was lower, that percentage number had further increased. Our capacity utilization in Q4 was up from the average 80% for the entire year. Q4 was up to 85%. And if we had to continue the whole of March, we would have been at the 85%, 86% capacity utilization. If you compare this with last year Q4, we were at 88% capacity utilization. Working capital days were maintained at 74. Here, I would like to again say that our sales are skewed. Once again, I'm reiterating. Our sales are skewed in the third and the fourth week and had ramped up capacity from February to make sure that material was available in the month of March. So we had an extra material which we stocked. But on the other hand, we had a substantial reduction in our receivables cycle. So net-net, we increased little extra stock because our sale is skewed towards the end of the month, but we reduced the working capital -- sorry, the receivable in a very substantial way. There is also element of the payable days, which also reflects in the 74 because we did not produce anything towards the end of March and also our payables was still there. So this is the basic highlight of last year. So I think fairly unfortunate year in terms of what we went through with our exceptional items and also what we went through with the real estate sector going through a further downturn. But coupled with that, the COVID, which I think was common for pretty much everybody in India and completely unprecedented. So I would now open the floor to any Q&A because I think that would be more fruitful as all of us know that we've all gone through a major setback from COVID, and we're looking forward for a better year as far as our financials are concerned, definitely. But we're looking at also very uncertain times, which we have seen in the last quarter -- in the first quarter, so we can then discuss that. Thank you so much.

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

Sir 2 questions. First is on the cost savings side, what are the sort of initiatives that we can expect from the management into FY '21 assuming first half is something which is weak? So should I look at any particular cost heads wherein we can actually expect savings?

Yes. So we've looked at pretty much every single cost. Obviously, there is going to be a demand disruption, which because of the zero sales in April, there is already a certain amount of demand disruption. We are hoping that from H2 onwards there should be some makeup on the demand disruption. So we've taken an internal call of an x percentage of demand disruption, which we foresee, and that is something which is something which we have envisaged as to where we will be. We've backward calculated that from the INR 1,600 crore number, which we did last year on a consol basis as to what that number will be. And we've recalculated all our costs on every cost front, be it employee cost, be it branding cost, be it administration, IT, maintenance, operating leverages, et cetera. We've revised every single cost on every single ground to see that at that particular demand disruption we should still be reasonably profitable, not only from a depreciation point of view, but from net perspective, while we keep our endeavor of not losing focus on our receivables cycle, which we want to further bring down during the year. So we've gone very minutely on the cost, and we still -- as we speak, it's work in progress because it's extremely dynamic.

Okay. Sir, any quantification, if possible.

These are things which I would not want to share on a call. This is an internal discussion because from a marketing and sales standpoint we are looking at a far aggressive number. And therefore, from an accounting point of mind, we're looking at a very pessimistic number.

Okay. Fair enough. Sir, my second question is, how should one look at the movement in gas prices from Q3 into Q4? And I presume it will go down into Q1. So on a per square meter, how much is the consumption norm and the sort of benefit that we should expect, say, if not Q1, hypothetically into Q2 while the production revise?

Got it. Got it. Got it. So if we can break it up into our 3 plants: the South plant; the West plant, which is our Kadi plant, owned 100% by us, and the Morbi joint ventures, which are mostly 50%; and we look at the Kassar plant. So in the Kassar plant, the current prices are approximately INR 24, INR 25 a standard cubic meter, down from the mid-30s. Unfortunately, we're not producing 100%, but anyway, I'm giving you a flavor of the gas pricing. The Kassar plant runs on a 3-month moving average. Therefore, we believe that July and August also the prices will be more or less the same. And then we would see an upward movement on the gas pricing from August 10 onwards or maybe 15 September. As you've seen, the dollar -- the barrel has moved from the mid-20s to now the 40s -- mid-40s. As far as Morbi and our West plant is concerned, there has been hardly any change in the gas pricing there because it is owned -- monopoly is with GSECL and with the coal gasification shutting down there GSECL is making very with the sunshine. They have not reduced any rates, although the rates have substantially dropped. But they have excess of demand from when -- even from the -- even after post COVID, they still have a decent demand once the plants have started because all plants have now started on coal. Earlier 50% of -- sorry, not on coal, on gas. Earlier it used to be 50% or more on coal gasification. So they are pretty clear they don't want to reduce rates very much. So their rates have been stagnant at the early INR 30 a standard cubic meter. In the South plant, we are on the spot gas. There, we have gone down from INR 26 to approximately INR 21, INR 22 a standard cubic meter. And I do believe that will remain, again, the same for the next 3 to 4 months, at least. So overall, sad that we can't produce 100% at such cheap gas price. But whatever we're producing we are now at an average gas price, you could say, of approximately INR 26 compared to INR 30, INR 31 a standard cubic meter from last year. I hope I've answered your question.

The next question is from the line of Saumil Mehta from BNP Paribas Mutual Fund.

Sir, a couple of questions. First is if I look at FY '20, there's a 5% decline in volume. I understand COVID was there, but even if COVID was not there, we would have ended maybe a flattish or a pretty small positive growth. This is despite on FY '19 base itself, which was a bit soft for us. So while I understand there were restructuring measures internally, are we approaching an end to that? And with your working capital now being better at current receivable days, are we confident of a strong double-digit volume once demand normalizes, which may be end of FY '21, going into FY '22 and '23?

So I would like to clarify. We would have been approximately -- very confidently saying we would have been at approximately 4.5% to 5% growth on volume had we done the entire March and similar on the value. So most of our growth last year came from value. Like I mentioned, there was a pricing pressure. So we would have grown at about 4.5% to 5% on volume terms for the entire year. Therefore, the swing which you're seeing over here, minus 4.5%, the swing would have been approximately a 10% swing. So having said that the industry was at a very lackluster pace last year, I mean the building material industry and the real estate industry. 5% growth was not very bad, considering we were going through our internal restructuring on the receivable part. And yes, you're very right. At the current number of days of receivables, which is approximately in the lower 60s -- 61, 62 days currently, we're extremely confident that, that particular aspect will not hinder our growth further. Whether we will have double-digit or high single digit, tough to say, when it normalizes because this is very, very relevant and very, very dependent on the real estate industry. So it's actually them who have to bounce back very substantially for us to get the olden golden days of good double-digit growth. But at least from our side, there will not be any further hindrances from a working capital day cycle, where we would be foregoing growth just to collect extra money. I think that's what you were asking.

Sure. Sure. I think that's very heartening. Secondly, sir...

Sorry, I missed you. Hello?

Yes. I think, sir, we have lost the line of the current participant. We will move to the next question that is from the line of Sonali Salgaonkar from Jefferies.

Sir, my first question is regarding the resumption activity broadly in the industry in terms of demand-supply...

I lost you there. You were saying it's largely in the resumption, is it?

Yes, resumption, recovery activity, sir, in terms of...

You're talking of Q1. Now you're talking of Q1.

Q1, yes, sir, from April to June YTD. And in terms of demand-supply, utilization levels and lastly inventories in the channels.

Largely -- lastly.

Inventories -- inventory in the channel, channel inventory.

Inventory in the channel. Okay. Yes. So as far as the inventory in the channel is concerned, I think we were fairly fortunate from a point of view of not having to lock down later because if we had locked down much later, yes, our numbers would have looked much better from a last year's standpoint, maybe excellent as far as what we are showing currently, relatively speaking, but on the other hand, I think we would have choked the inventory at the dealer. And also, we would have had major issues of cash flow because receivables would have been poor in the first 2 months -- of the dumped inventory, which we do in the second -- third and the fourth week of the -- every month, and specifically in the entire year, the March is the heaviest month. So there was not very much inventory in the dealership network because they all ready themselves for good schemes and good start from our side where we push the material in the third and fourth week of the year ending. So there was not too much of an inventory with the dealer as far as Somany dealers are concerned. I can't talk of the other multi-branded dealers. But our multi-branded dealers also most of the branded industry, a large part of the skew happens later. So inventory was still maintained. Our inventory, which we had built up over January and February to service March, was staying with us. It is not a perishable item. So we're glad the inventory was with us, and the money was also secured from that point of view. As far as April was concerned, I think if we take the date as 22nd of March. From the 22nd of March to the 4th of May, we virtually had zero sales, zero revenue and zero collection. From 4th of May when the country started locking -- sorry, started opening up in a staged manner geographically, since then, what we envisaged over there is approximately if we took last year May as a base and not look at the growth, what we were envisaging in May for this year, only last year May as a base, we were at approximately 45% to 50% sales of last year May and approximately 55% to 65% -- 60% of collection of last year May. In June, the trajectory seems to be slightly better. We are looking at a 60%, 65% sale of last year June. One week is still -- still 5, 7 days is left, and our skew is again towards the last week. And we are looking at approximately a slightly better collection. So approximately 65% to 70% of a normal base June collection. And mind you, last year, June and May collections were very good because we completed the entire year last year in March. And last year, also in March, we had a very heavy sale towards the last 2 weeks, which meant that our collections were due only in May and June. So from that base, if we are seeing, we are at a fairly decent collection because the base was quite high from a collection standpoint last year. So my worry -- in fact, I'm pleasantly surprised on this as far as May and June is concerned. I am tentative from a worry point of view for July and August. There are 4 worries here, and all of -- 3 of them we're shooting in the dark. One is that the monsoon will be peaking. And generally, July, August is a poor month. Monsoon will be peaking, which is business as usual. But coupled with that, we will be peaking like we hear in the news, what you and me are reading, that the COVID will also be peaking. The disease will be peaking in months of July and August, which means the fear will be high and also the migrant labor, which has gone back, is not going to come back very soon for the real estate industry. So construction would be at probably a low. Now this is all assumptions. On the fourth issue, which we envisaged that we are already, to answer your last part of the question, our capacity utilization, ma'am, like I said, April, we were zero. May, again, we were zero in capacity. June, we have started our plants. We will be approximately -- by the end of June we should be at approximately 35% to 40% capacity utilization. And that -- and from a line perspective, how many lines have started, we would be approximately at a 50% capacity of the line starting production. But the production is at a lower pace because we have certain labor constraints. By the end of July, we should be at approximately 75% of our lines would have started by the end of July, which means that we would be approximately at a 55% to 60% capacity utilization. Because again, those lines which will be starting step-by-step will not produce 100% as 100% of the labor is not back. And we cannot wait for all the labor to come back. The pressure is only built when we start the line and the labor also gets enthused that our lines have started, and we will be getting a job. So they also flock back that much quicker. So I hope I've answered your questions because it's a little complicated. I'll repeat once again. We're at 50% to 55% line utilization, but from a capacity point of view, that how many tiles per square meter is coming out, we're at about 40% in July and we will be at about 75%. And the number of tiles, which will come out of the lines will be at about 60%.

Understand, sir. This is very helpful. Sir, my second question is regarding [ pricing ]. Now as we understand the exports from the smaller Morbi players were or would have been impacted because of the global disruption in COVID and also the duties in GCC. So is there any action in pricing in terms of weakening of pricing either in the ceramic or PVT/GVT over the past 2, 3 months? Sir, any update on the GCC duties, if you could help us with?

Yes, I'll answer both of them. So pricing hasn't changed in the last 3 months. Yes, there have been distressed sales, which are material lying in the godown, old, deleted items. There have been distressed sales, but that cannot be generalized for a price reduction. There are 3 factors to a ceramic tile pricing. And I would be really surprised if there would be any further drastic reduction, and mark my words, drastic reduction in GVT. There may be a slight reduction in GVT. But in PVT and in ceramic, I don't see much of a reduction. And I have 3 reasons to say that. A, the gas prices haven't changed in Morbi even till date. And what we hear is that if they do change in the month of July, it will change only by INR 1 or INR 2 a standard cubic meter. Number two, is that all of our economies of scale are not in place. All companies, which have 3 lines, for example, is running 1 line. People who have 10 lines are running 3 lines and so on and so forth. So economies of scales are also out of the window. And like I mentioned earlier in the call, the line which is running is also running slow, not because of production or quality reasons but because of labor reasons. So all of these 3 things that's holding good. I doubt whether they have any leverage to reduce the pricing unless they play with the quality very substantially, but then that's not an apple-to-apple. Fourth, which we are hoping that the government will also take cognizance of and we hope they do, is that the GST collection overall in India has fallen so drastically that they will be very eager to plug all loopholes of any evasion which is happening. And Morbi's business model has been and will remain to be evasion. So therefore, if they crack down on that aspect, that will again have that much lesser impact on the pricing. There is 1 other reason, which is a softer reason what I hear in Morbi that their credit -- they are also pulling credit from the market. They are trying to get stricter on the receivable. Plus there -- the back end of their finance has also dried up, which was basically the banks which have downgraded them. And also the Surat diamond merchant, which used to finance Morbi in a large way, have also dried up in their finances. So I would be very surprised if the prices were to very sharply move plus or minus, which is a good sign for us. On the other hand on the GCC, yes, there has been a duty in GCC. That impacts specifically the GVT segment in the smaller sizes, not the larger sizes. In PVT, there was zero impact because there were zero sales to the GCC. In ceramics, we are still competitive because the delta between the Chinese duty and our duty is 17.5%. And we are extremely competitive with that kind of a delta. So GVT, we do feel there will be certain industries which will be under pressure, who were basically export-based. But on the other hand, there are other countries which are opening up very positively, namely the U.S.A. So U.S. has put a very sharp 300% or 400% duty on China. So therefore, no Chinese material can go there. And China was the single largest supplier for the sales in the U.S. So that is 1 market which is opening up.

Understand. Sir, and just last question is, are you seeing any market share gains during this COVID disruption, especially given the smaller unorganized Morbi players could be under the gutter amidst this disruption? That's it from my side.

So my belief is that, yes, we must have taken some market share from the Morbi sector for 2 reasons. A, Morbi does not run a very large stock. And like I said, that we had built up stock and our -- we were sitting on a good 55 days of stock at the end of March. We generally would have been nothing more than 35 days. Again, reiterating our third and fourth week is skewed. So if that sale would have happened, we would have taken out at least 20 days of stock. But anyway, we were sitting on 55 days of stock. Therefore, we could service the market better in the month of May and June. So we do believe that we would have taken some market share. But I would be cautious in saying that we would want to see after the Q1 results as to whether this is really true or not. But the market does say that we have taken share. And the other part, which gives me a little more confidence in saying that we might have taken a little bit of share, is that our collections were pretty decent. And the reason a dealer would give us money is to take more material. And why would he give us money? He would give us money because he is sure that he will get the material from us because we had our godowns full. So these are the 2 assumptions I'm making while saying that we might have gained a bit of market share from the Morbi sector in the first quarter.

Sir, any approximate estimation as to how much would the ceramic tile industry would have degrown in financial year '20?

So they were anywhere like a flat growth while we were at a 4.5% growth. Their exports had fallen. And even in the domestic field, they were extremely under pressure because most of Morbi supply is to the real estate industry, which was anyway under a lackluster performance. So I would think that they would have degrown approximately 4% to 6%. I'm not sure of the figure.

For the full year?

Yes.

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

[Technical Difficulty] My question was more pertaining to our margins. So they have remained volatile for a period of time. So just understanding from 2 of the aspects, which you said. Firstly, you said there have been lot of cost-cutting measures, which couldn't be quantified as of now. Secondly, you also mentioned that in the month of, let's say, May, you have not run your capacity, but, of course, sales have been there. Given that in the Q4, we have definitely seen a higher cost impact because the production was on and production was actually -- whereas the sales volume were down. So can we see a reverse impact in terms of margin happening in Q1?

In Q1, the fact that April was zero sales, zero production, zero receivable that itself has taken the toll. And in May, whatever cost-cutting we could have done, we cannot disregard the fact that there was the asset which was standing and there was the labor which we were still paying and all our employees also we have paid. But of course, we had taken certain cuts for the employee. But still that amount has gone. So Q1 is clearly not any benchmark for any margins.

Sir, in that case, can you quantify certain items? Like you just said that you have cut employee expenses to certain extent. So could it be 15%, 20%? Or I mean, what is the approx range that we can run with?

So I would -- that particular letter is already out in the market. I can send it to you. You can get a complete flavor from that as to what has been our cost cutting as far as employee is concerned, but we did look at only employees. We looked at a demand disruption of an x percentage and then we looked at cost as to what is the cost we'll have to reduce on every level and every head, so that we should be reasonably profitable for the entire year and extremely cash flow positive.

So in that case, if at all, you can give us some amount of guidance that what is the kind of a sales number that you were looking at? Or what is the kind of degrowth that you were looking at in terms of building those numbers? That will help us give your outlook on what is the year looking like to you.

Well, we are looking at a 20% demand disruption to 25% demand disruption for the year, but then this is all shooting in the dark. We are only making an assumption on April and May. We have no clue what is going to happen in the future. We have no clue on how the government is going to react sporadically. We have seen Chennai locked down for 2 weeks. We've seen Calcutta locked down till the 31st of July. So who knows what's going to happen. So as far as today's assumption is concerned and what we've already seen in April and in May and also what I've spoken to other industry leaders within our industry and other building materials, they are more or less looking anywhere between 15% and 25% of demand disruption, depending on the industry. So it's extremely sensitive. It will be foolish for me to even quantify the number.

Right. So just -- I mean, to summarize what you said, will it be easy to assume that looking at around 20% to 25% sort of a revenue growth that you guys will be building in your numbers, you are looking at a profitable company at the end of the year with the cost cuttings that you have taken place?

That's correct.

That's correct. Sir, my second question was relating to Morbi. In the con call in the starting opening remarks, maybe you said that Morbi is right around 70% of the volume terms. Maybe earlier, we used to hear that Morbi is around 60% sort of a number. Or even earlier, we have heard of 50% sort of a number. So definitely, we can see some amount of -- I mean unorganized here, I mean, the percentage share looks higher. And given that they have already started working, I mean, what gives you confidence that there will be consolidation happening in the industry going ahead, and there can be some wipe out of the Morbi-based smaller players?

Yes. So currently, there are 900 players in Morbi. As we speak, 500 of them have started and all of who have started up are also running at 50%, 60% capacity utilization with about 500 units starting. That doesn't mean that all the lines are starting. So they're running at even a lower capacity utilization. And I do believe that approximately 100 units would permanently close, purely on cash flow issues.

Right. Sir, my last question was relating in the -- I mean, previous 2 to 3 quarters back, you had mentioned that you had started looking at export opportunities and especially to market like U.S. And since you are mentioning that there is a good amount of growth in the U.S. market. Have you started looking at that market actively or because it's a COVID impact that things have taken hold or something?

Yes. So I hadn't really mentioned the U.S. I had mentioned that yes, we're looking at an export opportunity, which is slightly better than earlier. That doesn't mean that we become an export-focused company. We are a branded company. All our branding and all the brand spends happen in India. And we do get -- because of our brand recall and brand presence and brand salience and distribution network, we get a premium in the Indian market. So we will largely be Indian focused. But if I had to share you my export numbers, which I'm sorry, I don't have it off the cuff, but our export numbers are not bad. The growth isn't that significant from an export point of view. And this year, I think the export growth, whether the domestic grows or not grows, but the export growth should be decent.

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

Yes. First, with respect to the cost, I know you're working on the numbers, but is it possible for you to kind of give us some flavor with respect to how much is the fixed cost, how much is the variable of the total cost [ ex that RMN ]...

We've already done the numbers. Let me clarify. We've already done the numbers. We have our cost. But I -- chasing a very aggressive number with my sales, obviously, so and I'm chasing a very pessimistic number with my accounts to bring down the cost where we are ready for any future shock also. So therefore, I would like to discuss this offline and not on a call.

Sure. Understood. Second, I had this question about -- can you help us with the what was the gas price -- average gas price for us in the fourth quarter vis-à-vis third quarter FY '20?

Yes, sure. The third quarter was INR 31 -- sorry, the third quarter, yes, was INR 32, and the fourth quarter was INR 35.

Okay. Because if I look at the...

And overall basis -- I'm sorry, this is for the normal plant clarification there. The overall basis, it was a shade under INR 30 in Q3. And in Q4, it was a shade above INR 32.

Okay. If I just do a simple calculation with respect to power and fuel costs divide by the production volume, I see a substantial increase Q-o-Q, unlike a rupees per SCM what you've mentioned. So just curious to know, is there a significant change in the product mix, which has driven this kind of a power and fuel cost increase on a rupees per square meter basis?

Yes. I'll let Sunit answer it, but we did fire up more of our plants in Q4, but yes Sunit will answer.

So 3 things were there, Achal. One, obviously, this mix thing, which has some element of it. Second, gas price has also moved up, both sequentially as well as Y-on-Y basis. And it is in the range of -- Y-on-Y it is around 8% and sequentially it is even more, around 10% increase is there in price. So obviously, cost has -- prices has moved up, cost will go up. And then if you are looking at a consolidated basis, there is an increase in production [ too ] Y-on-Y. So if you club these 3 things together, the other will give you the number of increase in absolute power and fuel costs.

Understood. My next question was with respect to the mix we've been hearing about the retail/institutional around 70% for a few years now. So I was just curious. How do we make sense of this in terms of -- is the growth or decline is similar in case of retail as well as institutional or how to look at it for us?

So our retail business has gone up a little more because our private builder has come down, but not very significantly. So we are north of 70% as far as retail is concerned, somewhere between 70% and 75% and the one which has taken the hit is the private builder.

Okay. Okay. And is it also possible to classify this in terms of how much would be for residential, how much will be for commercial? Because what we tend to hear now is that the commercial could take a hit, which has been doing reasonably well, actually for last few years, which are holding up.

So a large part of our volume goes in commercial. I don't have -- sorry, not in commercial, in residential, because in commercial, a, the builder also gives the apartment or the office space as a raw space. In residential, we have 2 advantages. The builder also gives the tiles and the residential person who buys that flat also does renovation in the market. And for the own housing, of course, there's a one time use. For the commercial, 99% of commercial goes as raw. The builders never doing the fitting out. And if you look at the shop, those are tiles. But if you look at offices, largely offices, especially the large IT offices, et cetera, are carpeted. I do feel that on one hand that the commercial will take a hit with the work from home and downsizing the office, et cetera. But on the other hand, I do feel that there will be an opportunity for a lot of those offices who were on carpeted floor would probably want to for hygiene reasons move from carpet to an alternate material that could be stone, tile or wood. But obviously, the tile is the most cleaner and most effective material to be used and hygienic material to be used. So we do see an opportunity there, in fact.

Understood. And my last question was with respect to the cash flow. Can you help us in terms of what is our repayment obligation at stand-alone and consolidated level for FY '21?

Sure. I will let my team answer that.

So we don't find any [Technical Difficulty] obligation is concerned because anyway, that's not a very exorbitant amount. As far as standalone balance sheet is concerned, that repayment obligation is close to INR 27 crores, INR 28 crores only. And the similar amount is in all our 8, 9 JVs together. So we don't find any stress as such.

Okay. And last question, if I may, with respect to the subsidiaries. Do you see an opportunity to kind of look at more of JVs, wherein you can control the production, the quality instead of plane vanilla outsourcing which is basically, in other way, you are helping Morbi survive? So if you could elaborate a bit on thoughts on those sales.

So I think from a financial perspective, it is today more prudent to buy. Had we not got any JV, it would have been more prudent to buy from an outsourced vendor, but that's a very short-term gain. As far as we are concerned, I think the joint ventures are doing fairly okay. And I think -- I don't think we have any opportunity to increase the capacity of the joint venture, at least in this year or maybe even for the next 18 months. If you remember, there were 2 joint ventures, we had expanded capacity only last year or maybe in the last 15 months, which was Amora and also Vicon. Both of those joint ventures we had increased capacity. So we have no reason to further invest in those apart from routine CapEx and maybe upgradation of machinery every now and then, which is required from a wear and tear point of view and also from a technology point of view. But I think as far as outsourcing is concerned, there is only 1 plant, which is 100% dependent on Somany, for a particular material, which is the very low value-added material. That will remain with us, but the rest of the outsourcing will only be sporadic of those materials, which we do not produce or cannot produce. We would only outsource that. So outsourcing versus joint venture, obviously, our preference will be to take as much material as possible from the joint venture in the coming years -- in the coming years.

Got it. Got it. And just a data point, actually. If you could help us with the mix in terms of ceramic GVT, PVT for fourth quarter and full year FY '20, please?

Yes, of course. So last year, our ceramic was 43%. This year, full year, our ceramic was 40%. Last year, our PVT was 36% and our PVT this year was flat. GVT was 21%, and it was slightly above 23% this year. If you look at quarter 4, GVT jumped from last year 21% to 24%. So continuously, what we've been talking that we're increasing our value-add mix, the value-add mix to that extent has increased in favor of GVT. Now the next motive is to increase it in favor of ceramic which it would have been. But if you remember, last year for 2 quarters, the Kadi ceramic plant -- one of the plants had been put down for modernization. Unfortunately, when we started in end of November, December, it had to shut down again in the month of March. But obviously, to that extent, our endeavor would be to increase GVT even further and also increase the ceramic and the hit would be to that extent on the PVT part.

The next question is from the line of Karan Bhatelia from Asian Market Securities.

Sir, any recovery update on the employee fraud or Mentor Financial Services?

No. There is no movement on that. On the employee fraud, I had mentioned even last time, the court -- we had arrested them and the court has asked them to pay INR 8 crores in the court before a certain date, which was 6 months. And obviously, they also got a moratorium. This was only in the mid of March, which -- where they were released. And they were supposed to pay next amount immediately and the balance in 6 months of time. They've got that moratorium. If they don't, they will go back in jail for a long, long time. So obviously, the pressure on them. And we do expect something will happen on that account. And also from an insurance agency with the COVID happening, we're chasing them as to what we will be able to recover from the insurance agency. On the Mentor front, there has been no movement.

Okay. And sir, in the current quarter, we've seen a massive expansion in gross margins. So can you like tell us as to what was the reason for that at the consol level?

I didn't get your question, sir.

Sir, in the Q4 FY '20, we've seen significant improvement in gross margins.

No. So Karan, I think this is a very common clarification which we used to give in every columns and threads every quarter. So most likely, while calculating the gross margin, you must note that inventory movement and power and fuel costs. So while calculating the gross margin, these 4 components should be included. Material consumption...

I'm just talking from the raw material side of the picture and not including the power and fuel cost.

So that won't give you the right picture because, as you know, power and fuel costs have moved up almost 10%. So if that you would not be considering, that will not give you the right indicator for the gross margin cost. That is 1 thing. And then change in inventory should also be considered while calculating this because, as you know, in the current Q4, there was a continuous production on, whereas sales was at a total of almost 30% in a quarter. So obviously, that will not give you the right picture.

Okay. Okay. And also, if you can break out the INR 36 crores of Bathware into like Sanitaryware and faucets?

Yes. The ratio used to be like 60%, 40% types. If you go by absolute number, it would be close to INR 23 crores in Sanitary and balance in fittings.

That's for Q4. So the ratio is largely maintained on the Sanitaryware versus Bath Fittings from last year. Even while we degrew, the ratio was maintained.

The next question is from the line of Nehal Shah from ICICI Securities.

Yes. Sir, can you throw some light on your treasury operations?

What specific you want on the treasury operation?

So how far the cash is still pending as far as the ICDs are concerned as of now?

Right. So out of the treasury operation like we had mentioned even earlier, we were sure that we don't want to do any more treasury operations. Therefore, the ICDs, which were passed, which was the tune of INR 35 crores, which had increased last year. Approximately INR 20 crores has come back and more would have come back in March, provided this COVID had not happened. So we do believe that this is going to impact the longetivity of the amount, the INR 15 crores, which are still lines. But we are sure in the next 12 to 15 months that would also come, and there is absolutely no fear on that. The rest of the treasury has been already taken out and put in either a reduction of working capital or reduction of debt. The [Technical Difficulty] treasury, which you may want to know, is for the SREI Infra. We had half of that. Approximately 40% has got matured in March. We've got the money. And the rest of the amount, which is still pending, which will mature only in the next 4 years -- yes, 4 or 5 years, they continue to service the interest on that quarter-on-quarter. So I have no reason -- so those bonds are not tradable. If it was, I would have redeemed that and also taken that out. So net-net, every other bond is out in our books, either now reduced in working capital or the debt. The ICD is absolutely in line as to what we have said that we would get in approximately 70%. We missed that mark by the -- because of the COVID, but we'll make that up and maybe in the next 12 to 15 months that would be done. And on the SREI, as we speak, you know as much as I know. As far as we're concerned, we've not heard any surprises. They gave us half the money, which got redeemed and also the interest will get -- interest is being serviced, absolutely on date.

So Nehal, just to add that, if you see last March '19, our surplus amount was more than INR 100 crore. Precisely it was INR 101.5 crore and -- which has came down to INR 48.29 crore precisely this March. So over the period of last 1 year, we have consistently deployed this money realized out of this resi fund into our business. And this is very much in sync with our commentary that no more incremental treasury operations would be there. No more incremental treasury investments would be there. And whatever money we are getting realized, we are putting back into the business.

So how much would we have spend in CapEx from these treasury liquidation?

See, I would like to answer in a different way. If you see, we have done a gross block addition of close to INR 60 crores in FY '20, and that includes INR 35 crore of our modernization project as well. And balance is the maintenance one. And we have not raised even a single rupee in long-term loan and even short term we have drastically came down. So obviously, the generation from the business and this deployment of this surplus fund, that helped us to reduce our debt levels. And going forward...

Net debt.

And if you see net debt virtually it's zero from long-term perspective. Because -- no, not -- it's not zero because we have deployed money also during the year. So net debt currently, long term level, it would be close -- only INR 50 crore and then balance is the working capital.

Okay. And what's the net -- gross debt and net debt as of now?

Sorry?

Gross debt and net debt.

So I just made a deduction of INR 48 crore, which is a surplus. Otherwise our gross debt is INR 280 crore.

INR 280 crores

In working capital.

Including working capital, and that too out of that INR 100 crore is the amount, which is not an interest bearing. It's just accounting reporting, which is getting reflected into debt because this is just an arrangement for our vendors to get them early payment. So it's on the vendor's accounts.

Yes.

And sir, last thing, we've also seen a resolution which is passed for fundraising, which is INR 50 crores NCD.

So yes -- no, no. It's basically an enabling resolution in view of the recent SEBI guideline that says that any large corporate has to abide by that regulation. And this is any incremental borrowing, especially for long term purpose, minimum 25% has to be through debt securities. Since we fall under the definition of that large corporate categorization and it's just an omnibus approval. Otherwise, if for any reason, we go for raising our debt, then immediately, we'll have to go for all these formalities, again, shareholder meetings, Board meetings and all these things. So it's more or less just putting in omnibus approval in this. There is no plan as such to raise a fund.

Yes. There's no plan.

The next question is from the line of Archana Gude from IDBI Capital.

Apologies if I'm repeating the question. Sir, we saw this 28% decline in the sales volume for Q4. What it would have been in the absence of COVID?

So like I mentioned earlier, ma'am, in the call, we degrew by 30% as far as sales is concerned and 27% as far as volume is concerned in the Q4. Had we not, we would have been at 4.7% growth. Had it not been for the last 2 weeks of shutdown, it would have been 4.7% growth. And frankly, our shutdown, we started getting feel from some of the market from the 15th, 17th of March itself. And we shut down our plants on the 22nd. And literally, from the -- from that Sunday when Mr. Prime Minister came in, before the lockdown, from that day onwards, the sale has become completely zero.

Sure, sir. Sir, 1 kind of hypothetical question from my side. Do you see any silver lining to the cloud or it's too early to comment?

Silver lining to which cloud, ma'am?

Sir having correctly everything is looking so gloomy, so do you think, let's say, by October or by Diwali we should be get out of this? And maybe we should see some sales getting back to our earlier level? Is it a fair...

Look, we are a little biased while saying that. That's my caveat. We've seen such a pathetic year last year from 2x lightening hit us in every 2 consecutive years. So from that point of view, we are extremely bullish. A, all the -- see, nothing can be done about COVID. Everybody is in the same boat. But minus the COVID effect, and I think I'm extremely bullish on 3, 4 accounts. One is that all our cleanup and all these bad omens which had to happen to us have passed. We have learned a large lesson from that and corrected our internal working and also corrected our internal review mechanism, our IFC, whatever that may be, are focused on not to have a treasury at all. In fact, we didn't do it from a treasury point of view, but anyway, I don't want to defend myself there. We don't want to do any treasury activity going forward with tile makers, and we will focus on tile and distribution. The silver lining, what I see, is that I think for India, we have seen estimations of a 2% GDP to a minus 7% GDP. I am nobody to comment on that. But what I do feel is that I was pleasantly surprised in May and June from a collection perspective and also a sales perspective we were expecting an even lower number. June and August is extremely sensitive, and I do not want to put a finger on anything. But going forward from H2 onwards, I do believe that we should bounce back as an industry and as a company, obviously, related to the real estate industry. And my reasons to say that would be, a, the monsoon is very good. The agriculture cost is very good. So we should see a decent demand offtake in the Tier 3, 4, 5 towns. Number two, gas prices are going to remain in our favor. Even if it goes to $50 plus, we still are going to be lower than last year's average. I do not see the dollar moving. I'm not an expert, but I do not see the dollar moving anywhere. It would be range bound from what I hear from people and banks is between INR 75 and INR 78. So having said that, that's a INR 77, INR 78 to $1. And looking at the gas price, I think we will be -- gas price, if it doesn't move down very significantly while we start producing at 100% in H2, it will definitely be at a reasonable level. So there are no huge question mark on the raw material pricing. On the other hand, the Morbi pricing, I don't think is going to sharply decline because their economies of scales also have gone and coal gasification is shut. So all of that also is a positive. Plus, I think from a COVID point of view -- now these are assumptions I'm making. I think by September, October, 1 of the 3 would happen. Either more of these drugs, which we are talking about, will come out, and I'm not even talking of a vaccine. I'm talking about a drug, which basically will soften the blow of COVID patient. If that not happens, then herd immunity will happen. And if that also doesn't happen, I think more and more people will realize that near and dear ones are getting it and they are surviving it. I, for myself, I know approximately 2 dozen people who had it and have recovered. That gives me that much more confidence to come every day in office and sit and take it -- take 1 day at a time. So I am fairly bullish of the industry. And I think also this is a wake-up call for us. The cost, which we have cut for the -- in the first quarter, we and our team are now further looking at cost reduction from a perspective from seeing that next year when we go back these costs should not rise in the same tandem as how they have come down. So with economies of scale kicking back at a lower cost, I think it should be a good time for us in the coming days. And tiles is a preferred material. From a post COVID point of view, it's extremely easy to install and extremely hygienic to clean. So from that point of view, I think we have a very, very bright future from a tile perspective.

Thank you. The next question is from the line of Arun Baid from BOB Capital.

Sir, carrying on with what you said just now. Sir, typically, except this day in Q4, we normally do over 15 million square meters of tiles. I do know that this year was because of COVID and other reasons. Sir, do you believe, based on what you see today or what you feel today, that we at least go back to that 15 million square meter in Q4 of this year, basically, going back to what we used to be from last 2 years?

My assumptions -- what we have taken in the assumptions currently, we haven't taken -- I think we're being a little pessimistic there because we're shooting in the dark with COVID. If all goes well, like what I said earlier -- to the earlier question, yes, you're right. But if it isn't, we should be more or less close to that figure in Q4.

So basically, what I'm trying to get at, sir, from second half, Q3 and Q4, even if Q3 is flat, you are at Q4 broadly at 15 million square meters that should...

We're all assuming that around. We're all assuming that we should be anywhere between 14.5 million to 16.5 million or maybe 16 million square meters for Q4. That's what you're asking, right?

Yes. Yes, sir. If that is the case, sir, then logically, we'll not have that kind of degrowth in volumes for the full year, sir. Because...

We will have degrowth. We've already degrown in April, May and June very, very substantially.

Sir, what I'm saying is for the full year, the degrowth will not be 20%, 25% in that case. Obviously, there will be degrowth in Q1. Yes.

No, no. I think we have -- we are assuming that, that Q4 being a great quarter where everything becomes normal, but we've forgotten that the government is sporadically closing states. So for example, in the last 15 days, Chennai and neighborings were doing business decently well and it's completely come to a standstill. Calcutta is come to a standstill. So you never know. I'm leaving that option and therefore, I said anywhere between 20% and 25%. In fact, internally, we could be second guessing on any other figure. We don't know how this will react. So what takes the government of shutting down Maharashtra and Delhi for the next 1 month if it starts peaking. So the why, over for me, is going to be the Tier 1 towns where the government is acting very sporadically.

Okay. Sir, but typically, our sales used to be more from Tier 2 and Tier 3 cities, sir. That's what our history used to be. So assuming what you're saying is, right, because I am in one of those cities and one is my hometown, let's assume that, that is true that Tier 1 cities like Mumbai, Delhi, Chennai and -- stay in trouble...

Tier 2 is also taking a toll. Tier 2 is also taking a toll like the Cochins,, the Punes, the -- various towns like that. It's also taking a toll. Hard to say. I mean, we can keep arguing on that. I wish and hope you're right, because we've already cut our costs. And if we land up this zero degrowth, then you're looking at a very, very decent profit.

Sir, assuming what you said, I just want to reiterate. You said that even if you degrew at 20%, 25% volume perspective, you will be profitable for the year, right, at PBT level?

That's the one thing which we're doing. We have become as aggressive of working. But yes, we definitely -- unless degrowth happens, which is, again, an assumption of beyond 30%, 35%, 40% that I can't say, neither can you. But if that happens closer to Diwali, we'll see. We'll go for another cost-cutting measure. Currently I have no reason to finding the system. Things are opening up. It's only getting better.

Ladies and gentlemen, that would be the last question for today. I now hand the conference over to Mr. Nehal Shah for closing comments. Thank you and over to you, sir.

Thank you, everyone, for taking your time for the call. We look forward to hosting the call for the next quarter as well. Thank you so much.

Thank you, Nehal. Thank you, everybody.

Thank you, sir. Yes.

Stay safe and don't stay at home. Thank you.

Thank you, sir. Yes, bye. [ id="-1" name="Operator" /> Thank you.