Somany Ceramics Limited (531548) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Somany Ceramics Q1 FY '21 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Nehal Shah from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Stephen. Good afternoon, everyone. On behalf of ICICI Securities, I welcome you all to the conference call of Somany Ceramics Limited to discuss the Q1 FY '21 results. From the management, we have Mr. Abhishek Somany, the Managing Director of the company, and the senior management team. I would request Mr. Abhishek Somany to start the call with his opening remarks, post which, we can then proceed with the Q&A session. Over to you, sir.

Thank you, Nehal. Good afternoon, ladies and gentlemen. Thank you for joining us for the Q1 FY '21 call. I hope everyone is safe and well. I think we've been fortunate that the country has started looking up and opening up. And from what we hear from various talks in various industries, the fear which was that we will be at an L-shaped recovery seems to be slightly better, yet to be seen as to how better that would be because it's still extremely tentative. Coming back to our -- and putting focus on Somany, we degrew in sales by 56%. We were chasing a better figure than this, and finally, did INR 169 crores. Although in May, when we had a call, this was still a question -- sorry, in June, when we had a call, this was still a question mark as to what we will be doing towards the end. But finally, it was a reasonable figure looking at the situation and looking at April, May being completely -- almost 0 sales. May, I must say, by second week of May, the country had started opening up. So things were looking better. But yet, there was about 60%, 65% of the company -- country, which was shut, mainly the big metros were shut. Whatever sales we've got is majority from the Tier 3, 4, 5 towns. Correspondingly, we did a lot of inward thinking and inward looking, and we did a lot of cost-cutting. Some of it -- some of the cost-cutting which has been done, looking at the degrowth or the demand disruption, which is bound to happen in this year, purely because of the April and May debacle for everybody, for every industry And therefore, we did a lot of cost-cutting from a perspective of this year, and we also did a lot of cost-cutting from a perspective of what we can sustain over the next few years. You have all seen the results. The PAT was correspondingly down and so was the PBT. We'll not dwell too much in those numbers because those are not comparable and in our own aberrations. What I would like to say, the salient point is that, frankly, we were not expecting a minus 57% -- 56% growth -- degrowth. We were actually fearing a larger degrowth somewhere in the middle or end of May, but June looked up. Besides that, the biggest salient point was that the product mix remains the same of ceramics, PVT and GVT, which is 42% ceramics, 34% PVT and 24% GVT, the same as last year. In fact, slightly better than last year. Having said that, there was a little bit of downgrading in all of these products where people did buy -- the dealers bought cheaper products within that. But we just still didn't see any pricing pressure. In fact, our realization went up by a few rupees in the quarter. And we are not seeing any pricing pressure even going forward. The other salient point is that sanitaryware and tiles, both are in tandem. There was the same kind of growth -- sorry, the same amount of de-growth. So from that perspective, it is pretty much in line. Receivables were very strong. We were expecting it to be decent, but much to our surprise, I think this was very strong. So that makes the company that much more comfortable in terms of cash flow. We are absolutely comfortable as far as cash flows are concerned. Considering that there were huge payments, which I've mentioned in the June call, we had to do in the month of April and May, still we're extremely comfortable, and we are in a very, very comfort position from a working capital utilization point. To bring your focus towards the average capacity utilization, in the month of -- the last quarter, frankly, April, as you know, was a complete dud month which was 0 revenue, 0 sales and 0 collection and 0 production. In the month of May also, there was okay sales, very good collections and 0 production. None of our lines had started. In the month of June, there was 44% capacity utilization, capacity start-up, which moved up to 66% in the month of July, which happened only from the second week of July onwards. And in August, as we speak, it is at pre-COVID levels. Mind you, this started on different weeks, as and when the labor came back. Therefore, the throughput from the pre-COVID level, as we speak, is slightly lower, but that will start picking up. And hopefully, by August end or September, we should be, from a utilization and also a throughput level, at pre-COVID levels, which is an extremely positive sign, especially because it's a voluminous product. Until and unless we sell, this will not be possible to produce beyond a point. We're expecting a decent sales in Q2, but that we can come to later in the Q&A. We have done a lot of work on cost-cutting, like I said, be it employee cost, be it other fixed costs. Of course, there has been a reduction in the raw material cost, where obviously, we have not run the plants. But there is no pressure on the raw material pricing. The brand spend, we continue to keep branding. We have reduced the spend in conjunction with the revenue, demand disruption. So going forward, it is going to be 83% level of our revenue, whatever the revenue may be. It's difficult to say right now what the revenue may be for the entire year as everything is extremely tentative. And we are playing out the revenue target month-on-month, which we earlier used to be quarter-on-quarter. So this is where we are. As far as collection is concerned, if you remember, 2 years ago, when we had compromised our receivables, it had gone up to a number of INR 475 crores. In Q1 FY '21, which is June end, the recent June end, was down to under INR 200 crores. So it's exactly to speak is INR 198 crores. And as we speak, it's gone down even further in the month of July by a few crores. So that's a very positive sign, which gives the company a lot of comfort and cushion for our way forward. I would now leave it to -- open to -- the floor open to Q&A. Thank you so much.

[Operator Instructions] The first question is from the line of Archana Gude from IDBI Capital.

I had 2 questions. Sir, in the presentation, it is mentioned that we'll encash the emerging opportunities. If you can elaborate briefly, it would be helpful, sir.

I'm sorry, I couldn't get the question. Can you elaborate, please?

Yes. In the presentation, it is mentioned that we'll encash the emerging opportunities going forward. So if you can elaborate briefly on that, it will be really helpful.

Yes. So we do feel there are a couple of opportunities. What this is referring to is, a, from an internal perspective, which is the cost-cutting, like I mentioned, that there are certain cost-cutting which we have done, which is basically for this year only. And there are certain other cost-cutting which we are -- we have been able to do and are also work-in-progress as we get into this year, which should be sustainable for the next couple of years and demand, obviously will come back. That is one internal opportunity. The external opportunity is that as you would have realized that when we got into the pandemic, there was a lot of cash flow distress. And if we were -- if big companies were feeling it, you can imagine how the small companies felt it. And when they went back to the bank, they did not have any balance sheet to show, which means that they did not get the extra working capital which they desired. And neither could they get into a moratorium or even if they did, that is a black mark on them. On the other hand, the cash sales which they used to do was also at risk and has been at risk. So therefore, their whole -- the dealers have now realized that they are not getting further better pricing, and mark my words, further better pricing. That doesn't mean that their price -- our pricing has become like them. But their pricing has not reduced. When I mean their, it means the Morbi players. Neither -- and the other thing, which was an advantage for a dealer to deal with a Morbi player, it was extended credit to the extent of one year at times. That has been pulled out from the market because they were in a serious cash flow mismatch situation. And from a branding perspective, also, they are not being favored. All 3 things combined, the dealers are now saying that I might as well go to a brand. My pricing remains the same or there is no delta -- there is no further delta buying from Morbi manufacturers. My receivable cycle is going to remain the same from a branded or an unbranded manufacturer. And at least, I have consistency in supply from a branded manufacturer. So we are getting an influx of dealers who are wanting to shift their business to us. Yet to be seen whether it's for the long term, but for the short term, this has clearly been the situation.

Sure, sir. And sir, you mentioned that the demand from Tier 3, Tier 4 cities was encouraging. So how is the situation in this July? And we are also in the like mid of August? And how do you see this going forward, the mix of urban rural for us?

Ma'am, it remains to be the same. I think a lot of labor migration has happened. And we are about 7% to 8% higher than earlier from Tier 2, Tier 3 towns, which was about 70-something percent, so it's now close to 80% from Tier 2, Tier 3 towns. And I think this will remain the same. As we speak, just to give you another figure, just at the end of July, we were doing an internal assessment as to how many percent of the country was shut. I'm not doing a weighted average. I'm just simply telling to how many percent of the country was shut. It was 45% of the country was shut until the end of July. And all of this, you may appreciate was largely in the Tier 1 and Tier 2 town.

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

Sir, just wanted to understand about one more aspect of emerging opportunities. I think once in your con call, you had highlighted you were looking at exports. Is it an opportunity you're still looking at? And if yes, what is the progress that we have made on that front?

See I've always told you that export is never going to be a large focus for us because we get a better realization in India. We are a branded player in India. And all the money of that 3% which we keep talking about or 3.5% of revenue which we have been spending and in forward also we will spend, all of that -- 100% of that spend is in India. Therefore, export is not a focus for us. We are leaving that market for the Morbi players to make merry. Having said that, in the short term, we do want to utilize capacity. So from that perspective, we are looking at certain orders, which we normally would not have paid too much attention to. The normal material or the basic material orders, we are looking at it. So export would grow for us a little bit, but that is from a short-term vision point of view, from a capacity utilization point of view.

You mean till the timing the domestic demand picks up, by the time we can look at export opportunity of course which we can go back?

In fact, the issue is that when you bring labor back and you may appreciate that a lot of our labor is contract labor and piece-rate labor. And once we bring them back into the plant, and then shutting the plant down a month or 2 months later because it's still tentative as to which part of the country will be under lockdown and which part will be under unlock. Therefore, we are looking at -- carefully looking at exports in the near term, in the short-term, to make sure that the plants keep running because it will have a larger impact for us in case labor gets very jittery and goes back to their hometown, bringing them back in that case will be very difficult. As it is, it's been a tall order to bring the labor back into our plant. And like I mentioned earlier, the fact that we are at pre-COVID levels of plant utilization, from a throughput point of view, we are still not at pre-COVID level, and that is largely because of lack of labor or 100% labor not coming back. But this is improving every single day as we speak.

Right. Sir, I think just to clarify that perspective of getting back to pre-COVID level, not from the throughput perspective, but from maybe from the sales perspective, so we must be getting higher amount of sales through the inventory that we already...

I mentioned manufacturing. We are pre-COVID level from a manufacturing perspective.

And what would that be in terms of sales? How much would be the sales pre-COVID levels that we have already reached? And what are we looking at? I mean, when do we see normalization in that particular case?

That's very hard to say. Considering April and May, we did not have any production. So obviously, we have reduced our stock and therefore, production is one step ahead to regain that stock and all the material which is not available to us. Some material has gotten broken, some designs have gotten broken in terms of light or dark. So that is getting refurbished in our stocking. But from a sales point of view, I think we would -- we are aiming at about 85% of last year's Q2 sales. Anything further, it would be very misleading or foolish for me to still predict because we don't know. Like I said, we're going month-on-month. I have visibility of August and some kind of visibility of September, beyond which I would not be able to say, and neither I want to stick my neck out. But for Q2, we are looking at 85% of last year Q2, if that gives you some kind of sense.

Definitely, it does, sir. Sir, one more question relating to Morbi. As you rightly said, they are very busy with export orders. And I mean plants maybe -- must be running at full capacity. Just 2 points here is that, are we then facing any kind of production constraint or getting outsourcing mix from them? That is one point. And secondly, are you seeing, in that case, any kind of capacities closing down because earlier, the thesis was that those players will not be able to operate because they will be facing financial constraints. So assuming if exports are doing well, are you actually seeing any closures happening in Morbi?

So again, I'm only going by what I hear in Morbi. I don't have a BI. I think you guys have a better BI than we do as far as Morbi is concerned. But I do believe that out of 950 plants, about 700 have started. And I do believe that about 50 to 70 of them have permanently shut. The rest of them are going to have a tough time coming on. Initially, they had said that they will start in July. Then they said that they will start post Janmashtami. Some of them we are hearing now that they will start post labor coming back, and I don't know what that means. So to that extent, yes, there are going to be certain capacities will -- which will shut off permanently. But mind you, some of these capacities anyway would have shut off the minute the coal gasification had been banned. As far as supply constraints are concerned, touch wood, most of our joint ventures are back and running. We don't have any supply problems there. And out of the 10 million square meters approximately we have access to capacity, considering 53 -- 54 million is our installed capacity between us and our JVs and another 10 million we buy. Out of the 10 million, approximately 7 million to 8 million are outsourced, but they are outsourced clearly only for us. Those plants, although we don't have a partnership, but they are running pretty much just on Somany or majority on Somany. But yes, I must say that for the West part, we have -- we did face or are facing a little bit of a problem sourcing GVT type, although that's not a very large volume. We're trying to make that up from our northern facility. The South GVT plant was the first plant to go live on the first week of July. And our Kassar, which is the North GVT plant, both of them, as we see, have come onstream. So yes, there has been a small problem, but nothing very major to talk about. So from that point of view, we are okay as far as supply is concerned, because of our joint ventures and because of the other outsourced plants, which are dedicated to Somany, and if not dedicated, 70% to 75% working only on Somany products. So, touch wood, we are in very good shape as far as that is concerned.

Sir, that was really helpful. One last question, if at all, I may just squeeze in. Sir, I mean, last time we had a word and in the con call, you've mentioned that it's not yet clear. It will be a family's decision to increase stake in the company. Any such opportunity or any such thing that you're looking at, looking at the current market cap?

Ma'am, I had mentioned it even last time, we were in a lock for literally 1.5 years. So that is something which we have it at the back of our mind. We can take that off-line.

[Operator Instructions] The next question is from the line of Aditya Kondawar from JST Investment.

My questions have been answered.

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

Sir, my question was, on the export side, like an earlier participant had asked, I just wanted to understand if exports indeed can be a big opportunity from India, and there's a big shift that might happen from China to India. How different are the margins between exports and domestic? And does it now justify a certain ROIC to scale the export business as well, along with growing the domestic one?

The problem is that in export, the Morbi manufacturers give very extended credits, and they also give extremely poor pricing. So if there are those exports people who are quality conscious and also are conscious of the other -- of the vendor from a payment perspective, we internally do not do any business outside of LC. And there are certain countries which there are issues of LC or maybe the particular supply which we do have been -- we've been doing with this partner of the last 5, 8 years, there also we take a DA exposure, but nothing more than $30,000, $40,000, $50,000 exposure at any given party. So we are very careful, and our hands are tied because we do not do any business which is not backed by a proper instrument or payment instrument. And therefore, we lose out. Whereas Morbi, in the Middle East and in Africa, 99% of the sales are on an open credit, which we refuse to do, especially in these 2 countries.

Okay, okay. Got it. And when you say poor pricing, considering like, let's say, if we make 10%, 11% EBITDA margins on an average, as the company exports, how much worse would it be compared to that?

So I'll give you an example. I don't have export numbers. I don't concentrate on export, like I said, but I'll give you an example with ad hoc numbers. Let's say there is a particular tile selling at INR 100 and the same tile is sold by Morbi down to about INR 70 or to maybe INR 80. So that's the range for Morbi. In a domestic front, I get INR 20, INR 25, INR 30 premium on for my brand, for my distribution, for the consistency, design, XYZ. In export, it's the same pricing. In fact, the INR 70 to INR 80 band goes down to INR 60 to INR 70 or maybe INR 65 to INR 75. And there the guy, the buyer is expecting me to go down and giving me a premium of only 2%, 3%, 4% on that band which is substantially lower than what I get in India. And why that is? Because I do not have the brand, I don't have the distribution and designs don't matter because inevitably, in exports, the designs are very specific, and are mostly made-to-order and they buy those designs in bulk. These are the 3 reasons why export becomes that much difficult unless we have a clear cut agenda set out to export to those countries. So we only look at exports where the buyer is not comparing us to a made in Morbi and looking at us as a genuine made in India player.

Got it. Sir, at the INR 100 that we sell, we are making 10%, 11% EBITDA margins. And I think our production costs, probably, I would assume, is similar to what Morbi makes a tile. How do they make money at INR 65 per square meter? I don't -- I'm not able to understand how the math adds, sir?

Well, I would rather have you ask that question to them, but one quick one is that in India, they sell 50% of their products, which is without any bill or under billing or some kind of tax evasion.

Correct. But in exports -- okay, probably I should do my own understanding a bit more. Okay. Understood. And sir, just -- maybe one more question. On the demand side, maybe, is it just -- I guess, it's just a factor of how quickly real estate opens up in Tier 1 and Tier 2, right? I guess that's what we need to track for us.

Yes. So Tier 1 clearly will be a function of real estate opening up, but Tier 2 and Tier 3, 4, 5, we are not reliant on the real estate sector so much. If the villas and the condominiums which are being made by the final buyer or the renovation market which is coming up, and the renovation market really is looking up because people are looking at their home in a completely different way and upgrading their home in some way or the other, including all of us. I know that we have done certain upgradations and certain other upgradations which we would wish to do, and I talk for me personally, we are only not doing it and delaying it for the next couple of months from a fear of labor coming in with COVID. But the minute that fear goes, we are going to update the home because clearly, we're going to be spending more time. We've all realized that a lot of the wasteful travel is going to be now spent at home. So far more time, that's a huge positive of COVID that we will be spending definitely 15% to 20% more time than what we did earlier, which means home needs an upgrade. So that's happening. And it will only keep increasing. And the minute you go in for an upgrade, you're not upgrading to buy a cheaper tile. You're definitely more brand conscious in that case because you're buying in smaller number and you're not averaging your cost when you're making a house. It's a specific area which you are upgrading. So huge -- we're looking at a massive turnaround there, maybe not this year because we will still have these COVID pressures and unlock and lock issues. But over the next couple of years, it's a massive, massive positive for the branded sector.

Understood. And when you say that 80% of our sales comes from Tier 2, Tier 3 and those kind of locations, so Tier 2 -- basically Tier 1 would be just your Mumbai, Kolkata, Delhi, Bangalore, Hyderabad, those kind of towns. And then even Jaipur et cetera comes in the Tier 2. Is that the right way to think...

We have 9 or 10 cities, I don't remember in Tier 1 which includes the Punes and the Cochins and all of that. And then we have Tier 2, we have another 8 cities and everything else is -- no, little more than 8 cities and everything else is Tier 3, 4, 5.

Okay. And Tier 2 onwards you said is 80% of our sales, right?

No. Tier 2 gives us a smaller percent of that 80%.

Okay. So Tier 3 onwards is like a bulk, it's maybe like more than 50%, 60% of our sale is actually Tier 3s and below?

Yes. So Tier 3 would be a Banaras, it would be an Allahabad in the north, it could be a Ludhiana, it would be a Siliguri, it would be Coimbatore, those will be Tier 3 towns. And Tier 2 essentially would be Cochin, Pune, Nagpur, Chhattisgarh, these are the Tier 2 cities.

Okay, okay. Got it. And sir, I mean, I'm assuming that there's not a lot of pricing pressure in the domestic market. As we speak, I think Morbi is probably busy in the export side of things. So I don't think we're facing much of a pricing pressure, right, right now?

Yes. So it's not entirely true that it's only because of the export. It has also to do with economies of scale. 2 -- 3 things matter in the tile industry. One is, of course, the fuel cost, we all know. Second is the capacity utilization, which we have faced that problem in the last couple of years. So capacity utilization at normal fixed costs. So that is another thing. So today, their capacity utilization also is under huge stress. So therefore, pricing, how can there be pricing pressure here? We can't be selling at a loss, isn't it? I'd rather not sell, I'd rather keep the plant shut. I mean anybody.

Okay, okay. And probably last question from my side. What we heard -- like anecdotally, what we've heard is that demand from the export side is so heavy that some Morbi players are actually fully sold out. Is that the right way to think? Because that's good for a domestic player like us. We wouldn't have to face oversupply pressure, right?

The export is healthy for a couple of reasons: a, there are 300 manufacturers which are still shut in Morbi; b, all of these manufacturers which have started, also have the same problems as us where 100% of the labor has not come back. And if it's come back in numbers, they're not trained. Different labor has come back. They are also contracted out. So therefore, the throughput of the 600 let's say was -- which should have been -- example, 1,000 square meters, actually the throughput is only 800 square meters from those 600 units, just to give you an ad hoc example. So that is also an issue. Secondly, from an export point of view, Saudi and the Middle East was shut for -- completely shut because of COVID reasons and also Ramadan. So generally, they stop their supplies in March end itself or maybe even the early part of March, in some cases. So there has been some kind of even pent-up demand from there. But even otherwise, I think a lot of the nations are looking away from China. That also is a criteria. And therefore, we do hope that the world this time realizes to look away from China. It will be a huge positive for the tile industry, if that happens. Because a lot of the people would then move to export. And the competition with the anti-dumping in Saudi was also clearly from China. If they're going to look away from buying from China, then the next best competitive advantage is India at whatever price that might be. So it's a huge positive for India.

So it's a combination of basically lower supply matching the lower demand. So that's also like...

[Foreign Language].

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

First, in terms of your comment about dealer [Technical Difficulty] I just wanted to understand, is it more prevalent only in case of the Morbi sales? Or is it the case even in a branded company sales as well?

You mean the dealer inquiries which are coming?

No, no, no. You said dealer-to-dealer, they used to give more than a month long credit, a 1-year long credit, and now they are finding it better off to buy from the companies. So is it the case only with the Morbi? Or it is...

Yes. It's only with the Morbi dealers. They are not getting that extended credit, which they used to get from Morbi.

Like how many [Technical Difficulty]?

I'm sorry, I can't hear you very well.

Can you speak closer to the handset please.

[Technical Difficulty] I can't hear you very well.

Is it better now?

Yes, sir. You may proceed.

Okay. So I wanted to check how many dealers have we added given this phenomenon? And how are you looking at for next 2, 3 quarters? I know numbers are not clearly important, but just broadly to get a sense of the direction.

I'm sorry, I don't have the immediate number because a lot of the dealers, the forms have come in and everything has happened. But basically, because of COVID, people haven't gone there and closed the deal. So I don't have the number. My sales guys do have it. So Sunit can furnish that number off-line.

Sure. The second clarification I wanted is, you said that Tier 1 is roughly about 20% and Tier 2 and below is 80%. Is that right?

Correct. Absolutely correct.

And within Tier 2 and below, Tier 2 itself will be about 8%, 9% of that? And Tier 3 and below will be the rest?

Again, I don't have an exact number of that many cities and the sales there. In our formulas, we'd track Tier 1 and then Tier 2, 3, 4.

Got it. Sir, another industry level question I had is with respect to commercial versus residential. What would be the mix for the industry broadly and for us in terms of the tiles going for the commercial real estate and the residential real estate?

Largely residential, but that figure is very difficult to get because we're not tracking secondary sales data, we're tracking primary sales data, which is for us to the dealer. So all I can tell you is that what is the breakup of commercial and we -- there's 3 breakup between commercial, government and also residential, that's the breakup I can give you. Of the 30% business which we do or little less than 30% which we do with the private builders, the corporates and the government. So that BI is available, but it's largely residential in all the 3 segments.

Okay, okay. The other question I had is with respect to -- for our own capacity utilization, what is the capacity utilization for us in the month of July? Would it be possible to share for our own plants as well as for the JV plants?

I would not know exactly own plants. We look at capacity overall. So capacity overall is 66%. It will be -- that would be an unfair number because JV plant, all our plants are single line plants, whereas there are 7 or 8 lines in Kassar, and there are 3 lines in Kadi, so it won't be an apple-to-apple comparison.

Okay, okay. No, why I'm asking is, given your commentary, is it fair to assume that basically, the labor is a constraint for us in terms of picking up the numbers? Or is it the demand also is matching with the labor just like what do you think?

So labor is improving every week. So from that point of view, it's not been an issue. Obviously, the first plants to go live other than the south plant were our own plants. And then we started the Morbi plant. So for example, polished vitrified tile, we don't manufacture a single square meter within Somany, which is our own manufacturing. So obviously, that started at the end of June. And every week, we started one line, line by line. It was impossible to get all the labor at one shot. But I think those labor issues are behind us or will be behind us in the next 10 days, any which way. So that pain we've already taken in the month of June and July.

Right, right. Understood. And with respect to gas price, can you help me with the gas price for the quarter for our own plants as well as -- I know the utilizations are very low, but just from a number perspective for 1Q FY '21 for...

There's been a INR 10 reduction in the Kassar gas pricing. So broadly speaking, INR 30 standard cubic meter to INR 20 a standard cubic meter, plus or minus INR 1 because it keeps shifting. I'm giving you a broad sense. In Morbi, it has only gone down by 1% -- by INR 1.50, so from INR 30 to INR 28.5, INR 29. There's not been any shifts there. And in our South plant, it was at INR 23, that's also gone down to about INR 20 or INR 19.

And this you're saying Q-o-Q, right, compared to fourth quarter?

It'll be silly for me to give you the blended cost because the plants haven't run, so it doesn't really matter.

Right. No, you're talking about the quarter-over-quarter, fourth quarter and the first quarter? Or Y-o-Y when you are talking about the reduction?

I am talking an average of last year versus -- so the average of last year, the fourth quarter, fourth quarter only went up by a little bit because the dollar had spiked. So whatever -- in whichever way you look, it's INR 1 or INR 2 plus or minus. So I've given you the broad sense.

Right. And how is it trending in the month of August, sir? Has it further come off?

I think all of these prices which I've mentioned, I'm not sure for Morbi. So I think Morbi will remain at the similar levels of INR 28.5, INR 29. Kassar will move to maybe INR 22, INR 23 from the existing INR 20 and South will move in tandem to Kassar.

Given the cost differential, I mean, I remember probably a couple of years ago, we were more expensive than Morbi in terms of the fuel cost, given the taxes on the gas we are seeing. This seems to be an advantage. So do you see that we would be able to pass on something in same volumes? Or there isn't any change in the sales side of it?

No, no, we will not pass on anything. If at all, we will try and retain it. But mind you, this is a huge advantage from a cost point. And by the way, the cost differential was more of coal, and we were using gas from that point of view. But to answer your question, our plants, unlike in Morbi, most of the plants in Morbi are single plants or maybe only double line plants. Our plants are all 3 lines, 4 lines. And in Kassar's case, even 10 line plants, 9 to 10 line plants. So although I have an advantage on gas, but because all our plants are not running in both of these locations, they will start running. So in this quarter, at least, we will have -- this will offset, to a large extent, with our economy of scale. Therefore, we will not have any pricing advantage where we can get market share. And this would be the same for anybody who is running a large plant, us and our bigger competition.

Got it. And just last, if I may. With respect to these ICDs, what is the status? And what is the update on the cases, the couple of cases you have from the last...

So I had mentioned on the last call, the INR 35 crore which had increased had come down to INR 16 crores at the end of March. Obviously, last quarter, not much movement happened. But since last quarter, you will see the effect in Q2. Another INR 3 crore, INR 4 crore will go down. So we will have a balance of approximately INR 10 crore, INR 11 crore going forward. And hopefully, we should be able to clear, if not all, most of it within the year. But to give you comfort, a good 75% of that number is already back. And we are absolutely confident, the rest of it will also go back. Maybe there may be a 6-month delay because of pure COVID to finish the entire amount, but it's very much in control and all is good.

Great. Can you help us with the 30th June gross debt at consol level [Technical Difficulty] cash in hand?

Achal, you're referring to June number?

June number. As of 30th of June, what is the gross debt at consol level and the net debt?

Yes. It's broadly the similar number. It is improve by almost INR 50 crores, INR 60 crores. And primarily on account of this working capital improvement. And little bit on repayment for the first installment in the month of first quarter. So that is the number which was close to INR 500 crore, came down to less than INR 450 crore in June. And that is the gross only. Net debt, you can say, INR 50 crore of long-term investments, which we have at a standalone level, that remain there in consol balance sheet also as far as reporting purpose is concerned. There is no any surplus investments in other JV countries.

Got it. And would you have the operational cash flow for the quarter? How much it will be given the inventory reduction and all?

It can't be -- if you're referring to operational cash flow from P&L perspective, it can't be at all. But yes, if you include this working capital movement as well, there would be some betterment as far as inventory liquidation is concerned. So obviously, that benefit has come to us.

And also, in Q2, the working capital limits would be much, much better, and the interest cost will come down because we are underutilized. And in quarter 1, you would appreciate in April and May, obviously, with no receivable and no production, we were pretty much fully utilized on the working capital. So both of those numbers, you'll see a sharp decline in the interest cost also in Q2.

The next question is from the line of Deepak Poddar from Sapphire Capital.

Yes. Sir, I just wanted to understand, like if I look at last maybe 6, 7 quarters, so at the peak of our performance, we could do maybe a revenue of INR 500 crores with EBITDA margin of 14%. But I think last 3, 4, 5 quarters, our EBITDA margin has been quite volatile in the range of maybe 9% to 11%. So just wanted to understand some thought process from you like in future how do you see that basically in terms of you're going back to your peak performance? So any comment on that would be quite helpful.

That's currently a very open question. But yes, obviously, the endeavor is to go back. And like I said, if the volumes kick back, the various other initiatives which we've taken of cost-cutting, whatever we'll be able to retain from that will go down into bottom line clearly at the EBITDA level. Secondly, the raw material pricing is not under pressure and the gas price, if it comes down, and there's no pricing pressure, that should come to the EBITDA. And also, most importantly, the interest cost will come down because we are far more disciplined, like I said, on the receivable and we are extremely debt -- rather we are -- we have virtually no debt. So all of those things which were there 2 years ago are not going to be there. And when the volumes kick back, it will be quicker and faster for me to go back to those numbers. But it will be unfair for me to predict as to whether that will happen in 6 months or 12 or 18, I'm not sure.

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

Sir, in our initial comments, you mentioned that we've taken some price hikes given the fact that our GVT, PVT, ceramic portfolio is similar. So have we like taken price hike and how sustainable it is? Because we've been hearing since last couple of quarters now that across the board because of competition, price realization was on the down trend.

No, we've not taken any price hike. I did not mention any price hike. What I did say is there has been a down-trading and therefore -- and we have not been under pressure for any pricing. So discounting to that extent has been lesser, but there is no price hike. And therefore, we've been able to almost maintain realization although we have -- there has clearly been a downtrading in the product. So having said that, obviously, somewhere the value mix has played and also the lesser discounting in the market has played. And mind you, we have done all the sales in the last 3 months. And why the discounting has been less? Because we've done pretty much 90-plus percent of our sales in the last 3 months in retail because labor had completely vanished from all large projects. Therefore, discounting, obviously, is lower in the retail sector than in project. That also has given a little bit of an increase. And therefore, we've been able to -- even though there was down trading, we've been able to go up slightly on the average contributor -- average realization figure, right?

Okay, okay. Got it, got it. Also, sir, can you throw some light on the Bathware portfolio, how do we see things there? And out of INR 19 crores, can you breakup between sanitaryware and closets?

Yes. So the sanitaryware, we did INR 19 crores. We did INR 12 crores in sanitary and INR 7 crores in bath fitting. And yes, so that's what it was. And that's a 51% de-growth as far as Bathware is concerned. Last year, Q1, we did INR 39 crores, INR 25 crores and INR 14 crores. And this time, we did INR 12 crores and INR 7 crores. Like I mentioned, it's completely in tandem with last year.

Correct, correct, correct. And sir, on the CapEx -- so apart from the maintenance CapEx of INR 25 crores to INR 30 crores, we don't see much on the CapEx side, right?

Yes, right, there is no other major CapEx as such, except that maintenance CapEx, which the guidance we have been maintaining.

So we may want to upgrade certain printers. So there may be some CapEx going into printers, each printer cost between INR 2 crore to INR 3 crore. So there could be a couple of printers which will be added as we speak, but we will see. We will let you know -- maybe Q2 end, we'll let you know of that also.

Okay, okay. And sir, because of the anti-China wave, we are aware the U.S. has opened up in a big way. So apart from U.S., which other geography can be seen opening a big way where India were not present?

So U.S. is a tough one. U.S. has opened up for sure, you're completely correct. But it doesn't -- U.S. doesn't move overnight. So there will be a lot of product development, which will take place. But yes, it is going to open up. The other areas which have opened up is the ASEAN, which is Australia, New Zealand, all of that area. Indonesia has opened up very well. So these are the couple of areas which come to my mind. And Europe anyway had opened up last year itself because they had put in antidumping last year itself.

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

Nice to hear that you've said that this quarter we'll do above 85% of revenues what we did last year. So that would be roughly around INR 350 crore, INR 360 crore. So assuming we do that, what kind of margins do you look at? Because we have a lot of cost control done and fortunately, gas price are in our favor. So what kind of margins you look at, at least for Q2?

So obviously better than this year. But because we are coming from a very different number, I don't have it off the cuff, but we can give you some guidance off-line because we've come from a completely minus and we've done a decent amount of cost-cutting and gas prices are up and down depending on how much we use. So it obviously will be substantially better than what it is today. But exactly what it will be, I can probably give you a little bit of an indication off-line on that. But it's looking good. I mean, from our perspective, it's looking good.

So Arun, just to give you clarity, we can expect directionally only at this point of time, considering capacity utilization is also on the moving curve. And then demand disruption already is in place, although we are expecting it would be 35% or so. But since a lot of operational levers are moving in different directions and all the things are -- we are trying to such that we can do all these things, difficult to say any kind of -- putting in number as far as margin guidance is concerned. But yes, directionally, we can say it should be towards a better number on this.

So I think what he's trying to say is that the operational levers make a lot of difference and considering only by end June and first week August, we are at the pre-COVID level, but -- sorry, July. So whole of July, every week, we've been going step-by-step-by-step going up. So therefore, there is certain amount of operational lever which has not come into play in the month of July, which is coming into play every week as we speak. So very difficult to say.

And sir, you mentioned that in the earlier statement, when you started, you said that some part of our cost savings can be retained. I'm not talking about FY '21, beyond. Broadly, what's the number you're looking at?

That's work-in-progress, Arun. We have done some amount of costing -- cost. Initial was the big tickets, which is manpower and certain other fixed costs. But there's a lot of other line items we are looking at line by line. The first reaction, obviously, in quarter 1 was to look at the big ticket ones. And in quarter 2, we are looking at the smaller ticket ones, but it would be a decent number.

So would it be in the range of at least INR 15 crores, INR 20 crores or much lesser than that, broadly?

We'll let you know. We'll let you know. We're working hard towards getting as much as possible from a retail perspective.

The next question is from the line of Tejas Mehta from Old Bridge Capital.

I just had one question. Your balance sheet has substantially improved now. And possibly, you would like to take this balance sheet structure into the growth phase from here. Just one question I have over here. What would it take for us to be able to deliver a 10% kind of a revenue CAGR with a 12% to 14% margin? What should we really have to do on the P&L side to be able to deliver that sort of a margin and revenue?

Tejas, let's get on a call on this one because it's a fairly lengthy discussion. I don't mind getting onto it whenever you're okay with. Because there could be a lot of deliberations on this and there'll be many more follow-up questions from your end. So happy to do that. Happy to do that any time towards the end of the week or maybe next week.

The next question is from the line of Shrenik Bachhawat from JM Financial.

Could you please help me with the PVT, GVT and ceramics mix for this quarter and quarter-on-quarter and year-on-year?

Sure. So last year, average to FY '20 was 40%, 37%, 23%. 40% ceramics, 37% PVT, GVT is 23%. Quarter 4 was 40%, ceramics, 36% PVT, 24% GVT. Quarter 1 was 42% ceramics, 34% GVT and 24% -- sorry, 34% PVT and 24% GVT. I'll repeat it, ceramics 42%, PVT 34% and GVT 24% in quarter 1 this year.

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

Sir, more on the big ticket cost-cutting on the employee costs, do you think we will be able to sustain those cost cuts for the rest of the year? As you already have seen, the recovery rate being more than what we anticipated to start with.

No. So we -- whatever part cutting we did was from a yearly perspective. So we have done everything that this should be our cost, considering that we had done on extrapolation of demand disruption. So we had done the cost-cutting from a yearly perspective for phase 1, which was basically -- so let's say, we brought the number from X to Y, which is for only this year. Now the -- that was an immediate reaction. Now what we're trying to do on the employee front, again, doing a little bit further, obviously, it won't be to that magnitude, but we are trying to do now in phase 2, the cost cutting which can be retained for the next couple of years. So those are the 2 things which we're doing. But yes, we looked at it from an X amount of demand disruption, and we were the early ones to think of this, although we did the entire cost cutting, whatever we decided was in June, and I'm happy we did that because we saw what competition and everybody is doing. Also came to terms with the demand disruption because the later part of April, we had absolutely 0 idea. But towards the end of May, we had a better idea as to how the economy is opening and what the mood of the economy is. So we took this call in June. The caveat here, Nehal, is that we have taken the cost-cutting from a perspective that there will be no further 45-day 100% country shutdown. There may be unlocks and locks in various regions, various territories, that's going to be the new normal, at least for the next one year, which we have taken in our stride. But we have not factored in, in this cutting any other 100% lockdown like we did in the month of April and till 4th of May. So I think you may appreciate that.

Right. Sir, so since the salary cost is freezed almost for the year, how much of a decline should we take for the year in the salary cost?

Yes. So it's going to be in the range of 15% to 20% of salary cost, that will be the range. We've achieved 15%, we are now pushing for the rest part, which I just told you.

Sure. And sir, lastly, on the brand spends, how much of the freezing would we aiming to?

Brand spend is a moving target, Nehal. It's a moving target. Obviously, like I said, we didn't know where we will be landing up in Q1 and we still don't know where we'll land up in Q2. We are saying 85% gross, keeping in mind that no surprises happened obviously. So to that extent, it's a moving target. And fortunately, for our industry, majority part of the brand spend happen in Q2 and 3 and 4. So to that extent, my commentary is that we will be at 3% of revenue and as and when the revenue increases, we will keep putting in that kind of money. So if you've seen, we have not withdrawn any branding from any of the airports, et cetera, or any of the hoardings which we've done or any other things which we have done. We've renegotiated the rates, obviously, for the first quarter. Everybody understood that. And going forward, we're going to be -- you'll see us back in TV, et cetera, et cetera. But the spend will be going as per the monthly targets. And fortunately, we have that liberty in branding because [Audio Gap] example for Diwali, I just have to take that call. Why Diwali, even for IPL, I have to take the call 3 days in advance, and I'll still get the slot. So no worries on that. I don't have to preempt the spend and then regret it or then underspend and also regret it. Either ways, I think we're very comfortable.

Sure, sir. Really appreciate. Sir, lastly, if we see no further lockdowns coming in and as we are seeing urban centers now likely to open up, do you see -- how much of the probability would you see Q3, I'd say, 100% of last Q3, how much of a percentage would you assign to it as we speak?

I would sincerely want to answer that question only in October. Please, let us go through our Q2, and then we will discuss Q3.

I now hand the conference over to the management for closing comments.

Thank you so much, everyone, for joining us for the Q1 call. As you can see, we are extremely bullish and positive about the long run. And in the short run, we are tentative and extremely anxious as to how the country will open up, both in terms of the labor coming back and the demand coming back. I think the clear focus is on bringing the demand back and that is linked very closely to labor. So god willing, things should go well. And we are hearing good news every day like we heard from Russia yesterday. So hopefully, things should only look up and not look worse. And I don't think -- from an optimistic point of view, I don't think it should happen. So therefore, the worst is behind us. It's taught us many lessons. And hopefully, we are able to not let this crisis go away. So I would now probably look at a good quarter 2 and be with you guys soon after the quarter 2 results. Thank you, ladies and gentlemen.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.