Somany Ceramics Limited (531548) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Somany Ceramics Limited, hosted by Asian Markets Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhatelia from Asian Markets Securities. Thank you, and over to you, sir.

Thanks, Murtaza. Good afternoon, ladies and gentlemen. We welcome you all to the Somany Ceramics 3Q FY '21 earnings con call hosted by Asian Markets Securities. From the management side, we have Mr. Abhishek Somany, Managing Director; Mr. Kumar Sunit, AGM Finance; and Mr. Saikat Mukhopadhyay, CFO. I will hand over the call to Mr. Abhishek Somany for his opening remarks, and then we shall open the floor for question and answers. Over to you, sir. Thank you.

Thank you so much. Good afternoon, rather good evening, ladies and gentlemen. Welcome to the Somany Ceramics earnings call for Q3 FY '21. As you can see, our sales has gone up by about 11.8% on a stand-alone basis and 12.8% on a consolidated basis. That's backed by tiles volume growth of about 11.8%. The EBITDA consequently has gone up almost double on a stand-alone basis, about 60% on the consolidated basis. And you can then read accordingly the PBT and the PAT percentage, which has also has had a significant improvement over the last Q3. Similarly, in the 9 months, we have been able to cover a lot of the lost ground the first quarter. And we do believe that all of the lost ground of the first quarter would be covered in the quarter 4. And we are hoping for a revival and maybe a little bit of growth over the last year numbers, which means that we would be running the plant at 100% capacity even in fourth quarter. This should, again, keep the margins up, probably improve it a little bit more. Having said that, we have had a very significant increase in the gas pricing. So I will talk about that a little later. As far as the Tiles segment revenue is concerned, we have improved on the GVT mix by about 2% on a 9-month basis and on a quarter 3 basis -- Q3 basis over the last year. So GVT remains to be the focus, and we will continue to keep improving the GVT mix going forward. Within the GVT mix also, we have seen traction happening where if you remember in the last 2 quarter -- quarterly calls, I had mentioned that the value mix is slowly and steadily changing. So that continues to happen. The value mix further changes. So to that extent, we should be able to further improve within the GVT and the PVT and the ceramics the value mix. The realization, we've been able to hold. In fact, there's a very marginal improvement on that front. And we do hope that there would be a further improvement as we go along. Our margins don't seem to be under pressure currently, and we don't see the pressure even there for quarter 4, considering that quarter 4 is always a very large quarter. The Bathware remained at about 11% of top line. I have mentioned before that there is a little bit of a tail, which is still to be improved in the Bathware. I think most of it is done. We have improved the Bathware by a very insignificant 8%. But we look at a very, very bullish guidance for next year, which I will come to. As for the gas pricing is concerned, the gas pricing pretty much held on to the normal average for Q3. It's only in January and February that it has gone up very, very significantly. We had seen signs of this going up in December itself. I'm sure the exact pricing would come up as to what it is currently in the Q&A. The brand spend is maintained at 2.5% to 3% of revenue. If you see our results, the brand spend is now back to where it used to be. Salient points are that we have very well covered all the airports. We are significantly present in all the 4 major cities, which is Calcutta, Delhi, Bombay, Bangalore. And also we were associate sponsors for Big Boss for 2 months, which gave us massive traction. Currently, as we speak, we have a massive drive for outdoor hoardings and also a large drive for the dailies, especially in the focus markets. So that continues to bring us a lot of eyeballs as far as our advertisement is concerned. Capacity utilization was near 100% across the quarter except the Sanitaryware. Sanitaryware also is at 100% post Diwali. So post Diwali, one can say that 100% of Somany's JVs and our own plants are at complete capacity utilization. The data levels have also improved further. It's gone down from 63 to 56 days, and I think we have our next now target to go down even further in the quarter 1. In January and February, there's been a further improvement. March, we always have a little bit of an increase because of a slightly heavier month, but we hope to correct that even further. And you will see the first quarter at a much better number than what it is today. Inventory days are maintained. It is at 35 days and 63 days on a consolidated basis. We're quite happy with this figure. And I doubt there will be any decrease or increase on this on a quarter-on-quarter basis. However, in April, you will see a lower number. So March, like I said, is a higher sales, so you will see a low number. But I think the inventory days at 35 and around 60 is probably a fair number, which should be sustainable over the period, and I don't think there will be very significant reductions over here. Trade payables also improved to that extent. Our net debt equity is 0.3, although the -- sorry, the debt equity is 0.3, and the net debt is nil. We have had further improvement in the working capital, and we have approximately INR 120 crore in the bank, and we are drawing, obviously, low working capital. The long-term debt gets paid down further, and it has only improved on a Y-o-Y basis and on a quarter-on-quarter basis. The working capital, as far as the JVs are concerned, obviously, with an extra revenue have gone up a slight bit, but that is an Ind AS accounting. It is bill discounted. Therefore, it shows on our account, but otherwise, our debt is -- we're completely pretty much a debt-free company as of now. On the last -- on the first 6 months, we had done a reasonable amount of salary cuts. All of those salary costs had been rolled back. And we are business as usual as far as the salary employees are concerned. The other salient points are that growth continues to come from the Tier 3, 4, 5 towns. And that seems to be extremely, extremely progressed, the huge progress as far as that is concerned. Another salient point is that we have reduced our exposure to private builders to less than 5% and yet been able to increase our tile value, which is a welcome change. This phenomenon continues, and we have added approximately 400-and-odd dealers over the 9 months, of which approximately 200 dealers have been added only in quarter 3. And we do -- we are tracking the new dealer sales, which means new money has come into the system. That, again, is a welcome move. So the growth continues. As far as the sector is concerned, the export for Morbi continues. It seems to be extremely strong. Order book is strong, which means that there's a reasonable amount of market share, which the organized players are taking from the Indian industry. I think this is all as far as I have to say, and we can open the now floor -- open the floor to Q&A. Thank you so much.

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

Congratulations for decent set of numbers. Sir, my first question would be whether metros have come back and come back to normalcy? What was it in Q3? And how is it going at this point?

So the main metros still haven't come back. We've had some issues or the other. For example, in the last 2 months, we are railing with -- under the pharma movement as far as Delhi is concerned. So Delhi is down. But having said that, if you would recall that we had anyway moved our focus, even pre-pandemic to the Tier 2, Tier 3 towns. Therefore, the metros did not matter as much. It's the Greater Delhi and the Greater Mumbai, which we focus more on. And they seem to be inching back to normalcy. But they -- but to answer your question, they haven't come back to normalcy. Either the metros, be it -- let's say, these 7, 8 metros, so to say, of any significance in India haven't come back to normalcy.

So do you expect them to come back to normalcy starting February?

Of course, I think with the light at the end of the tunnel now with the vaccine up there, if it's not February, it would be April. But it's really not concerning us right now because our focus is more towards Tier 3, 4, 5. So even if the metros come back, we're going to focus far more over there.

Right. And sir, on your margin side, so our margins have been a bit improved from 12% to 12.9% this quarter quarter-on-quarter. Where do you see your margins panning out in the next quarter and possibly for the next year, considering the tailwind, which continues as far as exports are concerned primarily.

Right, Nehal. So this quarter is going to be hard to say as to what would be the improvement or would it be just -- we would be maintaining this. It would largely depend on how much of the gas price we will pass on. It seems so that Morbi has increased some prices. So yet to see. But I can assure you that the gas prices should start coming off again in April. So, therefore, quarter 1, we should see improvement. But this quarter, it would be foolish for me to say because the gas price increase has been unprecedented. Just to give you a flavor, I think if I'm not correct, don't hold me on record, but I think the gas prices record high since gas was found was somewhere in the $20s, mid-$20 in MMBtu, and the future for February have jumped from $10 straight to $39 and back to $10 on March 15. So this is clear funding. It's unsustainable. So to that extent, I think we would be able to maintain or slightly improve the margin, but that would largely depend on how much this month we would be able to pass on the gas price. So this month and the next 15, 20 days in March. But April onwards, I do believe that with the growth coming back with the entire economy opening, our sales would be strong, and the margins will also improve in line with that.

Right. And sir, any price hikes have you taken so far because we are hearing debtors being shipped to dealers, but have they got absorbed in the marketplace?

So it's too early. I am pretty certain that this time at least the pass on of the current gas price increase, which is approximately INR 5 or INR 6 a standard cubic meter will be augmented because Morbi has not -- I don't think will be able to bear this loss in the domestic market. So I'm pretty sure that this would be passed on, if not entirely, at least to 80% -- 80% to 90%. So yes, debtors have gone in for a large increase of price of about INR 2, if that is the debtor you're referring to. I do believe INR 1 will cost -- sorry?

Particularly in PVT is what we have seen.

No, but there's been subsequently a debtor this morning even for ceramics, between INR 1.45 to INR 2. So I do believe that half of that would be passed on, which is actually the true increase in the gas pricing.

But sir, you don't think Morbi guys will be aggressive enough to take price increases because I think it will be difficult for them to take price increases as far as exports are concerned. So the only way they can manage...

That is exactly what I am saying. For the domestic markets, I doubt whether they will be able to not take a price increase. They will have to take one.

Exactly.

Yes, I agree with you.

[Operator Instructions] The next question is from the line of Sneha Talreja from Edelweiss Securities.

Congratulations on great set of numbers. My question was again pertaining to similar gas prices. Can you please specify what are the gas prices in our each of the plants? And second most important thing, have you taken any price hike in the month of Feb or maybe Jan, sir?

No, we did not take any price hike in Jan. In Jan, we took a price hike for Bath Fittings because the brass prices went up in Jan itself. So that was passed on. For the ceramic part of it, Jan, we did not see any substantial increase in gas pricing. It's only in February where it has spiked unprecedently, like I have mentioned earlier. I'll come back to the exact pricing of gas. But to just to give you a flavor, we have already told the dealer, whatever price increase will be there, will be effective first of February. So within the week, we would have rolled out the price increase. We're just waiting for Morbi to substantiate and give us a guidance as to exactly what they have done. So today is Thursday, by Saturday, we will have the price increase rolled out in the market. But it will be effective from first of February. So that the dealers very clearly know. And I think with the debtors circulating, they're quite prepared for the same. And they're also -- they also know that it's probably a price increase for the next 2 to 3 months. And probably it would then be rolled back to that extent once the gas prices come up. So that's where we are. So we're pretty sure we will be able to pass on at least a very large part of this gas price increase. Now coming back to the gas price, we have 3 locations and 3 kind of contracts. One is the North location, which is our mother plant, which is the Kassar plant. There, we are linked to the 3-month average of the crude and not of the spot. It's purely crude. So there, the increase has been slightly lesser. So we have gone up by approximately INR 2 as far as the Kassar is concerned, and it's approximately -- currently, if we speak, it's approximately INR 29 to INR 30 as we speak. And the second is the GSPCL and BPCL, which is the Sabarmati Gas, we get that in Kadi. And GSPC we get in -- on our Morbi plant. There, the prices have gone up very significantly. They have gone up from the INR 27, INR 28 by INR 6. So they are nearing approximately INR 35 -- INR 34 or INR 35. That's the second contract, which is common to our Kadi plant and our Morbi plant. The third contract is our South plant, which is the spot gas. There, we are completely exposed to the market. And there, there has been an increase. We had an increase from INR 30 to INR 33 in the month of January and from INR 33 to INR 38 in the month of February, which started now, from February 1 onwards. This INR 38 from March onwards probably will come back to the INR 33, INR 34. But for the month of February, as far as the South plant is concerned, we would only be able to pass on to the extent of the Morbi price increase, which is from INR 30 -- INR 28, INR 29 to INR 33 -- INR 34, INR 35, so that's INR 6 increase. The additional INR 3 or INR 4 for the South plant, we would have to absorb for the month of February. And like I mentioned, the future, because we're totally exposed on the spot over there, we already know that the future for 15th of March is back to $10. So we're pretty sure that it will go back to the INR 33, INR 34 and equate with the Morbi prices. Have I answered your question?

Yes. That was really helpful, sir. Sir, my second question was related to exports. Of course, even you have hinted in the past of getting into exports. Any development on that front?

I'm sorry, I couldn't get your question. Could you repeat?

I was saying that you have been focusing -- you said that you'll be getting into export markets, especially with countries like the U.S. and all. Sir, have you taken -- I mean, where does your export stand today versus last year, any improvement there?

There's a connection there. I had mentioned that we would look at exports from the -- from an Indian perspective we're not sure of the volumes going in the Indian market depending on the lockdown. So therefore, we had said as a stop gap, we would look at exports. But I think we are now handsomely back as far as the Indian demand is concerned. Therefore, export remains to be -- will remain to be at about 6% to 7% of revenue, and I don't see that increasing because the domestic revenue is going to increase at a much faster pace. So export, I'm not saying is not of -- not a focus, but I'm saying export is not a priority. So to give you a guidance, our export will be approximately -- annualized basis, considering the first quarter we lost, export also we should be able to grow over the last year export figure. And next year, we're looking at a 20% increase in the export figure.

That was helpful, sir. Sir, one last question, if I may just squeeze in. Sir, you, of course, mentioned a lot about the gas prices. And if I understood completely only South is the place where we will not be able to pass on the cost increase completely. So with the operating leverage increasing offset that impact? Or could we see margins shrinking a lot in Q4?

No, margins won't shrink because South plant is only 3 lakh square meters in the entire scheme of things. So from that point of view on a weighted average, the INR 9 increase in South plant, INR 5 we will be able to pass on and INR 4 is something -- INR 3 is something which we will -- may not be able to do. So I don't see there will be any serious pressure on margins. Rather, I believe that we would be able to maintain the margin because please remember plants are running at 100%, and we will also do that extra throughput in terms of sales.

The next question is from the line of Ritesh Shah from Investec.

Sir, a couple of questions. One is would you have quantification of the Morbi export numbers on a monthly basis? And if you could marry it with the container issues, which were there, which were restricting exports, that would be useful. And again, a related question over here. How do you see working capital for actually Morbi? And how is it impacting organized players like us because of that? And that's the first question, sir.

Ritesh, I would not have back of the envelope exact figure on exports of Morbi. But happy to share it off-line. We will -- we can get it easily and get back to you. But what I do know is that the Morbi export, which used to be 21% of total revenue of Morbi has climbed to between 35% and 40% of total Morbi revenue. It's very easy to take out that calculation, but I don't want to -- it's a large number. So I'd rather give it to you off-line. The export continues to be strong there because the markets, which had the antidumping levied on China is looking at India very aggressively. And also the other traders, which want to hedge their bet against China are looking at India very aggressively. As far as the working capital cycle is concerned, I think Morbi is also greatly improved. With export, payments are not as much of a concern because I think about 40% to 50% of the exports happened on an LC basis. And the balance, 40% to 50%, also, there's an unwritten rule that money comes in between 90 and 120 days. In the domestic market, they have definitely gone down on their working capital by reducing the credit base, which they were offering, both on the sales of the cash element and also on the noncash element. They have reduced their working capital base on the domestic front itself. And that's obvious because their focus is mostly exports. And therefore, with the demand really strong in the export market, they've been able to do this correction in the domestic market. However, in the wall tile segment, the story is not the same. The wall tile is daily. The wall tile does not have the kind of traction in exports or in the domestic markets, like they have in the export -- in the export -- in the GVT and the PVT segment. So from that point of view, the wall tile, some plants are gaining, some plants have shut down. And we do believe that about 50 to 80 plants with this price increase if not forever they will shut down for the next 2 months because the quality has come down so much. So from a 16-kilogram box of a 12 x 18 tile, they're already down to 10 kilograms and under. I doubt they can go any further, which means that if they don't increase pricing, they will have to shut down. And these are the absolutely small, non-branded guys. I don't think they have the brand or the depth in distribution to have any kind of price increase.

That's very useful, sir. And my second question is, there was news around 18 new units in Morbi, which were expected probably in 9 to 12 months. Now given Morbi is doing so well, profitability has improved, exports are going up, do you think this incremental capacity a part of it can actually get diverted to the local market and they can actually play a foul on working capital? That is something what we have seen historically as well. I don't know the answer on ROC on exports versus local sales. But is it something -- which is something that one should keep an eye on?

Okay. So let me give you an answer in 2 or 3 different ways. One is that China used to export approximately $1.7 billion -- sorry, 1.7 billion square meters per annum. And India's total capacity is only 1 billion square meters per annum. So to that extent, China losing out that number is so large that even a small percentage of that coming to India is meaning that India has a lot more to sell than what it is selling today. So we are looking at exports becoming at least 40% to 45% of Morbi's revenue for across the globe and not only the concentrated markets of America, Brazil, Indonesia, et cetera. I think that will continue in the future. Having said that, we do have 80 -- I think, not really 80 units, but about 70 to 75 units, of which about 15 units are basically units which are modernizing, therefore, an X amount of capacity will go down and an X plus 10% capacity will come up. So it's not really a huge expansion from that point of view. But the expansion is of 60 units. So that comprises about 8% to 9% of the industry's revenue, which is going to come in. That's coming in all in the glazed vitrified segment, which we otherwise call as GVT. PVT and ceramics, there's nothing happening. The GVT also has already gone down so much in pricing that I doubt there would be any further reduction in pricing for GVT tile post the production coming in and also presuming that it is not absorbed almost completely in the export. So if it is absorbed 75% to 80% in export, we don't have anything to worry. Let's not forget India is also going up the -- as far as the infrastructure spend is concerned, you've seen the budget, the impetus is given on housing, et cetera, et cetera. So India will also grow. So from that point of view, if India grows at even 5% to 7%, the balance capacity of 20%, 25%, which will be for the Indian market will get absorbed. But let us presume for a minute that the export does not absorb the 75% to 80% of the new capacity. If that happens, there will be the same situation as wall tile. I think I'm comforted by the view that today the wall tile segment is gaining so much, and they have reduced prices so significantly and also reduced the quality of the tile so significantly yet they have not been able to sell. And there is no pressure on us as far as wall tile pricing is concerned. So if this has not happened in the wall tile segment, I would see the same phenomenon playing out where the -- I think there is a clear differentiation the market is now seen between the boys and the men. So from that point of view, the branded players, which have significantly better quality, consistency in quality are getting recognized finally. So I do not see any pressure, maybe 1% or 2%, which also will be in quarter 3 of next year, if at all, should come in as far as GVT -- specifically the GVT segment is concerned. So this is where we are. Everything else can be said, but it will only be proven when the capacity actually kicks in and how the world is, how the export market is, how the government expenditure is, how the real estate really moves up in India, all of those balls are up in the air. But the capacity, approximately 50% of that will start between June and July. There is a Gujarat Government scheme, which is getting over in July. So 50% of the capacity, the new capacity will start then. And the balance 50% will start between July and December. So this is where we are.

[Operator Instructions] The next question is from the line of Shrenik Bachhawat from JM Financials.

Sir, could you share the revenue share from the new dealers added in this fiscal and also the working capital detail -- working capital days again?

So this fiscal, we've added about approximately 400 new dealers, and the revenue from these dealers is approximately INR 75 crores. So please keep in mind that all the dealers obviously were not added in April. They were all added post July. Some were added in July. And obviously, the traction has been much better as the economy has opened up. So INR 75 crores approximately is the current billing from the new dealers and only increasing. The second question was on your working capital days, it is now at 61 days stand-alone.

Could you share the breakup, please?

Debtor is 56, inventory is 35, trade payable is 45, all in days. Debtor was 63, last year; 44 on inventory; and 31 on trade payable.

And can you share CapEx amount for FY '21 and '22?

We are looking at some aggressive CapEx. So I would refrain from saying anything right now because it's all in work in progress. We would be coming up with some announcement fairly soon before the next quarter results.

And for FY '21, sir?

FY '21 is maintained, is what we had mentioned. It's approximately 30 -- INR 35 crore, which was envisaged, which is -- 50% is routine CapEx and 50% was balancing equipment, et cetera.

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

Sir, just wanted to check -- you spoke about a lot of optimism in the domestic market as well as a significant upsurge that you might as well see in the exports market as well. So, sir, overall, given this optimism and with a low base this year, so how do you see the growth in the next year?

Yes. So I think the guidance for next year's growth would be a very handsome double digit. So mid to high numbers on the double-digit for sure. We will obviously try and better that, but that is something which we envisage. As far as the tile is concerned, and as far as Sanitaryware is concerned -- sorry, not Sanitaryware, as far as Bathware is concerned, Faucet and Sanitaryware combined, we are looking at between a 40% and 50% growth over this year's number. And obviously, if this kind of growth comes, margin will also improve in line from the existing 12.8% on a consol basis.

The next question is from the line of Pranav Mehta from Equirus Securities.

Congratulations, sir, on a very good set of numbers. Sir, I wanted to understand on -- any update on this ICD and that broker problem that we had. That is the one. And yes, sir -- and the second question is can you give us a breakup of GVT, PVT and ceramic contribution with the revenue?

Sure, I will. As far as the broker 1 is concerned, we're still in court. That matter has been pursued. There was another one, as far as the employee is concerned. There, I think we're waiting for the court ruling. Half of it we should be able to realize within the month or within this financial year. So we're extremely close to getting that order from the court. Everything has been agreed upon. The memorandum of agreement have been signed. So it's just waiting for the court order. At least half of that we would be able to realize. And the balance half would be subjudice, and there is a criminal proceeding going on, and the pressure is on the other party to pay that amount also. But you know how the Indian ports are. As far as the ICD is concerned, we were at approximately -- we are at single-digit now, where we were at low double digits next year. Last quarter, we further improved on that. And probably by the end of the year, we will be completely out of that issue.

Sure sir. And, sir, the breakup for GVT, PVT and ceramic -- yes.

Yes. So the tile revenue segment, if I look at -- I think quarter 3 and 9 months are pretty much similar, so I'll just give you 1 number. Ceramic is at 40%. PVT is at 35%. And GVT is at 25%.

Okay. And for the same period last year, sir, what could have been the contribution?

40%, 37% for PVT and 23% for GVT.

Next question is from the line of Nehal Shah from ICICI Securities.

Sir, another thing what we have witnessed in the current quarter results, some of our peers have given sequential better margins despite the fact that there was strong reversal and salary cuts as well. Now this was largely attributed to the narrowing of trade discounts, in particular. So have we also felt the same as far as our margins are concerned? Or our margins are a bit disappointing considering the other peers who have reported the numbers?

No, I think we are in line with what is sustainable. We should keep improving from here. So from that point of view, we're quite happy with our margins, and we will keep showing improvement with the 100% capacity utilization. We are on track. We had mentioned that we will come back to the 14% to 15% consolidated margin, which we had 3 years ago, and we're very close to that, and you will see that happening fairly soon over the couple of quarters.

Sure. And earlier, the commentary was that the salary cuts is going to remain equal for 4 quarters. And your opening remarks said that you have reversed for the next 2 quarters, including this one. So is that so?

That's right. That's right. So we were certain payments, which were annual payments, which we had held back until quarter 2, not knowing how quarter 3 would be. And was this a pent-up demand, which came in, in July, August, September, October -- rather, July, August, September. We were not sure of how Diwali would turn out. We were not sure of how this pent-up demand would remain beyond the festive season. I think the fact that it has been strong very consistently, and there's been no serious ups and down. It's been a very consistent upswing nothing surprising where 1 month goes up by a very significant amount and the other one comes down. It's been very, very balanced. So keeping that in view we've reversed that and that also has taken a lot of effect on the quarter 3.

So what kind of margin impact would that have taken?

Nehal, we can do that offline. I don't have it off -- absolutely off the cuff.

Sure, sir. Sure, sure, sure. And sir, what kind of guidance can you give for next year in terms of margins?

Nehal, we are looking at a double digit, very healthy double-digit as far as time is concerned, 40%, 50%, anywhere between that as far as Bathware is concerned. Looking at that with the operational leverages happening, and obviously, presuming that there will be no serious shock in the gas pricing, neither there will be a serious shock in the rupee, dollar, we should be able to keep improving margins quarter-on-quarter.

Sorry, sir, you said 14% to 15%?

We would be able to keep improving margins quarter-on-quarter. And I think key would be to have a balanced improvement and no swings.

Nehal, just to add, I think we are fairly confident that we should maintain our margin trajectory, what we are having now and a couple of basis points here and there, okay, which nobody can even predict. So we should maintain that. And in fact, going forward, what kind of volume growth we are foreseeing, whether we are hopeful to some improvement there. That is what we can say.

The next question is from the line of [indiscernible] Capital.

Yes, can you hear me?

Please, go ahead.

Yes. So as per your comments, we can see that -- we can hear that the traction from Tier 2, 3, 4 cities are quite well, right? And even we are going to consolidate on them rather than concentrating on the metros as well. So what kind of a ballpark figure -- revenue figures you can give for next coming 2, 3 quarters, considering the demand outlook over there is quite strong?

You mean how much of revenue will come from Tier 3, 4, 5 towns?

Yes, because that's where our main attention is, right?

I think our retail is in excess of 80%, and the Tier 3, 4, 5 towns are 80% of the 80%.

Okay. Okay, okay. And we are seeing the strong traction from these particular towns, yes. So most of the revenue growth will come from there?

That's correct.

Okay. And can you give a figure? How much percentage you are looking like coming 3 quarters?

This is going to keep improving. The Tier 3, 4, 5 town is going to improve because if we see our dealer development also, out of 400 a very substantial amount has been in the 3, 4, 5 towns. So they will also kick in on an annualized basis. So we do feel that this would keep improving. I would like to mention that the real estate is also going to pick up. The government is spending or is promised to spend a lot more on infrastructure. If you've noticed, they have mentioned specifics on that, where they're looking at further freight corridor, they are further improving the metro corridor. They have also been specific enough to say that Ladakh would be built again with the Central University coming there. So there's been a lot of -- and then there is a huge upsurge on the medical facilities, a lot more hospitals will come up. So if you read the fine prints of the budget, I think there's a lot to cheer as far as the real estate sector is concerned. That doesn't mean that it is restricted to commercial and residential because that's how we look at the real estate sector. But let's not forget that we will have more towns being built around the freight corridor, more infrastructure coming out around the metro corridor. And by and large, a lot more universities, schools, colleges, hospitals, specifically, coming up across India. So everywhere, I think there is a lot to cheer from an infrastructure point of view. And with the GST collections and the government on a strong footing, I think this should be on a continued basis over the next couple of years. Also, hopefully, they should be able to do the divestment they're looking at. If that happens, then they will have more ammo to spend on infrastructure.

So can you quantify how much of a revenue growth we are looking for coming 2 years so that at least what's our aim -- ambitions are coming 2 years?

I mentioned the revenue growth for next year. It is double digits -- healthy double digits for Tiles and 40% to 50% for Bathware.

[Operator Instructions] The next question is from the line of Karan Bhatelia from Asian Markets Securities.

Sir, can you split the INR 51 crore revenue in Bathware to Sanitaryware and Faucet?

Yes. INR 32 crore was Sanitaryware and INR 19 crore was Faucet.

Right. And sir, this is the second consecutive quarter where the Sanitaryware division's revenues were below expectations. So how are things shaping up now?

I think the Bathware has given a guidance of 40% to 50% increase next year. I think that's a reason enough to believe that the things are shaping up very well.

Right. Right. And sir, on the consol level, how much of gross debt do we have, consol level?

Sunit, you want to answer?

Yes. It's INR 390 crore to be precise on 31st of December. So -- and just to reiterate that, it is the same number, which was at September as well, which include close to INR 140 crore debtor's funding limit, right, which is not a setback. It's a debt payable, but by virtue of accounting standard, it is being processed as a debt. So if you remove that, there is a rather -- some amount of reduction itself from within the quarter from September to December. And this should keep declining going forward as well, what we'd expect. Our term loan is getting amortized on monthly and quarterly basis. And working capital, there is -- anyway this is a 0 level in standalone, and JV level also, it's not increasing significantly.

Right. Right. And for 9 months, can I have consolidated inventory, rupees in crores debtors and trade payables?

We have limitation, Karan. It's balance sheet numbers and which beyond a point, we cannot disseminate because this is a number which is not going to disclose. So we can talk directionally. And I think we have explained all the balance sheet credentials.

The next question is from the line of [indiscernible] from MS Capital.

I want to ask on the existing capacity, how much can we...

Sorry, I couldn't hear you. You got cut off.

How much can we grow on the existing capacity given we are at 100%?

So, this year, considering that we lost the first quarter and we will not grow very significantly over the last year number, we will be at about 52 million, 53 million meter square per annum. And we have access to capacity, inclusive of our JVs and specific outsourced partner, which is only for our brand. We have another 10 million square meters to go. So the kind of growth which we are talking about or saying the double-digit and the Sanitaryware, we are well in line, and we have enough capacity in our hand already to grow at that pace, or in fact, even a little better.

So if I put it in numbers terms, that's around 20?

Yes. Right.

[indiscernible], right, so -- and if -- as you are 100%, can I ask in Q4 you can go to 120%?

Yes. Yes, right.

And this quarter in Q3, could we have gone to 120% or demand was not there?

Quarter 4, we will do it. Quarter 4, we'll be closer to that number.

Got it. And so the capacity expansion after that, as you said, you have aggressive plans, so that is for the future?

That's correct. That's for the following year.

Right. Okay. And sir, on the Sanitary and Bathware, the segments only, we are looking at that high growth or the whole in the [indiscernible] segments is looking much more...

No, I think the mature players will be looking at a 15% to 20% growth, and we're looking at a higher growth because, a, we locked out on last year's -- last to last year's base plus which make our base even smaller.

Got it. Sir, and when you say next year growth 15%, 20% in your main tile -- tiles, that is on the FY '21 base because that includes the last quarter? Or is that on a Q3?

No. But we have already made up the last quarter. So the last quarter is no longer there. So the 20% is obviously number, which we will finish at the end of 31st of March.

Right. So then on an annualized basis on Q4, it's -- it on -- from Q4, can we grow in absolute terms in Q1, let's say?

From Q4 to Q1? No, never. Q1 is obviously a softer quarter.

No. Like I mean, from Q4 to going forward in the next quarters in absolute terms?

No. Q4 is obviously a very heavy quarter, but what we will be able to do in Q1 is be able to maintain the Q2, 3 numbers.

Manoj, just to give you 1 clarity, see, whatever guidance we give, it used to be on annualized basis, be it margin based volume growth and whatever. So it cannot be Q-on-Q or sequential, okay? So it has to be taken at an annualized basis.

Sorry. I just have a basic question. On the JV, our JV margins are higher than our own company margin. Is that right?

No, no, no. It's not higher. I can explain that to you offline. That's a long discussion. Just to give you another flavor as to what you ask and for the interest of others [Technical Difficulty].

Ladies and gentlemen, the line of the management got disconnected. Please stay connected while we reconnect them. Ladies and gentlemen, we have the management and will be connected back. Thank you, and over to you, sir.

Sorry, we got disconnected. For the interest of others, what I was saying is that the historic quarter 3 and quarter 4 numbers used to be lately different. So if the quarter 2 for -- quarter 3 was for example 100, the quarter 4 used to be 140 or 150. This year, it is not like that. It is going to be a gradual increase, which I mentioned earlier on Nehal's question. So which means that our quarter 1 will start at a very strong base, and we're very confident while the quarter 1 starts at a strong base it gives us a good trajectory for the entire year.

The next question is from the line of Rajesh Kumar Ravi from HDFC Securities.

Congratulations on good set of numbers. I have few queries, first on the Morbi. As you mentioned, that 50% of the upcoming capacities will get commissioned by July. So what sort of impact do you see in domestic market because of these capacities coming up in Morbi? Hello?

Sorry to interrupt, the line of management got disconnected again. Please stay connected while we reconnect them. Ladies and gentlemen, thank you for patiently holding. We have the management line reconnected. Thank you, and over to you sir.

Sorry, there seems to be some issue with the connection. But go ahead, please.

Question first is impact of upcoming capacities in Morbi for the domestic players -- players in the domestic market? And second, on the growth number, obviously, FY '21 is a truncated year. So if we have to look at FY '22 versus FY '20, how would those numbers look like? And lastly, on the Bathware, what is the average margin profile in that business?

So the average margin performance of Bathware is about 14%. As far as the truncated year is concerned, if I have to discount that and look at the previous year, even then we would be at a very healthy double digit numbers. So I think I was under question from that point of view. And the first question was what? Could you once again ask?

You have discussed capacities in Morbi.

Yes. Yes. I think you joined late, but I had explained in detail as to how we see the Morbi capacity impacting. In one way, if it is not completely...

Hello? Hello? Operator, I cannot hear the management.

Sir, please give me a moment.

Yes, very confident of next year.

Yes. Sorry, sir, you line got...

Yes. So, we think that in both scenarios, we are very confident. We are cautious on the excess capacity coming in. And if it comes in and gets absorbed in the export market, obviously, there's more cheer for the domestic players such as ourselves. If it doesn't get export -- absorbed 100%, that is a scenario also I had discussed earlier on the call. Happy to do that with you offline. But regardless of whatever scenario it is, we are looking at a very decent double-digit growth.

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

Sunit, just a bookkeeping question. What's your consolidated cash position?

Yes. [indiscernible] basically the surplus at a parent company only. Any companies are the companies who are actually hardcore manufacturing companies, so there is no surplus cash as such except a couple of crores, which they used to have in routine flow of accounting. Although the number used to be significant even with a couple of crores because there are a good number of entity. So if you exclude that, it would be close to INR 130 crores, INR 135 crores in totality.

So basically, our net debt position is close to INR 255 odd crores?

Yes. Close to that, right.

The next question is from the line of [ Gaurav Singh ] from [indiscernible] Capital.

Congratulations, sir, on a good set of numbers. My question was regarding your brand spends. What's your brand spend has been like for the past 9 months?

It maintained at -- between 2.5% and 3%. And it will continue to be maintained at a larger number next year at the same level.

Okay. Because you've seen your hoardings and a lot of this advertisements right across the airports. And so my question was, has there been any tangible benefit that you've seen as to how we stand in comparison to the likes of CERA in Sanitaryware and like the Kajaria in tiles? And have -- has there been any pull with regards to Somany's brand in the market?

I can't compare to CERA. It's a different segment altogether. The direct competition or the comparison should be with Kajaria. They have obviously spent also the same amount in percentages on a higher number. So you see, in an absolute terms, they have spent more than us. But otherwise, I think we are neck to neck as far as our spends are concerned in terms of percentage. And as -- and our endeavor is to see how smartly we can be more visible while he spends a little more on an absolute number. So to that extent, yes, you will see apple-to-apple a little more of Kajaria. But for example, in the airport, we are extremely significantly present. On the TV, we're extremely significantly present. Kajaria was not there on TV. So to that extent, I presume Kajaria's brand spend would be slightly lower in percentage from us. On an absolute term, obviously, it will be very, very substantially lesser than last year. So that's an added advantage to him from that point of view. But I think we are -- if I had to compare with the other manufacturers in the system, we're very happy with the kind of eyeball we've got. It's hard to say how advertisement work. It's a long-term investment, and we are very convinced that the brand will only keep getting recognized year after year. So therefore, this long-term investment is going to continue from Somany's side. Even in this poor pandemic year, that was one spend we did not cut. It would have been very easy to cut it to 0 and nothing would have been lost this year, but we maintained it at 2.5% to 3%, and we will continue to maintain it at 2.5%, 3%.

Right, sir. Sir, my second question is with regard to market share. We can see you have a handsome market share of the market that you are being in. But as regards how the company is valued on the market, I think a couple of issues that we've had in the recent past, for instance, the broker issue and the other issue, which has sort of hit us on the -- on how we are sort of seen in the market. What are we doing internally so that that image changes and we are seen as a more corporate -- with regards to corporate governance and the internal issues, how we can handle them better?

So we have done a lot of work internally to see that this does not repeat. As far as the ICD concerns, I think by this year that would be out of our way. We will be completely out of that issue. As far as the employee fraud is concerned, it's unfortunate that both of these issues happened one after the other. On the employee front, we have given an answer that we should be able to recover, if not all, at least half of it pretty much immediately. And on the broker issue, this could have happened to anybody. Beyond a point, there's only so much you can do with any kind of internal control. So to that extent, the decision there is that there will be no repeat of the broker issue because we have taken a decision at the Board level and passed a ruling that we will not maintain any treasury. Whatever money we get in, we will use for effective working capital management or reducing our debt. So from that point of view, whatever excess cash which we have in our books currently, about INR 135 crores, which Sunit mentioned earlier, that's all in an overnight fund in an FD. So we do not wish to maintain any treasury. And the plan, which we have for our expansion also, the cash which we have in our bank, that is the kind of cash we will use, and we will make sure that we do not increase any debt levels on the company, even though we would expand capacity.

That's very good, sir. And the debt investments that we had in SREI Infra, have we sort of taken that out?

That continues. How will that get out? I mean that's -- half of it has been realized, where it matured, and the rest is going to mature in 2024. Currently, they are servicing interest well on time, in fact completely on time. So we do believe that, that will also be out of our way. But that to an extent is already out in the open. It's discounted. It's unfortunate how our valuations are looked at in the market. There's only so much we can do to improve. But I think with the numbers improving, with the other commentary, which I continuously had been given and the fact that we -- such a significant treasury, which we're building up quarter-on-quarter, we are not using it for any treasury operation, but putting it in the FD and then be satisfied with that and using the money to augment capacity, et cetera. That's the only commentary, which we can give. And like I mentioned, once again, the ICD issue, which was there is virtually done. We're in single digits now. The number was INR 35 crores. So in virtually -- 15 months, we've come down, as why very clearly said that, that was never under question. But the market obviously was jittery and questioned it because those frauds that happened. But I don't think there is any further fear on that because we are well within the single digits number. And like I mentioned, by this year-end, we should be out of that. There should not be any ICD, other than the ICDs, which are there for the JVs.

Right. Sir, you have done a wonderful job on the operational front. It's just that a matter of IND it is out. And if they get timed out, I think there's a significant upside to your valuations in the market.

We got hammered and punished for one part, which you can say was our mistake. And the other part, it could have happened to anybody. I've mentioned even the larger companies, well-run companies like Dalmia's this thing has happened, which was unfortunate. It happened back to back. Time is the only healer. But from our side, we are absolutely focused to improve our numbers and not really bothering beyond the point and pulling ourselves down on a daily basis. We're looking at numbers and we're looking at continuously improving that because all of these mistakes anyway we have weeded out. Now it's a question of the memory as to how they will forgive this at a later date or quarter-on-quarter. And I think that has already begun to happen with our numbers coming up. So we're very sure of not repeating any of those issues.

[Operator Instructions]

I think I can make the closing comment. Should I go ahead?

Yes, sir. As we don't have anyone in the question queue, I would now like to hand the conference over to the management for closing comments.

Thank you very much for joining us for the Q3 earnings call. It's really heartening to know that India as an economy has bounced back with really excellent numbers overall. We've seen that GST collection also improved very significantly, highest ever since the GST bill was passed. As far as Somany is concerned, we are very, very excited for quarter 4. It will be significantly better quarter on all fronts. Gas prices have gone up. That will play a little bit of spoilsport, but we're still hoping to maintain margins or better the margins in quarter 4. But next year, we are extremely excited. We are looking at a double-digit -- a very healthy double-digit growth on the top line for -- which is majorly volume-driven on the tile front and maintaining or probably improving our average realization, thus improving our margin. And on the other hand, on the Bathware, we are looking at a low base, probably we are looking at a 40% to 50% growth on the Bathware segment. It's an aggressive growth, I know, but we have taken that challenge internally. We may be off by a couple of percent. But it's an aggressive growth, which we've taken, and we are quite confident that we will be able to achieve that. On the margin front, like I mentioned, with these -- both these growths happen, and we are able to improve on our debtor days, inventory days, trade payable days and also our average realization, we should be able to improve our margins, again, quarter on quarter-on-quarter. So you should be able to see some improvement from Somany Tiles on that front. We will welcome you again in the month of May after the quarter 4 and the finish of this financial year. Thank you so much once again for joining us.

Thank you. On behalf of Asian Markets Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.