Somany Ceramics Limited (531548) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Somany Ceramics Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, Head of Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. On behalf of Somany Ceramics Limited and all of us at the SKP Securities, it's my pleasure to welcome you to this financial results conference call. We have with us Mr. Abhishek Somany, Managing Director; along with Mr. Saikat Mukhopadhyay, CFO; and Mr. Sunit Kumar, AGM Finance. We'll have the opening remarks from Mr. Somany, followed by a Q&A session. Thank you, and over to you, Mr. Somany.

Thank you, and good evening, ladies and gentlemen, for the Q3 earnings call of Somany Ceramics. It's been a fairly volatile quarter for all of us with the unprecedented commodity price increase, freight increases, the all sort of COVID coming towards the month of December. So that obviously did not affect too much of the business. But as far as we are concerned, we've had a growth of about 20% on a stand-alone basis and 19.5% on sales volume -- sales value on the consolidated basis, and we've grown by about 5% in the quarter in terms of volume. The reason for slightly lower growth in volume has been that there has been unprecedented growth on increase in prices, and there was a nonavailability of material in Morbi. As you all know, we are dependent on our PVT segment purely on Morbi. And there, there was a lot of plant shut from Diwali onwards. In fact, 10 days before Diwali, primarily because of the price increase and the pressure on gas pricing over there. And therefore, we were able -- not able to secure approximately INR 25 crores, INR 30 crores of material, which we could have done between November, December in -- mostly in the PVC segment, also in some parts in the GVT segment, in the north part of the country and the west part of the country. So there's been a little pressure. And other than that, it's been a fairly decent quarter for us. We've grown fairly well sequentially and also Y-o-Y. The margin, obviously, has been under pressure because of the gas price increase, single-handedly the gas price increase. And obviously, along with the gas price certain other commodities go up. But I think it was in line with what we had envisaged, obviously, the extra INR 25 crores, INR 30 crores of sales, which we did not get that would have further improved the margin by approximately 1% to 1.5%. So that would have been more in line with what we had projected at the beginning of the quarter. The ceramic segment has remained approximately at the same level. The PVT segment has gone down by 2%, and the [ GVT ] has further gone up by -- from 28% to 29% of our total sales. The other thing which I need to report is the Bathware. Bathware is inching up. We've done a 20% growth, and I think it will be even better in quarter 4. Gas price, like I said, has been under pressure. So we are on 3 different contracts in the gas line. Our northern plant is on a 3-month moving average contract in where the prices have been -- have moved up sequentially from INR 40 to INR 43-point-something per standard cubic meter. In the West, in Morbi, it has moved up from INR 38 to about INR 57 a standard cubic meter on an overall basis. So actually, currently, it's at INR 62 a standard cubic meter. And in South it's approximately INR 92 a standard cubic meter as we speak. But then that happened as a [ Indiscernible ] effect. So overall, we were at approximately 60%. But this quarter, we will be at INR 90 level unless this goes down over the next few months, which is predicted to. The other sale end point is that our capacity utilization has been pretty good. We've been at 95%, almost 100% on the tile front, 100% on the faucet front and sanitaryware until 15th of November, we were at 50%. But after that, we've been at approximately [ 100% ]. The brand spend is in line. Our brand spend happened only in quarter 3 and quarter 4, so that's been in line. You must have seen us visible on the airports and also on various cricket matches, which has been a new for us and also across the channels, across news, north, south, east, west. The trade addition has been also fairly robust. We've added 150 dealers in the first 9 months, a net addition. So this would go up further in quarter 4. So we should be at about 250 dealers considering the first 3 months, nothing really happened because of COVID. The debtor days is under control. We have further improved our debtor days from -- it's gone from 51 days to 42 days, and this will further come under control going forward. Net working capital, obviously, as a result, has also gone down from that point of view. Debt equity is at 0.4. Net debt equity is nil. We have increased prices in the last quarter to offset some of the gas price increases. So approximately a 7% to 8% increase. And 80%, 85% of our input cost, we have been able to increase and pass on, but that's come with a 15-day lag because whenever the gas price goes up, we can only pass it on 15 days later and not immediately. As far as Q4 is concerned, Q4, I think we have partially tied up the volume, which we lost in Q3. So obviously, the volumes will be better for us in Q4. That's for sure. And gas price seems to be under control, except in the north, which is the 3-month moving average on oil. So if that doesn't move up very, very significantly -- it has signs of moving up significantly, but if it does not move up significantly -- and also the other variable is that if this goes up maybe in the South and in the West, things may become better because there we are spot. So to that extent, the volume will get better in Q4. Margins obviously will remain under pressure with the gas price increase, so -- or increasing trend. Therefore, we are thinking -- we are predicting that the margins will be in the current range plus the little benefit, which we will get from the extra volume of Q4, both in the sanitaryware, Bath Fittings and on the tile segment. Other than that, I want to report that we are in stream, in line for the starting of our plants, the 3 plants. The first plant, we believe will start in the South or the West, there's literally a week apart. So by end February, one of those plants will start. And early March, the second plant will start. And the northern plant, which is the volatile plant will start closer to March end. So we will have all these plants up and running by this quarter itself, which means for next year, we will have all the plants up and running, which should significantly increase our volume and also give us a good input on our margins. Happy to announce that we have -- as you must have seen in our announcement, we have also planned to start slab plant, the big size slab plant where we can make thicker tiles and larger format tile. We are going to do this in Morbi, and it's still work in progress. More detail will be shared with you on the next quarter -- on the quarter 4 and the yearly earnings call. By that time, hopefully, we would have ordered the plant, but more details on exactly the product, the capacity and to the last exactly what it would cost us would be announced. But we are going to be putting this plant again on virtually 100% internal accruals. So this is for me, and I would then pass it on to question-and-answer to the segment. One last word is that, hopefully, we are very, very bullish of the trend. This is an aberration of the gas price increase and commodity price increase virtually worldwide. But other than that, we are extremely bullish and therefore, we are very excited for the new 3 plants to start. And therefore, we have already preempted better demand for the bigger size tiles and announce the next phase of expansion. Thank you so much.

[Operator Instructions] The first question is from the line of Rajesh Ravi from HDFC Securities.

Yes. Thanks for the detailed opening presentation and also for keeping your balance sheet and working capital and tight controls. Sir, you talked about the gas prices. If you could again repeat those numbers from like how was -- what was the average prices for you in North West and South in third quarter? And similar quarters Y-on-Y, Q-on-Q?

Y-o-Y and Q-on-Q. Y-o-Y is a massive increase. There's no point even going there. An average of INR 25 today, we are averaging in various places between INR 44, INR 60 and INR 90. So there's no head or tail to that, but I think sequential would be a better base because kind of unprecedented increase we've never seen in our life. But sequential could be a better base. Sequential our North price used to be, INR 40, it's gone up to INR 43.5, INR 44. The West price used to be INR 38, that's gone up to INR 57. And South happened in the [ Indiscernible ] South was INR 44, and that went to INR 60, and that's further gone up in December, so that's the average. But going forward, North, we see upwards from INR 44 going up to INR 50 in the next 2 months. But then West and South, we do believe that there would be certain respite over there because spot from the November level has come down. So from that point of view, we're yet to see when those prices will go down. West and South should go down either in the next 15 days or definitely by March for that matter.

Okay. So when you say North INR 50, this is the peak quarter end price you are seeing or at an average price of INR 50, which you're expected in North.

No, I'm not even sure if it's the peak quarter end price. It'll probably be -- in April, this price will come. So I think we will be in the INR 46 crore to INR 47. In the [indiscernible] giving you a trend as to where the prices are going -- and over here, increases month-on-month. I think but we should be looking at INR 50.

Okay. And based on current prices, January prices, what were your average prices in West and South?

I just mentioned that around INR 60.

Both in West and South, and now you expect that in the next 15 days, there should be some cool-off?

South is INR 90.

South is INR 90.

West is INR 62.

West is INR 62 average. And sir, where is the south gas coming from?

Same as West. South gas comes from IOC from spot.

Spot, okay. And second question pertains to...

Other members who are listening in. South is 100% on spot. West is 50% on local, 50% of spot; somewhere there, ballpark. And north is on RasGas, 100% from RasGas.

Right, right. Great. And sir, second question pertains to your CapEx. I know that you're timely executing your expansions almost and the new capacity which you have 4 million large-tile format tiles, which you are setting up. So this INR 170 crore CapEx, is that the total CapEx which would be required? Or this is your investment?

This will be the total CapEx.

Total CapEx. The subsidiary is 100% own?

Yes. Currently, it will be our investment, and it's going to be 100% internal approval.

And sir, by when this project would be expected to come on stream?

Like I said, it's work in progress. So you should expect the project in first quarter '23.

So within a year time frame, you're looking this to be up and run.

Yes, yes, within a year, maybe 13 months.

Okay. Great. And if I can squeeze in one more question on the demand side, you said that volume growth is looking strong in this quarter. So and -- but there could be some pressure on the margins because last year, fourth quarter margins were quite strong, around 16%. So would that be difficult to achieve because if there is a good demand, would it not be able to pass on the cost inflation that you have witnessed?

Absolutely. We can only pass on about 80%, 85% of the cost. Last year, prices were absolutely at the top bottom last year, same prices to that extent it -- this kind of margin will probably see when the entire plant comes into a way probably a year later, if the gas price is low.

Okay. And sir, we also see subsidiary this outsourced volumes are growing at a faster pace.

We will go to next participant and you can come back in queue.

No issue, sir, I'll come back in queue.

[Operator Instructions] My next question is from the line of Shanti Patel from Shanti Patel Investment Advisors.

My question is these 3 new plants which are going to be operational, what is the total investment you have made? What is the approximate revenue it is going to generate? And what will be approximate against an over profit that is [indiscernible] plants...

So we have clarified this earlier also. These 3 plants together at a full capacity utilization would be giving us a revenue close to INR 250 crores to INR 300 crores, depending upon the products and sizes and all these things. So this is a broad range, which we have clarified in earlier calls well.

What will be the contribution to gross profit?

So it would be 20% in terms of additional capacity. So the 20% capacity addition would be there. As far as profit contribution would be difficult to put a number to it. But yes, it would be a decent profitable segment from these 3 products, considering these are putting a high-end products. So all 3 plants are doing -- would be producing high-end products, GVT and the high-end volatile, so it would be profitable, margin accretive.

The next question is from the line of Kaushik Poddar from KB Capital Markets.

See, last year, this quarter, that is the March quarter has been a great quarter for you guys. So how do you see the volume growth in this quarter? And what is the volume growth you project for the next quarter -- next year?

So next year, I can -- I don't have it off the hand, but those 3 plants, like I said, we have a shortage of materials for those 3 plants coming on stream, we would sell that much. So there will be an addition of 10 million square meters. You can do the math, I can let you know. I don't have it off the cuff. As far as this quarter is concerned, we have a high base from last year. I think if we are able to garner that kind of material, we'll probably have a little bit of growth. Otherwise, we're looking at a very marginal growth in volume for package growth in volume. Like I said, we're not being able to get the entire material of PVT, from Morbi because there, the prices have gone up and some plants are still shut for the PVT and like you all know, if you've covered tile. The PVT plants are very few. There is more influxes in GVT and ceramics. So to that extent, we are able -- not able to garner 100% of the PVT material. And that is not because there is a problem with PVT in future. It is a question of current pricing where the PVT pricing and the GVT pricing are more or less the same as the current gas pricing. The minute the gas prices go down, all these PVT plants will start up and running, and we'll get more than enough material. So it's more of a momentary lapse currently. I think the guidance for next year can be a decent double-digit growth, which I have said even in the last quarter. So a high double-digit growth is what we're looking at for the next -- not next quarter, I'm sorry, next year.

Okay. So what you're guiding is that it's more the supply side problem rather the demand side problem? Is it a right conclusion?

Yes. supply side was mostly on the PVT and that is also because of the tensing situation, not otherwise.

But the way the whatever experts are predicting on the oil scenario. I mean oil is expected to be very -- the crude price is expected...

Gujarat is not on the oil, Gujarat is purely on gas. And gas is...

But gas has -- gas price has a correlation with oil price, right?

No, not on the spot market.

Okay. Okay. So that -- you don't think the gas price going up next year if the crude prices go up, is it fair?

I think gas prices by quarter will start going down globally.

Okay. Okay.

I'm not an expert, but generally somewhere it goes down.

Okay. Okay. Now I was just predicting the U.S. gas prices, they at least have gone up in the first -- in the month of January. That's what I see. So I don't know whether that has a relation with the price.

We don't get U.S. shale gas, we get basically spot from the other countries. But I mean what I've learned is that the spot has gone down a little bit from the peak of November.

And these gases are sourced from the Middle East only? Or what is the source?

We have no idea. You need to ask IOC and [indiscernible] that question.

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

Am I audible?

Yes.

I just wanted to understand in the current scenario, when the gas prices are high, -- so what sort of normalized EBITDA margin range that one might be comfortable with maybe next year?

So depending on the -- so I think at current prices, the current EBITDA margins, you have seen if the volume move up, obviously, that will offset already the gas prices are absolutely at record highs. If it goes up, it will go up by [ 10 bucks ], but not from [ 25 to 19 ] as we've seen. So going forward, I think we are looking at much better EBITDA margin because volume will go up. And at the end of the day, I have maintained when we even in the earlier days when we had a flat growth, which is 2 years ago, I set reporting that at the end of the day, it is a volume game in tiles and capacity utilization -- capacity utilization, fortunately is decent. Therefore, it will offset it and it is our own production this time and value-added production for GVT and other products. So to that extent, our EBITDA margin will obviously move up, regardless of gas price going up or down. Obviously, if the gas price goes down then from the current base, you will see a huge increase. If not, from the current base you definitely see it decrease. That's the only guidance I can give you unfortunately because I don't have any eye on where the gas is moving in such a volatile situation. Probably by February, March, we will have a better idea. But what I can definitely say is that 10 million extra square meters, clearly, we are looking very, very good as far as that is concerned because the rest of the balance sheet is on the check and getting only better. Our debt is getting paid off from [ Indiscernible ] level and also at the stand-alone level, we have anything anyway none and working capital on the check debt is on the check, stocks are under check. So from that point of view, we are not making any mistakes. It's a question of gas price versus volume, we're looking at decent volume, they're being able to sell capacity, eagerly waiting for the new capacity, which will definitely, definitely improve EBITDA margin.

Yes. Sir, that's fair what you said. But just on an assumption that gas prices remain stable at the current level and the volume improves. So on that case...

If you look at it in a different way, we were looking at 1.5% to 2% EBITDA increase when the gas price has not gone up considering we would look at volume, that's the same increase we would look at. And because it's gone down, if the gas price goes back, this would be a bonus from current levels. Do you understand what I'm saying?

Yes. I understood.

The next question is from the line of Suraj Navandar from Sampada Investments.

So this new plant which we are planning for large size format in...

Can you repeat that please, we lost you for a minute.

Can you hear now?

Yes, please.

Yes. This is the new plants which we have announced in Gujarat for the large format tiles. What sort of margins do you tie attractive trading? Are they much better from what we are doing currently or we are in the same range?

So the plant will produce both the current range of products and also the higher end products. So, how much of what it will produce -- like I said, it is still work in progress. I would be able to answer this question more sharply in the next couple of months exactly when we do the math on what products we will produce, how much. But yes, your assumption is correct that it is much better for at least 50% or more of the plant, it will be much better.

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

My question is you mentioned that sourcing has been a challenge, specifically because of the PVT tile front. If I look at the numbers in terms of the outsourced tile volume, it is already a closer to the peak summer, what we have done in the past. So is it that the incremental capacity tie-up is you're finding it difficult. Is that the case with even other competitors business?

Would peak capacity, if we don't take the market's grown, we've grown. Our balance sheet has become better. Our number of dealers used to be 1,000 active dealers. We're at peak of 2,200 active dealers currently. So everything has changed from a supply point of view. What we are saying is that currently, PVT, there is a challenge because a lot of plants are shut. A lot of people are finding it difficult to make PVT at these gas prices. So either they have moved their lines temporarily to something else or most of them are shut. So it is more of a momentary thing rather than a long-term thing. So from that point of view, it is actually specific to PVT. And also from GVT, we've not got enough material, not to this extent, but to some extent, in the South and also in the North. So the basic material, we've not been able to get in source because there's been challenges around procuring that material. But order of GVT, we will be 100% Central Alliance to limit these 2 plant, which is my West plant and the South plant. PVT will still be under pressure, and that is what I predict what I said in the beginning of the call. Wall tile also there's no pressure there. We will be totally self-realized the minute our plant starts in the north.

Okay. You mentioned 7% to 8% price hike you have taken, and around 80%, 85% you have passed on -- so have we announced anything in the current quarter and not yet?

No. So current quarter gas prices haven't moved up. So I have no reason to move it up.

Okay. Okay. Understood. And just last question. With respect to the capacity utilization for pet, it's at 102%. So -- and if you look at the revenue growth for the Bathware as a whole, it's at 13%. So I just wanted to understand how do you see this piece going forward in terms of the growth and the margins?

Revenue growth is 20% as far as Bathware concerned Y-o-Y. So to that extent, in the Bathware plant, we have enough and more capacity. We can start running another shift on that and virtually double our capacity. So very, very bullish on the Bathware -- I'm sorry, the bath fitting plant. And sanitaryware, we've not still used 100% capacity, it's been only 1.5 months actually now 2.5 months since we [ refitted ]. So that also we're extremely bullish. In fact, we're looking -- we will be out of capacity in sanitaryware within 1 year, and we would probably have to go for an expansion there. Bath Fitting, like I said, more than enough capacity because we're still running on a like I said, I can improve the shifts or rather increase the shift.

So just to add [indiscernible], in Bath Fitting, we are already in the process of doubling the capacity and that would happen at a fractional cost considering already in frustration and everything is built when we were doing at first of it after the acquisition of the plant. So it's in progress and it would happen at a fractional cost to be doubling of the tax.

Yes. under INR 3 crore, INR 4 crore would be that's what we mean by fractional costs.

The next question is from the line of Dhananjay Mishra from Sunidhi Securities and Finance.

Sir, this 3 plant completing by April 2022, so what will be incremental capacity after that available to us?

So currently, we are at 52 million owned capacity, which is JV and our own and 62 million is our access to capacity. We are adding 10 million, which means it will become 62 million own capacity, 62 million to 63 million on capacity and another 10 million plus the outsourced capacity, a significant increase from that point of view.

So even with 15% increase in capacity, we are guiding about double digit?

20% increase because outsourced capacity we can you can even enhance. But own capacity takes time to build. So own capacity is going from INR 52 crores to INR 62 crores. So [Foreign Language] 19% to 20%.

Okay. From these capacity, we will have at least [ 60% ] utilization next year or duly more than that?

We are looking at an 80% more -- northward of 80% of that utilization, may be 100%.

Okay. Okay. So okay. So considering these, we are expecting 12%, 13% kind of volume growth next year, right?

To be fair, plants do take time to stabilize. So let us say that by mid-May -- we would be, mid-May, end May, we will be looking at 80-plus percent capacity utilization.

And you said, sir, in initial commentary that 1.5% margin impact happened because of this material availability was there and we lost INR 30 crore kind of revenue.

Approximately INR 25 crores to INR 30 crores. So anywhere between 1%, 1.25%, 1.5% has been a margin impact because that much volume, we would have got.

So this 1% positive impact we can cover up in Q4, at least, from...

If I'm able to garner the volume, which I said, I have been able to get partial volume in place.

Okay. And lastly, on export front, if you could provide outlook on export front, our company outlook and industry outlook.

Industry outlook, I'm unable to answer because it's all Morbi-oriented. As far as we are concerned, it will remain in the same region of 2% to 3% of our revenue will remain for export.

Okay. And what is the ad spend for this year, Q3 and Q4?

At the end of the day, we will be about 2.72%, somewhere there a percentage of revenue.

The next question is from the line of Dushyant Mishra from SageOne Investments.

I just had a quick question on the gas prices coming down. So let's say they come down as you're expecting by the end of February or mid-March, Will we be revising prices downwards on the product? Or will we let those prices stabilize, stay where they are and kind of make up on the margins front?

So unable to answer that question because I don't know the quantum of decrease is going to be, if a small decrease, then no if it's a very substantial decrease, then yes, we would be -- we would have to slightly downward revise the prices. So unable to answer that question until we actually see what the gas prices would be. It's just too volatile across the world currently.

No. I mean just from basis how the spot prices moved downward by about 30% or so, what we're hearing. I just want to see that being factored into our projections right now, but fair enough. And do we see...

If it's only the spot price which goes down, which means that gas prices will only go down for the South, we would be able to retain our pricing there. But if it goes down in spot and local gas, then we would have to downward realize because the pricing is actually substantially dictated by what happens in the Gujarat region.

Okay. Understood. Got it. And do we see any competition coming up, let's say, about 6 months down the line, gas prices do normalize? And do we see any significant competition from the other Morbi players within the domestic market? Or do you think they are solely focused on exports right now, and they will not pose a threat at all.

Yes. So the kind of product and kind of plants which we put up are largely cater towards the export market. So I don't see them putting further pressure on the domestic market because beyond the point, price is not only the criteria where materials said, it is various other things. On one hand, we have plants shut-in, the other hand, I don't have materials. So -- to that extent, that's kind of explainable. But even if you look at the 50 plants, 60 plants which have been put, they have largely been designed and to cater to the export market.

Got it. Got it. Understood. And just one quick question on the pricing front again. You said 85% of your cost increases have been covered under the different price hikes that you've taken?

[indiscernible]

Right. what will be the remaining -- when would that remaining 15% kick in? Is that going to be a revision that you take again? Or are we staying here for now?

I don't think there is any other price increases here. Again, this is to the interest of other listeners also. So what happens -- what's happened with this unprecedented price increases, that is going to buy us sometime, which is going to be a sudden drop in gas price increases, let us say I'm predicting. Now don't put 2 and 2 together, I'm just giving you an outlook. So let us say, hypothetically, the gas prices have to come down in May and June. By the same -- the same way in the same quantum, the way it went up, there would be one month of confusion where the dealers would start restocking considering that the price would revise downward. So that will have an impact on volume at that time if it had to go down very substantially. So we are hoping from a long-term perspective, so if I have to look at my selfish interest, my balance sheet is not stretched. My working capital is completely under control and only getting better. My debt is completely under control and only getting better. So from my perspective, considering that I do see a long-term demand being completely intact, I'm hoping that let my margin be under pressure for the next quarter, 2, 3 quarters. But I'm hoping and praying that the gas price does not go down in a huge quantum because that will have downward revision in price. If it goes down slowly, we may, on one side a pressure on margins, but on a low on perspective, we would be able to hold down to certain price increases, which we've done if you know what I'm saying. So we are hoping that the gas price doesn't go down very substantially in a very shocking manner. It goes down in a seed manner. That's my selfish view because our balance sheet is not stretched. But obviously, if you ask a Morbi guy, he would want the gas price moving down in a very large manner, very suddenly.

[Operator Instructions] The next question is from the line of Jignesh Kamani from GMO & Company.

Recently what we hear is Gujarat gas is tightened contract. Now one is taking is to compel consume 80% of the commitment with respect to the [indiscernible], whether it's by 50 or 60 percentage otherwise, you as to buy a spot's price. So any color on what will impact it will have on also on the paper from the [indiscernible].

I understand your question. The -- this particular thing has happened in January, and it's been absolutely spoken with Morbi. I don't think there will be a single manufacturer also which will buy at the spot prices. So to that extent, there is absolutely 0 fare. They will buy at the average price of INR 62 only currently. Nobody would be foolish enough to not predict that and buy at INR 106. INR 106 is not viable at all. So I don't think that is a concern, and this is one of those moves between Morbi and Gujarat Gas, who's spoken and come to an agreement that for their books that if it goes up, they will charge it, otherwise, they are at INR 62. So this has all been spoken with and only then [indiscernible].

But we reduced the production because earlier there was a liberty in terms of -- even if you have a monthly contract, you can -- instead of 100%, you can buy 50%, 60% and continue with the monthly power contract. Now in compulsory charge the 80% of the quarter, right?

So the reduction in production also, they have not asked them to reduce any production to get current rate. We were anywhere reduced in production because mind you, a large part of Morbi is export-focused. And in the domestic, there is only so much you can do with price. So with the exports being under pressure because of freight rates, they were anyway running at a lower capacity. So nothing has really changed since the last 3 months from a capacity utilization point of view in Morbi..

Second, as you related earlier despite a see lower export, you're not seeing any dumping from the Morbi [indiscernible] of category hotels, right?

No.

And we have 3 plants coming up in the fourth quarter. So do you think there will be highly -- slightly higher overhead in the fourth quarter and maybe in the first quarter until you ramp up and reissue the full potential [indiscernible]?

Higher overhead. You mean preoperative, et cetera?

Yes, which can include the margin also in the fourth quarter.

No, that won't be the overhead business basically because whatever the project related cost is there, that's a part of the project cost. It has nothing to do with the revenue -- the P&L item or the earnings statement for the particular period. So that way, we don't foresee any kind of additional button as far as overall difference.

The next question is from the line of [ Ranveer Savla ] an individual investor.

I just had a single question. This is regarding our the -- I wanted to know about was the complete expansion of all of our current capital expenditure whatever we are doing. What will be our new manufacturing mix -- the sales mix? And is the idea to reduce our dependence on the others and increase our own manufacturing, or it's an overall expansion of our mix?

Both. We are reducing our exposure and dependence or for GVT tiles and ceramic tiles on outsourcing. And as far as PVT is concerned, we are still exposed completely to outsourcing. So on the GVT front, which is a value-added front, we are reducing the dependence increasing the overall capacity and also in the process because it's 100% owned plant, it will further improve margin.

Can you be able to quantify how much difference we did make to our margins?

I just mentioned that at the beginning of the call.

The next question is from the line of Venkat Samala from Tata and Management.

Sir, one thing I just wanted to understand, maybe I was not very clear with this. So the supply issue that you were facing with respect to PVT, which happened in maybe starting November. So is that still persisting? And if it does any outlook on when it is likely to improve for you?

Yes, it's still processing. Marginally, we've been able to source some material, but this will improve only when -- there is certain slight reduction in the spot pricing of the gas, which will obviously have a certain effect on making those plants more viable in Morbi, and they will restart operations.

Understood. Understood. And one last question, sir, how do you feel is the channel inventory at this point in time?

Channel inventory is low because there's been an unprecedented increase in pricing. And they are all envisaging that these prices will start going down soon, and this is all Morbi related. Some of the smaller Morbi players who are absolutely cash trapped and set balance sheet in terms of cash flow. They are selling at silly rates and discounting to maintain their cash flow issues. Obviously, that's not an issue with us. And therefore, the signal in the market is that the prices may go down. They also know that generally come summer gas prices go down. So because of that, they are a little cautious prices have moved up very substantially. In the tile industry, as you all know, in 10 years, there's been no price increase, and this is the first time in the last 4, 5 months, there has been 3, 4, 5 consecutive price increases depending on which player and which area of tile. So to that extent, the dealers are cautious. Channel inventories, I would think are at probably the lowest right now.

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

You did mention about the channel inventory for the tiles. So how is it trending in the faucet ware sanitaryware?

Similar theme, but faucet obviously is better. The channel inventory is decent -- as far as sanitaryware is concerned, it doesn't gas prices are not a very large portion of the expense like tiles. So channel inventory in faucets and sanitaryware, what I just mentioned in the earlier question, has not got affected so badly. It's pretty much the same as what it used to be maybe 6 months ago.

Okay. Sir, second question is that now since you did mention that the title prices have gone up so high. So still, I mean, what is it in the demand side that gives us confidence of clocking our double-digit high growth for the next year also in -- just want to understand where the demand is coming from and the outlook on the line. I mean, what is it that is giving us so much confidence?

Let me clarify I think this is the confusion for most people have that tile prices have gone high and people are commenting that tile prices are going high, especially I, no disrespect to you, but naturally the builder segment who buy from us, they are like coming back to us, the tile prices have gone higher. Very conveniently, they've gotten that 3 years ago, they used to pay for a particular product, INR 70. For the same product, they are paying INR 30. On that INR 30 there's been an 8% increase, which has made it, let's say, INR 33 for argument sake. How is that high? Just 3 years ago, they used to pay INR 70 for the same thing, just to give you a perspective on how the prices have gone down also. So tile prices are not high. It is a relative statement that has gone up the first time, and it is higher than what it was 6 months ago. But by no stretch of imagination, tile prices are high, if I had to compare another material for tile which is a substitute material, namely natural stone, wood; from a wall perspective, paint or anything of that nature, we still by far and by a long mile, the cheapest material for any flooring or any where tile has to go. So there is no competition to tile by a long mile. So to that extent, it really doesn't matter this whole demand up and down is being played by the dealers and not really by the consumer. The consumer used to buy the same product at double or maybe more than double just 3, 4 years ago. Today, he is buying it at 8% higher than a rock-bottom price. So -- does he have a choice to go to another material? He doesn't because the next material is substantially more expensive for the same utilization or same application.

Okay. Okay. Understood. And sir, last question, if I may ask. So that now that the exports are a little bit on the lower side and going -- so I mean, why -- what is stopping Morbi more before from coming back to the domestic market? I mean what are the reasons that -- why don't you see that dumping coming back to the domestic market.

[indiscernible] sell it to the domestic market. Like I said, there are 2 reasons for this. One reason is that the kind of plant is separate, means they are designed to produce a certain kind of product, which is not -- does not get sold in the domestic market, if you're not branded. It does not get sold in the domestic market at that kind of volume. That is one reason. Second reason is that beyond the point, they don't have the depth of distribution what industry leader and us have or let us say the top 5 players have on the industry. They don't have the depth and distribution. Dealers, frankly, are not wanting to entertain them because at the end of the day, their prices are not as much of a difference as it used to be earlier because GST evasion has come to a fair level where they've not been able to further evade GST because coal is not in play anymore, and they need to buy gas. So to buy gas, you need to have a decent amount of cash flow in proper money and not in any way evaded money. So these are the 2 reasons why beyond a point they're not able to dump in the Indian market. If they were, they would have done it, but the dealers are not entertaining them anymore.

The next question is from the line of Nikhil Agrawal from VT Capital Market.

Sir, in the last call, you had mentioned that the industry will double in the next 4 to 5 years, it is become INR 80,000 crore industry, the industry. So like will this be in the export market? Or is this -- will you see more of domestic demand that will drive this increase.

When I say that the industry will double in the next 5 years, I'm -- that's my prediction, but it could be 5 or 6 years. But let us say it would be in the next 5 years where we would almost double. This would be a blend of export and domestic. I think exports will constitute about 50%, 55% of the industry and the balance would be domestic, if that was your question.

Okay. So that is -- so the impact mainly because of the exports that you have in the investment.

[indiscernible] big demand driver and a big production driver for our industry.

Okay. Sir, you have taken around 7% to 8% price hike. Is it reflected completely, or is there any still any lag that is there in the realizations?

I guess that 15-day lag, which was there, we had 2 price increases in last quarter. That's the only thing which is left, but you could say almost pretty much everything is visible. There would be a little more which will come in this quarter provided gas prices don't move up further. Because, like I said, there were 2 price increases, there was a 15-day lag over there. So that's still not visible. That will be visible now.

Okay. So like realizations are the nation to improve some they go or does it remain around the [ 350 ] range only?

Realization will be -- from here, I think realization is going to be a function of the product mix. very small amount will come off from the entire price that has been visible. It would more be a product mix issue. And the -- that's on the realization front. But on the contribution front, it would be now -- the only offset is getting more volume.

Okay. Okay. So this raw material availability that you're saying is this problem is only restricted to North, right? It's not -- this problem is not there in North or South plants.

What issue?

The raw material availability issue.

No, there's no raw material availability issue. Raw material is abundantly available. It's the finished product, which we are not able to get of PVT, polished vitrified tiles.

Okay. And sir, just last -- a couple of more questions. Sir, any reason for the lower utilization in sanitary?

Yes. We had -- after the COVID, we had the labor, which had not come back. They came back around Diwali and since then we've been at 100% capacity.

So this is the sanitary -- so the lower capacity utilization is because of labor shortage?

Yes, but that's behind us. That's 100% now.

Okay. Okay, 100%. And sir, like this the capacity utilization in the new plant you mentioned that it will be around 80% to 100% in the first year of operation, right?

Yes, absolutely. So I would yes, absolutely. We are looking absolutely 100%. So it will obviously keep inching up as and when the plant stabilizes. But minus that, it would be an answer.

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

Just 2 questions from my end. Firstly, sir, what is the proportion of value-added segment as in today and after this new plant commissioning, which is going to happen where do we see this value-added portion going up?

Yes. So the GVT currently is at 29% of revenue, and we are looking at this to be 35% of revenue, maybe a little more.

What about the rest of the segment, example, the PVT and wall tiles also? Similar predictions there in case because...

Pretty much will remain in the same -- only PVT will go down. So PVT will go down by 3%, 4% and GVT will go up by 6%, 7%.

Sure. got that. And sir, second question was related to the slab segment. I know you have not given any clarity as of now. But assuming, let's say, the 100% of the utilization, I mean, in a particular plant, only if you're producing a voltage, what is the asset turn in that kind of a business?

Asset turn would be not really -- about 1.5% to 1.7% -- 1.7x.

1.7x, sure.

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

Am I audible?

Yes, absolutely.

Yes. Sir, we've seen few Morbi plants making use of propane. So how do you see propane as alternate fuel? Can we save some of our costs going ahead as well?

Yes. So a couple of our plants also have moved to propane, where we had the cylinders in place. Again, like I said, this kind of unprecedented increase has never been envisaged. And in 1 of the other plants, we've ordered another propane tank. So wherever we could, there is also an issue of how much land is set in the yard because there's a fire safety over there. So wherever we are able to move to propane, we are also doing it. Like I said, 2 of our plants are running on propane. But today, propane prices have also become pretty much the same as gas prices, a couple of rupees difference.

Right. Correct. Correct. Got it. Got it. Also, 1 more thing -- can you break up your bath tiles and sanitaryware in terms of revenue for this quarter and Y-o-Y?

Sure. INR 35 crores was sanitaryware, INR 22 crores was bath fitting in this quarter. And in 9 months, it's been INR 86 crores and INR 55 crores.

The next question is from the line of Avi Kulshan from Nemak Capital.

On the volume growth, I think it was slightly underwhelming and when you also look at the peers, I think the performance is slightly better on the volume front. Would you say this PVT issue is specific to us or it's a more generic issue that should impact others as well?

No. If you compare industries, it is specific to us because he has 2 PVT plants, fairly large PVT plant in the North, so there is some dependence. He has in fact 4 PVT plants, 2 in Morbi, which are JVs and 2 in the North, which are at loan. So to that extent, he is running the northern plants on coal and partly on the RasGas. So we had a slight advantage in the North from a gas perspective and a coal perspective. That has also given us a little bit of hit where we were not being able to procure the material at the right price, considering that there is a freight element in the North. So yes, it is specific to us, and it's not a generic thing as far as industry leader is concerned or the top one, two play as a concern.

But as you are saying if gas prices come down, this should get resolved by itself and things should get back on track?

Yes.

Understood. The other question is on the net debt. So net debt has gone up Q-on-Q. Is there a specific reason for that? Is it because of the CapEx that we've done for our 3 plants?

Yes.

So yes, we have gone up and primarily because of the reduction in the cash balance, which was like towards the 3 projects which is going on. So it is primarily because of that.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Somany for closing comments.

Thank you so much. We are looking at a fairly reasonably decent quarter considering January has had a 15-day hit because of COVID and the alternate day market shut in pretty much all of India. But hopefully, we should be able to make that up and increase our volumes in quarter 4, and partially able to source material facility segment. But from a future perspective, I think we are more excited for the new 3 plants to start and looking at a good next year. Thank you so much.

Thank you very much. On behalf of SAP Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.