Good day, ladies and gentlemen. Welcome to Somany Ceramics Limited's Q1 FY 2025 results conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the management's opening remarks. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, Head, Institutional Equities at SKP Securities. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. On behalf of Somany Ceramics Limited and SKP Securities, it's my pleasure to welcome you to this financial result conference call. We have with us Mr. Abhishek Somany, MD and CEO, Mr. Shrivatsa Somany, Mr. Ameya Somany, Mr. Sailesh Raj Kedawat, CFO, and Mr. Kumar Sunit, Head, Strategy and IR. We'll have the opening remarks from Mr. Somany, followed by a Q&A session. Thank you, and over to you, Abhishek.
Good afternoon, ladies and gentlemen. Thank you for coming on to our Q1 FY 2025 conference call. As you can see from our results, it's been a very tough quarter. There's been a muted demand, and it got further aggravated with the extended elections across and the extended heat. But it's been a flattish quarter as far as sales volume is concerned and also as far as value is concerned. The balance sheet, however, has improved. The receivables went down by another five days. Average realization has also declined very little QoQ. It's only about INR 3 QoQ. That generally we've seen because in quarter one, most of the non-value-added products get sold. So we've been able to maintain no serious discounting or anything like that.
On the flattish quarter, there was no pressure from our side to further improve that and INR 20 crore [audio distortion] sales, and therefore, we've been able to further bring down our receivables.
Realization has gone up, QoQ.
Realization has gone up, I'm sorry, QoQ. I'm mistaken. Capacity utilization, obviously, from Q4 has declined, but if you look at it from last year, YoY, that's gone up to 81%. Last year, YoY was 70%, and this year is 81%. Q4 being the best quarter, so that's always higher. From that point of view, it's down from 89% to 81%. Operating margins, obviously, as far as the tile industry is concerned, as I've said in the past, and I say it again, that most of our EBITDA comes through capacity utilization. The minute capacity utilization is declined, we have a fall in EBITDA consequently, and so in PAT. Having said that, we've been able to maintain our EBITDA, although our sales have been down. Costs are up, obviously, because the increments have already been given, so that's factored in. That's an annualized increment for all the people.
From that particular head, the costs are up, but otherwise, we've been able to mitigate the other cost increases by efficiencies and better management. So we've been able to maintain the operating margin at 8.5%, versus 8.7% YoY. Gas prices have helped us. They've been largely stable during the quarter. Going forward also, we believe that this would be largely stable. As far as the other capacity utilization is concerned, which is sanitary ware and faucets, s anitary ware ran at 96%. That is up from the previous levels. This is more towards, again, we're trying to push more and more towards value-added segments. Faucets has been at about 90%. But in faucets, I must remark that this 90% is on one shift, so we do have enough capacity built in if we had to run another shift. But historically, we've been running only one shift.
There's more than enough capacity built in case the market had to turn for the better. As far as our segment revenue is concerned, in Q1 FY 2025, ceramics was 35%. YoY, it's up 1%. PVT was 28%. Sorry. Ceramic was 35%. YoY is down 4%. PVT was 28%, which was flat. GVT is 37%, which YoY was 33%. So ceramics has been replaced by GVT. The brand spend is going to be maintained annualized between 2.75%- 3%. However, the brand spend in quarter one is generally lower, so it's at 2% in quarter one. Our working capital days have also largely been maintained at approximately 13 days in Q1 as compared to eight days in Q4. We are quite positive on this particular year.
We have our Max plant up and running. That's the only subsidiary which is still the newest, and it's at a capacity utilization of about 35%-40%. We are seeing that is steadily increasing. So that's going to be the green shoot for next year, which will bring us value growth. Otherwise, this year, we're still looking at a double-digit growth, looking at mostly driven by volumes. EBITDA margins, like I mentioned earlier, with the caveat of gas prices not spiking, we should be able to improve 1%- 1.5% EBITDA. Basically riding on better capacity utilization and better product mix, and also a 10%+ growth, so a double-digit. There have been few green shoots out of the budget. The investment of INR 10 lakh crore under the PMAY for the 10 million new houses should help the tile industry in future.
Otherwise, all the new launches which have happened in the builder segment, in the private builder segment, which we've witnessed over the last 18 months, all that would come into play from the end of quarter three onwards. I would want to touch upon a little bit about exports. The exports have improved since the lows of January and February, where it had gone down to INR 1,300, INR 1,350 crore levels. It's come back to INR 1,650- INR 1,700 crore levels per month, between April, May and June.
So this steadily is going up. This is also a very positive sign that when the freight rates are at record high, the exports have still come up from the INR 1,350 levels to INR 1,700, INR 1,650 crore levels. So this is something which will keep aiding the tile industry from India. So this is as far as the opening statements are concerned. I would now like to open the floor to any Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. The first question is from the line of Keshav Vijayaratan Lahoti from HDFC Securities. Please go ahead.
Hi. Thank you for the opportunity. Sir, this quarter our volume has been like 1% degrowth, or possibly the industry leader have done a way good. Normally, we see you and industry leader grow in line. What is the take on that, and what is your volume growth guidance for this year, and what sort of margin you are looking?
If you see the industry leader, there has been a INR 17 decline in realization. Our decline has been very little. They have launched a particular kind of a new line, which is a cheaper line. We haven't done any such thing right now. It has been a tough quarter. My degrowth from a value perspective is just about INR 8 crore- INR 9 crore. We didn't want to push the system. We didn't want to choke the system, because we know we are getting into July and August, which are generally rainy months. We stayed away from that. Our balance sheet is healthy, our dealers are healthy, our receivables are healthy. We are still looking at a double-digit growth, and I don't think there should be an issue with all our plants completely up and ready as far as we are concerned.
Our DSO is down by five days as you can see, and also our realization has been maintained.
Understood. We have been talking about pickup in tiles demand. Has anything played out so far? How has been the July month?
July has also been a tough month. After the budget, it has been a tough month. It has been better than May and June is what I can say, but it has been a tough month. It is not that it is a wow month, considering that we are done with the elections and done with that, but it is not a great month. But it is better than May and June.
Wonderful. Can you please give the fuel cost in Q1 FY 2025 region-wise?
Sure. I am sorry. Just give me a second. The three regions which you are talking about, the north region, the west, which is Morbi and our Ahmedabad plant, and also south. Q1 FY 2025, the Kassar plant is at INR 43. Last year was at INR 45-INR 46, same quarter. Morbi is at INR 45 a standard cubic meter. Last year was at INR 43, so this is up INR 2. South is at INR 47, and last year it was at about INR 55.
Okay, got it. And the current prices?
I am sorry?
Current prices are same? Current price level?
There has been no change. There has been no change in the prices I have given for last quarter. If there is a change, INR 0.50 or INR 1± , but nothing, no significant change.
Okay, got it. Thank you.
Thank you. I would like to mention that do consider that more and more of our spray dryers keep moving to biogas and we are experimenting in cheaper and better biofuels. This is something which is new to us in the last two years, considering that for 50 years we have been running the plants on gas and partly on spray dryers on coal. This is a whole new subject. We are keeping on experimenting on new fuels, new formulas, to see how we can bring the cost. That also comes into play here, not only gas. Do keep that in mind.
Yeah, sure.
Thank you. The next question is from the line of Pankaj Tibrewal from IKIGAI Asset Manager. Please go ahead.
Good afternoon, Abhishek. Can you hear me?
Yes, absolutely.
One thing which we have done very well over the last few years is our discipline on working capital, and hence the cash flow generation. Can you just take us through that this difficult quarter?
Sorry to interrupt, but the volume for you has gone very low.
Can you hear me now?
Yes. This is better, sir. Please go ahead.
Yeah. I am just saying that in this quarter, when it was a difficult quarter in terms of volumes, how has been your cash flow discipline as you navigated this difficult quarter? Can you just take us through that part? Second, when we speak on the ground, Simpolo seems to be doing quite well. We saw the volume growth of Kajaria. Does that mean that we may have lost a bit of market share in this quarter? Or probably it is not the case there. Some light on that. From a two to three year perspective, how we should visualize the company in terms of size, scale? Because some of the unlisted players are also getting very aggressive on the market share game. These are the three questions. Thank you, Abhishek ji.
Thank you. I will take the first one. One part I will take, and the rest of the part I will ask Sailesh and Sunit to pitch in. As far as our cash flow is concerned, like you have seen, we have been able to maintain our average realization. We have been able to go down five days on DSO. The rest of the cash flow, which is the nitty-gritty of the cash flow, I would let Sailesh and Sunit pitch in, and then I will come back for the next two questions. Go ahead.
Good afternoon, Pankaj ji. For our cash flow, if you see, we have done close to INR 50 crore of EBITDA this quarter, and there is some money which has gone into working capital. The working capital days have gone up by five days, around INR 25 crore-INR 30 crore has gone into working capital. We made profits from operations, maybe around INR 15 crore-INR 20 crore is what we have been able to make from operations, and we have not done any major CapEx. So we are positive this quarter. There are no CapEx which has happened in this quarter. We are looking forward, next three quarters, I think we are looking forward for a very positive cash flow because there are no major CapEx which are planned.
Okay.
I hope that answers part of the question.
Yes.
The second question is on the market share, which you have mentioned two players, namely Kajaria and Simpolo. My response to that is that Simpolo is on a completely separate segment in which he's growing, both value and volume. We are nudging up in that particular segment, which is a large format tile. If you see Simpolo, he probably would have a reasonable de-growth in the bottom end of the prism, but his top end of the prism, because he's been in this game for the last five, six years, he's been able to leverage that. That is something which I have said in the past that with our Max plant, which started in third quarter and launched in December, we've been able to do a reasonable amount of sales there.
I can take you offline a small nitty-gritty number, which I would not want to do on public forum. But I will give you the number as to how we've grown in the big tile segment. So there's been no market share lost there. In fact, we've gained market share as far as Somany is concerned, because we've sold a lot more of the big format, not as much as them. As far as Kajaria is concerned, I think the answer to that is that they have launched a new product line, which does not bear the name of Kajaria. There is a new brand which they've launched at the bottom end of the prism. That's driven a large part of the sale. So have I lost any market share, Kajaria to Somany? No, I have not.
That is the answer for the market share perspective between the two brands which you mentioned. The third question was how do we see the company three to four years down the line? I think our bread and butter is going to be the middle end of the prism. We are further solidifying that particular product portfolio. We're doing a lot of balancing equipment within our plants to further improve our line balancing, which we've spoken in the past to improve our ROCE. So any capital employed which is not as well utilized or any capital employed which is lying vacant, we're doing some line balancing to make sure that how we can further fortify the middle end of the prism.
As far as the top end of the prism is where Simpolo is today, probably the industry leader in that particular segment, and there are one or two other very niche brands. That is something which will take a year or two, where with our Max plant, we are going to even penetrate that. We are not getting super obsessed with that because the bread and butter segment is the middle end of the prism. So we are fortifying that and these both put together, plus the sanitary ware and bath fitting, where we are again fortifying the sanitary ware and bath fitting segments. We are looking at many more SIS, many more showrooms, many more SIS meet showrooms and showrooms, shop-in-shop, and also exclusive showrooms.
Both of these segments put together, rather three segments, the middle end of the tile segment, the top end of the tile with the Max plant, and sanitary ware, bath fitting. We are looking at-
Excuse me, sorry to interrupt.
I think we have dropped.
The line for the management seems to have disconnected, ladies and gentlemen. Please stay with us while we reconnect with the management. Ladies and gentlemen, we thank you for your patience. We have now reconnected with the management. Over to you, gentlemen.
Yeah, sorry. I will just repeat the last 10- 20 seconds. I was saying that at the top end of the prism, driven by Max, fortifying the middle end of the tile segment and the sanitary ware and bath fitting put together, we should be looking at a double-digit CAGR growth for the next three to four years. That is how I look at the company, Pankaj, where we are further fortifying the middle end of the segment. I would be happy to get on an independent call with you to explain a little more about this.
Great. Thank you, Abhishek ji, and wish you all the best.
Thank you, Pankaj.
Thank you. The next question is from the line of [Akash] from UTI Mutual Fund. Please go ahead.
Yeah. Hi, sir. Am I audible?
Yes.
Yeah. Hi. Good afternoon, sir. Just wanted to ask, in tiles industry, do you believe that from H2 FY 2025 or let's say by FY 2026 certainly, there will be improvement in volume growth across the industry?
Yes, absolutely. Fueled by export, which is growing, and also fueled by all the new apartments and residential colonies which have been announced. They will all start taking up tiles because currently all of them are in the construction mode. So the next three to four years, great for the tile industry and volumes will improve on both ends.
Sure. And sir, if we assume this, that let's say by FY 2026 things to certainly improve, then is there a possibility of re-delivering close to 15% volume growth? Or it can be more than that, or it would be a stretch, I think. Any rough numbers?
I think what I can stick my neck out is of a double-digit growth, whether it will be 15 or 12 or 18, too early to say. I would restrict myself to saying a double-digit growth.
Right. Sure. And sir, if you can briefly help us understand the key levers that can help you improve margins to, say, around 10%-11% over the next two to three years at least.
So, if you're looking at margins at 10%-11%, that is something which we have guided for any which ways, and the only caveat there is gas pricing not spiking, and that doesn't seem to be. I think the three levers are, of course, growth between the very high single digits to decent double-digit growth, which basically culminates. I'm not saying that we will do high digits, but I'm just giving you the levers. We at the double-digit growth, what happens is that your capacity utilization becomes much better. So capacity utilization is a big lever for EBITDA. Also, like I mentioned in the earlier question, fortifying the middle end and the top end of the prism, which is more for value addition. So these are the two big levers for us to bring our EBITDA up.
Sure, sir. Any thoughts around exporting tiles? Any thoughts around that segment of the market? Thank you.
Export is largely a Morbi phenomena. As far as we are concerned, we are pushing as much as possible on export. There are two issues. One is the Morbi guys give extended credits and open credits, which we are not willing to do. The second thing is there is a lot of Morbi players which are dampening the Brand India because they are producing such pathetic quality for export and sending such pathetic quality abroad that it is dampening Brand India. I am not saying all of Morbi is like that, but most of Morbi is like that. There are good people in Morbi who are also getting affected like we are in terms of export. I think as and how the export keeps growing, we would also get a small extra share of that.
One thing I want to highlight here is when Somany talks of export, we do not include the SAARC countries in our export, unlike our competition. For us exports, for example, Nepal is not part of our export figures. That is something which I would like to point out, which has been pointed out to me by my finance colleagues, Sunit and Sailesh, because all other competition, I believe in their figures, Nepal is counted as exports.
Right. Sure, sir. We, as of now, are selling in Nepal also, right?
I am sorry.
Sir, we are also selling in Nepal, right?
Of course.
Yes. Sure. Thank you, sir. That is all from me, sir.
Thank you. Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, we request you to please restrict your questions to two per participant. You may rejoin the queue for follow-up questions. We have the next question from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Just two questions. Sir, you indicated the launch of one of the competitor at the bottom end of the prism. Sir, can you qualify or give some color on what exactly this means?
Ritesh, I do not understand the question. Can you just please repeat? It was a little not very clear.
Right. Sir, in your prior remark, you indicated the market leader, they launched a product at the bottom end of the prism. Can you provide some color over here, and would we have any plans to do something similar given probably that part of the market is growing at a faster rate? How are you approaching this?
Yes, we do have a product. We are going to strengthen that going forward, but I would not want to comment and put any light on their strategy. It would be better you ask them.
Okay, sure. That helps. Sir, second is, you indicated on biogas. What is the underlying economics over here as compared to the blended gas price in what you indicated? And how much incrementally the biogas can increase on a percentage kcal basis, which can give incremental levers on the cost for us?
I think biogas can only and only be used in the spray dryer. Most of our spray dryers are now moving slowly and steadily to biogas. I think about 70% of our spray dryers have moved to biogas and a little more is left. I do not have the blended cost offhand, but I will work that out and we can talk about it. To answer your question, we cannot move our kilns to biogas. It is only the spray dryer which can move to biogas.
Sure. What would be the costing for the biogas?
Kilns can largely run on any kind of natural LNG or LPG or propane.
Right. And sir, what will be the biogas costing?
That is very open-ended because we are using four, five kinds of biogas. So every one of them has a separate costing in terms of adjusted kilocalorific value. So it is better that we could do that separately on a call, and I can explain that to you, because it would be a very long discussion.
Sure, sir. That is also fine. Thank you so much. All the very best, sir. Thank you.
Thank you. We have the next question from the line of Madhur Rathi from Counter Cyclical Investments. Please go ahead.
Thank you for the opportunity, sir. Sir, as you mentioned that our competitor grew because of realization declines. Sir, is there a situation where the competitor intensity is increasing and the competitor to gain volume is reducing the prices and we have guided that we will not decrease our prices. Can we get an effect of this going forward for this year and maybe next year?
I don't think I want to highlight too much on pricing. Pricing has been reasonably stable. We are only trying to see how we can improve our realization going forward. This quarter has been a tough quarter. I didn't want to choke the system by pushing that extra INR 20 crore-INR 30 crore in the market because that's the delta between my de-growth of 1% to my growth of 2%- 3%. It's basically, at the end of the day, it's a INR 20 crore-INR 30 crore delta. We didn't want to choke the system by either discounting or putting a product in which offers cheaper quality. Basically that's what we did. It is not that if I reduce prices, sales would have improved or anything like that. It has been a tough quarter. It's been a slow quarter across the industry.
I could have done the sales, but then I would have had to repent that in July, where the July secondary sale would have happened. I think we're keeping a lot of watch on what is happening at the secondary sales and don't want to unnecessarily choke our dealers where receivables become an issue.
Sir, we don't find that our volume targets, we are very well possible to achieve this for you, right?
Sorry?
Sir, the double-digit volume target that we have for this year, it will be very much possible to achieve this for this year. Okay. Sir, just a final question. Sir, in Nepal, we and Kajaria Ceramics are adding around 8- 9 million square meters of capacity in a 20- 25 million market. Sir, do we see this being a strain on our margin going forward? Because there will be a very huge inventory coming into that market.
I wouldn't want to comment on Nepal. We had a plant. We bought land there. We were almost going to put a plant there. We held it back because Nepal, the demand which was estimated at 18- 20 million square meters per year has gone down to 11 to 12 million square meters. And we have capacity now by the end of the year of approximately 20 million there. So good luck to people who put their capacity there.
Okay. Sir, the Somany Max plant that we have currently running at 30% or 40% utilization. Sir, at what utilization can we expect our margins improving by the 11% that we did last year and a 1.5% increase over that? So will it be at 80% that we can achieve a 12%- 13% kind of margin maybe in this year or as the Somany Max plant utilization improves?
Obviously, we're working towards bridging the gap between industry leader and us. That goes without saying. So yeah, that's work in progress. Now, it's not only going to be the Max plant, if it was so simple, then everybody would have put a Max kind of plant. But I think it's a host of many things where realization improves your brand equity in the market, how you're penetrating, what you're showing, your distribution, your middle end of the prism, how that is getting fortified, the Max plant, et cetera, capacity utilization [audio distortion] improves [EBITDA] .
Thank you, sir, and all the best.
Thank you. The next question comes from the line of Sneha Talreja from Nuvama. Please go ahead.
Hi, good afternoon, sir, and thanks a lot for the opportunity. Just two questions from my end. I think firstly, on your opening remarks, you mentioned that you are seeing green shoots specifically coming from budgets. But I actually wanted to understand this. Are you seeing anything from the real estate CapEx front? We have been hearing about a lot of launches, new execution from all the builders. We haven't seen that amount of pickup from the tile scene. So when can we actually see that happening, or are you already seeing it happening? That's the first thing.
No, I cannot really get what you are saying other than the green shoot part of it, which you asked.
What I wanted to check with you is, you mentioned on the con call there are a lot of green shoots visible, especially from the budget front. What I wanted to check is, are you seeing any green shoots from the real estate demand side? We have been seeing all the launches happening, real estate players reporting good numbers. Clearly seeing that translating into demand for tiles. That was the first question.
Yeah, I mentioned the green shoots from a very long-term perspective. Obviously, if the Prime Minister has announced INR 10 lakh crore for the PMAY, it is going to start culminating at some point of speed. And the way the government is, we have seen in the past when they announce something, they get after it, whether it was the Swachh Bharat Mission or whatever it was. As far as the other launches which have happened, is what I gathered in your question, the launches which have happened from the previous year, there is going to be an upsurge in demand for sure because behind the wall is what got put, pipes, cement, steel, et cetera. I think in front of the wall, which is all the finishing items, tiles, sanitary ware, bath fittings, they are all waiting for that demand to come and there are restrictions, et cetera.
These buildings will have to get completed. And there is a hell of a lot of building which has been announced and ready to be completed in the next six to eight months. So I have been moving a lot in the market with projects, and everybody is saying that all their demand is another five months away, four months away, six months away, eight months away, stuff like that. Clearly, more than us, the entire tile industry is going to benefit from the real estate upsurge, which has happened after a good 10 years.
Understood, sir. That was helpful. Secondly, more on Morbi, given that there are 1,000- odd players and demand is weak at this point of time, both in domestic as well as in export is slightly on the muted side. What must be the utilization levels there and what are those players doing? Are they shutting down plants or waiting for pickup to happen or cutting prices, credit deals? What is really happening on the ground?
They are doing all of the above. I think they are not cutting pricing. If you see, I get an SMS from Morbi, from traders who have everybody's number. They all buy address books. I keep getting SMSes. So there is this new trend of something called a one-time sale. So they are taking advantage of this one-time sale when they get rid of a certain amount of stock. Saying in another way that this price is only limited for this particular stock.
But it has become rampant to get rid of their stock and get their working capital. Just in the morning, one of the Gujarati newspapers said that 200 units have shut down and, sorry, 150 units have shut down and another 200 units are up for shutting down. As far as capacity utilization is concerned, I have given to understand it is between 65% and 70% capacity utilization.
So there is more than enough capacity available in Morbi. So they are doing pretty much everything from tax evasion to doing this one-time sale to also shutting down plants interim. Generally, if you see, Sneha, in the past also, closer to the Janmashtami time, they generally have a shutdown of a month and a half. So that is what is happening. The news agencies just pick it up and blow it out of proportion. But I think this 350- 400 units closing in Morbi at 65%- 75% capacity utilization is one thing, but the other thing is also around Janmashtami, they anyway close every year.
Understood. That was really helpful, sir. Thanks a lot, and all the very best.
Thank you.
Thank you. Ladies and gentlemen, we request you to please restrict your questions to two per participant. You may rejoin the queue for further questions. We have the next question from the line of Jyoti Gupta from Nirmal Bang. Please go ahead.
Good afternoon, sir, thank you for the opportunity. My question is on the production side. You had a CU level of 81% in tiles, 96% in sanitary ware, 90% in faucets. The demand in quarter two still remains weak because I believe is weak. Do we see an inventory buildup, and do we also see that the utilization level is going down in quarter two? Which means either the revenue is going to be flat, and of course it will impact the data. The second question is, when do you see the demand pickup happening in the third quarter? Is it after Diwali, do you foresee it or a little earlier than that?
The major demand, of course, from the real estate and all will pick up H2 onwards, maybe quarter four onwards. But as far as we are concerned, it was a better month than May, June. August would be slightly better. September obviously will be better, much better than June. As far as capacity utilization is concerned, I do not think there will be a huge upsurge in capacity utilization as far as tile is concerned. Sanitary ware and bath fitting should be okay. Sanitary ware, there is a caveat that sanitary ware generally goes down a little bit in capacity every year because of rains. That affects the sanitary ware production, the mold production across the country. It is nothing to do with us. Having said that, the rest of the production will be consumed. Marketing is no issue at all.
Tiles would remain here or maybe improve a little bit. We are seeing more than enough inventory for us to carry forward with a growth. I do not think it will be a flat quarter for sure, having July already grown a little bit.
Can I ask one more question?
Ma'am, please return to the queue if you have follow-up questions.
Okay.
Thank you.
Thank you.
The next question is from the line of Udit Gajiwala from YES SECURITIES . Please go ahead.
Thank you. Yeah, thank you for taking my question, sir. Sir, one is that you are quite upbeat on the double-digit growth this year, but that entails your nine-month ask rate to go into 14%-15% kind of a growth. With July, you just commented it is obviously not flat, but you are seeing some growth. Does that mean that H2 will be something very robust that you are envisaging right now?
Well, last year also H2 was robust, so we're looking at even a better H2. So yeah, we are reasonably confident for that.
Got it. Sir, the demand that you are seeing, could you specify, I mean, is it the metros or the tier one, tier two where you are seeing the green shoots to happen?
Yeah. Generally, metros are a project market. If you see Bangalore, Hyderabad, Pune, Bombay, Delhi, they're mostly project markets where large developers buy tiles. The smaller towns is where the individual homes, which is what we call IHBs. I think it's a host of both. Earlier, if you take prior to 2024, which is last year, I think all of our growth was driven by retail and mostly IHBs. But now we are seeing a lot of traction even in the larger cities where new launches have taken place and all the builders, the more disciplined builders have launched so many apartments. There's a lot of traction even in the larger cities. So it's a host of both.
Got it, sir. Thank you for answering, sir. All the best.
Thank you. The next question is from the line of Vinamra Hirawat from JM. Please go ahead.
Hi, sir. Am I audible?
Sir, you are audible. You may proceed.
My question was on gross margins. I want to know the reason for a big uptick in gross margins excluding power and why power was a higher percentage of sales this quarter compared to last year.
Yeah. I would let my CFO and Sunit, come in to answer this question.
Hirawat. Our gross margin has gone up on YoY basis. It has gone up by 230 basis points. However, since operating business has not worked properly in this quarter and we are at a lower sales volume of almost INR 8 crore-INR 9 crore, whereas overall has gone up on YoY basis, largely attributable to employee costs because of some of the increments. That is why EBITDA has come down. If you talk about gross margin, it has gone up from 32.9% to 35.2%.
Just want to know the reason for the increase in just your gross margins without power.
The input costs are the primarily reason. We have been continuously working on the cost improvements and the stable gas price has also helped us to some extent. These are two reasons primarily attributable to improvement in gross margin.
That is the best result.
Okay. I just had a question on government projects. Government is obviously pushing infrastructure massively. Are we targeting any government projects? Our competitor recently has dedicated a whole team into targeting government projects pan India. What is the growth we are seeing there and are we targeting the same [inaudible]?
Yeah. Government project is something which has always been a focus area. About 11%-12% of our revenue comes from there. We beefed up our government projects further, specifically in the South, because North is anyway very strong for us. We specifically beefed up the government projects team in the South.
Okay. That is it for me. Thank you.
Thank you. The next question is from the line of Utkarsh Nopany from BOB Caps. Please go ahead.
Yeah, hi. Good afternoon, sir. I just need few clarification. First, like we had mentioned over the call that our realization has actually improved on QoQ basis in this June quarter, but our calculation indicates that the blended tiles realization has gone down by 1.3% in this June quarter. Our realization has been under pressure for the past three quarters. Do you see that tiles industry pricing scenario is likely to remain big till the time ocean freight rate comes back to the normal level?
I'll let Sunit answer this specific question, the first one. Let me tell you, tile industry is the only industry in the building material segment that if you take a 10-year CAGR inflation and if you take a 10-year CAGR increase in price, tile probably is the only product in the building material which has gone down in price between 60%- 75%. Yes, the industry has grown. There's been no inflationary pressure as far as consumer is concerned for tiles. This is how tiles is. It's a volume game, but it's largely a volume game. To specifically answer your first question, I would let Sunit answer that. He has the figures.
Yeah. Utkarsh, j ust some clarity. I think I can sense that where the calculation you are referring to and probably that is not the appropriate. Earlier we have been reporting the tiles volume performance segment wise on a standalone basis, whereas now we graduated to consolidated basis reporting from this quarter onwards. That's why I think you are comparing our last Q4 reported on a standalone basis versus this quarter reported on consolidated. If you look at the like-on-like basis, last year, Q4 consolidated, the loss margin came to INR 317 versus INR 320 for this Q1. So it's an up of INR 3 potentially.
Okay. Second question is on the collection period. We have mentioned that our collection period has gone down by five days, but based on the data which is mentioned in your presentation, it indicates that our debtors period has gone up by nine days, from 36 days in previous June quarter to 43 days in this June quarter, and it has been trending up for the past four consecutive quarters. So where do you see your collection period to settle over the next one to two-year period from here?
Oh, no. Again, I would say there is a misleading in one reading the presentation out. If you look at the debtors number which is given on our slide six, it is clearly visible that it has gone down, absolute number of debtors, and you can easily calculate the DSO based on that number. It has improved by five days. On March it was standing at 48 days versus 43 days in June. In absolute terms, I would say the INR 337 crore debtor come down to INR 275 crore.
No, sir, I am saying on YoY basis. On a YoY basis, our revenue has been down. Last June quarter, our debtors was INR 231 crore, which has gone up to INR 275 crore, and because of that, our collection period has gone up.
Collection period. How do you calculate collection period? I think if it is slightly granular in discussion, we can connect offline, Utkarsh.
Sure, sir. Sir, my last question is that for our Max plant, since we are operating at such low capacity utilization, we might be making very low margin from that plant. Just wanted to understand at what capacity utilization we can come to our company level EBITDA margin. That is one. Second, what is our ESOP expense booked for the June quarter?
Max plant, currently we are operating virtually a very low capacity. It is around 35%-37%. It is coming for this quarter, and it would ramp up gradually over next two, three, four quarters because it's a different product segment which we are putting in plants, and it's a relatively a niche product segment, and it will increase gradually over the period. I believe difficult to comment any number, but I can give you a ballpark number. I believe the moment we reach to somewhere around 65%-70% type of capacity utilization for this particular plant, I think this should give us a good breakeven or.
This breakeven somewhere at the 60%-65% level.
Okay. How much would be our ESOP expense amount?
We request you to please rejoin the queue for further questions.
Okay.
Thank you. The next question is from the line of Karan Bhatelia from Asian Markets Securities. Please go ahead.
Hi, sir. Am I audible?
You are audible, sir. You may proceed.
Yeah. Just to continue on the Max plant, wanted to understand the average selling price compared to the average selling price of INR 320 at the company level for this quarter. How rich is the product profile at Max?
The cheapest product at Max is about 50% higher than the average selling price of INR 320, and the most expensive product is double, a little more than double. We are at 35% capacity utilization. Therefore, if you see the JV, most of the loss from the JV is only coming from one plant, which is Max. Everything else is reasonably profitable. If you see last year, same quarter, all the other JVs were also ailing. We did a lot of work to bring all of those JVs in profit, which we knew will be under stress for a couple of quarters because it's not a very easy plant to sell. I hope I am able to answer that question, that once again, 60% for the lower segment and about double for the higher segment.
Great. That was helpful. Secondly, on the CapEx front, now that majority of our CapEx has been done, how do we see next two years CapEx shaping? Considering we are looking at double-digit growth, what's the addition in the MSM that we're looking for?
Look, we're at 81% capacity utilization in tiles, and we were at 89% capacity utilization in quarter four. We have very little headroom. I think for the next 12 months to 18 months, we're okay, and after that, we would need some CapEx coming in. Obviously, we've started thinking about it, but there is no serious CapEx currently in the next 12- 18 months in our plants.
Right. Thank you. Thanks, Abhishek. That's it from my end .
Thank you. The next question is from the line of Jyoti Gupta from Nirmal Bang. Please go ahead.
Sir, I want to know what is the mix of GVT, PVT, and ceramics because apparently, the concentration seems to have increased the share of GVT, and that is why there is an improvement in their MSM. Where are we in terms of our product mix?
I did mention it in my opening statement, but I will repeat it for your reference. I am talking now YoY. Ceramic is currently this Q1 FY 2025 is 35%. Last year, same quarter was 34%. PVT is 28%. I want to repeat that. Q1 FY 2025, ceramic is 35%. The same quarter last year was 39%. PVT is 28%. Last year was also same as 28%. GVT has improved to 37% from 33%. Having said that GVT keeps improving, there is no rocket science to improve GVT because the whole market is moving towards GVT. I would think that your GVT in the next couple of years is going to reach above the 50% also.
Will that not also improve your realization on an MSM basis?
It's not only the realization we should be looking at, it's the contribution. Yes, GVT has more applications, so it would improve contribution. But just by saying that from 37% in the next couple of years, we'll go to 50%+ doesn't mean that the realization will go up by the same amount, because GVT also has various segments. It has the low segment and the high segment, which I've said in the past also. So it's a little more complex than just being simply understood like, GVT goes up, so realization goes up. But GVT as a segment will keep growing. Worldwide, the entire market is moving towards GVT. In layman's terms, if I have to explain to you, it is moving from CRT TV to a flat TV. That is how it's moving. It's not that those TVs are not sold.
The old-fashioned flat TVs to the OLED TV. That's how the technology is moving. Everything is going to move only a notch up and not a notch down because the technology of GVT is becoming more and more easy to adapt and also cheaper and cheaper going forward. So all of ceramic in GVT, not all, but a reasonable amount of ceramic in GVT, especially for the floor, will move to GVT. So happy to get on a call and explain to you a little further on this.
Sure. Thank you so much. I'll look forward to that.
Thank you. The next question is from the line of Bhavin Rupani from Investec. Please go ahead.
Hi, sir. I just had one question. What are your expectations on industry growth for the year, and do you expect our growth will be higher versus industry?
Yeah. Industry growth in domestic should be a little bit. Last year we did grow, so there should be a little bit of growth considering that H2 onwards, we will have a lot of these residential real estate started picking up and buying material. As far as export is concerned, clearly there will be a growth. Last year we did a INR 19,500- INR 20,000 crore export. I do believe that it should be slightly more than that. How much more than that will be really depending on the freight rates and the global scenario. It's not really only relying on the Indian dynamics. So at Morbi at 65%-70% capacity utilization, freight rates go down.
This should move up to from INR 1,700 crore a month to at least INR 22,000- INR 2,100 crore a month because a lot of the traders are waiting for the freight rates to go down, which is record high at what I've given to understand right now.
What will be our expectation versus industry growth? Will it be higher or same?
We've been always growing higher than industry growth, which is domestic industry. That's clearly going to be the case even this year.
Is it possible to quantify by 5%?
I do not know how much industry will grow. I can quantify what I will grow at, but I cannot quantify exactly how much industry will grow. Whether it be a percent, it will be definitely under 5% because a large part of the industry growth will come from export.
All right. Thank you so much.
Thank you. The next question is from the line of Vinamra Hirawat from JM. Please go ahead.
Hi, sir. I've got a question on debt and debt reduction. In previous calls, we've guided, I think, for a debt reduction in term loans of INR 35 crore or INR 40 crore annually on a consolidated level. Are we still sticking to this?
Yeah. So that is the annual repayment, Vinamra, which is annually as scheduled, and that keeps getting amortized over the period on yearly basis. That is what we told. As far as debt level is concerned, it is the same debt level we have. So INR 335 crore consolidated, we had in March, dropped it, and the same level is there in June also.
Okay. Got it. Thank you.
Thank you. We will now be taking the last question for this afternoon from the line of Utkarsh Nopany from BOB Caps. Please go ahead.
Yeah. Sir, I just want the ESOP expense amount, which has been booked for June quarter.
Yeah. Utkarsh, it's a more of a notional cost, but yes, what we have accounted for Q1 is INR 93 lakh as the ESOP cost in P&L.
Okay. Thanks a lot, sir.
Thank you.
Thank you. That was the last question in queue. As there are no further questions, I would now like to hand the conference over to Mr. Somany for closing remarks. Over to you, sir.
Thank you so much, ladies and gentlemen, for joining us for the FY 2025 Q1 call. We hope for a better quarter and would welcome you for the FY 2025 Q2 call and the H1 call in probably next quarter. Thank you so much.
Thank you. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.