Ladies and gentlemen, good day and welcome to the Somany Ceramics Limited Q1 FY 2024 Earnings Conference Call hosted by Asian Markets Securities Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ from such expectations, perceptions, whether expressed or implied. Participants are requested to exercise caution while referring to such statements and remarks. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note this conference is being recorded.
I would now like to hand the conference over to Mr. Karan Bhatelia from Asian Markets Securities Limited. Thank you, and over to you, sir.
Thank you, Carol. Very good afternoon, everyone. On behalf of Asian Markets Securities, I welcome you all to the Somany Ceramics Q1 FY 2024 Results Conference Call. We have the senior management team with us to take us through the results and then follow question and answer. With that, I will hand over the call to Mr. Abhishek Somany for his opening remarks . Over to you. Thank you.
Welcome, ladies and gentlemen. This is Abhishek here. I am assisted with Sailesh, our CFO, and Sunit. To give you a feedback on an overview of the first quarter. The first quarter, there has been pressure in the market, and therefore, our capacity has been utilized in a very low way. To be precise, there has been a 70% capacity utilization as far as our tiles are concerned, which clearly shows up in the working. As you know that in the tile industry, the biggest lever is capacity utilization. Silver lining is that from the 1st July, we are almost at 100% capacity utilization. So things are looking much better. Anyway, for the last quarter, that impacted the sales as well as the margins. As far as sales is concerned, we grew by 8% and we were looking at a double-digit growth, as mentioned earlier.
We are still stating that we would be looking at a double-digit growth for the full year. This quarter, which is Q1, has had some other pluses, which is the gas pricing has stabilized between April and June. Currently, our gas pricing is looking between mid-40s to early 40s, depending on the region, coming off from the mid-50s to the early 50s. That has been a reduction in the gas pricing, which is where you are seeing the EBITDA margin, 60 basis points, which is up. However, if the capacity utilization would have been 10%-15% better, which is what we were envisaging, this EBITDA margin would be much better. Therefore, you can look for it for this quarter. We should be looking at a much better quarter. As far as sanitary ware is concerned, sanitary ware did not grow in the quarter, but bath fitting grew by approximately 20%.
An overall growth of 8% in the sanitary ware. This is something, again, which has picked up in the second quarter. As far as our advertising is concerned, we were in line. We did about 2.5%-6% of revenue in the advertising. We had taken up the IPL, and we sponsored one of the teams, or rather co-sponsored one of the teams. As far as our balance sheet is concerned, we have been focused on overall working capital management, and therefore, the balance sheet is absolutely under check. Our debtor days have come off two days, from 40 days to 38 days, and our inventories are also down by a day. That largely on the backdrop of using lesser capacity. So there has been lesser capacity utilization. Coupled with that, we had taken certain routine maintenances.
Overall, these capacities are back on stream, and we are up to a much better quarter. The other thing which has been noteworthy in the quarter, in fact, which is one of the results, is, again, land balancing. What we have done is Somany Fine, which was making soluble salt products for us. Soluble salt product is part of the PVT portfolio. PVT has double charge, twin charge, and soluble salt. Soluble salt, that plant was producing about 4.5 lakh up to 5 lakh square meters. Our current demand for soluble salt is slightly lesser because this particular material has gone only into projects. So we need about 3.5 lakh square meters, and it was a chicken and egg. The plant was not running at 100% capacity, therefore not being able to give the pricing.
We thought it prudent to sell the plant and buy the soluble salt from elsewhere, which has already been tied up. This plant has been shut for the last three, four months, and we have had zero sales loss because we are buying the soluble salts from other parties who are running the plant 100% and selling to various different suppliers. That is what has been a prudent move on our part to exit the JV. But rest assured, there will be zero impact on the material availability. There is more than enough material available as we speak of soluble salt. As far as our showrooms are concerned and network expansion is concerned, we expanded the dealers in the first quarter. We are at 50+ dealers, net addition, and we did about 25 showrooms. This has been the overall overview of the last quarter. Happy to take questions now.
Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question answer session. Anyone who wishes to ask a question may press star then one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait a moment while the questions queue assembles. The first question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi. Thank you for the opportunity. Sir, what do you get to say from the demand that Q1 has been-
Excuse me, sir, this is operator. I am so sorry to interrupt, but please request you to use the handset mode while speaking.
Is it better now?
Your audio is not clearly audible, sir. Can you please speak a bit louder? Thank you.
My question is, how is the demand shaping up in Q2 and when you expect the demand revival?
Q2 is much better than Q1. July was also better than the average of the three months in Q1. I think the demand finally will look up completely post Diwali, but for us, we should have a much better quarter in Q2 itself than compared to Q1.
Okay. Got it. Can you give the fuel price breakup region-wise for Q1 FY 2024 and current prices?
Q1 FY 2024 was INR 46 as far as the northern plant is concerned, INR 43 as far as the western plants are concerned, and INR 57 as far as the southern plant is concerned. Current pricing as we speak this month, obviously every month it's been going down little by little. I gave you the average of the Q1. Current prices, the northern plant is looking at INR 41, western plants are looking at INR 40, and the southern plant is looking at INR 50. These are all figures in standard cubic meter.
Okay. Got it. Lastly, what is the update on the CapEx? Is it running on track, and what's the top things we should expect for FY 2024 and 2025?
FY 2024 and 2025, the only CapEx which is building is our large format tile, which will start production sometime in Q3, early Q3.
Okay, got it. No further plan as of now for future?
No further plan. With this plant starting, the addition in capacity in the last 24 months would be approximately 25%. So a lot of work to do on sales.
Got it. Sure. Thank you. That's it.
Thank you. The next question is from the line of Jenish Karia from Antique Stock Broking. Please go ahead.
Yes, thank you for the opportunity, sir. Sir, if you can please highlight on the gross margin contraction, excluding the power and fuel cost, both on year-over-year and sequential basis.
I would let Sunit or Sailesh take that question.
There is actually a gross margin improvement this quarter, both QoQ and YoY. If I have to talk of numbers, I think QoQ, the gross margin expansion is 0.9% and year-over-year it is 1.2%.
If I exclude the other income and power and fuel cost, it seems that there is a decline. It has gone down from 54% in last quarter to 53% now.
No. Power and fuel is a part of gross margin only, so you will have to include that. When I have given you the numbers, other income is not included in this. It is the actual operating gross margin. Power and fuel is a part of our cost.
Okay, no problem. Can you just help us with the product mix for the quarter, if possible?
I am sorry.
The product mix between ceramic, GVT, PVT.
Yeah. The product mix has improved in favor of GVT. If I look at Q1 FY 2023 or even Q4 FY 2023, we are up by 2%, so we are at 33%, 34% of GVT. GVT obviously has declined by 2% and ceramic has also declined by 1%. So overall, GVT has gone up by 0.4% and the other two have declined by 2%- 3%.
Sure. That's it. So I come back in the queue. Thank you.
Thank you.
Thank you. A reminder to participants, if you wish to ask a question, please press star then one on your touchtone telephone. The next question is from the line of Ritesh Shah from Investec. Please go ahead. Mr. Ritesh Shah, you may please go ahead, sir, with your question.
Sorry, I was on mute. Thanks for the opportunity. A couple of questions. Sir, you did indicate the regional gas prices for Q1, and you gave also spot. Sir, can you help us Q4 FY 2023 prices and blended cost for Q4, Q1, and right now?
Q4 cost was INR 51 in North, INR 50 in West, and INR 59 in South.
And sir, on a blended basis for Q4, Q1, and right now?
I will have to work that out. I do not have the facts in my hand. But right now I have told you it is INR 41 in the North. Where is it?
INR 41, INR 40, INR 50.
Oh, sorry. I have the blended. I am sorry. INR 45 was Q1 FY 2024. INR 61 was Q1 FY 2023, and INR 50 was blended Q4 FY 2023. I will give you last year Q1, INR 61.
Right.
Last year Q4, INR 50. This year Q1, INR 45.
Spot?
There is no spot.
Sir, you said INR 41, INR 40, and INR 50. If one had to do a weighted average, how does it come to? Is it this, sir?
Ritesh, the INR 41 is the blended as the current level, which is the current metrics, right? The breakup amongst the geographical location is INR 41 at a northern plant, INR 40 at a western plant, and INR 50 at the south plant. So blended coming to INR 41 at the current level, which as of now.
That helps. Sir, the second question is, what sort of cost savings are we looking at if one just had to extrapolate this rupees per SCM into competition norm based on our mix of GVT, PVT, ceramic on a rupees crores basis ? A follow-up to that would be, do we expect this cost savings to translate to higher margins or are we looking to pass on some discount? How should we understand that?
The sales price really haven't declined in the first quarter. Whatever margin reduction you're seeing is purely because of lesser value-added being sold in the first quarter. Sales price is not under pressure to that extent. It's just been the market. We've passed on some discounts, but that's to use capacity, old material, et cetera, but not really. I can't point it out as a flag as to sale price is under pressure. Going forward, you're seeing the 60 basis points up, even though our capacity utilization was probably the lowest ever at 70%, which is back to 85%-90% as we speak from 1st July onwards. You will see that coming also and the 60 basis points is anyway coming as a cost advantage in terms of gas. Looking good for the second quarter.
Right. Just a related question, how much would be propane and Gujarat gas pricing right now? What I'm trying to understand is the positioning of, say, Morbi versus for us, just to indicate INR 50, are we above or below that? Does it mean anything for us?
We have six plants out of which four plants are running on propane as we speak. In fact, five plants are running on propane as we speak, and one plant is also getting the propane bullets. As of today, the propane price before the government increased the taxes on propane was just a wee bit lower than natural gas. That is why we were running propane. Next month onwards, I think propane would be higher than natural gas is what is predicted, in which case we will move to natural gas, which is at INR 40. I don't remember the exact figure for propane, but I think propane is at about INR 38, INR 39, and natural gas is at INR 40. There's a correction. There's only four plants which are running on propane, two are running on natural gas. Blended, we're still at that INR 40.
I don't think that will change. It'll be at that INR ±1.
Sure. This is helpful. Just last one question I will try to squeeze. Sir, other players are looking to set up facilities in Eastern India. How do we see that as a cluster emerging? Would we look at anything on Eastern India to cater to that customer? Thank you so much.
One player which is doing [audio distortion] information on that.
Your voice is breaking up. Hello?
Yeah, I have only heard of one player doing Eastern India, unless you have better information on that.
Sure. Right now it is one. What we are hearing is there is going to be incrementally more. The question is, sir, any thoughts on that direction on a manufacturing base in Eastern India? Does it make sense? Would we even look at it in that direction?
Requesting the participants to please stay connected while we have the management reconnected to the conference. Requesting all the participants to please stay online while we have the management reconnected to the call. Thank you. Requesting all the participants to please stay connected while we have the management reconnected. Participants, requesting you all to please stay online while we have the management reconnected to the conference. Thank you.
Hello?
Yes, sir, you are reconnected. You may please go ahead as we have Mr. Ritesh still on line.
Ritesh, I know only of one player who is doing something in the east of India. I do not know anybody else who is doing it.
Fair. The question is, do you see merit in that particular move and would we even be considering about manufacturing facility in Eastern India to seize the sizing of the market?
Nothing on cards right now. Our next capacity which is coming up is Nepal, which will be sometime next year.
Okay. Sure. That helps. Thank you so much.
Thank you. Before we take the next question, I would like to remind participants, if you wish to ask a question, please press star then one on your touchtone telephone. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.
Yeah, good afternoon. This is Achal from JM Financial. Sir, a few questions. One is, with respect to value-added mix, can you help us for 1Q FY 2024, what is the number? Similarly for 1Q FY 2023?
GVT should be up by another 2%-3%. It should be above 35%. It is currently at 33%.
Sorry. You are saying in 1Q FY 2024 it is 33%, right?
No. In FY 2024 it was 32%, just shade under 32%, and it should be above 35% in FY 2024. Sorry, Q4 2023 was around 31%, 32%. It should be above 35% in FY 2024.
Right. Sir, in the recent comments you mentioned the margin reduction is due to lesser value-added sold. I am just curious.
Lesser value-added sold has nothing to do with GVT. I am talking of within GVT, there are different sizes. The higher sizes and the lower sizes. The lower sizes yield lesser, so marginally lesser. That is why when markets are under pressure, people buy only the vanilla items. Within GVT also there is three different categories, the vanilla, the mid, the high. That is what I meant.
Right. Is it possible to get a number like competitor talks about mix, what is kind of a value-added tiles mix which has higher margins. Is there any number we could quantify?
Yeah. We also have an internal number as to what we call a value added. I do not have the numbers exactly in front of me. But yes, that is exactly what I am saying is which being slightly lower. For example, I will give you the absolute example. 80 by 160 inches is a particular kind of tile, and 120 by 180 is another particular kind of tile. That has sold less than what we would have envisaged, versus the 60 by 120 tile which has sold more in place of the 80 by 160.
Basically you are saying that there is an element of down trading given the demand weakness, given the inflation and from a customer perspective. It has nothing to do with us in terms of the availability or production side of it, right?
No, nothing. Zero issue.
Understood. Could you remind Sorry, I could not understand really very clearly. The reason for capacity utilization was the issue with the PVT and hence we kind of discarded the capacity or got rid of the capacity and hence the utilization was lower. What is that?
Utilization was lower period in the quarter. We had couple of scheduled maintenances, which was great. We were good that we did the maintenance then. But other than that, the market was slow, so we had to shut down a few other lines. So the overall capacity utilization was lower. What I was mentioning was Somany Fine. Somany Fine literally makes a specific product called soluble salt. Earlier we were selling 6 lakh, 7 lakh square meters in the erstwhile days, four, five years ago, when soluble salt had the fancy of the market. Then that dipped to 4.5 lakh square meters. We still were in good shape to run the plant.
Six months ago, this particular product has started selling only 3.5 lakh square meters per month instead of the 4 lakh or 5 lakh square meter which the plant could produce. Now because the plant was running at a lower capacity, it was not being able to give me the right pricing. There were other players in the market who were making these vanilla items at a lower price. Therefore, we shut down the plant four, five months ago. We tried our best to revive it and revive this market, but the market has stabilized at that 3.5 lakh square meters per month, more or less, which does not justify running the plant at 100% capacity. Therefore, we have sold the plant. The partner will probably make soluble salt. We will probably buy back material from him. That I don't know.
But there has been no loss of sales in procuring soluble salt. Why the partner will be able to do it in case he chooses to make soluble salt later, the person who's bought this particular plant from us, is that he will be running at 100% and selling to not only me, to other people also. That makes all the difference. In our own plant, we don't sell to anybody because that creates further confusion. So in our own plants, all our JVs are 100% dedicated to Somany.
Understood. Okay. The next question I had, if you look at the south gas pricing, in fourth quarter also it was INR 60. I think 1Q you said INR 67. Have I got the number right?
Yes. It was INR 59 actually, not INR 67, but INR 59.
INR 59.
INR 60 let's say. South was INR 60 and currently at INR 50.
Currently at INR 50, which is still a good 25% higher than what is there in the western pocket, which is what we had.
Absolutely.
So how do we compete? Is that the freight cost takes care of that? What kind of disadvantage in terms of percentage of selling price?
Yeah. The freight advantage is kind of nullified because the gas price is far more expensive and this is I think a confusion between a local gas supplier there versus Indian Oil Corporation. Unfortunately, we work in India and it's the two different government departments fighting with each other is why we are getting a spot price. Gas is available at INR 40 over there, but Petroleum and Natural Gas Regulatory Board has not given any mandate to Indian Oil Corporation to supply to us. It's a confusion between the government departments, and for that all consumers are facing the brunt. This would also finally settle because the spot rates are going down worldwide. This will also finally settle over time. It's just taking a longer time.
Right. Sir, if you don't mind, can you help us in terms of even the unit-wise cost or the region-wise cost? If I were to ask you in terms of raw gas, propane, and distributed gas, what would that mix be for our company at a console level?
We buy spot only in South, nowhere else. Everywhere else, in the West, we can only and only buy from Gujarat State Petroleum Corporation Ltd. There is no third supplier there. Rather, no second supplier. In West it is Gujarat State Petroleum Corporation Ltd. In the North, we are buying from GAIL (India) Limited, but we are also trading on the Indian Gas Exchange.
Okay. Sorry, I'm still a little lost.
In the South, we are buying only spot. We do not have an option. In the West, we are only buying from GSPCL, we do not have an option. In the North, we have an option of buying from GAIL, and we are buying from IGX on the exchange.
Raw gas is GAIL and IGX is spot, right? Have I understood that correctly?
IGX is not spot. IGX is a blend. I do not know what that blend is.
Okay. And what tenure of these contracts are on the IGX?
On GSPCL, it is generally a three-month contract. In the South, it is an open contract. In the North, the GAIL contract is our 25-year contract, which will get over in 2028, and the IGX is a spot trading.
Got it. This is very helpful.
Mr. Lohade, I am so sorry to interrupt but can I get you to please
When I say spot trading, please do not misunderstand, it is not spot gas. It is spot trading.
Right. You said it's a blend, basically.
Yeah. I don't know what the blend is.
Thank you. Before we take the next question, I'd like to remind participants to please limit your question to one participant. You may queue for the question queue if you have a follow-up. The next question is from the line of Akshay from Canara Robeco Mutual Fund. Please go ahead.
Yeah, sir, just one question, sir. You did mention that the demand to post Diwali. So what is it? Is it just a hope statement or are you seeing some increase in inquiries from the real estate developers or something? So just on the demand side.
Real estate developers, we supply very little to. About 6%-7% of our revenue goes to real estate. A large part of our business is government and retail, mostly retail. We have seen a better July, although the entire country has been rained out. North is one of our largest market, and North has also been rained out, in Himachal and in Uttarakhand, et cetera. Even then, we have seen a better July overall for the company. North, the kind of rain which we have had, obviously that uptick will happen in August. Overall, even though there has been a complete fallout in the backdrop of rain, we have had a better July compared to the last three months of April, May, June.
Okay.
Thank you. The next question is from the line of Amit Purohit from Elara Capital. Please go ahead.
Thank you for the opportunity, sir. Just from the demand side, you indicated softness. Would it be largely both project and retail, or is it largely to do with retail?
Demand side is both project and retail. We have projects which obviously become slower in the rainy seasons. Also in June, you have extreme heat, labor goes back to the villages. Overall demand has been slow. Inflationary pressures plus the labor pressures, which are normal, but overall the demand has been slow in the first quarter. Having said that, we still grew by 8% by volume. It is slow, but it is relatively speaking. The problem is that we put in so much extra capacity in the last 24 months. That capacity lay idle, and therefore we had a margin pressure. That should get corrected the minute we start using capacity in a larger fashion. I am not worried at all. In fact, I am very optimistic on that.
Sure. And sir, also from the It could help in knowing this region-wise, kind of tier 1 or tier 3, 4, where there was a more slowdown that you witness, or in terms of your overall volume growth say about 8%, which is the markets where it has grown below 8% and where it has gone above 8%?
South has been slower. It is slower than 8%, specifically Kerala and one or two other areas has been slower. Telangana has been very good. North has been decent up till mid-June, before the rains came. Overall, I will not be able to give you exact figures, but our tier 1, tier 2, tier 3 or ABCD towns really has not changed on an overall level by such a significant mark which I would need to mention. Mixing is still in the same range of 75/25 between the tier 1 and the tier 2, 3, 4. In favor of the tier 2, 3, 4. 75 is tier 2, 3, 4.
There is no significant difference between the growth trends in these two segments, right?
No. The tier 2, tier 3, tier 4 continue to grow faster than tier 1. That is also because the tier 1 is a builder market, and we are not very penetrated in the builders. We are more focused on retail. That is why. Otherwise, tier 1 is also very large, which is where Morbi guys are supplying to the small and the medium-sized builders. Even the large builders, for that matter.
What does project includes for us?
Project includes only private. We are categorized in three ways: retail, which export is part of the retail, then government, and then private projects. When I am talking about private projects, it means only private real estate developers.
Okay. Let me ask, what would be project? Predominantly government projects or would it be private builders?
I have that breakup. 75%-80% is retail, 12% is government, 7% is private builders, 2% is export, and about 1% is the corporates. Corporates, I mean, the organized retails, the Maruthi, the Zara, et cetera, of the world.
Okay. Got it. Thank you so much.
Thank you.
Thank you. Before we take the next question, I would like to remind participants, if you have a question, please press star then one. The next question is from the line of Yashowardhan Agarwal from Arthya Wealth and Investments. Please go ahead.
Can you hear me, sir?
Yes, sir. You are audible.
Yes. Hi, sir. My question is on the COGS. Sir, if you are including power cost in the COGS, then we can see a 2% improvement in year-over-year.
I am sorry. I cannot understand anything what you are saying. I cannot understand anything. Is this good? I cannot understand. Can you repeat, please?
Yes. Can you hear me?
Very little.
Hello?
Sir, your audio is very unclear.
Hello?
Yeah. Yeah, go ahead. Now better.
Yes. My question is on the COGS. Sir, if you look at it, if you are including power cost in the COGS, then we can see a 2% improvement in year-over-year margins. But power and fuel cost on expenses corrected a lot. I want to note that what are the other sectors which is dragging down our gross profit margins?
I'm sorry. When you say power and fuel cost is corrected a lot, what is that lot correction? I mean, what are you comparing with what?
Hello?
When you're saying power and fuel cost is corrected a lot, what is that comparison? What are you comparing with? Because power and fuel cost, if you see on the numbers. This is on production. Our production is lesser this quarter. Production in the previous quarter was more. If you're comparing, please map it up with the production because the number which you're seeing is based on the production and not based on sales. I'll read the numbers for your reference. If I have to talk on QoQ, inclusive of power and fuel cost, we have improved our margins by 1.2%. If I talk of YoY, the margins have improved by 0.9%. Then you can do the calculation. Power and fuel cost is a part of it.
I think that's it from my end. Thank you.
Thank you.
Thank you. The next question is from the line of Pradeep, an individual i nvestor. Please go ahead.
Yeah, hello. Hi. Is it audible? Hello?
Yes, please.
Thank you for the opportunity, sir. I just want to know about this anti-dumping duty dynamics. Currently, as you are aware, recently, this GCC nation has lifted the anti-dumping duty on India, and the EU has started to levy anti-dumping duty on exports from India around, say, 7%-8%. What is the impact on that? Have they also done any action on China? What is the current position of U.S. anti-dumping duty on China? Just some more color on the anti-dumping duties.
There is no anti-dumping in the U.S. for Indian products. There is an anti-dumping in the U.S. for Chinese products. That is why Morbi's single largest export country today is the U.S. As far as Europe is concerned, China has a higher anti-dumping duty in Europe, and India has a very, very low anti-dumping duty of 6%-7%. It is really not mattering. In fact, Turkey, which is the other competition to India, also has a much higher anti-dumping duty in Europe from Turkey. That was the latest anti-dumping duty which was levied on India, but it was insignificant. As far as UAE is concerned, anti-dumping duty has gone, and we are also hoping that in the other Middle Eastern countries, this would be either lowered or would go.
Okay, sir, now as of the EU has maybe some fixes on duty on India. Anything on China also, or it is only on India and Turkey?
Like I said, China has a much larger anti-dumping duty in the EU than India.
Okay, sir.
India is clearly in an advantageous position.
Okay, sir. Thank you.
Thank you. The next question is from the line of Hrishikesh Bhagat from Kotak Mutual Fund. Please go ahead.
Yeah. Hi. Good afternoon. Thank you for the opportunity. My question is, first of all, congratulations on the great job done on the working capital front. Clearly, it is much leaner compared to the past. The question here is, this has been done obviously in a challenging demand environment. In case, as you highlighted, if the sentiment has improved, can we further improve or do you think we will require further any investments on the working capital front?
I think we are in good shape as far as the debtors are concerned. On the inventory, I think there is work to be done. We should be able to, if demand picks up, we should be able to shave off a couple of days on the inventory front.
Okay. Incrementally from here on, if you look at it beyond Nepal, there is not much CapEx. The cash generation will be fairly significant. How should we look at incremental capital allocation from here on? Because Nepal, I do not see more than INR 50-INR 54 incremental investment from your end.
That is correct. Therefore, there is not going to be a very significant expansion because the next expansion would probably be a sanitary ware expansion, which would be nowhere as expensive as a tile expansion. That would be there, but that also will be there only in FY 2025, maybe FY 2026. Spread into FY 2026. So two years from today, or one and a half years from today. Other than that, whatever cash we generate, I think next year when we generate the cash, we will probably let you know and think as to how we would want to deploy the cash. Obviously, it would be in the lines of prudent capital management. There are only three, four choices, either to expand or to buy back or to reward shareholders. We do not know. We are waiting to see what is the kind of cash balance we would have.
Sure. Thank you.
Thank you. The next question is from the line of Udit Gajiwala from YES SECURITIES. Please go ahead.
Yeah. I said just one follow-up on the margin end. Can you still help with 15% improvement from the savings in the gas cost? Can you see your full year for FY 2024 on the margin front?
I think the way the gas price is going, if it stabilizes here, maybe a little more should come out of the gas pricing. Other than that, all the other margin expansion, which we're expecting, we definitely are expecting is out of capacity utilization and our value-added sales. So both of them, we had guided for close to a double digit, so anywhere between 9.5%-10.5% margin is what we had guided in the beginning of the year. We still want to stand by that.
That's helpful. Thank you.
Thank you.
Thank you. The next question is from the line of Jenish Karia from Antique Stock Broking . Please go ahead.
Yes, thank you so much for the follow-up, sir. I would like to continue on my gross margin question. If I look at your power square meter margin on the production volume, so your power and fuel cost has reduced on a sequential basis by 3%, to INR 114 in last quarter per square meter from INR 110 currently. However, your other raw material cost has increased by 11% from INR 60 per square meter in last quarter to INR 250. Can you also understand why is the other raw material cost increasing?
Two factors to understand here. One is there is a decline in the power cost. This is purely on account of reduction in power. There is a reduction in the fuel cost, it is reduced. As far as other raw material cost improves, there is an increase in other raw material cost. But please adjust with the production. Our production is lesser this quarter. We have utilized lesser capacity.
On a square meter basis production volume.
On which number you are referring to? If you can just refer.
Yeah. Last quarter, we had approximately INR 311 crore of raw material consumed and changes in inventory and purchase of stock material, and production volumes were approximately 13.5 million square meters. That gives me a-
Jenish, Sunit here. Basically, if you talk on sequential basis, Q4 we had a power and fuel cost per square meter was INR 114, which has come down to INR 110 this quarter. That was primarily in line with the reduction in gas price, wherein it was reduced by almost INR 5 from INR 50 weighted average for Q4 to INR 45 in Q1. That is primarily on account of that. Now, if you talk about the higher operating cost, that was already clarified earlier that was primarily because of the lower capacity utilization which we had during the current quarter. Now, if you talk about the material cost, the material cost consumption per say, per square meter is almost flattish. It was INR 114 in Q4 versus INR 115 in Q1.
Okay. Maybe I am missing something. I will revert and connect with you maybe offline.
You may please refer the volume number given in our industry presentation. Then you can just simply divide the absolute number of the consumption given, and then you will get the numbers. If still you have, you can try it offline.
Just one last thing. What is our aspiration maybe three years, four years down the line for the bathware segment? Where do we see the margins and revenue profile for that segment, given the competitive intensity for pipe peers also increasing in the space? That would be my last question. Thank you.
So bathware, we are looking at a INR 300+ crore revenue this year, and that runs at a gross 3%-4% higher EBITDA than the tile business. The more and more that grows, the more and more the EBITDA would grow closer to the 14%-15%. So that is the vision in the next three to five years, we are looking at INR 500+ crore revenue from the bathware business.
Thank you. That is helpful, sir. All the best.
Thank you. A reminder to the participants, if you wish to ask a question, please press star then one on your touchtone telephone. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.
Yeah, thank you for the follow-up. Sorry, if you could remind us what is the blending cost for 1Q FY 2023, 4Q FY 2023. And 1Q FY 2024. I am just trying to clarify-
Blended cost for what, Achal? To clarify, please.
For gas. Sorry.
I will take you through slowly, okay. Blended cost in last year Q4 was INR 50.
Okay.
Last year Q1 was INR 61, and this year Q1 is INR 45. Currently, as we speak, in August, it is INR 41.
Perfect. Basically, while the blended cost did decline by about 40% QoQ, the actual is not declined as much. That's okay. The second question I had was with respect to the capacity addition. You mentioned that your capacity is going to go up 25%.
Will go up after the new plant starts, approximately. More or more.
What I'm trying to understand, on one hand, we have a significant exports playing out. On the other hand, there is also capacity addition. But I want to get your perspective on how Morbi is seeing capacities. Have you seen Morbi adding more capacities or has that slowed down in terms of new capacity additions?
Sure. Let me answer that. If you see the maximum capacity addition happened between FY 2021, 2022 and 2022, 2023, right? Last two years. That capacity was basically put in by Morbi in a very big way. Considering the industry leader and us are in volume, we may be very large. As single players, we are very small in the entire universe. We added capacity of about 18%, 19%, and we added capacity now by about 24%, 25% after the large format plant started. Morbi also added a large capacity. This capacity Morbi added between 2021, 2022, 2023, was predominantly for exports. What happened is when the capacity started coming in, which was just before the Ukraine war, sometime in last January is when the capacity started kicking in in Morbi, the freight rate started moving up very substantially, and so did the gas rates.
The war only made it worse. Therefore, a lot of the exports got hit. A lot of the traders were waiting for this to go down and then to buy. The exports went down from whatever figure it was to about INR 500 crore, INR 600 crore per month in the whole of last year, especially in the beginning of last year. That started picking up to a good INR 1,200 crore- INR 1,300 crore towards the end of last year.
As we speak, we are looking at between INR 1,700 crore- INR 1,800 crore of exports, which is happening per month from Morbi. You can see the swing from a down of INR 600 crore, INR 700 crore up to INR 1,700 crore, INR 1,800 crore a month. A lot of that capacity which came up for exports has started getting utilized for exactly what it was put for.
Coming to your other question, is there more capacity coming? There is no significant capacity coming. There are maybe five or seven plants, 10 plants coming in, but that many plants are also shutting down in terms of lines shutting down. It is kind of balancing out. We do not see any significant capacity addition in this particular year other than you have seen industry leaders plant start this month. Our plant will start early October third quarter, and maybe seven, eight plants of various natures would mushroom in this year. But no significant capacity addition, if that is what you are asking. I hope I have been able to clarify.
Gotcha. The follow-up to that is that if export is so strong, and if Morbi players are making reasonably healthy margins, is there a risk? Because we have seen in the past, whenever they have made substantial profits in any of the product category, they keep on adding capacity. Is there a change in the behavior this time around, do you expect?
Yes, there is a change in behavior for a couple of reasons. There is a lot of capacity which is still sitting unutilized. If you see, Morbi is still at 70% in capacity utilization. A large part of that capacity is in wall tiles, which is lying idle. The other reason is that there has been a significant price increase of land in Morbi, which means that it is becoming that much less viable for any capacity to come in. Coupled with that, I think Morbi has also learnt its lesson, where the margins were not as much. Therefore, the payback of the plant, which was much, much faster, has become longer in terms of both the land prices plus the rupee dollar, they were buying capacity.
All this capacity what you see or what you have witnessed in the last three years has been INR 75 to a dollar and INR 82 a euro. Today we are looking at INR 85 to a dollar and INR 92 to a euro. So this also is a good 15%-20% plants becoming more expensive, and the rate of tiles has remained steady or have only gone down. Coupled with that, obviously all of these factors make it less viable for any capacity to come in. I am not saying that it is not viable, but it is less viable for somebody to put mindless capacity. That is what I am getting at.
Yeah. This is very helpful, sir. Just one question with respect to the sanitary ware, the bathroom business. We have seen kind of a fairly sluggish growth if you look at from, like, when we launched and what we have achieved till now. So, in terms of the competitive intensity, has it gone up tremendously in West where that is where you find it difficult to grow given the smaller base you are at. Is there a challenge in terms of the growth itself, in terms of demand side itself?
No, I think the base is small, the demand is huge. I am not seeing that. Last quarter, I think for South for some reason, was very poor as far as the demand is concerned. North did very well. In fact, West also did decent. But South really let us down for whatever reason. As far as the competition is concerned, our competition, we are not seeing so much intense competition with the pipe players. A lot of the pipe players are struggling as far as sanitary ware is concerned. It is not an easy product. Also, the distribution is not the same. So tiles and distribution are the same. So disagree on most of the points. I do not see a challenge as of now to grow in this segment.
It's a question of how we play ourselves smarter and make ourselves better in terms of getting market share, especially in the South. It's all on us and really not on the competition. We're not seeing that issue.
All right.
Where we have not done well, it's better to acknowledge we've not done well rather than beat around the bush. Clearly, in the South, sanitary ware has not done as well, and we are correcting that to see how we can sell more in the South.
Understood. And just a detailed question. Can you break it up in terms of hardware, how much is sanitary and faucet mix for this quarter and once you have FY 2023 as well?
For last year, you mean?
Yeah, for this quarter as well as last year same quarter.
Okay. FY 2023 last year sanitary ware was 33%, and we are at just above 33%, so no growth in sanitary ware. Bath fitting was around 20%. There we've done 26%, so about a 20% growth there.
Understood. Thank you so much, and wish you all the best.
Thank you.
Thank you. Next question is from the line of Karan Bhatelia from Asian Markets Securities. Please go ahead.
With the top two, three organized players have not even cut on the MRP for tile. Morbi is not resorted to cut an MRP, or how do you look at things now?
MRP is a function of the discounting where the dealer discounts the product on the MRP. I am not sure whom you are referring to, but we have not taken any serious cuts on MRP. It is generally a function if a product has become a vanilla item and sometimes you have not looked at the MRP so closely. Those are corrections which we keep making. The last correction which we made was when we moved from excise to GST. That was a big correction which we made in MRP. But we have not done any such correction on our MRP. I am really not sure whom you are referring to, sir.
Right. So even at INR 30 average tool cost for the next couple of quarters, we will be still not going with cuts in MRP?
No, like I said, MRP is not a function of pricing the market .
Right.
Also, MRP is a function of when you are ex-factory and how far you are selling it. So MRP includes ex-factory pricing, profit, insurance, freight, dealer margin, sub-dealer margin, et cetera. Then we put an MRP. So typically, the MRP is in the industry, I am not talking of Somany, but in the industry is about 30%-50% of the ex-factory cost.
Okay. That was very helpful. Kumar, sir, if you can take the CapEx for FY 2024.
Pardon me.
CapEx breakup for this year.
Sir, CapEx breakup for FY 2024 is the only ongoing project, which is the slab plant, which is going on, and majority of cost is already done till now, because now we are on the verge of completing that project, and it would start from the early Q3. Other than that, we have just some maintenance CapEx, which used to be somewhere around INR 40 crore-INR 50 crore on a total blended level at a consolidated level.
Somewhere we are less than INR 100 crores of outlay this year.
Yes.
Okay. That is super. Since there are no follow-ups, any closing remarks, team, you want to make?
Thank you so much, ladies and gentlemen, for coming, for attending our Q1 earnings call. We are looking forward to a much, much better quarter two, and hope to see you very soon in the quarter two or H1 earnings call. Thank you so much for being with us.
Thank you very much. On behalf of Asian Markets Securities Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.