Ladies and gentlemen, good day, and welcome to Astral Limited Q1 FY23 earnings conference call, hosted by Ambit Capital Private Limited. As a reminder, all participant lines will be in the 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 that this conference is being recorded. I now hand the conference over to Mr. Dhruv Jain from Ambit Capital. Thank you, and over to you, Mr. Jain.
Thank you. Hello everyone. Welcome to Astral Limited's 1Q FY23 earnings call. From the company's side today we have with us Mr. Sandeep Engineer, MD and Chairman, Mr. Hiranand Savlani, CFO of the company, and Mr. Kairav Engineer, VP Business Development. Thank you, and over to you, sir, for your opening remarks.
Thank you, and thank you everyone for joining the earnings call of Q1 FY 2023. As you are all aware, the market situation was very volatile, and particularly the polymer pricing situation was very challenging and was rapidly dropping, which was expected the way it had gone up, and it is on a correction mode. Same was in the case of the demand. Wherever there is a falling price of polymer, the dealer and the distributor want to keep low inventories. If they get a sense of price going up, the inventory and the stock will go up and the demand accordingly will be going up in the market. Due to the month-on-month demand scenario is getting very difficult and very unrealistic to predict.
Under such situation, we have to inform all of you that Astral team has done a great job. We have a good performance of both the segments, that is plumbing and adhesives and paints. Some pressure was on the margin, and that was mainly because of inventory loss, which Hiranand Bhai will explain in detail during his initial remarks. Now let me go through the progress of expansion activities and where exactly we are in the new business. Expansion work at East is almost complete, and we have already started rolling out the products such as water tank, SWR, and PVC pipes.
We are under the process of approvals of ISI for the rest of the products, and as soon as we get this approval in the near future, other product lines would also start production and will be rolled out in the market from the east plant. Our adhesives state-of-the-art plant at Dahej is in full swing. The work of adhesives state-of-the-art plant in Dahej is in full swing, and we are expecting to complete the same in Q3. We'll be doing trial production in Q4, and in the early next fiscal would be in complete production. Valve project is progressing well. We have already rolled out a few products in the market and few are still under trial. Molds are getting modified, and we are expecting to complete the same in Q3.
In the faucet and ceramic ware business, especially in the faucet, we have just and recently acquired a ready to use asset at Jamnagar, for which from where we were getting the supply of our faucet on outsourced basis. The production at that facility under Astral brand has already started, and now Astral can proudly say that our faucets are and will be manufactured in-house from the plant at Jamnagar, and very few product lines would be outsourced in the faucet business. Our first display gallery showroom of faucet and sanitary ware is already started in Ahmedabad, where we have displayed the complete range of products of the newly developed designs of faucets. You are all welcome to visit the same at your convenience. Company has already started the process of appointing distributors and dealers for faucet and sanitary ware.
We are expecting the sales to pick up from Q3 onwards. During Q2, we are expecting some sales as we are still in the process of completing the complete range and putting the appropriate inventory at our warehouse. We have just completed the legal documentation and transferred the funds in the paint business. We are in the process of filing the application for demerger of operating business of Gem Paints with NCLT. We recently completed paint plant visit of the paint factory by many fund managers and analysts at Bangalore. We hope you must have liked the state-of-the-art, newly built-up plant, which can do 4x turnover without doing any further CapEx. Gem Paints has also delivered good numbers in Q1.
We are integrating the business with Astral, and in next couple of quarters, we will come up with a plan of opening Gem Paints products in many states of India. Our UK operation are giving good growth and are unable to fulfill the demand of some of its products. We are working on some CapEx allocation at the plant, and shortly we will work out the same and communicate to you. Post the expansion, we are expecting a very good growth in the business in the UK and US operations. Overall, except volatility due to the polymer and the chemical prices, we see a good progress in our existing business, as well, as well as the new businesses which we are in.
We are confident that we will be doing good in the coming times and equally improving upon the other performances. I now hand over to Mr. Hiranand Savlani to take you through the financials, and then we'll open the floor for questions and answers. Thank you everyone for joining this earnings call of Q1. As Sandeep has rightly said, that this quarter was full of challenges. In spite of difficult circumstances, we have delivered one of the best growth during the quarter on a consolidated basis. As we have repeatedly communicated that we always believe in consistency of performance, and we have continued the same during this quarter also.
The numbers are in front of you, and you can see that in both plumbing as well as adhesives, we have delivered 73% and 35% respectively in top line, and EBITDA growth was 30% in pipe and 43% in adhesive. I have not counted in this number the paint business. Pipe has delivered a 48% volume growth. The sizable volume growth was mainly because of the low base of last year's Q1. The margins were under pressure in pipe division mainly due to inventory loss. It is difficult to arrive the exact loss figure, but we can approximately say it should be somewhere around INR 25 crore kind of loss.
Also, few expenses like employee cost and the launch cost of our new products such as faucet and sanitary ware and the big party in Goa for the launch of this product has been completed in the Q1, so that has also given us some pressure on the EBITDA margin. At the PAT level, some pressure was mainly because of the forex loss of INR 11.7 crore in the Q1 and also close to about INR 7 crore of extra amortization of expenditure which is falling under the depreciation because of the, you can say consolidation of paint business. These were the two, one of the things, INR 11.7 crore was forex loss and INR 7 crore was depreciation, extra amortization.
The forex loss was mainly because we are completely dependent, hundred percent, you can say, on the CPVC for import and CPVC volumes were continuously going up, so we were sitting on a reasonably good inventory also. Normally we get some credit terms, 90 days from our suppliers. Because of that, we have to incur the losses into the forex side. The rupee was highly volatile during Q1. Margin in adhesive business were also under pressure due to high chemical price, but we can say it has improved sizably in Q4. Compared to Q4, I can say the last year Q4 EBITDA margin was 11% in adhesive and sealant business, and this quarter is 13.6%. Close to about 260 basis points improvement into the adhesive business.
Still it is lower than our expected range of 15%. In adhesives, chemical prices have started falling from June onward, but still we are having some inventory which are of the high cost. So this pressure will be still there in Q2 also. Similarly, in pipe also PVC raw material prices have fallen sharply, not only in Q1 but it has continued in the Q2 also. However, our key raw material, CPVC prices are stable, so that will give us the support in terms of margin and the realization. But definitely some pressure will be there because of the sharp fall in the PVC price. From this quarter onward, we have now defined two business vertical. One is the plumbing, which will cover pipe, tank, faucet, sanitary ware.
Second vertical will be paint and adhesive, which will cover our Gem Paints, Resinova and our UK subsidiary, Seal It. Now onward, we will be giving results under these two verticals. We have started consolidation of paint business from this quarter, Q1 onward, as Astral has already taken control on the Gem Paints' board. From our press release graphs, you can very well see the performance of our company on a CAGR basis, because that's very important for any company to assess the performance. Of the last four years, if you can see the CAGR growth, you can come to know how better way we are growing the company, compared to the even pre-COVID levels also. Q2 will be challenging mainly, I said that because of the pressure on the price and secondly, because of continuous falling, the price of raw material.
Dealer and distributor communities are sitting with a very lean inventory. We are waiting that once these prices will settle down, I think the demand should start picking up because these are the very, very good affordable price for the market. Even today also, the PVC price has fallen a couple of rupees. As of 30th June, company is sitting with INR 542 crore of cash. Out of this 542, I think of 200 crore rupees were related to the Gem Paints, which is another arrangement with the company. We have parked in the OCD, so that's why it is falling under the cash and bank balance. Otherwise, if we have to remove this, you can say the 194 crore, so then 350 crore kind of cash is there with the company.
To sum up this, I think few of the one-off items which I already said, that is the Forex loss of INR 11.7 crore, write-off or amortization of INR 7 crore, new product launch and the employee cost increase in this January were in the profit to the tune of INR 5 crore, and the inventory losses of INR 35 crore. These are all put together will be close to about INR 48 crore kind of one-off costs were there in this quarter. With this, I want to conclude my initial remarks, and we are opening up the floor for the Q&A session. Thank you very much.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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 for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Venkatesh from Axis Capital. Go ahead.
Yeah. The first question is more like a data question. In your press release-
Venkatesh, I request you to speak little louder on the phone and on the handset.
Yeah.
The line for the participant dropped. We move to the next participant. Next question is from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.
Yeah. Hi, sir. Good evening. Congrats on good set of numbers in this environment. First, some housekeeping numbers. What is your pipes capacity at the end of Q1?
The pipe capacity is 274,822 for the last year. This quarter is close to about 8,000 is further added, so 282,338 metric ton.
INR 282,000?
3:38.
3:38. This is end of Q1.
Yeah, end of Q1.
Okay. Where would this capacity be by end of this financial year?
It's not clear, actually. Still some capacity will be added in the East also.
Correct.
Which will be close to about, you can say, another 10,000 metric tons will be there.
Okay. For the paint business, could you share the Q4, what sort of revenue they generated? I understand this was not part of your, but, just for a like to like understanding. What is the EBITDA contribution from the paint business?
Like paint business, last year Q4, I don't have an exact number, but I think it was close to about INR 50 crore top line and close to about 14.5% kind of EBITDA. Exact number you can call me separately. I can give you.
Sure.
I don't have a handout for the last year, but this year I think we already given in the press.
Sure. Yes. What is your margin in Q1 for the paint business?
It is 15%.
15%. Okay. Sir, what sort of inventory losses did you incur because, you know, margin fall has been quite heartening, in terms of you have maintained your margins very well. So, in spite of rising prices taking a sharp dip. You know, what sort of inventory losses you have seen in Q1, and what is the expectations in Q2?
It's very difficult to exactly work out, but we have worked out tentatively, which is close to about INR 35 crore kind of level.
Okay. In Q1.
Q2 will also be there.
Okay.
Now we have to see how it is going to work out because CPVC still it is stable. But PVC-
Okay.
It is further dropping. Today also it is a couple of rupees drop is done by the Reliance. We have to see how it is going to settle down. Everyone was expecting that it is going to bottom out, but we will still it is going down. I think it is very difficult for us to predict what will be the inventory losses for Q2. But definitely it will be there.
Sure.
We cannot say that it will not be there.
Okay. Coming to the next question. Given that, CPVC, PVC differential is now again widening, and do you see any risk on the CPVC demand, which, you know, given the sharp differential?
I don't think anywhere in the past also there is much change in the business because of the pricing. Maybe a little bit here and there will be there, but it's not because application is different. CPVC is mainly into the hot water application.
Okay.
It won't be a big change.
You don't know.
Normally.
If you could give broad overview on resin basis, what would be your revenue mix currently, like in Q1 broadly or FY 2022 full year resin basis mix?
Resin mix?
PVC, CPVC breakup, revenue breakup.
We don't share this breakup.
Broadly, like 60%-40% or, you know, 40% only CPVC.
We don't share this breakup.
No issues.
Okay.
Sir, I'll come back to you. Thank you.
Thank you.
Thank you very much. A request to all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Praveen Sahay from Edelweiss Wealth Management. Please go ahead.
Thank you for taking my question, and congratulations for a good set of numbers in challenging time. The first question is related to volume. As you also said that the four-year CAGR or even three-year CAGR, if I look at the volume, have a very good growth as compared to, you know, degrowth for the peers. Is it because you don't have Agri contribution or because of something else also? Can you elaborate more on that?
I think mainly because of the mix, CPVC mix is, has improved, so because of that, the margin is better. Otherwise, Agri as such, you know that we are having very low presence compared to the other players in the market. Our more focus is on the CPVC side of the business and the plumbing side of the PVC business.
Volume growth is largely because of the plumbing side is large.
We are predominantly a core plumbing company, so naturally the growth from the plumbing side will be more only.
Okay. The next question is related to your expenses side, sir. If already you have said that the next quarter also we will see some kind of inventory losses. The other elements like for the launch cost, the employee cost, which has increased and affected our numbers, that will continue as well. We will see the similar kind of a margin in the coming quarters as well.
You rightly said that I have already quantified also this number in my initial remarks. Some pressure will be there because you know any new product launch, initially they take your investment or you can say cost. Right now, sanitaryware and faucet revenue was zero in last quarter, and this quarter also will be a very small contribution, but cost will be there. Maybe Q3 onward, we are expecting that the revenue flow will start and maybe it will start picking up in maybe 18 months or maybe 24 months down the line. Till that time, some pressure will be there. One thing is good, that once you reach at a certain level, then it will sharply move.
We have to see how much time it is taking, whether it is taking 15 months, 18 months or two years, we don't know as of today. We are expecting good response because the way we have seen, in our launch party and subsequently after launch of our display gallery, the product range and all these things the dealer community has seen, distributor community, they are appreciating, so the expectations are very high. Again, I am repeating that still product is not there in the market, so it is too early to comment on that. Let's wait for some more time. Yeah, definitely some pressure will come on the margin because of these new products also.
At least we are working out in our budget that we take care of the costs which are coming on this division as a overhead. In one or two quarters at least we break even. There is no other allocation of extra cost on the other divisions, one. Second, we are not in a model of 100% outsourcing as the costly part of the business is the faucet, and Astral is going ahead with its own faucet production facility. That makes a great difference in margin, products design, delivery of a good product to the market, and as well as improve on the many, many aspects of service to the industry.
Thank you, sir. I'll come in the queue for follow-up questions.
Thank you, Praveen. Thank you.
Thank you. Next question is from line of Venkatesh from Axis Capital. Please go ahead, Venkatesh.
Sorry I got disconnected earlier on. I'm sorry if I'm repeating your question, but is it possible to share the EBITDA of paints in the current quarter?
I think we already given number of 15%. I think you missed that.
Yeah. You also gave the number for the Q4 of last year, the EBITDA. How much was that, sir?
Around 14.5, but we don't have an exact quarterly number because that company was not maintaining the quarterly report. Tentatively, I am telling you it was 14.5 kind of level. More or less you can just take the EBITDA they are maintaining.
Okay. Last year, Q4, the margin was almost 28% you made.
No, no. 28% what?
Because you said last year, Q4, I think it did INR 50 crores of revenues.
Yeah.
INR 14 and a half crores is almost like twenty-
14%, yeah. 14.5%.
14.5%. Okay.
INR 77 crore kind of thing.
Okay. Understood. Now, I don't know how you want to answer this question. This is a question which most of the investors in your company have been asking us time and time again over the last two to three months, which is basically, if you actually look at pre-COVID, the EBITDA per kg that you were making on paints was close to INR 28 per kg. Now, over the last two years, this EBITDA per kg went up to almost INR 38 in FY 2021. It went up to INR 42 per kg in FY 2022. Now, this has come down in the current quarter close to INR 36 per kg. But as you said, there is like around INR 25 crores of inventory losses. So if I adjust for that, it is, you know, again INR 43 per kg.
Let's assume hypothetically, you have one more quarter of losses, inventory losses, but beyond that PVC prices actually stabilize. Now, beyond that, do you think you can maintain these 40 rupees per kg in the pipes on the pipes side? Or is it like we will actually over the medium term, let's say 2-3 years, revert back to the 30 rupees per kg. If we don't revert, why exactly has this increase happened? Is there any structural reason why this increase has happened?
I think there are multiple reasons behind that. One is the decentralization of the plant. That's why our EBITDA has improved. Secondly, the product mix has changed because we are focusing more on the CPVC side, so that has also contributed. Third thing, we are continuously adding the value-added products like valves and other things are also there in the system, so that is also helping. I think multiple reasons are there. Because of that, EBITDA per kg has gone up. But it is very, very difficult to say how the situation will be there going forward. Because in this difficult environment, as Sandeep has also said in his initial remarks, there is a very, very highly volatile atmosphere is there. In that atmosphere, it is very difficult to predict anything for next month. Forget about one year down the line or six months down the line.
In that environment, I think it is too early for us to say that where ultimately it is going to stabilize. Definitely it will not go back to the earlier days. It will be better only. How much better will be there, I think the time will only answer to all those things. I think there are multiple reasons where we are improving ourselves, and that is why EBITDA per kg, you are seeing, it has improved a lot.
Okay.
All our new launches, especially the Astral Silencio, Astral Drain Pro and all have started giving good growth and pickups. There are multiple reasons that Mr. Savlani said. At the same time, lot of other activities which have been done at the market level are also in a positive direction.
Okay. Now, there is this other thing. Every quarter you share a sales number, which is in terms of the volumes, which in the current quarter is around 36,578 metric tons. Now, earlier, this used to be only pipe volumes, but now incrementally, like for example in this quarter, does this also include the volumes for water tanks and valves?
Yeah, because valve doesn't have a much volume. It is more of value. It doesn't contribute the volume much. Yes, water tank is there. There also volume will be very low, value will be very high. That very negligible will be there. It includes, yes, definitely it is included in everything there.
Okay. Thank you very much. All the very best.
Thank you.
Thank you.
Thank you. Next question is from Sonali Salgaonkar from Jefferies India. Please go ahead.
Thank you for the opportunity. My first question is regarding could you help us understand what is the PVC trend? What has it been since first of July, and how much is the correction probably?
I think trend is not great. It is continuously falling. I said in my initial remarks also that today also Reliance had dropped couple of rupees. It is very, very difficult to predict what will be there. There are still room for the little bit further drop also. We cannot rule out that possibilities also. Somewhere, I think, it will try to settle down. Still some bottom is there. It is very, very difficult whether it will settle down around 85, whether it will settle down at 90 or 80. It looks very difficult that it will go back to the previous days of 70, 75. It is very, very difficult to predict because internationally, every day some news is coming. Based on that, reaction is there in the system.
At the same time, we have to also see that our currency has also depreciated. That is also there. Very, very difficult, Sonali, to predict the trend. We have to keep finger crossed that it settle down somewhere. Because ultimately, if it is not going to settle down, it's going to hurt the demand because dealer and distributor community normally will shy away when there is a continuous falling trend. Same thing with the builders also. Somewhere it will settle down, whether it is at 80, 85, 75, it's okay. It should settle down. Only the demand will pick up very fast, because now the rates are very attractive. Makes sense to grow volume very fast. Because of this reason only, still the demand scenario is still not that great, I can say.
Right. What was the price on first of July and what it is right now?
I don't have the MD numbers, Sonali. You can call me post this call. I can check my number and will come back to you.
What is the trend in CPVC? Has it also been on a correcting trend?
Not much. CPVC is still a stable polymer, so and supply is the constraint. Secondly, anti-dumping duty is also there. Because of that, it may go down. We cannot rule out that possibility also. Little bit, but very limited room is there because that has not gone up also. Because of the anti-dumping duty, that protection is there. Below anti-dumping duty, it is even if it is internationally go down, India will not be having the effect on that side. That is how that product is protected.
Right. My second question is regarding the distribution and the ad spends. Now we have added many new categories. How do you envisage your distribution? In the sense, do you foresee some overlap with the present distribution or did you have to roll out new dealerships altogether for your emerging categories, and also the ad spend currently versus what you target, factoring that these new products will be scaled up materially over the next 3-4 years.
Ad spends right now are stable in the same range what we have been spending since the past few years. We are not really planning to do much ad spends on the newer categories before we set up our distribution channels and before, you know, the product moves to the market. Once, you know, everything is set and once we have a certain scale of business in the newer categories, we will think about doing some brand building activities for the same. Overall, whatever the spend is, it will remain within, you know, what we have been spending. No incremental spends. Maybe we might reduce the spend on an existing category and allocate to a newer category. On the whole, I don't think we'll be spending extra on the newer categories.
As far as the network goes, it's in the faucet and the sanitary ware business, a lot of our channel partners are selling these products. We will try to utilize our current network. Wherever, you know, we don't have a current distributor selling this product or if he's not interested, we will set up a new network also. The sanitary ware and faucet business is going to be a combination of the existing network, and in certain pockets we will be adding newer dealers and distributors as well. As far as the paint business goes, we will be following the same concept. Wherever, you know, our adhesives distributors and dealers are selling paints and they're, you know, they want to sell Astral paints, we will be opening those up.
Wherever, you know, we don't have reach, we will be appointing newer dealers.
Understand. Some last question from my side, the CapEx guidance for FY 2023 and 2024, if you have. Also, sorry, I joined the call a bit late, so if Hiranand sir could repeat the one-offs for me. Thank you.
I think CapEx we are targeting this year should be around INR 200 crore, max. One, Kairav already said, but I can repeat again. This Forex loss was INR 11.7 crore. This amortization because of the JVP to take the tax advantage is INR 7 crore, which is falling under the depreciation head. New product launch and the employee cost for the sanitary ware faucets was close to about INR 5 crore. Inventory loss was approximately INR 25 crore, which is not an exact number, but it is an approximate number, was close to about INR 25 crore.
Thank you, sir.
Thank you. Thanks, Sonali.
Thank you. Next question is from the line of Ankur Sharma from HDFC Life, please go ahead.
Yeah. Hi, sir. Good evening. A few questions from my side. One on the volumes. You know, on a three-year CAGR basis, you know, when I compare it to the last, the normal quarter being Q1 2020, it's a 5% CAGR on volumes. Which obviously will on the lower side given the way we've grown. And as you said, this would primarily be because of the dealer destocking amidst a falling price environment for PVCs, which probably may continue into Q2 as well. From a longer term perspective, you know, slightly, maybe in the H2 of this fiscal, you know, how do you see volumes kind of shaping up?
You know, do we continue to grow at that 15%+ kind of volume CAGR once PVC prices kind of stabilize? If you could also touch upon end market demand, you know, especially on plumbing.
I think you rightly pointed out the volume was low in last 3-4 year CAGR. It has picked up. At the same time, you have to see the industry. Industry was in negative.
Mm-hmm.
When industry was negative and we are growing at a 5% CAGR, you tell me hardly any company is in a positive volume growth. We have to also equally see how the industry is performing. Because of COVID and all this reason, the industry was in a negative growth. Under that circumstances, I think we have delivered one of the good growth, I can say. That was the main reason industry was not performing. But yeah, you rightly pointed out that the PVC prices also played a very important role during this, because it went up from INR 75 to as high as INR 162, and now it has come down to close to about INR 90. If that kind of steep rise will be there, then definitely demand will come under pressure.
That was exactly what happened in the last 1-1½ years. Now I think, as I said in the initial remarks also, that PVC price will settle down somewhere maybe shortly, maybe in another 2-3 months. It will settle down somewhere, maybe INR 80-INR 85 or maybe INR 90, I don't know exactly. Once it will settle down, there is high probability that the volume should start picking up very fast. That's why I have repeatedly said in my earlier communications also that if you see the construction activity was very slow in India. Because of that, the ready unit sale has happened very fast. Ready inventory has substantially come down. Because of that, there is high probability that the new construction activity has to pick up.
Because every across all the categories of building materials, the cost escalation was so high, forget about pipe, even the other categories. It was very, very difficult for a developer also to absorb this kind of cost. Because of that activities were slow. They were re-selling the ready unit, but they were not focusing too much on the new construction activity. Now I think across the board, every building material prices have started falling down, and that too very sharp. There are high probability that the demand should come back. I don't know it will take one quarter more or two quarters more, very difficult. If you pick up the next three, four years, we are very bullish on the building material side.
Fair. One is, of course, on the industry, but if you could talk about Astral specifically, what are we doing to outgrow the industry? Obviously the expansion in the East is one thing, which we are aware about, you know, so in terms of geographical presence, that will help us improve our, you know, share in that region. If you could also highlight some of the key initiatives being taken to kind of outdo the industry on the piping side.
We are doing a lot of things. We are focusing on increasing our network wherever we don't have any presence. We are finding pockets wherever, you know, we are weak. We are adding distributors, we are adding dealers. We are also opening more regional warehouses and depots so that we can grow the market in that particular region. We are focusing on brand-related activities wherever needed. We are constantly adding manufacturing locations and adding newer products in our portfolio to continue this growth rate.
Fair. Okay. Okay, sir. Great. All the best. Thank you, sir. Thank you.
Thank you. Next question is from the line of Sneha Talreja from Edelweiss Securities. Please go ahead.
Congratulations on good set of numbers, and thanks a lot for the opportunity. Just two questions from my end. Firstly, related to your forex losses, and since you said that it's related to CPVC imports, why is it not accounted in the raw material side of it? Why the addition-
Sneha, that is mainly because of the accounting policy, because we can't change the accounting policy of the country. Because of that, we have to account, and some other companies have also accounted. I am sure you must have checked the other companies also. This is mainly because of the accounting policy. Otherwise, it is good that I can make up again the other income side.
Right.
Because of the accounting policy auditors are following, and we have to strictly follow their accounting policy.
Sure. Since you mentioned a lot of one-off expenses related to, you know, your ad spend, your, you know, I mean, launch expenses, we were still not able to see your other expenses as a percentage. It seems to be, you know, lower either on a QOQ or a YOY basis. Any reason for that, sir?
It is not sizable because it is only INR 5 crore. It's not that much high which is reflected in the percentage terms of it. It is only INR 5 crore. Some of them is in the employee cost also. If you see the employee cost also on a quarter-on-quarter basis, if you see, then the absolute level numbers are going up.
Right. Yeah, I got the employee expenses part of it. I just wanted to clarify the other expenses part.
If you remove that employee side, then the new launch and all was close to about INR 3.5 crore.
Right.
INR 3.5 crore will not somewhere visible at the top line of INR 1,200 crore.
Right. Sir, lastly, if I just look at your adhesives and, you know, paint segment revenue combined, and if I exclude adhesives part of it, we've seen a QOQ drop in terms of your revenues. Is this a seasonality in that business which is causing this drop? It's around INR 270-odd, 89-odd crores now versus around INR 300-odd crores in the previous quarter.
No, I'm still not getting your question. You are referring to the Q-
Q1 of the adhesives compared to Q4. I think adhesives only standalone business has gone down on a QOQ basis. Is it the seasonality of that business which is, you know, leading to that fall in revenue on a QOQ basis?
Yeah, seasonality will definitely be there, but I don't think it will be a fall. I have to check this Q4 number. I don't have it handy. How much you say Q4 number?
Your Q4 number was around INR 300 odd crore. This quarter also includes INR 334, which also includes INR 55 crore of your paint.
I don't think it was INR 300 crore.
Okay.
I think.
I'll check the number again then.
You can call me post-call. We will discuss the number. Q4. Let me check and come back to you.
Sure. Sure.
Yeah, definitely some seasonality will also be there in the adhesive side of the business also.
Right. Sure, sir. Got that. Thanks. Thanks a lot and all the very best.
Thank you. Next question is from the line of Ritesh Shah from Investec India. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. A couple of questions. First for Sandeep bhai. Sandeep bhai, you indicated in the initial remarks of acquiring a facility in Jamnagar. Can you highlight the scope of this? How much will you spend? What percentage of manufacturing will it take care of? What percentage of revenue that can actually come out from this particular facility? That's the first question.
Basically, the spend would be around INR 22-23 crores. Not big one, but we'll be also spending a few crores to upgrade it as per the Astral safety norms and many of the other things which is already on the way. Around four to five crores will first go in the phase. Maybe a complete outlay of INR 28-30 crores will be there. The range as we envisage and as we at present are getting done from multiple people as our outsource model, almost 60%-80% between the at present first phase 60, and at later after the up-gradation around 80% would be coming from the in-house.
Sales to predict after all this and work out will let you know the exact numbers, how much sales this plant can deliver after one full quarter of our operating the plant. Because Astral getting into the plant, lot of systems and lot of safety norms were coming. I'm sure the way we will reshape the plant and upgrade it will give a substantial production for our faucet from there.
Right.
Just to add to what Sandeep bhai said, normally if you see these kind of facility, they will give you 5x kind of top line. We have to see what products will be there, because we are new in this category, so we don't have exactly the numbers. Normally we have seen that it will be close about 5x kind of turnover.
Sure. Roughly INR 150 crore to run the plant.
That INR 150 crores, yes, you can say it.
Sure.
To add one more point. If you see the whole Astral model of pipes, adhesives and paints, and similarly now faucets and ceramic ware, Astral would go for its own production facilities and in-house production, which gives great advantage in many ways to deliver a right product, quality product, and at the same time, in-house makes a lot of difference on the pricing, costing, availability and servicing to the customer.
Sure. My second question is again on bathware. Sir, how should one look at a pan-India launch, or are we going region by region? What sort of synergies or mapping do we have with our existing network? Are we tapping all together in different networks?
Ritesh bhai, we are planning to launch it in a phased manner, because this is a product that has a lot of moving parts and quality is a key concern for us because we don't want to launch in a haste and face any problems in the long run. Setting up a state by state plan and you know, we have to set up service networks in whichever geographies we are opening. Based on the availability of material spares as well as the service network, we will open in different geographies in a phased manner. I think by this year end, by thirty-first March, we will be opening in most of the territories across India.
As far as the existing network goes, yes, there are a lot of Astral dealers and distributors who have shown interest in stocking and selling our product. We are currently launching in Gujarat in the first phase, and we have gotten a very good response from our own network. Other than that, we have also added dealers and distributors who are selling other brands in sanitary ware and faucet who have also shown interest in working with Astral. It's a mixed model. You know, it's a combination of Astral parties as well as new parties.
No, that's helpful. One question for Sandeep bhai and then two for Hiranand bhai. Sandeep bhai, any update on valves? I think this was keenly awaited. The progress over here, any venture that you are doing. Hiranandji, question for you. When you commented on Gem Paints, you said you used the word tax advantage. Just wanted to understand what kind of benefit will we get out of here. Secondly, I think in the financials, why have we factored the Forex loss below EBITDA line? If you could just briefly explain that will be useful. Thank you so much.
Coming to the valve. Valve did take some time because the technology and everything is outsourced and COVID did cause a little problem. Today, the range which we are going to put in the market is going up to a good size. Exactly, Riteshji, we'll let you know as the range is launched. Today we have almost completed the launch of these valves up to the 50% plus the range we are going to put. Some of the molds, all the molds are here, but some of the molds needs some corrections, minor corrections. We have the mold suppliers from abroad working on it in Ahmedabad. Next, I think couple of months as the whole range which we are going to put for both industrial use, plumbing use and CPVC and PVC will be completed.
The phase I of the production of valves will be completed, which we have communicated to the market again. Phase II and III, we are going to add another categories of valves. There are many categories, the ball valve, the butterfly valve, and certain other valves which are also used for the industrial application. These are gate valves and some other form of valves. This valve project will be giving good margins, good results by the end of this fiscal. At the same time, the addition of the range of valves would continue, which will give us a good market in India. Not only India, but lot of export market will be tapped for that.
Now, Hiranand Bhai will answer the rest.
Ritesh, your first question was Forex. I already replied in my earlier question, the similar question, that this Forex loss is mainly because of import. That as per the accounting norms, we have to account below the EBITDA. It is not that we have chosen like that. This is the consistent policy we have followed since last 10 years. You can pick up any quarter's number, you will find that this number will be there. This quarter, only difference is that this is a little higher number, mainly because of the higher fluctuation in the currency. It is not that this number is high, that's why we are showing here. It is the policy we have followed from the day one we got listed. You can pick up the last, I think almost now we have completed 14 years. Okay?
In last 14, 15 years, you can see every quarter we are publishing this number. Now, coming to your second question of tax advantage. I think when you acquire any company now, there is an asset and then there is an amount you pay. Whatever the difference is there, that is divided into the multiple thing, and that you can do the amortization, and that will help you to take some advantage into the tax. That is why we have amortized that bill that is close to about INR 7 crore in this quarter.
Just continuation, how much more do we have over here, which will give us benefit on effective cash tax rates?
Like, every quarter INR 7 crore.
Till when?
INR 28 crore yearly.
INR 28 crore. It's like for this year only?
We have a five-year policy. seven years.
Okay.
We have a seven-year policy, so seven years.
Sorry, last question. What would this mean on the effective tax rate at a consolidated level? I think we have been at around 22%-23%. Is that a fair number or that number can actually go up?
Similar will be maintained. Because ultimately INR 28 crore on a PBT of last year's INR 650 crore or INR 700 crore is not going to be much. Ultimately it will be similar kind of rate, 22%-23% only.
Sure. Thank you so much for the answers.
Thank you, Ritesh.
Thank you. A request to all the participants, please restrict to two questions per participant. Next question is from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.
Okay. First, just one question, now when you start reporting the Gem numbers, they will be amalgamated in the standalone entity, right? The Gem Paints business?
It will be amalgamated in consolidated, not on standalone.
Okay. Standalone will still continue to report just the plumbing numbers.
Correct. Correct.
Okay. The sanitary ware and all, bathware and sanitary ware, how will they be accounted? In standalone or in consolidated?
Standalone. That will be the part of standalone.
Part of the standalone. Okay. Second, could you give some segment-wise revenue guidance for next two years, primarily on the tanks, valves, and the, you know, bathware businesses for next two years, 2023, 2024?
I think we have already given this guidance in our annual presentation. We have clearly said that we are targeting to double our top line in next five years.
Mm-hmm.
That guidance we have already given. I think quarterly or one-year guidance will be very, very difficult for us because.
No, no.
Many new things are happening at our end.
Correct. Correct.
Many new product launch are happening actually. Many products we are working in adhesive side. Similarly, we are working on the pipe also, few new products are expected. I think it is very, very difficult to predict on a quarterly or yearly number. I think long-term guidance we have already given that we are targeting to double our top line in next five years as a consolidated basis.
Correct. In terms of the tanks and the valves, what sort of revenue numbers you're looking at?
I think it will be too early to say what will be the number, but I think we have given the long guidance. I think you should stick to that rather than sticking to one quarter or one year number.
Okay. Great, sir. Thank you. I will come back in queue.
Thank you. Thank you. I think one more things I missed in my initial remarks, that was the working capital side. I think more or less we have maintained our receivable days and inventory days in this quarter also. Whatever the days were there in March, I think more or less same receivable days and inventory days are there.
Thank you. Next question is from the line of Salil Desai Marcellus Investment. please go ahead.
Right. Hiranand Bhai, I want to go back to this inventory loss and just clarify if I understand it right. This year just quantifying that the cost of raw material versus what you sold it at, there is some loss there. There's no active provisioning of any loss, right? From an accounting point of view.
No, there is no active provisioning. It is basically an actual loss.
Right. You bought like say INR 100 and then you sold-
Yeah. That's why I communicated in my earlier remarks also that Q2 will be also some pressure. That's why I said that Q2 will also be a pressure because everything will not be sold out. Some inventory will be still there in the system.
Sure. That inventory number will reflect in the change from March to June, which you said is similar number of days. In other-
Number of days will be same on a consolidated basis. On a case-by-case basis will be low. Like in pipe and all, it has reduced reasonably low level, like I think by four days in the inventory side and three days in the receivable side. Other like paint and all is a little higher working capital cycle, so there the little days have gone up. Pipe has come down, other has gone up. Overall, I said that on a consolidated basis, the receivable and the inventory days are similar to whatever was there in Q4.
Right. The second question is for Sandeep-bhai. When the faucet business, you know, you had originally were thinking that you would do outsourced manufacturing. You didn't want to kind of go full all in and just figure out how things work and then maybe somewhere down the line, a couple of years, you would do take a decision manufacturing. So now that thinking seems to have changed, and you think that in-house manufacturing is better. So can you sort of say what has led to the change in this way of thinking and from a basically point of view?
Let me tell you that was 100% this model, but two things happened. When we saw the complexity of the product line and the quality aspects of the product line, especially the finish and the. It's a moving part. Your ceramic ware is not a moving part or something. So looking to that, and we got a right opportunity to get something at the right price. That two things were there, that the main thing was the opportunity to get something within Gujarat, one. Second, at the right value and at the same time, a good state-of-the-art facility, due to whatever reasons the promoter has said. That is the reason why we went ahead and the capital outlay compared to actual sales, hardly anything that matters great for the business that can be generated from this amount which we spent.
That was the rationale behind it. Still, when you get into something new, you keep learning. When you learn, you understand the nitty-gritties of the business, and certain decisions can be taken on these aspects, and that was there why we went ahead with this faucet business on our own. Actually, it is actually a good thing, and everyone should feel that, some, it is a more commitment for us to be in this business. It is a great commitment. When you are on a model of job work, your seriousness of the commitment of many aspects go down. Here we are, completely committed to the business as well as the growth of the business.
Right. That makes sense. Thank you so much.
Thank you.
Thank you.
Next question is from Sumit Jain from ASK Investment Managers. Please go ahead.
Yeah, Sandeep-bhai and Hiranand-bhai, thank you for this opportunity and compliments on a good performance on volumes despite the challenges that have been there in the sector. My question is on paints business. When I remove that from the adhesives revenue, the revenue is INR 282 crores versus INR 196 crores, which is 44% jump, which if I look at Pidilite's numbers, et cetera, 60% jump, looks low. When I knock off the INR 8 crores OP of paints from the EBIT, so roughly INR 23-24 crores of EBIT will come from adhesives, which again, in terms of margins is something like 8.5% roughly. Which again is kind of on the lower side, even QoQ.
If you can explain what exactly happened in the adhesives business?
No, no. I don't know how you calculated 8.5%.
Sir, base quarter there is no paint business. That is, I'm saying YoY when I compare or even QoQ. From this quarter's number, I knock off the revenue of paints business and I knock off the EBIT from the adhesives EBIT.
You are calculating the EBIT, and there I said that because of this amortization, the gap might be there. Otherwise if you see the EBITDA level, I think last year's Q1 was 13.5, 13.8% precisely. Okay. That is there in our press release also. This quarter it is also close to about 15%. If you remove this paint, it is working out to be 13.6%.
Right, sir. Yeah, that helps this amortization. On the top line, is it a little muted, INR 282 crores versus-
That is mainly because UK operation had delivered a very muted growth of 4%-5% only this last previous quarter because there was some constraint. Because of that only 4%-5% growth was there. Otherwise if you pick up the Resinova, there was 80% growth.
Right. Now faucets becomes a part of, plumbing, right?
Yes, yes.
Right. Eventually standalone you'll merge Resinova.
Yes. Now we will merge. Segment-wise, yes, we will definitely going to give the separate number.
Segment-wise data you give for consolidated, right?
Yeah. You'll get the segment.
Okay. Sure. Thanks and all the best.
Thank you. Thank you.
Thank you. I now hand the conference over to management for closing comments.
Thank you very much for joining this con call, and thanks for the Ambit team for hosting this con call. If any questions are left out, which is we were not able to answer, we were not having the ready number, you are free to call me anytime. My mobile number is always with you, so you can call me anytime. Thank you very much.
Thank you all for joining this call. It was great interacting with you guys. It was my first conference call, so looking forward to many more such calls in the future, and we will try to work and deliver, exceed the expectations of the street in the coming quarters.
Thank you everyone and happy Janmashtami, and have a great weekend and holidays which are coming for next week. Stay safe and take care and look forward to again interacting with you after the Q2 work, hard work which we all have to do. Thank you very much.
Thank you.
Thank you very much. On behalf of Ambit Capital Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.