Ladies and gentlemen, good day and welcome to the Q3 and nine months FY 2025 earnings conference call of Prince Pipes and Fittings hosted by DAM Capital Advisors. 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. Aasim Bharde from DAM Capital Advisors. Thank you, and over to you, sir.
Hi, good morning. On behalf of DAM Capital, I would like to welcome everyone for Prince Pipes' Q3 and nine-month FY 2025 results conference call. From the Prince team, we have Mr. Parag Chheda, Joint Managing Director, Mr. Nihar Chheda, VP Strategy, Mr. Anand Gupta, CFO, and Mr. Karl Kolah, Head, Investor Relations. I will hand over the call to Mr. Parag Chheda for his opening comment. Thanks.
Thank you, Aasim. Good morning, and thank you all for joining us for our quarter three and nine months FY 2025 earnings call. The presentation and the press release have been issued to the stock exchanges and uploaded on our website. I hope everybody has been able to go through the same. The December quarter has been a challenging quarter for the industry and specifically for Prince as well. We have never shied away from admitting that our performance is far away from our expectations. Over the past few months, PVC prices have continued to remain volatile. As you are aware that PVC prices had fallen by 19% till October, leading to a sustained destocking. Thereafter, prices increased twice by INR 3 per kg in November on announcement of provisional findings of antidumping duty.
However, delay in the final findings and implementation in the past couple of months had led to lower spot prices and maintenance of sub-optimal inventory at dealer level. Further, quarter three volumes in the industry and ours were affected by delayed demand and sluggish execution in the infrastructure and construction sectors. Our profitability was majorly dented by lower volumes and high-cost PVC inventory vis-à-vis sales realizations.
We are implementing a wide range of growth strategies on an immediate basis, which will yield returns in the upcoming quarters. Our investments in distributor management systems will help us track and forecast end demand more efficiently. Our focus on brand reinforcement and customer loyalty initiatives like Udaan 2.0 on a pan-India basis will help us expand and strengthen customer engagement, thus driving notable volume growth in medium term. Aquel by Prince, our Bathware vertical, continues to expand presence across markets.
The Bathware segment is steadily expanding its footprint with new showrooms across Goa, two in Jaipur and Pune, in addition to the earlier launched outlets in Haryana and New Delhi. We are present in tier two and three cities across North, West, and South regions of India, across more than 200 retail touchpoints. Our integrated manufacturing facility at Begusarai, Bihar will be commissioned in this quarter, and a capacity of 40,000 metric tons in a phase I is likely to go onstream from quarter one FY 2026, which will cater to the rising demand in East India, a fast-growing market. At an organization level, we have been certified as a Great Place to Work, which is an independent, concrete evidence of employee experience. GPTW is a global authority to certify organizations across the world.
This certification reiterates that Prince Pipes fosters a positive work culture, enjoys high employee satisfaction, and promotes sustainable business success, marking a significant milestone for the company. Achieving GPTW status will help attract and retain rich talent while also boosting employee engagement. In another significant development, Prince Pipes has ranked among the top two most desired brands in the pipes category as declared by TRA Research in its Most Desired Brand 2024. This recognition marks an important milestone for the Prince brand. TRA Research annual rankings are highly regarded by the industry, providing valuable insights into consumer perceptions and preferences for over a decade. The Union Budget 2025 announced the extension of Jal Jeevan Mission until 2028 with an enhanced total outlay aiming to achieve 100% coverage of potable tap water connections across rural households.
It was reiterated that since 2019, 15 crore households representing 80% of India's rural population have been provided access to potable tap water connections under the Jal Jeevan Mission scheme. Additionally, the government plans to sign separate MOUs with the states and union territories to ensure the sustainability and efficiency of water service delivery, reinforcing its commitment to a water secure future for all.
This augurs well for the pipes and fittings industry that play an active role by bringing innovative solutions and technologies. To capture the long-term demand trends, we are expanding manufacturing at key plants, including our latest facility at Bihar, which will go on stream by April. Before I conclude, I would like to highlight again that we recognize that this quarter performance, both volume and profitability, is far from our expectations. While we are accountable to our investors, we are first accountable to ourselves.
During these challenging times, I am confident that we will emerge stronger. Going forward, I believe PVC prices have bottomed out. As the sentiments improve, our volume performance will improve. The various marketing strategies, including digitizing of our value chain, will help us gain market share. While improving volumes and product mix, I am confident that our profitability will improve from the current quarter. Thank you for your time. I will now hand it over to Anand to take you through the key financial highlights.
Thank you, Parag bhai, and good morning, friends. I will be taking you through quarter three and nine-month FY 2025 financials now. The revenue in Q3 FY 2025 stood at INR 578 crores as compared to INR 619 crores in Q3 FY 2024. In a challenging operating environment, we had volume of 41,267 tons in Q3 FY 2025 as compared to 42,665 in Q3 FY 2025. EBITDA for the quarter stood at INR three crores. We had a loss for the quarter at INR 20 crores.
Revenue in nine-month FY 2025 stood at INR 1,804 crores as compared to INR 1,829 crores in nine months FY 2024. In nine months FY 2025, we achieved volume growth of 4% YoY. EBITDA for nine-month FY 2025 were at INR 107 crores with profitability at INR 19 crores. Our overall working capital stood at 90 days as compared to 93 days in September and 95 days in March 2024. Receivable has shown marked improvement for the past two quarters and now stand at 53 days from 83 days in March end. Inventory days stood at 102 days as on December end. With this, I will like to open the floor for questions. Thank you.
Thank you, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. We will now wait for a moment while the question queue assembles. The first question comes from the line of Gautam from EverFlow Partners. Please go ahead.
Hi, sir. Good morning. Thank you for the opportunity. I had a few questions. My first question was, why has the margin profile of the company changed significantly over the last few quarters? What is likely to be the steady state of EBITDA margin that we are targeting?
Yeah. So couple of things here as far as margin performance is concerned. Margins have been under pressure at the gross margin level itself because of a constant reduction in PVC prices. So we have had a couple of quarters of inventory loss. So even in the December quarter, there was around INR 30 crores of inventory loss. That is the main reason for the pressure on margins. The second reason is in such an environment where prices are declining, our channel does destocking, which leads to a pressure on volumes, which is not only for us, it is across the industry. As a result of that, with lower volumes, there is no operating leverage and lack of cost absorption, which is why not only gross margin, but also the EBITDA margins, operating margins are under pressure.
What was the stable state of EBITDA that we would be targeting, sir?
Long term, we have always targeted at 12% EBITDA. Today that is obviously a significant gap from our current performance. To give a picture going forward, I believe that from the March quarter itself, we will see an improvement in volumes. From the June quarter, I believe that we will also see a better sentiment in the market as far as commodity prices are concerned. I think volumes should start improving from March quarter and both volumes and profitability will improve from the June quarter.
Okay. Could we be able to see 12% roughly as from June?
I think it is tough to comment on that because the gap is large. I think historically we have always tried to let the numbers speak, and I think that doesn't change even in this sort of challenging environment. I think we have to just focus on execution, look to improve volumes in these kind of times, and the rest will follow.
Okay, sir. From a growth perspective, we are seeing green shoots not from this quarter, like from the market, or is it still dull now, and we can see that primarily from March or June?
I think from March volumes should improve from the March quarter compared to the December quarter. From June quarter, I think we should also see a better pricing sentiment in the market which will also then further help volumes.
Okay, sir. And one final question from my side is, over the next two to three years, what sort of growth and margin profile do you expect from this business?
I think across the pipes, fittings and tanks, I think we have always outgrown industry by 2% to 3%, and that is what we will continue to focus on. Of course, Bathware is a new baby where we can't look at growth in percentage terms, but we have to look at it in exponential terms. The Bathware revenue for the December quarter is around INR 8 crores, which has increased from around INR 5 crores-INR 6 crores in the second quarter.
There we should see a significant growth. And 18 months from now, I think the Bathware number also will be significant and the margins also in the long term will be better than the piping margins, if you look at that industry. There is more scope for value creation in terms of product differentiation and brand creation because it is a front-of-the-wall product. In the long term, that will be a good value-added product for the organization.
Yes, sir. For the overall business, any particular in two to three years, what type of growth and margin should we expect?
So two to three years overall business, we should outgrow industry by 2% to 3% every year. And margins again, I think steady state, once we are out of these challenging times, I think 12 times is still achievable.
Price is achievable.
12%, sorry.
Okay. Thank you so much.
Thank you. A reminder to participants, please restrict yourself to two questions. If you have any further questions, please rejoin the queue. The next question comes from the line of Shravan Shah from Dolat Capital. Please go ahead.
Hi, sir. Thank you. Sir, just to clarify and have a question. You mentioned that in the third quarter, we had an inventory loss of 30 odd crore. Is it right?
Correct.
Yeah. Even if I adjust that 30 odd crore, then also the EBITDA margin comes at around 5.7 odd percent, which is still much lower than what we used to guide. Just trying to understand. Let's say the prices, I do not know your view in terms of the anti-dumping duty, when it will be coming and in terms of the improvement in the PVC prices, but let's assume if it remains at the current level, then in the particularly for the fourth quarter, where we can see the EBITDA margin and sustainably, though you are saying that 12% EBITDA margin is achievable. Can we see that coming from the June quarter itself? Or maybe it will take at least from the second half of FY 2026 it will start coming in.
Apart from the inventory loss, there is a further loss of around five and a half, six crore on account of the Bathware division, which we had guided for. Like I said, I think mainly the EBITDA margins are under pressure because cost absorption is not happening. Realizations and volumes both dropped, which led to pressure at the gross margin level, and then obviously that trickled down to the EBITDA level as well.
Which is why there is a gap between our targeted EBITDA and where we are today. I would not like to speculate on when the duty comes. Of course, it is going to come. Whenever it comes, that will be a huge relief to the entire industry. Not only in terms of pricing or margins, but specifically in terms of there will not be any sort of negative sentiment from the channel to de-stock. Channel inventory as we speak is low. It is quite low. As soon as sentiments just normalize, I think you will see a good volume pickup, which could be either by end of this quarter or in the beginning of June quarter.
Sorry, sir. Still not able to get. Let's try to put a number. In January and February, how much in terms of the broader range, how we see in terms of the volume growth? For fourth quarter, let's say the prices remains at what it is, how do we see the volume growth? For next year, do we believe that once Bihar is also operational, can we see a 10%+ kind of a growth that also coming from the June quarter itself for the entire FY 2026? If that is the case, then are we believing that our 12% EBITDA margin in FY 2026 is achievable?
I understand your question. What I will say is for the 12 months this year, we should have a mid to high single-digit volume growth. For the June quarter, yes, I can foresee a double-digit volume growth coming in.
Okay. From the June quarter itself, can we see closer to a kind of a double digit or a 12% kind of EBITDA margin? Or will it take some time from the second half of FY 2026 it will start coming in?
It will start coming in from the June quarter. Things will normalize. I think volumes will solve most of the problems. I think maybe to make my statement more loud and clear, you will see better volumes coming in from March quarter, and you will see margin moving towards normal levels from June quarter.
Okay. That's great, sir. Second, just if you can share how much we have already spent on the CapEx in nine months and what is left in the fourth quarter and maybe for FY 2026, how are we looking to spend?
For nine months, we have spent around INR 95 crores and in the last quarter we will be further spending around INR 60 crores because most of the Bihar closure will be there. The total Bihar capitalization will happen in Q1 of FY 2026. This is how the CapEx plan is. It will be spillover in FY 2025 and FY 2026, particularly the Bihar. For internal CapEx, excluding Bihar, it will be around INR 110 - INR 120 crores.
So put together INR 110 plus INR 90. I'm just clarifying. I'm just clarifying what sir has answered. Sir, so putting everything in terms of the cash flow perspective, how much CapEx will be there in FY 2025 and FY 2026?
It will be in the range of INR 260 crore-INR 270 crore, including Bihar.
FY 2026?
FY 2026, it will be a lean period for us because most of the CapEx we have done already in FY 2025. The leftover of Bihar plus INR 80-INR 90, which is a normal spend over existing plans will happen.
Okay. Thank you. All the best. I have questions will come back in queue. Thank you.
Before the next question, I would like to make a clarification. I misspoke. The Bathware sales for December quarter is INR 9.5 crores. INR 9.5 crores. Just one clarification. Please go ahead.
Thank you, sir. The next question comes from the line of Sneha Talreja from Nuvama. Please go ahead.
Hi. Good morning to you, sir.
Sorry to interrupt, Sneha. You are not audible. You are still not audible, Sneha.
Hi, are you able to hear me?
Yes. Please go ahead.
Just wanted to understand why is there a very sharp increase in inventory days. It is largely standing at about 102 odd days versus even six months run rate of about 88 days. That is one.
The inventory days has gone up because sitting at the end of H1, if you look at our commentary or just commentary from the industry, we were expecting a very strong H2. Most people were expecting the duty to come in somewhere at the beginning of the second half, which is why we were actually preparing for a very strong volume growth coming in in December quarter and in March quarter which did not end up happening, which is why the inventory has actually gone up.
So this will be largely inventory in terms of raw material and which is why the inventory losses?
Yes. So I would say around INR 350 crores is of raw material and the balance is finished goods.
Understood. Secondly, although of course, we understand your volumes are not going up and gross margins have taken a hit, but what about your employee expenses, both on YoY basis as well as QoQ basis? We continue to see it on a very strong increasing trend, even as a percentage of sales. Last two to three years have seen a very strong run-up. Any comments on that?
One is because of Bathware, and apart from that, we have been aggressively increasing our manpower in the marketing and sales divisions. This is as a result of that, because even if you see today, compared to peers, our sales force is smaller. As we grow, we make two kinds of investments. One is in terms of branding, and second is in terms of increasing the sales force, which is why it's being shown. I think it's getting highlighted more because sales is not growing. But once that starts growing, I think these investments will start paying off.
Understood. Did you also mention on the mid to high single-digit kind of a volume growth run rate for Q4 and double-digit growth volumes for FY 2026? Is that correct? Given PVC prices are still on a downward trajectory, we have just seen a INR 3 dip. Why do you expect a growth now versus what we have seen in Q3?
No, I agree Q3 volumes are not good. But if you still see nine-month numbers, we are at around 4.5% volume growth, which is in line with other larger players. I believe that we will see a good coming in in the quarter four. I think with this kind of a mid to high single-digit growth is possible in March quarter. Yes, from next year onwards, we will be seeing a double-digit growth.
Does that answer your question, Sneha? Hello, Sneha, are you there?
Yeah, it does answer. Thanks.
Thank you. The next question comes from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi. Thank you for the opportunity. Firstly, whenever we talk about channel inventory is low, that would be correct in understanding the channel inventory was low in Q2. So from Q2 to Q3, the channel inventory might have been stable or possibly might have improved. That way, the channel inventory has not impacted the growth rate year-on-year. How should we read it?
No, I think channel inventory is extremely low right now because what happens is when prices are falling with no sign of any triggers of increase apart from the duty, there is a lot of anxiety in the channel to keep stocks. So my sense is right now, channel inventory is very low and possibly even lower than what it was at the beginning of the quarter.
Okay. Understood. Got it. That is helpful. Sir, on the incentive side, have you given higher incentive this quarter? Because last quarter also, at inventory loss, your margins were somewhere around 9%, but now that has fallen to 5%, 6%. I understand one reason is volume. Does it have to do with incentive also something?
Yeah, it is to do with two things. One is because of this challenging environment, we have had to take some price corrections, and we have had to incentivize the primary and secondary channel. That is true. In this kind of an environment, we have had to hold on to our market share at least. To do that, we have been forced to be slightly more aggressive in the marketplace. I think as sentiments improve, we will be able to pull these back.
Got it. Can you quantify what sort of additional incentive you have given in this quarter?
It depends from state to state, from category to category, but would be in the range of 3 odd percent.
Okay, earlier the 2% was already there. Now you have added 2%, 3% more incentive. Broadly, the incentive has increased by 5% in last few quarters.
No, no.
That is what I can understand.
This 2% I think you are referring to is the cash discount. That is just for our distributors to pay within three days. This is 3% additional sort of discount that we had given during the quarter to ensure that our volumes are intact.
Got it. The discount impact is 5% what I am getting compared to maybe three, four quarters back. That impact is 5% right now, if I combine all this.
No. If you are referring to the last commentary where we had indicated that there is some 2% incentivization was done. That was valid for the last quarter, and what Nihar just mentioned, 3% for this quarter. It is not on top of 2%. It is 3%.
Understood
For the quarter. It is not on the top of 2%.
Understood. Got it. Got it. That is helpful. Thank you for the clarification. That is it.
Thank you. The next question comes from the line of Pritesh from Lucky Securities. Please go ahead.
Yeah, sir. Including this quarter or maybe last now 10, 12 quarters, if you see your volume performance vis-à-vis some of the larger players is quite different. If you could tell us the key reason and how does it rectify itself? It seems that you have lost some market share as well.
Sorry to interrupt, Pritesh. Please be a little louder. Thank you.
Hello. Is it clear now?
Yeah. Pritesh, to answer your question, couple of years ago, we had our ERP issue, which led to a lot of supply chain issues for a few quarters when we did actually transparently mention that we have lost market share. Past few quarters, I would, however, say that our growth has been in line with larger players. If you see the nine-month numbers, we are at around 4.5% volume growth, which is in line with the other two peers. Right now, the challenge is more to do with the industry as opposed to our specific market share. Before that, I will agree that because of our supply chain issues, we did have some loss of market share. If you see for the nine months, we are still broadly in line.
Going forward, not only are we confident of holding onto our market share, but growing our market share, and taking market share, not only from peers, but from specifically the smaller players, both organized and unorganized in this industry. We continue to expand our channel. We continue to invest in marketing and in increasing our team. We have also made huge investments in digitizing our value chain through distributor management systems and sales force automation, which helps us improve our productivity, per channel partner and per sales executive. We now have better visibility of retailer level sales, secondary sales, which then helps us improve market share at a more granular level across geographies and across product categories.
Just to clarify, your ERP implementation ended in 2023, right?
Correct.
You even had a loss of market share continuing in 2024 as well.
The ERP implementation started in 2023, FY 2024.
And for the nine months, see this, the PVC price volatility, et cetera. Now in the nine months, what is the PVC RM impact, if you have to quantify? What is the non-pipes EBIT loss, EBITDA loss, which is there in this nine months? Why is it that you have a higher inventory and some other players do not go through a similar RM cycle? What exactly you do, versus what exactly is the method that you are deploying in sourcing raw material?
For the year, we have had around INR 50 crore of inventory loss.
For nine months, basically.
Correct.
Okay.
To December is around INR 50 crore inventory loss.
And the non-pipes loss? Newer businesses, basically your Bathware.
Bathware loss per quarter is around INR 5 crore-INR 6 crore.
Loss?
Per quarter.
Okay. So INR 15 is this, INR 50 crores is inventory. And what is the inventory method that we deploy where it goes through much sharper cycles?
We are mainly import-dependent as a country. Any of the larger producers would typically have 50%-60% dependence on imports, which is why, because of the lag, because of the transit times, we are forced to keep higher inventory. In this case, the inventory was significantly higher because we were preparing for a very strong H2, because of the way the first half had gone.
We were expecting a very strong second half with an improvement in sentiment, which didn't happen. I think that has been postponed. Instead of happening in the beginning of Q3, I think that is going to now happen in the end of Q4, which is why the inventory days looks higher. But I think by the end of this quarter, you should see a sharp reduction in inventory days.
Lastly, one clarification on the pricing discuss-
Sorry to interrupt, Pritesh. Those were your questions. I would request you to rejoin the queue. Thank you. The next question comes from the line of Udit from YES Securities. Please go ahead.
The next question comes from the line of Amit Agicha from H.G. Hawa. Please go ahead.
Yeah, am I audible?
Yes, Amit.
Yeah. Good morning, and thank you for the opportunity. My question was connected to the expected revenue and margin contributions from the Bathware segment, post-acquisition. Are there any further M&A opportunities the company is evaluating?
Currently, we are not evaluating any M&A opportunities. In December quarter, like I said, we have around INR 10 crores of revenue coming in from Bathware, which will increase quarter on quarter significantly. Just to give you a further color on that, now we have expanded our operations in South and East. For the first three quarters of the year, we had operations only in North and West, so we were still not pan-India.
In quarter three , we have been able to deploy our teams in South and East India. Today as we speak, we are operating in, I would say, 90% of the country. Now the channel is being set up in South and East parts of the country. By end of this year, we will have a channel pan-India, and this contribution from Bathware will continue to go up.
Sir, the current capacity utilization rate across all the plants, if you can give a ballpark number.
Across all these plants would be around 50%, across the pipe business.
Thank you, sir. I will do this for the future.
Thank you. The next question comes from the line of Utkarsh Nopany from BOB Capital Markets Limited. Please go ahead.
Yeah. Hi, good afternoon, sir. Sir, I am again repeating the same question which has been asked by the previous participant. If we see when we do the comparison with the major listed pipe companies, we were the only exception who reported negative volume growth for December quarter, and that too over a weak base of last year, which got affected because of the ERP implementation. Our margin has also contracted the most in comparison to any other listed pipe companies. Can you please specify what challenges we are facing, particularly on relative basis, not on industry factor, which is resulting in such poor performance?
Today, as we speak, we are still on nine months have grown 45% on volumes. Currently as we speak, there is no specific challenge for us relative to the industry. Yes, I take your point that our base is more favorable because the last year was impacted by ERP. But in this kind of an environment, it is very tough to increase market share or win back lost market share of the past. This year, for nine months, we are still at 45% volume growth, which is in line with other larger players.
Like I said, we will see an improvement in volumes from March quarter, and then in volumes and profitability from June quarter. We are confident of the same. There are no challenges that are specific to us. This is more just industry going through tough times. To repeat myself, nine months we are still in line with peers. I take it that it is a favorable base. But in this kind of time, it is hard to win back market share. We have to at least try to be in line with the larger players.
But sir, the other players have not seen such kind of a margin contraction, and they have not seen such elongation in their working capital cycle, which we are seeing. Then also, if you are saying that over the nine months we are growing at the same pace. So, what pain we are actually facing? Is there anything like we are not able to compete with the major brands because they have cut down their prices in the market, so we are facing difficulty in getting the volume?
So coming to working capital, working capital looks elongated because of the inventory days going up. Debtor days still is in control. It is around 53 days compared to 83 days at the end of last financial year. So we have seen a reduction of 30 days. Like I said, inventory days will normalize at the end of this financial year. If you look at on the margin side, yes, the decrease in margin has been the largest, majorly on account of two things. One is an inventory loss of around 30 odd crores, and second, a Bathware loss, which was foreseen of around five, six crores. Yes, competitive intensity is high. But this is not new for us. We have been in this industry since 40 years. So we have seen ups and downs. This is a down cycle.
When I say down cycle, not really in terms of end demand. I think end product demand is still more or less okay, and going forward, I think it will continue to grow this industry. It's just that right now, sentiments amongst the channel, across the channel have been very poor. Once these sentiments not, I will not even say positive sentiments, but once the sentiments normalize, we will see a better volume performance which will then help us normalize our EBITDA margins. So I have to acknowledge that times are tough right now. But we are very confident that this is not going to be a prolonged pain. It is going to be a sort of quicker turnaround because of the reasons that I just explained.
Okay, sir. And sir, my last question is like, are we likely to see any further M2M inventory loss in this March quarter as PVC resin prices have corrected in February? And where do we see our net debt at the end of March?
So yes, we will see an inventory loss in quarter four. I will not be in a position to quantify it. I don't think it will be a significant inventory loss sitting today. It will not be a major inventory loss in the March quarter. As far as net cash position.
Yeah. So apart from term loan, we have a working capital debt as well. So the net cash position is in negative because of mostly the term loan what we have taken. So net debt is around INR 109 crores including term loan.
Okay, thank you.
Thank you, sir. The next question comes from the line of Arun Baid from ICICI Securities. Please go ahead.
Hi, thanks for the chance. Just one question.
Please speak a little louder.
Yeah. Just one question, Nihar. We have been speaking of industry leading growth for the last two, three years continuously. Just to give a sense, you look from FY 2022 up to now post-COVID till now, we are nowhere near the competition in terms of volume growth. Forget the margins, which is not worth talking about. What gives you the confidence that this will change from the June quarter?
So like I said, for this nine months, we are in line with industry at 45% growth. It should be higher, given that our base is lower, which is in line with what you are speaking. So, I acknowledge what you are saying. This year, things are normalized as far as volume growth is concerned. We should be growing at a higher pace because yes, our base is on lower growth relative to other peers. So, I acknowledge that. It is just that in this kind of environment, just holding onto market share itself has been a task. But I think just as sentiments change post duty, I think you will see the channel being willing to stock at least normal levels, forget about aggressively restocking.
Apart from this, there is a lot of other initiatives that we are taking in terms of investing in the brand, digitizing the value chain, and increasing our sales force productivity through sales force automation. We continue to expand the distribution network. I know times are tough, but we are still focused on execution. If we keep our head down and execute, typically whenever our backs have been against the wall is when we have had the best performances as an organization. So that is where my confidence comes from in terms of having this is not going to be a prolonged, but a quick revival. That is why we are so confident of a quick turnaround.
Nihar, but if I look at even some FY 2019 data till FY 2024, because FY 2025 is not over, so we can leave it at that point. The data isn't sacrosanct with what we say, and that we will grow more than our industry. It is way lower than the other two peers which report numbers. It is way lower than that. And second thing is, one question here is why do you want to put it on inventory? Because when you say that we build up inventory significantly in Q2 thinking that AD will come through and there will be an advantage. Isn't that we are trading on PVC because we have seen our peers, obviously they also had some inventory loss, which was minuscule, but they are trying to play on that.
The margins are not facto signed because one quarter you will have a gain because of your policy and the second quarter, if it doesn't work, it goes against you. Should we be reaching our policy there? If not, I think we are definitely.
This is we are not thinking like traders. This is not that we built an inventory to take I never said to take advantage of the duty. I said that we have expanded capacity aggressively in the existing plants, then with Jaipur, Telangana, and now with Bihar plant. Let me make myself very clear. This inventory is not to take advantage of the duty. That has never been the intention, and I have never said that. The intent was that we expected a stronger volume growth in December quarter and March quarter, and we have put up the capacity. We have put our money where our mouth is. But the point is that if we add capacity and there is a positive sentiment in the market, we should have supply security.
We have seen times in the past four, five years where there have been such good demand from the market and we have not been able to serve the demand despite having the capacity and the orders. This is not a position or this is not some speculative thing. This is just we have the capacity, we were expecting a good volume growth, which is why we have done this. And we will see a normalization from this quarter itself. This inventory is not some dead inventory or anything like that. It is just three months to normalize. By the end of this financial year, we will see a normalization of inventory.
No, I appreciate the point of normalization of inventory. I am trying to say with the huge inventory build up, just to give a sense, every quarter for the last many quarters when you report numbers, you talk of an inventory loss which comes to us. Every quarter. I think last one where you reported a gain was Q3 FY 2023 or somewhere there. What I am trying to again educate is that in our case, the variation on your profitability is significant because of the inventory management, versus your call . This is my observation. Thanks.
Thank you. The next question comes from the line of Jenish Karia from Antique Stock Broking. Please go ahead.
Yes, thank you for the opportunity, sir. So considering we have a good mix of plumbing pipes and low on the Agri side, even CPVC were growing. Now existing for the Bathware loss and inventory losses that we have reported, still on a gross level, our margin seems to be lower than some of the Agri-focused players. Will you explain the reason? If you could just shed some more light on that will be the first question.
Yeah. So like I said, in this challenging environment, we have had to give the channel more incentives and we have had to correct pricing as well, just to hold on to market share and ensure that on a nine-month basis we are still having a positive volume growth. So as a result of that, we have had to be more competitive in the market, which is why there has been a pressure on the gross margins. But once the sentiments with the channel improve and the deep stocking stops and the channel starts regular inventory, we will see a normalization of the gross margin and once the volumes improve, the EBITDA margins also will improve.
Given that understanding, when we are guiding for a mid to high single digit growth for the fourth quarter, which implies a 30% growth on a sequential basis, can we assume or is it better to assume that that growth of 30% on a sequential basis that you have been guiding will come at a cost of margin? How has been the growth uptake for the first 45 days of the quarter? If you could shed some light, we will have a better understanding on the 30% sequential growth that you have been guiding.
Yeah. I am talking about a single digit growth for the 12-month basis is what I have guided. We will have to continue our run rate of the 9 months for the fourth quarter as well in terms of year-on-year growth. This will now not come at further incentives. We have to just continue being market friendly, and we have to continue finding the balance between volume growth and being competitive in the market. We are not immune to the forces of demand and supply, so we have to continue being competitive and gain market share, although it has to be done in a profitable manner going forward.
Understood. No problem. Thank you so much, sir.
Thank you. Participants you may press star and one to ask a question. The next question comes from the line of Chinmay Nema from Prescient Capital. Please go ahead.
Good afternoon, sir. Sir, just needed a clarification on the volume number that we report, the 126K metric ton that we report. This is on a blended basis, right? Including the Bathware business as well.
This does not include the Bathware number. This is a pipe and fitting number.
Understood, sir. Got it. Could you share the nine-month revenue for the water tank business?
Can you repeat your question?
Could you share the nine-month revenue for the water tank business?
Just give us a second. Karl will come back to you after the call on the question.
Okay, sure. Okay. Just wanted to understand. Hello?
Yeah. It's INR 34 crores of water tank sales for the nine-month period.
Got it. What was the number in the nine months of the previous year? Could you share that?
INR 20 crore.
Got it. Lastly, my question was on the Bathware acquisition. If we look at the other listed companies in this space, this also looks like a challenging space to operate in. Could you give some color on our product positioning or where do you plan to operate in this space?
I don't think it is a challenging business and neither is Prince Pipes and Fittings. I think we need to understand that this is a challenging time, but the overall industry is still, I think, one of the fastest-growing industries in all of building material, which is why you also see a lot of new entrants in the piping space, and you see aggressive capacity expansion happening by Prince Pipes and Fittings and by our peers.
Let me clarify that our core business is not a challenging industry. It's just a couple of quarters of challenge because of the commodity prices. But overall, we are in an industry that is poised to grow aggressively over the next five years. Similarly, I think Bathware is total around INR 18,000 crore-INR 20,000 crore industry size. With 65% market is organized and 35% market is unorganized.
Margins tend to be slightly higher than pipes because there is more scope for product differentiation and for brand building because it's a front-of-the-wall product. Our intent is to use our channel to leverage our existing channel and cross-sell our products. That's how we see it. In terms of positioning, I think we would be positioning at the mass premium sort of bracket. We have collections across different price points, but the main is the mass premium position.
Understood. Thank you.
Thank you. The next question comes from the line of Mudit M. from M3 Investment. Please go ahead.
I want to understand if the industry margins have systematically gone down for the entire industry, given the market leader has been very aggressive and is pricing at par with all the people. I would like to understand your comments on industry margins, like in two, three, five years, how you see. The second question is on the CPVC. Once the CPVC is abundantly available in Indian soil itself, do you think the competitive intensity in this segment also will rise? I will ask follow-up once I am done.
Yes, I think because there is a challenge with channel keeping regular inventory. Yes, the market leader also has become more aggressive with pricing, which has led to a downtick on margins for players across. That is true. I think going forward, this will normalize as volume growth improves, as sentiment improves. This sort of aggressive pricing, I expect to not be as aggressive as volumes come back.
I still continue to be optimistic going forward. CPVC, yes, there will be more supply, but this is a very organized and a brand-conscious market. 75% of the market belongs to the top four players. As supply increases, I think the market itself will grow because the price of the raw material will significantly reduce, which will make the product more affordable, even the finished goods, because we do pass through the pricing.
With local capacity, I think India's actually, the CPVC industry cannot grow with such a dependence on imports. The industry is crying out for local raw material manufacturing, which once that is available, I think the industry will grow multi-bound going forward. In line with that, we are also adding capacity for CPVC.
To follow up on that, would the abundance of— I mean, not abundance, at least availability of CPVC within India, would that also start local competition and unorganized players coming in like we saw in PVC?
So.
The margin differential will then cease to exist, means will reduce at least.
It will not cease to exist. It could reduce, but I think it will be more and more compensated by larger volumes coming in from a value-added product. Industry overall will grow. This is used for hot and cold-water plumbing. It's a sensitive application used in the concealed parts of a bathroom, where if there is leakage, the scope to do damage to other building materials is very high, and the nuisance value for the builder also is very high. Typically, plumbing cost is less than 1% of the overall builder's project cost. I believe actually, industry will continue to consolidate, and brands will continue to be bigger.
Right. Last one from my side.
I am sorry to interrupt, Mudit. I guess you are done with your two questions, so I would request you to rejoin the queue. Thank you.
Okay.
The next question comes from the line of Shravan Shah from Dolat Capital. Please go ahead.
Hi. Thank you, sir. Sir, that trade incentive of 3% is still continuing till now in January, February?
Yes.
So any idea when we will be either reducing or stopping this 3%?
I think we have to continue observing the market, which is what is our job. Right now, the focus is on improving volumes, and as volumes improve, our cost absorption will improve and profitability will improve. So this is the time to hold on to volumes.
Okay. Second, sir, this Bihar, initially we were having 50,000 tons, and now I think in opening remarks, we said 40,000 tons, which will start from April onwards in terms of the production. So if you can help us, what's the capacity, the next phase of
Yeah, sure. So in the opening remarks, we said that we'll be starting off with 40,000, which is primarily pipe capacity. In next six months, by end of H1, we'll be ready with not 50, but around 55 to 60 KT. We should be ready with that capacity. That will include pipes and fittings, both.
Okay, got it. Lastly, sir, is it possible, I understand that maybe previously also answered in terms of the employee cost. Just trying to understand because the cost has gone up decently high in last kind of three odd years. Is it possible to share in terms of the top managerial, including the three promoters, a broader range currently how much we would be drawing or part of the total salary cost or staff cost, INR 45, INR 46 odd crore quarterly, how much we would be? Because there we see that in last three years, we have taken a significant hike from 20% to 35% odd in last three years.
Just trying to understand if we are not growing a volume, then as a promoter, why we would have thought that we could have not taken a hike or maybe at lower point that could have also helped to some extent in terms of the better margins.
There is two parts. One is the fixed salary and one is commission. The commission to promoters is a function of profit. If the profit parameters are not met, then the. So basically, commissions are variable, and I think it is actually a significant positive that we are linking our compensation to the profitability of the organization. All interests of all shareholders are aligned. Estimated remuneration to the directors for this year will be around INR 9 crore.
Okay. Thank you, sir.
The last question comes from the line of Ashish Shah from Business Match. Please go ahead.
Good afternoon, sir. Thank you for taking my question. I just have two questions. One is, whatever we witnessed last quarter, this quarter in terms of profitability, any steps and measures that you can take from a long-term perspective, whereby in the next round of raw material volatility, we can safeguard ourselves?
Yeah, I think in the short term, we will see a reduction in branding cost for the March quarter, because we are trying to optimize cost to ensure improvement in profitability. I think, going forward, the focus just has to be on growing the volumes, especially in the plumbing space, to ensure a better cost absorption going forward. So in the short term, our discretionary cost is branding, which we will tone down in the March quarter. In the long term, focus has to be on volumes so that we are able to absorb our overall fixed cost better.
Sir, thanks. But I think that sounds more at an operating level, right? So at the raw material level or the gross margin level, we will continue to face the volatility every time it hits us. Or any steps we can take to safeguard ourselves at that level, not at an OpEx level.
At the gross margin level, going forward, we will be more and more prudent with inventory management, which will help us safeguard ourselves in a volatile raw material environment.
Okay. Sanjeev, one last question. You mentioned the number on the capitalization. Is there a way to look at your OpEx to say that we have significantly ramped up our people and manpower, and hence, being there when incremental business kicks in in the next year or year after, we can get some operating leverage, or they will actually go up in line with the business?
No, I think like our capacity, a lot of the additional manpower has been done over the past two or three years. So I think, like our total CapEx number as well, even the manpower cost, the growth will not be as aggressive going forward.
Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments.
Yeah. Thank you all for attending the call. Thank you.
Thank you, sir.