Ladies and gentlemen, good day and welcome to Prince Pipes and Fittings Limited Q1 FY 2025 conference call hosted by Antique Stock Broking. 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. Manish Mahawar from Antique Stock Broking. Thank you, and over to you, Mr. Mahawar.
Thank you. On behalf of Antique Stock Broking, warm welcome to all the participants on the 1Q FY 2025 earnings call of Prince Pipes. Today we have Mr. Parag Chheda, Joint Managing Director; Mr. Nihar Chheda, Vice President, Strategy; Mr. Anand Gupta, CFO; and Mr. Krunal Shah, Head, Investor Relations on the call. Without any delay, I would like to hand over the call to Mr. Parag Chheda for opening remarks. Post which we will open the floor for Q&A. Thank you, and over to Mr. Chheda.
Yeah. Thank you, Manish. I thank you for joining us for our Quarter 1 FY 2025 earnings call. The presentation and the press release have been issued to the stock exchanges and uploaded on our website. I trust you've had the time to go through the same. I will initiate the call with a brief overview of Q1 .
In the current quarter, our volume growth has been driven by all verticals, plumbing, as well as infrastructure. This growth factors in our focused execution of various growth-oriented initiatives. We reported a 15% YoY volume expansion and registered quarterly volume sale of 42,118 metric tons. The company achieved a revenue growth of 9% YoY with revenues of INR 604 crores during Q1 . EBITDA and PAT grew by 29% YoY and 25% YoY respectively.
I am glad to share that our efforts of focusing very actively on strengthening our brand visibility, engaging more actively with our channel partners and a greater marketing trust are all translating into a meaningful volume growth. We have aggressively enhanced our branding initiatives across daily modes of travel, be it metros, buses, trains, and even at the airport terminals.
Such initiatives are aimed at strengthening top-of-mind recall for Prince through clear visibility at strategic locations, particularly travel ports with high footfall, so that no matter where you travel, Prince Pipes is part of your journey.
Our campaigns are created to reiterate the key messages of trust and reliability of high-quality Prince products in everyday life. The build-out of our pathways segment continues with a strong momentum. We expect that over the next two quarters, Aquel by Prince will gain a presence across all zones in India.
The second phase of the asset purchase agreement, which includes the acquisition of the manufacturing unit comprising land, building as well as manufacturing units is under process. The construction of our Begusarai plant is progressing on course.
The Bihar facility will cater to demand in East India, which is the fast-growing market in the country. I am glad to share that Prince Udan has won the best creative campaign and communication in loyalty category third year in a row by the Customer Fest Leadership Forum.
They have recognized Udan's highly engaging and involving design, which helps create long-lasting relationships with our plumber partners. The Union Budget 2024-2025 has outlined a roadmap for Digital Bharat and announced a balanced budget with a core focus on driving medium-term policy stability.
It rightfully emphasizes on agriculture with the promotion of natural farming and new crop varieties, manufacturing and services, the development of industrial parks and support of MSMEs as rental housing for industrial workers.
The budget's continued thrust on infrastructure development and investments in road transport, energy, health, and rural development are initiatives that augur well for our industry. Some other areas that opened up potential opportunities are Pradhan Mantri Awas Yojana - Urban and the development of investment-ready plug-and-play industrial parks with a complete infrastructure in or near 100 cities focusing on the eastern part of the country.
The government also launched Mission Purvodaya for the all-round development of Bihar, Jharkhand, West Bengal, Odisha, and Andhra Pradesh, as well as the development of cities as growth hubs are all welcome initiatives that bode well for the pipes and fittings industry.
At a broader level, the growth pipe presents significant opportunities that continue to excite us in undertaking appropriate strategic measures, drive volume growth, taking disciplined investments across our diverse portfolio to bolster our business progress. Thank you for your time and mind share. I will now hand it over to Anand to take you through the key financial highlights.
Thank you, Parag Chheda, and good morning, friends. I will be taking you through Q1 FY 2025 financials now. Revenue in Q1 FY 2025 improved by 9% year-on-year at INR 604 crores as compared to INR 550 crores in Q1 FY 2024. We achieved volume growth of 14% year-on-year, primarily led by growth in plumbing and SWR segments. EBITDA for the quarter grew by 29% year-on-year to INR 58 crores as compared to INR 25 crores in Q1 FY 2024.
The A&P spend for the quarter has increased to INR 14 crores from INR 12 crores in Q1 FY 2024. PAT improved by 25% YoY to INR 25 crores as compared to INR 20 crores in Q1 FY 2024. Our overall working capital stood at 80 days in June as compared to 95 days in March 2024. As we had guided, receivables have shown marked improvement in 61 days in June 2024 from 83 days in March end.
Inventory days stood at 70 days in March as compared to 62 days in March 2024. We continue to judiciously expand our working capital program as we have made many progress since the recourse as stated to distributors and have increased sanctioned amount to INR 155 crores at the end of Q1. With this, I would like to open the floor for questions. Thank you.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. 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. The first question is from the line of Shravan Shah from Dolat Capital. Please go ahead.
Thank you, sir. A couple of questions. First, this quarter, 13.5% volume growth. Just a broader understanding in terms of how the industry would have grown in this quarter and whether we have done better or not, and if possible, in terms of the CPVC growth, if you can help us. That's the first one.
Yes. Thank you for the question. Like you said, the growth has been driven across agriculture, plumbing, and infrastructure, all three, which is encouraging to see. As we all know, real estate continues to do well, so we believe plumbing and SWR will continue to grow. PVC again is in range-bound territory. So we believe that the agri demand also should be doing well. This demand has been driven across segments. To answer the first part of your question- Could you repeat that? We're not able to hear.
Mr. Shravan, your voice is not clear.
I did not ask. If you have completed, just wanted an internal guidance. The 15% kind of a volume growth guidance for FY 2025 stands still. Also on the margin front, this quarter was on the low side, 9.6%, but we are looking at 12%-14%. Is there any change in that guidance?
No, I think on a long-term basis, 12%-13% EBITDA margin is sustainable. This quarter was impacted slightly by product mix. There was more agri sales compared to normal quarter, which led to the adverse product mix. Also, blending cost has gone up. It is more than 2.5% quarter.
These two are the major factors which have led to a slight dip in the EBITDA margins. But the volume growth has been encouraging and we are adding capacity aggressively, and we believe this kind of volume growth is sustainable over the long term.
Also, is there any inventory this quarter beyond the norm?
I'm sorry, your voice is not audible.
Better?
Mr. Shravan.
Ma'am.
Mr. Shravan, we may request you to return to the question queue as your voice is not audible. We can take your question with a clear background.
Okay.
The next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi. Thank you for the opportunity. Sir, if I recollect, Q1 FY 2024 was a quarter where our fitting sales was lower because of the SAP issue, and there was a INR 10 crore inventory loss. If we adjust the INR 10 crore inventory loss to Q1 FY 2024, margin works out to be 10%, and this quarter it is 9.6%. There is a drop in margin in spite normalized fitting sales. How should we read this? Is it more of AGRI, and how should we see the margin in Q2 onwards?
Like I said earlier, the current EBITDA margin of quarter one is lower than what our usual EBITDA margins are, around 12%-13%. The two major reasons for that, one has been product mix. While we have grown across segments, growth has been higher in the agriculture space where, of course it's a volume driver, but the margins are slightly lower.
Second is also the A&P costs have significantly increased, which is a conscious effort. That is the reason the margin has come at 9.6%. But on a long-term basis, we believe 13% EBITDA margin is still achievable.
What sort of margin you're looking for FY 2025?
Can you repeat?
What sort of margin you are looking for FY 2025?
Yeah, I think 12%-13% on a long-term basis is sustainable.
Okay.
Except of any inventory gain or loss.
Understood. Right. What we understood, April and May demand was pretty healthy and possibly in June there was softness in the demand. Is the sense correct? Secondly, how has been July month? What sort of growth Prince might have done in July, and how you see the demand trend going forward?
You're right, April and May demand was robust. Like I said, we have plans to aggressively debottleneck existing facilities as well. A lot of that, we have already placed the orders for increasing capacity at existing plants, and of course, with the plant coming up in Begusarai, that will also significantly increase our installed capacity.
Two quarters from now, we will be in a much better supply position as well as a key point of. Of course, in June, towards the end, we saw some weakness in PVC prices, which always means that there will be destocking in the channel, and that trend has continued in July. But, I've always maintained that any restocking or destocking, it averages out over 12 months.
What is important is the last mile demand, and that, I believe, continues to be strong because of the confluence of many factors like raw material becoming affordable, real estate doing well, and infrastructure doing well.
Because of these three factors, we are still extremely bullish. In fact, we are more bullish than we have been in the past in terms of industry growth as well as growth for Prince. We continue to add capacity aggressively, and I believe the next 2, 3 years, we should have strong top-line growth.
Understood. That is good to hear. One last question from my side. What we hear, CPVC volume growth has been pretty healthy in this quarter. Few of your peers have said 20%, 40% types of year-on-year volume growth. How has been that number for you?
As you're aware, we don't give segmental breakups, but yeah, CPVC continues to do well. I think CPVC has become extremely affordable. From here on, CPVC prices will continue to remain affordable, especially with local capacity of raw material increase.
That will really disproportionately increase the market size of CPVC for the next 3 to 5 years. We are not only adding capacity in PVC pipes and fittings, but in CPVC pipes and fittings as well. I think similar, we continue to be very optimistic on volume growth for CPVC as well.
Just a follow-up on this. What we hear, there are anti-dumping talks around CPVC. Is it the CPVC prices are at its bottom and possibly the CPVC price might increase from here on? How do you see the trend?
No, I believe that's already actually factored into the pricing. It's tough to predict raw material prices, but I think even CPVC, there is no major upside. Most of the variables have been factored in. So I think CPVC raw material prices should continue to be range-bound from here onwards, because PVC also is becoming extremely affordable.
Understood. Got it. That is helpful. Thank you. I'll come back in queue.
Thank you, sir.
Thank you. The next question is from the line of Utkarsh from BOB Capital. Please go ahead.
Yeah, hi. Good morning, sir. First of all, would like to congratulate the entire team for growing volume at a better pace than most of our peers, even after tightening credit period to our dealers. My first question is, again, I am coming on the margin side.
You have mentioned that we have witnessed pretty good volume growth in the plumbing and sanitation portfolio, but still our growth margin came under pressure by around 150 basis points in this June quarter versus prior to the COVID period of Q1 of FY 2020. Is this a conscious call from our side to change volume growth over margin in the short-term?
Volume growth is important, and like you are aware, past few quarters, we have not been where we want to be. Volume growth-
Sorry to interrupt. There is a lot of area disturbance from the management side. I may reconnect the call.
Sure. Thank you.
Thank you. We have the management reconnected. We may go ahead with the question and answer.
Yes. Sorry for the disturbance. To answer Utkarsh's question, yes, the focus is on market share and on volume growth, which we are very encouraged by what we have been able to deliver. We are adding capacity aggressively because we are still not happy with this kind of volume growth.
Our aspirations are higher than the kind of volume growth we have delivered, and we believe that the industry does have tailwinds to have very aggressive volume growth going forward. From a supply point of view, we are preparing ourselves, and those orders have already been placed.
From a margin point of view, I think like I said at the beginning of the call, it is primarily a factor of two things. One is the product mix being more agri heavy. Although the growth has been across segments, it's majorly been driven by agri.
Second is a slight increase in branding cost also, which has contributed to EBITDA margins being on the lower side. On a long-term guidance, I would stick to 12%-13% operating margins, because with this kind of volume growth, eventually operating leverage will also come in, and cost absorption will be superior.
I think one thing that I would also like to highlight, apart from the P&L bit, is the kind of control that we've been able to deliver on the working capital, which has come from the control on the debtor days. It is back to around 60 days, which in the past couple of quarters was, I would say significantly higher than that. Going forward, we would like to continue this kind of a control and hopefully keep decreasing the debtor days in a structured manner without compromising on volume growth.
It is a tight line that we have to tread. It is something which is not easy to do for a growing organization, but our focus will be on industry-leading volume growth, coupled with strong control on debtor days, which should lead to very strong cash conversion as we continue to add capacity going forward.
Okay, sir. My second question is on return ratio profile. If we see our ROE profile has come down sharply, which earlier used to be around 20% to 25% prior to the COVID period. Now it has come down to around 12% to 13%. And this is mainly on two count. First, because of the margin pressure, which is a market-determined factor.
And second, because of the steep decline in our gross block asset turn, which earlier used to be around 3x, now it is at around 2.2x- 2.3x. I wanted to know what is the rationale for the steep decline in our gross block asset turn, and where do you see our ROE and gross block asset turn to settle at over the next two to three-year period from here?
We are a growing organization, and we intend to keep adding the capacity, which will go back to gross block, which will not immediately give the top line and the contribution. In next two to three years, we will be again back to 16% as we add capacity and we start realizing the output from it. And that will help us to get the better realization from the assets which we will be deploying.
Okay. Where do you see a gross block asset turn over the next two, three years?
We have plans to implement in next two years what capacity we have to add, that has already been formulated. In next quarter, we will be able to tell you more effectively what has been planned in which plant. Then it will be better to give you a full overview of how the capacity will be added in which plant.
Okay. Sir, my last question is, our inventory period has gone up sharply from 53 days at the end of March to 70 days at the end of June. As PVC resin prices has been under pressure in the past few weeks, whether we are likely to see any MTM inventory loss in this September quarter, and what is our bathware and water tank revenue for June quarter, sir?
Yes, it is too early to comment on what quarterly impact will be because there could be an increase in PVC prices going forward, we do not know. Of course, whenever there is a decrease in PVC prices, there will be inventory loss, and similarly, whenever there is a gain, there will be inventory gain. Inventory, Utkarsh, it is always going to be in the range of 60-70 days.
We are not afraid of keeping inventory. Like you said, we are a growing organization and supply is of top priority. We believe that even in the first quarter, we would have been able to deliver better volume had we had more inventory and more capacity.
I think we could have easily done much higher volume numbers than we have done. Which is why we are adding capacity not only in Bihar, but at existing facilities as well. We have done some unbudgeted CapEx and will continue to add capacity. In the next three quarters, a lot of this CapEx will result in capacity addition.
Our continuous focus is on ensuring that we are doing a lot of things on the front end, like branding and distribution and new products, but it is very important that we keep adding capacity and have that risk appetite to have that kind of supply position, whether it is from an inventory point of view or whether it is from a capacity point of view.
See, inventory gain and loss is part and parcel of this business, and that will continue to happen. I believe on a 12-month period, it always evens out. But I think supply is paramount in this kind of a market, which we are seeing very aggressive tailwinds for growth.
Yeah, got it, sir. What would be our bathware and water tank revenue for June quarter?
Bathware would be around INR 5 crores for the quarter. Water tank, just give me a minute. Water tank is around INR 10-12 crores.
Okay.
Exact numbers, we will share post. But INR 10-12 crores of water tank and INR 5 crores of bathware.
Okay, thanks a lot, sir.
Thank you. Ladies and gentlemen, we may request all the participants to restrict the questions to two per participant, as the management can take all the questions from all the participants. Thank you. The next question is from the line of Akash from UTI Mutual Fund. Please go ahead.
Hi, sir. Good morning. Am I audible?
Yes.
Yes, sir, you're audible.
Yeah. Hi. I just wanted to ask, I missed in the opening comment, you said A&P spend for this quarter is INR 14 crores. What was the number same quarter last year?
INR 11 crores.
Okay. And sir, what is the bathware losses in this quarter?
It is around INR 4 crores in this quarter, net of all expenses and sales.
Okay. Right. And sir, if you can roughly share what is the overall capacity that you see in FY 2025 and FY 2026?
In the previous question, we had answered that in H1 we will be able to give you a broader plan, which we will be executing in next 24- 36 months in terms of adding capacity. So that time we will share the plan.
Just to maybe add on to what Anand Gupta is saying, we expect Bihar to be operational by January. Previously, we had guided for end of quarter 4, and we have tried our best to prepone that. We are confident by January we will be able to commercialize production at Bihar facility, which will help us have a strong March quarter in the current financial year, which would be a production capacity of around 45,000 tons, which includes pipes, fittings, and water tanks, and this is phase 1.
Some other debottlenecking CapEx that we will do at existing plants will be in the range of 35,000- 40,000 metric tons, which will again take some three, four quarters to commercialize. So two quarters from now on, we will be in a much stronger supply position. Whenever we see such strong uptrend in demand like we did in April and May, we will really be in an able position to cater to that demand and deliver some very aggressive volume growth.
In Q1 , especially in the first half, we believe that we could have done better volume numbers, which would have resulted in better quarterly volume growth as well, if we were in a better capacity and inventory position. We have taken that decisions already and the machine orders have been placed. Around 45,000 tons from Bihar, starting from January, and another 35,000- 40,000 tons at existing facilities, which would take three quarters from today. Hope that answers your question.
Sure. Thank you so much. Just one last bit. Any thoughts on O-PVC segment? Are we planning to put capacity in this segment?
We continue to evaluate a lot of new products, and we have added a lot of new products in the past few quarters. Currently, while many segments may seem exciting, we also believe focus is important, and at this point of time, our focus is more on distribution-driven products as well as products which are applicable for private projects, whether commercial, residential, industrial projects.
At this point of time, we do not have any plans for O-PVC. We have always been more focused on distribution and private projects, and we believe there is enough and more room for growth, and we are adding capacity. We have enough on our plate with now water tanks and bathware being the two new segments. At this point of time, we are consciously not looking at that.
We will continue to evaluate all opportunities, but we will be selective and strategic in where we put our money.
Yes. Sure. Thank you. Just one last thing. There is a talk going on. Hello?
May you please return to the question queue?
Sorry. This is the last one.
Okay, sir.
Yeah. There is a talk going on on anti-dumping duty in PVC segment. Any thoughts around this?
It's tough to speculate on how the government will act. I can share my point of view without being a subject matter expert on this. I believe that current PVC prices may not be sustainable for PVC raw material manufacturers. If you look at the spreads between the feedstock and PVC are at very low prices, and I don't see feedstock prices correcting.
Current prices of PVC, most PVC raw material manufacturers will really be struggling. Maybe you could see some support given by the government. It's very speculative on assuming when it will come and to what extent the duties will be. As a good practice, I will stay away from that.
As an organization, we understand the current PVC pricing, while it is very good for us from a volume growth point of view and affordability point of view, I think PVC raw material manufacturers may really be struggling with this kind of PVC prices. One should not be surprised if there is any support coming in for the local manufacturers. Like I said, tough to speculate on timing.
Yes. Super. Thank you so much.
Thank you.
Thank you.
The next question is from the line of Shubham Agarwal from Axis Capital. Please go ahead.
Hi. Thank you for the opportunity. Am I audible?
Yes, sir. You are audible. You may go ahead with your question.
Okay. Thank you. First question, inventory. Was there any inventory gain or loss this quarter?
No inventory gain or loss.
Okay. Now, just on the margins again, from what I understand is, I am comparing the gross profit per kg, I am comparing it year-over-year. What I see is that, in your presentation, you mentioned that there has been faster growth in plumbing SWR. Moreover, Q1 last year had a low fitting mix.
So your product mix would have improved year-over-year, right? The agreements would anyways be the same thing, but you have seen better year-over-year growth in all the better margin products. Yet what I see is that the gross profit per kg-
Sorry to interrupt, Mr. Shubham.
Okay.
The management for the call is disconnected. Ladies and gentlemen, please hold a moment while we reconnect the management. Thank you.
Okay.
We have the management reconnected. Mr. Shubham, you may go ahead with your question.
Yeah. Okay. My first question was that, this question on gross profit, I am looking at gross profit per kg, and what I see is adjusted for the inventory loss in Q1 2024, that is base quarter, the GP per kg has declined YoY. What puzzles me here is that it is happening despite a better growth in higher margin products like plumbing, SWR and fitting in Q1 on a YoY basis. Could you throw some more color on what led to this?
Yeah. Maybe, I have answered this in previous questions, but happy to repeat. Mainly this has been driven by product mix. Like I said, while the growth has come across segments of agriculture, building material, and infrastructure, one of the major contributors has been agri. As you all are aware, the first quarter is more of an agri season.
With this time PVC prices being on an affordable side, we saw very strong growth on the agri segment, which is why the product mix led to a slight impact on the operating margins. As well as if you come at the EBITDA level, we also had higher branding expenses as well as expenses for Aquel, where we are being very aggressive with both branding and manpower. It was the contribution of these three factors.
On a more macro picture, I do understand that of course, the margins have been lower than our guidance. But it is also important to understand that the volume growth trajectory is back, and the growth engine has started to deliver from the last quarter, which has continued in the June quarter as well. Along with this, we have been able to tighten debtor days as well.
For me, while we will continue to improve and margins will, over the long term, come back to our guidance, it is heartening performance because the volume growth as well as control on receivables has been our stated target, and we have been able to deliver that. Like I said, we would be able to deliver a better volume growth had we been in a better supply position, from a capacity and inventory point of view.
We are extremely encouraged by the tailwinds that the industry is seeing, and will continue to add capacity and hopefully, this kind of volume growth will sustain not only for this quarter, but for a couple of years from now.
You are saying the agri mix is better, is higher year-over-year, agri share of revenue is higher year-over-year.
Correct.
My second question is on the capacity. In the first quarter, we were talking about the bottleneck and capacity constraints. What is the capacity utilization currently? Also a related question that what I see is that your inventory days have increased from March 2024- June 2024. If there was a capacity constraint and that is the reason for the lower volume growth, let us say the volume growth would be higher if there was no constraint, then shouldn't the inventory days be lower versus March 2024? How should I see this?
Inventory is not only finished good inventory, it is a combination of both raw material and finished goods.
What is the capacity utilization currently?
It would be around 60% of installed capacity.
This peaks out at?
From a production point of view.
And this peaks out at how much, sorry?
Peaks out at around 65%-70%.
Okay. My last thing is just on the Aquel, if there's a run rate expenditure or run rate loss, and what that you're expecting to put in every quarter going forward.
Annual level, I would say INR 5-6 crores on manpower and INR 10-12 crores on branding. This will slightly increase because we are now expanding our footprint to South and East over the next couple of quarters. But you can take around INR 15-18 crores on a 12-month basis.
INR 15-18 crore of expenditure, right? And after considering the revenue run rate, the loss for the full year should be in the range of less than INR 10 crores.
Yeah. Basically, the scale of operations today is now very, very small relative to our overall portfolio. And given the way we are trying to cross-sell this product, the run rate is something that could disproportionately increase going forward. But, to answer your question, I think around INR 5-6 crores of expense on manpower for bathware and INR 10-12 crores for branding.
Yeah. And gross margins are better in this business, right, compared to our average gross margin.
Correct. That will take some time, but you are right.
Currently. What I am saying is currently. The gross margin currently is better than our average. Not EBITDA, gross margin.
Yes. Once we start in-house manufacturing a large part of the range in-house, gross margins will be higher than the piping and water tank business.
Got it. This is the last thing, the CPVC price trend during the quarter.
Shubham, please can you restate the question queue for our question?
Yeah. I just asked. I don't have any more questions. The CPVC price for the quarter, like the trend.
Yeah. Raw material prices for CPVC will continue to be range-bound. We don't see any major upside going forward.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Sneha Talreja from Nuvama. Please go ahead.
Hi. Good morning to you and thank you also for the opportunity. Just two questions from my end. Firstly, you have downgraded your margin guidance as what I see from 12%-14% range to now 12%-13%. This is ex of inventory gains or losses. So what would that be because of? Is it because of weaker Q1 and in long term you will be back to 12%-14%? Or is it because of the change in the pricing strategy that you opted for which made you more affordable?
Thank you, Sneha. I think downgraded, I think that's a strong word, 12%- 14%. So I've just said 12%- 13%. I think we have strong aspirations as far as volume growth is concerned, and we are adding capacity aggressively. So I think it's not a very big change from our earlier guidance of 12%- 14%.
Yes, we will continue to be competitive in the market, from a pricing point of view, which in some of the quarters of last financial year, we believe that because of pricing, we maybe have lost on some market share, which now is back on track, and you're able to see the numbers. The numbers speak for themselves. But no, I'm not downgrading guidance as such.
We will continue to be competitive, but we have aggressive volume growth aspirations, and we believe the next two to three years minimum, this industry is going to see very strong volume growth. Like we have been for the past five years, we want to be at the forefront of growth and be one of the fastest growing players, if not the fastest growing player.
With all these factors in mind, I think 12%-13% EBITDA margin and good volume growth on a long-term basis is something which is a priority for us. Of course, not to forget a tighter control on receivables while it has come down from the peak of 80 days- 60 days, which using channel finance and other credit control policies, we are still not happy with where we are. We will continue to reduce this in a structured way, in a tactful way, which will improve cash flow for the organization, which is very important as we continue to add capacity.
Understood. Thanks a lot, Nihar, for that. My second question was related to more of current scenario. Wanted to understand PVC from your the way it moved up significantly because of logistics constraints. Now it is moving down because of demand constraints. What is really happening on ground? Are those supply side constraints all done with or, with the current prices, are you seeing demand picking up or there is still destocking happening? Some clarity would be helpful.
Sure. in July month, we did see destocking because there is a clear downtrend in PVC prices. PVC prices are extremely affordable, so the moment prices stabilize, I think demand should be good. I still believe last mile demand continues to be strong. It is just that because of destocking, the distributors reduce inventory as you are aware, when the prices reduce.
Yeah, PVC prices are low. I think from here, PVC should continue to be range bound. Of course, cannot factor in when the anti-dumping duty will come and all of that. Apart from that, I think, yeah, PVC prices are affordable today, which is very conducive for volume growth at an industry level as well as for Prince. The moment we see stabilization in pricing, which I think we are close to that, I think end product demand will be very good and you will see good primary sales as well because affordability is there.
Understood.
Like you said earlier on, I think it may be a tough time right now for PVC raw material manufacturers. From what I understand, the gap between PVC feedstock prices and PVC prices today is not something which is actually sustainable. We need to see how that plays out but yeah, today supply is not an issue. Supply chain is not an issue as well for global supply chain for PVC.
I think supply situation has normalized. India, as you are aware, is one of the only markets globally which is actually doing well from a consumption point of view. Naturally, a lot of global supply will come towards India because this is one of the few markets which is actually consuming well and doing well. That is good for us as a processor.
Affordability and stability in raw material prices always leads to good volume growth like we saw in the first quarter. Hopefully, the next 2-3 years, we should see similar growth because of multiple factors, one of them being stability of PVC.
Understood. Thanks a lot, Nihar Chheda, and all the very best.
Thank you, Sneha.
Thank you. The next question is from the line of Praveen Sahay from Prabhudas Lilladher Capital. Please go ahead.
Thank you for taking my question. My question is more of to clarification actually. First on capacity. If I look at in the last one year, your capacity has been increased largely in the Haridwar. Now you are talking about around 35,000 to 40,000 metric ton of capacity commercialization in the existing capacities, what you have said for the next three, four quarters. Is there any indications you can give in which location you are going to expand this capacity?
It's across plants. As you are aware, today we have seven manufacturing units, with the eighth one coming up in Bihar. Bihar, like I said, will be operational from January. We have preponed that from March, looking at the current demand scenario. Bihar will add around 45,000 tons of production capacity from day one, which includes pipes, fittings, and tanks.
We have Infrastructure from a land point of view to increase this capacity significantly over the next two to three years. The existing debottleneck that we're doing around 35- 40 KT additional will be at the existing plant. It would be a combination of Jaipur, Silvassa, Kolhapur, Haridwar, Chennai, across facilities. The good part is the demand is not coming from one or two geographies.
The kind of growth that we are seeing has largely been spread across the zones, which is why our multi-location manufacturing footprint will really help to cater to this demand. I think one thing that maybe I've not addressed is we are also seeing further consolidation in the industry. Because of sharp volatility in raw material prices, we have seen a lot of the smaller players struggle.
There are more and more acquisition opportunities, which always signals to challenges that are happening at the bottom of the pyramid, which is why we are aggressively not only adding capacity, but also spending aggressively on A&P because we believe this will continue to be getting bigger and a big boys game, and the strongest brand will emerge strongest.
That is why not only from a capacity point of view, but also from a brand point of view, we are extremely aggressive. Because I think we have only seen the tip of the iceberg as far as consolidation, from the unorganized to the organized and even within the organized. The large players will continue to become bigger, and this is the time for people with strong balance sheets and a strong brand equity to really dominate in the market.
Great. Thank you for that. One, just related to this, your Athal capacity, if I look at, quite fluctuating capacity. So first quarter last year were around 11,900 and then reduced to 9,500, now come back to the same level. Why is it so fluctuating, the capacity?
For Aquel?
Yeah. Not Aquel, your capacity in the Athal. What you gave in the presentation, if I look at, there is some fluctuation in the capacity of Athal.
We constantly debottleneck facilities and there could be. We have seven manufacturing facilities. We have extrusion at six out of the seven facilities, which is for pipes and injection molding for fittings, which is at three facilities currently at Athal, Haridwar, and Telangana. Going forward, Bihar also, we will have both extrusion and injection molding.
There could be inter-unit transfer of machines from one unit to the other. What is important is at an organization level, we are adding capacity aggressively, and that we have done over the past quarters and we have tried to be ahead of the curve, ahead of the industry as far as that. With current debottlenecking that we are doing and our foray into east, I think we will continue to be ahead of the industry as far as addition of capacity at an organization level.
Just one clarification. You said the Agri mix Q1 2024- Q1 2025 has increased.
Correct.
Your gross margin per kg has been maintained, even adjusting last year of INR 10 crore of losses.
Correct. Agri has increased. At the gross margin level, their product mix is there, but at the EBITDA margin, with the increase in advertising expenses as well as losses in Bathware, we have ended up with a lower EBITDA margin, compared to normal. I think Anand can add.
Last year, as we had told that time also, mostly we had sold pipe that time. Fittings were not there. This time, as Nihar mentioned, Agri had a significant portion, but at the same time, we had sold fittings as well. We will have to factor that, both the things in terms of gross margin. That is why you are seeing that gross margin is at the same level. Agri has increased, but that has been offset by the contribution of fittings, which was not there in the earlier quarter.
Great. I got my answer. Thank you so much. All the best.
Thank you. The next question is from the line of Umesh Jain from Kotak. Please go ahead. Mr. Umesh, you may Yes, sir.
Hi, sir. Am I audible?
Yeah.
Very quickly, it is surprising to see your comment on the capacity constraint, which is why we are not able to grow higher than what we have grown in quarter 1. When I quartilized our annual capacity, the capacity utilization is coming out to be 50%, and now we are guiding for debottlenecking of capacity across our manufacturing plants.
Can you just highlight, is there any specific reason why there has been increase in the capacity or this is related to any particular segment? Q1 is generally Agri-heavy segment, so this capacity addition is towards Agri products?
This capacity addition is specifically for Agri as well as building material products.
Okay. The capacity utilization on a simple math is coming out to be 50%, and you have highlighted optimal utilization could be much higher.
Correct. The peak demand, this is on an annualized basis. The peak demand in April, May was significantly higher. Firstly, whatever capacity we give out is installed capacity. It is a rated capacity, which is more of a theoretical number, which is the industry practice. This includes a lot of capacity towards new products like industrial, like underground drainage, DWC pipes.
This factors all of those products, which are new products which will not run at optimal capacity. Looking at our realistic capacity, we feel that there is a need for capacity addition. Hence, Bihar will be another additional 45,000 tons, and this has debottlenecking of 35,000-40,000 tons, which will put us in a stronger supply position starting from January.
Sure. Lastly on the. It is heartening to see our volume growth is coming back on track. It is clearly from your commentary, it seems to be suggesting we are now clearly focused on growth, with a slightly downward revision of the margin. Is there a possibility that we are looking at a much higher volume growth in FY 2025 versus what we have earlier guided for?
Let me be very clear. There is no downgrading of EBITDA margins. I think 12%-13% is what we have always stuck to. This volume growth has not come because of any predatory pricing or selling at a discount to peers. That is a slippery slope and we are going to stay away from that. We need to be competitive in the market.
There is no point of. We are not a saturated market. This is a growing market. We do not need to actually really steal market share from other players. Overall industry is growing, and from within that, the top three, four of us are growing at a faster pace. This is not the time for predatory pricing or reducing price and selling.
There is enough growth opportunity at an industry level and the various initiatives that we are taking from a branding point of view, distribution point of view, and addition of new products, there is no need to cut price and sell. Margin is a factor of various things apart from pricing, like product mix as well as discretionary investments in branding and manpower, especially for some of the newer segments.
I am not downgrading my EBITDA guidance. 12%-13% is what we have always said, and we will stick to that on a long-term basis, X of inventory gain or loss. Yes, volume growth, while we have delivered 14% in Q1, we could have done much better. We are not happy with 14%. We are used to being the fastest-growing in the industry.
Our aspiration continues to be there, and I will not be happy till we reach that place. We do not need to do any irrational things like reducing pricing and any short-term things. Whatever we do will be in a structured manner, looking at long-term value.
Sure. Happy to hear your commentary. Thanks. All the best.
Thank you.
Thank you. The next question is from the line of Aasim from DAM Capital. Please go ahead.
Yeah. Just one question. On the margins again in Q1, I mean, given the kind of volume growth that you have done and receivables are also down, I just want to understand, are there any cash discounts given in lieu of the collections and that might have weighed down on margins?
We always look at optimizing our credit policy, and we have made some changes to our credit policy. But the impact on margins, I think we have clearly said, is the impact of product mix, being heavier on agri and expenditure on branding. Going forward, focus is. I am still not happy with the DSO of 60 days. This has to come down.
If you look at my peers, they have a far better control on DSO, while still growing. We are not happy with where we are. We have to improve. It's just that it's come down from a peak of 80 days- 60 days back to a normal of 60 days. But this has to come down significantly. It takes time, because we don't want to compromise on growth.
I am confident, looking at the various initiatives that we have taken as well as channel finance, and strengthening of the brand. I think two or three quarters from now, our DSO will significantly reduce from where it is today, which I believe is very important. It is just as we continue to add capacity, I think our focus on cash flow is more and more acute.
Among the initiatives that you have taken, are there like. Like I said, one thing would probably be increased cash discounts vis-a-vis peers or maybe for the channel, some other incentivization like higher volumes, so maybe a relatively less or rather more discount on pricing. Is any of that also being taken?
See, we continue to be competitive in the market. Like I said earlier on, Aasim, this is a growing market. This is not an industry which has saturated where we need to resort to predatory pricing. This is a market which is growing at a very fast pace because of the confluence of many reasons. And within that, the top few of us are growing at a faster pace.
So we are not immune to pricing. We have to be competitive. We are obliged to offer our channel partners and our end users a competitive pricing, but it will not be predatory in nature. On a long-term basis, we have the aspiration of having 12%-13% EBITDA margin with industry-leading volume growth. And hopefully we will be able to deliver that and the numbers will speak for themselves. Along with that, maybe I am repeating myself, but a strong control on cash flow.
Okay. Thank you.
Thanks.
Thank you. The last question is from the line of Udit Gajiwala from YES SECURITIES. Please go ahead.
Yeah. Thank you for taking up the question, sir. Just one bit, you mentioned that any rise in PVC resin leads to inventory gain and reduction leads to losses. So how come in Q1 we have not seen any inventory gains? Q2, certainly if the prices you are saying remain stable, then inventory losses are likely to happen. But in Q1, were there no inventory gains per se?
This is not only for Prince, we are not the only listed player. If you see across players, this has been the situation. Because the price increase was not across the three months, it was mostly in the end of May or in June. That is why there was no significant inventory gain, and we are not the only player without any inventory gain, that has been an industry phenomenon.
What is important is to see the margin ex of inventory gain or loss on an annual basis. Inventory gain or loss is a part and parcel of this industry. But as long as the inherent core margins ex of the inventory gain or loss are healthy, I think that is the true barometer to understand the health of the organization.
Yeah. Absolutely, sir. That is the point. For inventory, why we have not seen it. Does that imply that we might see some rub-off of inventory gain in Q2? I am sure that these inventory gain losses are a temporary phenomenon, but just wanting to extrapolate, that if FY 2025 we see some inventory losses in Q2, then supposedly your FY 2025 margins may not be around 12%.
See, it is very tough to speculate on annual margins sitting in, even half year is not complete. So I will not try to speculate on what margins will be, because that is a function of input costs and PVC raw material pricing, which is not in our control. So hard for me to speculate sitting today, hope you understand. But
Sure
point is we are doing all things right as far as distribution, brand, new products, and adding capacity. So whatever is controllable by us, we are trying to put our best effort in.
Absolutely. And sir, this is the last question, if I may squeeze in. The utilization rate that you have given of 60%. If we exclude your Telangana plant, I believe that is quite underutilized currently. Barring that, what would be the utilization, and is that the need why you did a major debottlenecking?
No. Telangana, of course, is the latest plant, so of course, it takes time to capacity utilization. But we have been moving well in Telangana. Quarter -on -quarter utilizations have improved. This need to debottleneck is not only at any one plant, it is at an organization level.
We feel that when there is peak demand in the core segments of agri and plumbing, we still need more capacity than where we are. Because no one is able to accurately predict when the uptrend in demand will come and to what extent. That is why this exercise has been taken.
Sure, sir. Thank you for answering, sir. Thank you. All the best.
Thank you.
Thank you. I would now like to hand the conference over to the management for closing comments.
Thank you to all the participants. Thank you for attending.