Good morning, ladies and gentlemen. Good day and welcome to Prince Pipes and Fittings Limited Q3 and 9M FY 2024 earnings 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 touch-tone phones. Please note that this conference is being recorded. I now hand the conference over to Mr. Jenish Karia from Antique Stock Broking. Thank you, and over to you, sir.
Yes. Thank you, Aditya. On behalf of Antique Stock Broking, I would like to welcome all the participants on 3Q and nine months FY 2024 earnings conference call of Prince Pipes and Fittings Limited. From the management, we have on the call Mr. Parag Chheda, Joint Managing Director; Mr. Nihar Chheda, Vice President, Strategy; Mr. Anand Gupta, CFO; and Mr. Karl Kolah, Head, Investor Relations. Without further ado, I would like to hand over the call to Mr. Parag Chheda for his opening remarks. After which we shall open the floor for Q&A. Thank you, and over to you, sir.
Thanks, Jenish. Good morning, and thank you for joining us for our quarter three and nine months FY 2024 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 read the same. Our performance this quarter witnessed margins improving by 240 basis points to 12.3% and 6% year-on-year growth in profitability. Our volume this quarter stood at 42,665 metric tons, and overall revenues were at INR 619 crore. The quarter was a challenge in terms of driving volumes. However, we were resilient in protecting profit margins despite the high base effect of quarter three in the last fiscal, which witnessed strong restocking in the distributor channel after the stabilization of PVC pricing.
We are aggressively focusing on driving volume growth through various efforts aimed at expanding distribution and strengthening the channel network. We are also adding new products to build portfolio depth, strengthening our brand equity and building a robust presence in the project segment. With all the initiatives, we are hopeful of returning to a healthy volume growth in the next fiscal year. Aligned with our vision to expand, we are happy to share that our new integrated manufacturing facility at Begusarai in Bihar is underway, and we conducted the ceremonial Bhoomi Pujan in December to mark the official start of construction, which has already begun and is progressing well. I am also happy to share that we have accomplished the first full quarter of sales in our bathware segment, and the initial response has been encouraging from dealers and consumers where our products have been installed.
We continue to penetrate key tier two and three markets of Northern India like Srinagar, Punjab, Haryana, Delhi, Rajasthan, Uttar Pradesh, and Western India, like Gujarat and Western Maharashtra. We have also started participating at exhibitions and events across the country which has drawn a positive response. Our water tank segment continues to do well as we continue to leverage our multi-location manufacturing presence and achieve healthy traction in the first nine months of this fiscal. We will soon be setting up water tank manufacturing in Haridwar and Chennai, following which we will have seven in-house water tank manufacturing locations. In addition to engaging our channel partners in industry exhibitions and events across India, our marketing efforts are also focusing on extending the B2B brand category to engage directly with the audiences through B2C contact programs and events across India to build stronger brand recognition.
During the quarter, we also introduced new products, thus building greater depth to the portfolio. We launched the Duratap range, including faucets and showers. Duratap is manufactured with PTMT material, which is a thermoplastic that combines the advantages of both plastic and metal. Being a specialty engineering plastic, PTMT has great advantages over the other materials in terms of functionality and longevity, and is aimed at the cost-conscious mass market. We also launched Terrafit sub-surface drainage pipes, an innovative solution addressing challenges related to excessive sub-surface water. Overcoming challenges like impermeable soil, shallow bedrock, and dense glacial till, our solution ensures rapid water circulation, and the product is ideal for maintaining stability in agriculture and at the efforts as well.
We continue to maintain a strong focus on our manufacturing processes, and our Dadra plant has been awarded IMEA, India Manufacturing Excellence Awards, Silver Certificate of Merit as part of the Frost & Sullivan India Manufacturing Excellence Awards 2023. As you are aware, IMEA's assessment framework evaluates organizations on their manufacturing capabilities, supply chain reliability, and technology adoption. In addition, our Athal plant won the IMexI Excellence Commitment Prize for the continuous excellence in operation. This is a premier program that recognizes efforts put into facilitating operational excellence and building a sustainable improvement culture. Our business fundamentals continue to be healthy. As we focus on growth strategies, optimizing capacity utilization, expanding market penetration, and optimizing our product mix. We are progressing aggressively, and we will continue to focus efforts to capture market opportunities across our core segments of pipes and fittings, bathware, and water tanks.
The interim budget 2024 has been recently tabled and broadly it has kept its focus on fiscal prudence as expected. The proposals highlighted are in the right direction towards supporting the government's aim of transforming India into a developed country by 2047. The government's strong intent to continue the development of core sectors of infrastructure, rail, airport, agriculture, and housing bodes well for the building materials and pipes and fittings industry that play an active role by producing innovative solutions and technologies. Thank you for your time. I will now hand it over to Anand to take you through the key financial highlights.
Thank you, Parag, and good morning, friends. We had our board meeting in our Telangana plant yesterday, and we are taking this call today from Hyderabad. Taking a look at the quarterly highlights as follows. In this quarter, the revenues were at INR 619 crore. Our cement volume reported at 32,665 metric ton. We delivered a healthy operating performance with EBITDA at INR 76 crore for the quarter, recording a growth of 9% on year-over-year basis. Our margins were enhanced by 240 basis points year-on-year at 12.3%. A&P spend for the quarter have increased to INR 12 crore. Our profit after tax for the quarter grew by 6%, reported at INR 38 crore. We continue to diligently plan our channel finance program and we have made steady progress since the recourse has shifted to distributers , and we have increased the credit limits of our channel partners.
With this, we would like to open the floor for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Achal from JM Financial. Please go ahead.
Yeah. Good morning, team. Thank you for the opportunity. My first question is with respect to the volume performance. If you look at last four, five quarters, it optically appears to us that we are kind of underperforming most of the peers. If you could highlight, A, in terms of how the industry growth could have been in last nine months, and, B, what is driving this underperformance, and the corrective actions you have taken or are undertaking right now. That's my first question, please.
Yeah. Thank you, Achal, for the question. I think it is important to address this, so I am happy this is the first question on the call. So firstly, we acknowledge the underperformance, obviously, that has been apparent for the past few quarters. The way we see it is actually it boils down to two factors. I think across first two quarters of the year, we saw challenges in supply chain because of the ERP challenges, which led to some market share loss, and we are in the process of regaining that market share. The second is what I had stated in the previous quarter call, is that there is some pricing action that we have taken, correction in pricing, in some key markets we felt that we had been outpriced by competitors and that pricing action we have taken.
You will see that is actually visible in our realizations per ton, which have decreased. This has been a conscious effort to become more competitive or aggressive in the market, and both these factors will take some time. So the corrective action has been done, which is visible, but the results will take a couple of quarters. So I feel that by first quarter of next financial year, we should start performing in line with industry, if not being the fastest growing player in the industry. What I will also add is the fundamentals remain the same. We continue to work on network expansion, new product launches, and continue to be aggressive in creating visibility for the brand. So none of that changes. It is the same team, the same product, the same market. So the fundamentals don't change.
These have been two factors which we feel have led to this underperformance, and we are confident that the action that we have taken, we will see results from the first quarter of next financial year. To conclude, I can pump the table and say that the mind share and the efforts right from the MD to the frontline sales team continue to be the same. So there is no lack of mind share or efforts. We acknowledge that there is an underperformance. The action has been taken, and we are confident that the numbers will start speaking from June quarter of FY 2025. So hopefully that brings some clarity to the question.
Yeah. Thanks, Nihar, for the answer. Just a clarification. Did you say that the impact of the corrective actions will be seen from fourth quarter of FY 2025? Did I get it right?
June quarter.
Okay. 1Q FY 2025. Okay. Thanks for that clarification. The second question I had, is this market share loss anything to do with the distributor switching or any particular geography where there is a loss of market share? If you could comment on the same as well.
Yeah. I don't think it is. Firstly, it is not at the distributor level, this is more at the retail space. Our distributors continue to be loyal with us. We have supported them through thick and thin, and these are long-term relationships. They are supporting the company in the challenging times of the first two quarters throughout that ERP transition. We are confident that the primary relationships with our distributors are stronger than ever, and that one or two challenging quarters cannot change that. This is more to do with market share loss at the secondary level, at the retail level, because of the supply chain disruptions we had, which impacted the supply chain of our distributors. That is taking time to regain. Yes, it has been more apparent in certain geographies, which we have identified and focused efforts have already started.
Focused actions have already started in those particular geographies. To re-clarify, none of the primary distribution relationships are being impacted by these one or two disrupted quarters. I think now with the complete normalization of supply chain and the rest of the efforts in the right direction, the market share will be gained back, and like I said, we will be on track from June quarter.
Understood. Another question I had for the quarter, in terms of the inventory loss and also in terms of the growth for agri and plumbing, how was it for the third quarter for us?
I will take the second part of that question first, and then Anand can take up the inventory loss. I think the growth, I think it will be stronger in building materials relative to agri. Anyway, I think the summer quarter is not a very high quarter for agri. You will see agri at an industry level, agri being more relevant in the March quarter and the June quarters because it is a seasonal business, unlike building material. I think the way real estate and infrastructure is growing, I think for the foreseeable future, the building material part of the portfolio will continue to grow at a faster pace. Agri will grow as well because PVC prices are now extremely affordable. So agri will continue to grow, but I think the pace of growth will be higher in the plumbing and SWR other segments for the foreseeable future.
So as for this quarter, the inventory loss is in range of around INR 10, and that has been factored in the P&L, which Nihar shared.
Understood. Just one clarification, Anand, if you could, with respect to bathware business.
Hello.
What has been the-
Sorry to interrupt, sir.
Follow-up.
Yes, sir. Please limit your questions.
Okay.
Ladies and gentlemen, please limit your question to two per participants. Should you have a follow-up question, we request you to rejoin the queue. Our next question is from the line of Shubham Agrawal from Axis Capital. Please go ahead, sir.
Hi. Thank you for the opportunity. Just on the previous participant's question, you said that the corrective price actions that we have taken in Q2 will probably be visible two quarters hence, that is in Q1 FY 2025. Just to understand, can you elaborate on this? What leads to a two-quarter lag for the growth to be seen? If you could also elaborate, what kind of price discount or what was mispriced and how did you correct it? What kind of pricing action are you taking? If you can elaborate more on this.
Sure. Happy to give more clarity on this. I think there are two factors that we have identified internally. One is the ERP challenges. The ERP challenges are through, but as a result of the challenges in the first half of the fiscal, there was some market share loss. The market, it is not like an on and off switch. It takes some time to recoup the market share that is lost, whatever the reason for the market share loss is. Again, we will reiterate, it is not at the primary level, but it is just at the secondary level. That takes a couple of quarters. We estimate that by June quarter, we would be in a position to perform at par with industry, if not outpace, which is what we are used to as an organization.
The second is the pricing action, which we had highlighted in the September quarter conference call as well, that in certain markets we are not discounting to peers. In certain markets, we felt that we had over-premiumized in our drive of premiumization, which led to this kind of a challenging volume scenario. With that, the pricing has now become realigned. I would not say that we are doing any predatory deep discounting or anything. We are very clear in terms of whatever growth that will be there, it would be a profitable growth. There is no deep discounting as such. It is more just a realignment of pricing to ensure we are competitive and market-friendly. Again, that will just take, I think, one more quarter to really start showing in terms of results.
But in terms of action, it has already been taken, which is visible on, if you see our realization per ton has seen a correction, and that is a conscious correction that we have taken as we had stated in the previous quarter call. Keeping this in mind, I think from 1Q we should be back on track.
Yeah. Got it. This is helpful, yeah. Given this context and the corrective actions taken, Nihar, what are you expecting? What kind of growth can we see in Q4 FY 2023? How has January fared out for you in terms of growth, and what should we expect in FY 2025?
FY 2025, I think we will be at par with industry growth, and hopefully we start outstripping industry growth in due time. That's in terms of.
January and Q4 FY 2024? Yeah, 2024.
We have seen a solid. I would stay away from quantifying anything in the middle of the quarter. We have never done that as an organization, but we have seen a healthy operational performance in January.
Okay, got it. And just on the bathware revenue loss that we have incurred this quarter. That is all. That is my last question.
This was the first full quarter for sales in bathware segment, and we have got the encouraging response from dealers and from consumers. We have mega plans to sell in more than 100 retail touchpoints as the product continues to move deep into the tier two as well as tier three markets of Northern India and Western India. Full quarter sales is around INR 6 crore, which we have detailed, that is in the top line. And on the expense side, for this quarter, it is around INR 3 crore. This includes manpower and A&P spending growth.
INR 3 crore is the net loss you said? Did I get it right? The cash flow. Whatever is the cash flow.
Sales, that is INR 6 crore, and the other side is the same as the expense number, which includes employee cost and A&P spend, that is INR 3 crore.
Okay, got it. Thank you, Anand.
Thank you. Our next question is from the line of Shaurya Shah from Equirus Securities Private Limited. Please go ahead.
Yeah. Thank you for the opportunity, sir. Aman Agrawal from Equirus. First wanted to understand on the competition coming in from the unorganized or kind of regional players, there are multiple new entrants that the industry has seen over last two, three years. Since the PVC prices have kind of rallied down significantly and are at affordable range now, wanted to understand on that point.
Could you repeat the question? Actually, we're not clear on the question.
Hello. Sir, is this better?
Yeah.
I wanted to understand on the competition coming in from the unorganized or regional players. The industry saw two, three new players entering the industry in last two, three years. I wanted to understand first on that point.
I think new entrants we have always seen as part and parcel of this industry because we have typically been a high-growth, high-return kind of industry. We have always seen these new entrants coming in. Some have done well, some have not. Nothing has immense growth opportunity, and seeing that kind of growth opportunity, we have always seen new entrants. I continue to believe that this is an organized market with 65% of the market being organized, only consolidating at a faster pace as the end user becomes more and more brand conscious. Yes, we did see some unorganized players going out of the market because of the extreme volatility, and we were always prepared that a part of that would come back and part would permanently be out of the market. But I think fundamentals remain the same at the macroeconomics level for a builder.
I think cost is less than 1%-1.5% of overall cost. Builder is always going to choose to invest in a good quality brand that is established and well-known and visible in the market since decades. I believe this industry is already organized and will continue to optimize itself and consolidate and the big will continue to get bigger in the long term.
Understood, sir. Second, wanted to understand on the demand moment coming in from the government schemes. I think some of them are nearing the completion deadlines. So what's the revised outlook on that, mainly on the government scheme demand?
I think anyway, we have not been very aggressive in the government space because of the extended credit cycles. I do believe that it depends from state to state. Certain state programs are coming to an end, but certain states will pick up. We have started selectively participating in these programs for HDPE pipes as well as agriculture pipes, but only when the credit cycle has been favorable. I think every state has their own cycles, and then there are certain cycles for certain states which are coming to an end and certain states it's only now starting. But overall, I think with the kind of focus that the government has on water infrastructure, I think this is a space that will become more and more significant over the next three years at least.
Understood, sir. Lastly, on the channel destocking. There have been divergent views from multiple management of whether destocking did happen or the scale was low. What's your view on the quarter with respect to the channel stocking levels?
I think channel level right now would be, I would say moderate. I think the good part is that PVC prices are extremely affordable and more importantly than affordable, they're also very stable. Any increase or decrease that we are seeing is not very sharp, which was not the case in the past two financial years. Luckily now, apart from the affordability, the range is very low. Even if there is an increase or a decrease, it has never been more than INR 1 or INR 2 . Which means that there is not very sharp restocking and neither is there very sharp destocking. There is no shock to the channel. Not only will you not see major inventory gain or loss, but you will also see a more stable inventory levels through the channel, which I think is good for the long term.
It makes it more sustainable and a more growth conducive environment. To answer your question, even for the immediate term, I will not see immense destocking or restocking. I think channel, whenever I am interacting with my top distributors, I understand that it is moderate inventory, and we will continue to do that as long as the pricing environment remains volatile. As an organization, we believe that PVC prices from here will be range bound, and we will not see immense volatility both ways, even upward and downward. I think there is a cap, and we will see extremely stable and range-bound pricing environment.
Thank you, sir. This was really helpful.
Thank you.
Thank you. Our next question is from the line of Sneha from Nuvama. Please go ahead.
Good morning, sir, and thanks a lot for the opportunity. Couple of questions from my end. Firstly, on the market share loss, could you give us some sense where this loss has largely been? Is it on the PVC side? Has it been on the CPVC side, just product wise? Is there any specific geography where you have seen market share losses?
Yeah, thank you, Sneha. Yes, this market share loss has been specific to certain geographies and certain products which the team has identified, and that data analysis has been done by the team. The corrective action that we have taken, again, in terms of pricing, and even in terms of being slightly more aggressive with creating brand visibility, is not something which is blanket across the country, across product categories. It is specific to certain geographies and to certain products. That has been identified by the sales function and that corrective action has already been taken, which is visible in our realization levels. It is not across the market. It's in certain markets for certain product categories which corrective action has been taken.
Could you give us some sense versus example, a CPVC would have been dropped by what percentage approximate, and what could have been the loss in PVC?
I think, Sneha, you are aware, segmental margins we don't give and segmental growth also we don't share. Directionally, I can say building material has done better than agri, even at an industry level, because of the growth drivers. But I don't think it would be fair for me to give a segmental performance because we never have. Whenever there has been good quarters or bad quarters, segmentally we have stayed away from and I would continue to do that.
Where would our pricing be at this point of time versus peers since you have taken those price correction measures?
Yeah. That's a good question. I think it's important to say that we are not deep discounting to peers. Gone are the days where we are going to do that to gain market share. This is more to realign the premiumization that we had done in markets where we felt we were outpriced. We have corrected that to bring it to parity to peers in markets where we benchmark certain peers for certain markets, and for PVC and CPVC. This is not from deep discounting or predatory pricing. It's just a realignment of pricing. As you are aware, we were going through a premiumization drive, not only from a pricing point of view but also from a brand point of view, also from a product point of view.
As a part of that drive, in certain markets, we felt that we had become outpriced, which then led to this kind of a market share loss. So that correction has been done. So the action has been taken. For it to translate into results and for the market to realize that and for that to translate into volume performance, will take one quarter. So this is why we are guiding from coming quarter we will be at par with industry growth.
Understood. In terms of our working capital requirement, where do we stand in terms of our debtors and inventory?
Debtors is at 72 days and inventory is at around 78 days.
The reason why I could see our last quarter we've discussed our debtors day being at 63 days, so that's significantly up. Even inventory. Is there any push which is happening in this channel at this point of time?
No, I don't think this is in every quarter, there is a slight increase or decrease, but we are confident that it should come back to the 60 days in terms of debtors. I think inventory anyway we have guided for it to be around 70 days and currently is around 75 days. So I think inventory is at a normal level and payables is around 79 days, which puts our net working capital around 69 days for this quarter.
Understood. Thanks. All the best.
Thank you.
Thank you. Our next question is from the line of Chirag from Valuequest. Please go ahead, sir.
Yeah. Thank you for the opportunity. My question was on CPVC. If you can help us understand how has been the volume growth for first nine months there and this corrective pricing action, is it done to CPVC portfolio as well or it is restricted to PVC?
We have identified wherever the market share has been lost on account of pricing, whether if it was in PVC or in CPVC for that respective markets, we have taken that action. I would stay away from giving segmental breakup. But whatever had to be done has been done, which is why we are confident that the growth will come back. It is not restricted to a particular product or geography. Wherever that requirement was there, we have taken the action.
Okay. If you can just call out our current capacity utilization currently.
Currently we are at around 50%-52% of capacity utilization at an installed level.
50%-52%? What would be our A&P for the quarter and first nine months?
For the quarter it is around INR 12 crore and around INR 39 crore for nine months for A&P as well.
Okay. Just lastly, if you can just state gross debt and cash balance.
Sorry, can you repeat?
What would be our gross debt today and net cash balance plus investment?
Yeah, gross debt is around INR 60 crore. That is short-term and for Bihar facility we have taken long-term as well, which we have started taking disbursements that is very small in numbers right now as we are progressing in civil construction. [INR 60 crore] on our long-term debt and around INR 50 crore on our short-term debt. That is our on a debt perspective.
Okay. And cash balance would be how much?
Cash balance is around INR 120 crore at the end of quarter.
Okay. Thank you, Anand.
Thank you. Our next question is from the line of Keshav from HDFC Securities. Please go ahead.
Hello. Thank you for the opportunity. I want to understand on the HDPE front. What I remember earlier, we are more like a 3% of volume, which we expect to have increased to 7%, 8%. When that will be done, how is the progress happening on that front?
Our first set of expansion of HDPE has taken place at Jaipur facility. Machines are running at ideal capacity utilization for HDPE at Jaipur. I think once this is sustainable over the next one or two quarters, and the market demand seems to continue to head in the right direction, we will continue to expand HDPE capacity as well. The fourth phase at Jaipur is complete. Once it is sustainable, we are not opposed to increasing capacity in HDPE if the opportunity seems to be sustainable.
Okay. Understood. One thing you highlighted that you will grow in line with industry. How should I read this comment? This year your base is pretty low because of ERP issues and other thing on the H1 side. In line with industry FY 2025 you are talking, or you are talking in line with industry on a base of FY 2023?
The guidance that I have given is long-term and we will be at par with industry. Of course, if there is a base effect, a positive base effect that will be favorable for us. I think it is very hard for me to quantify all that sitting today. But we are confident that actions have been taken and by June quarter that will start reflecting and the numbers will start talking. We have always been used to being the fastest growing player in the industry, and we are confident that the fundamentals remain the same and the mind share from the promoters and the efforts from the team are the same as they used to be, if not better. So we are confident that the growth will be back on track.
Understood. Got it. Last two questions from my side. Firstly, on the CapEx side, the CapEx size has increased. How will this CapEx split up for Bihar will be, and what has been the CPVC price correction in Q4?
CapEx from Bihar, we are doing it with the integrated facility. Earlier we had announced that we will only come up with the piping facility. Now the two phases have been combined and we will be coming up with piping as well as fitting facility both in Bihar. The proposed CapEx earlier was around INR 150 crore, now it will be around INR 220 crore. That is how the CapEx for Bihar will be. As we see that the market in east has been growing on our side, the capacity which we add in Bihar will help us to gain the market share over there. The utilization will be at a healthy level once Bihar starts contributing fully. Also we are coming up with tank facility as well.
That will also help us to have a better penetration in the tanks market in the east of India.
Sir, my question was more towards the split of Bihar in FY 2024 and FY 2025 and CPVC price correction in Q4.
FY 2024 it will be around INR 15 crore-INR 25 crore. Why I am giving this range, because it depends on the kind of execution speed we will be giving at the end of March. The high on top side it will be around INR 15 crore-INR 25 crore. It excludes the land which we have already taken in Q2. That is around INR 27 crore- INR 28 crore. I am talking from the fitting point of view and the rest will be in FY 2025. The balance which remains around INR 175 crore, INR 170 crore-INR 175 crore in FY 2025.
Got it. Sir, CPVC?
Just to add to what Anand is saying and connecting the dots from previous few questions. We continue to be aggressive with adding capacity. Whatever current underperformance you are seeing, we are not phased by that. As an organization, we continue to be aggressive with adding capacity and none of the plans change. Which I think underlines the kind of confidence that we have in terms of quickly regaining our market share and becoming the fastest growing player in the industry. In fact, we have added capacity in the December quarter as well at the Jaipur plant for HDPE and Chennai plant for PVC. We have already added 10 KT more in the December quarter taking our total installed capacity to 338,000 MT from 328,000 MT at the end of September.
We continue to debottleneck existing facilities, invest in new products and continue to take the same pace of execution at Bihar and in fact increase the CapEx there across pipes, fittings and water tanks which underlines our confidence not only at the buoyancy of demand at the industry level but our own ability to execute and grow at industry level.
Okay. Sir, CPVC price correction?
Yeah, there has been corrections in CPVC input cost and that has been passed on to the market.
Okay. Would you like to quantify the number in Q3?
In Q3 I don't have the numbers offhand but I think it would be on the range of 5%-7%, but happy to, my team can get back to you on that.
Okay. Thank you. That is helpful. That is it.
Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions.
I think the queue has been deleted. Can people who were there in the queue please press star and one again to rejoin? Thank you.
Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions.
Moderator, I think people are messaging me saying that the star and one function is not working. Can you check?
Okay, sir.
I think we've got.
Okay, sir.
Thank you.
Our next question is from the line of Rajesh Kumar from HDFC Securities. Please go ahead, sir.
Hi. Good morning, everyone. Rajesh Ravi here. My question pertains to, first on the impact of muted government CapEx outlook towards the water infrastructure projects in the budget. How do you read these in terms of, is it precursor to demand slowdown in FY 2025, 2026?
Can you repeat the question? I am not able to hear you clearly.
Yeah, hi sir. Am I audible now?
Yeah.
Hello? Audible?
Yes.
Yeah. Sir, would you throw some understanding on this government, the budgetary expenditure outlook for FY 2025, which has been kept at flattish level. How do you read these numbers? Will it slow down the industry growth going forward?
No, I think government continues to be bullish on water infrastructure for the longer term, which is going to be a key driver for growth at an industry level. For Prince specifically, we have not been very aggressive with the participation in these government schemes because of the credit risk that is associated with it. So wherever there has been a favorable credit cycle, we have participated. But otherwise, we have largely stayed away from it.
Right.
But if you are talking in terms of opportunity type for the industry-
Yeah.
-in the long term, it continues to be buoyant. I think that is clear that focus to bring piped water access to every rural household in the country is strong. A few states could see end of the program because they have been successfully able to get access to rural households. But I think still there is a large part of most states where access to potable water is a challenge. But I think those states will now start picking up. I do not see this as a major challenge.
Sir, also talking on the inventory losses, could you quantify for the nine months how much inventory loss we have booked in? How much resin inventory do you maintain at company level, both for PVC and CPVC compound?
We have around INR 10 crore of inventory loss for quarter three. I do not have the nine-month number handy, but if you go through the transcripts for June quarter and September quarter, you would get that. Or else you can reach out to Karl after the call, and we can share the nine-month inventory loss.
Sure. How much resin inventory?
Yes. At any point of time, we have around 30 days of raw material inventory and 30 days of finished goods inventory as a broad thumb rule. CPVC would be lower than that because we buy liters which is locally produced. That would be around maybe 7-10 days of inventory. Overall, at an organization level, raw material inventory would be around 30 days as a thumb rule, and finished goods would be around 30-40 days.
Okay. Two more questions, sir. CPVC resin price, you mentioned 5%-7% would have declined in Q3. What has been the trend in Q4?
There has been no correction yet.
No correction yet. And sir, lastly, on the Bihar expansion, could you quantify the size that we are adding, both on the pipes as well as on the fittings?
It will be around in the range of 50 KT - 52 KT when it will be operational, which is a combined capacity for pipes and fittings.
And these fittings, how much you are looking at, sir?
50 KT - 52 KT.
Sorry, how much?
Pipes and fittings combined.
Okay. Pipes and fittings combined. Okay.
Yes.
Okay. Understood. Lastly, could you talk about this-- Sir, I think most of those questions and expenses you have already explained. I will come back. Thank you.
Yeah.
Thank you.
Thank you. Our next question is from the line of Rahul Agarwal from InCred Equities. Please go ahead.
Hi. Thank you so much. Good morning to you all on the call. Sir, one question, broadly on the industry demand for pipes. It looks like within building materials, a lot of real estate is under construction. Hence, pipes, cables, and wires are actually seeing better demand versus stuff which is used much later. Stuff like tiles, wood panels. The commentary has been really weak from those guys. Question is, do we see a scenario over the next two years where weaker products actually see higher demand and pipe slows down? Any study on lead indicators of real estate under planning stage, more on the drawing board, that should help sustain pipe demand? That is my first question.
Sure. To answer the question in terms of sustainability of demand for pipes, given the real estate demand. We believe real estate demand is strong. I think the numbers are out in the open. You guys would know better than we do. Whatever ground level interaction that I'm having with developers across the country and my sales team and project channel partners, I think this seems to be sustainable. All of this is despite the cost of capital being high, and we believe once cost of capital reduces we will see a more sustainable demand in real estate. Whatever interactions we've been having at the ground level, I think real estate demand is here to stay. As far as pipe is concerned, we come somewhere in the middle of the cycle for any new project.
We believe that at least for the next two to three years, if not more, taking a longer term view, I think at least for two to three years, overall real estate demand should do well. As a result of which demands are, I think, we believe should be sustainable. That's the reason we are aggressively, we have added capacity aggressively in Jaipur and Telangana over the past three, four years. We have added 75 KT. Now we are adding 50 KT. Initially our plan was around 40 KT, which now we have scaled up to 50 KT for Bihar. I think that more than anything shows our conviction in not only industry demand but also our ability to participate and contribute in the growth of the Indian pipe industry.
Got it. Also, when you say we'll grow in line with industry and gain back market share, my sense is if you gain back market share, obviously your growth has to be higher than industry, right? That's the only way to gain market share back for whatever you lost. Is that understanding correct?
Sure.
Okay. Few clarifications. The Bihar CapEx INR 220 crore, that include the tanks CapEx, right?
That includes the?
The water tank CapEx.
Yeah. It includes water tanks as well.
Okay. And bathware, Anand-ji, you said INR 6 crore top line and INR 3 crore EBITDA loss for the quarter. Is that understanding correct?
I said INR 6 crore top line, INR 3 crore expense. Expense comprises of employee cost and the A&P spend.
Okay. It means that we made INR 3 crore positive EBITDA for the quarter.
We don't have to see quarter -to -quarter. We have to see as a long term growth, we have to see in the bathware.
Just to add to Anand, I think this could go up. We have guided for around INR 20 crore of annualized expense for bathware. As we expand to east and south in June quarter, that will further increase. At some point we would have company-owned, company-operated showrooms as well. At a pan-India level, the expenses will increase. Today we are only in two homes. From June quarter, we will go into four homes. I think it's very important to see bathware from a long-term point of view. We believe that in six quarters from now, we should look at breaking even.
Before that, the focus should only be on appointing distributors, reaching as many retail touchpoints as possible, and being able to establish a strong brand visibility, which will take time. We have the luxury of a strong balance sheet to be able to take these kind of long term bets and really use the brand equity that we've created and the distribution network to cross-sell bathware.
Yeah, I completely understand. What I was trying to gauge is the pipe profitability, hence I was just trying to add back whatever you lost in bathware to the pipe to see the actual EBITDA. I get what you're saying. Last question from my side is, given building materials have actually done better than agri over the nine months, the CPVC revenue mix would have grown faster. Any sense on PVC, CPVC revenue mix for nine months? Is that possible to share?
No, we will not share a segmental breakup. Sorry, just to address the previous question before we come to this. I think I just answered your other question. If you look at a normalized performance, there's a INR 10 crore inventory loss and a INR 3 crore expense in bathware. So that will give you our normalized earnings performance. No, I think I will stay away from giving breakup in terms of revenue, but directionally, again, building material is doing better than agri.
Okay. Appreciate all the answers. Thank you so much. All the best.
Thank you.
Thank you. Our next question is from the line of Utkarsh from Bank of Baroda. Please go ahead.
Yeah. Hi, good morning, sir. My first question is that, if we see our debtor period has gone up from 40 days in FY 2020, to 73, 74 days in nine months of FY 2024. Whereas the debtor period for our major peers has remained relatively stable, or it has come down during the same period. Going ahead, we expect to perform in line with the industry from June quarter onwards. So wanted to reconfirm from you whether we can protect our market share without diluting margin, and increase our debtor period further, and if you can provide the margin guidance range for FY 2025.
Yeah, I think that's a good question. Yes, we will start normalized performance from June quarter without impacting our EBITDA guidance of 12%-14%. I think that we will reiterate that guidance in terms of operating margin. On an annualized level, one quarter here and there is possible, but on a four-quarter basis, I think 12%-14% operating margin we're still confident on. The debtor days will continue to reduce, without impacting our market share. At least now it will come back to around the 60s, which is what is normal. I think that will be visible. To answer your question, to sum it up, yes, we will be regaining our market share without impacting our guidance on margins or debtor days. We are confident of that.
Okay, sir, for December quarter, if we do the adjustment of interim inventory loss, then our EBITDA margin came at around 14%. So why we are guiding a range of 12%-14% for FY 2025?
Because we have historically always given that guidance and been conservative with all our guidance. I will stick to that. It is not that we have come up with this guidance at the end of this quarter. This is something we have been giving for the past couple of three years now, and I will stick to that guidance.
Okay. And sir, lastly, what would be your CapEx guidance for FY 2024 and FY 2025?
For FY 2024, I must exclude Bihar from this. FY 2024 will be in the range of INR 110 crore-INR 120 crore, and in FY 2025, it will be in the range of INR 90 crore-INR 100 crore. It does not include that capacity which we will be adding in Bihar.
Okay. Thanks a lot, sir.
Bihar will be INR 220 crore, which will be split in FY 2024 and FY 2025.
Thank you. Our next question is from the line of Dhananjai from ASK. Please go ahead. Our next question is from the line of-
Can we move to the next question?
Yes, sir. Aasim from DAM Capital. Please go ahead.
Yeah. Hi, good morning. Just coming back to the price correction commentary you had made earlier. You have talked about price corrections done in Q2 and Q3 because you were outpriced vis-à-vis peers. This would just be on the CPVC side, right? Not on the PVC per se.
It is across PVC and CPVC, depending on geography to geography. Wherever we felt that we are over premiumized. Again, I want to reiterate that this is not deep discounting. We are not resorting to discounting per se. This is realignment of pricing to ensure that we are competitive with the market and market-friendly. Wherever it was required in whichever geography, in whichever product category, we have taken that call, and that is reflected in our correction in realization price done for the December quarter, which is a conscious strategy. That we are confident will translate into regaining of market share from the June quarter.
No, I was just trying to understand. In PVC, price changes from the supplier side to pipe guys, the change in price is almost immediate. How did we end up becoming more premium vis-à-vis peers? That is what I was trying to understand.
Yeah. Just to explain to you how the industry works. Whenever there is a pass-through in PVC prices, there is an action taken. Whenever there is an increase or decrease in raw material, we pass that on to the finisher. In certain markets, we had started leveraging our brand to pass on more than what the cost was, or if there is a decrease, we are not passing it on fully. In a lot of the markets it was accepted, which is why you have seen an increase in operating margin. This is not something which was started three or four quarters ago. This is a drive that started two or three years ago, and that is reflected in our operating margin performance, what it was four or five years ago and what it is today.
One of the reasons provided a pastime product makes sense to build operating leverage has been better pricing power. But in certain markets, that is not as well absorbed as it was in other markets. We are happy to take the correction and become more market-friendly. Hopefully that will give you a clarity.
Okay. Just one more thing. We also had this ERP issue in Q1. April and May were significantly impacted, but I think you've caught up quite well in June. Was there some kind of volume push into the channel back then and that could also have hampered volume performance in Q2 and Q3?
No, I think that was just the channel. I don't think it was some volume push. It was just that April, May was disrupted by supply chain. The regular supply that we have to our market was disrupted. Naturally, you're going to have a vacuum in the market. And we noticed after two months of disruption, one month will go in instead of filling that vacuum. I don't think that is the reason. And we are certain that is not the reason for the volume underperformance.
Okay. Thank you.
Thank you.
Thank you. Our next question is from the line of Praveen from Prabhudas. Please go ahead.
Yeah, thank you for the opportunity. So, the first on the Bihar expansion. Is it the final number you are expecting, that is 50 KT? Or is there a scope for a further increase in capacity out there?
This will be the first phase. So first phase will be locked at 50 KT for INR 200 crore. This is certain. This number will not change now. This includes pipe capacity, fitting capacity, and tank capacity. So for the short to medium term, now this first we have to execute this, and now after that, once we start growing in the East, we have the land bank to grow that over the long term. So we have invested in around 35 acres of land, which will help us to expand easily over the five to seven year horizon. But the current number of 50 KT- 52 KT for around INR 220 crore of CapEx is not going to go through any change.
Thank you for that. Sir, next question might be repetitive, but your realization for a quarter has been down more than 10%. Is it possible to give any color, like how much is because of the price correction you have taken, and how much is from the RM prices down?
Yeah. I think one is if you see the September call, we had said we have taken pricing action because in certain markets we were outpriced. That is reflected in this. Of course, this kind of end-to-end correction is not on account only of price correction. It is a function of both the pass-through in the reduction in cost and the pricing action that we have taken. If you see the peers, our realization cut is the highest. It is a function of both the reasons. It is hard for me to quantify how much is because of pricing action and how much is because of cost reduction, because there are multiple geographies, multiple categories, but it is a combination of both the factors.
Okay. In your press release, you have mentioned or witnessed a strong restocking in the distribution channel. Is that the current scenario? Also, I am just referring to your peers also given similar kind of commentaries or 35% of growth for the fourth quarter. Are you also witnessing the similar kind of things in the business?
Praveen, currently channel inventory is normal. Like I said, yes, of course, we saw some correction in the December quarter, which is why channel inventory was lower, which I think has come back to normal. I think more importantly than immediate term, let me focus on long term. I think PVC prices are going to be stable. They are going to be range bound, as a result of which you will not see major ups and downs in channel inventory, which I think is a very good environment, a very growth conducive environment. I think more important than short term, it is important to look at long term. PVC prices are affordable and range bound, and that I think is here to stay. That is how we see it.
I think the strong restocking that we were talking about was about the base quarter of Q3, which was at last Q3. We are not talking about current Q3. We can go through the quote, that will be clear. If not, Karl can speak to you after the call and give that clarification.
Fine. Just one clarification. Your Chennai plant capacity from the quarter-on-quarter, the capacity quote is changing. From the fourth quarter last year to now the third quarter, every quarter the capacity number is changing. Why is it so?
Yeah. That is normal. I think we are adding capacity in Chennai. From 42 KT in September quarter it has come to 47 KT. I think the realignment of capacity is done in normal course of business.
Earlier you reduced and now you are saying increased.
Sorry, sir. This is realignment of capacity based on the market forces of demand and supply. The current capacity is around 3.38 lakh KT , including the HDPE expansion at Jaipur and the Chennai capacity coming to around 45 KT. That takes the total to 3.38 lakh KT.
Okay. And one more just to clarify on, you had also mentioned in the press release expanding the distribution and strengthening the channel network. Can you quantify the numbers, how much of distribution you have right now?
Don't have the numbers offhand. Karl will connect with you post the call to share the details.
Thank you, sir. All the best.
Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask question. The next question is from the line of Rajesh Kumar from HDFC Securities. Please go ahead.
Hi, sir. Just two follow-up questions. First, could you share the dates on how is your project sales team ramping up? How much of your revenues are coming from project sales? Second is, could you share the capacity which you had mentioned total, breakdown between your capacity, CPVC, PVC and HDPE?
Could you repeat the question? We are not able to hear you actually.
Hello, sir. My first question pertains to could you share how has been the ramp-up in your project sales, which earlier you have been talking about you're trying to improve the project sales. Second is, can you share the product-wise capacity across CPVC, PVC and HDPE?
Our project sales is doing well. We have made entry into a lot of key accounts over the past quarter and the past nine months period, which helps us make reference projects and further increase our penetration in the project segment. We have also been able to significantly increase number of specifications and brand approvals in the approved list of MEP, which is a step one to then cracking the project. We have got significant breakthroughs and we are well-poised and continue to expand to new centers for the project vertical. Apart from just the metros, now we are looking at tier two project markets like Vizag and Chandigarh and Lucknow and Jaipur, apart from the eight metro cities. I think that's on track.
Second part of your question, I think is segmental capacities, which I think it's hard to give a number because there is a fungibility between PVC and CPVC. Broadly, it would be a function of our product mix, with lion share being PVC, CPVC being around 20%-25%, PPR being 5%-7% and HDPE being 4%-5%. I think it will be broadly a function of that, but hard to quantify because of the one-way fungibility between CPVC and PVC.
This HDPE product, which you earlier guided that this revenue share will ramp up to 7%- 8% in Q4. I think you touched upon that in an earlier participant's question. Are you seeing that on track, 7%- 8% in Q4? Is this a better margin product compared to your average, 12%-14% margin range, which you share?
I think we have guided for 7%-8%, but that's over the long term. That's not for Q4.
Understood. Not for Q4, yeah.
In terms of capacity at Jaipur, which takes our total Jaipur capacity at around 44 KT. The machines are running at ideal peak capacity utilization for HDPE. Once this first phase of expansion at HDPE, if it seems sustainable and the sources of demand are sustainable, we have the infrastructure to add HDPE at our new facilities. Phase one is complete and at least for now, the utilization is high. That's how we see it. I think the last question was in terms of margins. I think HDPE, of course, is more, as everyone is aware, more of a volume product, not a value added product. But at an organization level, we would stick to the guidance of 12%-13%, which includes the capacity expansion in HDPE.
Lastly, this working capital increase, which has happened, are you confident that in March these numbers will again moderate towards normal levels?
Yes.
Okay, great, sir. That's all from my end. Thank you.
Thank you. Our next question is from the line of Shubham Agrawal from Axis Capital. Please go ahead.
Thank you for the follow-up. I just wanted one clarification. I got confused in the numbers. INR 3 crore is the EBITDA loss for bathware or is it the A&P and manpower cost in bathware?
A&P and manpower cost for bathware segment is INR 3 crore for December quarter.
Right. You've not actually shared the EBITDA loss for that segment, right?
Correct.
Yeah. Okay. That was all. Just wanted to-
We have shared the top line and the expense for the December quarter.
Yes. Yes. Okay. Thank you.
Thank you. Our next question is from the line of Aasim from DAM Capital. Please go ahead.
Hi. Just one more question. Not sure if I got it right when discussed earlier, but how do we protect market share or gain market share vis-a-vis industry and cut your receivables at the same time in the near term or in FY 2025?
Yeah. So like we said, we have over-premiumized in certain markets, so it's not that we are deep discounting. We're just reducing that premium which is already factored in. If you see for quarter three, the realizations have decreased, which shows that we have already taken the pricing action. This will have to translate into volume growth, would take a couple of quarters because market is not like an on and off switch, so it will take some time. We are not deep discounting, we are just becoming competitive and aligning our prices in certain markets for certain products.
But how does your receivable days also decline from the current levels of 73?
We will be using channel finance. Even in December quarter, we have added 20 distributors, and we will continue to increase channel finance so that we are not It's not a payoff between sales or receivables. Ensuring that the channel is adequately financed helps us ensure that growth is there, but not at the cost of credit. To answer your question, how that happens is through becoming more aggressive with channel finance, which now luckily is a complete recourse that's been off our books for some time. Now we have started becoming more aggressive in channel finance. But as the channel becomes better capitalized, that ensures that it's not a payoff between sales and credit.
But we have been doing this for some time, right? Is the channel financing extended only to a small part of the channel still?
Of course, there is a certain due diligence process that we have internally. So we will not give it to each and every distributor. There is a certain criteria that the internal finance team has and that the banks have. So it's a process. This cannot happen overnight.
Okay. Thank you, Nihar.
Yeah. Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to management for the closing comments.
Thank you to all for attending the call. Thank you.