Ladies and gentlemen, good day and welcome to Q1 FY 2024 earnings conference call for Prince Pipes and Fittings , hosted by ICICI Securities. As a reminder, all participants line 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 a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Arun Baid from ICICI Securities. Thank you and over to you, sir.
Good morning, ladies and gentlemen. On behalf of ICICI Securities, I welcome you all to the Q1 FY 2024 result post-con call. From the management side, we have Nihar Chheda, Mr. Shyam Sharda, and Mr. Anand Gupta. I hand over the call to Nihar for opening remarks. Post which the floor will be open for Q&A. Over to you, Nihar.
Thank you, Arun. Thank you all for joining Prince Pipes quarter one FY 2024 earnings call. The presentation and press release have been issued to the stock exchanges and uploaded on our website. Hope everyone has been able to go through the same. During this quarter, we have demonstrated encouraging operational results despite our performance being materially disrupted as we witnessed numerous transitioning challenges due to the ERP upgradation. This ERP implementation had an impact on our volumes as well as our product mix and pipe fitting ratios since the dispatches of fittings faced major challenges. This unfavorable product mix and pipe fitting ratio led to significantly lower margins. As of today, these challenges are now behind us, and the pipe fitting ratio should normalize from this quarter onwards. As operations stabilized, we were quick to enhance focus on execution and improve volumes.
Thus, in Q1, we have delivered a healthy volume growth year-on-year despite the operational challenges. This was also the highest June quarter volume in the history of Prince despite the bottlenecks. It was encouraging to witness volume growth across our segments of plumbing, SWR, agriculture, as well as infrastructure. Before giving you all an outlook on the business, I would like to welcome Mrs. Amisha Vora, Chairman and MD of Prabhudas Lilladher, to our board. Mrs. Vora is a highly acknowledged equity market veteran with 35+ years of experience in the capital markets. Mrs. Vora has been a member of the CII Capital Markets Committee since the past five years, and we look forward to her valuable inputs on the board towards our business strategy as well as our journey of value creation.
Moving on to the business outlook, which continues to be positive because polymer prices remain affordable and economic activity remains healthy across urban and rural India. We are confident that the buoyancy in demand will continue across segments of building material, agriculture, as well as infrastructure. Further, a transition in demand towards branded products will continue to lead to healthy traction for preferred brands like Prince. Coming to the bathware segment, we have launched our collection of luxury faucets and sanitaryware. This launch was done in Goa at our Pan India Distributor Conference, followed by a Pan India sales team meet. We have received an encouraging response from our distribution network, which was present at the launch event. We are now even more confident of scaling this distribution network for bathware over the next two quarters.
The bathware range includes nine different selections of world-class faucets and sanitaryware across different price points. The concept of a bathroom has evolved to becoming a lifestyle solution in recent years, with homeowners seeking to make a statement in technology enhancements as well as aesthetics. With this move, Prince makes the presence in the front of the wall category, which complements our growth strategy to offer complete water solutions. Few more updates on bathware. The state-level teams are in place and the bathware warehouses at the Dadra facility and in Morbi are now functional. Happy to share that we have received our first order for bathware in the month of August, which has already been dispatched. Moving on to the water tanks vertical. As of the last fiscal, we had started in-house manufacturing in Dadra, Jaipur, and Telangana facilities.
We plan to expand our manufacturing footprint for tanks in the Haridwar and Chennai facilities in the second half of the current fiscal. The orders for these machines for these facilities have been placed in this month. It will help us truly leverage our multi-location manufacturing network to scale the tanks business going forward. Next, I would like to give an update on our eighth manufacturing facility in Bihar. I am happy to announce that we have successfully acquired land in an industrial complex and will commence construction soon. This plant will cater to demand in East India, which is a major frontier of growth for the nation, as well as for our industry going forward. This move will not only lead to savings in freight costs, but also superior service to the fast-growing eastern market. Over the years, we have integrated our sustainability goals and business strategy.
We extend this same ESG focus to our new business of bathware. I am happy to announce that our Kristal range of faucets has received GRIHA certification. As a result, any builder installing our Kristal faucets collection would earn green points for their green projects. Such certifications will help us cement ourselves as a preferred brand in the bathware segment over the long term. Lastly, I am also happy to share that Prince Pipes has sponsored the latest film of our brand ambassador, Akshay Kumar, "OMG 2." This strategy of film association started in 2019 when we sponsored "Mission Mangal," and in 2021 when we associated with the blockbuster "Sooryavanshi," and now in continuation, Akshay Kumar continues to be the face of Prince Pipes through "OMG 2." Through this, we have created strong visibility in our focus markets across India.
These film associations not only help us build brand equity, but also help us engage with retailers and plumbers across urban and rural India. In conclusion, I am extremely optimistic about the growth of India over the next few years. We are geared up to aggressively participate in India's growth journey, which is happening at breakneck speed. Now, with our presence across pipes, water tanks, and bathware segment, we are geared up to strengthen India's water infrastructure during this crucial phase of growth for the Indian economy. Thank you for your time and mind share. I will now hand over to Anand to take you through the financials.
Thanks, Nihar, and good morning, friends. I will be taking you through Q1 FY 2024 financials now. Our Q1 FY 2024 revenue stood at INR 554 crores. Sales volume grew by a healthy 19% year-on-year, at 37,155 million ton. For Q1 FY 2024, EBITDA stood at INR 45 crores as compared to INR 44 crores in Q1 FY 2023. EBITDA margin for Q1 FY 2024 were at 8.1% and were better year-on-year, but got adversely impacted due to unfavorable product mix, high fitting ratio, and also on account of ERP issues relating to dispatch of fittings. PAT reported at INR 20 crores compared to INR 16 crores in Q1 FY 2023, and it has an improvement of 25% year-on-year. Networking capital days were at 59 days as of June 2023, as compared to 57 days in March 2023.
During ERP migration, the trade control activity was not fully operational, due to which debtor days increased to 64 days in June 2023 from 56 days in March 2023. We acknowledge that the debtor days needs to be tightly controlled, and that there is significant scope for improvement, and we are continuously working towards the same. As we had guided earlier, we are not shy to keep optimal finished goods inventory to service healthy demand. Inventory days stood at 73 days as on June 2023 from 57 days in March 2023 and 78 days in June 2022. We expect the polymer price for next few months to be stable. In channel finance program, we have made steady progress since the recourse has shifted to distributors.
We have increased the trade limits of our channel partners from INR 70 crores to INR 105 crores, and the number of channel partners engaged in this program has increased from 76 to 132. We maintained our net cash position at INR 164 crores as of June 2023. 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 may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Mr. Achal Lohade from JM Financial. Please go ahead, sir.
Yeah, good morning. Thank you for the opportunity. In terms of the volume outlook, can you help us understand how July has been and how the trends in terms of plumbing and agri you are looking at? And a broader sense in terms of the volume growth guidance for next three to five years. In terms of competitive intensity, do you see it increasing given everybody is adding capacities? Could there be a risk to the pricing stroke margins?
I think let me answer short term first and then move into long term. Specifically, I think July volumes have been encouraging, and we have seen good growth and looking forward to sustain that over the remaining nine months of this financial year. We are optimistic about demand. Real estate continues to do well. Polymer prices continue to be affordable. Any movement upwards or downwards will be reinsured, which is generally conducive for industry growth as well as growth for the branded players. As far as three to five years, the way we are adding capacity, we look forward to high double-digit growth over a three to five-year period. Despite entering into what can I term as fair, I think we continue to be extremely bullish about the pipe segment.
Your last point about competitive intensity and everyone adding capacity, I think this has not been a new phenomenon for the pipe industry. If you see the past maybe 5-10 years, the larger players like ourselves have always consistently added capacity with a vision for the kind of growth that the piping industry has seen. I think this is just the start, actually. I think at no point is supply will not outpace demand. So we continue to be bullish, and industry will continue to grow. I think with the kind of growth prospects, we don't see the need for predatory pricing. So this growth will be much more sustainable and profitable going forward.
Right. The second question I had was with respect to CPVC raw material cost. What we understand is that there is a correction in the CPVC prices as well. Has it been the case for us as well? Given the increasing supply of CPVC in the domestic market, do you see the overall demand supply for CPVC segment tilting towards pricing pressure?
Yes. I think there has been correction in CPVC prices across the industry as well as for us. We do believe that there is more room for correction. We have seen the steep correction in PVC. That is bound to follow in CPVC, maybe with a slight lag. With the kind of local capacities that are coming in in India, there is further room for correction in CPVC. Having said that, for the long term, I think this is a very good phenomenon because end of the day, we believe supply creates demand. When there is going to be local capacity in India, that is going to make CPVC more affordable. For CPVC to grow the way PVC has, local capacity and affordable pricing is very important. I think this affordability in CPVC bodes well for growth from a five-year plus perspective.
That's how we see the CPVC market.
Got it. Just one more question with respect to the plumbing business. If we look at last few quarters through years, we've seen plumbing growth has been fairly good in terms of volume. Is that understanding right? I'm not talking just about 1Q or 4Q. Over the last four, five years, the plumbing growth has been in double digits. Is that a fair assessment for us and the industry?
Industry, I don't know if it would be double-digit, but for us, definitely it has been double-digit. I think apart from this couple of quarters, the growth actually has been largely driven by building material because PVC had become unaffordable and extremely high, which impacted agri. Despite which, there was a healthy performance. That was largely driven by building material. Plumbing has grown over the past few years for the industry as well as for us. For us, our focus is towards building material going forward as well. I think with the way real estate is, I think the next two to three years at least, we are excited about growth in plumbing and SWR and accordingly setting up capacities as well.
Got it. Just a couple of data bookkeeping questions basically. With respect to CapEx, how do we model that for FY 2024 and 2025 in terms of quantum, and which location and what kind of capacity addition?
Largely, Achal, it will be for our bottlenecking in the existing plants and the one which we have announced East. These will be the two major things which we'll be doing. I will not include this right now in terms of projecting what will be in FY 2024. FY 2024 normal existing plants will consume around INR 100 crores. It will be INR 90 crores to INR 100 crores in between, and that will be consumed for internal thing. We are in the planning stage of East, and by next quarter we'll be ready with the projection for how it will be flown in FY 2024 and then what will be the split in FY 2025.
Understood. Just as of June, what is our gross debt and cash and cash equivalents?
Net cash is INR 164 in our books.
INR 40 crores.
INR 40 crores is working capital utilization, and around INR 195 is the cash equivalent in our books.
Okay. This is very helpful. Thank you, and wish you all the best.
Thank you, Achal.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Our next question is from the line of Chirag Lodaya from ValueQuest. Please go ahead.
Yeah. Thanks for the opportunity and congratulations on the company. My first question was on overall capacity utilization. At a company level, what kind of utilization we are at, and also if you can highlight for Telangana plant?
Utilization, steady state has been around 50%-55% on installed capacity. Of course, Q1, it would be slightly lower because of the disruptions. Telangana actually would have been good utilization in the first few quarters since the plant has been set up in end of 2021. I think Telangana capacity utilization would be around 35%-40%.
Okay. In terms of realization, if you see that quarter it has gone down sharply. The reason you explained is the mix change, et cetera. Going ahead, what kind of realization one should expect given PVC prices settling at this level?
I think, obviously, this like you correctly said, this quarter, the realization per ton was lower because of the unfavorable pipe fitting ratio and product mix. This will improve from here on. It is hard for me to quantify, but it will be higher than what it is today. Because in the market, as we are investing in branding, our pricing power has also improved over the past few years. Product mix also has improved over the long term, and this will continue. Tough for me to put a number on it, but it will improve from here on as we have normalized.
Right. Just lastly on sourcing mix, how would you add sourcing mix now?
Sourcing for PVC resin?
Yeah.
Sourcing for PVC is a 60/40 split. 60 import, 40 domestic. And yeah, that's how it is.
Okay. Thank you, Anand.
Thank you.
Thank you. Our next question is from the line of Dhananjai Bagrodia from ASK. Please go ahead, sir.
Just couple of questions. I think some of the questions already have been answered. Just a couple of questions regarding now ERP implementation. Is everything done with it now? Going ahead, will it be back to normal?
Yes. Our performance from this quarter onwards will be normalized.
Okay. Second part on the bathware faucet, where now that you all have an idea what is happening in the market, what competitors are doing, what are positioning. Any strategies which tell us what is our right tone in the segment and what we are doing, especially others, because if you see, there have been some bath fitters who haven't really grown over time. Obviously, they've reached a larger scale, we're coming up in a smaller space. So anything which we could share on our side?
Yes. Dhananjai, we've always believed that in any business, be it pipes, bath fittings or water tanks, there is no one clear right to win. You have to do a lot of small things right. And we believe first and foremost, investing in the right people who have the experience of that business, which is what we've been able to do by getting the team from the incumbent. After that, invest heavily in branding. This is a front-of-the-wall product, so brand equity becomes even more important than the pipes and water tanks vertical. And we already have a very strong distribution network across urban, semi-urban, and rural India, where we have to cross-sell bathware. So we are very clear that this is not going to yield overnight results. There's a lot of patience that we will have to give.
But it's a INR 15,000 crore industry where 65% of the industry is organized and 35% is unorganized. This will continue to grow double digits over the next few years. We believe we have the right product, the right service infrastructure, which is very critical, the right team and the right distribution network to create value over the long term.
What is our go-to-strategy? Are we going to be going directly to builders more? Are we going to B2C where we'll have shop by shop open?
Initially we'll take whatever we can get, so it's going to be a combination of retail and projects. Retail, of course, takes time for the brand to build. Builders, it has to be a slightly more, it's a very different kind of selling, more relationship driven, more price driven. So it'll be a combination of both, more focused on retail and distribution because that's a sustainable strategy over the long term.
Have you been able to do any tie-ups with any of these builders? Because considering now we're seeing real estate project launches happening significantly. So any of the larger players, have you been working on doing a tie-up with them or anything along those lines?
Yeah, of course. I think that's the key part of the strategy, and luckily for the pipes business, it's been three years now that we've set up the projects vertical, and we've been able to become a preferred brand for a lot of large real estate developers. Now it's a point of leveraging those relationships to sell bathware as well. So it's still very early days. We've just had our first invoice in this month. So those things will fall into place over the next few months.
And just last quarter segment, we've seen the other players obviously have stronger volume growth, which we were able to sort of, our ERP implementation. But I think going ahead, would we be able to recoup all that or is it something which will then take time to recoup the lost market share?
I don't see the lost market share. Of course, the Q1 volumes were impacted, despite which we were able to do this kind of a high double-digit growth. So I think from this quarter onwards, we are optimistic about demand. All our three applications of building material, agri, and infrastructure are well poised for short-term as well as long-term growth. And we have the capacity and the distribution to participate in this. So we are optimistic about growth.
What would be?
Hello?
Yeah. Just what would be the CapEx number for this year?
Your voice is actually breaking.
What would be a CapEx number for this year?
As I said, the CapEx number will range in between INR 90-INR 100, excluding the EAST project. The breakup of EAST we will be giving in Q2, when we will finalize the drawing plan and the execution plan, the split between FY 2024 and FY 2025.
Okay. Thank you.
Thank you. We have the next question from the line of Chirag Lodaya from ValueQuest. Please go ahead.
Just on capacity plan, what should understand, what size we are looking for each? Ballpark.
Yeah. So it will be in two phases, Chirag. Phase I will be 35,000-40,000 tons. And phase II will be this year.
Right. In terms of brownfield capacity addition in existing plants, are we considering any of those? Which are the plants where we can do this brownfield expansion?
So from an infra, yes, we are considering certain de-bottlenecking, especially in DWC, HDPE, water tanks, and some, of course, in the core of PVC, CPVC as well. From an infrastructure point of view, we are actually able to add capacity at the Jaipur, Telangana, Haridwar, and Dadra, all these plants. We can add capacity. That's how the infrastructure is set up. Some of the plants like Athal, Kolhapur, and Chennai are slightly strapped for further major capacity addition. I think I would say four out of the existing seven plants, we do have infrastructure to have some kind of brownfield as and when the demand requires it.
Generally, what is the lead time to add brownfield capacity?
Three to four months.
Okay. And another thing was on the overall infra side, there is a lot of demand. Are we also aggressively participating in that?
We are participating, maybe not as aggressively because we want to be very conscious of receivables. It doesn't really make sense to stretch the balance sheet to participate in this demand because already it is low margin. At one side for the retail and projects business, we are trying to significantly improve the debtor days. We will participate. DWC segment has actually seen very strong growth over the past two years. If you see the volume takers have been very encouraging. HDPE also has been good, but we are careful about the receivables. We will grow steadily in infrastructure as well.
Right. And on the overall margins front, with improvement in overall utilization over the next two years, do you see our margins moving beyond 13%-14%?
Medium-term, I think 13%-14% is a fair estimate. Are we happy with that? No. We are aspirational for a better operating margin, and that will come as product mix improves, as CPVC contribution grows, as operating leverage, like you correctly said, improves, when we start moving closer to INR 180, INR 260. I think those operating leverage should also be beneficial, as cost absorption will be better. Then I think some of the new products that we have come into within piping, like the modern plumbing, surface drainage products, and low noise piping, as well as once bathware scales up, I think this kind of a product mix will help improve the margins. But that would be over the long term. For now, our focus has to be on sustaining the 12%-14% operating margin and have industry-leading volume growth.
Got it. And in terms of this bathware launch, et cetera, so initially there will be investments going behind this. So what kind of initial losses you are expecting over one or two years? Some ballpark numbers will do.
In 1Q, the launch that we did with the pan-India distributor conference in Goa, I think that cost was approximately around INR 6 crores, which is obviously one time. And on an annual basis, I think INR 3 crores-INR 6 crores of an investment into manpower and INR 10 crores-INR 12 crores of investment into brand building exclusively for the bathware vertical.
Okay. Thank you. Thank you, Anand.
Thanks, Chirag.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, we request you to limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our next question is from the line of Rahul Agarwal from InCred. Please go ahead, sir.
Hi. Good morning. Thank you for the opportunity. The first question was on Bihar, essentially east and northeast. What is the market size there, and how much does Prince sell today there? Because I am looking it from a perspective of rate saving going forward. Secondly, obviously, I know that you mentioned that the plant is not ready yet, and it will be in phases, but more direction on what the thought process here is. My sense is it should be more integrated complex, which will have most of your product across pipes and value-added products. If you could give some more color in terms of what is your plan for this region, what sells there and what does not.
That is a good question. Yes, you are right. This is going to be more of a complex. But in the long term, we will have all kinds of pipes, PVC, CPVC, DWC, HDPE. Water tanks we will have from day one, and fittings as well is a part of our long-term strategy at least. Initially we may start with a small capacity of fittings, but we will scale that up. In the long term, maybe three years from today, I can see Bihar plant being one of the largest plants for Prince Pipes. We are very bullish on the eastern market, the kind of growth that we have seen without having a local plant. Currently, we are only having outsource in east, that too only for one or two product categories.
The moment we have an entire basket that we are able to sell locally in east, I think there can be very strong growth across segments of building material and infrastructure as well as across pipes, fittings, and water tanks. This eastern market, to answer the last question, what sells, what doesn't sell, I think pretty much everything sells, like PVC, CPVC, underground drainage. Maybe it is not as heavy on agriculture as the rest of the country for obvious reasons. But apart from that, I think we are very confident of being able to cross-sell our entire product range of pipe fitting tanks across PVC, CPVC, HDPE, and LLDPE. Like I said, in three years from now, this will be a large complex and one of the largest facilities in Prince Pipes.
As of now, the east region sales for Prince sales would be what kind of mix today?
We do not give out geographical breakups for competitive reasons. Today would be around 16%-20%.
There is a freight angle here. I mean, this entire 20% is either outsourced or it is supplied from some other plant, which obviously will better the quality once you have your own plant, and whatever you source from other locations should save some money for Prince Pipes, right?
Correct. Initially I would like to pass on that freight benefit to the channel to ramp up capacity utilization. I think the more important, maybe low-hanging fruit is obviously being able to rain sell by having everything under one roof. Obviously, quality of in-house manufacturing is always going to be better compared to outsource. I think we are excited about the cross-selling opportunity as well as the in-house control on quality.
Sure. Got it. Last question on bathware. I am not sure whether we are having our own facility here or doing outsourcing, I think you just started. Just three to five-year thought process, I think we have seen faucets and sanitaryware premium products doing in-house and everything else outside is a good kind of ROC perspective. Your thoughts on how would you think about your bathware in terms of in-house, outsource, and brand building going forward, three to five years, not short term?
I think obviously, manufacturing for bathware is basically in-house. Over the next 12-18 months, we would like to have in-house manufacturing. We are actively looking for opportunities. At the right time we will have that. Within 18 months, we should have that. As far as brand building is concerned, we are very clear that investing in brand has to be a long-term strategy. It has to be seen as an investment, not as an expenditure, especially for a product which is front of the wall. I think a lot of brand building has to be done here. The target audience also is slightly different compared to pipes. Pipes for retail is the plumber or the farmer is the influencer, and for the project segment it would be maybe a contractor or the builder.
Whereas for bathware, there are architects, interior designers, developers themselves and homeowners. I think that is a very big part of the overall value chain for bathware, that the homeowner themselves also is engaged. I think expensive investments need to be made across digital, across having visual merchandising, the touch and feel kind of product as well as brand visibility from an ATL point of view by having visibility across hoardings or across media. This is something that we will invest in, we will continue to invest in. For us, we have always been very clear while taking the decision to come into bathware, this is going to be a long-term strategy which we need to commit to, and we are fully committed to that in terms of investing in brand, people and technology.
You said INR 5 crores, INR 6 crores per year on manpower, INR 10 crores-INR 12 crores for brand building, which basically is about INR 16 crores, INR 17 crores. On a net basis, I would imagine a INR 5 crore even. Would you restrict yourself to INR 5 crores, INR 6 crores of losses, let's say, initial two years? Or is that something which plays on your mind?
We are prepared for making an investment into this. There is no one particular X number in mind, but I think within 18-24 months, this is the maximum we can give in terms of bathware bleeding into core margins. I think after six to eight quarters, it should become non-dilutive into the core business. I think that's a realistic way of looking at things.
Okay. Because my sense is even if you break even, it will still be dilutive, right? Obviously, we are not talking about 13%, 14% of bathware margin at least three years out, right? Obviously, even if they make 5%, they will still be dilutive.
Right. Maybe dilutive is not the right word, but it is bleeding into the core profitability. We are very clear that in the long term, this is going to be a better business in terms of operating margins over the long term, if you see the performance of the current brands in the bathware segment. So over the long term, definitely it is going to be profitable. So we have to be prepared for this kind of investment in the short term.
Perfect. Thank you so much. All the best, Nihar. Thank you.
Thank you.
Thank you. Our next question is from the line of Praveen Sahay from Prabhudas Lilladher. Please go ahead, sir.
Yeah, thank you for taking my question. The first one is the value-added products that you have. Can you give some color, like how much is the contribution right now? And also which all you consider as value added?
Currently it's CPVC and PPR systems, as well as PVC fittings tend to be value added.
How much contribute to your topline?
I think pipe fitting ratios historically have been—fitting has consistently been 30%-35% of revenue, which was obviously significantly lower in Q1, which impacted the performance. But pipe fitting ratios, I think 30%-35% revenue comes from fitting. CPVC and PPR, CPVC has been 20%-25% of revenue, and PPR has been around 4%-5%.
Okay. One thing on the one-off expenses for this quarter. As you had already mentioned, INR 2 crore bathware launches. Is there any one-off of ERP as well? Because last quarter call you had said 90% cost has been absorbed, therefore 33. Is there something in this quarter as well? Or the movie sponsor cost, is it treated as a one-off? What exactly all three one-off you have seen in this quarter, and how much that's?
Apart from bathware, what Nihar mentioned about INR 2 crore, there is nothing like one-off in this quarter. The ERP related expenses are treated as intangible wherever it is applicable, and it has gone into the gross block. The operating expense obviously has come to the P&L, which is not significant. So one-off is only bathware related expense.
Okay. Also on the clarification on your CapEx part, as you have mentioned, INR 90 crore-INR 100 crore for FY 2024. Is it not including the land acquisition, which you have mentioned in the opening remarks? That's for Bihar, you had already acquired that.
The INR 90 crore-INR 100 crore is purely for our existing plants. It does not include anything of east. East, as I mentioned, the breakup straight between 2024 and 2025 we will provide in Q2. INR 90 crore-INR 100 crore is purely on the existing plants.
Just to add to what Anand said, this INR 90 crore-INR 100 crore is for existing plants, for debottlenecking, for maintenance, and to maybe adding capacity for some of the newer products like water tanks or HDPE in certain facilities.
Okay. Got it, sir. Thank you, and all the best.
Thank you, Praveen. Thank you.
Thank you. Our next question is from the line of Sneha Talreja from Nuvama. Please go ahead.
Good afternoon, sir, and thanks a lot for the opportunity. Just a couple of questions from my end. While you said there are no one-offs. Hello?
Please, go ahead.
Yeah. While you said there are no one-offs apart from bathware division, isn't the inventory loss in this particular quarter?
Yes. There is inventory loss. It is not very significant, around INR 10 crores of inventory loss in Q1.
All right. But with the current PVC prices moving up, do you see inventory gains in the second quarter like the leader mentioned, which can offset inventory losses in Q1? Do you also see similar trends, or is there any other opinion here?
I think we like to be conservative. I think it is still the middle of the quarter. It comes with a lag effect, so I think more likely in the third quarter. But I think it is still a long way to go, so I do not want to speculate on that sitting today.
Sure. Got it. My second question on the volume run rate. While in a lot of your comments you mentioned that you would be wanting to do industry-leading growth. This particular quarter, you have already done 19%, and you are mentioning double-digit growth for the full year. I would want you to give a specific range at least. For example, you were mentioning 20%-25%. Where do you see the growth run rate? Because I am sticking on H1 itself, you are sitting at a low base of -10% volume growth. So that definitely means it will be growth positive upwards of 20%. So where do you see this range? Because double digit could be anywhere between a 10%, and it could also be high as 30%. You also mentioned industry-leading growth. So just conclude this. What is the sort of growth that you are looking at in FY 2024?
I think, Sneha, industry-leading growth is always on a medium-term to long-term. Quarter -on -quarter, there could be up or down. Every organization is different and will have their own style of guiding the street. We are very clear. Since we IPO, we have always been very conservative. I will stick to a guidance of double digit. That may not be the answer that you want to hear, but I think it's still the middle of the quarter. We have a long way to go. We are aspirational for growth, and we are aggressive internally to have a high growth, and that's how we are putting up capacity aggressively. But sitting today for the entire financial year, I think we are confident of double-digit growth, and I will stick to that.
Is it fair to assume your Q2 will definitely be higher than your Q1, and H2 definitely is higher than your H1 in a normal circumstances? We can put a number ourselves, but then just giving this breakup to you.
No, I will stay away from that. I don't think we can put a Q2 growth is going to be higher than Q1 or any of that. Q1, as you're aware, it is agri-heavy, and last year the base of Q1 did not have any agri. All I can say is July growth has been encouraging, and with price hikes happening, there will be restocking. We need to wait and watch and let the numbers do the talking once the numbers are out.
Sure. Happy to hear that. Secondly, I also just wanted to understand from you. Your fitting share this particular quarter, as you said, has taken a dip to margins from next quarter on, which should normalize. Leaving apart inventory losses, you see stable margins there or you see one-off continuous thing to impact? And with the other 13%-15% margin range factor in the bathware expenses, is it taken care of or how does that work?
Yeah. I think on ex of Q1, if it is still a nine-month numbers, we will stick to this 13%-14% guidance inclusive of all expenses.
Understood. Lastly, in case you can specify how are you doing in the infra segment. You did highlight a bit on the previous participant's question. How are you placed? Will you be able to quantify how much of the revenue is coming in from there? Are you also present in one of the companies you are expanding capacity in HDPE side? A couple of comments on there would be helpful.
Yeah. Currently I have capacity in the Jaipur and Hyderabad facility. We will be expanding HDPE capacity at the Jaipur facility. Whenever Bihar commences commercial production, we will be manufacturing HDPE in Bihar from the first day. That is one part. Obviously, DWC for us is a larger part, being one of the early movers in back segment. DWC, we launched in 2017. First couple of years were challenging because of the late adoption curve in the Indian market. As in past two, three years, we have seen very strong volume takers. The Indian market now has very well accepted that DWC is the only solution to replace cement pipes from a product life cycle point of view, from a user convenience point of view, and more importantly, from an execution speed point of view.
I think we are only going to grow faster in the infrastructure segment. Of course, DWC for us is a very large contributor relative to HDPE, where we have a very small capacity. I think today infrastructure would be around 3%-5% of the total revenue.
That's very helpful. Thanks a lot, Nihar, and all the best.
Thank you, Sneha.
Thank you. Our next question is from the line of Akash Shah from UTI Mutual Fund. Please go ahead.
Sorry, all my questions are answered. Thank you.
Thank you. Our next question is from the line of Udit Gajiwala from IIFL Securities. Please go ahead.
Yeah. Hi, sir. Just one question from my end. When you said that your July has been good, has this resorted to normalcy in terms of your value-added pipes and fittings?
I think July has been heavier on PVC because we saw price hikes in PVC. Pipe fitting ratio will be normal for the second quarter. But the overall growth in July has been good.
And so just previously when you answered, this infra constitutes some Jal Jeevan projects that are ongoing or is that based in your aggregate?
Yeah, the Jal Jeevan Mission is in aggregate. When I say infra, I purely mean PVC and HDPE.
Understood. We are not participating so actively in terms of Jal Jeevan projects; is that right?
We are participating. We don't directly sell. We sell through our channel, through the contractors. But we have participated in growth over the past few quarters, and we will continue to. As long as the receivables cycle is disciplined, we will participate.
Understood. Thank you.
Going forward, to complete that point, I think over the next two to three years, this demand from Jal Jeevan Mission will continue to support and will continue to be a driver for this industry. Apart from, of course, real estate and agriculture doing well, I think this is also going to help the industry grow at a fast pace over the medium term.
That's helpful. Thank you.
Thank you.
Thank you. Our next question is from the line of Harshit Salawagi from InCred Capital. Please go ahead.
Hello. Good morning, sir. Thanks for the opportunity. I have got other questions that we are-
Sorry to interrupt. May we request you to use your handset, please? Thank you.
Am I audible now?
Yes, sir. Please go ahead.
Yeah. What has been your ad spends during the quarter?
INR 12 crores.
INR 12 crores. What do you represent must be?
Typically, we have invested 2% into branding. It should be in that range. This is for the piping vertical. Bathware, it will be INR 10 crores -INR 12 crores. Cannot be seen as a percentage today because bathware business obviously will take its time to establish itself. So 2% for the pipe and water tank revenue put together, and INR 10 crores -INR 12 crores on a standalone basis for the bathware business.
Okay. Thank you.
Thank you. The next question is from the line of Vineet Shanker from JM Financial. Please go ahead.
Yeah. Hi. Am I audible?
Yes, sir. Please go ahead.
Yes. Thank you, Nihar, and thank you for a well-illustrated presentation you uploaded. My first question is.
Yes, sir. Go ahead.
Am I audible?
Yeah.
My first question is on, in your opening remarks, you mentioned about the channel financing, what a dealer accepted. Just can you highlight on this channel financing, how many dealers have been enrolled in that channel financing scheme? My second question, current strength of the dealers.
Sure. As I mentioned, channel partners right now is around 132. We have scaled this up from 70s to this level after the recourse has been shifted in last Q3 of FY 2023. Since then, we have been actively working with our team, and the enrollment is in progress wherever the interested parties are. Right now it is 132. But going forward, we are identifying such channel partners who have strength to take this program in their stride, and we are helping them participate. This number will grow from 132 in coming months.
Okay. Second on the distribution network for bathware division, how many distributors have we enrolled for the-- By the end of the year, how many distributors are we going to see? If you can just highlight on that distribution strategy of bathware division.
Yeah. I think it's very early days because we've just had our first dispatch to our first distributor appointment in bathware. So in terms of target for number of distributors in bathware you'll have to allow us till the next quarter commenting to give a better visibility on that.
Okay. Thank you.
Thank you.
Thank you. Our next question is from the line of [audio distortion] from Canara Robeco Mutual Fund. Please go ahead.
Yes, sir. Thank you for the opportunity. Just one question, sir. Just on this channel inventory, sir. When you say that July was good, does it hold true for both primary and secondary sale, or it is just that channel is restocking in anticipation of further PVC price hikes? Just my question. Thank you.
I think, yeah, we have seen price hikes, there has been channel restocking. But at the beginning of the quarter, channel inventory was low to modest. I think this quarter we should see channel inventory normalize. I don't think you're going to see a major increase there because while there are price hikes, the upside is still capped. Which is good from a growth point of view, a more steady PVC pricing. But you're not going to see very aggressive restocking because the PVC price will be range-bound.
Okay. Thank you.
Thank you. Our next question is on the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi, thank you for the opportunity. Sir, as we can see, because of unfavorable mix of Q1 margin was impacted. Can you throw some color on what has been your fitting mix in Q1? What is the margin differential?
Fittings are extremely value-added products for us. The gross margin is 1.5x-2x the gross margin of pipes. It's a basket selling, so the margin should be seen not on a standalone basis, but on a blended basis for pipe fitting. I think as pipe fitting ratios will normalize, fitting contributes to 32%-33% of revenue, which this quarter was closer to 25% for us. I don't have the exact numbers, but that's the approximate ballpark. Nine months, rest of Q1 for this financial year, I think we will stick to 12%-14% roughly.
Okay. Got it. That is helpful. What sort of price correction we have seen in CPVC pipes in Q1, and how much you expect in upcoming quarters?
I think we have seen a correction in the first quarter, and like I said, with PVC prices coming down, we do expect PVC prices to come down as well, right? It's a slight lag, and it may not be to the same extent because PVC is much more commoditized. CPVC is not as commoditized. But still, while there has been capacity addition as far as raw material is concerned, still there is not ample capacity. I think that will come in over the next one or two years. We don't expect some major corrections, but you could see some minor corrections in the next couple of quarters.
Okay. So this quantitative correction for Q1?
On the raw material, obviously, we will not quantify that. But on the finished goods, I think it has been in the range of 5%-6%.
Okay. Is it possible for you to throw any color on what would be the bathware loss in FY 2025 or too early?
FY 2025?
FY 2025.
Yeah, too early for that. You will have to give me some time.
Okay, sure. Thank you.
Thank you. Our next question is from the line of Aasim from DAM Capital Advisors. Please go ahead, sir.
Hey. Hi, Nihar and Anand. I have a question on the bathware business. Would it be predominantly more towards projects in the first few years to build volume despite the brand-building plans you have?
Yeah. Aasim, I think like I said, we will take whatever we can get. Yes, projects will be some low-hanging fruit because it is more relationship-based and if you are able to offer the right range at the right price point, I think it becomes easier, especially in tier 2, tier 3 markets. But while we have to play the short-term game of having a product going into the market and then playing the number game, we also have to keep our eyes on the medium and long term, which will happen only through retail and distribution. It has to be a combination of both, and as a new baby into this segment, our focus is going to be on retail and projects both. We will take everything that we can get.
Okay. But still in the near term of basically over the next four, five years, do you think bathware business becomes, say, do you have any rough percentage in mind how much would bathware be the overall top-line contributor for you then over the next five years?
See, I have never seen it like that, Aasim, because pipes and water tanks will continue to grow and continue to grow aggressively. It would be unfair for me to say bathware should be a X% of the overall business because the rest of the pie is going to continue to grow. We are putting up capacity aggressively to ensure that that grows higher than what the industry is growing. We do have internal targets for where bathware should be three years from now, and we will share those numbers with the street as and when we achieve those milestones.
Sure. Actually, my question was, why I was asking is because if it is more on the project side, will it impact working capital on an overall level? But if it is restricted as a percentage of revenue, then maybe it doesn't really matter. That's actually what I was trying to get a sense of.
Sure, and I'll give you some direction on that. I'm very clear that the projects business for bathware will work the same way the projects for pipes work. We will not directly sell to a single builder or a contractor or a developer. We will sell through the channels, and it's the channel's role to invest in the market and accordingly on whatever margin they need to. But we will not expose ourselves directly to builders. We've been able to do that in pipes and grow in projects over the past three years, and I think the same philosophy will apply to the projects for the bathware segment. So it will not stretch working capital, whether it is retail or projects. It will be done through a primary distribution network.
Okay, sure. Thanks a lot.
Thank you.
Thank you. Our next question is from the line of Rajesh Ravi from HDFC Securities. Please go ahead.
Yeah. Hi, sir. Well, some of my questions were answered. As it was the same repetitive, just wanted to understand this ERP implementation. What was the volume impact? Because I see there is a large stock in trade which is there at June end. So if this ERP implementation were not there, what sort of volume growth numbers would that look like?
Yeah, I think it's obviously tough to quantify because you cannot scientifically arrive at this number. But we had operations impacted in April and beginning of May. We did lose out on sales. Hard for me to quantify that. But I am optimistic, despite these kind of challenges, we were able to do a high double-digit growth. Hopefully we will be able to pursue that momentum over the next two to three years.
Okay. So July particularly, you mentioned that the growth is increasing. How is July different versus? Hello?
Please go ahead.
Yeah. How is July growth different from the Q1 numbers? If you annualize it for three months.
Actually, I don't want to speculate on quarterly growth. We have always been conservative, so let the numbers talk whenever the results are out. July has been encouraging. We have seen double-digit growth in July.
The sharp margin contraction which we have seen in this quarter, you're saying is mostly because you lost sales? Or there are other factors like there's a pricing pressure and all of product mix is obviously one factor which you mentioned.
Yeah. It's led by, like I said in my opening remarks, it's been primarily driven by unfavorable pipe fitting ratio and product. If you see the 9 months for this year, except Q1, I think we will be back 12%-14%.
Sure.
Okay.
And sir, on this earlier, two to three years back, you talked about you have set up a project team and you're looking to scale up the project business. Could you throw some light how is that traction going on there? What is the revenue mix coming in from there? Any updates?
Yes. Good question. I think we were very under-utilized and uncapped in the project segment with three years now, and we have made very good strides. Now projects is around 25% of overall revenue. More than the numbers, it's been a lot of key accounts that we've been able to add to our kitty across metros, across tier 2. Initially, the projects team, when we set up three years ago, was limited to the metros, Mumbai, Delhi, Bangalore, et cetera. In the past one year, we have added sectors like Jaipur, Lucknow, Pune, Hyderabad, Chennai. In the second half of this year, we'll be adding a projects team to East India. Once the Bihar plant is up and running by that time, hopefully we would have made good strides in the project segment in East India as well.
We will have a pan-India coverage in projects. Like I said, a lot of top developers who were not using Prince have started using Prince. More than the numbers, what's been encouraging to see is the kind of brand equity that has helped us get and a ripple effect of this project success has come into the retail segment as well in terms of the brand perception of Prince.
Okay. Sir, one last question. This movie sponsorship, is this possibly 2% of top line in the pipes or it would be over and above that and would have an impact on this earnings margin?
It's a part of our branding budget.
Within the 2%, right?
Yes, sir.
Okay. Great, sir. Thank you. That's all from my end. Thank you.
Thank you. Our next question is from the line of Rahul Agarwal from InCred Capital. Please go ahead, sir.
Thank you. Just a quick follow-up. Just one question I had on capacity. Just wanted to know March 2024 and March 2025, where will the company be? Right now we are at 323,000 tons. I understand INR 100 crore of expenditure all on brownfields. I'm obviously assuming that Bihar will be very close to commissioning around March 2025 and beyond. It would help me with closing capacities from your brownfields for March 2024 and March 2025.
Yeah. Bihar, we are targeting commencing commercial production in March quarters of 2025. That will be around 30 KT in phase I. That will be over and above the current capacity. I think maybe around 20 KT to 30 KT of debottlenecking at existing plant. That's how we should see the number. That debottlenecking will happen by FY 2024, and Bihar will commence by end of FY 2025. Hope that's clear.
March 25, apart from Bihar, there is no addition, right? 323,000 tons goes to 350,000 tons, and 350,000 tons gets added by about 40,000 tons from Bihar. Is that correct?
Yeah. There could be some new applications within piping that we get into. That's a constant that we have to see on an annual basis. Sitting today, brownfield, I can guide on an annual basis. FY 2024, I think we will add around maybe 20,000 to 30,000, and Bihar, which will be operational by end of FY 2025, which will be another 40,000 to 80,000. Brownfield, what we will do in FY 2025, it's hard for me to quantify today. And whether we will do or not also, you'll have to give us some time.
Perfect. Not a problem. Thanks, Nihar. All the best.
Thank you.
Thank you. Our next question is from the line of Parth Doshi from InvestX. Please go ahead, sir.
Yeah, hello. Thank you for the opportunity. Sir, I wanted to know who is the current CTO at the company. Hello?
Hello.
Yeah, sir. Hello. Thank you for the opportunity. Just wanted to know who is the Chief Technical Officer of the company at present?
We don't have a position like CTO.
Hello? Sorry, sir, I lost you.
Yeah, we don't have a position as CTO. We have different functions of manufacturing and production planning and IT, but we do not have a position as CTO.
Would that be technical head?
No, we don't have anything like a CTO or a technical head.
Okay. I just wanted to know this 19% volume growth that the company has reported, is this purely from piping, or does it also include resins?
It does not include resins.
Resin is not included. Okay. And sir, in terms of fitting as a percentage of total volume, you mentioned that 25% is the contribution of fittings. What will be the share as a percent of total volume?
Volume breakup will be lower because fittings, the realization per ton is higher. I don't have the exact volume breakup. But in terms of revenue on a normal basis, it should be 30%-33%.
Okay. Would it be possible you can give me a number for the last year for comparison, if you have it handy?
Yeah. You can reach out to Karl after the call, and he'll be happy to share.
Okay. Thank you so much. Those are my questions.
Thank you. Our last question for the question and answer session is from the line of Vineet Shah from Shah Group. Please go ahead.
Hello. Congratulations on good set of numbers. My question is related to film association, how does it actually help, and how are we going to judge ROI over here?
It really helps us. One, Akshay Kumar is a face of Prince Pipes across the value chain. We have also had a lot of investment in ATL branding. I am sure you would have seen across Bombay, hopefully, and other focus markets. For us, we have invested in creating above-the-line visibility in terms of holdings. We also heavily distribute free tickets to retailers and plumbers and plumbing contractors across the country. I think around 5,000 tickets will be distributed across India, and it just helps us engage with key influencers in our value chain and also reinforce Akshay Kumar as a face of Prince Pipes.
Over here, we are trying to brand pipes or bathware as well?
No, this is for pipes and water pipes. Bathware is still early days. Yeah.
Okay. Can you elaborate a bit on loss that has been incurred on ERP implementation?
The loss has been in terms of the impact on the pipe fitting ratio and product mix, which is evident in the lower operating margins. That's the major impact that it had on the operational performance.
Okay. Regarding the bathware segment, which segment are we actually targeting, like economic segment compared to Cera or so on? Or we are targeting premium segment like Toto or which one? Which sort of segment are we actually targeting?
See, this is a INR 5,000-INR 15,000 crore market, and the largest chunk of the market is in the mass premium segment, which is maybe just one notch below Jaquar. That's where the largest target addressable market is. We will have selections across price points of premium, mid, and economical, but I anticipate the focus will be on the mass premium segment.
Okay, got it. Thank you.
Thank you. Ladies and gentlemen, that brings us to the end of our question and answer session. I would now like to hand the conference over to the management for closing comments.
Thank you all for joining our call. Thank you.
Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.