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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Asian Granito India Limited Earnings Conference Call. This conference call may contain certain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Praful Gatani, Director, AGL Global. Thank you, and over to you, sir.
Thank you very much for handing over. First of all, I welcome all the participants and extend season's greetings. Very warmest greeting to all of you for joining us today during the festival season on behalf of Asian Granito India Limited. After the COVID period, which is almost -- looks to be settled and over, industry -- ceramic industry has come on autobahn. Now we can see that there is a rapid growth coming up in the industry. Almost all the players are running on a very high capacity utilization.For the expert comments and special comments on Asian Granito Limited. I have a pleasure to be with -- today with our Chairman and Managing Director, Shri Kamlesh Patel, who is a seasoned entrepreneur, and he is also globally known for his entrepreneurship skills and very famous personality in ceramic industry because of his background in the industry for more than 2.5 decades.So I welcome and hand over to Mr. Kamlesh Patel for his comments.
Good afternoon. Welcome to quarter 2 and 6-month financial year 2021 conference call. [Foreign Language] Hope so you all are well and healthy. [Foreign Language] Please Himanshu bhai.
Good afternoon. Welcome all of you, sir. I'll just brief about the quarter 2 financials. During this quarter, on a Y-o-Y basis, we have achieved our top line of INR 344 crores against INR 357 crores of the last year, so just about 3.5% downward in the top line on Y-o-Y basis. As far as EBITDA is concerned, we are fortunate enough to achieve very good numbers in INR 42 crores EBITDA in this quarter against the INR 30 crores. So absolutely, a 38% growth on Y-o-Y basis in absolute number in EBITDA, which is 367 basis points that we have achieved increase.In the net profit numbers, this year, we have achieved almost INR 19.81 crores against INR 12.60 crores of the last quarter 2 financial year, which is almost a 223 basis point increase in the net profit levels. Overall on the debt side, as Kamlesh sir has already told, we have just replaced our high-cost debt by this low-cost funding in this COVID-19. So we are able to reduce the interest cost in this quarter also. And in the stand-alone level also, there is a high contributing factor in the net profit margin along with this all, EBITDA improvement and NSR improvements, which are contributing a major part in this, our consolidated results.Now I just offer this question and answer quorum open.
If any questions or answers needed, may I request all the participants to raise their questions, please?
Sure. Thank you, sir. I am sorry. Please go ahead.
Yes. Before that, there 2 or 3 points, which we wanted to stress across. My name is Rutvij Parikh, and I am the Senior Director in ATL Global. As regards to the segmental revenue, we briefly wanted to touch across few points.In the Tile segment, we constituted total sales in terms of a 15% growth, contributing to in excess of INR 285-odd crores as compared to INR 247-odd crores Y-o-Y. In the Marble and the Quartz segment, we were at around INR 21-odd crores and INR 22-odd crores as compared to INR 30-odd crores and INR 69-odd crores. Our Power Grace, another one of the vertical brands, had increased by 35-odd percent to around INR 4-odd crores. And our Sanitary division took a virtual jump in excess of INR 6-odd crores.Broad constitution of our AGL Global stands at over 80% in terms of Tiles, Marble and Quartz, accounting to around 15-odd percent, and the balance 3% to 4% constituting from Sanitary as well as Power Grace. Over the coming 2 to 3 years, we estimate that Sanitaryware business as a vertical domain should increase exponentially.I wanted to stress across 3 or 4 points as regarding to the Q2 net profits as well as on the sales. The primary concern or the primary reason for the increased margins were: A, consistent realization in terms of various products, be it tiles, marbles, Power Brace or sanitaryware. We've been able to achieve through brand realization and product recognition through various cities in terms of escalation in price.We have adapted to various product mix, taking into consideration the market conditions prevailing during COVID or as well as post-COVID. So we have altered the structure in terms of product mix for various marquee clients as well as huge sustainable project demand.We have also reduced our fixed overheads in terms of reduction in specific key areas. Our power and fuel costs have reduced to the extent of 14%, which translates to something like INR 31-odd crores from INR 36-odd crores. Our other manufacturing expense related to my existing ongoing businesses have also come down drastically by 40-odd percent. This during COVID time is a precursor in terms of my sales, marketing, distribution costs and other sampling costs, which have drastically come down over the past 3 to 6 months.One of the prime concerns across various industries was, how would post-COVID be for the building material space. Looking at the existing demand, where we see that post-COVID, the demand for real estate as well as the building material space has achieved as high as 95% to 105% factory utilization or manufacturing utilizations. We estimate that during the Q3 and Q4, as Mr. Kamlesh Patel, the Chairman rightly said, we expect a robust demand in the next 2 quarters.Some of the points which we have in-house or internally discussed among the Board of members, which -- as a precursor, which we would like to stress across is: Reduction of debt through various means irrespective across several time spans; advertising spends to capture newer territories and virgin markets; focus on specific audience or target through B2B and B2C segments; export as an increasing trend, which we have already issued a press statement about a month back, where we intend to do in excess of INR 300-odd crores has already been highlighted; existing brand building exercise being reincorporated through various channel partners; inorganic and organic growth being explored at various stages of our manufacturing as well as other units; expense reductions in terms of various stages of production, be it raw materials, work in progress, finished goods. We are also able to reduce sustainable inventory levels at various levels in the Q2 as compared to in Q1.In terms of power as well as in terms of fuel, we were able to reduce the cost, as I earlier stated, by 14-odd percent. The Government of India has initiated a lower natural gas prices through which most of the industries are functioning, the net billing of which is yet to be seen in the Q3. So what we wanted to stress across is, the net profitability generated through savings in fuels would be translated in quarter 3.In terms of our DSOs, from Q2 to Q1, we have actually reduced our DSOs to less than 77-odd days as compared to 85 to 88-odd days in the previous quarter Y-o-Y. Customized or to acclimatize with new markets, we have introduced new ranges, new designs as well as new sizes as well as to adapt to the consumer preference, which has been one of our key drive point as well as key penetration markets, which are highlighted to get us better realization in terms of our sales.In our Sanitaryware division, we have also appointed 75% new channel partners as compared to the traditional methods of selling across tires with sanitaryware and marble and quartz. So we have added new channel partners to the extent of 75% odd and 25% from our existing businesses. In terms of our other verticals like quartz, we would like to state that our quartz business, which is -- we have recently commenced, we will be onstream in the second quarter of FY 2020. Now I leave the floor open to any questions. If at any -- okay, go ahead please.
Any of the questions related to finances, Mr. Himanshu Shah would reply or anything related to business, Mr. Kamlesh Patel, and I can reply. Please go ahead.
[Operator Instructions] We have the first question from the line of Prashant Kutty from Sundaram Mutual Fund.
So first question, just a bookkeeping. If you could just share the volume growth numbers for tiles? It's something which you usually share every time. Could you share that number?
Mr. Himanshu will convey all the numbers exiting.
Yes. During this quarter, we have done 7% volume growth on Y-o-Y basis in Q2. And correspondingly, if you see this 3.5% is the degrowth in the value growth. So technically, the NSR is being reduced by 10.5%. But more particularly in the tile segments, we have 15% to 16% value growth and 10% volume growth that we have achieved in the tiles sectors. So majorly, my growth is coming in the tiles sector in overall volume breakup.
Okay. So tiles has grown in volume by 10%.
10%, yes. True, true.
Okay. Okay. Sir, okay. Moving on to the second question. Sir, I just wanted to ask you, you highlighted that demand from Tier 2, Tier 3 has actually been helping us and you also highlighted that there has been an improvement in the retail as we. Could you kind of -- could you share us what is the share of retail at this point of time? And what is the share of Tier 2, Tier 3 versus Tier 1 business?
Today, the whole industry segment has changed from metros to Tier 2 and to 3 cities because of the several reasons during COVID period. The major reason was the availability of the labor and the funds also. So most of the micro cities could not start up their project during these 3 months, first quarter and second quarter. But at the same time, the semiurban areas, rural areas were working fantastically well because ample labor was available in that area. And budget housing was available -- budget housing financing was available in those areas.AGL has performed extremely good during this -- in Q2 and Q1 period in those areas. And our total sales has come almost around 60% plus-plus in those areas from noninstitution sales basically. So this is a fantastic contribution from these areas has come into our -- this area this time. And advantage was is that previously also, we were focused on this particular segment. We mainly were a company which was focusing on Tier 2, Tier 3 segment cities. And we had established network, a very strong network of touch base point there in those areas that has resulted very well to us and has given us a good, fantastic result during this time.
I'm sorry, I just kind of -- I think I got cut. But you said 60% of the growth is coming from noninstitutional sales growth you said, right?
60% of the sales, total sales has come up from these areas.
Okay. But what is the revenue share contribution of retail at this point of time?
Exact revenue share percentage, just 1 second, I can tell you. Today, we have grown up to 50% revenue share from the retail.
Okay. Okay. Revenue share of retail is 50% now?
Yes. We have grown to 50%, which was much lesser before, but we are growing continuously.
Okay. Okay.
Of course, from 39%, we have grown to 50% during this period, which is like fantastic growth, almost like 25% -- 20% growth we have on it.
Good. Great, great, great. Sir, second question is, so obviously, we saw you highlighted about that costs is something which you've tremendously focused upon, even your employee costs, be it your apparent sales cost, obviously, you've got the benefit of gas prices as well. But just looking at the other expense number and all of that, there's been a tremendous cut over there. I wanted to ask how much of these spends will kind of come back? What amount of the spend will come back? And what are the trends which are kind of going to be there?Also, I want to ask you is, from a gross margin perspective, while we've improved our gross margins from -- versus the previous quarter, but we are still well away from that 40% gross margin mark, which we used to deliver in the last -- we can say last year, before that year we were 41% -- 44%. What is the outlook on that? When do we intend to get back to that gross margin numbers of 40%? And can we -- on the margin, what are the costs that are not going to be sustained?
Yes. Prashant, as far as the GP margin is concerned, which is -- if you see the -- compare the figures over the last quarter or the last financial years, see, there is a marginal reduction in the GP, which was the efforts -- which were majorly the factories as I earlier shared is in the tiles sector, we are able to achieve the NSR to maintain or to some extent improvement in the NSR. But as far as the marble and quartz is concerned, which is a very premium product, which was not in high demand in this quarter, so which was this -- and this result is impacted, and that's why my GP margin is impacted due to these marble and quartz. But in the next quarter, we'll likely see very good improvement in these premium segments also in premium -- this marble and quartz.So definitely, we are confident that, including these tight sectors, the marble and quartz will be the highest contributing sectors in the GP. Prashant coming quarter would change a lot. There will be a turnaround, and I have seen that, experienced, the year also has experience in this particular quarter, Q2, that turnaround has started. The demand which was started from the mid-segment is turning around to the upper segment also.So I am very sure that in Q3 and Q4, you would see that this margin pressure would be released, and we will have upward margins in the coming time, plus also there is a contribution from the bottom line also will improve. The reason being that there is a cut in the fuel price. There is a cut in the cost of sales. These 2 together -- all together, like 3 factors, will give us a much better margins in coming quarters.And even in these outsourced business, we are still in this -- quarter 2 is a high margin in these outsourced products. So as and when the manufacturing the marble and quartz in in-house materials will improve in the third and fourth quarter, along with trading what is outsourced material, this margin will also improve.
Prashant, just in metro or Bombay, Delhi, Chennai Bangalore [Foreign Language]
Okay. Two more questions that I have to...
So all metros will start begin to work very soon, and some of them have already started. Labor migration have again returned back. So I think in the coming 2 quarters, you will see a different numbers altogether on gross margins.
Sir, 2 more questions, if I could ask. One is -- so I just want to take a clarification on the cost side. You said that obviously, most of the costs have been cut, but some costs will come back, like ad spend might come back, some bit of employee costs will also kind of come back. So are we still confident that we can do 11%, 12% kind of EBITDA margin number in the coming quarters?
Coming quarters would improve, definitely would improve. And some of the cost, as you very rightly said that, yes, it is going to come back. But in general, margins would improve because of several reasons, not only one. One is the product mix, as is our Kamlesh bhai just mentioned, that the product mix is going to be implemented in the next quarter, like the large slabs and everything will be there.Quartz is being added in the end of this year. So that would be another advantage to us. The cost has gone down because of the fuel also and because of the power cost also. So that is also another advantage plus the major change what has happened in AGL is that we have opted digitalization in a big way. So the cost of sales has gone down. And that definitely will add on at least 2% to 3% in this year.So in totality, if you see, we will definitely maintain our lead on this front.
Okay. Good to -- great to hear, sir. One last question for my end, sir, with regard to the resolution for fundraising. I just wanted to know whatever will be the utilization of the proceeds? And the resolution also stated something called as loans and guarantees to promoter entities. So if you could just kind of give us some clarity on that part in terms of what do you intend to do with the funds that you're looking to raise?
Yes, Prashant ji, good question. Yes, we have just made just a provisionary arrangement by passing these resolutions for the fundraising by the various sources. So we will just evaluate the situations as and when the opportunity will come, and we'll see when the fund will be utilized for the future growth and by any other this -- growth purposes. So right now, I can say that, it is one of the provisions that we have kept in our -- this coming Board -- these past Board meetings.
But how do you -- I mean, what is the intent -- reason for raising funds? If you could just highlight on that part, sir?
Prashant, we see a lot of opportunities in coming years because of 2 reasons. One, as I said earlier, also in the earlier conference also, the world -- the global dimensions are changing. The effect of China in ceramic market is continuously reducing. India is becoming a leader in ceramic market globally. So we see a lot of future opportunities coming domestically as well as internationally also. So the whole reason of the -- and the vision of the management was this that we should be prepared for taking up and absorbing any opportunity, which is coming up by acquiring companies, by expanding our network, by expanding our production capacity or doing some CapEx also and reducing sometimes some debts also spanned in future.So all this considering, we want to be very ready and we want to be updated for this purpose, and that is why this action has been taken.
[Operator Instructions] We have the next question from the line of Prashant Kutty from Sundram Mutual Fund.
Yes. Just one follow-up I had, sorry. Any plans on reducing the debt because we have about INR 320 crores of debt in our books? Any plans on that part that we are also looking at from a fundraising perspective?
Yes. Prashant ji, yes, definitely, we have just planned and we are also moving on debt reductions. This is also one of the options just to reduce our existing interest cost. Even I earlier said that, in my speech that, we have replaced existing debt also by the low cost of funding. And even at the standalone level, you can see that we have almost INR 750 crores, almost the numbers that we have reduced at a stand-alone working capital limits.Still in the moving side, as and when the free cash flow will be generated from -- by these internal cash accruals, our first target is to reduce the existing debt just to save my existing interest burden. So this will definitely happen.
Two numbers, which Prashant is very important, that the working capital cycle has been reduced by 8 days during this last 6 months. That is a very important figure. And another thing is that some high cost cut, maybe a small number, but we have already reduced working capital loan by the COVID loan. And we have -- we are saving almost around 1.5% in that also. So this action has already been taken, and management is quite serious to reduce the debt in future also in coming days also. So that can be also one of the opportunity in coming days for us.
Okay. Sure. And just one last one from my end. On the quartz part of the business, you said that quartz will get added by the end of the year. What are the targets for quartz as for the next year is concerned? And I believe that quartz is largely going to be export. Could you just kind of share what kind of numbers you're looking for quartz in the next year?
Next year, see, the quartz operation will start in the end of this year, like the last quarter of year 2020/'21. And next year estimated sales should be approximately INR 150 crores from the quartz segment. That is what we are targeting. And of course, yes, as you very rightly said that the large portion would be coming from the exports only.Could you hear, Prashant, my answer or...
Yes. I understand.
[Operator Instructions] We have the next question from the line of Palash Agarwal, an investor.
Sir, I want to ask again about marble and quartz business, you said that the demand for these products has been a little slow to come back, but you're expecting it to grow in the future. How quickly do you think marble and quartz business is going to grow back? And I -- is there some kind of like a pressure on the price on the prices of the raw material for quartz? From what I understand that there is a lot of competition for the prices of raw materials in the quartz business. Can you please throw some light on that?
I think Kamlesh bhai, our Chairman, would give some light on that.
[Foreign Language]
[Operator Instructions] We have the next question from the line of Himesh Satra from Sequent Investment.
Sir, can I have the dealer count at the end of the quarter? And how many dealers have we added during the quarter?
See the touch base point is still almost same. We have not changed anything much into it. So previously, we were having approximately 6,500 touch base points and we are maintaining that. So the positive part is that during this pandemic time also, we have not lost any touch base points, we are maintaining. And the physical travel is still very much restricted. So definitely, once in Q3 and Q4, physical travel starts moving on rapidly, then we will improve something more on this.
Okay. And sir, during the quarter 4 call, we had announced for Atmanirbhar plan in association with the government, where we will be focusing more in the rural areas. So how is the momentum going over there?
This was the plan of our Chairman, and he was very focused from the beginning that he wanted to do as a special activity from the company side to support the youth. And I would request Kamlesh bhai only to give you more detail on Atmanirbhar because it is very close to his heart. And he was passionately involved in this particular program, and he designed it completely how to do Atmanirbhar program and how to involve youth in rural areas and semiurban areas.
Just -- this is -- after corona, this is a digital marketing in particular area in rural area. And our product, our promising brand we utilized there. [Foreign Language]
So Maharashtra will start from FY '21 -- FY '22?
Right, right.
Right. Right.
Okay. So every year, we are going to go at once.
Right. This is a continuous process and digital marketing. And this is a soft digital. Each and every product, we introduced in a digital way.
See exactly, it was kind of a test marketing or test run in our home market in Gujrat and now since it has given a very positive result, so our Chairman feels that we should replicate it into many more states, not only just Maharashtra, we will do in a couple of more states also.
And main base is local to vocal. [Foreign Language]
Sir, this is the operator. The participant's line is disconnected. [Operator Instructions]
If there is no more questions, so we can close the call.
Sure, sir. I will just ask for one last time. [Operator Instructions] As we have no further questions from participants, I would like to hand the floor back to the management for closing comments. Please go ahead, sir.
First of all, warm greetings to you for hosting us and season's greetings and happy Diwali to all participants on behalf of Asian Granito management. I thank you all of you for being with us during this festive time and during this COVID time also. Thank you once again, and a warm greetings to all of you. Thank you very much.
Thank you.
Thank you.
Thank you.
Thank you, gentlemen.