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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 Q2 FY '23 Earnings Conference Call of Astral Limited hosted by Investec Capital Services. [Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Ritesh Shah, Head Mid-Market Coverage and ESG, Investec India. Thank you, and over to you, sir.
Thanks, Kevin. Welcome all for Astral's Q2 conference call. We have with us Mr. Sandeep Engineer, Chairman and Managing Director; Mr. Kairav Engineer, Head Business Development; and Mr. Hiranand Savlani, Chief Financial Officer.
Without much ado, I'll pass on the call to Sandeep bhai for the initial remarks, post which we can have a Q&A session. Over to you, sir. Thank you so much.
Thank you, everyone, for joining the Earnings call of Q2 and the First Half of this Fiscal. As you are all aware that the industry is passing through a very heavy turmoil of PVC price fluctuation, under which we have also passed. In last 6 months, PVC was down by almost INR 60-plus. And in Q2 alone, PVC was almost down by INR 30. Under such a heavy inventory loss, I'm very happy that Astral team has fairly done a great job, and we are a player in the industry, which has delivered a very healthy double-digit EBITDA growth.
Now let us discuss segment-wise business and what is being planned and what is being done. Pipe has been doing well and continues to do well. We have a marginal degrowth in this second quarter of 4% in volume. And this is because of the higher base effect of destocking by the channel.
I would also like to point out that we lost almost 6 days due to the merger of Astral Pipes and Resinova post NCLT order. Our data migration in the SAP system took some time and also the order -- the NCLT order came a little later than originally our system people and we had planned. Due to that, there was a disruption in business activity and it started a little late than originally planned. This was a one-time loss. And as you -- everyone know that, there is a great advantage with this merger, and we have already communicated the advantages, which the company in both these segments will get post the merger of Resinova and Astral, which is now merged with Astral, it is now in Astral Limited, the Adhesives division as well as the Pipes division.
The margins have been better in spite the loss in the PVC inventory and rupee depreciation. If you remove the effect of PVC inventory loss, we are very much -- we have a very healthy margin as usual as we have always delivered. We already, in our concall, has communicated that the PVC loss will also continue in the Q2, and we had already given this guidance of the loss in PVC for Q2, and which is one of the reasons for the decrease in the EBITDA margins. But the demand scenario in the market is very healthy. There is a very low inventory in the system. The stocks carried by the distributor and dealer are at the minimal level. And so there is going to be a good demand in the second half of this fiscal. The real estate demand is also on the rise. Because of the low polymer price, there is going to be healthy digit -- healthy growth in volumes, and we would deliver a high double-digit growth in the whole of this fiscal and the H2 will give us a high double-digit growth in the volume, which are -- which we are very much sure of.
Our tank production has been rolled out from the East plant, and it's fully operational. The tank production is fully operational, and we are serving the East market with water tanks.
Even the PVC products, which we are in, have been started -- have started manufacturing and is started selling from our East plant, and we are gearing up the utilization of East plant. And by Q2 -- or Q3 and Q4, the East plant will be fully operational with all our product lines and selling to the East market. So we are very much in line what we have communicated about our East plant, and it's start-up, it's product lines and sales in this fiscal.
We have launched our new product line of valves. The sale has commenced from Q2 a little late, we got some sale in Q2. But Q3, we are expecting to ramp it up and we should get a full advantage of its revenue from Q4 onwards. So, our valve manufacturing facility is up and running for both the plumbing valves as well as the industrial valves.
Now coming to the Adhesive business. The business has grown reasonably good under the market situation. We have continued our growth in the segment. And this year, we are expecting that we will keep growing at a high double-digit number in our adhesives. Margins were under pressure due to higher raw material costs and due to higher raw material cost inventory. The costs have started pulling off and we see full benefit in Q3 and Q4 on both the margin improvement and further growth in the segment in the higher double-digit number. We are happy to share that recently, we have launched our White Glue, which we are already there, but we have launched under our flagship brand Bondtite. And we will penetrate with this Bondtite under the Bondtite umbrella, the complete range of white glue to the different geographies of our country, and we expect that there will be a fast growth in the white glue segment under the flagship brand of Bondtite. Our new Adhesives plant would be ready and would be operational by March '23, that is the Q4 at Dahej and a state-of-the-art plant is coming up, which will not only increase the capacity, but it is a plant with high level of production efficiency as well as safety.
Coming to the Water Tank business, which I would like to again communicate is that we are going very much in the guidance given by us on the same number, and we would be crossing INR 100 crores of sales in water tank by this -- end of this fiscal. There is also a lot of balancing activities going on in different plants of pipes and adhesives to increase the capacity and to see that we match up with the growth of the second half as well as the coming years. On Faucets and Sanitary business, we are progressing very well. And since we are coming with a different strategy, so it is taking some more time than normally would be at Astral and we have planned in this new business.
We have made it compulsory that without a showroom display, we will not appoint a distributor or a dealer. And with the showroom display, the sale numbers will be coming faster than what we can go through the channel. So the showroom displays have started being made up. There are 34 showroom display circles, which are now already ready as a display center and the sale from there has already been started. 97 more showroom display centers work is in progress, and we are expecting to complete it within the next 1 or 2 months.
We are also expecting minimum 500 showroom display centers will be operational by the fiscal year end, and they will be operational in selling the product line to the market. So the sale has started rolling, the complete range of production has been done. We have completed the range of products to be made by -- in the faucet segment as well as the sanitary wear segment. So we are very much in line with our plans as well as the product line and the selling strategy is also being enrolled in the best way. And in short time, everyone will see Astral's sanitaryware and faucets products through India through a display at different showrooms.
In Paints, we have communicated that the present management is taking care of the operational activities. Once our team is fully functional, we would be taking multiple decisions. We would be opening the market for pan-India basis, we will be working on rebranding our brand under Astral network and logos, and we would be also launching it with a very different strategies to see that we cover up the major markets of India.
At present, for certain segments in the paints, we have already started moving in. The finances all now within our team is handling. We have also started taking over the technical part of the production, the QCs, the R&Ds are directly being monitored by our teams. And so by strategic moves, we would be by March ending to get into the complete understanding of the business and details of the business. and roll out our strategies of this new business from the next fiscal from Q3 onwards. Due to the heavy rainfalls, which happened in through India, but especially in the South, there were some effect on the sale of paints, but still, the paints business has grown by 29% in the last fiscal and a healthy EBITDA of 17% -- and at a healthy EBITDA of 17% plus.
Overall, the business is going smooth in line with our philosophy of consistent growth and healthy margin. Again, I'm reemphasizing, a healthy margin is very important with a consistent growth. Growth with very minimal margins is not what we would like to think of.
Now, I hand over to Mr. Hiranand bhai, our CFO, for his view on the business environment, then we'll open the floor for question and answers. Thank you very much.
Thank you, everyone, for joining this earnings call for quarter 2. Thanks, Ritesh, for organizing and hosting this concall.
As Sandeep bhai has rightly said that the quarter was heavily loaded with the continuous fall in PVC price. But as rightly said, in spite of these difficult circumstances, as communicated in past, our company always believe in sustainable growth and reasonable margin. This, you can see very well in this quarter also. In spite of huge challenges, we were able to deliver a very, very healthy margin. Perhaps it may be the highest margin in the industry.
I just want to highlight a few key numbers because press release is with you and the numbers are with you. So I don't want to take much time into that side, but I want to only highlight a few numbers. So the overall consolidated top line were degrown by 2.4% in this quarter. And but on a half yearly basis, we were up by almost 25%, 26%.
Similarly, if you see the individual performance of this plumbing business, plumbing business were degrown by 10% mainly because of the PVC fall sizable inventory losses were there. So top line was eroded because of PVC fall. And at the same time, this adhesive and the paint business has grown by almost 27% in this quarter. And on a half yearly basis, it was around 46%. EBITDA level performance, I think pipes has delivered this quarter 13.4%. On a half yearly basis, it is 14.2%. And the paint and adhesive business EBITDA was around 13.4% in this quarter and half yearly, this was 14.4%. Now our key focus will be how to do the things in the right way execution so that our new businesses contribution start moving very fast. As communicated earlier, our cost priority is whatever we have guided to deliver that things. So we will be focusing on the tank business, which is our new business for us, and we are going as per our I think guided line, close to about INR 7 crore, INR 8 crore run rate is going on for the tank. So I think we are maintaining that INR 100 crores guidance and normally tank business is better in the second half because monsoon season will be over so the sales will start picking up. So we are as per our guidance, going on very well.
Similarly, in valve business, we have already communicated that we have rolled out certain valve, but that was a very, very small SKUs, which was rolled out. So we have rolled out only 12 SKUs so far in the valve business, but in this quarter, we are targeting to roll out another 108 SKUs of valve -- 108 SKUs of valve in this quarter so that the total tally of our new valve launches will be 120 SKUs. And that all are value added products. So from there, you can understand that it is going to help us to improve our margins also. Our flagship product from where our expectations are very high, that is the sanitaryware and faucets. And you all know, and we have already mentioned in the press release also and Sandeep bhai also communicated. I am again reiterating that number. Already 34 showrooms are ready. You can visit Gujarat, Maharashtra and you can say Delhi. So 34 showrooms are there and 97 showrooms work is going on. So they are, some are almost in the verge of finishing, some are half finishing and somewhere some work has started. Almost 97 showrooms work is going on. And our team is quite confident that before March end, we will be ready with 500 such showrooms. Because it's a new concept because we are not going to sell this product on the counter. So this will be completely of showroom concept so that the brand visibility will be there and at the same time, dealers and distributors focus will be there on the brand Astral. So this 500 showrooms will be ready, and we are expecting that the number will start flowing up from the next year onwards. This year, definitely some numbers will be there, but the sizable number flow will come from the Q1 onward.
Another good thing of this sanitaryware and faucets is that we are coming with a full range. So we are going to take care of everyone. So it will be a high-end range also, mid-range will -- upper mid range will be there, mid-range will be there and the lower end range will be there. So all 4 categories of range. So we are going to cater all the categories of the customer. So it is not only restricted to only high-end customer. So we are going to take care of every categories of customer.
As of today, we have -- we are ready with 136 SKUs in sanitaryware and 411 SKUs in faucets. So you can understand the kind of range we are bringing into the market. It is not a small range, 136 SKUs in sanitaryware and 411 SKUs into the faucets.
Our core focus will be on the retail, but definitely, Astral is a very, very strong brand in the -- this project business. So we will be equally focusing on the project business. And I'm very happy and proudly say that our team has done a very good job. And so far, still we have just launched -- and our team has got a purchase order, confirmed purchase order of 820 bathrooms in Mumbai in 3 projects. Gujarat, they have got 950 bathrooms order in 7 projects and 105 bathroom projects in Pune. So you can understand just the kind of confidence the developer is putting on the new brand -- in a new category of brand like Astral. So we are very, very happy with the initial. But again, I'm repeating that number, real number which we -- everyone wants to see and even our team want to see that will flow from the next year. This is just the beginning. But from next year onwards, we are expecting the number will be a reasonably good number.
Secondly, we have come up with a completely different design in the market. We have not copied any of the players design and full back up service support. It is not only the product sale, we are going to give equally the good services to our customers.
We are going to sell our product only through dealers showrooms as I said earlier. So there will be not at all a counter sale. So we are very categorically clear, this is the aesthetic value product, and we want to create a brand image of Astral. So it will be only through a display center. So we are not going to sell this product to each and every one.
Most of you must have seen our Ahmedabad gallery by now. And if you are not able to see you are most welcome to see our Ahmedabad gallery for sanitaryware and faucets. And even if you are not able to see, I'm quite confident, we are going to create 500 such showrooms shortly by March. So you will be seeing in your city itself. So no need to travel to Ahmedabad also, you can see in your city itself.
Paint, Sandeep bhai has already said that our team have already started interacting with the existing team whether it is a finance team, whether it is HR, purchase, plant, all teams are getting integrated, and we have already started working for this implementation of SAP. And once everything will be ready, then we will come up with our plan for the growth and how we are going to launch this product under the brand Astral in different parts of -- different geographies of the country.
Bondtite, we are now promoting as our flagship brand in adhesive category. Recently, we have launched Bondtite Quick, that is an instant joint [indiscernible] INR 5 rupee product, and it's working very well in the market. And this month, we have launched Bondtite White Glue, that is the PVA. So now we are trying to bring our Bondtite as a flagship brand in the market in adhesive category from Astral. And we want to see that people can be connected with the Bondtite brand rather than individual different, different brand names, we want to connect with the one brand and that is a Bondtite.
Last but not least, business sentiment is very good bearing volatility of the raw material price. Within that, also, most of the cases we are seeing that the prices are on the southward and which will not only improve the volumes, but margins in the coming quarters, and we are confident and we are [standby] with doubling our revenue in 5 years guidance, which we hope communicated in our FY '21 presentation. And I'm very happy to say that we are moving much, much ahead than what we have guided in our guidance in FY '21, which was the first time guidance Astral has given for the next 5 years. Now coming to the specific Q number. I'm sure you must be interested in that. So sanitaryware and faucets revenue was not bad, but we have spent close to about INR 9 crores to INR 10 crores in the first half. So that expenses are loaded on this EBITDA. So that's why to that extent, EBITDA is low. Advertising and promotional activity was also loaded in the first half, and we have spent additional INR 20 crores for branding and promotional activity that was mainly because of the, we were not able to do the meets with the dealers, plumbers and all this thing in the past couple of years because of this Corona. Now we have started aggressively to do this thing. So we are spending more money. So we have spent additional INR 20 crores in this half.
And also, we have signed Mr. Allu Arjun, sir. So there also, we have done the signing activity plus we have completed the shooting and now we already released the ad also and the dealer boards and also -- there also we are spending.
After 2 years, we took all our distributor to the U.K. trip. In the last 2 years, because of corona, we were not able to take them to the overseas travel. But this year because 2 years we have saved a lot of money, so this year, we spent a little extra money and taken them to the far destination. Normally, we do nearby destinations, but this time we have kept it to the U.K. So that spend is also there. Plus, our Goa Meet was there for dealers and launch of this sanitaryware and faucets.
And similarly, Ranveer Singh's ad was ready, but we were not able to release last year. So this year, we have released the Ranveer Singh ad also. So all this costed us additional INR 20 crores than the normal spend, which we are doing. So last year, it was INR 33 crores. This year, we have spent INR 52 crore for this all spend. So additional INR 20 crores we have spend this year.
Another hit of which last quarter also, we communicated to all of you that every quarter, INR 7 crore we are writing off by way of amortization because of the merger -- because of the consolidation of Gem Paints because of this, you can say, the amortization of all this distribution cost and all this thing. So that INR 7 crores every quarter. So in 2 quarters last years write-off clost to about INR 14 crores and this will continue for another 7 years.
Our ForEx loss was to the tune of close to about INR 20 crore. And I think INR 15 crore is M2M loss. And if the rupee will appreciate, to that extent, we may be able to but it is a conservative policy and as per the accounting guidelines, we have to do the provisioning. So we have done the provisioning of this INR 20 crore.
And with this, I think I'm ending my initial remarks and opening up the floor for the Q&A session. Over to you, Ritesh.
[Operator Instructions] The first question is from the line of Sujit Jain from ASK.
Sandeep bhai and Hiranand bhai, my compliments on a good set of numbers. What would be our H1 CPVC volume growth?
I think volume growth, we don't share separately for the PVC and CPVC but it was a very high growth, I can say.
So would we have gained market share there in CPVC.
Yes, we have gained market share, and the growth is much better and which is obviously reflected in our overall margins improvement. And our focus had been on both selling and growing in CPVC in a very high -- in a better way, gaining market share as well as growing more in our PVC portfolio for plumbing and construction industry because the volume raised with the PVC falling was heavy in the competitor arena in the market. So selling more PVC on the lower front in the markets like agriculture or other segments would always be impactable on losses and which we had carefully feel that we don't want to grain money out in both ways by way of volume or value loss because of the stocks which we carried in PVC. And we had to take that hit. And even if we take the hit by selling the lower end of the product line with low margins would have been more affected in the overall scenario. So that's how things are.
And would we have cleared most of the high-cost inventory during the quarter?
I think PVC, some inventory will be there because PVC still continuous fall is there. So we cannot say that the complete 100% we have clean up because after September also prices are falling. So some loss of inventory may come -- definitely will come rather than may come. It will come in Q3 also, but the velocity will be very low because the kind of loss which we have seen in last 2 quarters that was almost INR 60, INR 62, that much will not be there, but very, very difficult to predict the polymer cycle. And every time we are feeling that now it is going to be a bottom, but it is not happening like that because there are so many reasons. Earlier, the Chinese dumping was there. Now Chinese threat has gone away. Now the U.S. dumping is coming. Somebody is telling that caustic soda people are making more money. That's why they are selling PVC cheap. So there are so many things that are moving in this market.
And you all know that very, very difficult to predict how the globe is behaving. So whether this is bottom or not, I think I'm not the right person to tell you. But yes, it looks that now near term, somewhere maybe another 5%, 7% drop may be there but ultimately somewhere bottom will be there because in dollar terms, we are already bottom up. Compared to the pre-COVID, also we are low. So rupee depreciation is also there. So we have to see that how long this fall will continue. Even last couple of days before also, Reliance has dropped INR 3 price. So very, very difficult to predict what is happening at the globe level. But it looks like that sooner or later, the bottom will be [formed].
Sure. And one last question. If you can quantify quickly Resinova sales and EBIT for the quarter and Gem Paints sales and EBIT?
So I think Gem was roughly about 19% EBITDA this quarter and half yearly, it was around 17%. And Adhesives as a basket, I don't have that other number with me. You can call me separately. I don't have a handy number with me right now. But it was around, I think... Resinova and U.K. was around 13% kind of levels.
Sir, I'll come back to you on this. And are the problems in U.K. resolved in Resinova business. That will be my last question.
Which problem of U.K., there is no problem -- there is no problem.
About the capacity issues in the U.K.
Last time, we said, yes, that we have sorted out, and we are going to put a few crore rupees of expansion work over there. So that will be sorted out. And this time, we lost top line of U.K. mainly because rupee appreciated versus the pound. Normally, it is other way around. Against dollar, we are depreciating. But again, pound we have appreciated. So because of that, we have lost 8% top line of our adhesive business. Adhesive business is -- still it is better, I can say. But if this 8% loss could not have been done, then we could have done even a better number. But the currency is beyond anybody's control. So very, very difficult to predict currency. So that is also one of the reasons that our top line was affected in adhesive business.
The next question is from the line of Sonali Salgaonkar from Jefferies.
This is Sonali. Sir, my first question is regarding your new products move from the strategic point of view. What is the kind of distribution overlap that you foresee of the new products with your present pipes or tanks business? And secondly, what is the kind of ad spend that you think you will need to spend over the next 2, 3 years, either you can say in absolute terms or in terms of percentage of sales, for strengthening your brand in these new products?
I think pure spend, we are going to spend around 2%, 2.5% only. This promotional and all depend on quarter-on-quarter basis, but purely spend wise, we are not going to spend more than 2% to 2.5%. Actually, Sonali, we -- the total expenditure will remain the same. We will just keep on changing the amounts between the different verticals. So if we feel like we don't need to pump in some money after the piping business for a quarter, we can divert that fund towards the sanitaryware or the faucets business or from adhesive to the paints business like that. But the overall ad expenditure will remain in line with what we have been doing since the last 10 odd years.
Understood. Sir, where do you foresee -- which segment do you foresee that you have to invest the most in recreating a new distribution channel?
Can you repeat the question, Sonali?
Sir, amongst your new product segments, which segment do you foresee that you need to spend the maximum for creating a new distribution channel? And where do you think you can capitalize on your existing product distribution channel?
So both the new businesses are somewhat complementary to each other, like sanitaryware and faucets is a 70% -- 65% to 70% overlap with the piping business because about 65% to 70% of our channel already does that product. And when you look at the paints and the adhesive business, again, there is a major channel overlap between the two. So basically, we need to utilize the channel for the existing channels for the new businesses. And wherever whichever geographies, our channels are weak or not present, those geographies and those areas we will have to work upon. So there is a significant overlap in both the businesses. So -- as such, we don't see a major challenge in developing any sort of channels or markets for these products.
Understood. Sir, my second question is regarding the CapEx. What kind of CapEx do you foresee in the near term now that you have launched these new segments? And are you outsourcing presently outsourcing the production of all these new verticals?
So like sanitaryware, we are outsourcing. Faucets, we already invested in a unit in Jamnagar -- so now we have started manufacturing over there. And some part, we are outsourcing also. So I think CapEx side, there will not be a sizable CapEx, except whatever the left out CapEx is there, maybe Resinova plant is going on for Dahej or maybe in east plant some machines are still pending to come. So this existing with whatever we have guided INR 200 crores to INR 250 crores this year. And post that, we don't see a sizable CapEx in there except maintenance CapEx and maybe some new product addition will be there. So to that extent, CapEx will be there, but the sizable CapEx, I think we have completed. Paint also, we are having enough capacity with us. So no need to spend much money on the paint side also. Adhesive will be completed by this February or so. I don't think there's anywhere sizeable CapEx is needed post all this completion this year.
Got it. Sir, my last question is, is it possible to quantify the inventory loss because of PVC this quarter? And also what were the pricing trends in CPVC for Q2 and any price revision that you foresee in Q3?
So like we communicated in the first half, we have lost close to about INR 70 crores. But again, I'm repeating this may not be a perfect number. That is the best judgment basis we have arrived with this number because it is very, very difficult to arrive exact inventory loss number. But on a best judgment basis, we have worked out roughly about INR 70 crores we have lost in the first half. And now future, we see some loss may come in this Q3 also for PVC because PVC is still falling. As far as CPVC is concerned, I think because of antidumping duty, we don't see a sizable drop. But yes, some drop may come if the international markets and supply easiness comes -- and then in that case, some easiness may come into the price. But right now, because of the limited supply at the international level and local supply is still gearing up. So then some correction may happen, but it will not be a sizable correction because of the anti-dumping duty.
So on YTD, has CPVC corrected at all or stayed stable?
Till September, no correction, definitely no correction.
The next question is from the line of, Dheeresh Pathak from White-Oak Capital.
This 500 display outlets that you'll have for bathware, what is the spend that the dealer partner has to do on an average per store? And is there something that you are also investing per store?
We are not investing anything in the stores.
So I'll give some clarity on that. Basically, there is an agreement with whoever who say a retailer wants to do an at Astral display store, we have a sort of a clarity with them as to how much investment they need to make to become our channel partner. And from our end, we are not giving them anything. It's a total cost borne by the retailer because he wants to join with the brand.
So what is that on an average, obviously, it depends upon the size...
Depends on the size of the store and how much area he wants to give to our product line. So it can go from anywhere from INR 25,000, INR 30,000 display to INR 1 lakh, INR 1.5 lakh display, depending on the location of his store, how much area he wants to give to us.
So these are not exclusive outlets. These are...
Yes, there will be multi-brand outlets. Exclusive outlets are there with wherever our distributors are there. They will have exclusive outlets, but at the retail level, obviously, there will be multiple brands in that outlet. There would be mix of exclusive as well as the multi brand.
So now coming to your question, this outlet can sell any number between you can say 10 lakhs to as high as INR 3 crores number. It depends on the size of the outlet and how connect he is with the developer and the retail channels and all this. It depends on all this particularly.
So when you said 60% overlap, obviously, for pipes, you don't need such kind of display centers as per my understanding. So when you say 60% overlap, you mean the person in his family, he's doing this for you. He's also doing the pipes business for you, right? Like that you meant the overlap.
Yes, that is also possible. Father is doing pipes, son he can put it in bathware.
Even the father-son forget. He may be a distributor, he will do pipe also and this also, both. He has to create a display center only, and then only he can sell.
Understood, sir. But I'm just trying to understand, when you say 60% overlap, does it mean that 60% of your 5 people already have some kind of a display center. I think you are adding your brand to their already existing display center.
It is multiple. Some have associations, some don't have. It is very -- it is always there in this period. Some people are in faucets and sanitaryware. But overall, if you see the by channel, we have a great advantage because very few people do both. Most of the people are doing pipes and they are putting separate, very exclusive showrooms for the display center for our sanitaryware and faucets.
So I can add what Sandeep bhai has said that 60% of our retail counter, okay, retail counters were selling the pipe. They are selling sanitaryware and faucets of any other brand. It may be a local brand, it can be a branded product, it can be any other. But they are selling sanitaryware and faucets. So that is how we have worked out. So this 500 number, which we are giving you this is very, very miniscule number, considering the size of dealer and distribution network today, Astral is having. Today, we are having a 40,000 kind of counter with us. So this 500 is a very, very still a miniscule number. But because we want to go in a phased manner, that's why we are starting with 500, but this number will grow in coming time, very, very fast growth because our existing dealer distributor itself will be sizable in this business.
Understood. Sir, one last question this valves and tank that is included in the plumbing -- so do you -- are you giving separately the revenue for the tank and the valves for the quarter?
No, we don't give separately, but we have communicated that we are running INR 7 crore kind of run rate, in this INR 7 crore, INR 8 crore run rate with the tank. And valves, we are still launched, I say that close to about 12 SKUs we have launched. And now we are going to launch 108 SKUs, so total 120 SKUs, we will not be going to give this individual number in the coming time.
The next question is from the line of Rahul Agarwal from Incred Capital.
Congratulations, sir, for our decent sets given the turmoil in the industry in the last quarter. Sir, firstly, obviously, you have mentioned that second half growth looks better because PVC is right now almost coming to pre-COVID on dollar terms. Could I understand, sir, how do you see next year in terms of volume growth? My imagination tells you that of the 15%, 16% Y-o-Y volume growth is not impossible at all. Obviously, CPVC has not changed much, but PVC surprised positively. So that's my first question, if you could help me understand what you think about volume growth next year for pipes business?
Yes, yes, we can do easily 15%. Easily, we can do 15%. Don't worry.
Not worrying,sir. What I'm saying is what's the range like? Could it be like 20%?
Because you see the -- what are the trigger points in the economy. You have to understand that also, that PVC is at all-time low. We are going to close to about that kind of level of after 2, 3 years, this $700 kind of PVC price in the international market is there. So at this price, I think everyone is comfortable as far as the pricing is concerned. So definitely, that volume will support next year. This year, second half definitely will be good but next year will be better. Secondly, real estate scenario has improved a lot. I'm sure you must have seen across all the country level, the Sunday newspaper is loaded full page ad with the new launches. So all these things are indicating that the construction industry doing reasonably good in the country. And now if this commodity price will start falling, then it is going to support further to the industry. So we are confident that even this year also, if you see the first 6 months also, our growth is there. It is not that our growth in that. Even in the volume terms also, if you see, we are still better off. So we are 15% plus in volume also in the first half. And in fact, in my press release, we have also given the last figures of 4-year CAGR growth also. That in this difficult turmoil time if we can grow double digits. Now if the good time will come growing 15% should not be the challenge. Unless something was abnormally wrong in the economy, then I think we will be helpless. Otherwise, I don't see any challenge into that.
Got it, sir. Sir, secondly,.
We are missing one thing here that our east plant will be fully operational by year-end. So that is also going to support us in volume next year.
Got that, sir. Sir, secondly on adhesive, we are doing about INR 330 crores run rate per quarter. Broadly, you're talking about INR 1,400 crores for the year. Anything you could guide us on growth next year and margins coming back to 15%, 16%? Is it possible next year?
Yes, it looks like because the way chemical prices have started falling, it looks that 15% margin should not be the challenge next year. As far as the growth is concerned, I think you can safely predict 15%-plus growth next year also on a higher base also.
Got it, sir. And last question on bathware, I understand a lot of showrooms come up into second half, but any sense on any revenue targets, you've talked about INR 500 crores, I think, going into next 3, 4 years. But any sense or anything on EBITDA would you like to say?
I think initially, EBITDA will be low because spend will be more and the economy of scale will not be there. But going forward, I think whatever the industry average is there, we will be trying to maintain that 15% kind of run rate. 15%, 16%, what is the industry average is there, we will be maintaining that.
On the revenue, sir, for bathware.
I think it's too early, let costs to be complete this year because it all depends how fast and how quick the showrooms construction work is happening. If that will happen fast, we can grow fast. So we have to see how our team is executing the showroom construction part, it all depends on that. So right now, the progress is good. Numbers we already published. So -- but keep finger crossed, we have to wait till March. And then by year-end, we will be in a much, much better position to guide that now, okay, now this went 500 or 600 or whatever number is ready. So now minimum this much revenue will be there. So give us 1 or 2 quarters, we will -- by next year, I think in the analyst meet, we will come up with the guidance also.
The next question is from the line of Nitin Jain from Fairview Investment.
And congratulations to the management on a decent set of numbers in the given circumstances. So my questions are in the piping business. So despite the PVC drop, some of your peers have seen a decent volume growth in Q2, while Astral's volumes have dropped about 4%. So can you throw some light here as to why we have lost the market share?
So it is not that we have lost the market share. There were a few reasons we had that. One, we already communicated that 6 days of September, we lost mainly because of the integration of the data, okay? So that was one of the reasons. Secondly, you would also see that last 2, 3 years, we were continuously growing while the others were not growing. So our base was very high. Thirdly, whatever the competitor have grown up, if you check that number, the major chunk is coming from the agri, whereas Astral is very, very low presence in the agri business. So agri, it's selling raw material plus INR 4 or raw material of plus INR 5 kind of business. There fetching the volume is very easy. Plumbing is I can say you can say as a steady set of business. There, you can't see the abnormal kind of number. Agri, even if in a particular quarter, doing 100 MT to 200 MT more, it's very easy because it's selling at a very, very commodity price raw material plus INR 5.
So that is the reason that you are seeing that few of our competitors are giving the higher volume because last 2 years, that base was low because agri sale was very low. Now agri has started picking up. That's why you can see their margins also. If the volume high is there, then their margin should be much, much better than us also if the volumes are high. But that is not the case, but that is mainly volumes are high because of the agri business.
Okay. That makes sense. So just a follow-up on the piping business, sir. So as per management guidance, like CPVC is about 50% of our pricing business volumes, where prices have remained stable in the first half. So despite that, we see a decent amount of margin decline. So has the CPVC contribution gone down this quarter? How should we read?
No, no, no. I think your understanding is not right, sir. CPVC volume is not 50%. Value might be 45%, 50%. Volume is not 50%.
Yes, that's what I meant, sir. Contribution is 50%.
So top line-wise, yes, 45% will be there from CPVC. But volume-wise, PVC will be high. And that's why you see -- if you remove this inventory losses, our margins are still much, much better. Our historical margins are in the range of 15%, 16%. This is because of the inventory gain in last couple of years, our margin went up to as high as the 20%, 21%. I think that's now correcting because of inventory losses, but our historical margins are 15%, 16% only.
So now we are always telling 15% to 17% is the broader range or maybe 16% to 17% will be the normal range in a normal circumstances, if inventory losses are not there. Even when we were delivering 20%, 21% margin. And in every commentary, we hope, communicated transparently to every investor that these are not a sustainable margin. You can go through our previous transcript also. In every concall, we have guided that these are the abnormal margin and there is a sizable element of inventory gain into that. That's why it is there. But it's not that today, we are telling, even we have communicated this thing in past concalls also.
And in the opening remark also, our CFO has communicated that there are certain expenses which have been loaded of the new businesses, which have not been come into rolling of the sales of the division created for faucets and sanitaryware and he has given that number also. And certain expenses were loaded in the first half for the branding as well as various activities taken up after the liberalization of COVID on dealer distributor reach and even a trip was organized for our key distributors performance from which we took them to a foreign destination. And these are the expenses, which have been loaded have been also communicated in his opening remarks.
Okay. And sir, my last question is related to the paints business. You mentioned that you have seen a margin of around 19% this quarter. Am I right in the reading that or did I get it wrong?
Yes, yes, yes, correct.
Okay. Sir, this is unlike the industry trend, like the industry has seen margins fall, but your EBITDA margins have grown this quarter. What you are doing that you are seeing a margin bump and with the raw material costs coming down, do we see this going up further in H2?
No, no, no. These are the high margin also. We also agree, but because that companies are small, so a lot of expenditures are not there. Branding cost is not allocated over there. But once this Astral will be there, I think we will be more interested in the volume growth. And plus, we have to aid a lot of people over there and plus, we have to spend the money on the branding activity also. So there, it's a small size company. So all these costs are not loaded right now. So because of that, right now, it is a little higher margin. But these kind of margin on a long-term basis on a volume, it will not be sustainable. Normal margin rate will be around 14%, 15%.
The next question is from the line of Sandesh Barmecha from Haitong.
A couple of questions from my end. Sir, in Q1 call, we guided that we plan to spend around INR 200 crores for full year but we have already spent around INR 156 crores in this first half, sir. So what would be our revised guidance for FY '23?
We say said INR 200 crores to INR 250 crores revised because we have added this unit of faucet also. So that is added. So close to about INR 25 crores, INR 30 crores, we are going to spend there. Almost INR 25 crores, we already spent. So that was not originally planned, okay? So that was the one additional things over there. But otherwise, I think more or less, we are going into the line only what we have said.
So it will be around INR 250 crores, right, sir?
INR 200 crores to INR 250 crores.
Okay. Just a connecting question, sir. Our one of major CPVC competitor has recently commenced operation of a Greenfield unit in East and now plan to spend around INR 750 to INR 800 crores to open 2 more plants, Ggreenfield plants in South by FY '25. So in that scenario, sir, our competitor is likely to gain market share over the medium term. And as they are being more aggressive, and our cash flow is also getting diverted towards non-pipes business. So do we expect to lose market share, sir?
We don't have any problem of divergent of the cash flow after diverting cash flow still, we are sitting INR 450 crores of cash. I don't think we will shy away if anything is required to spend, we will definitely spend and we will see that our market share is maintained. So we will be also equally aggressive because our plant is now ready in East.
We already have our provision in Telangana, if need be we can start construction immediately. so Telangana -- Hosur also, we have the provision to expand our facility. Plus we have a facility in Bhubaneshwar. Plus our warehouses are there across the South market in Vijaywada, Hyderabad Coimbatore, Hosur. So I think we are very well covered in that way. And that is also one of the reason why we have taken a certain celebrity to bolster our image in the South market because we know it's a big market for CPVC, and we have to continue working on our brand in that market. So we are taking adequate steps with regards to your question.
Yes, sir, definitely. One more question, sir. Sir, reported segment EBITDA mentioned in press release includes other income. So if we were to exclude it, it appears that our paint and adhesive segment EBITDA margins have come down sharply quarter-on-quarter basis from 15.6% in June quarter to 10.6% in September. So what is the reason for the same, sir?
I think I have to check the number. You can call me separately. We will discuss individual number. I don't have ready that individual numbers.
No problem, sir. So just last question on my end, sir. Sir, you said 19% EBITDA for our Gem's business, but what is the revenue for this quarter, sir?
It was around -- revenue was around this quarter was INR 50 crores or something, yes INR 50 crores.
The next question is from the line of Sneha Talreja from Edelweiss.
Just want to understand a couple of things from the management here, especially with regards to demand, we have seen a lot of building material categories [indiscernible] and you're speaking about muted demand, whereas we are showing a lot of optimism. Since we're dealing with both retail as well as project segment, could you tell us where is the most excitement coming from? Is it from the projects end? Or is it from the retail that you are generally seeing good amount of demand?
So I think retail is still doing better. Projects were still slow, but I think now started picking up. So in the coming time, we are expecting that the project business will also start picking up fast. And that is why we are of the view that we will be able to maintain our growth run rate.
Okay. Any regional flavor can we get it from you? Like is it more stronger in rural areas? Or is it more in urban Tier 1, Tier 2 cities? Where is the optimism coming from?
Very difficult. Every state has different issues. So like South now, it was fully loaded with the rain. So some problems were coming from the South. Now North is having some problems of construction activities and all. So every quarter, every state, every geography has a different problem. So I think it is very, very difficult to say. So all of a sudden, some pent-up demand comes and you will also sometimes surprised that what happened that all of a sudden demand came. And at the same time, all of a sudden, something goes wrong and the demand goes away also. I think a lot of unevenness is there in the system. So very, very difficult to say what is that. But I think urban is still doing much better than the rural.
Sure, got that sir. Secondly, what I wanted to understand was on the CPVC side, we have seen most of the players reporting double-digit sort of volume growth and very strong double digits. So basically, I wanted to understand, is there a market growth rate? Or could you tell us who is exactly losing market share? Is something happening to the smaller players there because of which we all are gaining market share?
I think major chunk is with the big 4 only. So smaller players are anyway having lower share. So very, very difficult to say what somebody is telling because nobody is giving the number. So very, very difficult to arrive what is happening in the market. But on margin, it is very difficult to understand if everyone is gaining so much of the market share, then why they are reporting losses. So very, very difficult to understand what is happening in the market. So we can tell you about our side, we cannot comment on what others are telling. So very, very difficult to understand what everybody is telling.
Sure. Even we must be in the double-digit volume growth for CPVC versus PVC, some sense?
Yes, yes. Definitely.
The next question is from the line Abhishek Ghosh from DSP.
Sir, two questions. If I look at your inventory, absolute inventory has increased on a first half basis. while the absolute PVC prices have dropped. So have you kind of built up inventory, expecting better volume? Or is it related to any other segment -- any color here will be helpful.
Yes, if you see the history, normally, the first half is around 40%, 45% of the volume. Second half is around 60% kind of volume, 55% to 60% kind of volume. So not naturally, you have to create some extra inventory for that. Secondly, CPVC availability was the challenge in the past, and we have lost some sales because of that in past, not now this quarter, but in past -- so we were also sitting with a lean inventory. But now availability has improved. So because of that, we have also increased this because ultimately, we are also dependent on demand. So we have to keep certain inventory.
Third thing we have added the sanitaryware and faucets inventory also because that sale has now started. So that inventory is also there into the overall inventory because you have to create the inventory first and then only you can start fit in the market. So that is also there. And plus, you can see that Gem Paint inventory is also added. Because last year number, the paint inventory was not there in our consol number, while this year paints inventory is also there. If you ask me the number of days, I think compared to last year, it was 65, 66 days. This year also we have maintained the same number of this. So I don't see any much rise in there into the inventory. But yes, absolute level because of this sanitaryware and faucets, paints and a little bit higher inventory of CPVC, yes, absolute number is high.
Okay. That is very helpful. Sir, you also mentioned in your opening remarks that the channel is sitting on a lean inventory. If you can help us broadly understand from an average whatever days, the channel usually sits on an inventory vis-a-vis currently, what would be that very broad sense would be helpful.
I think, say, for example, if some distributors sitting with on an average 4-week inventory, now they might be sitting with 1-week inventory.
Okay. Got that. And sir, the last thing is we have seen every other company reporting such huge losses because of inventory -- so if you can help us with your thoughts that what happens to the unorganized or the semi-branded players because you all have a very strong balance sheet and profitability to kind of support. But -- how does it work in past cycles? I know these drops are unprecedented, but anything to take away from the competitive scenario at least from the unorganized or unbranded? Any thoughts, sir?
I think unorganized is definitely going to suffer a lot because they don't have that kind of strength. And that's why you can see a smaller side -- listed companies also when they are publishing their number, they are reporting heavy losses. And their balance sheet may not be able to support them for a longer period. Still Q3 will be loaded with the losses. Particularly, we will be still with the miniscule loss in the Q3 because we are more dependent on the local material because our almost 85%, 90% requirement is from Reliance or maybe Chemplast and Morgan and all these players, but companies who are importing 50%, 50%, 60%, 60% or maybe some companies are reporting 70% PVC. And these companies will suffer a big losses in Q3 also because normally, 3-month pipeline will be there in the sea, material will be either in the sea or may not be dispatched from the plant. So these losses will come in Q3. Our company has a still much advantage because we are dependent locally. That's why we are still much better positioned that whenever price drop is there, we are immediately getting the advantage because we are buying locally, but people who are importing, they will be suffering a lot. A smaller company, normally, they import less. So to that extent, their losses will be low. But particularly even a big ticket or mid-sized company PVC-oriented company who are more dependent on PVC, they will be suffering a lot in Q3 also.
So still these losses are not over, you wait for the Q3 number also. These losses is going to mount up in Q3 and everyone has not write-off everything. So unorganized also suffer and even the organized players who are more dependent on import, they will be suffering the loss.
The next question is from the line of Achal Lohade from JM Financial.
My question was, if you look at -- in terms of first the plumbing, would it be fair to say that given our focus on the margins and not to be trying to push by reducing the price -- our exposure in the non-plumbing segment will be less than 10%, 15%? Would that be a fair assumption?
So yes, you can say our non-plumbing is what? It is agri only. What is other than that because SWR and all are falling under the plumbing category only. So even less than 10%, even not 10%, and even the agri pipes that we are selling are being used in the construction only because in certain geographies of India, the developers and plumbers prefer to use the pressure pipes for drainage application in place of the traditional SWR pipes. So even the agri pipes that we are selling are being used in the plumbing only.
Understood. And the second question I had was if like earlier, you mentioned about 45% of revenue would be CPVC. And I presume this was when the PVC prices were kind of pretty high. If I were to ask you, sir, 4 years ago, how significant would the PVC mix be? Would that be 20%, 30% and it has grown over a period of time?
Earlier also, it was a 50-50% kind of mix and now also 45-55% kind of mix is there. So definitely, PVC value wise some share had improved because we have continuously launched not only PVC, but other polymers. We have other polymer also. Silenco, DrainPro, all these are not a PVC products. These are the other polymers. So that share is also our infra product. Infra product also there and even tank is there. So all these are falling other than PVC. That's why our CPVC ratio has come down in the top line.
Got it. Sir, just a clarification. If I look at the margins, prior to 2019, in percentage term, it was between 12% to 13%, 11% to 13% kind of a range. And in terms of rupees per kg, it was somewhere around INR 18, INR 20. Today, the same percentage is anywhere between 16%, 17%, even in this quarter adjusted for the inventory loss, it's 18%, 19%. So what I'm trying to understand is that given the COVID impact, supply chain issues, inventory gains, now inventory losses, the underlying core margins have improved meaningfully. I wanted to understand your perspective, are these kind of sustainable in terms of rupees per kg or percentage? Or you think given the kind of competitive intensity in terms of numerous players are adding capacities across geographies, across polymers, there could be a pressure on the margins in medium term.
No, I don't think there should be any pressure on margin. I think whatever we have communicated between 15% to 17%, it's achievable, and we will deliver the same. And as far as the competitive intensity and the competitors in the market go, Astral has always been known as a quality player and has always been known as a player that sells at its price and it terms to the market. We are in a rat race with anyone, nor do we want to sacrifice our margins in lieu of volumes for a short-term basis. We have a brand and a brand value to uphold. So we will be selling in a very disciplined manner in the market, and we will continue to deliver on our bottom line progress.
And you see that the kind of economy of scale is happening now with this east plant and all this thing, so that is also contributing to your margin. So even if we have to in a competition in a particular geography, we want to sacrifice a couple of percentage of maybe 3% margin in a particular geography, we can still do that part also because ultimately, there are so many triggers are there for the margin growth, like a lot of value-added products are getting added in the Astral basket. So that is also contributing as a better margin.
So somewhere we are getting better margins. So we can sacrifice somewhere if we feel that here, the competitors are going to get aggressive when they are trying to enter in our market or maybe trying to reduce our volume. We can also become aggressive. We will not shy away that because margins is going away, we will not fight. We will fight. That's not a problem to the Astral. Even if we lose 1% or 2% margin, we are sitting with the highest industry margin. So there is no problem in reducing 1% or 2% margin if required.
As of today, we are able to maintain that part. But even if in future, if it is needed, we will be happy to do that part. So we will not be sacrificing our, I can say, the market share. Rather, we will be happy to give extra 1% or 2%, if required. But as of today, we are able to give extra 1% or 2%, but we are fetching this 1% or 2% from value-added products. And we are trying to balance out. But even if it's not there, we will be happy to sacrifice 1% or 2%. That's not a problem to us.
The next question is from the line of Shubham Agarwal from Axis Capital.
Thank you for the opportunity, just some book-keeping questions there. I think I have missed out sir, sorry for this. Can you repeat the inventory loss for Q2 FY '23?
So in the first half, we lost around INR 70 crores.
The Q2 is not specifically. Okay.
And even Q2 also 25% and 45%, maybe a little bit here and there, maybe Q2 may be high or maybe here and there, maybe there because exact calculation is very difficult to. But first half, it was total INR 70 crores.
Okay, sir. Sir, secondly, what is the revenue from [indiscernible] for Q2 FY '23 and Q2 FY '22, you can give us?
Which revenue.
Sorry, for Gem Paints.
I think first quarter was around INR 56 crores and this quarter was around INR 50 crores.
Okay. Sir, with respect to the distribution expansion, which you're mentioning, you said that there's a 60% overlap over a period of -- so when you say that you had 500 new showrooms, what kind of showroom size are you looking at generally at an average when you're opening these showrooms till now and the 94-odd showrooms which are still under construction?
It depends if it is an exclusive showroom, then the size will be very high. Maybe you can say as high as 1,000 square feet or so. And if it is a small site, if any dealer is giving us a display gallery, then it may be a 8 x 10 or maybe 10 x 10 or something like that. It depends what the space is available with the dealers or distributors. But definitely, the exclusive our dealer, exclusive our distributor, they are offering us a very, very big ticket. If you want to see, we can tell you a few of them are ready. Even Pune recently one bigger ticket showroom size is ready. You can visit there also, which is a very big ticket showroom.
So many such showroom -- exclusive showrooms are also coming up. But right now, I said only 34 is constructed, so wait for a couple of months, by quarter end, I think we will be ready with 120, 130 kind of level. So then in every area, you will find that -- so you can visit there and you can see the size and how the display is there. If you want to see the product, you can come down Ahmedabad also, we can show you, we have put up our showroom also.
The next question is from the line of Akhil Parekh from Centrum Broking.
My first question is on sanitaryware and faucets. What we read and hear is it's more service-based segment rather than purely a product-based segment. So any kind of work we are doing in terms of how to provide aftersales service basically?
I think we are already working on that, and we have already created a customer care center and we already appointed our engineers for the services. In some places, we will tie up with the agencies, some places, our distributor are appointing and we are doing arrangement with them also. So I think every city, we are doing that kind of arrangement. And we understand very well and you have rightly pointed out that this is a very, very important things in this sanitaryware business. So we are definitely taking care of that part.
And one very good USP about our product and -- which will be visible when you visit our showrooms and our display centers is that we are using the German cartridges and the German heritors in our product, which are from the best of the best companies and we are one of the first Indian companies to use the German parts. Also, the beauty of our products is that we have designed it in such a way that the number of spares are very less. So in case of an issue, our service guy or our distributor doesn't need to keep a lot of spares, different SKUs of spares with him. The same spare part can be worked in a multiple of models, so makes the service and aftersales experience, very good for the consumers.
Got it. Got it. This is helpful. And last question is given that the price differential between PVC and CPVC is probably a kind of back all-time high. Do we see the transitioning of consumers who are using PVC and moving away from PVC to CPVC might kind of slow down given the price differential between the 2 recent prices....
I don't think so because the application is different. Normally, CPVC used for a hot and cold plumbing application. While PVC cannot be used for the hot water application. Temporary, maybe 1% or 2% here and there can happen. But otherwise, I don't see it, because it's a completely different application.
Most of the markets have completely switched to CPVC or the entire plumbing application. And these markets won't be changing over with the pricing on moving again to PVC at least. So we don't see any disruption happening with the price in the PVC market. It will keep on building its own market and segment and growth, and PVC will continue again its own segment.
Okay. So sir, just one clarification. The price differential would be more than 2x between PVC and CPVC at current product type?
No, I won't be there because CPVC follows copper tube size, PVC follows iron pipe size. So if you go in weight-by-weight, the price differentiation is not so much. And to explain that we have to go into individual numbers, which we can do it individually, if you want.
I think we are already at 06:20. We have already taken a lot of time. So if any question is left out, I think we can individually handle, you can call me any time. So over to moderator, Ritesh for any closing remarks.
Yes. Sir, I had a few questions. I will call you separately. I would like to thank the management for giving us the opportunity and taking time of as more than an hour for answering all the questions in a pretty detailed way. Sandeep bhai, any closing remarks from your side before we conclude the call, please.
So firstly, we thank everyone for joining this call and supporting us in asking and understanding about the business. And we also assure everyone that as Astral management and as a team, we have now 4 segments to address, which are all critical as the business is concerned in the construction industry. And with our team and our transparency, we would be doing our best and assure for the best set of numbers in the coming quarters, and we'll be putting our great strength behind the growth and the development of the 4 of the industrial segments, which we are now working with. So thank you, everyone, for joining the call, and thanks for patiently listening to us and hope if there are any other questions the management as well as our CFO, sir, Hiranand ji, is always available. Thank you, everyone. Thanks.
Thank you, Ritesh. Thank you for hosting this call, and thanks to all the participants for joining this call.
Yes. Thank you, Ritesh. Thank you.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Investec Capital Services, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.