Cera Sanitaryware Ltd
NSE:CERA
Earnings Call Analysis
Q3-2024 Analysis
Cera Sanitaryware Ltd
As the quarter ended December 31, 2023, came to a close, the board of Cera, a market leader in sanitaryware and faucetware, ratified the earnings amid a challenging economic climate. Despite encountering a slowdown marked by lower demand across key markets and specific regional issues like extended construction bans in Delhi and heightened duties on housing in Kerala, the company persevered. Cera continued to fortify its market position albeit revenue dropped slightly by 4.2% compared to the previous year, largely due to reduced consumer discretionary spending and external market volatilities.
In response to the headwinds, Cera judiciously maintained price stability for almost 20 months, demonstrating a commitment to market share growth and customer value. The company implemented cost management strategies to support its margins, which held steady at 54.2% for the current quarter versus 54.5% the previous year, reflecting Cera's ability to navigate the economic ebbs and flows without major price hikes.
Cera bolstered its advertising spend, recognizing the importance of promoting the new product lines introduced over the past three years that now make up 32% of total sales. This investment in premium branding and retailer engagement initiatives, like the comprehensive makeover of over 1,500 display centers nationwide, significantly contributes to the company's positioning and future growth potential.
Input costs fluctuated, with some raw materials like China clay increasing by 19% and brass by 4%, while others like Zamak decreased by 17%, and gas prices remained favorable, further supporting Cera's operational stability. The average gas price was significantly lower than the industry average, demonstrating effective cost management even in the face of commodity volatility.
Cera has successfully commissioned expansions in its faucetware division and acquired land for a greenfield sanitaryware expansion, securing a strong position for future demand surges. Moreover, the company has significantly leveraged renewable energy, meeting approximately 80% of its energy needs from in-house sources, reducing reliance on external energy and lowering operational costs.
A key strategic initiative is Cera's retailer loyalty program, which now includes over 18,000 retailers. It helped the company understand consumer demands more deeply, contributing to an impressive 34% of retail sales eligible for rewards. The continuous innovation is evident as the new products launched in the past three financial years now constitute a significant 30-35% of the total sales.
Cera closed the quarter with cash and cash equivalents up 29% year-over-year and maintained a positive cash flow. Although Q3 saw a moderation in demand impacting revenue, the company is concentrating on sustaining market leadership and financial discipline, without changing its prior revenue guidance. This positions Cera to potentially weather the storm and continue its growth trajectory.
In Q3 FY '24, sanitaryware contributed 52% of the top line, faucetware 36%, and other segments the remainder. Faucetware revenues grew by 5%, while sanitaryware and tiles witnessed declines, and wellness surged by 29%. With the goal of growing consistently, Cera looks forward to sustainably improving its performance, while acknowledging the likely moderate growth for the financial year '24 due to the combination of enduring external pressures and a dip in demand.
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Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of Cera Sanitaryware Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devrishi Singh from CDR India. Thank you, and over to you, Mr. Singh.
Thank you. Good morning, everyone, and thank you for joining us on the earnings conference call for Cera Sanitaryware Limited for Q3 FY '24 earnings, which were announced yesterday. We have with us today the management team comprising Mr. Vikas Kothari, CFO, and Mr. Deepak Chaudhary, General Manager, Finance and Audit of Cera Sanitaryware. We will start with brief opening remarks from the management, following which we will open the call for Q&A. A quick disclaimer before we begin. Some of the statements made in today's conference call may be forward-looking in nature, and a detailed note in this regard is contained in the results documents that have been shared with all of you earlier. I would now like to turn the call over to the management and invite Mr. Deepak Chaudhary to make his opening remarks. Thank you, and over to you, sir.
Thank you. Good morning, everyone. On behalf of the management team of Cera Sanitaryware Limited, I would like to welcome you all to our earnings conference call. The earnings for the quarter ended December 31, 2023, were adopted by the Board of Directors yesterday, 12th of February 2024. These earnings documents have been released to the stock exchanges.
During the quarter gone by, Cera continued to make considerable progress in its strategic initiatives, and has tried hard to support the overall business momentum. This quarter's performance, however, was marked by a challenging market-led slowdown characterized by a subdued demand across key markets. Overall sales during the quarter gone by were muted due to market volatility originating from reduced discretionary consumption, which was impacted by increased inflation, a hike in interest rates, and challenging climatic conditions across the country. In addition to the general softness in consumer spending, there were certain specific local factors in some of our key markets which has impacted the demand for our products. For instance, in Delhi, construction was prohibited for an extended period of 40 to 45 days as compared to the usual 15 to 20 days. Additionally, in Delhi NCR, the registration of properties exceeding G+3 were ban impacting demand. In Kerala, the local body introduced a higher duty structure on the housing sector affecting consumer sentiment and leading to deferred purchase decisions. Further, we understand that the working capital positions of retailers have increased causing dealers to turn cautious in extending additional credit to retailers and subdealers. However, it's essential to note that the challenges are temporary and short term. Despite the current circumstances, we remain optimistic about our strong fundamentals and overall growth prospects. Q3 FY '24 revenue experienced a 4.2% decline compared to the corresponding period last year. Aligned with our strategic objective to boost market share, expand our retail footprint and deliver value-added product to the consumers, we have refrained from implementing any price adjustments since May 2022, maintaining a price stability for nearly 20 months now. The company has recently undertaken a price increase effective from February 2024. The average price rise taken in the sanitaryware segment is 2%, while no price adjustments have been made in the case of faucetware. Effective cost management and improvements in operational efficiencies have empowered the company to sustain margins without necessitating any major price increases. Given the adequate inventory levels, we moderated the manufacturing pace slightly during this quarter and our sanitaryware plant operated at capacity utilization rate of 85%. The operating performance remains stable and the company maintained its gross margin at 54.2% in the current quarter versus 54.5% in the corresponding quarter of the previous year. EBITDA in the current quarter stood at INR 75.41 crores as against INR 86.55 crores in the corresponding previous quarter. EBITDA margin decreased from 18.4% in Q3 of the current quarter -- sorry, 18.4% in Q3 of the previous quarter to 16.7% in the current quarter. This decline was primarily due to higher advertising spend, largely to promote the new products introduced over the last 3 years, which will enable the company to capitalize on the premiumization theme. Therefore, our advertising spend has increased from INR 17.34 crores, which constituted 3.8% of sales in the previous year's corresponding quarter, to INR 21.91 crores in Q3 FY '24, which constituted 5% of sales. Consequently, a 1.2% change in EBITDA can be attributed to the increased advertising expenditure. Additionally, increased sales promotion expenses impacted EBITDA by 0.7% as these expenses rose due to higher product schemes offered by the company in response to challenging demand conditions. The subdued sales resulting in lower absorption of fixed costs further affected the EBITDA margin by 0.5%. Cera has been consistently advancing its premiumization strategy by introducing value-added products to its portfolio. Notably, the new SKUs introduced over the past 3 years constituted 32% of the total sales for the quarter. In alignment with our commitment to elevating the customer experience, Cera has initiated a comprehensive makeover of over 1,500 display centers across the nation. To align with the premiumization trend, a thorough ongoing study is being conducted to spotlight premium products in targeted locations, ensuring a strategic approach to meeting evolving consumer preferences. Furthermore, Cera is facing increased emphasis on involving various influencers, particularly architects in our product valuation. Our earlier initiatives, such as the retailer loyalty and plumber loyalty programs, were crucial steps in fostering partnerships and allowing stakeholders to contribute to Cera's growth story. In Q2 FY '24, we successfully commissioned our faucetware facility expansion program, enhancing our monthly capacity from 3 lakh pieces to 4 lakh pieces. In Q3 FY '24, our faucetware capacity utilization reached 82% after considering the augmented capacity from the brownfield expansion. The completion of this expansion project was achieved within the scheduled timeframe and at a cost much lower than the budgeted estimate. Furthermore, construction of civil facilities to accommodate the future increase in capacities from 4 lakh to 6 lakh units per month has been successfully completed. With this completion, no major capital expenditure for this faucetware brownfield expansion project is anticipated for the next 3 to 5 years. Our confident outlook is based on the robustness of our established vendor ecosystem, which positions us well to efficiently manage any spike in the demand. Additionally, our product mix strategy, which includes a variety of colored SKUs, quarter-turn SKUs, PVD SKUs and additional SKUs sourced from external partners continues to enrich and diversify our product portfolio. Furthermore, in our sanitaryware division, a substantial portion of the land parcel was acquired in January 2024 for our greenfield expansion project. This new plant is expected to be operational within 18 months from the zero date with an estimated cost ranging between INR 125 crores to INR 130 crores. These strategic capacity expansion initiatives, in both our sanitaryware and faucetware, emphasize our commitment to broadening our portfolio of value-added products. These products will be exclusively manufactured within our facility, leveraging advanced technical capabilities and adhering to vigorous quality standards. In sanitaryware, cost of raw materials like China clay went up by 19% and feldspar by 4%, while plaster of paris and glaze went down by 1% and 2%, respectively, in Q3 FY '24 as compared to Q3 FY '23. Zinc experienced a decrease of 26%. At the manufacturing level, operational efficiency witnessed significant improvement resulting in higher overall yields. This, coupled with cost optimization programs, supported to offset the impact of increased input and labor costs.
In the faucetware segment, brass prices recorded an increase of 4%, while Zamak prices saw a decline of 17% compared to Q3 FY '23. Gas prices remained favorable during the quarter. The average price from GAIL was INR 28.78 per cubic meter in Q3 FY '24 as opposed to INR 35.43 per cubic meter in Q3 FY '23. Similarly, the average gas price on Sabarmati was INR 47.56 per cubic meter in Q3 FY '24, down from INR 71.9 per cubic meter in Q3 FY '23. However, it has registered an increase of 7% on a quarter-over-quarter basis. This positive trend is further supported by an increased supply of gas from GAIL, reaching 82% in Q3 FY '24 compared to 67% in Q3 FY '23. The weighted average cost of gas in Q3 FY '24 was INR 32.21 per cubic meter, significantly lower than INR 47.33 per cubic meter in Q3 FY '23 and notably below the industry average. Gas costs constitute 1.44% of the total revenue. Our consistent commitment to ESG began in 1995 with the inception of our journey through the establishment of our wind energy facility. Evolving over the years, we expanded our capacity and in 2014, seamlessly integrated a solar plant into our growing sustainable energy portfolio. Notably, in the first 9 months of FY '24, approximately 80% of the energy needs for our two manufacturing facilities were met through our internal renewable energy sources. Cera introduced a retailer loyalty program in Q2 FY '23 and now after 18 months, over 18,000 retailers have been enrolled who have uploaded a total of 2.53 lakh invoices on the retailer loyalty app. The feedback received from retailers has been instrumental in grasping evolving consumer demand, understanding geographical SKU segmentation and refining our reward program for retailers. In addition to standardizing invoices, a noteworthy achievement was recorded during the quarter. Out of the total retail sales amounting to INR 243 crores, over INR 82 crores in sales were eligible for rewards under this program. This constitutes 34% of the retail sales. New product introduction stands as an important catalyst for Cera's growth trajectory. In the previous financial year, that is FY '22, we unveiled a total of 72 new products, a notable progress, considering that historically on an average, 100 new products were launched annually. The momentum continued in FY '23, witnessing an impressive launch of 699 new products. In FY '24, a total of 202 new products were introduced till December, which includes 74 new products being launched in Q3 FY '24. The sharp increase in new design and product launches over the last 3 years has led to a substantial allocation of resources, both at the manufacturing and customer experience levels. As a result, new product developments or NPDs introduced in the last 3 years now contributes to 30% to 35% of the total sales. In efforts to further enhance the company's product portfolio, Cera remains dedicated to developing hygienic and water-saving products. Key focus areas include premium products like rimless EWCs and thin rim table tops where's our manufacturing facilities committed to ongoing innovation, producing these items at costs substantially lower than those imported from China.
In Q3 FY '24, China imports were INR 15.6 crores or 3.57% of sales as compared to INR 19.6 crores or 4.3% of sales in Q3 FY '23. Cera was already one of the lowest users of products Made in China and the capabilities developed in house, the percentage of Chinese imports to sales has been continuously declining.
In FY '23, we recorded our highest ever advertising expenditures amounting to INR 57 crores, representing 3% of our sales. Continuing the same pace, our publicity spending stood at INR 48 crores during the 9 months FY '24 as against INR 33 crores in 9 months FY '23.
In our sales breakdown. Tier 1 cities accounted for 34% of sales. Tier 2 cities contributed 21% and Tier 3 cities led with 45% of the sales. In conclusion, I would like to say that as we navigate the current landscape and address short-term challenges, our focus is on maintaining leadership in the sanitaryware and faucetware industry and on driving sustainable growth. Today, our company is dedicated to leveraging its core strength, which includes advanced manufacturing capabilities, a diverse product range and expansive network, exceptional aftercare service, robust brand recognition and financial stability. These foundations pillars collectively fortify our market position. We firmly believe that these unique qualities not only empower us to safe and overcome broader macro-led challenges, but also strategically position us for continuous growth, delivering value to our stakeholders.
With this, I would like to hand over to Mr. Vikas Kothari, our CFO, who will present the operational and financial highlights for the quarter ended 31st December 2023. Thank you, and over to you, Mr. Kothari.
Thank you, and a very good morning to everyone. I would now like to address a brief overview on the company's financial performance for the quarter ended December 31, 2023. Revenue from operations stood at INR 437 crores in Q3 financial year '24 versus INR 456 crores in Q3 financial year '23, a decline of 4.2%.
EBITDA without other income was INR 59 crores in quarter 3 financial year '24 versus INR 73 crores in quarter 3 financial year '23. The gross margin remained stable, and stood at 54.2% in Q3 financial year '24 against 54.5% in Q3 financial year '23. Profit after tax was INR 51 crores in quarter 3 financial year '24 versus INR 56 crores in Q3 financial year '23, a decrease of 9.7%. EPS for the quarter stood at INR 39.12 versus INR 43.34 in Q3 financial year '23. For quarter 3 financial year '24, 52% of the top line was from sanitaryware, 36% from faucetware, tiles represented 10% and wellness 2%. On a Y-o-Y basis, faucetware revenues registered an increase of 5%, sanitaryware revenues declined by 8%, tiles decreased by 19% and wellness increased by 29%. The sanitaryware and faucetware verticals remain the backdrop of our business and contributing 88% of overall revenue. The classification of overall sales in Q3 financial year '24 was 43% in premium category, 34% in mid category and 23% in entry-level category.
The changes in the working capital position in the current quarter as compared to the corresponding quarter for the previous year were as follows: Inventory days reduced from 83 days to 79 days, receivable days reduced from 30 days to 27 days, payable days increased from 37 days to 46 days. Therefore, the net working capital days were reduced from 76 days to 60 days in Q3 financial year '24. As on December 31, '23, our cash and cash equivalents stood at INR 758 crores against INR 597 crores as on December 31, '22, registered an increase of INR 171 crores or 29%.
Cash flows for the quarter remained positive at INR 49 crores versus INR 58 crores in Q3 financial year '23. In conclusion, I would like to emphasize that given the various inherent strength and our dominant position within the sector, we are committed to maintaining strong financial discipline. Going forward, Cera remains positive and focused on consistently improving its financial performance.
I would now like to request the moderator to open up the lines for Q&A. Thank you very much.
[Operator Instructions] The first question is from the line of Praveen Sahay from Prabhudas Liladher.
Yes. The first question is related to your target. So basically, in the last call and the previous call -- quarter calls, you had given a target of -- by September '25, some INR 2,900-odd crores of revenue and that quarter also you had said around INR 2,500-odd crores by March '25. So -- and looking at the soft performance so far in the 9 months, is that the target is quite intact or is there any change in that?
Yes. Thank you. Regarding the target part what we have given earlier. So the earlier guidance of achieving the revenue target was given. And currently, we are in the month of February and are in the process of working out our annual operating plan for the next financial year. So once this exercise will be completed, we will be able to update the guidance. Till such time, we are not changing the guidance. Any comment on this will be expected in the next earnings call, but let me assure you that we are -- we remain committed to the sustainable growth and the legal and long-term outlook is quite encouraging.
Okay. Similar like -- just to -- on the segment side, on the same note, in the last call for the faucetware, you had given around some INR 750-odd crore for this year. But if I look at your run rate so far, you need to do around 50% of a growth in the fourth quarter. Will that be achievable for the fourth quarter?
So for the current financial year, as we all know that Q3 was a tough quarter, and we experienced demand pressures across all key markets. Even, I would say, to be honest January '24 continues with the sign of moderation and the sales were lower than expected and we are seeing that even the competition was not away from these headwinds, which is evident from the results also. So the growth projections given earlier for the current financial year have been impacted by the weak demand conditions starting from the month of November as is evident from our Q3 results.
And October, when we have our last earnings call, we were far ahead in terms of the growth part in terms of the previous corresponding period. But from November, the things have changed, the slowness as far as demand is concerned, was there. So typically, what we understand March is the best month of the year where we have the higher sales than average. However, considering the 9 months results, it is apparent that the growth for the financial year '24 is likely to be moderate.
Okay. That's quite helpful, sir. The second question related to that is, is there any market share loss are you expecting? Because if I look at the players who are in the live product, they are growing faster, even the sizes are small, but they are growing much faster in terms of incremental sales than the leaders. So is there a market share loss also in the Bathware segment as a whole, you are seeing?
No. So ideally speaking, means if you see the Cera's growth trajectory we are quite confident as far as sanitary and faucet segments are concerned. And with the long-term strategy with respect to making these 2 segments, which are underpinned by our commitment to innovation, operational excellence and market expansion. So we do not see any sort of challenge from the other players. And as far as gaining of the market share is concerned, so we are betting on our innovation part. And like I told, means, for the last 3 years, the innovation or the new products that we have introduced are healthily contributing around 32% to 35% of our total turnover.
Okay. Okay. Lastly, sir, on the advertisement expenses. As guided for INR 65-odd crore for this financial year, you've already done around INR 48 crores, INR 49 crores. So that is intact? Or is there some revision in that as well?
Yes. So ideally speaking as far as the market share or the voice of shares to cover the part of Cera is concerned in the brand image building, so we are continuing with the same pace of spend what we have did last year. And almost -- if you compare in terms of the value, we have spent around INR 22 crores in quarter 3 financial year '24 versus the previous corresponding INR 17.34 crores. So with this spend, we are continuing the pace of our brand recognition. And we think and we expect that all these things will come as a fruitful result in terms of the growth levelers for our product -- revenue generations.
The next question is from the line of Sayan Das Sharma from Bajaj FinServ Asset Management.
Yes. Sir, 2 parts to the first question. I mean, frankly, a little surprised to see a revenue decline in sanitaryware because what I associate the sanitaryware to be a very stable category because the large part of the demand also comes from replacement. Sir, it would be helpful if you can just highlight how this -- I mean, if you can share some more color, is it only specific to Cera because of our mix in particular states, particular Tier 2, Tier 3 cities, et cetera. And how do you see -- what needs to change for the growth to come back for the entire category, not only for sanitaryware to that extent? And secondly, I mean, we see a lot of real estate demand nearing completion, but all these building material categories are not doing well. So just wanted to understand your sense on how growth should pan out in the next few quarters, not -- may not be quantitatively, but if you can make some qualitative comments, sir? That's it from my side.
Yes. Thank you. So coming to the part of the growth in sanitary and other segments. So I really speaking, is if we see our actual figures, so we have the volume growth in total by 10%. And Q3, as we all know, that we experienced the demand-related issues across all the key markets. So there was a revenue growth as far as -- up to the actual is concerned. And coming to the part of sanitaryware and if you see the actual figures, we were having the growth of around 5.5% which was subdued in quarter 3, declined by 8%. However, in case of faucetware, we have a very good increase in terms of the growth. It was around 9% to 10%.
So overall, if you see because of the short-term phenomena or the temporary phase which is going on, we see some sort of ups and downs within the demand patterns. However, we are very optimistic that this situation will improve from financial year '25 onwards, which is going to be supported by real estate upstream retail market improvements and increasing home renovation. And as you all know that the real estate market is doing extremely well, and it is expected that the same will continue in the future. So we do not see any major challenges as far as our products demand is concerned. And like you all know, most of the real estate projects are nearing to completion and since our products like sanitary, faucets, tiles and even paints, they are installed in the final stage, so we are likely to see the increase in consumption pattern in the financial year '25. And also adding to it, means, we are having good number of projects inquires in pipeline. So institutional sales from government projects, educational projects, hospitality and medical they are also going to add positively to our demand factor. In general, I would say the general macroeconomic factors remain positive with the GDP growth of the country projected at 7%. So as such, means, it's a short-term phenomena, and it is experienced by all the industry.
That is very helpful. Just 1 quick follow-up. Have you seen any divergence in demand trends from -- to your Tier 1 cities versus Tier 2, Tier 3 cities? Is one growing faster or the demand slower in one pocket of this market versus the other?
So if we see the pattern of the tire cities, largely, there is no major change, means it is same as the quarter 2, what is there. So no major change in the composition.
[Operator Instructions] The next question is from the line of Rahul Agarwal from Incred Equities.
Sir, first question on the CapEx. You mentioned faucet CapEx was pretty low than budgeted. You also mentioned that the 4 lakh pieces has now gone to 6 lakh pieces. I wanted to know how much did we spend from 3 lakh to 4 lakh pieces and then from 4 lakhs to 6 lakhs? That's first. And secondly, what is the potential for sales out of this increased capacity? And how much time will it take to ramp up to peak utilization? That's my first question.
So I think there needs a clear understanding of the statement what was given. So ideally, the faucetware brownfield current expansion is from 3 lakh to 4 lakh units and with this expansion and this expansion is under ramp-up phase, so almost 60% of this ramp-up has been done. And we expect that by March, we will be able to reach out to 4 lakh pieces. The second part was, means, with respect to the civil activity or the civil facility has been developed for the future expansion from 4 lakh to 6 lakh pieces, so that civil work has already been done. And later on, whenever we feel that the demand is getting picked up or where we feel that we need to increase our capacity, it will be just rebalancing of the necessary plant and machinery. So the facility is created for a further boost from 4 lakh to 6 lakhs.
Okay. How much did we spend CapEx for 3 lakh to 4 lakh ramp-up -- for the expansion?
So ideally, we are quite within the budget, and we have spent around INR 41 crores for getting this brownfield part by removing and this -- some of the cost optimizations or savings have come by way of debottlenecking the processes and taking the advantage of the current facility.
And the incremental 1 lakh pieces should add about what kind of sales? Because my understanding is 50% is outsourced for the company in faucets before this expansion, so that's 3 lakh...
So our understanding is, this incremental 1 lakh pieces per month contributing to 1.2 million pieces annually, they are going to contribute around INR 240 crores.
Okay. Because the way I'm working with the math is currently, let's say, your 3 million -- your 3 lakh pieces a month make about INR 600 crores of top line and that INR 600 crores is 50% outsourced, right? So if I assume that 3 lakh pieces should deliver INR 300 crores of top line. So additionally, on a 1 lakh piece top line, which is 40% addition, the sales number looks pretty high to me. So where is the value addition?
So I'll tell why this is happening is because currently, the faucetware which is producing to 3 lakh pieces is having a mix of all the SKUs. There would be entry-level SKUs, there would mid-level SKUs and there would be premium SKUs. So like as of now, we are making a list of products that the increased expansion, once it reaches the entire production of 1 lakh units, would be catered mostly towards the premium products, so the incremental revenue that will come in from the 1 lakh units will be different from the revenue which you are seeing from the current plant, which is a mix of all the products which we are producing and selling right now. So there's a difference in the kind of mix, which will be going into the new plant. That's why the difference is there.
Right. I agree. I mean it looks like twice the difference, right? So I was just wondering like what kind of premium projects are we doing. But I get to your logic and I get the understanding. Secondly, a similar question on the sanitaryware. The land -- majority land is acquired. Could you help us understand how much land is acquired, what is the balance and what is the CapEx for the land spent right now?
So regarding this sanitaryware greenfield, so a substantial portion, that is about 75% of the total proposed area has been acquired and registered in January '24. For the balance portion of the land, the due diligence is going on, and it is expected that it is going to complete by June '24. The estimated cost of this greenfield will be around INR 125 crores to INR 130 crores, including land. And once this total acquisition is completed, we shall be able to comment on the start up of the construction of this particular plant. So I think this is largely notable, you can say, achievement in this -- in the month of January, where the substantial portion has been acquired and registered.
Got it, sir. Sir, last question was on basically the growth.
Mr. Agarwal, I'm sorry to interrupt. Sir, I would request you to kindly rejoin the queue for follow-up questions, please. There are several participants who are waiting. We'll take the next question from the line of Raj Shah from Marcellus Investment Managers.
So my question was when you mentioned that even competition is facing from challenging demand scenario, but if we see results of your listed competitor who is more or less similar in size, they have reported year-on-year single-digit, mid-single-digit growth numbers, revenue growth. So I was just wondering, where is the gap between our outlook and theirs because they are reporting good revenue numbers.
Your voice was quite muffled, if you can repeat the question again, please?
Yes. My question is our listed competitor...
Mr. Shah, I'm sorry to interrupt, sir. I would request you to kindly use your handset to ask question, please, so that we can hear you loud and clear.
So my question was, our listed competitor, who is more or less similar in size, they have reported single-digit revenue growth numbers. So this shows that there is some market share loss for us. So I was just wondering, where is the gap between our and their outlook -- demand outlook?
Okay. Now essentially, what you are looking at is, you are looking at figures of one quarter. So one quarter would not give you a sense of the -- you cannot extrapolate it to say that we are losing or gaining market share. This has been true -- what you are suggesting has been true in the current Q3 quarter. But on an overall basis, if you see sometimes the last few quarters, you'd find that there has been a significant difference between the performance of Cera and vis-a-vis the competitors, especially the competitor which you are talking about. So there's a huge gap between the growth numbers that we have done in the previous quarters. This current quarter was kind of an outlier because of weaker different demand conditions. But we foresee that with Q4 and maybe more so in the next financial year, the demand would again be good and will be performing well. So the difference which is there only in the coming quarter should not be reflected in the future.
Got it. Got it. And another question is if you can repeat about some local duties or taxes that was implemented in Kerala? The opening comment was not clear about it.
In Kerala, the local body introduced a high duty structure on the housing sector, which has affected the consumer sentiment thereby leading to deferment of some purchasing decisions.
Okay. And Kerala would contribute to our top 2, 3 states, in terms of revenues?
Kerala would be contributing in the region of 10% of our total sales.
We'll take the next question from the line of Achal Lohade from JM Financial.
Sir, the first question is, like you pointed out, we have been outgrowing the peers, most of the peers, including the large one, for last several quarters. Now what I'm trying to figure out is that what has driven that outperformance? And how is it changing now? Is it -- was it actually driven by more retail expansion and that is now peaking out? Or was it more driven by the new products and now that is peaking out? Any more color on both these aspects, please?
Thank you. So ideally, as far as the outlier is concerned, what we say the growth is driven by multiple factors, so means innovation is one of the factors, which is giving us the growth levers in terms of boosting our revenues. So if you have seen whatever the products we have introduced in the last 3 years has generated around 32% to 35% of our total turnover. Secondly, in terms of making us different from others, means, the operational efficiencies have improved which has resulted into sort of the lower input cost -- lower cost of production and in terms of the other parts where we see that the expenses and other things, what we are doing, we are controlling through our different cost optimization programs, which are making us to sustain despite of the fact that we have not taken any price rise for the last 20 months.
Sorry, sir, probably I wasn't very clear in the question. What I was asking more from the top line growth perspective in bathware, which is sanitary plus faucet, we have been outperforming in the past for several quarters as compared to the peers. In terms of the premium mix, if you could guide 3 years back, what was it and what is it now? You've mentioned 3 -- products introduced in the last 3 years, but is it fair to assume all the products introduced in the last 3 years is all premium or you want to give a separate number for premium mix for 3Q '23 and 3Q '24 as well as, say, 3 years back?
So I think the mix -- as far as mix is concerned, between the categories, more or less the mix is maintained in the previous few quarters. So premium is contributing roughly 43%, mid is contributing 34% and at entry level, it is 23%.
This is for 3Q FY '24. How would that be for FY '23, 3Q FY '23, sir? You're saying it is...
Yes, yes. So for FY '23, it was 45% in the premium category, and mid category it was 28% and entry it was 27%.
So it is mid which has grown and a decline in the premium?
So ideally speaking, it's a combination of mid and premium where we are largely concentrating on improvement in these 2 particular parts. And if you see there is a decline in the entry segment, which was earlier 27% and now it is 23%. So a lot of value additions have been put under these 2 categories, mid and premium. And like composition point of view, if you see entry is declining.
Got it. Sir, if you could help us to...
Mr. Lohade, I'm sorry to interrupt, sir. I would request you to kindly...
This is second question, ma'am. The first question was actually kind of...
Sir, there are many participants who are waiting in the queue. I'm sorry, sir. [Operator Instructions] We'll take the next question from the line of Utkarsh Damania from NV Alpha Fund Management LLP.
I had a few questions. Sir, can you maybe -- in the fourth quarter coming we have elections coming up. So do we see any demand subdued due to this? And would it affect our sales and margins profile as well?
So I think as these elections are going on, so in the coming times, means, there may be some pressure might be there. But in general, quarter -- from the financial year '25 onwards, we see that a lot of completions with respect to real estate projects will be there and our products, which are at the last stage of the installation, so those things will come out and the consumption patterns will increase. But this is going to be a short-term impact as far as the elections are concerned.
Okay. My next question would be what is -- if the company has any plans for any ESOP programs or is the company looking after any new ESOP program or something?
So regarding the ESOP part and others, the company is maintaining a healthy cash reserve of INR 768 crores. And as we have seen, the company has increased its dividend significantly in the past 2 years. And I think in the last year, it was -- the distribution was around INR 65 crores. It is almost -- the payout was almost around 31% of the PAT. And the company will continue to maintain this healthy dividend payout in the coming years. The company may exclude options of buyback and other routes to return excess cash or excess money to the shareholders. Currently, no such proposal has been placed before the Board.
Okay, sir. So can I squeeze in 1 more question, please? Regarding the Anjani Tiles divestment, so Anjani Tiles we were catering to the South, certain states. So can you provide a geographical breakup as to what would be the geographical breakup currently or if the South sales have gone down?
So as far as the geographical breakup is concerned, I think...
See, broadly, there has been no change in the sales in the South on account of closure of Anjani Tiles. The idea behind Anjani Tiles was that it is a market in the South, so that it we will be able to cater to the South market in the sense that the transportation costs would be lower. But we have experienced over there that the cost of production, which was coming in, was slightly higher and the benefit which was supposed to be offset by the lower transportation costs, we were not achieving that. So even otherwise, even while Anjani Tiles was a part of our portfolio, the cost vis-a-vis Morbi was not lower because the cost of production in Anjani was higher as opposed to the cost of procurement, which we were able to do from Morbi. So with the divestment in Anjani Tiles, there has been no loss in the market share on account of the fact that the divestment has happened.
The next question is from the line of Priyanshu Agrawal from Unifi Capital Private Limited.
Sir, just wanted to understand on the near term, right? So what has really led to the slowdown. So one, you explained that the Kerala state has increased their stamp duty, but any other phenomena which is affecting our near-term performance, if you could please explain that?
Priyanshu, we are coming back to the same circle again and again. Like we are all talking about growth. So all I would like to say is that the macroeconomic factors were not conducive in this quarter, and it has led to a demand slowdown. But to pinpoint what the exact reason has been there for this particular slowdown would be difficult because it's not set of one factor which has affected, it is a multiple number of factors which go on to contribute a particular demand weakness. So we feel that this demand weakness is a temporary kind of a situation and going forward, it will improve.
Mr. Agarwal, we are not able to hear you, sir.
Hello?
Yes, sir, please proceed.
Yes, the line from the management got disconnected, so I couldn't hear them fully.
Sir, I think we were able to hear, you were not able to hear because in the conference -- sir, on the management line, Vikas, sir, you're available?
Yes.
Sir, my second question is, you mentioned that the dealers are sort of sitting on higher inventory. So if you could just throw some light on the current inventory in the channel? And has it stabilized in January, February months? And what is your sense on, will we be incurring more sales promotion expenses because of this higher inventory challenge with the dealers?
We had experienced difficulties till the month of November and it has continued in the month of January also. But now currently in February, we are seeing an upswing. And we hope that this thing will continue for the month of February and as Vikas-ji had mentioned earlier also, like March typically is our best part of the year where the dealers in order to get benefits of the turnover discounts and many other schemes, which have been launched during the year, they do a large part of their uptick in the month of March. So we do not see, as of now, a challenge in that particular month being weak. So we have already started seeing improved sales from the month of February, and we hope that it will continue in the month of March also.
Sure. If you can just give a range of the sort of growth that you're seeing in February and March, that will be useful, sir?
That is not possible because these are all kind of numbers which keep on changing and we cannot even disclose them right now. So hopefully, once we are there in the next con call, I can give you the numbers.
The next question is from the line of Shaurya Shah from Equirus Securities Private Limited.
So with our focus on faucetware segment and expansion of capacity to 6 lakh pieces from 4 lakh pieces earlier and the greenfield capacity coming up for sanitaryware segment, where do we see the contribution from sanitaryware and faucetware divisions from the current 52% and 36% going forward? So that is my first question.
The proportions more or less would be remaining the same even with the expansion coming in. You'll find that maybe faucetware may go up slightly. But on an overall basis, it will be remaining the same that we're doing right now.
Okay. And another question is that was mentioned that there was a price hike of 3% for sanitaryware in quarter 3. I'm not sure if it was already mentioned, but was there any price hike for Tiles division during the quarter?
See, Tiles is more of a marketing operative price which keeps on going on. In case of sanitaryware and faucetware, it is more like the prices are revised on a periodical basis. But in case of tiles, we kind of look at the procurement price that we are able to get. And based on that, we price it in the market. So price is a more dynamic kind of a thing and you'll not find the price increase over there the way that we do it in case of faucetware and sanitaryware.
Ladies and gentlemen, this will be the last question for today, which is from the line of Onkar Ghugardare from Shree Investments.
So just now what you said is that this demand slowdown in overall market of yours is a temporary phenomena and overall growth outlook for the -- growth outlook which you have given earlier remains the same, right?
Correct.
Yes, yes.
And how much -- for how long this demand slowdown do you expect?
So that is -- what we expect is, means, it's a short-term phenomena. And maybe from the next financial year, we will see -- means there may be some impact of elections, but from the next financial year, definitely being -- different projects are under pipeline, and we see that a lot of real estate projects, which are near to completion. So at that stage next year, we will be having more consumption of the sanitary and faucet items. So it's as per our understanding, we take it as a short term, and we think we'll improve from financial year '25 onwards, where we will again have the growth moving forward.
So you expect 1 more quarter of pain, of demand slowdown. That's what you means to say, right?
As of now you can say maximum Q4 because we already have a good kind of project bank building up. So orders are coming in over there, which should be executed in the next few months. So we are confident about the future like once FY '25 onwards.
Okay. Another question is on the cash utilization. You have mentioned that you will be -- you have already increased the dividend payout and will be exploring the possibility of buyback, which you haven't done at this meeting, but possibly in the future, you can do it. So like what is the management thinking on utilization of cash apart from this like I don't think so you will be incurring any major CapEx apart from this?
So I think I have already answered this question is as far as management thought process is concerned, so means whatever the expansion programs we are having, they are through internal accruals. So brownfield, we have recently completed. In case of sanitaryware greenfield, the acquisition has been done. And again, the complete construction and operationality of that plant will be through internal accruals only. As part of the dividends, we are going to maintain or increase the payout ratio, what we are doing. And additionally, like I told, means we are exploring the options of buyback also, so whatever -- in whatever best way we can return the excess cash back to the shareholders.
The company is not finding any inorganic opportunities to maybe buy some smaller players.
Yes. So firstly means as far as this CapEx expansions are concerned, what we are doing, so these expansions will give us a sufficient rule in terms of building the capacities to meet out the future demand option. And once we -- right now, there is no such thought process. So in future, if it will be there, we will see accordingly. But right now, it is -- we are going to have these expansions completed first.
Thank you, sir. As that was the last question, I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, everyone, for attending this call and for showing interest in Cera Sanitaryware Limited. Should you need any further clarification or would like to know more about the company, please feel free to reach out to me, Mr. Vikas or CDR India. Thank you once again for taking the time to join the call. Thank you very much.
Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of Cera Sanitaryware Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.