Hindware Home Innovation Ltd
NSE:HINDWAREAP
Earnings Call Analysis
Q3-2024 Analysis
Hindware Home Innovation Ltd
Hindware Home Innovation maintained stability during the third quarter of FY '24, despite a difficult macroeconomic landscape characterized by muted demand across various categories. The company posted consolidated revenue of INR 693 crores and consolidated EBITDA of INR 61.3 crores for Q3, with a year-to-date revenue totaling INR 2,027 crores and EBITDA of INR 210 crores.
The Bath business demonstrated resilience in a subdued demand environment, registering revenues of INR 402 crores for Q3 and touching INR 1,160 crores over nine months. The quarter's margin was strong, with EBITDA at INR 55 crores and a 13.6% margin despite increased marketing investments. New product offerings were well-received, contributing to 24% of sales in the first nine months of FY '24.
The company is intent on minimizing import reliance by manufacturing high-value items domestically, aiming to enhance margins and manage inventory levels more effectively. This, along with working capital optimization and a robust distribution network expansion, especially in emerging markets, underpins their strategic roadmap towards sustained growth. They invested INR 7 crores in World Cup advertising and improved working capital efficiency from 122 to 117 days, year-over-year, with aspirations to grow 1.25 times the market in FY '25.
The Plumbing segment faced headwinds with reduced realization affecting margins, amassing INR 174 crores in revenue for Q3 and EBITDA of INR 13 crores representing a 7.7% margin. The nine-month performance was slightly better, with an 8.5% margin. Nonetheless, the brand embraced product diversification strategies and anticipates operational gains from a new manufacturing plant set for launch in December FY '25, with the ambition to introduce high-value drainage and fire sprinkler systems by Q3 FY '25, targeting profitable growth.
The Consumer Appliances segment faced challenges from tepid consumer demand and inflation, yielding revenue of about INR 112 crores in Q3. The company remains agile, focusing on rationalizing its portfolio by amplifying successful categories and retracting from underperforming ones to enhance operational efficiency and costs. This segment also eyes recovery in premium residential developments and seeks to capitalize on opportunities therein.
The company saw varied performance across its portfolio, with low single-digit growth in the sanitaryware segment contrasting with more robust double-digit growth in faucets. This indicates the company's leverage in certain product lines over others and a tactical approach to capitalizing on areas of strength.
Looking ahead, the company forecasts a positive trajectory in volume growth, having already recorded a year-to-date growth comparable to peers at around more than 11%. While Q3 volume receded by 4%, the team remains optimistic for a future upswing in metric ton realizations which have contracted due to falling raw material prices.
The kitchen fittings segment piques interest due to its substantial market size estimated between INR 7,000 crores to INR 8,000 crores and profitable margin prospects. Although currently a minor revenue contributor, Hindware Home Innovation is prepared to expand and scale up in this sector, banking on strong brand synergy and channel strategies to grow their footprint in this burgeoning market.
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Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of Hindware Home Innovation Limited, hosted by Nuvama Wealth. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. You are requested to refer to the mention in this regards in the earnings presentation. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Shetty from Nuvama Wealth. Thank you, and over to you, Mr. Shetty.
Thank you, Michelle, and good afternoon, everyone. On behalf of Nuvama Wealth, we are delighted to hold the senior management of Hindware Home Innovation. From the management side, we have Mr. Sudhanshu Pokhriyal, CEO of Bath Business; Mr. Rajesh Pajnoo, CEO of Pipe Business; Mr. Salil Kappoor, CEO of Hindware Home Innovation Limited; Mr. Sandeep Sikka, the Group CFO; and Mr. Naveen Malik, CFO of Hindware Home Innovation Limited.
We will start the call with the opening remarks from the management, then we'll move to the Q&A session. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen, and welcome to Hindware Home Innovation Limited quarter 3 and 9 months FY '24 earnings call. I would like to provide a brief overview of our company performance for the quarter, post which, the business CEOs will share the key highlights of the respective businesses.
Despite the challenging macro environment, our performance for the quarter and 9 months has been stable. While demand sentiment across categories and businesses have been muted, the resilience of our business model and the strength of our brands have enabled us to continue delivering value. We are confident that as market improves, our performance will further strengthen. Hindware Home Innovation achieved a consolidated revenue of INR 693 crores, with consolidated EBITDA of INR 61.3 crores in quarter 3 FY '24. For the 9 months ended 31st -- for the 9 months ended December '23, our consolidated revenue reached INR 2,027 crores while consolidated EBITDA stood at INR 210 crores. Our strategy for all businesses is to continue building our brands, expanding our reach, enhancing our operating and supply chain efficiencies, optimizing working capital and augmenting margins. I would like to call Mr. Sudhanshu Pokhriyal to take you through the Bath business. Over to you, Sudhanshu.
Thank you, Naveen. Good afternoon, everyone. As you know, demand sentiment remained subdued due to challenges rising out of muted demand, inflation and interest rates. Our quarter 3 revenues amounted to about INR 402 crores, reaching INR 1,160 crores for 9 months. Despite market challenges, profitability and margin performance remains resilient with EBITDA at about INR 55 crores and EBITDA margin of 13.6% for quarter 3 FY '24. Margins for the quarter could have been higher but for the additional marketing spend incurred during the quarter. I'll talk more a bit later in my commentary. Customer response to our new offerings continues to remain encouraging as reflected in the increasing share of new products, which contribute to 24% in our sales in the first 9 months for FY '24. We're actively reducing our dependence of imports, focusing on manufacturing high-value items at our plants to boost margins and manage inventory levels. Working capital management remains a priority for us. We continue to penetrate new markets, recognize untapped potential in Tier 3 and Tier 4 cities. We're actively expanding our distribution network to broaden our reach. Currently, we're investing in strengthening our presence in Tier 1 and Tier 2 cities by opening more brand stores. Our commitment to enhancing brand visibility remains steadfast. Like I mentioned earlier, we've invested in marketing and building on our cricket collaboration. We advertised throughout all 48 matches in World Cup during quarter 3 with an overall expenditure of INR 7 crores plus. Our working capital efficiency has also shown improvement with a decrease from 122 days in Q3 FY '23 to 117 days in Q3 FY '24. Our endeavor continues to be to grow 1.25x of the market in FY '25. Our strategic initiative reflect our commitment to growth, innovation and delivering value to customers. With diversified offerings, a strong brand and aggressive expansion plan, we aim for profitable growth in the current environment. I'd like to now hand over the call to Mr. Rajesh Pajnoo to take you all through plastic pipes and fitting business. Over to you, Rajesh.
Thank you, Sudhanshu. Good afternoon, everyone, and thank you for joining us. Despite challenges such as sluggish demand and fluctuating raw material prices on a downward slide, our quarterly revenue reached at INR 174 crores with INR 531 crores in 9 months FY '23.
Our Q3 EBITDA stood at INR 13 crores with a margin of 7.7% and INR 45 crores in 9 months with a margin at 8.5%. Margin pressure during the quarter were attributed to reduced realization. We're actively exploring measures to reduce our current working capital trends in sanitary, ensuring greater efficiency and agility in our operations. With our effective inventory management, maintain the control and stability.
Our market presence remains strong with CPVC pipes and fittings contributing over 40% to our revenue. We actively engage with pumping consultants, plumbers and conduct training sessions for our channel partners to strengthen our market presence. Currently, our network includes over 300 active distributors and approximately 30,000 retailers. The construction of our new manufacturing plant in Roorkee, Uttarakhand, is underway, and we anticipate its operational launch in December FY '25, marking a significant milestone in our journey. We are diversifying our product portfolio with our introduction of high-value added items commencing with foam core, that is underground drainage, in Q1 FY '25. Furthermore, we plan to manufacture double wall corrugated pipes and fittings and also fire sprinkler systems which will go till Q3 FY '25. In conclusion, Truflo remains committed to market expansion, enhanced brand awareness and pursuing profitable growth. I would now like to hand over the call to Mr. Salil Kappoor to take you through Consumer Appliances and retail businesses. Over to you, Salil.
Thank you, Rajesh. Good afternoon, everyone, and thank you for joining us for our Q3 and 9-month FY '24 earnings call. Consumers businesses have been facing headwinds since at least last 2 quarters. And in midst of this, our Consumer Appliances business revenue stood at about INR 112 crores with 9-month revenue reaching INR 314 crores. Our growth was subdued due to muted consumer demand and inflationary concerns.
The Kitchen Appliance business remains resilient and continues to grow. Our chimneys continue their dominance on both the online platforms. We are #1 on Flipkart and #3, but reducing the gap with #2, on Amazon. We are actively expanding our portfolio in Kitchen Appliances, adding more products doubling down on the overall portfolio where we are doing well and capitalizing on our strengths in this segment and concurrently, also working to streamline the product portfolio by focusing on select categories with the goal of increasing margins. We have expanded our presence with the introduction of new kitchen [ drawers ] nationwide and have also boosted our distribution network to capture increasing demand. The setting up of several residential apartments is also an opportunity that we are looking at more from the B2B perspective. Although post festive season can experience destocking, indicating weak consumer sentiment, we anticipate a recovery in the premium residential segment over the year. In conclusion, we are using this macro consumer slowdown, trying to put few things in order. There are 2 themes that we are currently working on. The first one is our rationalization of the portfolio, where we are doubling down on the kitchen part where we are doing well.
We're also exiting some nonperforming and low-performing categories so that we can focus the resources on the areas that we are doing well. And the second theme is to put the business hygiene in place where cost, both product as well as operational, is under focus. We are putting some corrections there and also improving the efficiency on the operational front. That concludes the opening remarks, and I would like to ask the moderator to open the floor for question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Praveen Sahay from Prabhudas Lilladher.
Sir, first question is related to the Bathware segment. And in the Bathware segment, what we observed that the peers or even the smaller peers who has ventured out in this business are doing far better in terms of the growth. And looking at the 9-month numbers, their growth rate is better than ours. So is that somewhere in the market share shift we are seeing in the Bathware segment?
So this is Sudhanshu, and basically, we have seen in the last 3, 4 years, just about every tile company has got into Bathware segment in a notional way. And for -- to the best of our understanding, none of them have achieved any significant revenue as of now. The way the market is structured, when you -- we already have some network and when you placed your first product into the market, a primary dispatch has happened and revenue gets booked in the books.
We have seen many companies after doing initial revenues not -- and then when you do initial revenues, you do it on zero volume, so your growth look very, very high. But not many companies have been able to follow up on similar growth [Technical Difficulty]. So to answer your question, yes, the competition has intensified across sanitaryware and faucet business because existing tile brands have come into this business. However, this business unlike -- it's not -- we don't believe this business will be a building materials business. We believe this business will be a consumer business wherein brands are very, very important and basis the brand consumer buys the product. So I'm sure that we will see consumers coming to the bigger brands over a long-term period. So to answer your question, yes, there is competition. We can't stop competition from happening. But yes, have they made a dent? Yes, initially they would have, but we don't believe in a larger scheme of things, with larger competition in mind, we have lost any share. We have actually done -- performed better than all the other listed peers as well if you look at their -- the last quarter results even if [Technical Difficulty] over the last 8 to 10 quarters, the answer is evident.
Okay. Got it. And if any color on the segment like 5.5% of growth in the Bathware, how is sanitaryware, how the faucet has done?
Yes. So for us, both our segments are positive. And of course, our faucet ware business is actually doing far better. It's a low single digit for sanitaryware and double-digit for faucets.
Okay. So double-digit for this quarter and even for 9 months?
Yes, yes, yes. This is static. What I'm saying is for the full year only. And in my view, we have seen some -- like a muted demand as we have seen in the entire category. But if you look at the real estate sector, the real estate sector goes through a cycle.
What we saw last 2 years when we saw huge demand for this business, if you will recall, last 2 years, I mean, even our business grew by nearly 39% or nearly 30% in the last previous 2 years. This year, we've seen a muted demand because of the real estate cycle. What we see is an early-stage real estate cycle right now and for which demand for our products will come in, in the next financial year. So I personally believe this muted demand will start looking at clearly positive as we enter the next year when construction gets into a cycle with sanitaryware and faucets gets installed in construction.
Sir, next question is related to the pipe business. As I see, our large peers has delivered a very good growth of a double digit, whereas our number is in the decline on the Y-o-Y side, and similarly, we had also seen that the EBITDA per kg number has also significantly down for a quarter. So what's the way forward? Like we are expected to come in the positive in the coming year. How is the volume is shaping up? And why we are get impacted versus large peers more?
Okay. This is Rajesh here. You have sort of 2 parts in your question. One is that what you said is the large -- so it's only -- because almost everybody has reported their balance sheet. So only 2 companies, if you have gone through their transcript, 2 companies have reported volume growth. The prices are at all-time low. So nobody talks about volume.
But volume, if you see what they have indicated there is all this volume growth, whichever has come in some new product categories, which have been introduced last 3 to 4 years only. So the categories like underground drainage, double wall corrugated, fire sprinklers, column pipe systems and also the volumes has come now on a very higher side from government space, that is huge, Jal Jeevan Mission project, which is going on, which is Modi-ji's dream, Har Ghar Jal, and that's all HDPE. Let me tell you, we are not into that category. We are just 4 years old into the market, this is our fifth year of operation. So when we entered into this market, we have come with the plumping category. And now we will be introducing -- clearly, we are working on this. This year, we'll be coming up in 3 of the categories out of these 4 categories. So all these categories have shown growth in their volumes, where we are not participants. Otherwise, all other people, if you see, they have degrown volume. That is one thing. Second is, once we are there now, we definitely have a vision that the next quarter, this quarter and then the next year, we will have a volume growth. If you see our YTD growth, that's almost around more than 11%. This is almost similar to all the peers. But yes, definitely, as far as Q3 is concerned, we have degrown by 4% of volume, and we look forward positively to next year where we will be marginally very high as far as our volume growth is concerned.
Okay. Any color on the EBITDA per kg because there, we had seen a significant correction.
Yes. What happens in this industry is that directly if the prices go up, that is the trend, you must be knowing, the prices go upwards. once the resin prices go down, the price come down. So when we were at last year, exactly the same position, that is ending up quarter 3 where the raw material prices were INR 91. Presently, it is INR 76, that is down by 15%. When this happens, your average metric ton realization comes down. So that is the pressure on the net realization. We are hopeful that things will be positive in the future and then the realization will come up.
Okay. So it's largely to do with the realization, which has come down...
Absolutely correct, absolutely.
Okay, okay. Got it. And the last question, sir, related to the -- in the press release or in the presentation, you mentioned about the kitchen fitting business. So can you give some color on that? What is the industry size, competition and where we are in that segment?
We are exploring that the overall portfolio in the kitchen fitting segment. The market size is definitely around INR 7,000 crores to INR 8,000 crores. There are multiple partners, and our existing partners are already a well established brand internationally. Though one of the partners that we had tied up was acquired by a market leader company, but now the clarity is already in place, and we will be going ahead with that business in India. Our plans are to increase the portfolio, and it's a good margin business and also fixing our overall kitchen strategy where we are doing well.
Currently, we are not generating any revenue in this segment.
We are. We are currently generating revenue, though not at a large scale, but we've already tested the waters, and it goes well with the brand because of the kitchen and other fittings. And there is a market and there is also synergy within the channels. Our existing team can take care of it. So therefore, we would like to scale it up going forward.
We'll take the next question from the line of Utkarsh Nopany from BOB Capital.
Sir, my first question is on the plastic pipe segment. So as you mentioned that we are currently expanding our total portfolio range and planning to launch few products in the coming June quarter and December quarter. So I wanted a sense from you, going forward, do we expect to grow our pipe volume at a better pace than the leading player because our base is pretty low? Or do we expect to grow at par or at a lower rate going forward?
Yes. I'll answer this. See, what has happened in the past when the prices were stabilized, if you have seen last 4 years, in fact, percentage-wise, when the rates were -- as far as worldwide rates of PVC resin, we were the -- we became the largest growing company in terms of percentage in the segment, which we still are. But at the moment, now the pressures from prices, the prices are almost around 15% lower than last Q3.
What I said earlier was definitely we will grow, we are looking forward because as I said, this year itself, in the first quarter, our underground drainage machines are already, they have come, there will be trials, we'll apply for BIS licenses. And I think in Q1, we will be definitely able to show these products.
And the other 2 categories that is double wall corrugated, the machines have been already ordered. We will be doing it -- I think, almost around Q3 of this year we'll be installing these machines, and we will have a direct commercial production, and also fire sprinkler systems which are now gaining lot of ground, if you have seen recently that the normal conversion from conventional GI piping systems is now converting to CPVC piping. And the department is also giving approval for it. So we -- by this quarter 3 of this next year, we will be entering into this. So there will be definitely an incremental growth for these products, which were not there. We definitely assume a positive cadence of around 15% or more in the next financial year from the volume growth.
Okay. Sir, but on relative basis, wanted a sense from you. Say, whatever may be the market condition, are we confident of clocking better volume growth than the leading players? Or we feel that because our base has become pretty high, it would be difficult to grow at a better rate than the...
If we are talking -- see, I'll tell you, we need to clarify this once that the piping sector is a very huge sector, sir. There are almost around 11 categories of different products where people are operating. So if we talk about Supreme and Astral, they are into all the 11 categories. We were there into 4 categories. And we will be entering into 3 categories this year. So we will be into 7 categories. When we talk the comparison about apples to apples, definitely we'll be going at a very high speed and then very high speed which we have been doing in the past. But if it comes to the other categories, as I said, this Jal Jeevan Mission, that is the HDPE entire area. And as we all know that before elections, this is going to get concluded. I don't think this will be a big category next year after first quarter. So in totality, if you see we'll definitively be growing. I'm giving you a positive guideline for this but when we compare apple to apple.
Okay. Sir, my second question is on the retail segment. So I believe 2 quarters back, we mentioned that retail is not a core focus area for us, and we are evaluating alternative options. So have we arrived at some decision about it?
So we had a Board meeting yesterday and in-principle, the Board has approved that we should aggressively work on all the options relating to this, whether it is an actual foreign sale. So I think you have to bear with us for maybe another quarter or so before we finally take it to the Board and get it, have a final conclusion on this.
Okay. And sir, lastly, on the CapEx part, can you give the guidance? What is our CapEx guidance for FY '24 and '25? And how much amount we are planning to spend on our Uttarakhand unit for our pipe plant?
Okay. It's like till now in Uttarakhand plant, since we have started late because we lost 2 months in heavy excessive rain, we have just spent only INR 14 crores till now in this current financial year. Next year, we intend to spend INR 100 crores of investment in Uttarakhand because we will be commercially operating this plant by end of the December in next year. So we will be operating with a higher capacity of around 12,500 metric tons. This will again add up to the same. At the moment what is happening is, pipes exclusively the agricultural or SWR pipes, we're not able to sell in the market. We're only able to sell the other products, because we didn't have a manufacturing facility. And as the freight part in pipes is so high, you cannot transfer pipes at a larger volume to these places. So once this plant is operational, we definitely -- I come back to your question, we definitely have a chance to score better than our competitor.
Okay. And sir, our total CapEx guidance for '24 and '25?
Please go ahead.
Hello.
Yes, please go ahead.
Yes, sir, I was looking for the total CapEx guidance for FY '24 and '25, sir? That was my last question.
So one big CapEx is relating to pipe plant, which is being set up in Roorkee. And if we net it off, the total CapEx should be -- and rest of the major CapEx is towards establishment of market retail outlets. So other than the pipe plant expansion which is there, I think we should do around INR 60 crores, INR 70 crores in terms of the BPD part -- in the Bathware products part.
The next question is from the line of Nikhil Gada from Abakkus AMC.
Sir, I just have a couple of questions. Firstly, on the sanitaryware and faucets part or just Hindware overall, can you give us the A&P spend number for this particular quarter and what it was year-over-year and last quarter?
So you want exact sales number?
A&P spend, yes, advertisements and promotion spends.
Just a minute. Yes. So we've spent around INR 25-odd crores this quarter, which is about INR 9 crores to INR 10 crores higher than on an average what we do, right? That's how it is.
So was it INR 15 crores the same period last year, same quarter last year?
I'm talking ballpark numbers, yes, you're absolutely right. And this is primarily on account of the fact that we had 2 big events in the last quarter, especially relating to the World Cup, and Sudhanshu, I would request that if you can talk about our efforts.
So we -- like you said, we got an opportunity to be -- to make our brand with people around, in 48 matches, one of the biggest opportunity of impact property of the quarter, and we took that opportunity. We were available across 48 matches in a very, very widely seen World Cup, nearly 4.5 crores, 5 crores people saw our ad for nearly 25, 30 times in a match for 48 matches. So that's where we spend that money, but yes, and I gave you the number as well.
So if we sort of adjust for this, the extra INR 10 crores, INR 12 crores spend, then we are seeing the margins are broadly in line with the run rate that we have seen for the past couple of quarters, right? There is no change in product mix is what I'm trying to say. Any adverse product?
Absolutely. We have absolutely no issue, in fact. And I would also like to bring to your notice that for the 9-month period, our EBITDA margins improved by 200 basis points from 13.4% to 15.4%. If you see -- if you remember, our guidance in the previous calls have always been about 100 basis points improvement.
But on a 9-month basis, even after doing this extra spend in this quarter, we are 200 basis point higher. So there is no adverse product mix. There is no margin pressure of any -- in fact, we're on track for our localization initiative as well, which is bound to give us further gains as we go forward. We've been mentioning in the every previous guidance calls as well.
So safe to assume that the 16%, 16.5% run rate would continue from the coming quarters for Hindware?
16%, yes. And I won't go -- 16.5% or 16% for sure, yes.
Okay. Fair enough. Secondly, sir, on the pipes business, while, sir explained about the impact on volumes, is it only the realizations have fallen just purely because of the fall in PVC prices? Or there's also some product mix angle as well? And just in that the margin part, were there any inventory losses as well in this quarter?
As I said earlier also, purely the resin rate as on December 31 have fallen by 15%. That is from INR 91 to INR 76 and realization PVC has gone down from INR 147 to INR 125 which is exactly 15%, the same, there's no change. As far as last year, we had huge -- the industry had huge inventory losses, if you recall, and we took a cue from that. We have controlled our inventories this year. So I can tell you that in this quarter only, we have booked an inventory loss of approximately INR 1.5 crores, that's all, which was very, very huge last year.
Okay, okay. So sir, do we expect, we did a commendable margins in the last quarter around 10%, 11%. So if we assume this sort of a realization run rate to continue, do you think we'll be going back to the double-digit margins? Or we also needed a volume spike up to go to those levels?
You're talking about pipes?
Yes.
Yes, definitely. See, we are expecting that maybe around by March or something, we cannot give the guideline. But definitely, there will be a correction in the prices. It has to be there. So once that happens, automatically, your system realization goes up. So that is one part. So that will definitely improve this. At the same time, when we are talking that we will enter into different categories next year, there will be an incremental growth which will come from that place. And all those categories, since they are new into the Indian market, if you understand because there will be only 4 or 5 players who will be manufacturing, in fact, Hindware is the only one manufactured in this category. So the GP margin of those products is on a higher side. We will definitely realize a better EBITDA in future.
Got it. Sir, my next question is on the consumer part of the business. When do we see this business once again going to breakeven levels at EBITDA? We have seen a significant amount of time where the growth has also not come, and also the margins have sort of dwindled away. I understand the overall demand environment, but can you give some estimates by when can we see breakeven coming in, in this business? And what kind of growth do we expect in this business in the next couple of years?
As I said earlier, we're working on some basic rationalization of portfolio and also correcting some things on the cost front, both operational and product side. These initiatives should lead to us getting to the positive side of the EBITDA front in a couple of quarters. As far as growth is concerned, we want to focus and double down on the kitchen area, where we are doing well both in online and offline now and we want to expand it further. And this should give us good growth going forward, and we will reduce our dependence and also exit certain categories which have not been doing well. That might have a temporary effect on the group, but in the long run, focusing on the kitchen is the right strategy that we want to follow, and that is how we have planned.
So if I understand what you mentioned, so in the next couple of quarters, we see EBITDA breakeven and the product rationalization should also get over in this next couple of quarters? Or it's going to be an...
Yes, yes, yes. It's [Technical Difficulty], it should get over within the next couple of quarters. Thank you.
Okay. Sir, just one last question, especially for Sandeep-ji. Sir, we look at now the 9-month net debt numbers, we are now closing INR 1,000 crores, and we were planning to bring this debt levels down. Definitely, it has gone the other way. So any realistic number in terms of when do we see this debt level or any sizable correction in this debt numbers because even on the working capital part as well, we are not seeing any major improvement across any [Technical Difficulty]?
So basically, if you see, we had given a sort of a statement at the start of the year that we should be able to run off the debt by about INR 100 crores with the profits which we are earning. So the whole market momentum has not moved the way we have planned although the numbers which we are there, the growth numbers are muted. But in terms of our EBITDA mark-to-market -- EBITDA margin protection, I think we have been able to demonstrate that on the Bathware side. So I think give us another 2 quarters, we should be able to demonstrate on what we talked about because there is no other exit of the money. So whatever is Hindware earning, actually its being deployed towards reduction of the debt only. So what I think our investors should bear with us for another quarter or so. So once the market momentum starts growing, the inventory liquidation also starts happening for the whole momentum come into the picture. Definitely, there has been some increase in the debt on account of the incremental CapEx, which is there relating to the pipes because it's very critical, Rajesh has already spoken about it that pipe business, we are not looking at what we are in the pipe business today. We are looking at a very aggressive pipe business doing almost INR 2,000 crores plus in the next 5 years for which we will require some sort of an investment because it's not a business wherein outsourcing can happen. So Rajesh has spoken about entering into newer categories and nearby categories around the core product. So we feel, give us 1 or 2 quarters, I think some level of debt should come down, but most of the debt which we are now contracting is for a long-term growth. Had we not taken pipe Roorkee plant, then that quantum of money would have definitely come down also.
So I understand, sir. But then at least the working capital is something which you...
I think for that only, I'm saying once the whole market momentum because some of the inventories are contracted in anticipation of growth. So we were expecting Q3 to be growth because generally it is a season when everything -- demand picks up. Q4 are showing some good signs.
And we feel, I think Q1, Q2 because we have seen historically, like whenever you have a muted period, after which, you get a good growth because some of the things, some of the investments which ordinary consumers have not made, then all of a sudden, it starts increasing. So we are bullish on the whole stuff and forget about all these 1 or 2 quarters, which is -- wherein we have this muted growth. We are fairly bullish on the long-term growth.
We'll take the next question from the line of Anish Jindal from Dolat Capital.
Am I audible?
Yes, sir. Sir, may we request you to use your handset, please.
Is it better now?
Yes, sir. Please continue.
Yes, so my question is for the tiles division, what is the price of natural gas sourced from Gujarat Gas at Morbi?
So we couldn't hear the question properly. You're saying where our tile is sourced from.
And what is the natural gas price we're paying for gas in Morbi?
Can you repeat your question, please?
Sorry, it was not audible. Could you repeat it?
Sir, may we request you to repeat your question, Mr. Jindal. We were not to hear you clearly.
I was asking at what price does Hindware source Gujarat Gas -- natural gas for its Morbi plant?
So we procure tiles from Morbi as tiles. We do not have a plant in Morbi right now. So I won't be able to tell you exact pricing of natural gas from Morbi.
The next question from the line of Darshil Jhaveri from Crown Capital.
[Technical Difficulty].
Mr. Jhaveri, your audio is not clear. Sir, may we request you to use your handset, please.
Just give a second. Is the audio better?
This is better, sir.
Just wanted to ask like in our Bathware segment, like 9 month [Technical Difficulty].
We can't hear you.
Sir, your voice is breaking actually.
Is it better right now?
Please try.
Sir, I was just asking that in our Bathware segment...
Sorry, sir, would you mind if I ask you to rejoin the queue because we are...
Yes, I'll rejoin the queue.
The next question is from the line of Chirag Fialoke from RatnaTraya Capital.
Question 1, on the -- I understand the guidance that the retail business you are planning to wind down. But in this 9 months, that business has sort of seen lot more investments it seems like at least on the P&L side than the last year. Last year, we made a cumulative INR 1 crore loss with that. Already we have taken INR 9 crore loss in that...
Excuse me sir, on the management line, I would request you to kindly mute your lines as there is a follow-up on the line, sir.
I'll just mute it.
Should I repeat, or was it clear, sir, the retail business, the loss that we've had in the...
Please repeat your question, sir.
Sir, my first question is on the retail business. I understand that the guidance is that we are trying to sort of come to a conclusion on that business. But for the first 3 quarters, we've cumulatively had a loss of INR 9 crores on that side, whereas the last whole year it was just, I think, INR 1 crore-odd.
So I just wanted to understand, is this -- are we trying something there, which is why we are trying to sort of increase the investments on the OpEx side? Or can you just give us a little bit more color there? How much more do we expect to sort of lose on that business this year?
The overall sales have come down, we haven't expanded the franchisee network. We were [Technical Difficulty]. And since the fixed cost have been always there as there was no growth, there has been an impact, a negative impact on the bottom line. But as we said now that we've already got the clearance and we will be moving ahead in that direction.
Understood. So it was fixed costs and the revenue going down, that's all we see, that's the only impact. There's nothing new that we are trying there.
Yes, yes, yes. There's nothing new.
Okay. Understood. My second question is on the sanitaryware component of the Building Products Division. Sequentially, there has been a little bit of a margin compression there also. Is that largely attributable to the incremental advertising costs? Or is there anything else, not on the pipe, just on the sanitaryware?
Yes. So like I answered in the previous question, yes, that's purely on account for the advertising expense which we did. We shared the numbers. We nearly have -- nearly 200 basis point impact because of the money we spend on advertising.
And a lot of that can be just attributed to only sanitary ware. Is that because you'll obviously sort of bifurcate those costs across divisions, but for sanitaryware itself, that the component was almost 200-plus basis points.
Yes, it is -- we don't -- I mean we're talking about sanitary, faucet and tiles business combined together, that's what we call BPD. BPD business, yes, that's purely on account of BPD, yes.
But not including the pipes because the pipes has sort of another impact, right? I'm just trying to make...
Not including the pipes, not including the pipes.
The next the line of Rusmik Oza from 9 Rays EquiResearch.
Sir, my question was actually on the broader thing because in the first 9 months, on a consol basis, we've done a PBT of INR 91 crores but -- sorry, on a consol basis, we've done INR 91 crores PBT in the Bathware business, but overall consol PBT is INR 30 crores. Actually, we're losing some INR 61 crores in the other businesses. So I guess the question was, we had around INR 32 crores loss in the Consumer Appliance business also in the 9 months.
So any internal guidance or aim you have, what kind of ideal EBITDA margins and net margins you are aiming for in the, one, pipe business, and two, in the consumer appliances? Because as a shareholder, if I look at it on a INR 2,000 crore revenue, our net margin is only 1.5%. So how do we move up this goal of EBITDA margin and net margin going forward? This is my concern and question.
So basically, first, let me answer on the pipe side. So there are a number of initiatives which are on the pipes. The fixed cost structure for pipe is still high. So the pipe team is working on rationalization of certain costs. And as the volume builds up, certain costs relating to the production will come down. And also relating to the fixed cost of the business, things like the manpower cost will also get rationalized over a period of time. So there, we have already given a double-digit 10% to 12% EBITDA coming through in the next 18, 24 months with all the investments which we are doing.
On the consumer side, I feel another 2 or 3 quarters will be required in terms of rationalizing the whole stuff, and we should be back to the market the way we were around 1.5 years back. Right now, this business is facing an extreme headwind not only for us, when you see the competitors and the peers also, a similar sort of numbers are coming through there also. But good part is that we have a core kitchen business today, which is now the focus area.
And we are trying to create and rationalize a strategy. Here also, given the fact that we are in this business for almost 8 years now and we are charting the path that in next 3 quarters or so, we should make it a profitable business.
Sir, just a follow-up on the same question. Sir, I assume you go to a double-digit, 10%, 12% EBITDA margin in the pipes, rationalize your Consumer Appliances business and try and improvise over there and as you all are taking initiatives to reduce the losses in the retail side. Any guidance you can give maybe the steady-state FY '25 if things have seen normalized, then what kind of consolidated EBITDA margins and net margins you can look for or aim for going forward?
So generally, we avoid giving short term as well. But historically, we have given those long-term trends. So basically, if you see it on a combined basis both the entities together over the next 24 months, we should be in the range of around 13%, 13% to 14% combined businesses, together.
Okay, okay, okay. And obviously, you said about the net debt also, but maybe on a 24 months, if you can just similarly give us a guidance at what kind of net debt are you comfortable actually with going forward?
So with all the margins which we're earning other than the CapEx which we have announced, everything goes for the debt reduction. So I think now from your side, we have built a robust business model. I think we have the first-mover advantage also in the market like what we have started doing around 5, 6 years back. The rest of the players are now experimenting in the market in terms of expanding the horizon for the brand. But I think we have the first-mover advantage, and we have demonstrated that. So we feel that we should be able to contribute our growth trajectory somewhere in the range of 15% to 17%. And EBITDA margin expansion I've given. So I think you need to drive those numbers. And what I'm talking is not immediate quarters, but I'm talking a trajectory of say 2 to 3 years CAGR.
Okay, okay. And my last question, sir, cumulative, till date, what kind of investments we've done in the pipes, plastic pipes and fitting business till date? And going forward, what kind of further investments, I think Uttarakhand plant is there. If you can give us a little bit of, cumulative, what kind of in the next 24 months -- by end of next 24 months, what will be our total investments in the pipe business? And will that drive that INR 2,000 crore -- maybe not INR 2,000 crore -- what kind of revenue potential can pipe business give by the next 24 months?
At our Hyderabad plant, Rajesh, we would have spent around, almost INR 350 crores?
This financial year, we have spent almost around INR 14 crores on our CapEx and INR 34 crores in Hyderabad and INR 14 crores in Roorkee. And we'll be spending...
CapEx done, total investment in...
CapEx spend in this financial year. And next year, we are planning to spend around INR 100 crores in Uttarakhand, that is Roorkee plant, wherein we'll be getting an additional capacity of approximately 13,000 metric tons.
So Rajesh, your question was what is the total investment in pipes at Hyderabad till now?
Yes, I wanted to understand....
We are talking about the cumulative. I didn't hear your question. Cumulative...
Sir, I wanted to understand till date in the last 5 years, what is the cumulative investments you have put into the pipes...
INR 340 crores. It's INR 340 crores.
So when [Technical Difficulty] overall pipes business, it's not only linked to Hyderabad plant and the plant in the Roorkee. We may have to entail further smaller plants for the pipes in the west or in east going forward, so which the Board has not approved today, but this is a broader plan that once the whole stuff -- so we are going to invest into, so we have a pan-India pipe business. Fittings we can continue from the Hyderabad plant.
Yes. And a small clarification, sir. You had mentioned in between that you want to aim for the INR 2,000 crores plus revenue in pipes business. By when can we achieve this figure of INR 2,000 crores, sir?
This is a plan over the next 5 years.
Next 5 years. Okay, okay.
The next question is from the line of Tushar Raghatate from KamayaKya Wealth Management.
Sir, on the investor presentation, you have mentioned that in Consumer Appliance business, like we have 180 exclusive brand store. So in which region of India is that?
We are spread all over the country with more concentration in north and east, moderate in west and a little lower in south, but we are across, and we are also focusing on the larger cities within this -- during this expansion because we feel that the growth is going to come from select clusters all over the country, considering there has been a significant urbanization, which is already underway, and will also be a source that will drive the businesses in coming years.
Keeping all that background in mind, we are driving our future growth of galleries, which further strengthen our visibility as well as retail presence of the kitchen business which is our core engine. So we will be doing this more in the cities and in Tier 2 and as I said, current presence is more in north and east, moderate in west and a little lower in south. I hope I have answered your question.
Fair enough. Sir, in terms of percentage contribution from Tier 2 and Tier 1, what would be that?
Sorry, I didn't get your question.
Sales of -- comes from Tier 2 and Tier 1.
Sorry, could you repeat the question, please?
So I just wanted to know like what would be the percentage contribution in terms of Tier 1, Tier 2, Tier 3 cities.
Percentage of sales?
Yes, yes.
It is much higher from Tier 1, around 40% and around 30% from Tier 2 and the rest from Tier 3. 45% from Tier 1, 35% from Tier 2 and the rest from Tier 3.
And sir, you online-offline mix would be?
Depends on businesses. In kitchen, we are about 35% to 37% online, and in our home appliance business, which is air coolers, we are almost about 45% to 50%.
Sir, your kitchen appliances business contribute what percentage of total Consumer Appliance business?
60% to 65%.
So -- and sir, just heater business would be what?
The retail business?
Heater. Water heater.
That's in the JV company, which is in the bottom, which is a JV company actually.
And sir in your pipe business...
Mr. Raghatate, I'm sorry to interrupt. Sir, I would request you to kindly rejoin the queue for follow-up questions. The next question is from the line of Darshil Jhaveri from Crown Capital.
I hope I am audible this time.
Yes, sir. Please continue.
So a lot of my questions have been answered. So just wanted to just get a broad understanding of the market in the Bathware segment right now. You had a muted year right now. But has the overall market degrown and we have grown, what is kind of market story that we can see play out for FY '25?
Yes. So in my view -- so you're asking me to project the future, so I'll sort of go with my view. In this -- I think what has happened in this previous year is that a lot of projects which kind of got held up during COVID and got impacted, in this FY '21 -- FY '22, '23, they got completed. We saw huge buoyancy in the market. And immediately after this, there were not -- there was a period there were no launches as for the real estate market. And those launches is what was supposed to get fructified in FY '24, which got delayed quite a lot.
In my view, we can see a lot of launches right now, but for them to really start using our products, and to actually find them, it actually got delayed. So what I believe is in FY '25, we'll see a huge buoyancy in the market. So that's one definite aspect of market demand, which is going to happen.
The other thing is that if you look at it segment-wise, we've also seen a huge buoyancy also in the upper part of the segment, like in terms of premium luxury kind of market. While the affordable housing, it has got impacted because of inflation itself in the market. So there is a correction which is happening in the overall market structure in terms of what is affordable, what is mid-premium, what is premium, what is luxury.
So this entire change is something which is happening right now. And because of the new launches getting delayed, there will definitely be an upswing in the demand as we go forward.
In the short term, you may see some impact because of the general elections because of -- I mean our business -- our markets are still cash based markets, and during general elections, there is generally a reduction in terms of committed expenses around renovation, interiors and everything. But what we believe is that the post-general election, we will see a huge buoyancy in the market coming back, which is very, very evident in terms of the way the real estate market is structured. Additionally, I think from a company perspective, we are extremely committed towards our cost reduction. So we have -- like I mentioned in the previous -- as an answer to the previous question, we have gained -- we've got a nearly 200 basis point improvement in our margins. And we expect that we will take out another INR 25-odd crores in the coming 2, 3 quarters, which will basically -- coming out of our fixed cost, which is definitely going to boost our bottom line as we go forward. So honestly, from my perspective, I see an extremely positive market sentiment as we go forward, be it on the top line, be it on the way the margins are structured, right? I hope I've answered your question.
Yes, sir. So that helps a lot, sir. So even conservatively, we can see growth in the teens for sure that like even if it maybe a bit lag coming in quarter -- not coming in quarter 1. So is that a fair assumption that not a perfect win but teens to mid-teens seems like a fair one, sir?
I mean, I'm not -- I cannot give you any specific number in terms of the teens and not teens. We've always maintained, we'll grow 1.25 to 1.5x the market. And I believe that over the long term -- on a long-term basis, the market has grown. If you look at CAGR of 8, 9 -- 7, 8 years CAGR, market has grown at anywhere between 8% to 10%. So yes, your numbers could be close to that or even better. In my view, it will be better because we believe we have gained share substantially in the last 3 years.
So we believe that our performance will continue to -- basically, as the market moves upward, I think there are 2, 3 very key levers, which should boost our margins. One is definitely this year, we have been able to enhance our margins despite a very sluggish growth on the top line.
So once we get a boost on the top line, the entire fixed cost structure start -- operating leverage starts coming into the picture. Sudhanshu has already spoken that, we are looking at various cost reductions, including manpower costs and other costs, wherein we should save around INR 20 crores, INR 25 crores on annualized basis but being implemented in the next 1 or 2 quarters. So the overall -- like the impact of this alone can be in the range of 1%, 1.5% on the overall margin, plus the in-sourcing, which is another initiative which we are doing, like reliance on imports we are trying to reduce, and we're trying to insource more. So that also will give a boost. So there are a number of initiatives which are focused either on the growth or on the cost reduction or margin expansions.
If I may, can I just ask 2 more questions, sir?
Yes.
So just wanted to ask, one, in terms of marketing, so this year, we spend good on marketing, but I think another World Cup is coming in. So what was the marketing budget for FY '24 and will it be on similar lines on FY '25 because more events are also coming up?
Yes. So we set about anywhere between 3.75% to 4% of our revenue on the marketing side. And the decision are based on the opportunity and the situation at that point in time. So quarter 3 being festive season, the World Cup happening in India give us an opportunity of a very different nature. While upcoming World Cup is coming in June, immediately after IPL, which we already sponsor, may not be a great opportunity also because World Cup is happening in America, right? So I'm saying all -- the decision making is not only basis that Cricket and World Cup and we advertise, right? It depends on so many other things. If I'm already doing a spend on IPL, which is preceding the World Cup and not going to -- and which I did last year as well, so I may not participate in this year's World Cup, the T20 World Cup which is happening in U.S. and not in India. So these decisions will happen very differently. So to answer your question, we spent about 4% on brand building. We will continue to spend that. Ideally, I would love to spend more, but at this point in time, this is what we -- as a strategic call, we've kept it at 4%. We believe this business is a consumer business and not a building material business. You can't compare it with cement business or other building material called -- so-called building material business. This is a branded business. So I would actually love to spend more than 4% of this business, but currently, to answer to your question, we spent about 4% which is our budgeted marketing spend.
That helps me a lot. So it gives me great clarity. And sir, just like last one, in our piping business, we are saying we have some higher fixed cost and manpower cost, which might get rationalized. But if I could turn in terms of utilizing, we are, I think, around 75% utilization, correct, sir, with our sales volume on our capacity. So we should be at -- so how would be the delta between getting our operating leverage for better margins in pipes? That's just what I wanted to know.
Rajesh?
The one you are talking about realization and that is better margins in terms of our products as well as the capacity utilization. If you see, we reportedly as of YTD, we are at 75% with 78% capacity utilization, and even we have gone till 85% in the last quarter. We are focusing more, the capacity will remain the same. We are in the process of adding up capacity.
The industry runs at 65% average of capacity utilization because of the various moves and prices being run on lesser number of promotions. That is how this industry runs. As far as the margins -- that is one part of the question.
As far as the margins are concerned, Mr. Sikka was already telling you we are working on -- once we are focusing more -- if you see we are focusing more into the whole system, that is why the fixed cost work because the people who handle all these products go up so that employee cost, we are definitely sure once we process and the rates come up, these employee cost are going to come down. We already -- Mr. Sikka has given a guidance that in the next couple of years, we should be definitely bringing our employee costs by around 2%.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
I thank everybody who has joined in the call today. I hope we would have been able to answer most of your questions both on the market margins for each of the business segments. If still any questions are there, we'll be happy to take any further questions. Thanks again for joining us on the call.
Thank you, members of the management. Ladies and gentlemen, on behalf of Nuvama Wealth, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.