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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening, ladies and gentlemen. Welcome to the Somany Ceramics Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equity at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. On behalf of Somany Ceramics Limited and SKP Securities, it's my pleasure to welcome you to this financial results conference call. We have with us, Mr. Abhishek Somany, Managing Director; along with Mr. Sailesh Raj Kedawat, CFO; and Mr. Kumar Sunit, AGM Finance. We'll have the opening remarks from Mr. Somany, followed by a Q&A session. Thank you, and over to you, Abhishekji.
Thank you so much. Welcome, ladies and gentlemen, to the earnings call of FY '23 Q3. We've had a muted quarter. Our sales stood at INR 612 crores and consolidated INR 618 crores. Tiles volume increased by 3.7% to 16.15 million square meters in this quarter. EBITDA was under pressure. And as a result, the PVT impact also was under pressure. We have done a tile segment revenue. If I look at it, we've done about 38% of sales in ceramics, 29% of sales in PVT and 33% of sales in GVT. Bathware, we had a very nominal growth, very, very small growth, about just 1% between last year and this year. However, over the year, we've grown at about 20%. The tiles volume, also on the 9 months, we've grown at about 11%.
The pressures on the EBITDA was on 3 accounts: one was that it was a muted sales. There was a muted quarter in terms of volume and value of sales. On a normal course, this quarter, quarter 3 would have been a much better quarter from a historical point of view. Catered with the -- coupled with the muted demand outlook in this quarter, we also had pressures of sales where there was an extra discounting, which was done to get the material in the market. There was no reduction in prices per se, but we discounted a couple of percent more to put the material in the market.
Other than that, the gas prices were also tapering off, but were still fairly high in this quarter. And we had festivities all coupled together in this quarter. And we also had pressures of the various Morbi players, which were selling at whatever price need be to get them -- get their cash flows in order. So on one hand, it was muted demand. On the other hand, it was the fuel prices. And on the third hand, it was the festivities, which was the problem from a market standpoint.
From our standpoint, we gave an extra couple of percent of discount in the market. And also, we had a little extra advertising spend than normally we would do in quarter 1 and quarter 2. So all put together, this resulted in a lower EBITDA margin, largely impacted by the fuel.
If I come to the fuel cost, the fuel cost is -- an overall fuel cost of about INR 59, INR 60. It was slightly down over Q2 FY '23, about INR 4 to INR 5 lower overall than the FY '23 Q2. So later, if somebody would need, we could give you the breakup of Kassar Morbi in South plant and also the West plant.
The average capacity utilization in Q3 was 87% in tiles, about 67% in sanitaryware and about 62% in faucets. The brand spend was a little up, like I said. Normally, we do 2.5%, 2.6%. This was a little above 3%. The network did very well. We added -- we've already added about 225 net dealers in the 9-month period. A large part of it has come in Q2 and Q3. Other than that, things were very normal apart from what we've just discussed.
Another thing I would like to mention here is that the -- going forward, we are seeing tapered gas prices, which are coming off and we are expecting the exports to pick up in the Morbi region due to which there would be lower pressure on the Indian market.
So these were the highlights for our results of Q3. I would now like the floor to be open to Q&A. Thank you very much.
[Operator Instructions] First question is from the line of Viraj Mehta from Equirus PMS.
Yes. My first question is regarding exports. Now the competitive intensity in the domestic market seems to be much higher because the export volumes seem to be suffering. Do you see any change in that in near to the medium term?
Sorry, it wasn't you. I am saying the export volume has not gone down. It has, in fact, gone up, but it's not gone up in the tune of the manufacturing setup, which came up in Morbi in the last one year. So the export volume has gone up from about INR 1,000 crores, INR 1,100 crores to approximately INR 1,400 crores a month. And this is expected to grow up even further closer to approximately INR 1,500 crores, INR 1,600 crores a month. So definitely, this has picked up a big steam and this is lowering the pressure on the Indian domestic front. So I think with the freight rates now going down, exports seem to be clearly picking up. It was just that November, December, mostly in Europe, the destocking happen looking at Christmas. And therefore, they come back again alive after holiday. So that was a lag effect. But otherwise, exports has picked up, and it's only going up further.
When I talk to some of the peers, for them, the fuel prices have gone down from INR 53, INR 54 in Q2 -- in Q3. The expectation is INR 46, INR 47 in Q4. We are already at the higher range of that. We're like at INR 58, INR 59, as you said. What kind of reduction do you see this quarter?
So the INR 54, INR 53 is the rate only for the Northern plant, I would think. Nowhere else, everywhere else, the rate is INR 59, and this has reduced. Very clear, this is reduced from January onwards. So if you look at the Northern plant, it is reduced to approximately INR 50. And the Western plant, it has reduced to slightly under INR 50 because GSPCL has flash rate. And South Plant still remains at around INR 60. And this is for pretty much the industry, there could be 1 or 2 players who have other baskets also like the Henry Hub at the GCC. Maybe their rates only for the North could be INR 2, INR 3 lower. But that's it.
But so for the combined entity, do we look at a 6%, 7% reduction this quarter?
Yes, I would think so. It already happened. From January, I'm saying that the North rate will have gone down from the INR 55, INR 56 to about INR 50. So that's about 10%. And West rate has gone down even further. South hasn't come up as much. South was at INR 62, INR 63, and that's gone down to around INR 60, INR 59, INR 60.
Right. And so I would ask...
Overall weighted average, it will go down by 6%, 7% or more.
Sure. And my last question would be regarding market share. This year, we have grown significantly better than the market because we know how market has grown and so money has definitely grown faster than the market. What is your aspiration for next year, let's say, if the market -- market leader says the market is to grow at 11%, 12%, what will be your aspiration of growth in volumes if that were to happen?
I don't think the market is going to grow at 11%, 12% domestically. That's the correction. The tile industry is lower...
Yes. Yes, total.
Yes, yes, total, sure. But let's not talk of total because all the branded players don't export, right? So where I'm not competing, what's the point of really looking at any market share. So from an export point of view, if I double my export also, I don't want to able to move the needle for me in terms of total revenue. It's such a low base. You understand what I mean?
So let's talk of basically the domestic. In the domestic, we are fairly confident of, again achieving double-digit figures -- decent double-digit figures. So I won't say it would be the 20% odd figures, but it would be on the mid-teens, higher teens is what something we could think of in value terms.
We'll take the next question from the line of Ritesh Shah from Investec. Mr. Ritesh Shah, your line is talk mode. Please go ahead with your question.
As there is no response from the current participant, we'll move on to the next question from the line of Sujit Jain from the ASK Investment Managers.
Just 1 question.
Mr. Jain, your audio is breaking while doing your question.
Can you hear me now loud and clear?
Loud and clear.
Yes. So I just want to ask you how much for you would be demand which is coming from replacement just to have a general sense and how much would be from new projects?
Sir, it's always been very difficult to figure out that, but our best guess scenario is the replacement demand in the tile industry, not for us, but the tile industry per se is between 15% and 20%.
And because -- and would you be more urban-centric overall in your distribution?
Urban, yes. But not Tier 1 and Tier 2 towns. Our -- large part of our sales, 75% and more or you can say 75% is coming from Tier 3, 4, 5 towns, maybe some bit of Tier 2. So urban, yes. I don't think tile has really gone very, very rural. That's something to look forward to in the future. As of now, we would be in concrete towns and not in the hut town. So that's what we mean by urban and rural.
Got that. So similar percentages would be for you as well, most likely in terms of replacement versus new projects, right?
Yes, sir. So I -- the second part of the question, which was urban. And the Tier 2, Tier 3, Tier 4, that was for Somany Ceramics, that were not for the tile industry. We are very in Tier 2, Tier 3, but in -- as far as the replacement, that's an industry phenomena, which I told you, which is between 15% and 20%.
And number of distributors for you as things stand today?
So we have approximately -- on record, we have about 3,900 or 4,000 dealers. But what we've built to is approximately 2,400 to 2,500. And when I mean, when we build to that means there's a regular billing with these partners.
And one last question. While we've seen pickup in real estate, there is some slowdown in terms of bookings of the numbers that real estate companies give out. Do you sense any hampering in terms of real estate demand because of that going forward?
I think the real estate has finally come back after a 10-year lull and if I see across the -- across India, there have been new projects which are launched. And in real estate, we are the last to be consumed. So therefore, whatever project gets launched today, we only come into the picture or in a sales situation 18 months from inception, 18 to 24 months. But -- and real estate is a large play for a lot of the Morbi players. So we will see a lot more of the more players supplying to the real estate price.
One last question. I joined the call a little late. So pardon me if this is a repetitive question. In terms of your guidance, in terms of volumes and over medium term as well?
So medium term is something which -- it's already on quarter 4, really. So -- but for next year, we are guiding a mid-teen growth.
And you think you can continue that over a 3-year time frame?
It depends on how quickly we grow next year. I don't think I can predict 3 years. And again, the base would have increased, but I do believe that it would be in double digits, obviously, teens, not double digits are about 20. But obviously, in teens, we should be able to do at least for the next 24 months. And then I think we are on a call every quarter, so I would recalibrate that for you. But next year, at least, we are very sure of mid-teens.
The next question is from the line of Ritesh Shah from Investec.
I'm audible?
Yes, absolutely, Ritesh.
Yes, yes. Sir, a couple of questions. First is in your initial remarks, you indicated giving a certain percentage point discounts to drive volumes, I just wanted to understand your thought process from a perspective of price elasticity demand. We are a solid brand we have pan India distribution. So how is it that you can call on a certain percentage discounts structurally push volumes? I would like to have a thoughts really.
Really, discounts for the terminology are used generally incentivize the dealers. So you generally put in schemes to incentivize the dealer to pick up material in a muted market. So there's been no price reduction. Mind you, there has been no price reduction. It is just that we've given schemes. Now schemes goes in many forms, which could be [indiscernible] schemes, it could be the [indiscernible] schemes that could be credit note given to the dealer. So all encompassing, it's been approximately 1%, 1.2% extra discounting, which we've done to incentivize the dealer to pick up material in a muted market.
That's helpful. But sir, when we do this, what is the competition that we look at? Is it the organized sector? Or is it Morbi?
Always the organized sector. We have a 25% -- 20% to 25% difference between us and the Morbi player. So if we start looking at that, then there's no bottom.
Correct. Perfect. That's very useful. Sir, my second question is, can you detail on our fuel mix say, LPG, long-term, medium-term contracts, biofuel, if at all, there is any mix on a quarter-on-quarter basis, that would be very useful.
So last quarter, we ran a reasonable amount of plants, approximately 60% of our plants on LPG, right? And biofuel is only used for our spray dryers nowhere else. That's been used for -- from inception. So we continue to use that. In the Northern plant, we used to use -- pre the NGT orders of 2 years ago, we used to use coal in our spray dryer in a chain store. Now since the last 2 years, we've stopped using coal, and we've had to move to biofuel due to the NGT order. So in the North, it is all biofuel to run spray dryer and so is the case in most of our other plants. But as far as our kilns is concerned, which is the 85% of our energy goes into firing our kilns -- 80% of our energy goes into firing our kilns. That we ran 60%, once again, I would repeat, of our total production on LPG last quarter. As we speak, the LPG is virtually out because the gas prices have come down and LPG generally goes up in the winter months. That's been the practice. We did not know that because we've never used LPG earlier. But right now, as we speak, I think about 10% to 15% of our plants are running on LPG, and the rest of the plants have moved to natural gas because natural gas has become at par or cheaper than LPG. And going forward, the way it is looking, I think in the months of February and March, most of the plants will go on natural gas, until LPG comes down further in the month of April and May, and this is completely fungible. So therefore, if LPG comes down a substantial amount than gas, we would move back to LPG. It takes only 6, 8 hours for us to move.
Wonderful. Sir, last question, how should one look at the pricing trends incrementally? So there is cost deflation. Do you think we'll be able to maintain prices? Or how should we look at this?
Yes. So what has happened is that in quarter 2 end and quarter 3, pretty much the whole amount of the quarter 3, Morbi had already moved to LPG, which means that the reduction in gas price, which we are seeing in LNG, especially in the Morbi area, that was already factored in because it was INR 60, LPG was then costing them INR 52 -- INR 51, INR 52. That INR 51, INR 52 has gone down to about INR 49. So it's not a big difference. So this was already factored into the pricing. Therefore, any further reduction in our Northern plant and our Southern plant, that is something we would be able to keep because Morbi's pricing has already factored in about INR 50 or INR 49 a standard cubic meter of gas. In the entire quarter, it has already happened. So I don't see any other further price corrections going forward because gas hasn't fallen under that price.
The next question is from the line of Nikhil Agrawal from VT Capital.
I was hearing that like there was news that ADD on tiles -- on Indian tiles in Saudi Arabia is about to be removed.
Sorry to interrupt you, Mr. Agrawal, please use the handset mode. The audio is not very clear.
Okay. sure. Hello? Is it better now?
Yes.
So sir, I was hearing that Saudi Arabia, they're planning to remove the ADD, antidumping duty on Indian tiles. So just wanted to know like do you have anything on that? And like how much would it benefit the organized players? Like if you could give some groundwork figure or something?
So organized players never really exported to the Saudi when the antidumping was not there and when the antidumping thing was there. So it's a Morbi play. So we don't get affected either ways. But for India Inc., from a title perspective, it would be a great advantage if this has to go. And you're very right, even we've heard the same that they are planning to remove it. So UAE has taken the lead. They have already removed the antidumping as we speak.
Okay. Sir, actually, I mean that like -- since the antidumping is removed. So the -- so Morbi players, they start exporting more?
Yes, that's true.
I mean -- so indirectly, it would benefit the organized players, right?
That's right.
Okay. And anything from U.S. as well? Like are they planning to remove the antidumping? Like India, they don't have but on China or anything?
No. Antidumping like duties are generally levied for 5 years, and it's a definitive antidumping duty, of which only a year or maybe 15 months is over. It was put last January, if I'm not mistaken, the anti-dumping on China. So India has a good headroom. In fact, as we speak, the largest -- single largest export to a particular country has now become the U.S., which earlier used to be the Saudi.
Okay. So when is the antidumping duty expected to expire on U.S. -- on Chinese as in the U.S.?
I just said 5 years, only 15 months ago have got over.
Okay. Sorry. And sir, just one more question. Like regarding biofuel. So you said that you like -- your factories won't shift to biofuels going forward?
No, biofuel, you can only use for spray dryers. You cannot use biofuel even if you want to in kilns. So kilns are only fungible between propane, LPG and natural gas. The spray dryers are fungible between coal, biofuel, various kinds of biofuel and gas. So whichever is cheaper, we use in most of the plants. In the North, it is fungible, but I can't use coal. So in the Northern plant, it is fungible between gas and biofuel.
The next question is from the line of Alisha Mahawla from Envision Capital.
Just wanted to understand the increase in finance costs sequentially, the number has gone up quite substantially.
Yes, I would let Sailesh take that answer -- question. Finance costs.
We hardly any increase in finance costs, it remains the same quarter-on-quarter.
The INR 10 crores has become INR 12 crores, which was INR 7 crores in the first quarter and similar amount in the -- in Q3 of last year.
Okay. Okay. You're referring to the consumed number.
Yes.
There are some additional load -- there has some additional project we put, right? There is a new project which has come. The finance cost is on account of that project.
We've also seen sharp -- hello?
Yes.
Yes. We've also seen a sharp increase in inventory on 9-month number versus March of '22.
There's a muted demand. I think inventory increased across the industry. You would see across the industry, there's a muted demand. And we have ensured that our production units are not shut down. We have continued running them at an optimal capacity, right, because we believe that demand is going to go up.
Yes. So the manufacturing has run at 87% capacity, like I mentioned. So to that extent, the October, November, December were a muted demand. And as I said again, we're getting into quarter 4. So we don't want to be in a situation where we don't have enough tile. So there's been a little bit of a mismatch last quarter of approximately 4 to 5 days. If you see historically, our inventories in quarter 4 would have been approximately at the 50-day level, which is currently at the 60-, 62-day level. So maybe 4, 5 days was a mismatch. The rest of it is on the account of pure muted demand.
But when do we expect this to normalize? Because even for next year, they are saying in value term mid-teens growth, which means that the volume growth will be slightly lower and the buildup of inventory looks kind of sharp from 275 to 400-odd is the number in the presentation on consolidation.
See, even this year over last year's square meterage, we'll put in nothing less than 6 million, 7 million square meters extra this year in the market. So next year, if you put in another 6 million, 7 million. So they see inventory is very easy to control. You lower your capacity utilization; you can control the inventory. So that's very simple to do. But again, that eases the pressure on sales and marketing.
Okay. Any guidance on the margin, sir? When did...
Just to clarify, beyond the point, it's a very volume and is material. So beyond the point, I can't keep inventory. So at the end of the day, the plants do go into shutdown like I did in COVID times because you can't hold more than so -- it's only this much inventory you can hold in the plant.
Sure, understood. Any guidance on when the margins can go back to the double digits that we used to do for the previous 2 years and the aspiration goes to improving.
So I don't think I can make any forward-looking statements there because there's a serious amount of volatility in the gas pricing. But I do believe that if the gas pricing remains the same, and we are able to push in the amount of value volume we are planning to, obviously, this would keep increasing a couple of hundred basis points over time, but I can't make any forward-looking statement as to when this would happen, owing to the extreme volatility in the gas pricing.
But with gas now with INR 53-, INR 54-odd, like you said, and assuming it stays at this, can we expect sequential margin improvement?
Sure.
If it stays at this INR 53, INR 54?
But I would suppose that it would only keep going down month-on-month, hopefully. So yes, we can. We can assume that.
Okay. So sequentially, we can do, it will take some time. Got it.
The next question is from the line of Dhwanil Desai from Turtle Capital.
My first question is the market leader in the call was indicating that the savings, which we may get from the lower gas cost, may be passed on as a discounting. So are we likely to follow that? Or will we have to follow to ensure that we get the volume growth? Any sense on that.
What did you say? I'm sorry, I missed you. You were not clear at that.
Yes. So essentially, market leader was saying that some of the benefits of lower gas cost will be passed on as a higher discounting. So I mean, are we likely to follow that? Or we think that we'll be able to hold on to our pricing and realization?
So I think they were at a higher cost than us. So I would think that they would be right in saying that in terms of South and West because South and West, we are at the same gas pricing. But any advantage which flows through in the North, because North our gas pricing is slightly higher than what we are in the West plant. Therefore, we should be able to get some benefits from the Northern plant. In the Southern plants, we are at a much higher gas price than in the West plant. So from that point of view, we have anyway having to discount it further because we're producing at a higher cost and the material which is coming in at Morbi, is coming at a lower cost because the gas pricing is lower. So until the South gas price also doesn't start correcting sharply, there, we will have to discount. And the West, it's a pass-through any which ways. But in the North, I do not think we would have that kind of pressure. We should be able to retain some margins after lowering of gas price.
Sure, sure, sure. And second question is, you indicated that next year also, we are expecting mid-teen kind of a volume growth. And whatever that we hear from various industry players, is that even in the current quarter, the demand environment is quite muted. So what gives you that confidence that next year you'll be able to get that mid-teen kind of volume growth?
So I think what gives me the confidence for the demand to be picking up is, a, we the festivities, which happened in October all bunched together is behind us. And I think there was an extreme winter, which is also behind us. And another thing is that a lot of the focus had moved as the economy opening up, especially with weddings, marriages, et cetera, that also is something which is behind us. And coupled with that, we are seeing a revival in the real estate, coupled with that, we've seen that the inflation has also peaked out. So people were waiting the earlier -- gentleman had asked that there's muted demand in terms of real estate being booked. Obviously, because the real estate gets hit when the interest rates go up. I think that interest rate cycle also, we'll see in the next couple of quarters start going down, so buyers would start coming in again.
So overall, I think we should be in a much better position as what we were this year. And this year, there was another major issue that the dealer was buying only as much as he wanted, because gas prices were moving up and down pretty much on a 15-day basis. That kind of volatility I, at least, haven't seen in the 25 years of my career. If that volatility not there, the dealer is also that much more secure when it picks up the stock. So all of these combined, I think we're definitely looking at a much better next few quarters. However, at the same time, I do believe that India, we are looking at the global scenario, at least for the next one-year, rural India and a lot of the other parts of India are going to be under pressure. There is clear indications of money market being tight. However, our receivables have been very good, but generally, money market is tight, secondary sales are not happening. So all those do effect, but those things will start getting eased out because last year has been a fairly exceptional year in terms of pretty much all commodity prices going through sky-high pricing. So those are the indicators, which we feel that the worst is over and things can only get better from now unless otherwise another war happens.
Just a follow-up on that. So I mean, do you think that in this entire things that you have that next year, we'll be able to grow at mid-teens kind of volume growth? Morbi holds the wild card in terms of export. That doesn't happen as per plan. We may have really look at those assumptions.
Sorry?
The Morbi exports, if that doesn't pick up as expected, then will we have to relook at those 15% volume growth assumption?
No, I don't think so because this year also, we've grown reasonably well. And I don't think we can be as pessimistic as that because while China has an antidumping pretty much in the world, there is no reason for Morbi not to go up over there. Also, we are seeing that freight rates have absolutely gone [indiscernible] last year, which have come off in the last 3 months. Every month on month, it has started going down. There is no reason for freight rates to go up any further. So from that point of view, there is no reason for Morbi not to export, unless and otherwise there's an antidumping initiated in India -- on India, which currently that [Foreign Language] of Europe, that also has gone away. Europe has only levied a 6% antidumping. So we're very safe there. So from that point of view, I don't see any reason by India not to do exports.
The next question is from the line of Gunit Singh from Counter Cyclical Investments.
I would just like to get some sense on the advertisement and sales promotion expense for the 9 months and also for the last year -- financial year 2020.
Last year, we did about INR 46 crore, INR 47 crores. This year, we'll do close to about INR 58 crores to INR 60 crores.
All right. Is the spend also related to the muted demand that we're seeing? Or is it just a routine increase?
As a percentage, obviously, because we didn't want to take off anything off the table from advertising because this is a long-term investment. But as a percentage, obviously, if we would have put in INR 50 crore of revenue in quarter 3, my percentage would have been pretty much okay. So somewhere on the -- somewhere indirectly directly, you're right. It does have an effect. The muted demand has an effect.
The next question is from the line of Achal Lohade from JM Financial.
My question was with respect to AMP. Can you help us with the 3Q spend in 3Q FY '23 and Y-o-Y last year, same quarter?
Achal, yes. So in third Q -- Q3, it's INR 13 crores current quarter. And in 9 months, we reached to INR 40 crore plus, and we are expected to reach to a level of INR 58 crores, INR 60 crores for the year.
Same quarter last month?
So our spend is much higher in the current quarter, Q3. The corresponding Q3 was lower base for various reasons. So that was on a lower number, around INR 10 crore, INR 12 crore Q3 last year.
And 9 months?
9 months last year was approximately INR 25 crores, INR 27 crores.
Got it. With respect to the demand part of it, Abhishekji, you mentioned that basically the hope is driven by the inflation and interest rates and the macro part of it, if I hear you right, and exports are expected to remain robust, right? So from pricing scenario perspective, I know it could be a repetitive question, but is it fair to say that the further pricing pressure is unlikely from Morbi in terms of our realization?
So currently, yes, you're right. Because like I mentioned that they had already factored in a lower gas price because they were running on LPG. Therefore, they've only moved from LPG to natural gas because it's an easier fuel to handle. But the pricing really hasn't changed for them. So currently, there is no reason for them to reduce pricing.
The other reason they were reducing pricing was basically -- so the problem is not in the top 20 Morbi players. The problem was with the -- at the bottom 400, 500 Morbi players who were basically so strapped for paying GST, paying for gas, paying for salaries. They were willing to sell the tiles at any price, even at a loss, to keep running their cash flows. It was devil and the deep sea, one side it was shutting the plant and x amount of loss, one side, it was discounting it and reducing the loss. So I think that was the phenomenon happening. And as you very rightly know that in Morbi, everything happens on 2 accounts, on cash and on cheque. So I think they had never envisaged that the gas pricing would go so high.
So all their books had gone completely haywire from that point of view. And therefore, they started selling. So there's a new terminology in Morbi. There's a separate pricing, which is called a onetime pricing. So that's what really plays [indiscernible]. I think that seems to be over us because the gas volatility is kind of behind us. I hope so.
Okay. And with respect to channel inventory, how do you see, has the channel already stocked up as Morbi has been pushy and if the other peers have also pushed?
No. I think the month-end pushes are always there, but I doubt. I don't think the channel is anywhere close to where it used to be in terms of stocking for 2 reasons: a, it's been very, very early in the days where gas prices have started coming down. So they are anywhere we're very skeptical of rice price is going up or going down. Now that it's going down, they are always cared that tomorrow the prices may come off even more. They're not sure how much the gas prices would come down. They're not sure of who was using LPG and who was using LNG. So I think they are skeptical and they are tentative to not stop too much and then having a problem of next year -- next month lifting to be at a lower price and then previous month would have been money stuck. So number one is that.
Number two is that great indicator is that my receivable cycle is not under pressure, such all. My receivable has only become better. So on one side, I'm saying that it's muted demand and money market is tight. But on the other side, my receivable cycle is the same or slightly better, which is a clear indicator that the dealer is buying only as much as he can do in secondary sale. So he's not stocking too much. The minute you -- the dealer started stocking, that's when you start seeing the receivable cycle deteriorating. So these are the 2 indicators which is -- with a reasonable amount of confidence, I can say that the dealers are not hugely stocked. Obviously, month end, they get a little extra stock but not hugely stock like how it used to be earlier.
Got it. If you could help us with the 9 months, what is the cash flow from operation and the CapEx number, consolidated level?
Sure. Sailesh, do you want to take that?
Yes. So largely, actually it is in tandem to the cash profit generated by the consolidated P&L because there is no major movement as far as working capital cash flow is concerned. In fact, our almost INR 100 crore is lumped in, in additional inventory at a consolidated level. So adjusting that, we are at the similar level of cash -- a single level of cash flow generated from the cash profit of the P&L.
Any numbers, Sailesh, you could help us with?
It's not readily available in front of me. We can connect offline.
Sure, sure. And just the last question, if I may, with respect to CapEx. How do we look at what capacity addition there? And what kind of CapEx we would re-set for FY '24, '25?
Yes. So as you know, the Somany max plant, which is coming up in Morbi, at a cost of approximately INR 170 crores. That is the only CapEx which is there. Partly, it has already been done. Some part of it is still to be done in the next year. So that is one CapEx which we are doing. There could be, obviously, routine CapEx is around the existing system. And as we have just announced, we are looking at setting up a JV. We're exploring to look up -- to set up a JV in Nepal, which would -- which I think I would be in a better position to tell you exactly what the CapEx needs would be and how that would be structured, maybe in the next call.
The next question is from the line of Keshav Lahoti from HDFC Securities.
I just want to understand why have you increased the ad spend in this tough quarter of quarter 3 when fuel prices were already high? What was the idea behind this?
No, it's a long-term investment, which we do in any way generally in the quarter 3, quarter 4, expense are larger because we typically in the tile industry start advertising after the clutter of the Diwali season. So a little part of advertising happens in that window, which we get after the rains and before the Diwali season, and then most of the advertising kicks in after the Diwali season. So it generally blows up, if you've seen historically also, in quarter 3 and quarter 4.
Okay.. Got it. And what sort of margins you would be looking in next quarter? And whether the dealer discount will also further increase in quarter 4 as fuel prices are coming down?
No, the dealer discount is not related with fuel prices. The dealer discount and schemes are all generally related to how the market is. So the way it is looking is not super of the market. So maybe a little bit of discounting continues in this quarter to push in that extra material. We're all also sitting on a decent amount of inventory and capacity utilization is always number one on our card. So to that extent, dealer discounting may happen a little bit, not discounting in terms of cash discounting, but probably in terms of schemes and incentives.
On the other hand, as far as margins are concerned, it obviously would be better than the quarter 3, but how much better, it would only depend on how much the dealer discounting and how the market performs and mostly to do with fuel. Because fuel goes down, but we don't have 100% BI as to -- we're not sure exactly how GAIL really builds us. It's normally on a 3-month moving average of the Brent. But there is a little bit of a slip between the lip and the cup. So as and when, we would know. But yes, definitely, margins would be better. A, there would be better volume in the quarter and also there would be slightly better margins if the gas prices remains the same.
Okay. Got it. Although we have discussed the fuel targets, is it possible for you to share region-wise trend for Q3 fuel prices?
Increase?
Sorry?
Region-wise trend of fuel prices for Q3 not less than....
Mr. Lahoti, sir, please use the handset for your...
You want region-wise fuel prices?
I didn't hear you.
Yes, I just want region-wise trend of fuel prices.
Okay. In the North, it is approximately INR 57 in Q3, in the Morbi area, it was INR 62, and in the South, it was INR 61. Now as we speak, the Northern plant from INR 57 has gone down to approximately INR 52. And the Morbi area from INR 63 has gone down to INR 50, and the South area remained the same.
Okay. So South is at INR 60 right now. Perfect.
Yes.
Yes. So South was INR 61 in Q3, you said. Perfect.
Yes, Yes. Yes. And it remains the same, plus or minus INR 0.50 or INR 1.
Got it. One last question from my side. So there is talks about Morbi going for a further 1-month shutdown. So what is the scenario? And what is your take on this, whether this is materialized or not?
That's news to me. I haven't heard it. And when were they talking about the shutdown, if you -- if whatever you heard?
They shut a few weeks back.
And when? What was the timing of that? What were they saying?
So we heard there is an extra stock in Morbi. So possibly, they might take a further 1-month type of a shutdown to lower the inventory levels.
I'll find out. First time I'm hearing this in the last couple of months.
The next question is from the line of Karan Bhatelia from Asian Market Securities.
Sir, how do we see our Bathware portfolio shaping up in terms of revenue and in terms of margins as well for the next 2 years?
Yes. So revenue, we were expecting a much better growth this year. We should be able to manage a plus 20% growth for sure. But the margins are flat than last year at about 12%, 13% EBITDA level, and it continues to be the same. Next year, we are -- we would be focusing a lot more on Bathware. So we should be able to grow at the same pace or even better in the next 1 year at a higher base.
Right, right. And what kind of dealer overlap do we see in terms of tiles and Bathware going ahead? And then SKU addition with respect to...
Yes. SKU addition keeps happening quarter-on-quarter, any which we've -- recently we've launch with some new SKU additions in colored, faucets and some other pieces of sanitaryware. As far as dealer overlap is concerned, well, 90% of the dealers stock sanitaryware, like they stock tile. But not all of our dealers are dealing with our sanitaryware. The current dealer overlap is approximately -- if I'm not mistaken, I would want to get back to you. But what I remember, last -- I mean I had asked them is, I think about 600 dealers is an overlap, which we have. So good headroom over there to convert other tile dealers who are loyal to us to sanitaryware.
Right. Right. And so sir, one bookkeeping question on gross debt and CapEx outlook for this year.
Yes. So CapEx outlook, I just mentioned, the balance amount of the CapEx of the Somany Max plant is something which will happen during the course of the year. That plant, we hope to start in August, September of this year, rather fire up in August, September of this year. And as far as the other CapEX concerned, other than routine CapEx, we are looking at a proposal to set up a JV in Nepal, very early stages. A little more of that would be available for you in the next call. But yes, we are thinking of putting up a JV in the Nepal.
And gross debt numbers as on debt.
Yes. So gross debt number, Sailesh, I would let you answer that.
Consol numbers.
Yes, consol gross debt number today is INR 523 crores.
Ladies and gentlemen, we will take the last 3 questions. The next question is from the line of Aasim Bharde from DAM Capital Advisors.
I just wanted 2 clarifications. First, on the FY '24 guidance, the mid-teen growth you talked about was volume, right? And value should be a similar level? Or would that come off despite the product mix improving?
So no, Aasim, so just a clarification. The mid-teen growth was with respect to the overall growth, though it would be primarily driven by the volume, but that was for the overall number of growth.
Okay. Okay. Got it. And just -- I don't know if you mentioned it, but did you talk about FY '23 volume growth, 9 months you have done 11%? Would be able to do the same or better for the entire FY '23?
I think we have given a directional guidance. Let's keep with that for the time being.
Okay. Sure. And just last clarification. What was the reason for higher financial costs in Q3? I missed that.
I think it was clarified earlier also. It was primarily on account of 2. One, the increasing interest costs whatever increase -- continuous increase happened quarter-on-quarter over the last 12 months, that would be broadly an external factor and link with the repo rate, which is consistently going up. And second, the additional few debts, which is coming in our 2 subsidiaries, 2 JVs with respect to the expansion. So these 2 things put together resulted in the additional finance costs Y-o-Y.
Okay. Just what was the gross debt number for a 6-month period? You said 5 23 for 9 months? How much has that increased in Q3?
So Q3 is by and large intact, there is no major change in that number as far as September versus December. But the finance cost, which you are comparing is Y-on-Y, that was which is 1 year back. So these are the...
Also there has been some increase, I think, 2-odd crores. And I think it has increased from Q1 levels as well. So actually, that was basically what I wanted to know.
So that's primarily because of the rising interest costs, which is happening on every by monthly basis. So that's primarily because of that. Otherwise, gross debt number movement is not more than INR 20 crores, September versus December.
The next question is from the line of Viraj Mehta from Equirus PMS.
Sir -- sorry, my questions had been answered.
The next question is from the line of Ritesh Shah from Investec.
Sir, I just wanted to know your thoughts behind Nepal, if that's possible. That's one. And in notes to account, that is point number 5, which talks about Board had approved INR 115 crores towards Somany Piastrelle Private Limited.
Piastrelle.
Yes. Sir, if you can just explain those 2 points, that would be great, sir.
So Nepal, we have a decent sale, and there has been a recent increase in duty in Nepal for Indian building material products, a lot of them. And tiles being a voluminous product, we saw an opportunity to put up a small plant there. The market size is nothing very large. So therefore, we will put a small plant, and we're looking at a decent market size going forward. And we are also exploring the possibility that 75%, 80% of the plant gets consumed in Nepal and maybe 15%, 20%, depending on how is the plant structured and what product we make -- 15%, 20% of that plant can also come back to India and some border towns. But largely, the plant will be focused towards Nepal. So that's the view which we took in the past. We are in exploratory stage. I think figuring out which product to put reasonably advanced stages as far as the other thing is concerned of identifying land area, et cetera. So it's -- I will have a lot more data for you, what we are doing in Nepal by the next call. So obviously, before that next call, but the next opportunity we will get to speak to you is in the next call.
And the second question, I would like Sailesh take that up, please.
Somany Piastrelle, today current structure of funding is that this company is fully funded by the holding company, Somany Ceramics only. The current mix is a mix of debt and equity, where we have infused INR 115 crores of unsecured loans to the company. We had a relook at the funding of the company. And having regard to the current market scenario, we found it to be prudent to be funding it more through equity structure. So this INR 115 crore predominantly is for restructuring of the loan which is there. So this money will go, and a substantial part of this money will be reused for repayment of outstanding unsecured loans.
Sir, any specific figure for us to revisit the capital structure for this particular entity?
So today, the funding is INR 10 crores of equity and INR 115 crores of loans, right? We are putting additional INR 115 crores in investment in this company. Predominantly this INR 115 crores will be used for repaying the INR 115 crores of unsecured loan.
Okay. But was there any specific figure for us to do that?
The figure was to basically make sure that on the other one. On one hand, you're servicing the likely very likely said, 100% of the loan was given by Somany. There is no bank loan. So it was going from one pocket coming to the other pocket. So the only reason for this was to give that particular SPV a little bit of a breather in a muted market and very high gas pricing.
Thank you very much. That was the last question in queue. As there are no further questions, I would now like to hand the conference over to Mr. Somany for the closing remarks. Thank you, and over to you, sir.
Thank you, ladies and gentlemen, for joining us for the Q3 FY '23 earnings call. I hope that this quarter is slightly better and the volatility of gas and various other inpatient pressures hopefully are behind us or starting to taper off. We do believe in the India story, and the India growth story. So continuously putting in more capacity, and we'll continue to strive to do better margins and better sales. It's going to be a tough quarter, and it's also looking at a tough year ahead, but we are quite sure of doing a mid-teen overall growth, value and volume. So hoping for the best and look forward to an earnings call in May. Thank you so much.
Thank you very much. On behalf of SKP Securities Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines. Thank you.