Release Date: November 03, 2023
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The new GVT line at Dora has started commercial production, adding 3.3 million square meters to capacity and completed ahead of schedule at a lower cost.
- The sales team has been ramped up, improving the tooth-to-tail ratio to 2.35, the highest ever.
- Brand investments have been maintained despite a tough quarter.
- GVT now constitutes almost a quarter of the business, up 2.2% year on year, and vitrified sales are growing strongly, now at 47.6%, up 5% year on year.
- 150+ new SKUs were launched across units during the quarter.
Negative Points
- Revenue dropped by 7.4% in the quarter, with volumes down by 3.8% year on year.
- Volume from own manufacturing was down 11.5% year on year, impacting the top line.
- Blended gross margins were lower by 3% year on year due to inventory changes and increased trading mix.
- Fixed costs and other costs such as depreciation and finance charges remained similar to last year, not providing relief.
- The market has been sluggish with intensified competition on pricing and credit terms.
Q & A Highlights
Q: Can you provide an overview of the demand scenario across different geographies and your expectations for the second half of the year?
A: Demand has been broadly similar across geographies. Notably, export demand was robust in Q2, with an estimated 40%-45% growth year-on-year. The new Dora facility, focused on South and West India, is expected to ramp up capacity utilization despite current sluggish demand.
Q: How do you plan to increase market share in South India, given the sluggish demand?
A: South India is a significant market for GVT, where we have historically had limited presence. The new Dora facility, which was completed at a lower cost than planned, will help us compete effectively. We are also leveraging APM gas at Dora for cost advantages. Our sales team has been ramped up, and we are conducting a massive distribution outreach program.
Q: Are you seeing any market share gains in your strong areas despite the overall sluggish demand?
A: Yes, there have been structural reforms making it difficult for unbranded players to penetrate domestic markets. Organized players, including Orient Bell, are gaining market share. However, the overall market conditions have been challenging.
Q: What are your expectations for growth in H2, and how will the new Dora line contribute?
A: While we don't provide forward-looking revenue guidance, the new Dora line adds significant capacity. We have robust plans for distribution and marketing to drive brand preference and sell this incremental capacity.
Q: Will the upcoming marketing campaign put additional pressure on margins?
A: Yes, the marketing campaign may impact short-term profitability, but it is essential for driving volumes and brand preference. We aim to balance this with improved product mix and volume ramp-up.
Q: What is the current capacity utilization?
A: For Q2, our capacity utilization was around 70%. This includes new capacities that have come online amid sluggish market conditions.
Q: Why are we seeing a year-on-year decline in sales while competitors are showing growth?
A: Our margins are sensitive to top-line performance. Competitors have benefited from lower fuel costs and higher GVT capacities. We are addressing this with new capacities and a focus on GVT and vitrified products, particularly in South and West India.
Q: What is the status of gas pricing, and how does it impact your cost structure?
A: We are now largely in line with market gas prices, except for some disadvantage in Hoskote. Recent gas price increases in October have been around INR2.5 to INR4 across locations.
Q: When can we expect to stop losing market share and see revenue growth?
A: While we don't provide specific guidance, we are optimistic that market conditions will improve. Our investments in branding, new capacities, and distribution should help us regain market share and drive growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
