Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Receivables improved, reducing by five days.
- Capacity utilization increased YoY from 70% to 81%.
- Operating margins were maintained at 8.5% despite cost pressures.
- Gas prices remained stable, aiding cost management.
- Sanitaryware and faucets segments showed high utilization rates of 96% and 90%, respectively.
Negative Points
- Sales volume and value were flat due to muted demand and extended elections.
- Average realization declined slightly quarter-on-quarter.
- Operating margins slightly decreased from 8.7% YoY to 8.5%.
- Capacity utilization declined from Q4's 89% to 81%.
- Increased costs due to annual increments and other factors.
Q & A Highlights
Q: Sir, this quarter, our volume has been more like a 1% degrowth, but possibly the industry leader has done way better. Normally, we see you and the industry leader grow in line. What is your take on that? And what is your volume growth guidance for this year? And what sort of margin are you looking at?
A: So if you see the industry leader, there has been a INR17 decline in realization, our decline has been very little. They have launched a particular kind of a new line, which is a cheaper line. We hadn't done any such thing right now. So it has been a tough quarter. My degrowth from a volume perspective -- I mean, from a value perspective is just about INR8 crores, INR9 crores. We didn't want to push the system. We didn't want to choke the system because we know we're getting into July and August, which are generally rainy months. So we stayed away from that. So our balance sheet is healthy, our payables are healthy, our receivables are healthy. We're still looking at a double-digit growth, and I don't think there should be an issue with all our plants completely up and ready as far as we're concerned. So our DSO is down by five days, as you can see. And also our realization has been maintained.
Q: We have been talking about a pickup in tiles demand. Has anything played out so far? How has been the July month?
A: So July has also been a tough month. After the budget, it's been a tough month. But we do -- it's been better than May and June is what I can say, but it has been a tough month. So it's not that it's a wow month, considering that we are done with the elections and done with that, but it's not a great month. But it's better than May and June.
Q: Can you please give the fuel cost in Q1 FY25 region-wise?
A: Sure. So -- I'm sorry, just give me a second. The three regions which you are talking about, the North region; the West, which is Morbi, and our Ahmedabad plant, and also South. So Q1 FY25, the Kassar plant is at INR43; last year was at INR45, INR46 same quarter. Morbi is at INR45 a standard cubic meter, last year was at INR43, so this is up INR2. South is at INR47. And last year, it was at about INR55.
Q: So one thing which we have done very well over the last few years is our discipline on working capital and hence, the cash flow generation. Can you just take us through this discipline?
A: Pankaj-ji, for our cash flow, if you see, we have done close to INR50 crores of EBITDA this quarter. And there's some money which has gone into working capital. The working capital days has gone up -- around INR25 crores, INR30 crores has gone into working capital. We have been able to -- we made positive on operations, maybe around INR15 crores, INR20 crores is what we have been able to make from operations, and we have not done any major CapEx. So we have made that positive this quarter. There are no CapEx, which has happened in this quarter. And we are looking forward -- I mean the next three quarters, I think we are looking forward for a very positive cash flow because there's no major CapEx which are planned.
Q: In tiles industry, do you believe that from H2 FY25 or let's say, by FY26, there will be improvement in volume growth across the industry?
A: Yes, absolutely, fueled by export, which is growing and also fueled by all the new apartments and residential colonies, which have been announced, they will all start taking up tiles because currently, all of them are in the construction mode. So the next three to four years, great for the tiles industry. And volumes will improve on both ends.
Q: If we assume that by FY26, things will certainly improve, then is there a possibility of delivering close to 15% volume growth or it can be more than that?
A: I think what I can stick my neck out is of a double-digit growth, whether it will be 15% or 12% or 18%, too early to say. So I would restrict myself to saying a double-digit growth.
Q: Can you briefly help us understand the key levers that can help you improve margins to around 10%, 11% over the next two, three years?
A: So if you're looking at margins at 10% to 11%, that is something which we have guided for any which ways. And the only caveat there is gas pricing not spiking and that doesn't seem to be. We -- I think the three levers are, of course, growth between the very high single digits to decent double-digit growth, which basically culminates -- I'm not saying that we will do high digit, but I'm just giving you the levers. We -- at the double-digit growth, what happens is that your capacity utilization becomes much better. So capacity utilization is a big lever for EBITDA. And also, like I mentioned in the earlier question, fortifying the middle end and the top end of the prism, which is more for value addition. So these are the two big levers for us to bring our EBITDA.
Q: Any thoughts around exporting tiles?
A: Export is largely a Morbi phenomenon. As far as we are concerned, we are pushing as much as possible and export. But there are two issues. One is the Morbi guys gave extended credits and open credits, which we are not willing to do. The second thing is there's a lot of Morbi players which are dampening the brand India because they're producing such pathetic quality for export and sending such pathetic quality abroad, that it is dampening brand India. So I'm not saying all of Morbi is like that, but most of Morbi is like that. There are good people in Morbi, who are also getting affected like we are in terms of export. But I think as and how the export keeps growing, we would also get a small share, extra share of that. And one thing I want to highlight here is when Somany talks of export, we do not include the SAARC countries in our export unlike our competition. So for us, exports, for example, Nepal is not part of our export figures. That is something which I would like to point out, which has been pointed out to me by my finance colleagues Sunit and Sail
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
