ASTRAL LTD (ASTRA) Q1 FY23 Earnings Concall Transcript

ASTRAL LTD (NSE:ASTRA) Q1 FY23 Earnings Concall dated Aug. 12, 2022

Corporate Participants:

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Hiranand A. Savlani — Chief Financial Officer

Analysts:

Dhruv Jain — Ambit Capital — Analyst

Rajesh Kumar Ravi — HDFC Securities — Analyst

Praveen Sahay — Edelweiss Wealth Management — Analyst

Sonali Salgaonka — Jefferies India — Analyst

Ankur Sharma — HDFC Life. — Analyst

Sneha Talreja — Lidl Securities — Analyst

Ritesh Shah — Investec India — Analyst

Salil Desai — Marcellus Investments — Analyst

Sujit Jain — ASK Investment Managers — Analyst

Presentation:

Operator

Ladies and gentlemen. Good day, and welcome to Astral Limited Q1 FY23 Earnings Conference Call hosted by Ambit Capital Private Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Dhruv Jain from Ambit Capital. Thank you, and over to you Mr. Jain.

Dhruv Jain — Ambit Capital — Analyst

Thank you. Hello everyone, welcome to Astral Limited 1Q FY23 earnings call. From the company side, today we have with us Mr. Sandeep Engineer, MD and Chairman; Mr. Hiranand Savlani, CFO of the company and Mr. Kairav Engineer, VP of Business Development.

Thank you, and over to you, sir for your opening remarks.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Thank you and thank you everyone for joining the earning call of Q1 FY23. As you are all aware the market situation was very volatile and particularly the polymer pricing situation was very challenging and was rapidly dropping, which was expected the way it has gone up and it is on that correction mode. Same was in the case of the demand. Wherever there is a falling price of polymer. the dealer and the distributor want to keep low inventories. If they get the sense of price going up, the inventory in the stock would go up and the demand accordingly, will be going up in the market.

Due to the month-on-month demand scenario is getting very difficult and very unrealistic to predict. But under such situation, we have to inform all of you that Astral team has done a great job. We have a good performance of both these segments that is plumbing, adhesives and paints. Some pressure was on the margin and that was mainly because of the inventory loss which Hiranand bhai, will explain in detail during his initial remarks. Now let me go through the progress of expansion activities and where exactly we are in the new business. Expansion work at East is almost complete and we have already started rolling out the products such as water tank, SWR and PVC pipes.

We are under the process of approvals of ISI for the rest of the product and as soon as we get this approval in the near future other product lines would also start production and will be rolled out in the market from the East plant.

Our adhesive state-of-art plant at Dahej is in full swing — the work adhesive state-of-art plant in Dahej is in full swing and we are expecting to complete the same in Q3. And we’ll be doing trial production in Q4 and in the early next fiscal would be complete production.

Valve project is progressing well. We have already rolled out a few products in the market and few are still under trial. Molds are getting modified and we are expecting to complete the same in the Q3.

In the faucet and ceramic wear business, especially in the faucet, we have just and recently acquired a ready-to-use asset at Jamnagar for which — from where we were getting the supply of our faucet on outsourced basis. The products at that facility under Astral brand has already started and now Astral can rightly say that our faucets are and will be manufactured in-house from the planted Jamnagar and very few product lines would be outsourced in the faucet business.

Our first display galleries showroom of faucet and sanitary ware is already started in Ahmedabad where we have displayed the complete range of products of the newly developed designs of faucet. You’re all welcome to visit the same at your convenience. Company has already started the process of appointing distributors and dealers for faucet and cemetery there.

We are expecting the sales to pickup from Q3 onwards. During Q2, we will — we are expecting some sales as we are still in the process of completing the complete range and putting the appropriate inventory at our warehouse.

Paints has just — we have just completed the legal documentation and transferred the funds in the paint business. We are in the process of filing the application for demerger of operating business of Gem paints with NCLT. We recently completed plant visit of the paint factory by many fund manager and analyst at Bangalore. We hope you must have liked the state-of-art newly built-up plant, which can do FOREX turnover without doing any further capex.

Gem Paints has also delivered good numbers in Q1, we are integrating the business with Astral, and in the next couple of quarters, we will come up with a plan of opening Gem Paints products in many states of India.

Our UK operation are giving good growth and are unable to fulfill the demand of some of its products. We are working on capex allocation at the plant and shortly we will work out the same and communicate to you. Post the expansion, we are expecting very good growth in the business in the UK and U.S. operations.

Overall, except volatility due to the polymer and the chemical prices, we see a good progress in our existing business as well as the new businesses, which we are in. We are confident that we will be doing good in the coming times and equally improving upon the other performances.

I now hand over to Mr. Hiranand Savlani to take you through the financials and then we’ll open the floor for question and answers.

Hiranand A. Savlani — Chief Financial Officer

Thank you, everyone for joining this earning call of Q1. As Sandeep bhai has rightly said that this quarter was full of challenges in spite of difficult circumstances, we have delivered one of the best growth during the quarter on a consolidated business. As we have repeatedly communicated that we always believe in consistency of performance and we have continued the same during this quarter also. The numbers are in front of you and you can see that in both plumbing, as well as adhesive, we have delivered 73% and 45% respectively in top line and EBITDA growth was 30% in pipe and 43% in adhesive. I have not counted in this number, the paint business.

Pipe has delivered a 48% volume growth, that sizable volume growth was mainly because of the, of low base of last year Q1. The margins were under pressure in pipe division, mainly due to inventory loss. It is difficult to arrive the exact loss figure, but we can approximately say it should be somewhere around INR25 crore kind of loss. Also few expenses like employee cost and the launch cost of our new products such as faucet and sanitary ware and the big party in Goa for the launch of this product has been completed in the Q1, so that has also given us some pressure on the EBITDA margin.

At the PAT level, some pressure was mainly because of the forex loss of INR11.7 crores in the Q1 and also close to about say INR7 crore of extra amortization of expenditure, which is falling under the depreciation because of the — you can say consolidation of paint business. So these were the two, one of the things, INR11.7 crore was forex loss and INR7 crore was depreciation extra amortization.

This forex loss was mainly because we are completely dependent on — 100% dependent, you can see on the CPVC for import and CPVC volumes were continuously going up, so we were sitting on reasonably good inventory also and normally we get some credit terms 90 days from our suppliers, so because of that we have to incur the losses into the forex side and the Rupee was highly volatile during Q1.

Margin in Adhesive business were also under pressure due to high chemical price, but we can say it has improved sizably in Q4 — compared to Q4, I can say. The last year Q4 EBITDA margin was 11% in adhesive and sealant business and this quarter is 13.6%, so close to about 260 bps improvement into the adhesive business. But still it is lower than our expected range of 15%. In adhesive chemical prices have started falling from June onwards, but still we are having some inventory, which is out of the high cost. So this pressure will be still there in Q2 also. Similarly in pipe also PVC raw material prices have fallen sharply, not only in Q1 but it has continued in the Q2 also. However, our key raw material CPVC prices are stable. So that will give us support in terms of margin and realization. But definitely, some pressure will be there because of the sharp fall in the PVC price.

From this quarter onwards, we have now defined two business vertical, one is the Plumbing, which will cover pipe, paint, faucet, sanitary wares. And second vertical will be paint and adhesive which will cover our Gem paints, Resinova and our UK subsidiary, Seal IT. Now onward, we will be giving results under these two vertical. We have started consolidation of paint business from this quarter, Q1 onwards as Astral has already taken a control on that Gems board.

From our press release graphs, you can very well see the performance of our company on a CAGR basis, because that’s very important for any companies to assess the performance. Of the last four-year, if you can see the CAGR growth you can come to know how better way we are growing, the company, compared to that even pre-COVID levels also.

Q2 will be challenging mainly, I said that because of the pressure on the price and secondly because of continuous falling the price of raw material. So dealer and distributor communities are sitting with a very lean inventory. So we are waiting that one these prices will settle down. I think the demand should start picking up because these are the very, very good affordable price for the market, even today, also the PVC prices fallen a couple of Rupees.

As on june 30, Company is sitting with INR542 crore of cash. Out of this INR542, I think, INR200 crore is related to the Gems, which is under the arrangement with the Company we have passed in the OCD, so that’s why it is falling under the cash and bank balance. But otherwise, if we have to remove this, you can say the INR194 crores. So then INR350 crore kind of cash is there with the Company.

To sum up this, I think, few of the — one-off items which I already said, that is the forex loss of INR11.7 crore write-off for amortization of INR7 crore new product launch and the employee cost increase in the sanitary ware and faucet to the tune of INR5 crore and the inventory losses of INR35 crore, these are the — so all put together will be close to about INR48 crore kind of one-off the cost were there in this quarter.

With this, I want to conclude my initial remarks, and we are opening up the floor for the Q&A session. Thank you very much.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Venkatesh from Axis Capital. Please go ahead.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Yeah. The first question is more like a data question, in your press release.

Operator

Venkatesh, May I ask you to speak little louder please and on the handset. The line for the participant dropped. We move on to the next participant. Next question is from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Yeah, hi, sir, good evening. Congrats on good set of numbers in this environment. First, some housekeeping numbers, what is pipes capacity at end of Q1?

Hiranand A. Savlani — Chief Financial Officer

Pipe capacity is 2,74,822 metric tons for last year and this quarter is close to about 8,000 is further added so 2,82,338 metric tons.

Rajesh Kumar Ravi — HDFC Securities — Analyst

2,82,000?

Hiranand A. Savlani — Chief Financial Officer

2,82,338.

Rajesh Kumar Ravi — HDFC Securities — Analyst

2,82,338, this is end of Q1?

Hiranand A. Savlani — Chief Financial Officer

Yeah. End of Q1..

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. Where will this capacity be by end of this financial year?

Hiranand A. Savlani — Chief Financial Officer

We — it’s not clear actually. So still some capacity will be added in the east also which will be close to about, you can say another 10,000 metric ton will be there.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. And for the paint business, could you share the Q4, what sort of revenue they generated. And I understand this was not part of your — but just for a like- to-like understanding. And what is the EBITDA contribution from the paint business?

Hiranand A. Savlani — Chief Financial Officer

So like paint business last year Q4, I don’t our exact number but I think it was close to about INR50 crore top line and close to about 14.5% kind of EBITDA but exact number you can call me separately. I can give you [Speech Overlap] I don’t have handy for the last year, but this year, I think we already given in the press

Rajesh Kumar Ravi — HDFC Securities — Analyst

.Sure. Yes. And what is the margin in Q1 for the paint business?

Hiranand A. Savlani — Chief Financial Officer

It is 15%.

Rajesh Kumar Ravi — HDFC Securities — Analyst

15%. Okay and sir, what sort of inventory losses did you incur because the number — margin fall has been quite heartening, in terms of you maintained your margins very well. So despite raise in prices taking a sharp dip. So what sort of inventory losses you’ve seen in Q1? And what is your expectations in Q2?

Hiranand A. Savlani — Chief Financial Officer

It’s very difficult to exactly work out, but we have worked out tentatively which is close to about INR5 crore kind of level.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. In Q1?

Hiranand A. Savlani — Chief Financial Officer

Q2 will also be there, so now you have to see how it is going to work out because CPVC still it is stable but PVC further dropping today also couple of rupees dropped is done by the Reliance. So we have to see how it is going to settle down everyone was expecting that it is going to be bottom out, but still it is going down. So I think it is very difficult for us to predict what will be the inventory losses for Q2, but definitely it will be there. We cannot say that it will not be there.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. So coming to the next questions, you had given that CPVC, PVC differential is no again widening. Do you see any risk on the CPVC demand, which given this up differential?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

I don’t think anywhere in the past also, there is a much change into the, because of the pricing, maybe a little bit here and there will be there, but it’s not — because the application is different CPVC is mainly into the hot water, application, will not be a big picture, we don’t see much.

Rajesh Kumar Ravi — HDFC Securities — Analyst

And if you could give broad over on raising basis, what would be your revenue mix currently like in Q1 broadly or FY22 full year it is in this is mix?

Hiranand A. Savlani — Chief Financial Officer

Ready?

Rajesh Kumar Ravi — HDFC Securities — Analyst

Mix, PVC, CPVC breakup — revenue break up?.

Hiranand A. Savlani — Chief Financial Officer

We don’t share this breakup.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Broadly like 60%, 40% or 40% would be CPVC?

Hiranand A. Savlani — Chief Financial Officer

We don’t share this data.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Sir, no issues. I’ll come back in queue. Thank you.

Hiranand A. Savlani — Chief Financial Officer

Yeah. Thank you.

Operator

Thank you very much. [Operator Instructions]. The next question is from the line of Praveen Sahay from Edelweiss Wealth Management. Please go ahead.

Praveen Sahay — Edelweiss Wealth Management — Analyst

Thank you for taking my question and congratulations for a good set of numbers in challenging time. The first question is related to volume. As you also said that the four-year CAGR or even three year CAGR, If I look at the volume, have a very good growth as compared of de-growth for the peers. So is it because of you don’t have a agri contribution or because of something else also. Can you elaborate more on that?

Hiranand A. Savlani — Chief Financial Officer

I think mainly because of the mix –CPVC mix has improved. So because of that the margin is better but otherwise agri as such, you know that we are having very low presence compared to the other players in the market. Our more focus is on the CPVC side of the business and the plumbing side of the PVC business.

Praveen Sahay — Edelweiss Wealth Management — Analyst

So volume growth is largely because of a plumbing side is the largest, we don’t have..?

Hiranand A. Savlani — Chief Financial Officer

We’re predominantly a plumbing company so naturally the growth from the plumbing side will be more only.

Praveen Sahay — Edelweiss Wealth Management — Analyst

Okay. The next question is related to the your expenses side, sir, So if — already you had said that the next quarter also, we will see some kind of inventory losses but the other elements like the launch costs and employee costs which has increased and impacted our numbers that will continue as well. We will see the similar kind of a margin in the coming quarters as well?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

So you rightly said, that I have already quantified also these number in my initial remarks, but some pressure will be there because you know any new product launch, initially they take you’re investment or you can say cost. So right now sanitary ware and faucet revenue was zero in the last quarter and this quarter also will be a very small contribution, but cost will be there.

So maybe Q3 onward, we are expecting that the revenue flow will start, and maybe it will start picking up in maybe 18 months or may be 24 months down the line. So till that time some pressure will be there, but one thing is good that once you reach at a certain level, then it will sharply move. So we have to see how much time it is taking whether it is taking 15 months, 18 months or two year, we don’t know as of today, but we are expecting good response, because the way we have seen in our launch party end of subsequently after launch of our display gallery the product range and all this thing the dealer community have seen distributor community they are appreciating. So the expectations are very high.

But again, I’m repeating that till product is not there in the market, it is too early to comment on that.

So let’s wait for some more time, but yeah, definitely some pressure will come on the margin because of this new products sales. At least we are working out in our budgets that we take care of the costs, which are coming on this division as a overhead. And in one or two quarters at least we breakevens. So there is no other allocation of the extra cost on the other divisions one.

Second, we are not in a model of 100% outsourcing at the costly part of the business is the faucets and Astral is going ahead with its own faucet production facility. That makes a great difference in margin, products designed, delivery of a good product to the market and as well as improve on many, many aspects of service to the industry.

Praveen Sahay — Edelweiss Wealth Management — Analyst

Thank you, sir. I’ll come in the queue for follow-up questions.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Thank you, Praveen.

Hiranand A. Savlani — Chief Financial Officer

Thanks you..

Operator

Thank you. Next question is from the line of Venkatesh from Axis Capita. Please go ahead.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Yeah, sorry. I got disconnected earlier. And I’m sorry if I’m repeating a question. But is it possible to share the EBITDA of paints in the current quarter?

Hiranand A. Savlani — Chief Financial Officer

I think we are already given number of 15%. I think you missed that.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Yeah. And you also give the number for the fourth quarter of last year, the EBITDA, how much was that, sir?

Hiranand A. Savlani — Chief Financial Officer

Around 14.5% but we don’t have an exact quarterly number because that company was not maintaining the quarterly report but tentatively I’m telling you, it was 14.5% kind of level. So more or less you can stay in EBITDA [Indecipherable].

Venkatesh Balasubramaniam — Axis Capital — Analyst

Okay. So last year, fourth quarter, the margin was almost 28%. You mean?

Hiranand A. Savlani — Chief Financial Officer

No, 28% what?

Venkatesh Balasubramaniam — Axis Capital — Analyst

Because you said last year, fourth quarter I think it did INR50 crores of revenues so, yeah, so INR14.5 crores is almost like?

Hiranand A. Savlani — Chief Financial Officer

14.5% [Speech Overlap] close to about INR7 crores kind of EBITDA.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Okay, understood, understood. Now one slightly — I don’t know how you want to answer this question. This is a question which most of the investors in your company have been asking us time and time again over the last two to three months, which is basically, if you actually look at pre-COVID — pre-COVID the EBITDA per kg that you were making on paints was close to 28 per kg. Now over the last two years, this EBITDA per kg went up to almost INR38. In FY21 It went up to INR42 per kg in FY22. Now this has come down in the current quarter, close to INR36 per kg. But as you said, there is like around INR25 crores of inventory losses. So if I adjust for that it is again INR43 per kg, but let’s assume hypothetically you have one more quarter of inventory losses, but beyond that PVC prices actually stabilize.

Now beyond that, do you think you can maintain these INR40 plus kg in the pipes, on the pipe side or is it like we can we will actually over the medium term, let’s say, two to three years revert back to the INR30 per kg and if we don’t reward why exactly has this increase happen? So is there any structural reason why this increase has happened?

Hiranand A. Savlani — Chief Financial Officer

I think there are multiple region behind that. One is the decentralization of the plant. That’s why our EBITDA has improved. Secondly, the product mix has changed because we are focusing more on the CPVC side, so that has also contributed.

Third thing we are continuously adding the value-added products like valves and other things are also there in the system, so that is also helping. I think multiple regions are there because of that EBITDA per kg has gone up, but it is very, very difficult to say how the situation will be there going forward, because in this typical environment, which Sandeep bhai has also said in his remuneration remark that is a very, very highly volatile atmosphere is there. In that atmosphere It is very difficult to predict anything for next month, forget about one year down the line or six months down the line.

So in that environment. I think it is too early for us to say that where ultimately it is going to stabilize, but definitely, it will not go back to the earlier days, it will be better only, but how much better will be there? I think that time will only answer to all this thing. But I think there are multiple reasons where we are improving ourselves. And that is why EBITDA per kg you are seeing, it has improved a lot.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Okay. Our all our new launches, especially the [Indecipherable] PP pro plus all have started to giving good growth and pickups. So there are multiple reasons that Mr. Savlani said. And at the same time, lot of other activities, which have been done at the market level are also in a positive direction.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Okay. Now there is this other thing. Every quarter you share a sales number, which is in terms of the volumes, which in the current quarter is around 36,578 metric tons. Now earlier this used to be only pipe volumes, but now incrementally, like for example, in this quarter, does this also include the volumes for water tanks and valves?

Hiranand A. Savlani — Chief Financial Officer

Yeah, because, valve does have a much volume, it is more of value it doesn’t contribute the volume much. And yes, water tank is there. There also volume will be very low, value will be very high. So that’s very negligible will be there. But it will include. Yes, definitely, it is included in everything there.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Okay, thank you very much. All the very best.

Hiranand A. Savlani — Chief Financial Officer

Thank you.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Sonali from Jefferies India. Please go ahead.

Sonali Salgaonka — Jefferies India — Analyst

Sir, thank you for the opportunity. Sir, my first question is regarding — could you help us understand what is PVC driven? what has it been since 1st July and how much is the correction broadly?

Hiranand A. Savlani — Chief Financial Officer

Yeah, I think trade is not great, it is continuously falling and I said in my initial remarks, also that today also Reliance had dropped couple of Rupees. So it is very, very difficult to predict what will be that — there are still room for the little bit further drop also. So we cannot rule out that possibilities also, but somewhere, I think it will try — will try to settle down but there is still some bottom is there.

So very, very difficult weather it will settle down around INR85, whether it be settled down at INR90 or INR80, but it looks very difficult that it will go back to the previous days of INR70, INR75. But it is very, very difficult to predict because internationally every day some news is coming. So based on that reaction is there in the system, but at the same time, we have to also see that our currency has also depreciated. So that is also there.

So very, very difficult Sonali to predict to the trend. So we have to keep finger crossed that is settled down somewhere, will ultimately if it is not going to settle down, it’s going to hurt the demand because dealer and distributor community is normally will shy away when there is a continuous fall in price and same thing with the builders also. So somewhere it will settled down, whether it is INR80, INR85, INR75, it’s okay. But it should settle down then only the demand will pick up very fast, because now the rates are very attractive. So makes sense to grow volume, very fast, but because of this reason only still that demand scenario is still not that great, I can say.

Sonali Salgaonka — Jefferies India — Analyst

Right. Sir, what was the price on 1st July and what it is right now?

Hiranand A. Savlani — Chief Financial Officer

I don’t have a handy number Sonali. You can call me post this con call I can check my number and I will come back to you.

Sonali Salgaonka — Jefferies India — Analyst

Sir, what is the trend in CPVC has it also been on the correcting trend?

Hiranand A. Savlani — Chief Financial Officer

Not much CPVC is still a stable polymer and supply is the constraint and secondly anti-dumping duty is also there. So because of that it may go down, we cannot rule out that possibility also, little bit but very limited room is there. Because that has not gone up also. Because of the anti-dumping duty that protection is there. Below anti-dumping duty it is — even if it internationally goes down, India will not be having the effect on that site. So that is how that product is protected.

Sonali Salgaonka — Jefferies India — Analyst

Right, sir. My second question is regarding the distribution and the ad spend. Now We have added many new categories. So how do envisage your distribution, in the sense, do you foresee some overlap with the present distribution or would you have to roll out more dealerships altogether for your emerging categories and also the ad spend currently versus what do you target factoring that these new products will be scaled up materially over the next three, four years?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

So ad spends right now are stable in the same range what we were spending, we have been spending since the past few years and we are not really planning to do much ad spends on the newer categories before we set up our distribution channels and before the product moves to the market. So once everything is set and once we have a certain scale of business in the newer categories, we will think about doing some brand-building activities for the same.

But overall, whatever the spend is it will remain within what we have been spending, so no incremental spend maybe we might reduce the spend on an existing category and allocate to a newer category, but on a whole, I don’t think we’ll be spending extra on the newer categories.

And as far as the network goes, it’s in the faucet and the sanitary ware business, a lot of our channel partners are selling these products. So we will try to utilize our current network and whenever we don’t have current distributor selling this product or if he is not interested, we will set up a new network also. So the sanitary ware and faucet business is going to be a combination of the existing network and in certain pockets we will be adding newer dealers and distributors as well.

And as far as the paint business goes, we will be following the same concept wherever our relative distributors and dealers are selling paints and they want to sell Astral paints, we will be opening those up and wherever we don’t have reach, we will be appointing newer dealers.

Sonali Salgaonka — Jefferies India — Analyst

Understand. Sir, last question from my side. The capex guidance for FY23 and ’24 if you have and also, sorry I joined the call a bit late so if Hiranand sir, could you repeat the one-offs for me. Thank you.

Hiranand A. Savlani — Chief Financial Officer

So, I think capex, we are targeting this year should be around INR200 crores max and one-off I already stated, but I can repeat again on this forex loss was INR11.7 crore, on this amortization because of the Gem Paints to take the tax advantage is INR7 crores, which is falling under the depreciation head. New product launch and the employee cost for the sanitary ware, faucets was close to about INR5 crore and inventory loss was approximately INR25 crores, which is not a exact number, but it is approximate number was close to about INR25 crores.

Sonali Salgaonka — Jefferies India — Analyst

Thank you, sir.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Thank you, Sonali

Operator

Thank you. Next question is from the line of Ankur Sharma from HDFC Life. Please go ahead.

Ankur Sharma — HDFC Life. — Analyst

Yeah. Hi sir, good evening. Few questions from my side. One on the volumes on a three-year CAGR basis when I compare it to the last the normal quarter being Q1 ’20, it’s a 5% CAGR on volumes, which obviously is on the lower side given the way we’ve grown and as you said, this would primarily because of the dealer destocking amidst the falling price environment for PVC, which probably may continue into Q2 as well. But from a longer-term perspective, slightly, maybe in the second half of this fiscal — How do you see volumes kind of shaping up? Do we continue to grow at that 15% plus kind of volume CAGR, once PVC prices kind of stabilize? And if you could also touch upon end market demand especially on plumping?

Hiranand A. Savlani — Chief Financial Officer

I think you rightly pointed out, the volume was low in last three, four years, CAGR if you pick up but at the same time you have to see the industry. Industry was in negative. So when industry was negative and we are growing at a 5% CAGR, you tell me hardly any company is in a positive volume growth. So we have to also equally, see how the industry is performing because of COVID and all this reason the industry was in a negative growth. Under that circumstances, I think we have delivered one of the good growth, I can say.

So that was the main reason, Industry was not performing. But yeah, you rightly pointed out that the PVC prices also played a very important role during this — because it went up from INR70 — INR75 to as high as INR162. And now it has come down to close to about INR90.

So if that kind of steep price will be there, than definitely demand will come under pressure and that was exactly happened in last one — one and half year. But now I think as I said in the initial remarks, also that PVC price will settle down somewhere maybe shortly, maybe in another two, three months, it will settle down some where. Maybe INR80, INR85 or maybe INR90, I don’t know exactly.

But once it will settle down and there are high probability that the volume should start picking up very fast. And that’s why I have repeatedly said in my earlier communications also that if you see the construction activity was very slow in India. Because of that the ready unit sale has happened very fast. So ready inventory inventory has substantially come down. So because of that, there are high probability that the new construction activity has to pick up but because that every, across all the categories of building material, the cost base exploration was so high, forget about pipe, even the other categories. So it was very, very difficult for developer also to absorb this kind of cost.

So because of that, that activities were slow. So they were selling the ready unit, but they were not focusing too much on the new construction they do, but now I think across the board every building material prices have started falling down and that too very sharp. So there are high probability that the demand should come back.

I don’t know. It will take one quarter more or two quarters more very difficult, but if you pick up the next three, four-year, we are very bullish on the building material side.

Ankur Sharma — HDFC Life. — Analyst

And, sir, so one is focus on the industry, but if you could talk about Astral specifically, what are we doing to outgrow the industry? So obviously, the expansion in the East is one thing, which we are aware about in terms of geographical presence that will help us improve your share in that region. But if you could also highlight some of the key initiatives being taken to kind of out grow the industry on the piping side?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

So, we are doing a lot of things. We are focusing on increasing our network wherever we don’t have any presence. So we are finding pockets wherever we are weak, we are adding distributors. We are adding dealers. We are also opening more regional warehouses and depots so that we can grow the market in that particular region. We are focusing on brand-related activities wherever needed and we are constantly adding manufacturing locations and adding newer products in our portfolio to continue this growth rate.

Ankur Sharma — HDFC Life. — Analyst

Okay, sir. Great. All the best [Indecipherable]

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Thank you, sir. Thank you.

Operator

Thank you. Next question is from the line of Sneha Talreja from Edelweiss Securities. Please go ahead.

Sneha Talreja — Lidl Securities — Analyst

Sir, congratulations on good set of numbers and thanks a lot for the opportunities. Just two questions from my end, Firstly related to your forex losses. Since you said that is related to CPVC import. Why is it not encountered in the raw material side of it? And why [Speech Overlap] the….?

Hiranand A. Savlani — Chief Financial Officer

So, Sneha that is mainly because of the accounting policy, because we can’t change the accounting policy of the country. So because of that we have to account and some other companies have also accounted. I’m sure you must have tracking other companies also. So this is mainly because of the accounting policy. Otherwise, it is good, that I can [Indecipherable] forget the other incomes also. But because of the accounting policy auditors start following and we have to strictly follow the accounting policy.

Sneha Talreja — Lidl Securities — Analyst

Sure. And since you mentioned a lot of one-off expenses related to your ad spend, your I mean, launch expenses. We were still not be able to see your other expenses as a percentage of sales to be lower, either on a Q-o-Q or a Y-o-Y business, any reason for that, sir?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

It is not sizable because it is only INR5 crore. It’s not that much high, which is reflected in the percentage terms of, and it is only INR5 crores and some of them is in the this employee cost also. If you see the employee cost also on a quarter-on-quarter, if you see then the absolute level numbers are going up.

Sneha Talreja — Lidl Securities — Analyst

Right, right. We have got employee expenses part of it. I just wanted to clarify the other expenses..?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

If you remove that employee side than the new launch and almost close to about INR3.5 crores. So INR3.5 crores will not somewhere visible at the top line of INR1200 crores.

Sneha Talreja — Lidl Securities — Analyst

Right. And sir, lastly if I just look at your adhesive and paint segment revenue combined and if I exclude adhesive part of it. We have seen a Q-o-Q drop in terms of your revenues. Is it us seasonality in that business, which is just causing this drop. It’s around INR278 — INR279 odd odd crores now it was is around INR300 odd crores in the previous quarter?

Hiranand A. Savlani — Chief Financial Officer

I’m still not getting your question, you are referring the Q?

Sneha Talreja — Lidl Securities — Analyst

Q1 of adhesives compared to Q4. I think adhesives only standalone this is gone down on a Q-o-Q basis, is it the seasonality of that business, which is leading to the fall in revenue on a Q-o-Q basis?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Yeah. Seasonality will definitely will be there, but I don’t think it will be fall. I have to check this Q4 number. I don’t have handy. How much you said Q4 number?

Sneha Talreja — Lidl Securities — Analyst

Your Q4 there was around INR300 odd crores and this quarter also includes INR334 crores, which also includes INR55 crores of year again.

Hiranand A. Savlani — Chief Financial Officer

I don’t think it was INR300 crores.

Sneha Talreja — Lidl Securities — Analyst

Okay. I think I will check the number again

Hiranand A. Savlani — Chief Financial Officer

If you call me post con call, we will discuss the number. So Q4, let me check and come back to you.

Sneha Talreja — Lidl Securities — Analyst

Sure, sure.

Hiranand A. Savlani — Chief Financial Officer

But yeah, definitely some seasonality will also be there in the adhesive side of the business also.

Sneha Talreja — Lidl Securities — Analyst

Right. Right, sure sir, got that. Thanks. Thanks a lot and all the very best.

Operator

Thank you. Next question is from the line of Ritesh Shah from Investec India. Please go ahead.

Ritesh Shah — Investec India — Analyst

Hi sir. Thanks for the opportunity. Couple of questions, first for Sandeep bhai. Sandeep bhai you indicated in the initial remarks of acquiring a facility in Jamnagar. Can you highlight the scope of this? How much would you spend? What percentage of manufacturing will it take care off? What percentage of revenues can actually come out from this particular facility? That’s the first question.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Basically the spend would be around the INR22 to INR23 crores and not big one, but we will be also spending a few crores to upgrade it as per the Astral safety norms and many of other things, which is already on the way. so around the INR4 crore to INR5 crores will first go in the phase. So maybe a complete outlay INR28 to INR30 crores will be there. But the range as we envis and as we at present are getting done on multiple people as well as outsourced model. Almost 60% to 80% between them. At present first phase 60%, later after the upgradation around 80% would be coming from then in-house.

And sales to predict after all these and work out will take you — we’ll let you know the exact numbers, how much sales this plant can deliver after one full quarter of our operating the plant, because Astral getting into the plant, lot of system and a lot of safety norms that come in, but I’m sure the way we will and reshape the plant and upgrade it, it will give a substantial production for our faucet from that.

Hiranand A. Savlani — Chief Financial Officer

Just to add what Sandeep bhai said, normally if you see these kind of facility, we will give you 5 times kind of top line. So we have to see what products will be there, because we are new in this category. So we don’t have exactly the number but normally we have seen that it will be close to about five weeks kind of turnover.

Ritesh Shah — Investec India — Analyst

So roughly INR150 crores to run that right now?

Hiranand A. Savlani — Chief Financial Officer

Yeah, exactly INR150 crore. Yes, you can say prediction.

Ankur Sharma — HDFC Life. — Analyst

Sure.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

But to be another to add one more point, if you see the whole Astral model of pipes, adhesives and paints and similarly now faucets and ceramic ware Astral would go for its own production facilities and in-house production is a great advantage in many ways to deliver a right product, quality product and at the same time in-house makes a lot of difference on the pricing, costing, availability and servicing to the product.

Ritesh Shah — Investec India — Analyst

Sure. My second question is again bathware. Sir, how should one look at a pan-India launch or are we going region by region and what sort of synergies are mapping, do we have with our existing network or are we tapping altogether in different network?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

So, Ritesh bhai, we are planning to launch it in a phased manner because this is a product that has a lot of moving parts and quality is a key concern for us because we don’t want to launch in a haste and face any problems in the long run. So setting up state by state plan and we have to set up service network in whichever geographies, we are opening and based on the availability of material spares as well as a service network, we will open in different geographies in a phased manner. But I think by this year end by 31st March, we would be opening in most of the territories across India.

And as far as the existing network goes, yes, there are a lot of Astral dealers and distributors who have shown interest in stocking and selling our product. We are currently launching in Gujarat in the first phase. And we have gotten a very good response from our own network. Other than that we have also added dealers and distributors who are selling other brands in sanitary ware and faucet who’ve also shown interest in working with Astral. So it’s a mixed model, it’s a combination of Astral parties as well as new parties.

Ankur Sharma — HDFC Life. — Analyst

No. That’s helpful. One question for Sandeep bhai and then two for Hiranand bhai. Sandeep bhai any update on valves, I think this was keenly awaited. The progress over here and your run rate that we are doing? And Hiranand ji, question for you, when you commented on Gems, you said, you use the word tax advantage, so just wanted to understand what kind of benefit, will we get out of here?

And secondly, I think for benefits why have we factored the forex loss and below EBITDA line, if you could just briefly explain that would useful? Thank you so much.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

So coming to the valves, Valve did take some time, because the technology and everything is outsourced and COVID did cause a little problem. Today, the range, which we are going to put in the market is going up to a good size. Exact, Ritesh ji, we’ll let you know as the range is larger, but today we have almost completed the launch of these valves, up to 50% plus the range we are going to put, and some of the molds — all the molds are here, but some of the most need some corrections minor correction. So we have the mold suppliers from abroad working on it in Ahmedabad and next I think couple of months the whole range which we are going to put for both industrial use, plumbing use and CPVC and PVC would be completed.

So the phase 1 of the production on valves will be completed which we had communicated to the market again in phase 2 and phase 3, we are going to add another categories of valves. There are many categories, the ball valve, the butterfly valve, and certain other valves which are also used for the industrial application. These are gate valves and some other form of valves.

So this valve project will be giving good margins, good results. By the end of this fiscal. At the same time the addition of the range of valves would continue, which will give us a good market. In India, not only India but lot of export market [Indecipherable] Now Hiranand will answer the rest.

Hiranand A. Savlani — Chief Financial Officer

Ritesh bahi, your first question was forex. So I already replied in earlier question, similar question that this forex loss is mainly because of import. And that as per the accounting norms, we to account in below the EBITDA. It is not that we all choose like that. This is a consistent policy, we have followed since last 10 year. You can pick up any quarter’s number, you will find that this number will be there. This quarter only difference is that this is a little higher number, mainly because of the higher fluctuations in the currency, So it is not that today number is high that’s why we have showing here.

It is the policy. We have followed from that day one, we got listed. You can pick up the last, I think almost now We have completed 14 years. Okay, so in last 14 year – 15 year. You can see, every quarter we are publishing this number.

Coming to your second question of tax advantage that. So I think when you acquire any company, there is asset and then there is a amount you paid, whatever the difference is there that is divided into the multiple thing. And that you can do the amortization and that will help you to take some advantage into the tax. So that is why we have a amortized that deal, that is close to about INR7 crore in this quarter.

Ritesh Shah — Investec India — Analyst

Just continuation and how much more do we have over here, which will give us benefit on effective on cash taxes.

Hiranand A. Savlani — Chief Financial Officer

So like every quarter, INR7 crore, it’s very simple, so INR28 crore yearly

Ritesh Shah — Investec India — Analyst

INR28 crores, but it’s this year only?

Hiranand A. Savlani — Chief Financial Officer

So we have a business five-year policy

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Seven years.

Hiranand A. Savlani — Chief Financial Officer

We have a seven-year policies so seven-year.

Ritesh Shah — Investec India — Analyst

Okay. And what would this mean, sorry — last question what would this mean on the effective tax rate at a consol level. I think we have been at around 22%, 23%, is that a fair number of that number can actually go down…?

Hiranand A. Savlani — Chief Financial Officer

Similar will be met, because ultimately INR28 crore on a PBT of last year’s INR650 or INR700 crores is not going to be much so, ultimately it will be similar kind of rate 22%, — 33%

Ritesh Shah — Investec India — Analyst

Sure. Thank you so much for the answers.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Thank you. Ritesh.

Operator

Thank you. [Operator Instructions] Next question is from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Well, just one question. Now when you start reporting the Gem numbers and the Gem numbers there will be amalgamated in the standalone entity, right? The Gem Paint business.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

It will be amalgamated and consolidated not on stand-alone.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. So standalone will still continue to report desolate lumping numbers?

Hiranand A. Savlani — Chief Financial Officer

Correct.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. And this sanitary ware and all, bathware and sanitary ware how will they be accounted in the standalone or in consol?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

That will be the part of standalone.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Part of the standard. Okay. And second, could you please give some segment-wise revenue guidance for the next two years, primarily on the tanks, valves and the bathware businesses for next two years ’23 – ’24?

Hiranand A. Savlani — Chief Financial Officer

I think we have already given this guidance in our annual presentation. We don’t clearly state that we are targeting to double our top line in the next five years. So that guidance, we have already given I think quarterly or one year guidance will be very, very difficult for us because so many new people

[Speech Overlap] so many new product launches are happening actually. So many products, we are working in Adhesive side. Similarly, we are working on the pipe also a few new products are expected. I think it is very, very difficult to predict on a quarterly or yearly number, but I think long term guidance we have already given that we are targeting to double our top line in next five year as a consol basis.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Correct. No, in terms of the tanks and the valve what sort of revenue number you’re looking at?

Hiranand A. Savlani — Chief Financial Officer

I think it will be too early to say what will be the number, but I think we have given the long guidance, I think you should stick to that rather than sticking to one quarter or one year number.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay, great. Sir, thank you. I’ll come back in queue.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Thank you. I think one more things I missed in my initial remark that was the working capital side, I think more or less, we have maintained our receivable days and the inventory days in this quarter also whatever the days where there in March. I think more or less same receivable days and inventory days are there.

Operator

Thank you. Next question is from the line of Salil Desai from Marcellus investments. Please go ahead.

Salil Desai — Marcellus Investments — Analyst

Hiranand bhai, I wanted to go back to this inventory loss and just clarify if I understand it right, this is just quantifying that the cost of material versus what you sold it at, there is some loss there. There is no active provisioning of any loss, right, from an accounting point of view?

Hiranand A. Savlani — Chief Financial Officer

No, there is no active provisioning. It is a basically actual loss.

Salil Desai — Marcellus Investments — Analyst

Right. So you brought let say INR100 and that when you sold…?.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Yeah. So that’s why I communicated in my earlier remarks, also that Q2 will be also some pressure. That’s why I said the Q2 will also be a pressure because everything will not be sold out. So some inventory will be still there in the system.

Salil Desai — Marcellus Investments — Analyst

Sure. And that inventory number will reflect in the change from March to June, which you said is similar number of days

[Speech Overlap]

Hiranand A. Savlani — Chief Financial Officer

Yeah, number of days will be on a console basis, on a case-to-case basis will be low like in pipe and all it has reduced reasonably low level, like I think four days in the inventory side and three days, two or three days into the receivable side, but other like paint and all has a little higher working capital cycle. So there the little days have gone up. So pipe has come down other has gone up. So overall, I said that on a console basis the receivable in the inventory days are common whatever was there in Q4.

Salil Desai — Marcellus Investments — Analyst

Understood, thanks. And my second question is Sandeep bhai, when the faucet business, you have originally were thinking that you would do outsourced manufacturing. We didn’t want to go full all-in, just figure out how things work and then maybe somewhere down the line a couple of years, you would take a decision on manufacturing. So now that thinking seems to have changed and think that in-house manufacturing is better. Can you just explain what has led to the change in this, we are thinking, and some of the [Speech Overlap] point of view?

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Basically, [Speech Overlap] let me tell you that that was the 100% this model, but two things happen as we saw complexity of the product line and the quality aspects of the product line, especially the finish and — it’s a moving. Ceramic ware is not the moving part or something. So looking to that and we got a right opportunity to get something at the right price. So that two things were there and main thing was the opportunity to get something within Gujarat one certainly at the right value. And at the same time, a good state-of-art facility due to whatever reasons, the promoter has. That is the reason why we went ahead and the capital outlay compared to Astral is hardly anything that matters great for the business that can be generated from this amount which we expect. So that was the rationale behind it and still when you get into something new, you keep learning and when you learn you understand the nitty gritties of the business and certain decisions can be take on these aspects and that was there why we went ahead with this faucet on our own. And actually it is actually a good thing and everyone would feel that this is more commitment for us to be in this business. It is a great commitment. When you are on a model of Job work, your seriousness of the commitment of many aspects go down, but here we are completely committed to the business as well as the growth of the business.

Salil Desai — Marcellus Investments — Analyst

Thanks. That makes sense. Thank you so much.

Operator

Thank you. The next question is from the line of Sujit Jain from ASK Investment Managers. Please go ahead.

Sujit Jain — ASK Investment Managers — Analyst

Yeah. Sandeep bhai and Hiranand bhai, thank you for this opportunity. And compliments on a good performance on volumes and despite the challenges that have been there in the sector. My question is on paints business, when I removed that from the adhesives revenue then the revenue is INR282 crores versus INR196 crores, which is 44% jump, which if I look at numbers Pidilite’s numbers etc.., because interim looks low and when I knock-off INR8 crores OP of paints from the EBIT sort of roughly INR23 crores – INR24 crores of EBIT will come from adhesives. Which again in terms of margins is something like 8% – 8.5% roughly. Which again is kind of on the lower side even Q-o-Q. So if you can explain what exactly happened in the adhesives business.

Hiranand A. Savlani — Chief Financial Officer

No. I don’t know how you calculate 8% and 8.5%

Sujit Jain — ASK Investment Managers — Analyst

In the base quarter, there is no paint business, as I’m saying Y-o-Y, when I compare it or even Q-o-Q from this quarter’s number I knock of the revenue of paints business and I knock off the EBIT from the adhesives EBIT.

Hiranand A. Savlani — Chief Financial Officer

So you are calculating that would be it the entire, I said, that because of this amortization that there might be there. But otherwise, if you see the EBITDA level, I think last year Q1 was pretty 13.5%, 13.8% precisely okay. And that is there in our press release also and this quarter, it is also close to about 15%, but if you remove this paint, it is working out to be 13.6%.

Sujit Jain — ASK Investment Managers — Analyst

Right, right. Yeah. That helps with this amortization. But on the top line, is it a little muted INR282 crores [Speech Overlap]?

Hiranand A. Savlani — Chief Financial Officer

That is mainly because UK operation, we had delivered a very muted growth of 4% -5% only in the previous quarter. Because there was some constrain. So because of that only 4% – 5% growth was there. But otherwise, if you pick up Resinova there was a 18% growth.

Sujit Jain — ASK Investment Managers — Analyst

Yes. And now faucet becomes a part of plumbing, right?

Hiranand A. Savlani — Chief Financial Officer

Yes.

Sujit Jain — ASK Investment Managers — Analyst

And eventually Standalone you’ll merge Resinova?

Hiranand A. Savlani — Chief Financial Officer

Yes. Now we will merge, but segment wise yes, we will definitely going to give the separate number.

Sujit Jain — ASK Investment Managers — Analyst

Segment wise data you give for consol right?

Hiranand A. Savlani — Chief Financial Officer

Yeah. Consol you will get the segment.

Sujit Jain — ASK Investment Managers — Analyst

Okay. Okay. Sure, thanks, and all the best.

Hiranand A. Savlani — Chief Financial Officer

Thank you

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

.Thank you.

Operator

Thank you. And I’ll hand the conference over to the management for closing comments.

Hiranand A. Savlani — Chief Financial Officer

So thank you very much for joining this con call and thanks for the Ambit team for hosting this con call. If any questions are left out, which is, we were not able to answer, we were not having the ready number you are free to call me anytime my mobile number is always with you, so you can call me anytime. Thank you very much.

Sandeep Pravinbhai Engineer — Chairman of the Board, Managing Director

Thank you all for joining this call. It was great interacting with you guys, it was my first conference call. So looking forward to many more such calls in the future and we will try to work and deliver — exceed the expectations of the Street in the coming quarters. So thank you everyone and happy Janmashtami and have a great weekend and holidays, which are coming for next week and stay safe and take care and look forward to again interacting with you after the Q2 hard work, which we all have to do. So thank you very much. Thank you.

Operator

Thank you very much. On behalf of Ambit Capital Private Limited. That concludes this conference. Thank you for joining us. You may now disconnect your lines.