HIL Limited (HIL) Q2 FY23 Earnings Concall Transcript

HIL Limited (NSE:HIL) Q2 2023 Earnings Conference Call dated Nov. 09, 2022

Corporate Participants:

Siddharth Rangnekar — CDR India

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Saikat Mukhopadhyay — Chief Financial Officer

Analysts:

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Rajat Setiya — ithought PMS — Analyst

Ashwin Reddy — Samatva Investments — Analyst

Amit Vora — — Analyst

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Pavneesh Kumar — Hridayakash Private Limited — Analyst

Nikhil Upadhyay — SIMPL — Analyst

Rama Krishna Neti — Zen Wealth Management Services Limited — Analyst

Subham Agarwal — Aequitas Investment — Analyst

Mohit Khanna — Banyan Capital Advisors — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the HIL Limited conference call to discuss the results for Q2 and H1 FY23. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.

Siddharth Rangnekar — CDR India

Thank you, Liz Ann. Good morning, ladies and gentlemen, and welcome to HIL Limited’s quarter two and H1 FY23 Results Conference Call for investors and analysts. Today, we have with us Mr. Dhirup Roy Choudhary, Managing Director and CEO of the Company; Mr. Saikat Mukhopadhyay, CFO; Mr. Ajay Kapadia, Vice President, Finance and Accounts. We will first have Mr. Dhirup Roy Choudhary making the opening comments, and he will be followed by Mr. Saikat who would take you through the financial perspectives.

Before we commence, I would like to highlight that some of the statements on today’s call could be forward-looking in nature, and details in this regard are available in the earnings presentation, which has been shared with you and it is also available on the stock exchange website.

I would now like to invite Mr. Dhirup to present his views on the performance and the strategic imperatives that lie ahead. Over to you, Dhirup.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you, Siddharth. Good morning, everyone, and a very warm welcome to HIL’s quarter two and H1 FY23 Earnings Call. Thank you for taking the time to join us today, and I sincerely hope that all of you are doing well.

I would like to be upfront to admit that last quarter has been an extremely tough one for both HIL India and Parador. Most of the headwinds we see are created by external factors which are quite beyond anyone. In today’s discussion, I wish to speak about each of them and also give you a transparent view of the actions your company’s management are taking to mitigate them.

Amidst all the challenges, we have delivered steady revenue during the quarter. Historically, quarter two is always the weakest quarter, both in India due to the onset of rains and in Europe due to summer vacations. This was further dampened this year due to the ongoing weak consumer sentiment in Europe.

Despite these trends, our teams have worked relentlessly to minimize the impact on our financials and maximize our performances. We have achieved a 6% growth in our consolidated results in H1 FY23, while it is 14% in our Indian business. During the quarter, we continued to face inflationary pressures in most of our business segments. These ripples were caused by the persistent inflation in key raw material costs, high fees rates and the ongoing geopolitical scenario in Europe. While the supply side issues continue to provide huge headwinds, we have escalated our sales across verticals to drive our growth. We also continue to produce innovative ways to overcome the challenges faced and maximize our performances.

I am very excited with the benefits we are securing by IoT 4.0 implementation in 12 plants. This brings in transparency, preventive maintenance and a shared ownership for all to drive best performances. An aggressive adaptation of Six Sigma across all functions has further brought our family closer and is committed to deliver better efficiencies and lower costs.

Let me now take you through the individual performances and the challenges we are facing in each of our business segments rather in detail.

In the Roofing segment, you would recall, we had a fantastic quarter one this year, where due to meticulous planning and last leg connects your company was able to secure 25% of the market share. This led to an eminent chaos amongst competition in Q2 and the market clearly witnessed a visible pricing leading to lower margins in each of the segment operators.

HIL, owing to its brand, Last leg connect, digital intervention and pin code mapping and heat mapping, was able to sustain its price supremacy in all the markets across the country, and our selling prices were kept higher than last year. However, due to huge cost price in fiber, together with high sea freight impact, our capital profitability of this segment muted over last year. Determined efforts are being taken by HIL to raise the NSRs as the cost pressures would continue for the rest of the year.

Polymer Solutions continue to face severe external headwinds owing to further softening of PVC prices, which has come down by more than 25% in quarter two and 38% in the first half. This has substantially reduced the brand restocking across the industry and also severely impacted the bottom line owing to inventory losses. ForEx is also adding to the whole.

Through our emphasis on quality distribution and brand, Birla HIL is carving a growth niche for itself in the vast market. We sincerely hope that the PVC prices have almost bottomed out and expected to improve our performance in the coming quarters. We continue to add newer SKUs to cater to the demand in key markets and are also in the process of launching [Indecipherable] for underground application in this quarter.

As regards OT business, we are witnessing severe competitive pressures in the market, which together with the increase in price of raw materials, have kept this business softened in the last quarter. Our fabric to grow this segment space unaltered and our company pledges to take this business to its needed growth profile soonest. Parador enjoys a unique position in Europe homes and derives a large portion of momentum from two large countries, namely Germany and Austria. It has seen impact on sales on account of softening in demand as was impacted with inflation and energy crisis.

The market sentiment in Europe are very low, with consumers adopting a conservative approach and going for low — going for only essentials. The footfall for renovation materials, including flooring has been a de-growth of 30% in DIY and multiples. The weakness is being felt by the entire flooring industry, with many declaring plant shutdown, including our major competitors and suppliers.

Future projections for new orders are coming down due to high volatility. However, we are witnessing some countries which are able to battle through these challenges better than the rest, namely Spain, Switzerland, Sweden, Norway and Denmark. Amongst our competitors, Arbor is doing far better. With meticulous efforts taken by the team in onboarding new customers from these greener pastures, we have been able to gather speed in our order backlog for engineered wood. We therefore, have good orders for our Austrian plant, which is running at full capacity. However, orders for our coastal Germany factory has come down substantially. We have already initiated various actions to continue our business sustenance and cost savings during this extraordinary tough times and sincerely hope that the situation would improve after the winter period.

In the midst of all of this, I’m extremely happy with the performance of our Building Solutions segment where our strategic efforts to convert this business from a product sale to a solution sale has started reaping results. Our sales and technical solutions team have onboarded many new customers from Tier 2 and Tier 3 cities, which has led to a higher realization at a favorable payment terms. We have fully utilized the capacity of this business while taking conservative steps towards an increase [Indecipherable].

In this regard the acquisition of fast build block business in Orissa has been a good step forward. It has not only helped us reduce our investments for our greener block plant, but also helped us to secure new customers and optimize competition in this region. We are also taking small steps towards incremental capacity increase in all our plants of blocks and panels, while focused steps are being taken to evaluate contract manufacturing of blocks. I am confident that our brand with Aerocon, together with our technical trained sales force and superior products, would enable us continue the profitable growth of this business in times to come.

As you are also aware, we have decided to step into construction chemical business. We are laying the foundation of this business and working on acquiring talent, product assortment, vendor development, logistics and distribution network. We have onboarded 32 team members already, 100 channel partners, launched 25 products and 170 SKUs in the market within the first six months, and have achieved in excess of INR7 crores revenue in the first half. Our aim is to take this business to INR300 crores plus in the next two to three years.

In conclusion, let me commit that your company remains optimistic in mitigating the existing challenges suitably with the help of highly committed workforce.

On this note, I would like to invite our CFO, Saikat, to give a more granular view on financial performances during the quarter and would be available to take your questions thereafter.

Saikat Mukhopadhyay — Chief Financial Officer

Thank you, Dhirup. A very good morning to all, and thank you for joining us on the call today. I’d like to take you through the financial and operating highlights of the business during Q2 and H1 FY23.

The ongoing geopolitical tensions as well as the resulting headwind impacted financial performance during the quarter. It is worth noting that our entire teams worked very hard to mitigate these effects. We delivered a consolidated revenue of INR764 crores during the quarter compared to INR766 crores in Q2 FY22. EBITDA for the quarter came at INR20 crores versus INR68 crores in the corresponding quarter last year.

During H1 FY23, revenue stood at INR1,849 crores growing by 6% against INR1,749 crores in H1 of last year. EBITDA for the period stood at INR156 crores versus INR241 crores in H1 FY22, a drop of 530 basis points in margin. As for H1 FY22, stood at INR80 crores as against INR126 crores in H1 FY22.

In Q2, the Roofing Solutions business grew by 5% year-on-year coming in at INR197 crores as compared to INR189 crores in the corresponding period last year. We continue to have a higher market share in the roofing business and this revenue growth is a testimony of that. H1 FY23 revenue stood at INR650 crores, growing by 8%. The Building Solutions business grew by 29% year-on-year during Q2 FY23, coming in at INR123 crores. H1 FY23 revenue stood at INR248 crores, showing a robust growth of 38%.

Polymer business stood at INR126 crores in Q2 FY23. Revenue from operations in the polymer business came at INR268 crores during H1 FY23, growing by 10% as compared to INR243 crores in H1 FY22. The Flooring Solutions business stood at INR315 crores during the quarter under review. H1 FY23 revenues were at INR681 crores.

The health of company’s balance sheet is of great importance to us. The debt at consolidated level now stands at INR300 crores and the total debt-to-equity ratio stands at 0.25. This gives us the comfort and confidence to drive growth initiatives and mitigate challenges in the marketplace. The net worth of the company today stands at INR1,192 crores, having grown 8% year-on-year.

With this, I would like to conclude my opening remarks. I request the moderator to open the floor for questions. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now being with the question-and-answer session. [Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital. Please go ahead.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Mr. Choudhary, good morning. I trust all is well. We understand operating conditions have been challenging overall, and we hope to get better sooner or bit later. Couple of questions, how has demand salience been in the Parador side of our business in October and November so far? We understand in your September update call, you had mentioned about a lot of initiatives about expanding the market in the Nordics and Spain and the Americas. Have they began to yield any results? So some color on that. And would you reckon Q3 this fiscal will be a breakeven quarter for Parador?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you very much, Mr. Sarkar for your question. So your questions are all on Parador. So let me try and answer them one by one. The demand in October is also low and we are seeing a drop of demand of more than 30% in Europe, in the major parts of Europe where we are. November has started well at the moment, but it’s only a few days now. So it’s very early to say how it’s going to perform. But normally November is a decent month in Parador, but this year, of course, situations are different.

Our actions are being taken with big houses, big customers in the Nordic countries and Spain, and they have a particular RFQ process and accessing new suppliers. This process does take a few months. Therefore, I will not be expecting orders to immediately fall in from there. The quick orders and the quick revenues in Parador comes from DIY, because those are where people go and buy quickly, and therefore, you can sell quicker. And those are also products which we make in core sells, namely the laminates, the liners, the modular one.

But those orders have come down immensely. So we are harping more on the project orders, which are primarily engineered wood and they take their own leads times and delivery times are quite extended. So it will take its time, but as long as our order booking is good in the coming months, those customers which are new and potential for future, then the revenues will definitely be better in the coming quarters.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Sure. On the profitability front, Mr. Choudhary, would you reckon, you’d be significantly away from breakeven? And is that something that can be expected at least Q4? I mean I know it is early days, but given the cost control initiatives, you have spelt out in the September call, any comments on that?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Well, our attempt is exactly on that direction. There are fixed costs within Europe, as everyone is aware, which are anticipated to be controlled beyond the level. A lot of cost-saving aspects have been taken including permission from the government to go for short-term work for a few people so that we are able to save on some part of the cost. Let me define this for you. Short-term work in Europe means that you are able to send people for — or some days of the week, where you pay only 60% of their salary and the 40% then, or part of it comes from the government to them.

So those actions have been taken in some departments as we see the weakening of revenues. But they are not enough to help us mitigate all the cost challenges. Our attempts are towards breakeven on EBITDA in Q3, but it will be too early for me to comment on this.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Sure, sure. I understand that. On the domestic roofing front, it looks like volumes have been pretty benign in Q3 and Q2, and you alluded to the competitive aspect. How are things looking like now? Is there a strategy that we have in hand on that, you know this kind of a pricing pressure from the environment or would you reckon, we just have to wait and watch?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Well, we don’t wait and watch at all Mr. Sarkar, you have been with us for a long, long time, and you’re aware that your management is far ahead than the rest. On the top line front, we are doing everything to secure our positions, our market shares. In India roofing, we are growing in our market share over last year, while the price pressures or the cost pressures are huge.

I simply hope that the market understands the cost pressures and we are able to get better realization, which we have not been to my satisfaction. Because the capacity in roofings is far higher than the market demands, everyone knows about that. So therefore, if there is a return and effort only to sell volumes by our competition, market prices cannot go up beyond the level. But we have a huge differential with the rest on market prices, on [Indecipherable] which is difficult to sustain beyond the level, but our returns on brand, our returns of direct connect with the retail, direct connect with the consumers is something that we are harping on to continue the spree. I’m very hopeful that we’ll be able to take some price rise to mitigate the cost differential over last year, which is huge because of fiber.

Fiber was created mainly because there was a huge scarcity of fiber from Russia and Kazakhstan due to the war. And therefore, everyone went to Brazil and we were buying only from Brazil, as you are aware. So the Brazilians therefore found it difficult to satisfy everyone. And also their costs have gone up, so they raked up the price immensely, which has dented everyone. So not us alone. But we are, I’m sure, still a preferential customer to them. The rest are also facing this.

Plus the fact that when you go to new suppliers, the mix of fiber changes, which also increases the cost of production. I’m sure all of these are problems that our competition is facing. I would only hope that they understand from their own results and do something to help the industry raising the prices. We are taking all actions towards that.

PVC, I think, has reached a level. Barring further reduction of PVC prices, may be minimal, so I would say another INR10 at the most reduction will be there. That will have a negative impact for a month or two. But after that, things are going to move up and the demand has been subdued. So I’m seeing a resilience of demand going up in quarter four for sure in India, which will be helpful to companies, which have been able to keep their fabric absolutely and is ready to grow, and your company will be one of them.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Sure. If I could just squeeze in one last question. On your construction chemical story, did you call out a number of INR300 crores over the next two years? Did I hear that right? And if you could just throw some color on what’s the business model here, will it be traded, manufactured, something like that?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes. So you’re right, our team and I always share my dream and names with all of you because you must be a part of it and may correct — like to correct me in that. Construction chemical, any segment which is below INR300 crores is nonviable from an HIL perspective. And I would like to take this segment, which is our next dream segment, to INR300 crores as soon as possible, my aim will be next three years — two to three years. I’ve said next three years, positively, we should be at INR300 crores for construction chemical.

At the moment, we are still questing the water, which is doing extremely well. Our brand has already started penetrating the market. Though INR7 crores in the first six months or INR9 crores in the first seven months, I won’t say these are big numbers. But we would be able to ramp it up here on INR2 crores to INR3 crores every month is my aim. And let’s see. I mean, we will have to buy a company or two to also extend our SKUs when that’s needed, but we will keep you fully informed of that?

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Yes. But is the model traded now or are [Speech Overlap]

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Model is entirely traded now. Therefore, there is no capex in this and the profit — the contributions also, but the cost are also high because this is also the setting in period where we have introduced a lot of people there already for ramping it up. But this is the time of investment into the business for future.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Okay. My best wishes sir. Thank you.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you sir.

Operator

Thank you. The next question is from the line of Rajat Setiya from ithought PMS. Please go ahead.

Rajat Setiya — ithought PMS — Analyst

Hi, am I audible?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes Rajat, you’re very audible. Please tell me.

Rajat Setiya — ithought PMS — Analyst

Thank you. Thank you so much. Sir, one question about the Parador. So what is the power and fuel cost as a percentage of sales for Parador?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes. So I’ll give you the answer in two sectors. One is the power and fuel cost of Parador is 2.5%. That’s the direct answer to you. The second answer to you, which would give the relevance also is, we don’t use gas, we use electricity. And what we did miraculously, I would say, was that decision in February to — we froze the entire electricity cost of this whole year — calendar year, though, up to December end in February itself, and that was at a low base. Then the prices all shot up. So — and we have also frozen 60% of electricity requirements for next year in Coesfeld and 40% in Gussing plant for the calendar year next year, calendar year next year, that is 2023. So these decisions were taken in February while the war has not yet started, which will definitely hold on for Parador and hopefully help us. Hello? Rajat ji?

Rajat Setiya — ithought PMS — Analyst

Yeah. I can hear you sir.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

I hope I answered your question.

Rajat Setiya — ithought PMS — Analyst

Okay. I think I just thought the line was cut. Alright sir. So this was one. Thank you so much for that. The other is on the Roofing segment. So the raw material fiber that we use, what is it as a percentage of total sale of that roofing — asbestos roofing segment?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

So fiber is the biggest material that we use in roofing Rajat Ji, and the total is about 33% of — or 40% of the raw material cost, the fiber.

Rajat Setiya — ithought PMS — Analyst

Understood. And sir, what are the margins in this segment. On a yearly basis if you look at, they keep on fluctuating a lot. So what are the sustainable or there are no — there’s no such thing for this segment, you would say?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

No. I mean I’ll tell you the fluctuation that you’ve seen is more cyclic in roofing in nature. So roofing segment has the best quarter as quarter one. The second best quarter is quarter four of a financial year. The third is quarter three and the fourth is quarter two. So quarter two is the weakest, quarter three is the second best and quarter four is the third best and the second — sorry, the second best and as the best is quarter one. So that’s where it is. The fluctuation of margin, what you see is a direct relation to the material cost price, because the material cost plays havoc sometimes and if the NSRs don’t go up in the market, you would see that fluctuated. So a steady state profitability for roofing should be about 20%, 22% EBITDA.

Rajat Setiya — ithought PMS — Analyst

Alright. So the fluctuation is not because of the pricing, it’s largely because of the raw material pricing, is it?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

That’s like, it’s raw material, but in quarters, it is pricing also. So every quarter when there is a low demand, like in quarter two, NSRs will drop down from quarter one level. And quarter three, we would take some actions to raise it to quarter two. And quarter four, we will raise it further to quarter three. And then in quarter four, it will be at its peak.

Rajat Setiya — ithought PMS — Analyst

Understood. And sir, the next question is on the piping business. So in the pipes business, what is the distribution network that we have today? How was it two years back? And what is our plan for the next one to three years?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

So in pipes, first, let me answer the last question. In pipes, we want to reach INR1,000 crore revenue in the next three years’ time. And in putty, we want to reach about INR400 crores revenue in the next three years, so it will be about INR1,400 crores in this segment in the next three years. Coming to the network, there’s an extensive network increase that we are doing.

Our brand is settling down well, which is the Birla HIL brand. We had initially problem in getting big distributors in our segment because they are all linked to all the big players. We are far, far smaller in every way. But the growth in distribution is roughly about 270 to 300 new points every year that we are growing. And our connect with the plumbers and the masons, plumbers for the pipes and masons for the putty clear the effort, which is adding to this. I think presently, as it stands, roofing would have a retail connect of more than 20,000 points. And for polymers, we would have at least 3,500 to 4,000 connects in the country.

Rajat Setiya — ithought PMS — Analyst

3,000 to 3,500. Okay.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

3,500 to 4,000 in connects.

Rajat Setiya — ithought PMS — Analyst

And we plan to add or we are at a run rate of adding almost 270 to 300 every year, that’s what you might do.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yeah.

Rajat Setiya — ithought PMS — Analyst

Okay. Okay. Understood. The final question, on the tax rate of India entity and Parador, what are those tax rates?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Okay. I will request my CFO to answer this question. Saikat?

Saikat Mukhopadhyay — Chief Financial Officer

Tax rate as far as India business is concerned is 25%, say 25.17% around. And in Parador, it should be about 31.5%.

Rajat Setiya — ithought PMS — Analyst

Okay, thank you so much.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you very much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ashwin Reddy from Samatva Investments. Please go ahead.

Ashwin Reddy — Samatva Investments — Analyst

Hi, good morning. Thank you for the opportunity there. So, my first question is on Parador. So on Parador, given the environment right now and given the fact that competitors are also in a weak footing, is HIL trying to play offense and take any strategic decisions you believe or is it still a time to play defensive and see how the market goes out?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Ashwin ji, my apologies, I couldn’t understand your question at all. I know it’s about Parador, but I just couldn’t understand your question?

Ashwin Reddy — Samatva Investments — Analyst

Okay. Sir, actually I’m saying the on Parador, so is this a time to be aggressive in the market and take any steps in terms of backward integration on competition or do you think it is still a time to be defensive given the uncertainty?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Very, very interesting question. And let me answer this to you. I had two choices with me. One is manage under the present crisis and therefore, start reducing costs in a big, big way and be defensive, and thereby, maybe in a way, destroy the structure of Parador, which would have been quite a futuristic disruption. And the second was accept that we will lose some money in PBT, but at EBITDA keep it a rate for better times to come, which I believe will take a quarter or two at the most.

And, in the meantime, go aggressive in new markets with your products, which — your Parador products are extremely good, high end. Go into the market, get new — establish new contracts with big building houses, contractors, builder, influencers like the interior designers, architects, and build the brand further to be ready to absolute kick start as soon as the situation improves. We are taking the second.

Ashwin Reddy — Samatva Investments — Analyst

Okay. Got it. This is helpful. In your opening remarks, you also mentioned that even your suppliers, in some cases, are facing difficulties, right? So is this — so is there any impact of this on your business in terms of the suppliers being facing difficulties? And is this a time for you to backward integrate or [Speech Overlap]

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

I’m so sorry, your voice is all mumbled. Could you be slightly closer and speak a little softer? My apologies.

Ashwin Reddy — Samatva Investments — Analyst

Okay. Okay, sorry. No, I’m saying you also mentioned that even the suppliers are facing difficulties, in your case, in some case as you mentioned. So is this also a time to backward integrate or there is no scope — or there is no need for you to backward integrate in Parador?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

So your question is with the suppliers that they are facing difficulty. So what’s your question, sir? Is it the time…?

Ashwin Reddy — Samatva Investments — Analyst

Is it a time to backward integrate? You said do you want — I mean, are there any inorganic opportunities which you see to make your business more stronger in the future?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Again, the voice is so bad. But let me answer this to you. See, I’ll just take you back to about 12 months back. There was a huge crisis for raw material availability in Europe, and that’s the time the important raw material like HDF that we buy, MBS that we buy, chemicals that we buy shot up by about 100%.

Now when the suppliers enjoys such a fantastic profitable year last year, they are determined not to slip back through. So they had two choices. One, lower their price immensely because the demands have fallen and keep their plants on. The second was to stop their plants, not to lower their prices.

So they’re taking the second option. So, we are not seeing therefore a price dip enough from them while they have closed their plants and therefore, suffering a lot on the fixed costs. I’m hopeful we have been able to get a 20%, 25% discount over the peak prices in the last quarter or so in raw material, which as the inventory that we are depleted, we will see the benefit of this in the profits, on the costs. But we are not seeing the suppliers taking any disastrous action by reducing their selling prices immensely.

Ashwin Reddy — Samatva Investments — Analyst

Okay, got it. Got it. Thank you so much.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you sir.

Operator

Thank you. The next question is from the line of Amit Vora [Phonetic], an investor. Please go ahead.

Amit Vora — — Analyst

Good afternoon. Thanks for taking my question. First of all, I would like to appreciate the management’s efforts to always keep investors updated about what is coming and being quite appreciative about this. Over the past three quarters, you’ve been very clear that, yes, there is a problem and you’ve been updating us. Firstly that.

The question is on Parador, again, revolving around this. Are we seeing any kind of inventory that we have stacked up or that is there, which can come as a write-off in the coming days? That’s my first question. And the second question is on the Building Solutions where we have done extremely well, and it looks like the new acquisition has merged very well into HIL. The margins that we have reported here, how are these sustainable? And going forward, is there a scope for improvement in these margins? Thank you.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Amit ji, thank you for your questions. Very clear. Thank you for giving me a chance to explain the inventory part of it. So, let me go back a few months back and draw you to the stress that we had during the onset of the war, where there was absolute scarcity of wood, because as I had informed you earlier, 40% of the wood for the whole world’s supplies come out of Ukraine and Russia. So with the wars there, that was under a big, big problem. We have been able to secure a lot of inventory during that time using our connect, so that we don’t ever starve ourselves of raw materials.

We were carrying in Parador about 47 million inventory in the — towards the middle of last quarter. Now is the time when we have decided raw material availability is no more a problem. So we have taken a concerted approach to bring it down. I would draw to all investors the point that the lowest inventory in the history of Parador used to be 33 million, 34 million, but our raw material costs have gone up by about 100%. And therefore, automatically, the inventory carrying cost goes up and the levels goes up. But we have taken determined effort to get the inventory pegged at 40 million. We are at about 41 million, 42 million at the moment. We will bring it down a little more, and piggyback 40 million till sales really return in full state. That is point number one.

Point number two, there is new net inventory. So every material is usable and therefore, there is absolutely no problem with our inventory. That’s answering your second question. Now I come to the Building Solutions, the margins which were hovering around 4%, 5%, 6% in any of the years earlier, and EBITDA level has now gone up to 13%, which I would give credit to the team. We will — we are very positive that we will be able to continue this streak. And these margins can only improve from here according to me with — as we grow in this business.

Amit Vora — — Analyst

Alright, alright. That’s quiet helpful and insightful. Yeah I think these are the two questions and most of my other questions have been answered. If I have any questions, I’ll jump back in the queue. All the best and looking forward for your next question.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yeah, thank you very much Amit ji. I really miss that.

Operator

Thank you. The next question is from the line of Nikhil Gada from Abakkus AMC. Please go ahead.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Yeah. Hi sir. Thanks for the opportunity. Sir, just first on the Parador business, when you mentioned that we were able to lock in the electricity prices in February and our P&F still remains at 2.5% of revenue, then are we primarily seeing the impact in Parador because of the demand just getting sort of eroded or because when we look at even at the gross margin levels as well for Parador itself, then there also we are seeing some pressure. So maybe if I can just, like-to-like basis, a 40% gross margin has gone down to 35%. So could you highlight both these things, please?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Absolutely. I’ll be happy to highlight all of this to you. First of all, and as you spoke about electricity, yes. For this calendar year, up to December, it’s 100% locked at very favorable rates than what is there presently. And for next year, it’s locked up to, say, average 50%. The other part we still have to lock it. And in the present rate, we are unable to lock it for next year because that’s a huge, huge cost. So we are waiting for the government to take the right decisions, which I’m confident Germany and Austria will take in times to come, and we’ll see possibly some good reduction or rebates on this in the coming months. And then we will go for the locking.

So now coming to — yes, even amidst that our contribution is low, our gross margins are low. The reasons are the following. Number one, the raw material costs that are planting in our SAP is very, very high because they were very high initially. It’s just started coming down in the last one, 1.5 months, we have seen aggressive negotiations that has come down by about 20%, 25%. We will be able to realize this benefit in the coming months, maybe after a quarter, because we are unable to buy more material as we are taking concerted approach to reduce the inventory. So that’s one point.

Second, why is the margins deteriorating? So one of the reasons for margin decoration is there is no orders. So if there are no orders, you are taking active actions to bring in order and stay alive and that’s exactly what we are doing. Therefore, the NSRs are not going up at all to compensate for any of the other costs that have gone up.

Overall, if you see freight costs have gone up immensely because of oil prices three times, four times everywhere. All raw material costs have gone up, chemicals have gone up, because everyone is sweating at the moment in Europe. So all this is adding to the woes of the margin. So as situation eases out, all of this is going to come down.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Understood, sir. And just on the electricity front, when you say that for the next year, we have locked in 50% on an average for both our plants. This is on award rates, if you could specify? Is it for the similar rate that we have for this particular year?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes. Yes.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Understood. Sir, just then on the overall impact, which you are seeing in October. And we also know that December is Christmas, which is generally a bit of an off-season in Parador. So, for 3Q, do you see similar kind of numbers which we can achieve as we have seen in 2Q or you’d see that we might be relatively better off?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes, we are trying every day, sir. Every day, I’m on top of that. I’m spending almost more than two, 2.5 weeks in Europe myself and traveling to all customers directly to have a first impression and also support. So every attempt is being made sir to see what products we can deliver in Q3.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Got it, sir. Sir, just then on the Roofing business. I just missed your comment on the increase in fiber prices. Could you quantify that, please, and that is close to 40% of our total RM, right?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes, you’re right. So fiber has gone up by more than 50% — 15%, maybe 15% to 20% rise in fiber costs. And the sea freights haven’t come down. So giving you a clear impression the sea freights from China to maybe Europe has come down, but from Brazil to India hasn’t come down because it was already lower than the other sea freights. So that hasn’t come down enough. So therefore, these are cost elements, which is very, very difficult to be recovered from the market with NSR, and that’s what’s creating the downside.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Okay. So just from that understanding perspective, this 15%, 20% increase is year-over-year, right?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

That’s right.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

So when we look at our margins for the current quarter and when we look at what we had achieved in 2Q of last year, there’s a significant decline. So is there anything else that we are missing because the fiber price have not sort up so significantly to have an overall impact on our margins in such a way?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

We had — I mean if you look at fiber alone, there is a big, big dent to the bottom line that has come through. I don’t have the quantified numbers, but we could send it later for you. Cement had also got…

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

The impact would be close to 6% to 7%, right? Or 35%, 40% on 15%?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Right. And the NSR happens, the other costs are also in there. So all of that together, I think the dip in margin are where it is correcting in roofing. So there is a dip in margin of 8%, and I think most of it is fiber, cement and, of course, quarter-on-quarter there will be some cost increase which is on manpower and all those things. Plus the electricity costs in all our factories have gone up in the country. That has gone up. So all of that.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Understood, sir. And for a second half in the Roofing business, sir, do we see a step-up improvement in margins or we see a moderate sort of an improvement? Because for second half of last year, we were somewhere in the band of 15%, 15.5% on EBIT levels. So do you think that is something which will be achievable given that we have seen such sharp increase in freight prices and even in fiber prices?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

The attempt is to improve the margin, but it will not happen by any cost savings and everything that I do, which is controllable, is not going to give a substantial flip-up unless the NSRs go up substantially. So that is the element that — on which the team is fully working on because the cost, given where we are, I don’t see an improvement in cost of raw material at all.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Understood. Understood. And sir, just lastly, on the Construction Chemicals business. You said that you have hired — I just heard that number about — you said you have hired close to 25, 30 people, and you have achieved somewhere around INR7 crores of revenue in the first half. What has been the operating cost as of now for this business, first half FY23?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

I don’t have that number here, and I think it will not be fair to me to talk about the entire P&L in this call. It is too early, sir. This is an investment. See if I had invested in construction and chemicals by heavy capex, there would have been depreciation and costs and all the rest, which we have not taken the route. So the route I have taken is organic growth. So these costs, you should estimate as an investment for the future growth of construction chemical.

Nikhil Gada — Abakkus Asset Manager LLP — Analyst

Understood sir. I understood. I’ll come back in the queue. Thank you.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Pavneesh Kumar [Phonetic] from Hridayakash [Phonetic] Private Limited. Please go ahead.

Pavneesh Kumar — Hridayakash Private Limited — Analyst

Good morning Mr. Choudhary. Thank you for such comprehensive detailed analysis of the business performance and I can very well understand the kind of difficulty with the company is going through, but you all are relentlessly fighting to make the company profitable once again. So congratulations once again. Sir, my question was like asbestos sheet has always been — there are always apprehensions around the future of asbestos sheet it being cancerous. So do we have a plan B in case in future government banned asbestos sheets?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Kumar sir, thank you for your good wishes and complement. This period, getting complement is far too impossible, but thank you for understanding our pain. Your team is fully on the job. And I can tell you, we are more than committed when it comes to mitigating hardships. Your question on asbestos is fair, but to tell you, very frankly, I will not see a problem in the immediate future in India because there is no other competitive material to asbestos roofing in the whole world. And the rural sector relies immensely on cost-effective, high strength, high-longevity products. And therefore, I don’t see a problem at all in India.

But your company is the only company which has taken a strategic decision to come out with non-asbestos roofing product. We are unable to push this in big numbers because this product is more strategic for a possibility when asbestos roofing will go out of the market. If asbestos goes out of the market Fortune — Charminar Fortune, which is our non-asbestos roofing product can be made from each and every manufacturing facility that make asbestos roofing. So there is 100% replacement that can happen of the asbestos line to make non asbestos products.

So that product is already there. Enough actions are being taken on cost reduction there so that we are able to bring it down substantially. We have sold in excess of about 11,000 metric tons in the first six months of this year of this product, and the quality is doing fantastically well.

Pavneesh Kumar — Hridayakash Private Limited — Analyst

Fair enough sir. Fair enough. Sir, my second question was like we seem to have a weak brand in terms of pipes in North India. So, do we plan to strengthen it further in North India? And also do we wish to outsource the production in North India of PVC and CPVC pipes?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you again. So, we have — I’ll take the second question first. We have three manufacturing units for pipes and your question is going to be on pipes, because putty we are actually very good as a brand in North India, and we have secured good the market of putty in North. Let me come to pipe specifically, that’s your question. We have three locations where we make pipe. Faridabad is one, which is in North India. Golan is the other, which is in West India. And Thimmapur is the third, which is in South, so mid-south.

So we have three factories. At the moment, Faridabad is about 85% fully capacity utilized. Thimmapur is 100% capacity utilized, and Golan is about 50%. So we have enough capacity within the manufacturing facility [Indecipherable] go for outsourcing.

Second is the three verticals on which pipes really works according to me and you can correct me on this, is the brand, number one; product quality, number two; and the team, the sales team. So we are strengthening all of these three continuously. You would have seen a lot of brand activation in North behind the autos, the three-wheelers with our brand.

It’s always a matter of when do I spend more on brand on APLs. And that decision we will be taking as the business takes the lead. PVC price reduction has kind of hovers around the minds of the industry on a lower demand and lower primary sales. So give us another couple of months as PVC price stabilizes, you would see a lot more brand activation.

Pavneesh Kumar — Hridayakash Private Limited — Analyst

Yes. My question specifically on PVC was because, sir, I am myself into the trade, I’m a distributor of PVC and CPVC pipes. And HIL in our area in Haryana, we see Astral and Ashirvad Asia being extremely strong in CPVC. I don’t see that kind of a push from HIL. Me being a very, very loyal shareholder of HIL, I would love to see some force in CPVC pipes in Haryana also. That’s a request, sir.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Do I have a difference with your view? Not at all. Astral and Ashirvad, the main two companies, they are big giants. Over the last 25, 30 years, they have built a brand which is exceptionally well, and I look up to them. Can we get to that league very soon? Yes, we will. And thank you for being so patient with us, do interact with our pipes team and help us to appreciate what more we can do in Haryana specifically, and we’ll do every bit of it.

Pavneesh Kumar — Hridayakash Private Limited — Analyst

Thank you sir. Thank you so much. That’s so sweet of you. Thank you.

Operator

Thank you. The next question is from the line of Nikhil from SIMPL. Please go ahead.

Nikhil Upadhyay — SIMPL — Analyst

Hello, am I audible?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes, Nikhil ji, there is a little bit of a bounce in your voice, but you are audible.

Nikhil Upadhyay — SIMPL — Analyst

Okay, I hope it is better now, probably.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Please go ahead, if I have a problem, I’ll ask you to repeat.

Nikhil Upadhyay — SIMPL — Analyst

I just have two questions. One is specific to Parador. In the opening remarks, you mentioned that the problems which we are facing, many other competitors are also facing. So over a long period, if we look at Pandora had two manufacturing lines; one in Germany and one in Austria. Now if you get from manufacturing lines in some other region in Europe, which probably helps you reduce the logistics costs and help you expand the market faster, would you be open to any acquisitions of that sort in Parador or is there anything of that sort in terms of acquisitions to build or strengthen our logistics or supply chain better in Parador, you are seeking?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Nikhil ji, that’s a very, very important and pertinent question that you have asked. I’ll tell you why, because when situation becomes so bad in Europe, and I think that this will continue for the next quarter at least, there would be some distress effects that we can look at. Our team is working on this as we speak. At the moment, our German factory is fully up — fully unfilled. So we are we are, I don’t know, about 60% capacity utilized. So there’s far more that we can do in Germany. Therefore, we will not be in a hurry to look at expanding the facility for products like resilient, laminates and modular one.

But our wood plant is fully utilized. So we are actually having order backlog up to end of February there. And we are looking at — specifically looking at some companies from where we can possibly source some part of this. Though the brand plays a bigger role, the brand is so well established, we don’t want to dampen the brand and its value, therefore, buying from anyone else; selling will not be our course of action. We would be doing majority value add in our factories to continue the brand streak. But your question on whether we can look at some — constructively to buy some companies during these distressed times, yes, that window is very much open. But I will not be in a hurry immediately?

Nikhil Upadhyay — SIMPL — Analyst

Okay. Second question Dhirup ji is, slightly if I zoom out in terms of the company, now we have three pillars for our P&L. One is Parador, another is roofing, and third is the new business initiatives, which we are developing. Now for the last 1.5 years, if I look at it, we’ve been impacted by — all the events are exclusive events to each of the business, but all of that hit us at the same time.

So from — if you have to understand and if you review your business over the last five years and you create your strategy over the next five years, because the volatility of the business, operating environment can sustain and we don’t know about it, would you see anyway less probably in some part of the business aggressiveness has to increase or would you say we need one more pillar in order to strengthen the P&L balance sheet in order to compensate for such volatility — volatile events whenever they come? Or how are you looking at it, like what’s your learning or what’s your reading of the events which have happened over the last three years? And what are your key takeaways which you probably think the next three to five years the whole company has to bring in?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Quite a strategic question, and I’m very happy you asked this because this is something which continues to grow in my mind, and I can give you an answer straightaway without looking at any papers. Strategically, HIL is all planned to become $1 billion by 2025, ’26. And this is a commitment I have made. This was a commitment I made five years when I joined this organization, when we were only $140 million, and I continue to make that prediction.

But the last two, three years have been difficult, first COVID, now the war. These were unanticipated. These were unprecedented. These are — you can label them as historically one of its kind. But the team has really, really taken lessons to make these as an opportunity for the business in many ways, and we will continue to do.

Let me come specific to your questions. Roofing, you can expect in the next three to four years and let’s talk about only three to four years now time fame. In next two to three years, three to four years, roofing, I still don’t expect more than a single-digit growth in roofing. The cost will always be a threat to losing profitability, but we will take enough actions from R&D in alternative recipes to mitigate these costs and therefore, on a profitability stand, roofing will be quite sustainable.

Let’s come to now Building Solutions. So that’s a segment which was nascent when I joined, and it was not even INR150 crores, I remember. We have taken this segment to INR400core, and now you can see this year that we are able to grow this segment with a double-digit profitability. And we will take enough actions to grow this further. I’m determined not to add too many assets to this because the asset turn in this business is not very high, but we would look at all alternatives to grow this business through outsourcing route as well as wherever needed, add-on intelligent capex so that we are able to grow this business. This core business will become at least INR800 crores in the next three to four years’ time.

When we look at polymers, that’s absolute new business, which came in once I joined. So I remember the INR130 crore capex that that we invested within three or four months of my joining or five months of my joining. This is a complete new segment and we are learning the trade of it. Have we expertized in it? No. Every day, we are learning, sir. This is a very, very difficult, but very interesting segment. This segment, we’ve seen enough to grow to INR1,000 crore in size and we are absolutely sanguine we are committed to take this up there.

So this growth will happen. And when we reach those levels, the profitability will be quite good because that’s what we’ve seen for all the established players, five or six of them who are at that level, INR1,000-plus crores. Putty, of course, is more opportunistic, more a brand play by us, more opportunistic based on our penetration countrywide, where we are connected with 26,000 retails around the country. So putty, to take it beyond a certain level will be difficult because there are big players there. Two of them established and now on paint company is making a big trend there. So we will continue in this product and take it to INR400 crores, INR450 crores, certainly. My earlier estimate was INR600 crores, but I would soften that a little bit, but we will grow.

When it comes to Construction Chemicals, that’s the newest business, we are brought into. And construction chemicals for me is, an absolute Greenfield for HIL with its brand, it’s connect. Most of our counters sell this product, and it’s just to climb on it and try and make best of this. We have just entered there and you would see good improvement, very good exponential growth in the segment in the coming quarters, quarter after quarter.

The flooring segment that is Parador is a very, very good segment. I once again say what is happening in Europe was completely unprecedented. We will grow this segment and double Parador from where it is in the next three to four years’ time. That’s the commitment. That’s why there has been [Indecipherable]. Parador already sold in Germany and Austria, almost 70%, 75%. So now with the turmoil there, it’s giving us an opportunity to look at other avenues and the team is fully contributing to that. Yet of course, if you add all of those, we may still be lacking about INR1,000 more to recoup to the INR7,000 crore, INR7,500 crore level. And we will — we are always opportunistic in that.

Nikhil Upadhyay — SIMPL — Analyst

Sorry to interrupt Dhirup ji, just last question. I hope you can hear me. My question was not with respect to reaching a particular scale. My question was with respect to having the ability with the company to move further and improve the profitability. So what we saw this quarter was like the roofing got impacted, Parador got impacted, pipes got impacted. So all three were non — or were exclusive events, but they all impacted the P&L badly. Now what we’ve seen in many large companies is like it’s one or two business don’t operate, they have the ability to move the profitability in the third business and still keep sanctity of the P&L and the cash flows as it is. So what I’m trying to understand is that probably rather than opening more avenues, should we focus on improving the scalability of the existing avenues so that there is — probably lever is with us?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

See, the whole team effort is not only top line, but profitable top line, and that has not daunted at all. What you’re seeing as fluctuation or negative — negativity in profitability is entirely externally created. And I think the entire industry is in this problem. So I’m not defending where we are, but I’m just saying, no matter which segment you look at if you were there, situations were difficult, there are just new segments which are doing extremely well, all the others have been knocked down in building materials.

So the [Indecipherable] segment I would have created, we could have faced this problem in the present terminal, which is more geopolitical creations. So you have one stability here that you are not only in one geography, you are in two geographies or three geographies, if I may say. And therefore, if India weakens for any reason, Europe will sustain. If Europe has weakened today, India is sustaining. That’s the sustainability of this organization.

So I don’t think anything is lacking in our — in our futuristic strategy. That will not take this company to profitable growth. These are absolutely unprecedented times linked to this and you would see what your management brings to you.

Nikhil Upadhyay — SIMPL — Analyst

Sure sir. Thanks for sharing the perspective.

Operator

Thank you. The next question is from the line of Mohit Khanna from Banyan Capital Advisors. Ladies and gentlemen, the line of the current participant has got disconnected. We’ll move on to the next question. That is from the line of Rama Krishna Neti from Zen Wealth Management Services Limited. Please go ahead.

Rama Krishna Neti — Zen Wealth Management Services Limited — Analyst

Hi, thank you. Thank you for taking my question. So most of the questions have been answered one way or the other. But if I may just squeeze in one question, particularly on the roofing segment. So initially, in your comments, you mentioned that apart from the raw material impact and all those things, there was a high competitive intensity, because of this there was a pricing pressure, which has impacted the margins. So at the general level, just trying to understand your strength, at what stage of the cycle do you think the situation is now?

I mean, I’m just trying to understand for what more period of time this particular competitive intensity related pricing pressure will continue to stay in the system? That is part one. Second thing is, to what extent it is also because of demand-supply dynamics and also the impact of alternatives that are actually impacting the pricing in this particular segment? If you can help us understand on this. Thank you.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

So your line has been not very clear, and therefore, have not taken — gathered entire question, but I think I know what you’re asking. So how much of roofing is — profitability is sustainable. I think that’s your question. The environmental [Speech Overlap] material cost environment, is that right?

Rama Krishna Neti — Zen Wealth Management Services Limited — Analyst

Can you hear me? Hello?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

I can hear you, but your voice was not very clear to me.

Rama Krishna Neti — Zen Wealth Management Services Limited — Analyst

Is this clear now? I mean maybe I will ask the question again.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes, can you be a little slower and ask your question, it will be easier for everyone to hear, I guess?

Rama Krishna Neti — Zen Wealth Management Services Limited — Analyst

Yes. So the question, particularly with respect to roofing segment. In your initial comments, you mentioned that apart from the raw material inflation and all those things, there has been impact of high competitive intensity and pricing pressure coming from that particular area. So I’m just trying to understand, generally, what do you think — I mean, at what cycle we are in wherein this competitive intensity will continue to be happening — sorry, what time you see this continue to impact the margins. That is one thing.

And the second thing is to what extent the pressure is also because of demand-supply scenario and the impact of alternatives to asbestos roofing?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Okay. Let me take your second question first. There is no alternative for roofing segment. I don’t think steel at all competes into this segment. The price of steel sheets would be double of that of our asbestos roofing. And therefore, I don’t see that at all a competition. This segment is about 3.7 million to 4 million metric tons in India. And it stays within that — with a cyclicity within quarters that happens.

If the rains have been bad in a particular year, the next year demand will be low because the crops will be less, and therefore, the farmers get less to take further routes. But the rains have been very good again this year. Therefore, I do not see a problem next year so far as demand is concerned.

This segment has at least 35% excess capacity. And for HIL, we are — we have about 20%, 25% excess capacity in this — in our machines. So there is always a lower demand to the capacity that can be produced in the country. And two of our competitions are adding new machines, new lines for asbestos roofing. I wonder why, but they are. So that will further increase the installed capacity in India. The demand grows at about, single digits, 2%, 3%, 4% annually and that’s the best you can achieve.

So far as the margins are concerned, yes, the raw material has played a role this year, fiber being one, your sea freight being the other part of that. Cement always is a concern, but I think the market has — the industry has learned to live with the cement cyclicity. But fiber has been a complete bounce-in. I think it would soften once Russia and Kazakhstan stand in a good way, which should happen in the next two, three quarters is my view.

On the selling price part, your company is the only one which has at least a market differential of 5% to 7% over the next on realization. So that’s because of the brand, that’s because of the penetration we have. So we will always be ahead of the curve when it comes to NSRs. And we will also be very competitive on the material cost because being big and having a long-term relationship with some of our key suppliers, we get the preferential treatment. So this segment will continue to be high profitability and decent growth on a sustainable basis. Thank you.

Operator

Thank you. The next question is from the line Subham Agarwal from Aequitas. Please go ahead.

Subham Agarwal — Aequitas Investment — Analyst

Yeah. Thank you for the opportunity here…

Operator

Sorry to interrupt. Subham, your — there’s a lot of disturbance in your line.

Subham Agarwal — Aequitas Investment — Analyst

One sec. Hello, can you hear me?

Operator

Yes sir.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Yes, Mr. Agarwal, this is a far better. Thank you.

Subham Agarwal — Aequitas Investment — Analyst

Yeah. Thank you for the opportunity. And first of all, really appreciate you explaining the current situation in such detail. Sir, most of my questions have already been answered, but one more question I wanted to understand is related to the fiber prices. So you mentioned that Y-o-Y, it has gone up by 15%. But if you can give me some more detail around the current situation or the magnitude of the problem. Do you see the Brazilian supplies increasing in order to capture the growth in the demand and when do you expect the Kazakhstan or Russia supplies to come back?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you, Subham ji. Fiber price escalation was created because of, I think, two or three factors. One was this war. Therefore, there was a huge uncertainty around deliveries from Russia and Kazakhstan. Even today, I guess, the deliveries do not come direct, but are routed elsewhere. But we don’t buy from Russia and Kazakh, so I will not have a clear update on this.

But certainly, what it meant was, we saw many of our competitors flocking to Brazil to fill up their fiber requirements, which was evident. And along with the cost structure in Brazil and of course, a little bit of opportunistic regime that they could see themselves in, they raised the prices. 15% to 20% is the rise in selling price that they have declared, I believe, everyone — to everyone.

We have a preferential pricing with Brazil, I guess, over the rest and these numbers are not officially circulated, so I’m using the word guess, but I’m rather confident on this. And therefore, that continues. So on our lower base, even if we had to increase the price by 15%, 20%, others have increased it on higher base. So our cost, therefore, would be lower than others. That’s one aspect of it. What was the other question that you asked sir?

Subham Agarwal — Aequitas Investment — Analyst

When do you expect the supplies to come back from Kazakhstan and Russia? And is there a possibility of Brazilian entity increasing the supply to reduce prices?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

So I think the Brazilians would look at improving their capacity because they are now full up with orders. There are a lot of people crowding them for more. So if I was them, I would increase the capacity. That’s what I would say. It’s on their hands. I don’t buy from Kazakh at all, so I can’t give that answer to you. You should ask some of our other competition who regularly buy, but I think they’re having problems. Russians have shown enough intention to once again supply to us, we will take it as it comes, but there are concerns on way of payment as well as on routing of the material.

Subham Agarwal — Aequitas Investment — Analyst

Got it. And lastly, on the Building Solutions division. So with our new investment, when do you expect the capacities to fully ramp up? And by Q4, how much can we expect out of the new investment?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

So those adaptation in Orissa, which was about INR20-odd crore capex, has already started kicking. So which is our roofing plant, which has been adopted to make coarse non-asbestos both during off-season, so they start peaking already in Orissa, in our roofing plant in Orissa. Panels, new plant is being created again INR28 crore or something which is, in its final leg, I think by February, we’ll start commercializing that. So both have started on. Panels will add on from February. Fast-build, which is the new acquisition of blocks, we have already started getting revenues from that last quarter and this quarter again, and cautiously we will start, and we will get — and we will try to grow that there.

We are also adding small capacities in our existing plants to increase the production and all of that should act to grow this business further. And opportunistically, looking at further blocks from an outsourcing route, which I mentioned, which we have not yet been finalized. I think in the next month or so, we should be able to kick on a few. So next quarter, we should be definitely able to share with you that part of it. We may need to add a couple of capex here and there, but at the moment, it’s not in a stage where I can, for sure, talk about it. But Building Solutions, we will grow.

Subham Agarwal — Aequitas Investment — Analyst

Got it. That’s good to hear. And lastly, on the Polymer division, do we expect breakeven in the current quarter or the situation is still negative in terms of pricing?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

So, if PVC prices do not further drop, I think we should be able to break even at EBITDA terms. But if PVC prices drop well, we have already seen a INR4 drop this — INR7 drop already this quarter, add to the host of inventory losses for everyone, not only for us. But let’s keep our fingers cross. But I must give you a realistic view, I definitely see PVC prices further dropping by at least INR7 to INR10 more. And then there is no further possibility for this to drop, that’s my estimate on this.

And the reason for PVC price drop is U.S., which has closed its operations a year back from October, November last year has started kicking and there is a huge, huge excess capacity in Europe. China is dumping their products. So they have excess capacity. So from international markets, all of this is ruining the prices. Whether they are making margins or not, I don’t believe because in India, some of the companies who are selling and not making positive margins by selling PVC.

So I don’t think this is more from the suppliers’ intention, this is more an overcapacity globally, which is ruining the PVC prices. What it’s doing for pipe business is, every customer is expecting a further drop in selling price of pipes because PVC will further go down, therefore, primary stockings are not happening, and that is really shaming this industry.

Subham Agarwal — Aequitas Investment — Analyst

Got it. Got it. Fair enough and best of luck to the entire team.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

I really need it. Thank you so much sir.

Operator

Thank you. The next question is from the line of Mohit Khanna from Banyan Capital Advisors. Please go ahead.

Mohit Khanna — Banyan Capital Advisors — Analyst

Hello sir. And thank you for taking my question. My question is regarding Parador, we can see that demand is scarce. What is your sense still, when would you see a DIY demand to be scarce, first? Secondly, would you look for acquisition of brands and something — this is adding on to that distressed asset question — acquisition question, that one of the — your listeners already asked you. In terms of — so would you be acquiring more brands to expand being a — become a consolidator in the European market?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

So Mohit ji, thank you for your question. Part of it I have answered, but I don’t mind repeating any bit of it just for clarity. First of all, demand definitely has gone down more than 30%. Let me tell you, this is not what Parador is facing. The market is facing even more. We are trying to sustain one part of our business, which is the engineered wood through project orders from Nordic countries and Spain, which I guess others are not able to do. So to an extent, we are slightly better off than others. Therefore, we have not closed our prices. We are keeping our prices on. That answering your first question.

Your second question on when this demand will improve, I can’t say honestly. Because it all depends on, after the winter, whether the sentiments of the consumers return. I can only say that my bet is on that after the winter, situation improves. So from February, situation should improve. The other bit I can tell you is I have seen that when six to seven months, eight months, the world was closed for COVID. When situation became good, there was a huge, huge demand spree that came in Europe, and we were unable to fill it up at that stage because raw materials were not available.

So that kind of a spree of demand is definitely going to come and most probably next year. Therefore, I’m preparing myself to have a bump up Parador performance next year. That’s how I’m preparing. Hopefully, the war should subside. Hopefully, situation should be far under control. Hopefully, the government also does enough. The German government is a very strong government, just that they have, at the moment, three parties running and so there is no single majority, they need to find a way to influence all industries that are doing well, and sustaining and keeping the jobs on trend. If you get an opportunity, do watch my interaction with the biggest forum that KPMG is platforming in Frankfurt. And I’m going to speak loud on what the industries need from the government. Let’s hope that helps.

Mohit Khanna — Banyan Capital Advisors — Analyst

Fair enough. I was just actually trying to understand that you have already explained that you have spent quite a bit of time in Europe. So from that perspective and the gas prices, which is causing inflation and eating into wallet share of the consumers. So, on that front, do you see really concrete steps taken up by the government in the Europe to lower gas prices and situation might be in better control, starting Feb.?

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

What they have done is close to nothing because they have passed on a EUR200 subsidy to all individuals in the last month, which is neither here nor there. So that’s not helping at all. They have declared a EUR200 billion package which is only on the net. But no one knows the details of it truly how it’s going to help the industries or consumers. They are still waiting for more clarity. The clarity that has been sent across is very confusing for everyone.

And therefore, I’m unable to comment on this. I think in the next few days or months’ time, we will have far more clarity. On 14th, I’m back to Europe and let’s — so I’ll be meeting a few government agencies also and bankers. At the moment also, bankers are important because we have to continue to see liquidity in Parador in every way. So all of that is being worked for, as I say.

Mohit Khanna — Banyan Capital Advisors — Analyst

Liquidity in Parador, could you just emphasize a little bit more on that, sir? Thank you.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Parador, liquidity is always a concern if we not do enough revenue. And therefore, when revenues are low, we have to continue to look at the liquidity in Parador. At the moment, there’s no problem. But for future, depending on how things mature, we would like to have everything in our hands from the bankers, and that’s what I talked of. Interest rates have gone up in Europe, as you are aware, and therefore, all of that is — all I said is, we are monitoring every bit of it.

Mohit Khanna — Banyan Capital Advisors — Analyst

Fair enough. Thank you so much.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you Mohit ji.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.

Dhirup Roy Choudhary — Managing Director & Chief Executive Officer

Thank you very much, everyone. It has been a pleasure interacting with all of you on this call. I hope I have been able to transparently inform you about how your company is, where we have the constraints and where — what actions we have taken. We are — we would like to engage more and more with you to give you full history of where we are.

If you have any further questions, I would be happy to answer them. Please reach out to our investor relationship desk, and we will always be available to answer them. Thank you. Stay safe. Bye-bye.

Operator

[Operator Closing Remarks]

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