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KRITI INDUSTRIES (INDIA) LTD (KRITIIND) Q3 FY23 Earnings Concall Transcript

KRITIIND Earnings Concall - Final Transcript

KRITI INDUSTRIES (INDIA) LTD (NSE:KRITIIND) Q3 FY23 Earnings Concall dated Feb. 08, 2023.

Corporate Participants:

Shiv Singh Mehta — Chairman and Managing Director

Rajesh Sisodia — Chief Financial Officer

Analysts:

Purvangi Jain — Valorem Advisors

Rahul Jain — Credence Wealth — Analyst

Tushar — Kamakhya Wealth Management — Analyst

Anil Desai — Total Capital — Analyst

Ankur Kumar — Alpha Capital Group — Analyst

Ankit Gupta — Bamboo Capital Partners — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Dhwanil Desai — Turtle Capital — Analyst

Jatin — RTL Investments — Analyst

Saket Kapoor — Kapoor & Company — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and [Technical Issues] Q3 FY ’23 Earnings Conference Call of Kriti Industries India 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 Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, Ms. Jain.

Purvangi Jain — Valorem Advisors

Good morning, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of [Technical Issues] Industries India Limited. On behalf of the company, I would like to thank you all for participating in the company’s earnings call for the third quarter of financial year 2023.

Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s con call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on the management’s belief, as well as assumptions made by and information currently available to management.

Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decision. The purpose of today’s earnings call is purely to educate and bring awareness about the company’s fundamental business and financial quarter under review.

Now, let me introduce you to the management participating with us in today’s earnings call and hand it over to them for opening remarks. We have with Mr. Shiv Singh Mehta, Chairman and Managing Director; and Mr. Rajesh Sisodia, Chief Financial Officer.

Without any further delay, I request Mr. Shiv Singh Mehta to start with his opening remarks. Thank you, and over to you, sir.

Shiv Singh Mehta — Chairman and Managing Director

Good morning, everyone, and welcome to the earnings call of Kriti Industries India Limited for the third quarter and nine months ended of the financial year 2023. I’m happy to inform you that this quarter has seen revival in the financial performance, driven by strong growth. This quarter has been significant, particularly to earlier quarters, post fire at our works, company had suffered due to erosion of value of stocks, falling prices trend continue till end November. But by then, we had liquidated most of our old stocks.

In this quarter, we saw a surge in demand and also face challenges in meeting this search. The company registered a volume growth of 192% year-on-year and 115% in terms of value. We had to give preference to agri to meet the demand in the agriculture segment and achieved 200% of year-on-year sales growth. The continued decline in PVC resin prices from 141 per kg in April to 77 per kg in November has negatively impacted the polymer industry’s profit in the first half year 2023. However, beginning December, the prices have increased and stabilized at around INR90 per kg. Because of correction in PVC prices, products have become more affordable and demand from agriculture segment has increased significantly.

Unfortunately, though due to higher price raw material inventories, the margins have declined. We believe that once there is a stability in the raw material prices, the margins will also stabilize and normalize at earlier levels.

For nine months ended, the company registered a growth of 64% year-on-year and 41% in terms of value on a year-on-year basis. Our company’s focus will continue to develop both agri and building products. We also continue to expand our markets geographically in states where the company has already made successful entries and has also extended gains.

The company has undertaken capex of INR30 crores and has completed building full range of SKUs related to building products and column pipe segments. It has plans to focus aggressively in this segment due to their non-cyclical nature and higher value addition.

Now, I hand over this call to our newly appointed CFO, Mr. Rajesh Sisodia to give you financial highlights.

Rajesh Sisodia — Chief Financial Officer

Thank you, sir. Good morning, dear stakeholders. Let me take you through the financial performance of our company on a consolidated basis. The revenue for the third quarter of financial year 2023 was INR256 crores, which was 115% higher on a Y-o-Y basis and 145% higher on a Q-o-Q basis.

Our EBITDA stood at about INR10 crores and net profit was reported at INR4.6 crores. The revenue for nine months ended financial year 2023 was INR544 crores, which grew 41% on a Y-o-Y basis. EBITDA loss reduced to INR23 crores and net loss was around INR39 crores.

Talking about the segment-wise revenue for this quarter, Agriculture, Industrial Solutions, and Building contributed 75%, 15%, and 9% growth, respectively. Sales volume from the Agricultural segment grew by 200%, while Industrial Solutions grew by 140% and Building Products grew by 13% Y-o-Y basis.

I thank you for this opportunity. And now we would like to open up the floor for questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Rahul Jain from Credence Wealth. Please go ahead.

Rahul Jain — Credence Wealth — Analyst

Hello.

Operator

Go ahead sir. You’re audible.

Rahul Jain — Credence Wealth — Analyst

Yes, sure. Sir, congratulations for a great set of numbers. Sir, firstly, with the kind of volumes we have done in the quarter three, how do we look at the next two quarters? Is the momentum sustained in terms of the different segments agri, industrial; each segment wise, can you share some insights about the overall demand scenario? And whether — what kind of volumes do we see considering that the next quarter, that is, April, May, June is our best quarter. That is my question number one.

Shiv Singh Mehta — Chairman and Managing Director

Should I respond to your first question before you go for the next?

Rahul Jain — Credence Wealth — Analyst

Yes, sir.

Shiv Singh Mehta — Chairman and Managing Director

You see at current prices of raw material, which looks to be now stable. There is a definite comfort on the part of a customer to buy a product, and also, there is a pent-up demand because of high raw material prices in the last 1.5 years, there were many people who had deferred their procurement. So we continue to believe that coming quarters will show robust growth in volumes.

Regarding agriculture, on building product, we are on a smaller base, so there is every good opportunity to grow. So they should also show significant volume growth. As I have been maintaining, for institutional sales, we are conservative, and we continue to maintain that unless and until we have secured payment line, we will not be selling or exposing ourselves beyond a limit to Industrial Solutions. So you will see more or less stability in Industrial Solutions, but you will see growth in agri and BP segments.

Rahul Jain — Credence Wealth — Analyst

Sure. Sir, in your previous remarks, previous interaction also and today opening also you mentioned that since the agri demand was quite robust, and we have been in this segment for a long, long time. So somewhere you had sacrificed the Building Products volumes for the agri part? So two parts to that. One, how do we see the scenario going ahead now? Is it like the building products now, the demand is good and probably the capacities are sufficient now and there is some advanced planning so that you may deliver to the good, robust agri demand, as well as the Building Products volumes also can see a sharp jump?

Shiv Singh Mehta — Chairman and Managing Director

You see what has happened that due to fire. We had limitations of supply for almost seven months before this peak season had again come in. We had to give preference to our existing long-term relationship of dealers, so we had to sacrifice to some extent, building material supplies during this period. Seeing the robust growth, we are further adding capacities towards our extrusion side, which can offer comfort both to agri and BP segment. So we would see that we are more or less ready and well-prepared both sides of raw material, as well as processing to increase demand. Now if demand exceeds our preparations, still we may have some challenges, but we are preparing ourselves as best as we can to cope up with the challenges.

Rahul Jain — Credence Wealth — Analyst

Sure. This has been our best quarter in terms of revenue and in last almost right from June ’18 till date. This has been the highest sales for us in a quarter. And in terms of volumes, with whatever data I have, this is the second-best volumes right from June ’19 till date. So going ahead, and typically more so for the April, May, June quarter, do we feel we can be higher than this volume as well as revenue? And we have one more thing.

Shiv Singh Mehta — Chairman and Managing Director

Both on these numbers as there is a continuous demand and market is seeing these prices more comfortable, and we are seeing there is a continuous improvement in terms of total numbers.

Rahul Jain — Credence Wealth — Analyst

Sure. And last one thing, for now. With regards to the inventory, so I believe you must be having some inventory losses as probably our margins would have been much higher. So typically now going ahead — so two parts. One is what was the inventory kind of — if there was no inventory loss, what would have been our margins in this quarter? And going ahead, can we see a sharp improvement in our operating margins.

Shiv Singh Mehta — Chairman and Managing Director

You see — end of November, that is 30th November, prices were continuously coming down from a 88 level on October one they had come down to 72 on November 30. And by this time, we had exhausted our old inventory. So whatever trading losses were there were booked into books by end of November. It’s only in December that we had material, which is as per the current raw material prices, and there was again increase in the month of November — of December from 72 almost INR88, INR89, INR90. So this is why you would see that we could recover whatever trading losses we had in the quarter three and we were able to show profits at the end of quarter because of robust volume and erosion of all old inventories.

Rahul Jain — Credence Wealth — Analyst

Sir, the margins going ahead, if you could share some insights from where we are today, we had about 4% operating margin in December

Shiv Singh Mehta — Chairman and Managing Director

Right? As we have — I’ve said in my statement as well, that margin should get back to in agri segment as per our normal regular margins. And in BP segments, also, we will see better margins. So overall, we certainly see that quarter-on-quarter, we should be seeing EBITDA margins over 10% — everything. Let’s see how the market moves in terms of raw material, but we are hopeful to have much better margins going forward.

Rahul Jain — Credence Wealth — Analyst

Sure. Thank you so much, sir. Wish you all the best.

Shiv Singh Mehta — Chairman and Managing Director

Thank you.

Operator

The next question is from the line of Tushar from Kamakhya Wealth Management. Please go ahead.

Tushar — Kamakhya Wealth Management — Analyst

Yes. Good morning, sir. And congratulations for good set of number. Sir, my question is on the inventory. So in terms of the high-cost inventory, what would be the percentage of the total inventory, the high-cost one?

Shiv Singh Mehta — Chairman and Managing Director

Now it’s all exhausted. Now we have all inventories which are current and present lieu processed.

Tushar — Kamakhya Wealth Management — Analyst

Fair enough, sir. Sir, considering the current capacity, how much revenue can we get from the current capacity? And what is the current utilization level?

Shiv Singh Mehta — Chairman and Managing Director

You see, we have been — you see capacity with different sizes, we are operating at full capacity, whatever we could in month of November, December. But going forward, April, we will have been adding some extra capacity in our processing side. So we would be quite hopeful that we will be able to utilize the entire capacity, April onwards, whichever is the increased capacity we have.

Tushar — Kamakhya Wealth Management — Analyst

Fair enough, sir. Sir, CPVC and fittings what percentage of our total sales?

Shiv Singh Mehta — Chairman and Managing Director

Can you repeat it?

Tushar — Kamakhya Wealth Management — Analyst

So CPVC pipes and the pipe fittings would comprise how much percentage of our total sales on an average?

Shiv Singh Mehta — Chairman and Managing Director

Say about 10%?

Rajesh Sisodia — Chief Financial Officer

Yes, around 7%, 8%.

Shiv Singh Mehta — Chairman and Managing Director

So about 8% it is at the moment, but it will go up because in last — as I’ve said, in last quarter, that’s Q3, we had limitations in agriculture processing area. So we had to give it priority over maybe because our dealers were suffering for almost seven, eight months, and this was peak season.

Tushar — Kamakhya Wealth Management — Analyst

Okay. But I could see that we have now almost all the SKUs for the building products.

Shiv Singh Mehta — Chairman and Managing Director

Yes.

Tushar — Kamakhya Wealth Management — Analyst

Can we expect the building products to go year to 20% range for the total revenue?

Shiv Singh Mehta — Chairman and Managing Director

This is a process, because there will be a robust growth in agriculture as well. So percentage-wise, the percentages may improve, but significant — the volumes will improve, but percentages-wise what kind of a ratio we achieved, this will be improved from whatever current percentages are. But significant percentages growth will be difficult to define at this moment.

Tushar — Kamakhya Wealth Management — Analyst

Yes Sir. Sir, my last question. So considering the prices and the stocking which have, so what kind of growth you are seeing in the Q1 for the next financial year?

Shiv Singh Mehta — Chairman and Managing Director

Q1 will be a significant growth because last year because of fire, beginning from 20th of April, we had limitations of processing and sales.

Tushar — Kamakhya Wealth Management — Analyst

Okay. Fair enough, Sir. Thank you.

Shiv Singh Mehta — Chairman and Managing Director

Yes.

Operator

Next question is from the line of Anil Desai from Total Capital. Please go ahead.

Anil Desai — Total Capital — Analyst

Hi. Good morning, Sir. Sir, first of all, congratulations on a very strong numbers after some challenging time. Sir, the first question is, we did around 17,600 metric tons on Agri side this quarter. And you said that you may be able to continue along? But Q3 and Q1 has been our strongest quarter, right? So Q4 compared to last year or FY ’19 numbers, do we see 25%, 30% growth on that? Is that what current market expectation based on what your assessment of demand is?

Shiv Singh Mehta — Chairman and Managing Director

You see this quarter, Agri was 34,000. I mean, no — this was how much?

Anil Desai — Total Capital — Analyst

17,000 — 17,600.

Shiv Singh Mehta — Chairman and Managing Director

Nine months. For the quarter was?

Rajesh Sisodia — Chief Financial Officer

Quarter was 17,675

Shiv Singh Mehta — Chairman and Managing Director

Okay. So Q3 was — is about INR17,675, which is a growth of — significant growth of last year. We hope to maintain at least upward 10% growth even in Q4, in terms of volumes, 8% to 10%.

Anil Desai — Total Capital — Analyst

Okay. But sir could you.

Shiv Singh Mehta — Chairman and Managing Director

And going forward, in Q1 of next financial year, it is all — I mean, since as I was saying, last year was a challenging time for us we see again a good growth.

Anil Desai — Total Capital — Analyst

Okay. Okay. My understanding was that Q3 is a very large quarter and Q4, generally, the demand starts picking up end of March for the stocking for Q1? So.

Shiv Singh Mehta — Chairman and Managing Director

That’s right.

Anil Desai — Total Capital — Analyst

Yeah. So

Shiv Singh Mehta — Chairman and Managing Director

In Q4, we may see a growth over last year.

Anil Desai — Total Capital — Analyst

Okay. No, but you are saying that, we may be able to do at least as much volume as Q3 and Q4. That is what you think?

Shiv Singh Mehta — Chairman and Managing Director

No, no, no, not.

Anil Desai — Total Capital — Analyst

No.

Shiv Singh Mehta — Chairman and Managing Director

Q3 and Q4, I said over last year, we will be able to show you a growth of 10%, as compared to what we did last year’s Q4 to this year Q4.

Anil Desai — Total Capital — Analyst

Okay. Okay. So sir, aren’t our aspiration higher to grow at maybe 20% plus on fuel Y-o-Y basis?

Shiv Singh Mehta — Chairman and Managing Director

See that is what will be our effort, but what I can commit here is what I clearly see doable, and we will definitely strive to do much better than what we think is what we are talking at the moment.

Anil Desai — Total Capital — Analyst

Okay. Got it. And any softness in demand you are seeing currently because of the channel inventory being reached off last quarter? Is there any impact that you are seeing in terms of demand on the ground?

Shiv Singh Mehta — Chairman and Managing Director

I am seeing there is a robust demand from customers that is a farmer. So the material is getting even consumed from channel partners, stocks, and they are again buying on a regular basis.

Anil Desai — Total Capital — Analyst

Okay, got it. Sir, on Building Products side, in spite of we were kind of short of capacity, we still did very decent in terms of volume. I mean, we did close to 1,100 tonnes, 1,125 tonnes this quarter, which is growth over even last quarter. So without constraint, do you think that we should be able to do 1,500 tonnes kind of a number going forward?

Shiv Singh Mehta — Chairman and Managing Director

I certainly look forward to these numbers, because constraints removed and building products fortunately has a sustained demand across the year. It does not have cyclic nature as agriculture demand has.

Anil Desai — Total Capital — Analyst

Right, right. So our — I think we were kind of targeting INR100 crore number, which may likely fall short of this year. But how do you look at this Building Product numbers next year? I mean, do you have any budget in mind that this is the number you want to achieve?

Shiv Singh Mehta — Chairman and Managing Director

We are working on our new business at the moment. So our numbers will be — certainly, we look forward to better numbers. This year, we are constrained, and we are likely to be short of INR100 crores, but next year, we will show our growth over number what you are talking about.

Anil Desai — Total Capital — Analyst

Okay. Sir, you indicated that you are adding more extrusion capacity. So I was assuming that our capacity would be good enough to show at least a couple of years or a couple of years? So if you can elaborate on, how much capacity we are adding? What kind of capex? And are we also adding capacity on the building products?

Shiv Singh Mehta — Chairman and Managing Director

The building product is a continuous process of adding new range and new SKUs for fitting. But we will not rush into major fitting expansion, but we will certainly see the volume as they grow, we will have to add capacities, which will be marginal investments over period of next couple of months. But on the extrusion side, as we clearly see we will fall short. So we are increasing our capacity by almost close to 30 tonnes per day, which is about 800 tonnes a month.

Anil Desai — Total Capital — Analyst

Okay. So close to 10,000 tonnes addition on a yearly basis?

Shiv Singh Mehta — Chairman and Managing Director

It is, you see, it is a cyclic nature. So you cannot consume the entire capacity throughout 12 months cycle.

Anil Desai — Total Capital — Analyst

Right.

Shiv Singh Mehta — Chairman and Managing Director

So there will be some months where you will not be able to utilize the entire capacity. But in some months, we will definitely use them.

Anil Desai — Total Capital — Analyst

Okay. Got it. And sir, last question, if you can give us some sense that this very good volume performance, is it contributed only — I mean, the large part of that is coming from MP, Rajasthan and Maharashtra? Or even new states have started scaling up? Some sense on that

Shiv Singh Mehta — Chairman and Managing Director

You see then we were short of material. Certainly, our peaks MP, Rajasthan, Maharashtra got preference particularly when our dealers had suffered for a reasonable six, seven long months. So we did prioritize our sales in these areas where our existing strong brands and dealership had to be given preference over others. But we did grow in other states as well, but there was a marginal growth when there was a shortage. Major growth came from these states.

Anil Desai — Total Capital — Analyst

Okay. Got it. I have more questions, but I

Operator

Thank you. Next question is from the line of Ankur Kumar from Alpha Capital Group. Please go ahead.

Ankur Kumar — Alpha Capital Group — Analyst

Hello, Sir. Thank you for taking my questions. My all questions on the company have been answered. I just wanted to know about the industry. I think PVC prices fell a lot in the last six, eight weeks, comment — why? And now you sense it has started going up also, can you please comment why is that happening and our view on the prices for next six months, sir?

Shiv Singh Mehta — Chairman and Managing Director

You see, if you look at — I mean, what I get to know when I talk to my suppliers who are overseas and worldwide. If you see, even today, Europe is not picking up in terms of economic side of the — it is under recession. US has included, but property in US is still not improved because of high interest.

And China is still struggling with coronavirus. So the local situation is not very clear. So major requirements for particularly PVC is coming from Asian countries and markets. So that is where we see overall demand supply situation where it is quite comfortable overall. That’s why we don’t see much upside.

But India demand being very robust, I think that prices will remain within this range of current prices because anything around this level is comfortable to seller as well as buyer and market should look towards better healthy growth because these are acceptable prices to Indian consumers as well. So I see a stability rather than any kind of a major change in prices.

Ankur Kumar — Alpha Capital Group — Analyst

Sure, sir. And last question would be, you’ve talked about normalized margins of 8% to 10%, 10% odd. So can we expect those margins to start coming in from the Q4 also?

Shiv Singh Mehta — Chairman and Managing Director

Because our inventories have eroded, so we are quite hopeful that the margins from this quarter should improve.

Ankur Kumar — Alpha Capital Group — Analyst

Sure, sir. Thank you and all the best.

Operator

The next question is from the line of Ankit Gupta from Bamboo Capital Partners. Please go ahead.

Ankit Gupta — Bamboo Capital Partners — Analyst

Yeah. Thanks for the opportunity and congratulations for a very good performance during the tough times we have faced in the past one and half years. Sir, coming back to the question on the demand and the sustenance of demand specifically. So, if you can talk about how does Q1 of next year look like for us? Because last year, if you look at it, like Q1 was pretty subdued, we did the volumes to the tune of around 11,500 tonne metric tons — so how does next year look like as of now?

Rajesh Sisodia — Chief Financial Officer

As I’ve explained, I’m quite hopeful for robust Q1, particularly last year, we had a challenge post our fire on 28th of April we were constant both on production and supply side. So — and as such, we are seeing the prices at current level gives a good reason for customers a comfortable price level for customers, so we can see a good demand growth. So in addition to what we suffered, we have an ability to supply and demand looks to be robust.

Ankit Gupta — Bamboo Capital Partners — Analyst

Sure. Sure. So does it look like we’ll be able to achieve our best-ever volumes, which we have done in, I think, Q1 FY 2019, we have achieved quite robust volume — so will we be able to cross that?

Rajesh Sisodia — Chief Financial Officer

Do better than what we had done ever before.

Ankit Gupta — Bamboo Capital Partners — Analyst

So, at least across the Q3 volumes that we have.

Rajesh Sisodia — Chief Financial Officer

That’s right. Yes, sure.

Ankit Gupta — Bamboo Capital Partners — Analyst

And sir, coming to — back to the question of margins, given how agri is performing and BP now has taken a bit of back seat primarily because of constraint on capacity side. So do you think it with higher proportion of Agri or expiration in margins of 11%, 12% that we were aspiring on the EBITDA side will be around 10% itself because of agri — given agri is a relatively lower margin product compared to BP?

Rajesh Sisodia — Chief Financial Officer

Yes, you are absolutely I mean, your guidance is right. because agri will not offer the margins which BP offers. And agri is also growing. So overall, our volumes should show a fairly good growth. And so while the — I mean, overall EBITDA margins will scrip towards the numbers we have achieved earlier, that’s 10% to 11% plus.

Ankit Gupta — Bamboo Capital Partners — Analyst

Sure, sure. And sir, last question on the capacity addition side, we are only a single location company in terms of our plant — and if you see rest of the players in the industry, given the ones which are near our size in terms of volume and diversified plan diversified plant locations. And we also had plans to enter at least or to set-up new plants, at least in some of the locations in South India, given our increasing presence there. So, but now we are adding a smaller capacity on — at our existing location itself. So, how do you see ourselves opening up new plants across geographies? Or do you think for a year or two, will be expanding capacities at our existing location only?

Shiv Singh Mehta — Chairman and Managing Director

You see as industry has seen that any organized player sooner or later have to diversify locations of manufacturing to meet the local demand more logistically competitive situation and in terms of turnaround times in the sense that the delivery times are within control. So we will have to do that, because of coronavirus time and last year’s episode, we had to defer our such plans for the time being, but we are absolutely clear that that is the need for growth and development.

Ankit Gupta — Bamboo Capital Partners — Analyst

Sure. So you might look to put up a plant at new locations maybe in a year or two?

Shiv Singh Mehta — Chairman and Managing Director

We’ll do it as soon as we get over and see a good quarter or two and that we’ll be certainly looking at it.

Ankit Gupta — Bamboo Capital Partners — Analyst

Perfect. Once again congratulations and wish you all the best.

Operator

Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Hello?

Operator

Deepak Poddar — yes, go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Yes, am I audible?

Operator

Yes, you are.

Deepak Poddar — Sapphire Capital — Analyst

Thank you very much sir for the opportunity. Sir, now you mentioned about the PVC prices in light to INR2.90, right? But we don’t expect upside from these levels, right? Because globally, when you see demand subdued to the India demand is quite robust rate?

Shiv Singh Mehta — Chairman and Managing Director

Yes. If I understood you right, that you are saying that the prices are likely to remain within a close range around current levels. I mean that’s our anticipation. Yes.

Deepak Poddar — Sapphire Capital — Analyst

Okay, fair. And if I have to assume that the prices given remain at this INR90 per kg.

Operator

Sorry to interrupt you. Sir, sorry to interrupt you, but your voice is not coming clear.

Deepak Poddar — Sapphire Capital — Analyst

Now it’s better?

Operator

Are you on a speaker-phone?

Deepak Poddar — Sapphire Capital — Analyst

Hello.

Operator

Yes. Yes. It’s better now.

Deepak Poddar — Sapphire Capital — Analyst

It’s better. Okay. So, here, if I have to assume that the price stabilized at this INR90 per kg. So, at this PVC price range, a 10% to 11% EBITDA margin that we are targeting, right, in general, that is achievable, right?

Shiv Singh Mehta — Chairman and Managing Director

That looks achievable. Yes.

Deepak Poddar — Sapphire Capital — Analyst

Okay. And you mentioned that this range we’re looking to achieve from fourth quarter itself, right?

Shiv Singh Mehta — Chairman and Managing Director

Yes. This is what I’m saying. Now going forward, we should look at this kind of EBITDA margins.

Deepak Poddar — Sapphire Capital — Analyst

Going forward. And this quarter, what was the inventory loss of crores?

Shiv Singh Mehta — Chairman and Managing Director

Last quarter, I mean, we must have — I don’t have exact numbers here, but it should be around close to INR15 crores as an inventory loss INR15 crores, INR16 crores. Hello. Hello?

Operator

Sir, line for the participant drop, we move on to the next participant. The next question is from the line of Rahul Jain from Credence Wealth. Please go ahead

Rahul Jain — Credence Wealth — Analyst

.Hello.

Operator

Yes. Sir, you are audible.

Rahul Jain — Credence Wealth — Analyst

Sir, yes, on data point. So, MP and Rajasthan, which are contributing around 88% in March 2018, for March 2022, as per the annual report, that was down to around 75%?

Rajesh Sisodia — Chief Financial Officer

Right.

Rahul Jain — Credence Wealth — Analyst

I’m talking about MP and Rajasthan percentage of sales. So, if you can share the data with regard to the current year nine months, the current quarter also, whatever is possible?

Shiv Singh Mehta — Chairman and Managing Director

You see as I explained earlier, we gave preference to MP, Rajasthan and Maharashtra this time in this quarter because of shortage and our existing dealers were suffering for some time. So the total percentage for these states remains robust, and we could not supply to other states as much in the shortage time. But still, I’ll try to get you the numbers.

Rahul Jain — Credence Wealth — Analyst

I do understand what I say, and I fully appreciate that.

Shiv Singh Mehta — Chairman and Managing Director

I’ll get you the number.

Rahul Jain — Credence Wealth — Analyst

I’m just looking for the data point, the MP and Rajasthan in current year have contributed what percentage of sales?

Shiv Singh Mehta — Chairman and Managing Director

MP had come down to 60 or how much 60%.

Rajesh Sisodia — Chief Financial Officer

62%, up to 60%, yeah.

Shiv Singh Mehta — Chairman and Managing Director

60%.

Rajesh Sisodia — Chief Financial Officer

15% is Rajasthan.

Shiv Singh Mehta — Chairman and Managing Director

And Maharashtra is about 13%. Am I clear?

Rahul Jain — Credence Wealth — Analyst

Sure, sure, sure. Thank you.

Shiv Singh Mehta — Chairman and Managing Director

Thanks.

Operator

Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.

Dhwanil Desai — Turtle Capital — Analyst

Sir, just one question on dealer addition. So I think last call, you guided that we had stopped — we restarted the dealer addition because we have stopped in between due to challenging time. So, can you give us the total number of dealer additions that we have done so far and what is the plan going forward? And if you can also give some color on whether dealer addition would be on — only on TP side? Or will it be all product and then which geographies we are adding dealer?

Shiv Singh Mehta — Chairman and Managing Director

You see, as I told you earlier, I will still say that this is the time of consolidation of new dealers because they have to be matured in the way we work. So instead of ramp and increase in number of dealers, we are focusing on ensuring our dealers, understand the treaty way of working and work as per a team worth, so there will be a few dealers, which will be doing very well, and some dealers will be not coming up to our requirements. So we will be in this process rather than increasing in numbers, we’ll be working on consolidation and efficiency or effectiveness improvement. So going forward from next quarter, that is Q1, we will again go for expansion of dealerships.

Dhwanil Desai — Turtle Capital — Analyst

Yes. And that’s very good to hear having good approach. Thank you

Operator

Thank you. Next question is from the line of Jatin from RTL Investments. Please go ahead.

Jatin — RTL Investments — Analyst

Yes. Hi. Good afternoon. Thanks for the opportunity. Two, three questions. First is, when I look at your overall capacity on the agri side, I think it’s about 100,000 tonnes. And this quarter, we have done 17,000. If I annualize that, let’s say, 68,000. So is 70% kind of the max possible that you can do because you are doing different diameters on your capacity? Is that the right way to look at your capacity?

Shiv Singh Mehta — Chairman and Managing Director

Yes, absolutely right.

Jatin — RTL Investments — Analyst

That’s fine. I had a couple of questions on your balance sheet. Sorry, I’m just kind of starting to look at the company. So one is, when I look at your accounts payable, I see that as a very large number. And when I look at the profile of people who will be buying PVC from like somebody like Reliance industry, I would be surprised as to why they would give you that bigger credit period. Just wanted to understand why is that account stable number so high?

Shiv Singh Mehta — Chairman and Managing Director

You see, we buy from them against LC.

Jatin — RTL Investments — Analyst

Okay.

Shiv Singh Mehta — Chairman and Managing Director

Letter of credit. So letter of credit is normally 60 days payment. The Reliance gets their payment by discounting the LCs immediately. And then we pay after that 60 days period.

Jatin — RTL Investments — Analyst

Understood, understood, understood. And on your September 2022 balance sheet, the capital work in progress was about INR34 crores. So what is this new investment that you’re doing?

Shiv Singh Mehta — Chairman and Managing Director

We have expanded our capacity. We added building materials as a major initiative on part of organization where we were not present earlier. So we developed full range of products in building materials, as well as in column pipes. So the whole capex was allocated for that development.

Jatin — RTL Investments — Analyst

But I thought that was completed by September 2022. And why is this still showing CWIP?

Shiv Singh Mehta — Chairman and Managing Director

So that got completed only towards middle of this current year.

Jatin — RTL Investments — Analyst

Okay.

Shiv Singh Mehta — Chairman and Managing Director

Because it takes a lot of time to get malls in place.

Jatin — RTL Investments — Analyst

Understood, understood. I was going through your annual report a few years back, and we had a lot of focus on trying to go into the industrial side of the business, on telecom pipes, on gas side. But when I hear you today, you are kind of defocusing on the industrial segment and focusing a lot more on agri and EP. So what has brought about this change in kind of focus area?

Shiv Singh Mehta — Chairman and Managing Director

See, the reason is, one, the Indian infrastructure companies, the EPC, depend a lot on government orders and government business. And we have invariably experienced that government payments — they link our payments to their receiving government payments. This puts us into a lot of difficult situations at times, because they have not received payments, they are not releasing payments. So we are keeping ourselves limited exposure, so that we don’t get caught into a cycle where we are pushed into little financial stress because of non-receipt of payments from such EPC contractors.

Jatin — RTL Investments — Analyst

All right, all right. And as you look to build your building products business, traditionally, I’ve seen, I think you have been kind of very focused on direct marketing rather than doing TV advertising or out-of-home advertising to build a brand. But as you look to build your building products business, do you think you would need a different kind of approach there?

Shiv Singh Mehta — Chairman and Managing Director

Initially, till we reach a critical mass and volume, we’ll still continue to focus on BTL. Because we have a strong presence in rural market, agri markets, where also building materials find a good business potential, because construction activities are across, whether it’s urban, semi-urban or rural area.

So our strategy is very clear. We will first focus on areas of our strength. We’ll deliver to company a reasonable volume and then only we look at ATL once we can — we see there is a value doing it.two

Jatin — RTL Investments — Analyst

Okay. Okay. Understood. Great. Thanks a lot for answering my questions patiently.

Operator

The next question is from the line of Saket Kapoor from Kapoor & Company. Please, go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Namaskar, sir.

Shiv Singh Mehta — Chairman and Managing Director

Namaskar.

Saket Kapoor — Kapoor & Company — Analyst

Sir, what portion of our sales is —

Shiv Singh Mehta — Chairman and Managing Director

Export here.

Saket Kapoor — Kapoor & Company — Analyst

It is to be totally domestic oriented.

Shiv Singh Mehta — Chairman and Managing Director

Yes, totally domestic at the moment.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And what is the impact of — for them, there is no impact of foreign exchange fluctuation also, since our imports are also denominated, although in dollars, but will be in rupee conversion only.

Shiv Singh Mehta — Chairman and Managing Director

That’s right. We’ve import material, which is always in dollars. So there, we have — as a policy, we hedge it immediately on contract.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And what portion of our sales — what is the order book size currently? And how do we go ahead with the order booking?

Shiv Singh Mehta — Chairman and Managing Director

You see, for dealers, normally, you get orders regularly and you keep supplying within seven days cycle to the received orders, because you don’t have a bulk booking. Our dealers are a — at distribution point, they maintain certain stock, and they keep selling and they replenish their inventory as per the sales. So the dealership is a widespread network where our dealers keep stocks and sell to budding customer. So the order book is a regular flow of business on an everyday basis, you get it.

Saket Kapoor — Kapoor & Company — Analyst

Sir, how have quarter three utilization levels being?

Shiv Singh Mehta — Chairman and Managing Director

Quarter three, we had a shortage in terms of capacities and challenge as well because of sudden surge in demand. Now, we are seeing that we are stabilizing on raw material as well as processing. But the quarter four, normally, we don’t have a challenge because in a cyclic business, there are piece, which suddenly shoot up to a very high demand as compared to normal average.

Saket Kapoor — Kapoor & Company — Analyst

Sir. So you are speaking about the seasonality factor?

Shiv Singh Mehta — Chairman and Managing Director

Seasonality factor. Yes, in agriculture we see a seasonality.

Saket Kapoor — Kapoor & Company — Analyst

So sir, if we take Q3 base because of the factors, which you have elaborated, if you give us some outline on how the utilization levels have been out of the total capacity of our, the volume number?

Shiv Singh Mehta — Chairman and Managing Director

What we foresee that during month of April, middle to June, you normally run short of your capacity. But you would have some available spare capacity in the Q4 that is from January to April. So it is how — this is how it’s cyclic, because most of the demand suddenly comes from every segment of agriculture business. So agriculture business has two peaks and two traps, while Building Product is a sustained volume throughout the year.

Saket Kapoor — Kapoor & Company — Analyst

Okay, sir. And sir, two points, sir first, I’ll come to the Building Products for first. You said, you mentioned that there is an impact of INR15 crores on the bottom line on account of negative impact because of the inventory losses?

Rajesh Sisodia — Chief Financial Officer

I mean, I don’t have the exact number, but that’s my estimation about INR15 crores to INR16 crores.

Saket Kapoor — Kapoor & Company — Analyst

INR15 crores to INR16 crores, the simple explanation is the PBT would have been higher by that amount as the inventory loss not being there?

Rajesh Sisodia — Chief Financial Officer

Absolutely.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And we don’t foresee this playing out in the current quarter?

Rajesh Sisodia — Chief Financial Officer

Yeah. Because our — now materials all — you see we had surplus material, which was lying with us because of fire, which was at very high prices. I mean, we had to erode those inventories over a period of time.

Saket Kapoor — Kapoor & Company — Analyst

Sir, in the Building Product segment, if you could elaborate more — by Building Products, which item are you catering to, and which sectors are you speaking about?

Rajesh Sisodia — Chief Financial Officer

You see when we talk of building material there is SWR, it is sewage, water and drainage area, rain water area, which we have to cater to. When we talk of water, it is plumbing. Plumbing means the pipelines, which supply water to the entire housing and residential area. Sewage is for the — as you know, the sewer has to be passed on and clear. And rainwater is something, which you put water pipes where all drain water is collected and taken away. So building materials — these are types of pipes, in addition that we make water storage tanks, which are put on top of building generally to — for storage of water.

Saket Kapoor — Kapoor & Company — Analyst

These are those things compared to the Sintex part of the story, the molding?

Shiv Singh Mehta — Chairman and Managing Director

We have a limited range at the moment. We move to 1,000 liters. We may expand our range over a period of time.

Saket Kapoor — Kapoor & Company — Analyst

The two points. Firstly sir for — okay. I’ll come in the — yes, sir. I will come in the queue.

Operator

The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Yes. Am I audible, sir?

Shiv Singh Mehta — Chairman and Managing Director

Yes, yes.

Deepak Poddar — Sapphire Capital — Analyst

Okay. So I just wanted to understand on the revenue thing. I mean what sort of revenue growth also we are looking at, I think in the previous calls we have been mentioning about 18% to 20%, range? I mean — so going into FY ’24, is that the range what we’re looking at?

Shiv Singh Mehta — Chairman and Managing Director

Will you repeat that? I’m not getting you clearly.

Operator

Sorry to interrupt you. Deepak, once again your voice is not coming clear.

Deepak Poddar — Sapphire Capital — Analyst

Hello.

Shiv Singh Mehta — Chairman and Managing Director

Yes.

Deepak Poddar — Sapphire Capital — Analyst

Yes. So I was just trying to understand on the revenue growth part. I mean, in the previous calls as well, we have said that we are looking at 18% to 20% kind of a revenue growth, right? So in FY ’22, as well, is that the range we might be looking at?

Shiv Singh Mehta — Chairman and Managing Director

Yes, surely. We are looking at that range.

Deepak Poddar — Sapphire Capital — Analyst

And this 10% to 11% margin is what we have already guided.

Shiv Singh Mehta — Chairman and Managing Director

What we anticipate EBITDA margins will be

Deepak Poddar — Sapphire Capital — Analyst

Correct. Correct. Correct. And in general, the demand scenario, I mean, if you speak the call of what the peers as well. They are quite positive on the demand side. I mean now with the PVC prices also kind of stabilized, so do you see that this demand scenario, which is still on the uptick, do you expect to extend into FY ’24 as well?

Shiv Singh Mehta — Chairman and Managing Director

If prices remain within the range as they are, we certainly see a growth for the entire financial year ’23, ’24.

Deepak Poddar — Sapphire Capital — Analyst

A good demand scenario, right?

Shiv Singh Mehta — Chairman and Managing Director

Yes.

Deepak Poddar — Sapphire Capital — Analyst

Fair enough. Fair enough. Okay. That’s it for my side, sir. Thank you very much.

Operator

Next follow-up is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Yes, sir. Sir, when we look at your profile, if it includes HDPE, LDP, PPVC, you have the entire gamut to it. And as you mentioned, sir, about this SWR powerpoint. So there you said a lot of this will be towards supplying to the EPC contractor. So in this building products segment, are we catering the end buyer is, again, the government agencies only catering to the Swachh Bharat Mission and Jal Jeevan scheme.

Shiv Singh Mehta — Chairman and Managing Director

No. Presently, we are focusing on our dealers. And our dealership sell-through retail distribution network, which is where consumer is an average house builder, who builds his own personal property.

Saket Kapoor — Kapoor & Company — Analyst

Okay. So the end user is — it is not going towards the government — government end?

Shiv Singh Mehta — Chairman and Managing Director

Not at the moment. Our present focus is developing a robust dealership because we enjoy good brand equity in the areas where we are strong. And we want first to develop a retail base, which we find is more robust and sustainable.

Saket Kapoor — Kapoor & Company — Analyst

Sir, companies which are addressing the rural market have experienced or have shown stress in the system. So — and your focus is on putting more towards the agri and the rural segment. So where is this divergence, how are you expanding the divergence when players are saying that? Yeah.

Shiv Singh Mehta — Chairman and Managing Director

I’ll recommunicate. What I said, agri demand is growing very well where our focus is in agri. But when you ask me about building materials, I said building material, our focus in distribution. So if suppose in state of Madhya Pradesh, Rajasthan and Maharashtra, we have a strong presence, we are going — we are trying to develop a retail network, which will be able to cater to customers in all the segments and areas we are present.

Saket Kapoor — Kapoor & Company — Analyst

Correct, sir. The rural economy have been stress — has a lesser impact on your sales? This would be a conclusion?

Shiv Singh Mehta — Chairman and Managing Director

No. In all these states, there are urban areas, semi-urban areas and rural areas.

Saket Kapoor — Kapoor & Company — Analyst

Yes.

Shiv Singh Mehta — Chairman and Managing Director

We will be present all across.

Saket Kapoor — Kapoor & Company — Analyst

So yes, my point was as you are putting more thrust on the agri segment. The agri segment will be get into the rural economy and the rural economy is finding stress as been seeing in other companies which are focusing especially to the rural segment. So where are — where is the.

Shiv Singh Mehta — Chairman and Managing Director

Rural demand. I’m again saying we are seeing a positive growth in rural — revival of rural demand.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. And sir, in the CPVC segment, sir, what portion of the sales is attributable to towards the CPVC pipes?

Shiv Singh Mehta — Chairman and Managing Director

It is growing as I said, building materials has both CPVC segments, and both are growing well.

Saket Kapoor — Kapoor & Company — Analyst

Correct, sir. And last point is on the Industrial Solutions part. Sir, if you could give us — sir, we have seen in your presentation that both the industrial as well as the building material has shown substantial increase in — definitely in volume as well as the revenue. So if you could give us some understanding on the Industrial Solutions part also, which industries are you getting to and what are the pillars from them?

Shiv Singh Mehta — Chairman and Managing Director

You see in Industrial Solutions, our focus is on telecom, gas and water. Now in Industry Solutions, we have restrained ourselves from a major growth because normally, we have seen that we have to ensure that whatever the payment cycles, our EPC contractors or buyers are comfortable with because we don’t want to increase our exposure beyond a limit to this segment.

Saket Kapoor — Kapoor & Company — Analyst

You are done with that?

Shiv Singh Mehta — Chairman and Managing Director

Am I able to answer your question?

Saket Kapoor — Kapoor & Company — Analyst

No, no, sir. I’m not able to understand what you’re trying to say, come again.

Shiv Singh Mehta — Chairman and Managing Director

I will repeat. Because we don’t want to extend credit, normally, what happens that EPC contracts are dependent government supplies and payments when their government payment stock, they are unable to pay to a supplier in time. And then the credit gets a little stressed because till the time government revenues or their EPC contractors received their payment, they are not able to pay to suppliers. So we find it a little risky in terms of long-term strategic growth in this area. That’s why we want to retain limited share, which we think we can be comfortable with.

Saket Kapoor — Kapoor & Company — Analyst

So we will be in this vicinity of 12% to 13% only to this industrial.

Shiv Singh Mehta — Chairman and Managing Director

That’s right. This will not necessarily grow this segment beyond a limit. Unless we are sure that cash flows are positive and payments have no limitations

Saket Kapoor — Kapoor & Company — Analyst

But the capex cycle is going to shoot towards this segment, the gas distribution and telecom companies spending a lot of money. So there would be a good flow of orders from the segment.

Shiv Singh Mehta — Chairman and Managing Director

When the order flow will improve and cash flow cycle is also better and we will not enter into unnecessary very low-margin business areas in this segment. But we will keep all these things in perspective, and we’ll be cautious about the growth on building products.

Saket Kapoor — Kapoor & Company — Analyst

Right. Thank you, sir and thank you for all — I have a couple of them. I will take it offline, sir.

Shiv Singh Mehta — Chairman and Managing Director

Sure

Saket Kapoor — Kapoor & Company — Analyst

Thank you Thank you, sir. Most welcome

Operator

Thank you very much. The next question is from the line of Rahul Jain from Credence Wealth. Please go ahead.

Rahul Jain — Credence Wealth — Analyst

Sorry, sir, just to clarify, you mentioned the inventory loss in this current quarter is around INR15 crores, one – five

Shiv Singh Mehta — Chairman and Managing Director

That is my estimation. I don’t have an exact number, but that INR15 crores to INR16 crores would be a trading loss for this quarter because prices fell from 88 to 72 by the time we had exhausted our stock.

Rahul Jain — Credence Wealth — Analyst

Got it. Got it. So in that range, about maybe INR13 crores to INR16 crores, plus or minus

Shiv Singh Mehta — Chairman and Managing Director

That’s right.

Rahul Jain — Credence Wealth — Analyst

Right, sure. Thanks. Thank you

Operator

As there are no further questions, I would now like to hand the conference over to Mr. Shiv Singh Mehta from Kriti Industries for closing comments.

Shiv Singh Mehta — Chairman and Managing Director

I would like to thank you all for finding time and being with us. We look forward to your support, and we will assure you that we’ll put in our best efforts to overcome the — whatever difficult periods we have gone. Thank you very much, and all the best to all of you.

Operator

[Operator Closing Remarks]

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