Pokarna Limited (POKARNA) Q2 FY23 Earnings Concall Transcript

Pokarna Limited (NSE:POKARNA) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

Mr. Paras Kumar Jain — Chief Executive Officer

Mr. Gautam Chand Jain — Chairman and Managing Director

Analysts:

Mr. Gavin Desa — CDR India — Analyst

Panna — Equitas Securities — Analyst

Dixit Doshi — Whitestone Financial Advisors — Analyst

Sachin Kasera — Svan Investments — Analyst

Rishikesh Pawar — Kotak Mutual Fund — Analyst

Pratik Singhania — SageOne — Analyst

Manan Shah — Moneybee Investment Advisor — Analyst

Kartik — Suisse — Analyst

Vikram Sharma — Niveshaay Investment Advisors — Analyst

Presentation:

Operator

Ladies and gentlemen, Good day, And welcome to Pokarna Q2 and H1 FY ’23 Earnings Conference Call. [Operator Instructions]

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

Mr. Gavin Desa — CDR India — Analyst

Thank you. Good day, everyone, and a warm welcome to Pokarna Limited’s Q2 and H1 FY ’23 Earnings Conference Call. We have with us today Mr. Gautam Chand

Jain, Chairman and Managing Director; and Mr. Paras Kumar Jain, Chief Executive Officer, Pokarna Engineered Stone Limited.

I trust most of you have gone through the communication and the results mailed to you earlier. In the interest of time, we would like to commence with Q&A immediately. So I’d like to hand over to the moderator to open the floor for Q&A. Over to you, Rutuja.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Panna [Phonetic] from Equitas Securities.

Panna — Equitas Securities — Analyst

Yes, Thank you for taking my question and Good morning [Indecipherable] Sir, I wanted to understand on the demand side, particularly in the U.S. market. So as of now, the hard surface product the demand seems to be resilient in the U.S. market led by the home improvement team. But how do you foresee this trend continuing going forward, particularly with the new housing construction getting impacted because of the higher mortgage rates — that was my first question.

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes, you have any other follow-up questions, Panna.

Panna — Equitas Securities — Analyst

Yes, sir. So the other question being, by when do you think that the resin prices will start correcting which will help in your improvement in the EBITDA margin side?

Mr. Gautam Chand Jain — Chairman and Managing Director;

Okay. So coming to your first question on the demand scenario in the U.S. in the light of inflationary pressure and the mortgage rates going up — so basically, we are actively monitoring the environment, inflationary pressures and the higher interest rates are definitely resulting in a silent psychological barriers for the building and building materials industry. While the current statistics of the hard surfaces, which are coming from the U.S. may not completely be a reflective of the name demand scenario for various reasons that people imported much more considering that certain companies from India would be subjected to the duties and all that scenario. But I think definitely, there is going to be a little slowdown in the demand scenario, especially in the new home construction and to some extent, even in the commercial. We believe that the remodeling will continue. — to be relatively better than these two segments. So that’s the reason, if you look at our communication, we’ve said that we are looking at introducing some new designs, which are at a higher price bracket. — and are relatively more resilient than the commodities, which typically go into the specification and the commercial projects. So that’s one way of looking at what we are trying to use as a tool to mitigate a certain amount of pressure coming from the demand side. Secondly, on the resin prices, the prices have started especially since the resin is a key raw material and the resin prices have started coming down. And I think the quarter-on-quarter basis, we think that quarter three prices will definitely be far better than quarter two prices what we had because Again, the key raw materials like styrene, Talikalik and all other ingredients have typically cooled off a little. So I think over the next quarter or so, the resin prices should come to a reasonable level starting from this quarter onwards.

Panna — Equitas Securities — Analyst

Sure, sir. And sir, my next question was on the imposition of antidumping duty investigation is going on. So any news that you’ve heard on that front? For the rest of Indian companies?

Mr. Gautam Chand Jain — Chairman and Managing Director;

Basically, as of now, Department of Parmartha given December six as the tentative date for announcement of the duties for the first period of review. Again, department has about 30 days possibility of extending it and taking it to all the way in second week of January. So if department does not decide then probably second week of December, things should be clear. If the department decides to take extension, then all those companies, which are impacted by this order we’ll get to know about the department stand in second week of January 23.

Panna — Equitas Securities — Analyst

Chad Ok, Thank you.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Dixit Doshi from Whitestone Financial Advisors. Please go ahead.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Thanks for the opportunity Considering the current scenario, a very good performance, so congratulations for that. My first question is, as you have mentioned that from Q3 onwards, we are launching some new design products. Is it fair to assume, let’s say, that this new design products will have a better margin compared to the basic product, which we were producing in you need to — and also with the resin prices coming down, let’s say, next couple of quarters, can we come back to our margin levels which we used to do two quarters

Mr. Gautam Chand Jain — Chairman and Managing Director;

Basically, exotic design definitely have a relatively higher gross margin than compared to the base products, which we produce. That is definitely one thing. But then typically, exotic designs also have a little gestation period by the time you stabilize them in the commercial production side of it. So we’ve already taken the orders, started producing it. And we believe that through this quarter, we’ll be able to stabilize and start seeing that benefit probably by the end of this quarter or early next quarter. And as with any other product, the key raw material prices come to a reasonable level, definitely, it helps you to improve your margins overall. So that’s what we believe.

Dixit Doshi — Whitestone Financial Advisors — Analyst

And along with the resin prices, even the logistic cost will help.

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes. To some extent, the import logistic cost will help, but then the local logistic card with the diesel rate is all staying at a higher level may not really give that benefit. So we need to [Technical Issues] Am I audible?

Mr. Paras Kumar Jain — Chief Executive Officer

Yes, yes.

Mr. Gautam Chand Jain — Chairman and Managing Director;

So that is one side of the thing. So I think the overall import logistic cost will definitely come down, and we are seeing that the fee rates coming down, that’s something which we already started saying

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay. And my second question is regarding — so can you mention about the utilization level at the Unit two?

Mr. Gautam Chand Jain — Chairman and Managing Director;

Unit to utilization level during the quarter was very close to the optimum.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay. Close to Optum. Okay. And with the, let’s say, not very optimum product mix?

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes. So you have to keep in mind that, as I said at the beginning of this conference, first question, that demand scenario is a little muted now. So one has to consider overall factors while you start ramping up or introducing new design. So introducing new design is one of the key features which we have taken to actually offset the margin decline, which can happen either due to the muted demand or due to the raw material prices not down. So I think overall, the situation is little on lower side. But I think that’s what the global building material industry is seeing now.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay. And my last question is on the domestic side, how much would be the sale for H1 and how it is performing

Mr. Gautam Chand Jain — Chairman and Managing Director;

See, domestic is definitely, as I always maintain that compared to our export exposure is miniscule. But we are seeing quarter-on-quarter progress. Right now, we are in our 120 stores in any product can be seen and is on display properly. And now we are also expanding to other cities in India as well. But India journey is a little longer because we are at top of the pyramid in terms of the reviews in the takes and pricing. So it’s not going to be definitely like a commodity run what you see on the ties or cost players in India.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Yes. Can you mention the sales figure or

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes. Can you mention the sales figure or

Dixit Doshi — Whitestone Financial Advisors — Analyst

Ok, Thanks. [Indecipherable]

Operator

Thank you. [Operator Instructions] The next question is from the line of Sachin Kasera from Svan Investments. Please go ahead.

Sachin Kasera — Svan Investments — Analyst

Yes, Hi. Goodmorning, My question was on the revenue on the core business. So in the previous quarter, you mentioned that you were more in the optimum utilization in — and if you see compared to Q1, that is the June quarter, our revenues are lower in September quarter. If I understand it, in June, we were see not operating both the at full capacity. Is it that you need to, we have seen improvement in utilization versus June and Q1 has slowed down? Or is that we have seen some significant crush in terms of realization?

Mr. Gautam Chand Jain — Chairman and Managing Director;

It’s a mix of growth basically that if you recall, we’ve been maintaining that Unit one worth having a price level in terms of realization lower than what we had in the other unit. So basically, the product mix typically drives the entire realization and the margin side of it. And then as I said, that there is a little slowdown in the market as well. So both offtake and this together is responsible for a marginal decline basically.

Sachin Kasera — Svan Investments — Analyst

So both units would have — you mentioned that you met work at optimum utilization, even the unit, one would have a more or that work from optimal

Mr. Gautam Chand Jain — Chairman and Managing Director;

No, Unit one is at the optimum level.

Sachin Kasera — Svan Investments — Analyst

Basically, this quarter year gets an optimal utilization.

Mr. Gautam Chand Jain — Chairman and Managing Director;

Sorry, What are you–

Sachin Kasera — Svan Investments — Analyst

I think this quarter about the initial what did optimal utilization

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes, very close to optimum utilization for Unit two and Unit one is at the optimum.

Sachin Kasera — Svan Investments — Analyst

Sure, sure. Secondly, can you give us some sense, you mentioned that the raw capacity have come down. But if you can give us some sense, what is the type of correction you’re seeing at 10%, 12% or 20%, that would be very helpful.

Mr. Gautam Chand Jain — Chairman and Managing Director;

Not come down? What has come down

Sachin Kasera — Svan Investments — Analyst

Now material Comtel prices, you mentioned has come down.

Mr. Gautam Chand Jain — Chairman and Managing Director;

I said about three raw materials, which is not as raw material in general because other raw materials typically continue to be still stronger. — but key resin is one of the key raw materials in the production. So we’ve seen a decline of about 15% happening in the prices. And we believe that another 10% to 15% is in store.

Sachin Kasera — Svan Investments — Analyst

And how much typical resin would be of our total promote cost?

Mr. Gautam Chand Jain — Chairman and Managing Director;

It depends upon the formulation, it’s a little proprietary. So I’ll not be able to give you an exact number on the percentage because that clearly gives you the chemistry.

Sachin Kasera — Svan Investments — Analyst

Sure. No problem. And how is our pricing formulability buyers in the sense? Is it a pass-through? Or when it goes up, its impact on our margins and it goes down, we are able to return some benefit out of the

Mr. Gautam Chand Jain — Chairman and Managing Director;

The raw material prices are not passed through, basically. So we have a fixed pricing mechanism largely. So whether it is a foreign exchange fluctuation to key raw material prices, there is a relatively lower cushion to actually go and negotiate. So that’s something which — that’s the reason you see that the overall EBITDA or the other margins got a little impacted because of inability to do fast on this.

Sachin Kasera — Svan Investments — Analyst

Sure. But if you see in the last three quarters, the currency is almost depreciated by 10%. So has that then changed that the currency is not too much of a pass-through. So I reletatshould have got reflected in terms of our margin and better realizations in at least local currency? Or is it that we have certain hedges and hence, the benefit of the depreciation will be visible in subsequent quarter?

Mr. Gautam Chand Jain — Chairman and Managing Director;

See what happens is typically, we also have a borrowing in dollar if we you do a mark-to-market basically, so that notional adjustment typically does not give you the complete benefit out of the rupee depreciating

Sachin Kasera — Svan Investments — Analyst

Okay. But I thought our borrowings are INR40 crores and our exports are close to INR800 crores. So we all

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes. But then you will do a mark-to-mark on quarter basis, right? 800 is going to be on the annual year and 400 is constant all the time.

Sachin Kasera — Svan Investments — Analyst

Okay. So which means in the next quarter because now on the — at the current level, the debt has already been mark-to-market, but we’ll continue to see the benefit in terms of — from Q3, Q4 because as we discuss it every quarter, you’ll see the before

Mr. Gautam Chand Jain — Chairman and Managing Director;

The currency is something which I think both of us will be commenced can be sort of a crystal gazing. So whatever happens on the currency side, whether it is rupee appreciating or dollar appreciating either way. I think that is something which I will be able to only comment once we are into the quarter and reporting.

Sachin Kasera — Svan Investments — Analyst

No, no, that is what I understand you’re saying if the rupee remains at the current level — then in the last two quarters, the deposition has been computed by the correction on the loan that we are having. I mean, going forward, if rupee remains here, then we should see some benefit on the margins

Mr. Gautam Chand Jain — Chairman and Managing Director;

The constants are assumed as you proposed — what you said is a high probability.

Sachin Kasera — Svan Investments — Analyst

And the last question is on the debt reduction. We have seen some reduction in debt in — can you give us some more sense on what type of capex we have for the full year? And what type of debt reduction you are planning in second half?

Mr. Gautam Chand Jain — Chairman and Managing Director;

Informed last time because of that annual repayment is INR25 crores. Out of that, we paid a core next 12 months and actually the repayment liability, INR35 crores.

Sachin Kasera — Svan Investments — Analyst

Okay. And what is the full year capex guidance of plan that you are having in terms of the overall spend

Mr. Gautam Chand Jain — Chairman and Managing Director;

So right now, we don’t have a very large capex plan in terms of expansion. What we have is a little just completing certain aspects of already work in progress, which is there. So we’ll not really have a very large capex coming in the next six months.

Sachin Kasera — Svan Investments — Analyst

I think we spent something closer to INR30 crores so in the cash

Mr. Paras Kumar Jain — Chief Executive Officer

That’s the growth important, So that was basically existing work in progress, which got capitalized. So I think probably we can tell you what is the balance work in progress that can give limited.

Operator

Mr. Sachin may I request you to please be joined with you. We have part

Sachin Kasera — Svan Investments — Analyst

Sure.

Operator

Thank you.The next question is from the line of Rishikesh Pawar from Kotak Mutual Fund. Please go ahead.

Rishikesh Pawar — Kotak Mutual Fund — Analyst

Yes, Good morning. Thank you. The first question is related to the comment in PPT, where we spoke about the correction in freight and that augurs well. So just wanted to understand, will that also flow through in our margins or that is largely borne by the clients, so not much of an impact

Mr. Gautam Chand Jain — Chairman and Managing Director;

So basically, this has been a double whammy if you look at for the trade. What has happened is when we almost depending upon the route which the ship was operating in the last three months, the prices have corrected anything between 30% to 60%. So the customer is sitting actually on inventory, which is on the freight side, probably 60% more than what we can currently take it from India. So that is what is impacting them also because already the intent pitting with them, they’re already seeing a loss on sitting on that in terms of the shipping rate. So while the rate — the prestige rate is typically on the export side a pass-through. On the import side, it typically helps us because that is something which is our cat. So while — it’s completely pass through, but it also have other effects that customers typically are getting subject to a certain level of stress because of sudden fall in the shipping prices.

Rishikesh Pawar — Kotak Mutual Fund — Analyst

Yes. Thank you. The second question is on the granite business. I know we generally used to comment that it’s a fairly steady state business. But clearly, the quarterly volatilities are somehow do not seem to indicate the steady-state business. So if we give you some highlights in the sense of what’s happening on the granite side that’s impacting creating so much volatility on the sales front?

Mr. Gautam Chand Jain — Chairman and Managing Director;

The bigger volume in turnover comes from blocks — and China, which is the major buyer for the blocks is in a bad shape even today, in fact, but worse than earlier was. So there is no shipping happening, no sales happening to China. — and no buyers are coming from additional markets. So since some situation improves in China, we are sitting on the stock inventory that enable to sell them because of the Chinese problems. We don’t foresee any bigger turnover coming up from the lab business, which all happens with the American market because the demand for units thereby they’re going down and the whole market is moving towards parts.

Rishikesh Pawar — Kotak Mutual Fund — Analyst

Ok, Thank you.

Operator

Thank you, The next question is from the line of Pratik Singhania from SageOne. Please go ahead.

Pratik Singhania — SageOne — Analyst

Sir, I would — so my first question is with regards to this duty, which is proposed to be implemented say in the November end. So what kind of a scenario you paid given speaking to your distributor that once this antitumor CVD, whatever, however you want to name it. gets implemented, then export from India to U.S. how it will get affected and how we stand to benefit or lose out of it.

Mr. Gautam Chand Jain — Chairman and Managing Director;

Pratik, do you have any other questions? — thesis question. I can probably answer on

Pratik Singhania — SageOne — Analyst

The So in terms of cost of results, you said that it is — so 15% is from the peak or you would say 15% from the Q1 or Q2 average resin prices, which you would have incurred? This is the second question. Third question is with regard rate also just similar to the 30% to 60% comment that you said, I wanted to know, in comparison to the average rate cost that you would have incurred in, say, Q1 for Q1 or Q2 how much has been it further planned down as of now, currently, — so these three questions, sir.

Mr. Gautam Chand Jain — Chairman and Managing Director;

Okay. So coming to your first question on the duty — as I said at the beginning, basically around December six or January six, depending upon what the U.S. Department of Command decides to take would be the time when the duties would come out. In the scenario, they are basically — if you look at two scenarios. One is scenario that commute actually upholds what it already did it and does not want to change its position in the finance. In that case, typically, around 50-plus companies which are in that bracket would typically get impacted because the cash deposit rates would undergo significant change, which typically a U.S. customer is supposed to deposit to clear the goods as those companies typically theoretically will have challenge in shipping out because there rates can be anything between 23% to 162%. So that is one scenario.

The other scenario is that out of all the 51, probably 50 come out because they are presenting their arguments to the DOT NDCs that — some companies impacted and they are 50 are out of it. Then typically, more or less, the industry situation becomes normalized. So in that case, U.S. customers typically will not have significant challenge what they would have had all the 51 companies got into that trap. But then it also depends upon — the fact that the order is limited probably to the 51 companies who are part of this review, and of course, Gokan is excluded from that review, and we are not impacted by that. But then there are other Indian companies who are not impacted by this because they are under a different basket of all other exporters. So they may not get impacted by the studies and then probably get a skill over our business on some of these companies who may be impacted by the order. So this is a very peculiar situation, I think only once the order is out, more comments can be made.

This is how it could pan out to be. Now coming on to your cost of resin, yes, it is — from the peak level, we have seen a 15% decline. So as things stabilize, probably we can see a little more coming from there. Now coming to your third question on the fleet cost Yes. There was a time when a ship to New York would have probably cost you anything about $10,000, $11,000 as also a time. today probably at sub 6,000 and sometimes probably at 5,000 levels you are able to get a product shipped out of on the East Coast. The West Coast states where we don’t typically have a very larger shipments out have dramatically fallen. There was a time when we looked at a rate of 12,014,000. Now the rate of 3,000 have come into place also in some locations. So that is how the fleet costs have actually behaved dramatically causing a little stress on the existing inventory and typically also on the new demand as well.

Pratik Singhania — SageOne — Analyst

Okay. Sir, can you give you a trend about the resin prices consumed per KG for Q1, Q2 and currently, so that we can get exactly shaping up?

Mr. Gautam Chand Jain — Chairman and Managing Director;

Basically, as I told, I think, to Sachin the fourth call, giving you an exact metric would be challenged because it is part of our chemistry. But what I can tell you is that resin is a substantial component of our raw material prices. So any movement there would typically get reflected in the margins directly.

Pratik Singhania — SageOne — Analyst

If you can — if not a, if you can say, take Q1 as a base of 100 in lean. And then if you can just guide us if INR100 was the base in Q1 than Q2 average would be how much? And currently, it will be how much?

Mr. Gautam Chand Jain — Chairman and Managing Director;

Typically, I’d rather give you a different scenario. I would say that at some point in time, we used to buy at 100 at some point in time, maybe last 12 to 18 months we started buying at 200. That was the fluctuation.

Pratik Singhania — SageOne — Analyst

No. Okay. Okay. sir. Thank you so much.

Operator

Thank you. [Operator Instructions] the next question is from the line of Manan Shah from Moneybee Investment Advisor. Please go ahead.

Manan Shah — Moneybee Investment Advisor — Analyst

Thank you for the opportunity. What would be the pricing differential between the premium design versus the basic design? Would it be 10%, 20% higher — and what sort of mix would we endeavor to achieve, say, over the next two, three years between the basic and premium. And what would this mix be currently in our — both the units? That lease my question. Thank you.

Mr. Gautam Chand Jain — Chairman and Managing Director;

The price difference can be as large as even 100% between an exotic design and basic design for various reasons because the cycle time, the chemistry getting involved and the design is taken list host of other facts. So that’s how the differentiation is. So typically, overall, if the balance of 30% exotic, 70% — sorry, 40% basic range and 30% — 40% medium range, 30% basic. If that equilibrium can be established, that’s definitely a good scenario to be into. But then again, — that is something which we cannot completely control because it’s purely market-driven.

Manan Shah — Moneybee Investment Advisor — Analyst

Right. And what would this mix currently be at both our units

Mr. Gautam Chand Jain — Chairman and Managing Director;

In Unit two, it would be typically that you have over 80%, 90% coming from the basics. In Unit one, it would be typically about medium range and the basic products actually giving you over

Manan Shah — Moneybee Investment Advisor — Analyst

In Unit two, it would be typically that you have over 80%, 90% coming from the basics. In Unit one, it would be typically about medium range and the basic products actually giving you over

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes. So theoretically, it is possible that if we are able to establish a right equilibrium on the product mix, both the margin profile and the top line can be improved.

Manan Shah — Moneybee Investment Advisor — Analyst

Understood. Understood. Ok, Thank you. I’ll comeback in the queue

Operator

Thank you, [Operator Instructions] the next question is from the line of Kartik [Phonetic] from Suisse [Indecipherable]. Please go ahead.

Kartik — Suisse — Analyst

Just one question. You referred to additional shipments made from India in anticipation of these duties by payers rough sense, what would be the kind of inventory pile up plus, of course, the higher rate cost base inventory. So could you have some sense of the level of pilot that could have happened

Mr. Paras Kumar Jain — Chief Executive Officer

It’s actually a good question, Kartik. We expect that anything between three to six months of inventory of certain designs in certain customers would have got piled up in anticipation

Kartik — Suisse — Analyst

Thanks, And what would be the extent of erosion best case scenario that has happened your assessment would it be like 3%, 5% or it will be a much bigger number

Mr. Paras Kumar Jain — Chief Executive Officer

What do you mean by Aron a little more specific.

Kartik — Suisse — Analyst

I’m saying when you talked about slowdown, I’m asking you in terms of indicative offtake?

Mr. Paras Kumar Jain — Chief Executive Officer

I’m saying when you talked about slowdown, I’m asking you in terms of indicative offtake?

Kartik — Suisse — Analyst

Double digits Okay. Okay. Thank you so much, I Appreciate it.

Operator

Thank you, The next question is from the line of Sachin Kasera from Svan Investments. Please go ahead.

Sachin Kasera — Svan Investments — Analyst

Hi, Just one question was on the receivables.So despite the sales being lower than June quarter APC versus the March quarter, the receivables have the INR20 crores. So would you like to make any comments on that? Have you seen any increase in terms of because of the softness that you see in the market, is there any increase in terms of the trade that we have to offer to the clients?

Mr. Paras Kumar Jain — Chief Executive Officer

If you look back historically, the shipping challenges was one of the reasons for the working capital to be tied up because we had little shipment getting tied up at the port and then the bill of letting is not coming on time. So all that typically got bundled and with little aggressiveness in the market approach, we will also have to extend some time for all the terms, what we extend to the trade in the U.S. market are largely backed by the underwriting from the export credit guarantee Corporation of India. So we very judiciously offer it, even the limits to the trade.

Sachin Kasera — Svan Investments — Analyst

Ok, and I’m asking about the cycling of a number of days. This seems to be some increase. So that is a

Mr. Paras Kumar Jain — Chief Executive Officer

So with the demand getting muted, that is one reason where we have to be a little aggressive Secondly, with the sort of some shipment delays, which were still involved during the second quarter. The bill of ladings and all that did not come in time. And for us to get the payment from the suppliers, from the buyers we need to present the bill of lading. So these are two factors which actually caused the receivable days to go relatively higher.

Sachin Kasera — Svan Investments — Analyst

And with the shipping rate challenges now becoming better? Can we see some [Indecipherable]

Mr. Paras Kumar Jain — Chief Executive Officer

Outside of it, yes, we’ll have it. But then — but depending upon the demand scenario, we’ll have to still take some calls from time to time.

Sachin Kasera — Svan Investments — Analyst

Sure. And one question was on gross versus net debt. If I see the financial that has been presented results — we are sitting close to INR40 crores plus

Mr. Paras Kumar Jain — Chief Executive Officer

Not clear, I think can be a little more audible or closer to

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes, I think if you see the balance sheet that has been presented with the reserve the cash and equivalent is close to INR40 crores plus. So are we comfortable with keeping such high level of cash and bank balances? Or would we look to — while our scheduled repayment is not much would we look in terms of maybe prepaying some bit of loan and as having a lower cost debt?

Mr. Paras Kumar Jain — Chief Executive Officer

Maybe actually there’s a balance as on date because due to the realization of the last two, three months on the auto materially, we’re going to use the balances in the next quarter.

Sachin Kasera — Svan Investments — Analyst

Okay. Okay. Okay.Thank you

Mr. Paras Kumar Jain — Chief Executive Officer

Thank you

Operator

Thank you, The next question is from the line of Rishikesh Pawar from Kotak Mutual. Please go ahead.

Rishikesh Pawar — Kotak Mutual Fund — Analyst

Hey, Just one follow-up question. I understand probably the challenges — challenging demand environment. But just wanted to understand even if the end market is probably not growing or probably slightly shrinking, but considering probably the duty on probably the other peers — and if this inventory pile probably dissipated over the next three, six months, has it any way allowed us to incur market, sir?

Mr. Paras Kumar Jain — Chief Executive Officer

Basically, we have looked at two aspects of the duty. One is, definitely, we are trying to approach the the trade, where we feel that we can add value to their portfolio by presenting our design and probably take some additional market share, which otherwise would not have been available because of various other reasons. So while that has not completely panned out fully yet because the duties are not completely final yet. So I think once the duty imposition happened which way it goes typically we give a guidance because it is not so easy in this trade to simply shift the supply chain that, okay, today, we’ll buy from X tomorrow, we can go to — so before that decision from X2 taken by the trade, it takes some time because the way the product is marketed, the way the products are shown in the U.S. marketplace, there’s a lot of activity. So it’s just changing a supplier is not at the end of the day because you have to change the sampling and cross suppose we are at 5,000 locations. So it means that 5,000 different locations, the samples have to be changed. — to anybody wanting to take that call typically will break for some time to get more clarity, which were we winnable to flow. So I think in nutshell to answer your question, we’ve not completely seen the benefit of silver from the Duty yet.

Rishikesh Pawar — Kotak Mutual Fund — Analyst

Got it, Thank you.

Operator

Thank you, [Operator Instructions] The next question is from the line of Sachin Kasera from Swan Investments. Please go ahead.

Sachin Kasera — Svan Investments — Analyst

Yes, sir, have the distributors or our clients started to see offtake at the end consumer also slow down — or is it that they are trying to reduce their inventory in anticipation of expected sort of a slowdown in consumer deal?

Mr. Paras Kumar Jain — Chief Executive Officer

We have seen a mixed reaction from the trade channel, which we have said. There are some people who are not experience slowdown yet. There are some who have done reduction in anticipation the already — the inflation challenges or the demand challenges are going to pan out. And then there are some who are actually saying. So depending upon what segment they are largely exposed to is what typically is giving them that direction.

Sachin Kasera — Svan Investments — Analyst

Sure. And most of the comments that you’re hearing from consumer companies is that the upper and middle per segment is where the demand is still relatively stable, and it is the value and the lower-end segment, which you are experiencing softness. So have we also experienced that? And second, in terms of geography, U.S. is literally doing better than Europe. So are ongoing the singer times?

Mr. Paras Kumar Jain — Chief Executive Officer

Yes. So typically, depending upon the income level and the investment level, the impact of inflation typically pans out in that velocity. So our experience has been that usually at a higher income level start the inflation does not really impact much. And specifically also on the custom housing at a very different level of pricing, they don’t really get impacted because overall, component of parts in the housing will be relatively lower than what otherwise the building materials would have got into it. So that is answering to your question that, yes, of course, at the commercial project level at multifamily housing, which are relatively low priced and very sensitive to inflation, they typically get impacted much than the others is what is our personal experience so far. Now what was the second question?

Sachin Kasera — Svan Investments — Analyst

In terms of geography, is Europe a little more soft than U.S.

Mr. Paras Kumar Jain — Chief Executive Officer

No, I don’t think so because the situation out right now, both in the Western world, whether it is or or America, the situation, I think it has become more cautious now. So whether it is a leisure reaction to what is heard in the news or seen in the newspaper or what is the perception one has built. But I think the slowdown is consensus is largely there in the building material category.

Sachin Kasera — Svan Investments — Analyst

And just to your previous comment that in general, you’re also witnessing that demand is relatively better and stable in the higher end. Can you give us some sense, is it that are we — what is the sort of mix we are very — it’s like a balance mix between the commercial land and the lower end and high end? Or is it that we are more filter towards the higher end and exotic divend if not specific numbers, just some ballpark sense of our position in that.

Mr. Paras Kumar Jain — Chief Executive Officer

We don’t have a right number because what happens is that our consumer — different consumers — or different distributors and the trade partners in U.S. have a different level of exposure to the market segment. There are some customers who are very heavily dependent on new home building. and commercial specifications. And then there are some customers who are largely into remodeling at the higher end of it. But I think overall, probably, the balance is in favor of the low end and mercspecification market.

Operator

Mr. Kasera may request

Sachin Kasera — Svan Investments — Analyst

Sure.

Operator

Thank you, the next question is from the line of Vikram Sharma from Niveshaay Investment Advisors. Please go ahead.

Vikram Sharma — Niveshaay Investment Advisors — Analyst

Hi Sir, is it possible? For you to share the breakup of operating margin are all the plant and new course plant?

Mr. Gautam Chand Jain — Chairman and Managing Director;

Typically, I think we’ve always maintained that, that data is a little proprietary and will not be able to give a breakup between the two units. — consolidated numbers are there in the presentation.

Vikram Sharma — Niveshaay Investment Advisors — Analyst

And sir, and if possible, you can say, margin of a premium product and margin in basic product

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes. I tell old in a little while before that the realizations can differ even 100% between the basic and on a gross market at a gross margin level because of various factors, whether it is a cycle time to aesthetics to MSP and host of other products. But then overall, what is the contribution of that particular product is also equally relevant for it to impact the gross margin significantly.

Vikram Sharma — Niveshaay Investment Advisors — Analyst

Ok, And sir, one question on who are the major card exporting countries to the U.S.

Mr. Gautam Chand Jain — Chairman and Managing Director;

Yes. So basically, Spain is one along with us, then we have Vietnam is also there than you have is rise and then you have some parts of Europe, like as I said, mentioned in there is some coming from Belgium, some coming from Italy and upcoaoutheast Asian neighbors like Philippines, Malaysia, Tian already mentioned to you and Thailand as well.

Vikram Sharma — Niveshaay Investment Advisors — Analyst

So these European players are pressing any kind of energy crisis is

Mr. Gautam Chand Jain — Chairman and Managing Director;

I think what we have heard is definitely energy is a big challenge for all the European producers. — but I really do not know how they have been able to mitigate and to what extent they’re impacted. But whatever here and say what I can say — tell you is that, yes, we’ve heard that energy is a big crisis for the European manufacturers of building materials, whether it is ceramic to cards or anything in between.

Vikram Sharma — Niveshaay Investment Advisors — Analyst

Ok,Thank you

Mr. Gautam Chand Jain — Chairman and Managing Director;

Thank you.

Operator

Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for closing comments.

Mr. Paras Kumar Jain — Chief Executive Officer

On behalf of Pokarna I thank everyone who’s participated in the call, and I look forward to talking to you again in our Q3 call. Thank you so much. Take care.

Operator

[Operator Closing Remarks].