Prince Pipes and Fittings Ltd (PRINCEPIPE) Q3 FY23 Earnings Concall Transcript

Prince Pipes and Fittings Ltd (NSE:PRINCEPIPE) Q3 FY23 Earnings Concall dated Feb. 08, 2023.

Corporate Participants:

Amit Srivastava — Batlivala and Karani Securities India Pvt. Ltd.

Parag Chheda — Joint Managing Director

Anand Gupta — Deputy Chief Financial Officer

Nihar Chheda — Vice President of Strategy

Shyam Sharda — Chief Financial Officer

Analysts:

Pranav Mehta — Equirus Securities — Analyst

Shrenik Bachhawat — LIC — Analyst

Udit Gajiwala — YES Securities — Analyst

Dhananjai Bagrodia — ASK — Analyst

Keshav Lahoti — HDFC Securities — Analyst

Nikhil Agrawal — VT Capital — Analyst

Sandesh Barmecha — Haitong Securities — Analyst

Archana Gude — IDBI Capital — Analyst

Sujit Jain — ASK — Analyst

Praveen Sahay — PL India — Analyst

Arun Baid — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Prince Pipes & Fittings Limited Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions]

I now hand the conference over to Mr. Amit Srivastava from Batlivala & Karani Securities. Thank you. Over to you, sir.

Amit Srivastava — Batlivala and Karani Securities India Pvt. Ltd.

Thank you, Naveen. Good morning, everyone. On behalf of B&K Securities, welcome you all to the 3Q FY 2023 earnings conference call of Prince Pipes & Fittings Limited. We have with us from the management, Mr. Parag Chheda, Joint Managing Director; Mr. Nihar Chheda, Vice President of Strategy; Mr. Shyam Sharda, CFO; and Mr. Anand Gupta, Deputy CFO. We will start the call with the opening remarks from management, which will be followed by Q&A.

Over to you, sir.

Parag Chheda — Joint Managing Director

Yes. Thank you, Amit. Thank you all for joining us today. The presentation and the press release have been issued to the stock exchanges and uploaded on our website. I trust you have been able to review the same. I will cover a brief overview of the industry, and then discuss the company’s — As you are aware, we continue to see pressure on PVC prices for the first two months of the quarter. Since April 2022, PVC prices corrected by an unprecedented INR66 per kg, which is nearly the price of resin it self, and bottomed out at about INR76 per kg by November end.

The trend reversed in December, leading to improvement in market sentiment and channel restocking. Affordable rates, supported by underlying demand momentum, delivered a healthy growth momentum across all sectors of real estate, agriculture, and infrastructure. Largely, the overall industry sentiments are buoyant across all sectors. As per economic survey 2023, housing prices have started to firm up after a two-year COVID lull and demand has stabilized. New construction is picking up pace, which has stimulated innumerable backward and forward linkages within the construction sector. This holds a good bearing on the building material industry and we see this trend being stable. These are exciting times for the Indian economy, which has already taken centerstage at the global level.

Strengthening water infrastructure, housing, agriculture have emerged as key themes, and the mission of the central government. The Union Budget 2023/2024 has outlined initiatives to stimulate this momentum, with Jal Jeevan Mission budgeted allocation increased by 27% to INR69,684 crores. The mission envisages providing piped water to each rural household by 2024. PM Awas Yojana has allocated over INR79,000 crores, which is 65% higher compared to last year, boosting the housing for all mission. Such initiatives will positively impact industry [Phonetic] free progression.

It is noteworthy that a significant increase in allocation for capex spending by 33% to INR10 lakh crores conveys the government’s intent on ensuring that the infrastructure act as a force multiplier for India’s path to inclusive prosperity. Real estate, building materials, infrastructure and ancillary industries look to benefit from this capex push. This higher trust on capex is at a time when private capex is yet to reflect credible signs of revival and is a step to stimulate the private capex environment. I’m happy to share that this quarter we achieved a very strong 35% volume growth. The company sold 43,693 metric tons of goods and achieved revenue of INR706 crores during this quarter. We witnessed a respectable rebound in margins this quarter, which we believe will further improve in quarter four.

Our focus continues to be on innovation and market expansion as we launched two key products with superior German technology in modern plumbing division, which marks the beginning of new growth trajectory. We understand India’s evolving needs. And with the launch of premium line of products, we are bringing home the finest in manufacturing, design and end-to-end solution to offer high-performance drainage and piping solutions to builders, home owners and consultants across India. We maintained fiscal prudence and remain long-term debt free.

Our net working capital has improved to 44 days as of December 2022 from 68 days in September 2022. At Prince, sustainable growth is the heart of our organization progress. I’m proud to share that our Haridwar plant has won the IMexI Commitment price by Kaizen Hansei for a greater effort towards building a sustainable and world-class ecosystem. We were — we are also awarded the Certificate of Merit in Believers category Sustainability 4.0 Awards by Frost & Sullivan. Our sustainability practices have reduced carbon footprint, increased recycling and accelerated the use of renewable energy. On an overall basis, we continue to be bullish in the medium to long-term prospects of the industry with the government’s growth-oriented stance.

India was recognized as the fifth largest economy in the world last year. Evidently, opportunities within India are significant. Our business fundamentals continue to be strong as we focus on implementing growth strategies centered on utilizing existing capacities, expanding our distribution network premiumizing the brand, deeper market penetration and optimizing our product mix towards high value-added margin products.

We will continue to ensure strong execution of our three-pronged business strategy centered on organic growth, operational excellence, ESG aligned progress and thus, steer the organization to provide great value to all our stakeholders. Thank you for your time and mindshare.

I will now hand it over to Anand Gupta, our Deputy CFO, to take you through the key financial highlights.

Anand Gupta — Deputy Chief Financial Officer

Thank you, Parag bhai, and good morning, friends. I’ll be taking you through the quarter three financial 2023 financials. In this quarter, company saw a revenue growth of 6% Y-o-Y at INR706 crores compared to INR664 crores in Q3 FY 2022, led by very healthy volume growth across segments. Our volume grew by 35% at 4,693 metric tons. EBITDA stood at INR69 crores for Q3 compared to INR111 crores in Q3 FY 2022. EBITDA margin recovered quarter-on-quarter stood at 9.8% for this quarter.

Further, our finance costs reduced by around a decline in short-term borrowing. Profit after tax stands at INR35 crores compared to INR67 crores in quarter three FY 2022. Our average relations have been very healthy as we continue to maintain our focus on our core strength which is SWR and Plumbing segment. Agri segment helps us drive cost absorption and unlock cross-selling opportunities.

Commenting on working capital. Inventory has improved from 85 days in March to 61 days in December 2022. Data days from 60 days in March to 48 days in December 2022, and which we are working upon to further reduce and improve the credit cycle.

With this, we would like to open the floor for questions. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] First question is from the line of Pranav [Phonetic] from Equirus Securities. Please go ahead.

Pranav Mehta — Equirus Securities — Analyst

Yes. Good morning. Thank you for taking my question. Sir, I wanted to understand your strategy on the Bathware segment. So where are we standing as of now because you had announced that you have moved into the Bathware segment, I think, two quarters back. So where are we standing in this? And how are we strategizing for increasing the share of let’s say, overhead water tanks as well as the fitting business?

Parag Chheda — Joint Managing Director

Thank you, Pranav. So on Bathware, I would like to take this opportunity to give everyone a update. I think we have finalized our design as well as shortlisted our outsourced partners for both the CP fitting and the sanitary divisions of the Bathware segment. We are in the process of finalizing the cost structures as well as the pricing that we would offer to the market. And I think as we had guided by March or April, we would be able to launch to the market our entire range of Bathware products. The team down the line has been hired, and we have made some progress on that. And in the next quarter, most of the State Head positions should be in place, which will help us build a strong team for the overall Bathware vertical.

Coming to storage tanks, I think we have seen good growth from last year. Of course, the base is small. So the percentage growth would always look good. But I think we have — as we have always guided with water tanks that we need to be patient in this business. It’s more of a three to five years strategy before it really starts impacting our overall revenues, but the product acceptability has been excellent across markets. We have in-house manufacturing in the Jaipur and Silvassa plant.

We have also started now manufacturing water tanks at the Hyderabad facility and the rest of the market is catered to through outsourced partners, and we have seen a very good acceptance of the product, and we will continue to steadily grow the water tank business, leveraging the cross-selling opportunities across our distribution network. Thank you.

Pranav Mehta — Equirus Securities — Analyst

Okay, Sir. And what about the PVC fittings business?

Parag Chheda — Joint Managing Director

The PVC fittings business?

Pranav Mehta — Equirus Securities — Analyst

Yes, sir.

Parag Chheda — Joint Managing Director

Yes. What about that? What is the question?

Pranav Mehta — Equirus Securities — Analyst

So Sir, how is that performing? And how are you strategizing on, let’s say, increasing the contribution from value-added products in that segment?

Parag Chheda — Joint Managing Director

So see PVC fittings goal is a basket selling with PVC pipes. We have been in the PVC fitting market for four decades now, and we are one of the leaders in the PVC pipe and fitting industry as everyone knows. I think the new products that we have launched are the value-added products. Of course, in CPVC, we have a tie-up with FlowGuard Plus. PPR is the value-added product for us, which we have been present in for more than two decades. We have also launched two products in the modern plumbing division through two partnerships with German companies, Ostendorf and Hauraton, which we are extremely excited about as we focus on more innovative products and then try to drive innovation in the industry. So that’s where we are.

Pranav Mehta — Equirus Securities — Analyst

Okay, Sir. And Sir, my next question was related to how the demand you are expecting to pan out in 4Q, because 3Q also actually saw kind of restocking at dealer level because of December seeing all the price correction getting wiped off in PVC segment. So, are you seeing the 4Q to be somewhat muted versus 3Q volumes because of this sudden spot in the demand? Or you think that both resi and Agri would be able to more than cope up and give you sequentially also a very good set of numbers?

Parag Chheda — Joint Managing Director

So for 4Q, it’s early days, right? So I think I would stay away from talking about how the overall quarter is going to go. We continue to be optimistic because as you’re aware for the building material part, I think real estate is doing well. There can be short-term challenges, but I think next one to two years at least, I think real estate will do well. The data is out in the open, and whatever ground-level interactions that we’ve had with builders and architects across the country have been extremely encouraging.

So I continue to believe that next four to six quarters will be strong for building materials, which is Plumbing and SWR, which is two-thirds of my portfolio. And one-third of our portfolio, which is Agri, has been — PVC is affordable today, so — and past two years of Agri has been weak for the industry. So Agri, we will also continue to do well. So overall, we are optimistic about both end user segments, Plumbing as well as Agri. Of course, we have to be realistic that December quarter, the kind of 35% volume growth that we’ve had.

Of course, restocking has been apart of it because the channel was empty for the first six months of the year. So 35% volume growth is not something we’re going to see continuously for the next four or six quarters. It was driven by both genuine demand as well as restocking. And restocking of course, I think now channel inventory is closer to the normal inventory days today than it was at the beginning of December quarter. So I think we can see a healthy growth for the industry now, because the volatility of PVC actually is behind us.

I think PVC will be stable, will be range bound. So I think we are back to normal, the worst is behind us, and we should be back on a growth trajectory, a healthy growth and a sustainable growth trajectory.

Pranav Mehta — Equirus Securities — Analyst

Sure sir. Okay. Thank you, very much.

Operator

[Operator Instructions] The next question is from the line of Shrenik Bachhawat from LIC Asset Management. Please go ahead.

Shrenik Bachhawat — LIC — Analyst

Hello.

Operator

Sir, the volume is a little low. If you could please speak closer to the mic?

Shrenik Bachhawat — LIC — Analyst

Hello.

Operator

A little better, sir.

Shrenik Bachhawat — LIC — Analyst

Yeah. Thanks for the opportunity. So my first question is, could you quantify the inventory loss for this quarter? First question. And the second question, can you throw some light on, do we supply materials for Jal Jeevan Mission, and is it big for us?

Parag Chheda — Joint Managing Director

Yes. Thank you, Shrenik. I think the overall inventory loss — since we are we are importers of PVC and mainly a PVC player, so inventory loss was around INR25 crores to INR30 crores for the December quarter, so significantly less than the September quarter. And like I said, the worst is behind us and all the high cost inventory has been consumed in the past quarter. So I think that is now behind us. So that is — to answer the first part of the question, INR25crores to INR30 crores. And can you repeat the second part of the question?

Shrenik Bachhawat — LIC — Analyst

Do we supply materials for Jal Jeevan Mission?

Parag Chheda — Joint Managing Director

Yes, Jal Jeevan Mission is — so we have seen some demand from some pockets. In PVC, we have participated. HDPE, we are not that keen because of the extremely paper-thin margins. But PVC, wherever there has been opportunity, we have participated. We are very clear as an organization that Jal Jeevan Mission is good for the industry. It can be a growth driver for the industry. But it is not going to be a primary driver for growth, because it’s something that we cannot trust whether it will be consistent or not month-on-month, quarter-on-quarter.

So I don’t see Jal Jeevan Mission as a sustainable growth driver. It will be third or fourth driver for growth, but primary driver for growth has to be driven from real estate, agriculture, network expansion and newer products that we are coming into within piping segment.

Shrenik Bachhawat — LIC — Analyst

And just last question. So, I think, I believe agri season has already started. So how is the agri demand performance been in Jan and Feb, till now?

Parag Chheda — Joint Managing Director

So, yes, I think December, we saw some good agri sales and affordability is back. So I think agri should be good towards the end of this quarter and in the first quarter. As you’re aware, agri is around 30% of our business. So I think that part of the business should do well, given that affordability is back. And the past two years of agri have not been very good. So, I think, agri should do well at an industry level.

Shrenik Bachhawat — LIC — Analyst

Okay. And just last question, on the Telangana plant, how has been the progress over there? Like what is the current capacity that you are running at the Telangana plant and all the products are in place. Can you enlighten us about the Telangana plant?

Parag Chheda — Joint Managing Director

So, Telangana, we have been able to put up the capacity, approximately 50,000 tonnes. Initial response has been very good. And we have — as you are aware, South India is a focus market for Prince Pipes today.

Shrenik Bachhawat — LIC — Analyst

Yes.

Parag Chheda — Joint Managing Director

And having a local plant, we are already seeing the green shoots of having lower freight structure and a local supply chain. Of course, capacity utilization is still early days. It will take a few quarters to really ramp up, but we are on track as to what we had internally projected.

Shrenik Bachhawat — LIC — Analyst

I agree. Thank you so much for answer to that.

Parag Chheda — Joint Managing Director

Thank you, Sunit.

Operator

Thank you. The next question is from the line of Udit Gajiwala from YES Securities. Please, go ahead. Sir, the line for you has —

Udit Gajiwala — YES Securities — Analyst

Hi, sir. Am I audible? Hello?

Operator

Please go ahead, sir.

Udit Gajiwala — YES Securities — Analyst

Yes. I just wanted to know that what kind of volume outlook are you looking for, for FY 2024? I believe you said that you were looking at a 12% to 14% margins on a sustainable basis. So what would be the volume growth that you are looking at for the next fiscal?

Parag Chheda — Joint Managing Director

So, I think, volume growth in — so we usually stay away from giving quantitative guidance, but I think given all the tailwinds that we have today in terms of affordability of PVC, strong real estate market, like I said, agri should be doing well. So that’s at an industry level, and we have always looked to outperform industry growth via our network expansion, our entry into the project vertical, and lastly, the large range of new products that we are getting into within the piping division.

So I think whatever industry growth will be, we have constantly outpaced by 2% to 4%. And then, we would like to continue that. I think industry growth typically has been around 6% to 8%, which I think should be back. And as a result, we should be trying to outpace that year-on-year over the medium to long term.

Udit Gajiwala — YES Securities — Analyst

Absolutely. Yes. And then secondly, like, we have been — one of the focus is growing into newer product. So do we have any sort of data that, what would be the contribution of these new products that we have launched since the last 12, 15 months and the market acceptability for the same?

Parag Chheda — Joint Managing Director

Yeah. So I think it’s important to not look at this quantitatively. It has to be looked at qualitatively, because a lot of these products take time. A lot of these products we are the first mover in the market to introduce this kind of technology. So that concept selling takes time. But the initial response has been very good. So I’ll maybe give you a slightly detailed answer here. So starting right from 2017, we were one of the early movers to come into the DWC or Double Wall Corrugated Pipes segment that used for the Underground drainage, where we are replacing RCC with DWC.

And we have seen very good acceptance for this product. And it has started silently contributing to our overall revenue. And the potential for this product is immense, going forward. And we are excited about the underground vertical. And we have set up capacity accordingly for the past three to four years. Apart from that, we have come into storage tank, which I commented on earlier that good product acceptance about the quality and the design of tanks and over the long-term, this will also be a growth driver for the organization. And here, a tank is more a story of concept selling and — of cross-selling in our distribution network.

And the last part is the Modern Plumbing Vertical that we’ve recently started with the Surface Drainage products as well as the low-noise polypropylene drainage pipes in collaboration with German companies, which also — we have started creating awareness about these products in the market and being the first go. It’s up to us to how that we are able to concept sell these products. In the long-term, this will not only contribute to revenue, but it is — it will heavily contribute to our profitability, because the gross margin for these products is very, very strong. So it will contribute to the value-added part of our portfolio.

And more important than the number part of it is this will help us create a very strong brand. Today, we are already one of the leading brands in the industry. But having these kind of products, really helps us focus on research and innovation, which is very, very important for any leader in any segment.

Operator

Thank you. The next question is from the line of Dhananjai Bagrodia from ASK. Please go ahead.

Nihar Chheda — Vice President of Strategy

Sir, sorry to interrupt, but your audio was not…

Dhananjai Bagrodia — ASK — Analyst

Okay. Can you hear me now?

Nihar Chheda — Vice President of Strategy

Yes, you are now loud and clear.

Dhananjai Bagrodia — ASK — Analyst

Thank you.

Nihar Chheda — Vice President of Strategy

You probably now start your question.

Dhananjai Bagrodia — ASK — Analyst

Hi Nihar congratulations for the results. I wanted to ask you, in your breakup of our sales, would you have any percentage of like, how much will be the breakup between segmental where piping business?

Nihar Chheda — Vice President of Strategy

No, we do not give out segmental revenues. But broadly, two-thirds of the business is Building Material, one-third is Agri and 2%, 3% is Infrastructure.

Dhananjai Bagrodia — ASK — Analyst

Okay. One-third is Agri. So comparatively, what you have seen in this Q3? Would you — which segment would you have seen, which has grown on a higher base considering — I’m just trying to compare between the three players and their focus area. So which segment have you seen a good growth in between Building Materials and Agri in Q3?

Nihar Chheda — Vice President of Strategy

Yeah, that’s a good question. I think in the December quarter, our growth has been across segments, across plumbing, SWR and Agri. So the contribution to the top line remains similar. I think as we stated in the opening remarks that our business strategy is very sustainable. We want to Agri we see as — the Agri segment we see as way of absorbing costs, driving volume and entering into rural markets, but the entire mine share is, obviously, on the plumbing and SWR segment. So this contribution to revenue for all the three verticals has broadly remained the same, and we have seen growth across segments.

Dhananjai Bagrodia — ASK — Analyst

Okay. Sure. And, yeah, my other question has been answered. Congratulations. Thank you.

Nihar Chheda — Vice President of Strategy

Thank you.

Operator

Thank you. We have the next question from the line of Keshav Lahoti from HDFC Securities. Please go ahead.

Keshav Lahoti — HDFC Securities — Analyst

Hi. Thank you for the opportunity. I just want to get a sense about channel inventory where was it in December, and where is a channel inventory currently?

Shyam Sharda — Chief Financial Officer

So channel inventory in the first half of December quarter, so October, November, channel inventory was very low in anticipation of further reduction. Starting from December as prices started to stabilize and reverse, we saw restocking phenomena in the December month. So I believe today channel inventory is [Technical Issue] Hello?

Keshav Lahoti — HDFC Securities — Analyst

Yeah.

Parag Chheda — Joint Managing Director

I think there is some disturbance.

Shyam Sharda — Chief Financial Officer

Too much of background.

Parag Chheda — Joint Managing Director

Moderator?

Operator

Mr. Lahoti, are you on the line?

Keshav Lahoti — HDFC Securities — Analyst

Yes, I’m there. Sir, I missed it. You said channel inventory? Is it better now?

Parag Chheda — Joint Managing Director

Yes, this is so much better, sir.

Shyam Sharda — Chief Financial Officer

So channel inventory in October and November was extremely low in anticipation of a reduction of prices. December as soon as prices stabilize, and reversed, we saw restocking phenomenon. And today, as we speak, I believe channel inventory is moderate, close to normal.

Keshav Lahoti — HDFC Securities — Analyst

Okay. Understood. Sir, just want to — if I see quarter three performance, is it fair to assume the growth came because of restocking. So maybe the growth in October and November would have been low single digits?

Shyam Sharda — Chief Financial Officer

So restocking was one of the drivers for growth, but we also believe that there is genuine growth in the market because of two reasons. One is real estate is doing well, which is why building material will do well. And PVC prices had crashed, but the silver lining was because of affordability, agri also grew. So we saw it, restocking is one part of it, apart from genuine demand improvement in the market.

Keshav Lahoti — HDFC Securities — Analyst

Because the reason why I’m asking you this question is that…

Operator

If you have further questions, we request you to kindly rejoin the queue.

Keshav Lahoti — HDFC Securities — Analyst

Yeah, sure.

Operator

Thank you. The next question is from the line of Nikhil Agrawal from VT Capital. Please go ahead.

Nikhil Agrawal — VT Capital — Analyst

Good afternoon sir, and thank you for the opportunity. Sir, I just wanted to know like what is the current run rate of the water tax business? Monthly run rate?

Shyam Sharda — Chief Financial Officer

So I think it contributes to around 1% of our overall value today.

Nikhil Agrawal — VT Capital — Analyst

1% in quarter three?

Shyam Sharda — Chief Financial Officer

Correct.

Nikhil Agrawal — VT Capital — Analyst

Okay. And sir, what would be the capacity? You have a total capacity of 315,000. So how much of that is water tax?

Shyam Sharda — Chief Financial Officer

I would have to get back to you with that. I don’t have the exact capacity. So Karl would be in touch after that.

Nikhil Agrawal — VT Capital — Analyst

Okay. So I will back. And Sir, in your pipe segment and overall as a company, on the company level, what was the capacity utilization in Q3? And how much can it go up going forward? I mean, at optimum utilization, how much can that be?

Parag Chheda — Joint Managing Director

So see, we have put up two new plants in Jaipur and Hyderabad in the past three years. And we have put up this capacity for the next two or three years. So today, capacity utilization is fairly low. But our — on a rated capacity of 3,15,000 our production capacity can go up to 230 to 240 kt per annum.

Nikhil Agrawal — VT Capital — Analyst

Okay. And so you have no capex plans as such right now for the next…?

Parag Chheda — Joint Managing Director

Capex?

Nikhil Agrawal — VT Capital — Analyst

Capex?

Parag Chheda — Joint Managing Director

So right now, we are debottlenecking existing facilities. And yes, the focus in this current financial year has been on maintenance and debottlenecking.

Nikhil Agrawal — VT Capital — Analyst

Okay, sir. That’s it from me. I’ll get back in with your. Thank you.

Operator

Thank you. The next question is from the line of Sandesh Barmecha from Haitong Securities. Please go ahead.

Sandesh Barmecha — Haitong Securities — Analyst

Thank you for the opportunity, sir. Sir, first question, how much CPVC contributed on volume terms and on value terms?

Shyam Sharda — Chief Financial Officer

We don’t give out segmental data as you are aware. But broadly, on — CPVC contributes to around 20% of the revenue.

Sandesh Barmecha — Haitong Securities — Analyst

Okay. So do we — what will be our full year guidance capex guidance, sir, for this year?

Shyam Sharda — Chief Financial Officer

The guidance for?

Parag Chheda — Joint Managing Director

Capex.

Sandesh Barmecha — Haitong Securities — Analyst

Capex, sir.

Shyam Sharda — Chief Financial Officer

So nine months, we have already done INR80 crores, we have capitalized this, and around 20%, 25% is whatwe’ll be expecting in Q4.

Sandesh Barmecha — Haitong Securities — Analyst

Okay. Great. Thank you so much, sir. Good day.

Operator

Thank you. The next question is from the line of Archana Gude from IDBI Capital. Please go ahead.

Archana Gude — IDBI Capital — Analyst

Hi, Sir. Thank you for the opportunity. Sir, overall, like what kind of growth we should look at for the next three years down the line? And more — if you can give some color on how we should look at the margins in the Sanitary Ware business going forward?

Parag Chheda — Joint Managing Director

Yes. I think the next two to three years, as an organization, we are growth hungry. And we have put up the capacity to take advantage of any such uptrends in demand. And I believe the past five years, all the growth that came, came because of market consolidation, the top three or four players like us grew mainly because of a consolidating market environment. From the unorganized to the organized, and within the organized also, that they weregetting bigger. This was despite a weak real estate segment.

However, over the next three to four years, I believe consolidation will continue to take place. But we will have the tailwinds of a strong real estate market coupled with affordability of PVC prices, which will bode well for the agri segment as well. So the confluence of these factors — these three factors makes me optimistic about growth over the next three years. And the sanity ware business, I think we would be able to give exact guidance is on revenue and margin once we officially launch.

Archana Gude — IDBI Capital — Analyst

Sure, sir. And sir, just one more bookkeeping question. There was a 14% decline in other expenses in this quarter, was there any one-off or like what exactly has been going there?

Parag Chheda — Joint Managing Director

Yes. I think there should be a one-off nothing sustainable. So just a one-off, nothing specific.

Archana Gude — IDBI Capital — Analyst

Sure, sure. And any guidance on expense going forward?

Parag Chheda — Joint Managing Director

I think guidance on expenses, I think the main discretionary is like or other, obviously, manpower and advertising, which I think will continue.

Archana Gude — IDBI Capital — Analyst

So should we take that like 2% to 3% of your top line for ad spend?

Parag Chheda — Joint Managing Director

I think 1.5% to 2% on ad spends will sustain.

Archana Gude — IDBI Capital — Analyst

Sure, sir. Thank you so much.

Operator

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

Sujit Jain — ASK — Analyst

If I look at the working capital situation compared to March quarter — March’22 inventory has gone up and also have, I think, receivables overall working capital days if I normalize the payable days which have increased would have gone up. Okay. So if you can just explain, would it be in line with the inventory you would want to keep for the season, upcoming season? Or how is it panning out basically?

Parag Chheda — Joint Managing Director

Yes, I think every quarter, this would be dynamic. So I don’t think we can take March’22 as a benchmark for working capital for all quarters. But yes, we are — I think 60 days is an inventory that we have always guided. 60, 65 days with a very normal level of inventory for this industry. So I think that will continue. And receivables, I think as we mentioned in the — earlier on the call, also the focus is on receivables. Clearly, we acknowledge that there is scope for improvement. We have come a long way from whatever, 70, 75 days of better days that we had, which has come down to 48 days over the past two, three years.

This we cannot have overnight reduction because we are still a growth-oriented organization. But I think in the next two to three years, I would like to see receivables come closer to the 30-day mark and more in line with the industry. So today is the kind of brand that we’ve built. I think it’s — we need to leverage our brand equity that we’ve built by tightening our receivables. It will not happen overnight, but I’m confident in the next two years, we should see a significant improvement in the receivable space.

Sujit Jain — ASK — Analyst

Sure. And the two technology tie-ups I think has spoken about German pipes and launch of two products. Any details about royalty payments and how does this work?

Parag Chheda — Joint Managing Director

There is no royalty payments. Initially, it’s a trading model. We will start with the trading model. And as volumes pick up, we are open to local manufacturing as well. But the initial days, the hard work we need to put into really concept sell these products. So for example, the surface drainage products of Hauraton, we are replacing cast iron and RCC surface drainage channels. So the same way we replace cement pipes to DWC pipes. The first two to three years were very, very painful, and it looked like we were sitting on a very low capacity utilization. But eventually, all conventional products like steel and cement will move to polymer products because of better product life cycles and more user-friendly, high-performance products.

So the way we have done with TWC now we want to create these pockets within piping, newer applications where we replace conventional use products with polymer products. And we have to do the concept selling. So first two years to three years will be really challenging, but that’s what we like. We like the challenge because that helps us cement ourselves to become synonymous with that product and establish category leader. And this will not only contribute to revenue, but because of the better gross margins once we start in-house manufacturing, there is immense potential for contribution at the earnings level as well.

Sujit Jain — ASK — Analyst

And one quick question is that buildings you have with SWR for drainage pipes and surface drainage is meaning overall drainage system. Is that the correct understanding?

Parag Chheda — Joint Managing Director

So surface drainage is basically helps you to — helps storm water or the rainwater to exit a project. It is the surface — the channels that we see or largely see in our buildings, residential and commercial buildings today that we are replacing with 100% recycled polypropylene surface drainage products. So we’d be happy to share some product pictures with you. It’s also available on our website, but it’s a surface drainage channel.

Sujit Jain — ASK — Analyst

Sure. Thank you and all the best.

Parag Chheda — Joint Managing Director

Yes.

Operator

Thank you. The next question is from the line of Praveen Sahay from PL India. Please go ahead.

Praveen Sahay — PL India — Analyst

Yes. Hi. Thank you for taking my question. So first question is related to the plumbing. How is the project versus the retail contribution?

Nihar Chheda — Vice President of Strategy

So we are retail driven today and heavily indexed towards the retail. So, I think, it would be like a 75 retail and 25 project split. Because we’ve built out the project vertical only in the past two years with a separate project head and a entire project team. So the progress that we have made in the past two years that’s been immense. And, I think, we are already heavily skewed towards retail, but project segment will now help us drive the next level of growth over the next two years to three years. It’s a very different kind of business and retail. Retail is more distribution network driven.

Project is more relationship driven, the relationships that we’re able to build across builders, contractors, consultants across the country. And we have made a lot of strides in the past two years. And I think going forward we should see a better contribution from the project segment. And I think we’ve — the timing of this has been opportune as the real estate segment is doing well. So as an organization, we are excited about the potential of the projects division over the next two years to three years.

Praveen Sahay — PL India — Analyst

Okay. And the next question is related to the plumbing mix of PVC and CPVC. So PVC prices are down significantly. So is that impacting your CPVC performance?

Nihar Chheda — Vice President of Strategy

What do you mean?

Praveen Sahay — PL India — Analyst

So in the plumbing segment, you sell PVC and the CPVC both. So now the PVC prices were down. PVC pipes and fitting prices were corrected. So is that some way impacting the CPVC?

Nihar Chheda — Vice President of Strategy

So we have not seen anything like that. I think CPVC continues to be 20%, 25% of the business. We are growing in CPVC. For the year, we have — for the nine-month period, we have a double-digit growth in CPVC because what you must understand is CPVC is used for a very niche application, which is hot and cold water plumbing. It’s today only a INR4,000 crore, INR5,000 crore market versus PVC, which is obviously a INR30,000 crore market, because PVC is much more versatile can be used for Agri, SWR, as well as cold water plumbing. So CPVC while can only be used for hot and cold water plumbing, so I don’t see much cannibalization happening across the volumes.

Praveen Sahay — PL India — Analyst

Okay. Last question, sir, related to your capacity. You said 315,000 post this expansion in both the plants?

Shyam Sharda — Chief Financial Officer

Yes.

Praveen Sahay — PL India — Analyst

Okay. And that will be the year-end number?

Shyam Sharda — Chief Financial Officer

Yes.

Praveen Sahay — PL India — Analyst

Okay. Thank you, sir. Thank you for taking my question. All the best.

Shyam Sharda — Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.

Keshav Lahoti — HDFC Securities — Analyst

Sir, as you said, the project division is expected to grow at a higher rate. Will it be fair to assume you will have a lower margin in project division, so overall, your margin could be decreased because of that?

Parag Chheda — Joint Managing Director

No, I don’t see this challenge because you’re right, of course, project pricing for the entire industry or across any industry project, we usually tend to be more aggressive on timing. However, this is compensated by two things. One is the product mix tends to be better towards plumbing or a specifically CPVC, so this helped partially offset the aggressive pricing at the gross margin level, because of a superior product mix relative to our product mix overall.

And then operating margin level, the volumes in the project business are lucrative. So from a cost reduction of view, I think it’s almost evened out. So at an operating margin level, there is not a significant difference in the project and retail business.

Keshav Lahoti — HDFC Securities — Analyst

Got it. Can you give some sense what would be your current margin difference between the project and retail?

Parag Chheda — Joint Managing Director

So like I said, there is not a significant difference at the operating margin level. So it’s not very material.

Keshav Lahoti — HDFC Securities — Analyst

Okay. One last question from my side, what would be the margin you would be making in Agri and Plumbing a broader range? I’m not having that exact number.

Parag Chheda — Joint Managing Director

Yeah. Because you are aware, we don’t give segmental breakup for revenue and margin, but I understand what you are asking. Plumbing margin is superior compared to Agri. Plumbing is more value-driven, brand driven, and Agri is more volume-driven and price-driven.

Keshav Lahoti — HDFC Securities — Analyst

Okay. Got it. Thank you. Thank you. That’s it from my side.

Parag Chheda — Joint Managing Director

Thank you.

Operator

The next question is from the line of Arun Baid from ICICI Securities. Please go ahead.

Arun Baid — ICICI Securities — Analyst

Nihar just one question here If you look at your EBITDA per kg in this quarter, which payment is about INR50.5 — INR50.9 and as you said, the inventory loss would be of INR20 crores, INR25 crores. So if I take INR20 crores, the EBITDA per kg ballpark would be about INR20.50 paisa, What I’m trying to ask is, is that the normalized margin we should look at forget about inventory gains, which we have losses but normally assuming things being normal, is that the range we should look at going ahead?

Nihar Chheda — Vice President of Strategy

So Arun, as you are aware, we don’t really give guidance on EBITDA per kg. Of course, there has been an improvement quarter-on-quarter as the prices improve. But I think on a long-term basis, 12% to 14% EBITDA margin is something which is sustainable, with obviously a healthy volume growth.

Arun Baid — ICICI Securities — Analyst

Nihar, the only catch here is when you said 12% to 14%, we don’t know what the PVC prices would be. So that’s the catch there, right? Because if I assume the PVC prices, like, for example, in this quarter, your PVC ratio was roughly INR161, INR162, your blended realization, which is obviously lower compared to quarter, because you had lower prices in between the quarter.

Now the point is, if you look at today’s realization, which would be higher because PVC prices have gone up from what the low it was, then your number changes dramatically 12% to 14%. So what I’m ballpark trying to get to is, is that at 12%, 14% actually is that lowest. So is the EBITDA per kg, which we are seeing normalized? Is my calculation really correct? I’m not asking you to give a guidance, but is that the way we should look at it?

Nihar Chheda — Vice President of Strategy

Yes. So, you’re right. I’ll stay away from giving you guidance, but your calculation is accurate.

Arun Baid — ICICI Securities — Analyst

Okay.

Nihar Chheda — Vice President of Strategy

Thank you.

Operator

Thank you. The next question is from the line of Nikhil Agrawal from VT Capital. Please go ahead.

Nikhil Agrawal — VT Capital — Analyst

Good evening, Sir. Thank you again. Sir, I wanted to know like your nine-month CPVC volume growth, if you could quantify it?

Nihar Chheda — Vice President of Strategy

We have seen double-digit growth in CPVC in the nine months.

Nikhil Agrawal — VT Capital — Analyst

Okay. And in the first half, you had mentioned 25% growth. It’s been around the same levels?

Nihar Chheda — Vice President of Strategy

I’m sorry?

Nikhil Agrawal — VT Capital — Analyst

No, in your Q2 call, you had mentioned that CPVC volume growth has been around 25% in the first half. So has it been around the same level or has there been some taking up or anything?

Nihar Chheda — Vice President of Strategy

So we have seen double-digit growth in the December number. I don’t have the exact number with me. But in December, we have seen double-digit growth. And for the nine-month period as well, we have seen double-digit growth

Nikhil Agrawal — VT Capital — Analyst

Okay. Great. And sir, what would be the price trend? Any major changes in the CPVC prices?

Nihar Chheda — Vice President of Strategy

No, I think PVC prices continue to — CPVC prices continue to remain stable.

Nikhil Agrawal — VT Capital — Analyst

Okay, great. That’s it for me. Thank you, Sir.

Nihar Chheda — Vice President of Strategy

Thank you.

Operator

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

Parag Chheda — Joint Managing Director

Thank you to all for attending our call. Thank you.

Operator

[Operator Closing Remarks]