Shankara Building Products Ltd (SHANKARA) Q4 FY23 Earnings Concall Transcript

Shankara Building Products Ltd (NSE:SHANKARA) Q4 FY23 Earnings Concall dated May. 12, 2023.

Corporate Participants:

Sukumar Srinivas — Managing Director

Dhananjay Mirlay Srinivas — Head, Non Steel Division

Alex Varghese — Chief Financial Officer

Analysts:

Vakharia — NV Alpha Fund Management — Analyst

Aman Soni — Prudent Equity — Analyst

Nikhil Chandak — JM Family Office — Analyst

Arpit Shah — Stallion Asset — Analyst

Aman Agarwal — Equirus Securities — Analyst

Shray J — Swan Investments — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Aakash Mehta — — Analyst

Hiten Boricha — Sequent Investments — Analyst

Lakshmi Narayan — Tunga investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Shankara Building Products Limited Q4 and FY’23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on-date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sukumar Srinivas from Shankara Building Products Limited. Thank you, and over to you Mr. Srinivas.

Sukumar Srinivas — Managing Director

Good afternoon, everyone. I extend a warm welcome to all of you on behalf of Shankara Building Products Limited for this earnings call of Q4 and for the financial year ’22-’23. I have with me Mr. Alex Varghese, our CFO; and Mr. Dhananjay Srinivas, who is the Vice President Business Development; Investor Relation Advisor, Strategy Growth Advisor. I hope all of you must have had a chance to look at our investor presentation that is uploaded on the stock exchanges.

Let me straight away get into the industry dynamics and business scenario in the Q4 of the financial year ending FY’23. In FY2023, building sector, materials sector has experienced a consistent growth and business expansion. The thrust in infrastructure development, coupled with the uptake in real estate demand helped the industry to bounce back strongly to the pre-COVID level. Demand for new building and redevelopment projects have risen in both the residential and the commercial sectors.

Peoples preferences have shifted in the last two years towards larger homes and changes in architecture and interior design. People now understand the value of having a better equipped home and better lifestyle, thanks possibly to the pandemic. Additionally, every indicator shows that India is performing well on the global stage and a strong economic growth. And advanced Indian today who resides in any major metropolis wants to give his family and himself a high quality of life. All of these reasons have led to a significant increase in the demand for building material products, particularly in our key markets.

We believe on a macro level, due to the government’s emphasis on capital spending, improved capacity utilization in manufacturing, a double-digit credit growth and moderated commodity prices, manufacturing and investment activities are anticipated to increase in the economy. The building material industry is credited to be strong in FY’24 due to all of these factors and the governments sustained focus on expanding infrastructure, low-cost housing and rural housing.

Coming to the company’s financial performance. I am happy to share that our performance in FY’23 has been consistent and strong. On the back of a recovery in the entire home improvement industry, our topline increased by 6% to 7% in FY’23. Consistent efforts have been taken over the last two years to strengthen our balance sheet and that has also yielded good results. We have received tremendous response from the market and customers, clearly indicating that customers are looking for a one-stop solution for all building materials. We aim to make home building easier for our customers.

Our SSG for the quarter ending of FY’23 stands at 53.5%. We have witnessed higher footfalls in retail stores and experienced an improved trajectory in the online channel. Overall demand scenario was perfect. And emphasis over the last few quarters helped to improve our working capital position. Our working capital cycle for Q4 came below one month and the net operating cash flow for the year was at INR92 crores. Our strong performance is a reflection of our well-defined strategy, which is supported by the power of our most valuable assets, our people and our approach to our execution. We not only successfully navigated the immediate challenges, but also significantly advanced our long term strategic aim.

In addition to sticking to our long-term profitable growth strategy, we strive to differentiate ourselves to innovation, a strong retail presence, quality products and high standard of customer service. We continue to aspire to grow our topline by 25% to 30% in FY’24. We are also working hard to improve our profitability.

A quick update on our various business segments. Retail business continues to perform well and continue to perform well in FY’23. We have seen a good uptake in retail activity throughout the year. As stated, we have achieved a strong SSG for the quarter and for the year. Our non-retail segment which constitutes our channel and enterprise business has also shown consistently — has also performed consistently throughout the year and has been quite resilient. We are optimistic on the upcoming demand scenario for the coming financial year, that is FY’24 across all our businesses.

I will now ask Dhananjay to give you a brief update on the building material Retail segment.

Dhananjay Mirlay Srinivas — Head, Non Steel Division

Good afternoon. I would like to begin with a quick overview of the product in Shankara’s building materialized sector. As you might be aware, Shankara supplies materials starting from TMT, cement and construction chemicals, the plumbing, sanitaryware and fittings, tiles, adhesives and floorings, to electricals, lighting, paint. We have modular kitchen, hardware-related appliances, and of course, our legacy products of MS tubes, structural steel and roofing.

Over the last year, we have seen a good growth from the non-steel segment. There has been an increase in retail walk-ins and we feel our brand equity has grown. We have maintained a good growth in CP fitting and sanitaryware and the focus for the coming year is substantial growth from our tiles, electrical and lighting verticals. In FY’23, we did a total turnover of INR361 crores of our non-steel products as compared to INR200 crores in FY’22, registering a growth of around 80%. In the last quarter of the previous year, we successfully launched our Buildpro on Android and iOS. We have seen a good response from our customers and we have become a discovery tool for per customers before they walk into our stores. We have also seen an 18% increase in traffic on our e-commerce website and are working towards adding more verticals. We have clocked in an average of INR80 lakhs per month of online sales in the last six months and we are working on improving our online presence in the year ahead to reach more customers through our digital presence.

We continue to utilize technology to improve our customer acquisition and retention. We are working towards customer transparency in the building materialized sector. We believe customers and influencers need more clarity and visibility towards the ever-changing building material industry. And we are at Shankara work with a customer-first approach to enable that ease of business. Our tools help customers view all the stages of construction, view all the brands and all the materials per stage, plan purchases ahead and plan a complete BOQ for their home, this puts the control back in the hand with the homeowners.

Our pride themselves on product knowledge and utilize technology to share this knowledge with our customers. We hep them understand the best products for their needs. Our customer-first approach rewards customers for loyalty and offer them choices and riders unmatched in the market. This year we are launching two exclusive ultra luxury displays in Bangalore and Chennai that aim to cater to our premium customers, offering them superior brands like [Indecipherable] Duravit and other specialty products imported from Italy. Shankara is very focused on growing the non-steel business. We are working towards achieving 20% to 25% of our total volumes in this vertical in the next four to five years. Thank you.

Sukumar Srinivas — Managing Director

Now, I request our CFO, Mr. Varghese to talk about the financials.

Alex Varghese — Chief Financial Officer

Good afternoon. in Q3 FY23, our total revenue stood at INR1,210 crores, registering a a growth of 54 percentage vis-a-vis the corresponding period FY’22. Q4 FY’23 EBITDA stood at INR36 crores, which was 3.03 percentage and registered a growth of 16% compared to Q4 FY22. PAT was INR19.1 crores as against INR15.5 cores in the same quarter for the previous year. For FY23, our total revenue came at INR4,029 crores, registering a growth of 67 percentage as compared to the previous year FY’22. EBITDA was at INR125 crores, which has grown to 43 percentage and the margin came at 3.1 percentage. PAT INR63 crores as against INR34.3 crores in the previous year.

The Board of Directors have recommended final dividend of INR2.50 per share, that is 10 percentage of Shankara’s standalone PAT amount for the year ending 31st March 2023, subject to the approval of the general body. We have a considerably reduced our debt level. And at Q4 end, we are at comfortable net-debt position of INR70 crores. It FY23, our return ratios have improved. For FY 23, ROC stood at 15.03 percentage, a substantial improvement over the 10.4 percentage achievement in the previous year. We are confident of improving our return ratio in the coming year.

Thank you for your kind listening. We’ll be happy to answer any questions that you may have.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mr. Vakharia from NV Alpha Fund Management. Please go ahead.

Vakharia — NV Alpha Fund Management — Analyst

Good afternoon, gentlemen. My first question is that. In the working capital management side, we are at probably the lowest utilization of working capital over the last few years. I just wanted to understand how sustainable is this number?

Sukumar Srinivas — Managing Director

We believe it is quite sustainable. So we hope to keep it in that numbers of around 30 days overall.

Vakharia — NV Alpha Fund Management — Analyst

Okay. Second question is that essentially our revenues have ramped up with the same square feet across few states. What is the maximum revenue that we can do on the existing infrastructure of 90 retail stores?

Sukumar Srinivas — Managing Director

We believe that we can definitely add even in the current year, I’m talking about FY’24. So I think we can manage with our existing square footage, probably with a marginal increase we are planning about two to three store addition in this coming year. So with the margin increase, we can manage with the same square footage that we have.

Vakharia — NV Alpha Fund Management — Analyst

Okay. And my last question is that you if I heard it right, you said that the non-steel products sales is about INR360 crores this years. Did I hear that right?

Sukumar Srinivas — Managing Director

Correct.

Vakharia — NV Alpha Fund Management — Analyst

Okay. My question is that what is the previous in the gross margin of selling steel products versus non-steel products?

Dhananjay Mirlay Srinivas — Head, Non Steel Division

So the steel products will be in the gross margin of around 3.5% to 4%, when in non-steel it will be around 10 percentage on an average.

Vakharia — NV Alpha Fund Management — Analyst

You’re talking about EBITDA, sir, right? [Speech Overlap] Your are taking about gross margin?

Dhananjay Mirlay Srinivas — Head, Non Steel Division

Yes.

Vakharia — NV Alpha Fund Management — Analyst

Okay. And we saw fantastic growth Y-o-Y, however it’s come at a slight margin impact. So what is the base case margins that we should assume for FY’24 for our business?

Sukumar Srinivas — Managing Director

I mean, last year we did go all-out on the topline growth. We have to get out of the terrible too so to speak. So we did power our revenue growth immensely. So we had also talked about and directed around 3%, 3.5%, in fact 2.5% to 3% is our talk on EBITDA last year. This year definitely we hope that anywhere between 0,5 percentage point to 1 percentage is what we looking to see whether we can improve the EBITDA.

Vakharia — NV Alpha Fund Management — Analyst

Okay, okay, great. Thank you so much and all the very best for FY’24.

Sukumar Srinivas — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Aman Soni from Prudent Equity. Please go. Aman may I request you to unmute your line from your side and go ahead with your question please.

Aman Soni — Prudent Equity — Analyst

Hello, am I audible?

Dhananjay Mirlay Srinivas — Head, Non Steel Division

Yes, we can hear.

Aman Soni — Prudent Equity — Analyst

Yeah, so my first question would be, for the FY’23 how much savings we did with the APL partnership? Hello, sorry.

Operator

Yes, Aman, your are audible.

Sukumar Srinivas — Managing Director

Can you just repeat that question, please?

Aman Soni — Prudent Equity — Analyst

What was the revenue for FY’23 with APL Apollo Tubes?

Sukumar Srinivas — Managing Director

Apollo Tubes was around — close to around 40 plus percentage.

Aman Soni — Prudent Equity — Analyst

40 plus percentage. And in volume terms how much would that be?

Sukumar Srinivas — Managing Director

Around INR1,600 crores approximately.

Aman Soni — Prudent Equity — Analyst

No I mean, in terms of the volume of the product in metric tons.

Sukumar Srinivas — Managing Director

Sor, volume, okay. It will be in the region of close to, I’ll just tell you the number give me a moment. It’s about 4 lakh tons for the whole year.

Aman Soni — Prudent Equity — Analyst

And what are we targeting for the next year FY24?

Sukumar Srinivas — Managing Director

We are more or less looking at very similar figures as far as the APL Apollo goes.

Aman Soni — Prudent Equity — Analyst

Okay. So basically one thing is — based on the historical financials if I can see for the past two-three years your run rate was around INR2,000 crores only and for the FY ‘3 I believe this entire growth came from most probably APL only. So how is the other business doing, ex of APL Apollo? Are there any kind of growth opportunity or any new initiatives there?

Sukumar Srinivas — Managing Director

Yes, phenomenal growth opportunity are there. That’s why we’ve already held the APL Apollo more or less on the same ground. So if we are looking at ever at 25%, let’s say, a topline growth, where the APL Apollo would probably remain at the same number.

Aman Soni — Prudent Equity — Analyst

Okay. And any kind of other tie-ups similar to the APL Apollo plan in the future?

Sukumar Srinivas — Managing Director

Sorry, any other…

Aman Soni — Prudent Equity — Analyst

Any other type of similar tie-ups which we have currently with APL Apollo Tubes.

Sukumar Srinivas — Managing Director

No-no, nothing is really envisaged this year.

Aman Soni — Prudent Equity — Analyst

Okay, all right. Now my last question would be on the finance cost. So in FY’23 I believe your finance cost, your gross debt has come down quite a bit, but there hasn’t been any reduction in the finance cos. So based on, I believe your current, that is INR18cores, INR19 odd crores [Speech Overlap]

Alex Varghese — Chief Financial Officer

In FY23, overall rate of interest, there was some increase was there. That was the reason that the finance cost, even though we have reduced our total borrowings, the finance cost was almost remaining the same.

Aman Soni — Prudent Equity — Analyst

Okay, so any specific reason why it was the same and what its going to be in the next financial year?

Alex Varghese — Chief Financial Officer

Next year it should be anything between INR24 cores to INR30 crores in between. We are looking for a total topline growth of around 25 percentage. So we are projecting something between INR24 cores to INR30 crores.

Aman Soni — Prudent Equity — Analyst

So, basically for the coming year the interest cost will be around INR24 cores to INR30 crores?

Alex Varghese — Chief Financial Officer

Yes.

Aman Soni — Prudent Equity — Analyst

Okay. So what will that constitute because INR24 cores to INR30 crores interest cost is quite high on a INR90 crore debt.

Alex Varghese — Chief Financial Officer

Yeah, on INR90 crores of debt, yes there are some portion of acceptance also we are bearing the interest cost.

Aman Soni — Prudent Equity — Analyst

So what will be the other part?

Alex Varghese — Chief Financial Officer

Acceptance or channel finance.

Aman Soni — Prudent Equity — Analyst

Okay, all right. No issue. I’ll join back in the queue.

Alex Varghese — Chief Financial Officer

Yeah, thank you.

Operator

Thank you. The next question is from the line of Nikhil Chandak from JM Family Office, Please go ahead.

Nikhil Chandak — JM Family Office — Analyst

Yeah, hi. So, a couple of questions I had. One is the store count has been or the retail count has been fairly steady at around that 90, 91 outlet. So when do you finally press the expansion button and Kind of take this higher? And whenever you do it, would your focus still be South India or finally is the eventual plan to make this like a pan-India retail platform.

Sukumar Srinivas — Managing Director

Right now the focus is very much South India. We also believe, as I mentioned earlier that we do have scope to further expand in South India. So as of now for the next couple of years we’re not really looking at moving beyond our, let’s say, comfort zone. But having said that, I think the online platform that is there certainly gives a much better reach which expands towards the other geographies. So there is, as we had mentioned in the opening speech, there is a focus to try and gain greater momentum, currently of course the turnover from the online platform is not significantly high. But we really hope to promote that in a big way and look at reaching out to other centers using the online platform for the current, or maybe for the next two to three years.

Nikhil Chandak — JM Family Office — Analyst

Understood. So would would the retail count remain similar over the next couple of years?

Sukumar Srinivas — Managing Director

Plus-minus two to three. I mean, it’s not going to significantly change. Understood. But with this existing retail account, like for example, you’ve done close to 67% growth in topline I see in fiscal ’23 over ’22. So with the same retail count, I think you answered margins could be probably — will be a percent higher, but what can be the topline growth which comes in from the similar retail count? We are currently at around — when we look at the breakup of our retail and the non-retail, I think in the last year we were at broadly around fifty-fifty, broadly in our retail and the non-retail part. So I think we will probably grow another 4% to 5%, so the retail this year should be targeted close to around 55% mark.

Nikhil Chandak — JM Family Office — Analyst

Okay. And. On the online business., how do you see the competition playing out right now because what I understand is it may not be directly competing, but there are established players like off business which is there, for example, Grasim is also planning to kind of go aggressive on an online platform, the details are not yet out, but they have a similar B2B online platform. How do you see the competition in the entire online space?

Sukumar Srinivas — Managing Director

I think most of the players, there are many-many, many have come in, I mean the new startups have come, of course some of the established players like you mentioned, are either partly there and coming in. But what I find significant traction has not really happened. And if were just sort of broadly compare some of the existing e-commerce site in building material to ours, I can easily say that probably in the variety and range of products we may be amongst the best. And what we generally find as of now is the online still looks more like a catalog reference. People do a lot of reference on the online and then come offline to the stores. So most of these people are also talking of what can they do on the offline space. So I think ultimately the building material space in online plus in offline what we call as an omnichannel is what is really probably at this stage looking like a win-win combo.

So, because even if we look at the international markets and even the Western countries where the — there has not been significant growth in the building materials sector linked with the online platform. Bit Ithink it will take a little time. So, right now, I mean, too early days to comment on the competition.

Nikhil Chandak — JM Family Office — Analyst

Got it. Thank you so much. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Arpit Shah from Stallion Asset. Please go ahead.

Arpit Shah — Stallion Asset — Analyst

Hello.

Operator

Go ahead, Arpit.

Arpit Shah — Stallion Asset — Analyst

Yeah. I just wanted to understand our strategy on retail channel and enterprise. What kind of growth are we emphasizing on the three channels? And what kind of — I would say what kind of working capital requirements we have for the three channels?

Alex Varghese — Chief Financial Officer

Can you repeat the question again?

Arpit Shah — Stallion Asset — Analyst

Yeah, we have retail channel and enterprise. What is our strategy on three of the segments? How do we look to scale up these three segments. What kind of working capital requirements we have for the three segments?

Alex Varghese — Chief Financial Officer

For retail our requirement will be approximately around one month is required because that is plus inventory, around 25 to 30 day is required. Where as in channel and enterprise it will be between [Technical Issues] For retail we are looking for around 20 days and channel enterprise approximately around 40 days, which will average to around to 30 it the [Indecipherable]

Arpit Shah — Stallion Asset — Analyst

Okay if the 30 which you have reached for he first time in a very long period of time. So this is the kind of mix that you are going maintain where if 25, 25 days would be on retail and 40 days on channel.

Alex Varghese — Chief Financial Officer

Yes.

Arpit Shah — Stallion Asset — Analyst

Got it. So what would be your FY23 — what will be your volume growth number for the whole company because we are growing stupendously in FY23. So what will be your working growth?

Alex Varghese — Chief Financial Officer

It’s coming around 70 percentage with the volume growth.

Arpit Shah — Stallion Asset — Analyst

And you’re targeting 25% growth for FY’24.

Alex Varghese — Chief Financial Officer

Correct.

Arpit Shah — Stallion Asset — Analyst

Our current ROE is around 15% and our working capital is already reduced t, let’s say 30, 31 days. So what other measures you would require for us so the ROCE to move to, lets say 30% or so.

Alex Varghese — Chief Financial Officer

[Indecipherable] better margin in this financial year and regain the same number of [Indecipherable] to improve the ROCE.

Arpit Shah — Stallion Asset — Analyst

Aare you seeing any margin expansion to FY’24, let’s say [Indecipherable]

Alex Varghese — Chief Financial Officer

Sorry.

Arpit Shah — Stallion Asset — Analyst

Are you seeing any kind of margin expansion.

Alex Varghese — Chief Financial Officer

[Technical Issues]

Operator

Sorry to interrupt you, but you audio is not clear.

Sukumar Srinivas — Managing Director

Sorry, my audio?

Operator

Yes, yes, now it’s fine.

Sukumar Srinivas — Managing Director

Yeah, we are certainly looking at the margin expansion. As my colleague here said. I think the way to improve the ROCE is now currently, I mean we have at least in mind the target figure of 20, we have moved from 10 to 15. So we have a target of 20 this year. We believe that on the back of an expansion of margins is where the ROCE should start improving.

Arpit Shah — Stallion Asset — Analyst

Sure, and the warrant funding which we are supposed to receive from the APL Apollo Group, is amount which is pending or we have received everything?

Sukumar Srinivas — Managing Director

No, I mean the warrants have to be subscribed. We have time till about November for the subscription to happen.

Arpit Shah — Stallion Asset — Analyst

So, about how much — what percentage of money spending which needs to be sent to the company?

Alex Varghese — Chief Financial Officer

25% of the media spend, so 75 percentage is holding.

Arpit Shah — Stallion Asset — Analyst

Around INR70, INR80 crores. So you would use this money to retire the debt?

Sukumar Srinivas — Managing Director

Once the money comes, we will retire the debt.

Operator

Arpit, I’ll request to join the queue for a follow-up question. Thank you. The next question is from the line of Aman Agarwal from Equirus Securities. Please go ahead.

Aman Agarwal — Equirus Securities — Analyst

Yeah, thank you for the opportunity. Sir you said about the volume for the channels was around 3.4 lakh tons for FY’23, what was the number for FY22, sir.

Sukumar Srinivas — Managing Director

It was almost double you can say from the previous year.

Aman Agarwal — Equirus Securities — Analyst

Okay, okay, great. And sir, second, you said you expect similar kind of numbers for FY24, so just a couple of pointers relating to this. One, how is the traction for the newer products that they have launched in Raipur plant. How is the traction coming in for those products, and. Since this will be an addition to the existing product catalog, wouldn’t the traction take the overall number higher in FY24.

Sukumar Srinivas — Managing Director

The newer product, basically the color-coated in one of the significant addition that Apollo has made in the — towards the end-of-the last year and it will significantly increase in the coming year. Yes, looking at it, I mean when we look at the total basket of products, whether steel tube or color coated, I think broadly we’re looking at — we’re looking at this products maybe another 10% growth on the volume over there.

Aman Agarwal — Equirus Securities — Analyst

Okay. And I it’s been some six-seven months that the product launch hash occurred for them. So how is the traction coming in, in these six months.

Sukumar Srinivas — Managing Director

This is picking up quite well.

Aman Agarwal — Equirus Securities — Analyst

Okay and sir, lastly if I understand right, there is an existing market for the color coated products. So do you deal in the products of other companies too.

Sukumar Srinivas — Managing Director

We do buy, we have a significant customer APL, we do buy substantial positive from AMS, for JSW.

Aman Agarwal — Equirus Securities — Analyst

And how does the pricing compared for APL versus JSW?

Sukumar Srinivas — Managing Director

We have multiple grades in color coated. So you’ve got various kind of grade. So, JSW has a much more comprehensive range of products and Apollo has as much — as of now a slightly more negative range of product in the range, the coating, the thickness, etc. So they compare it very favorable in the comparable grade.

Aman Agarwal — Equirus Securities — Analyst

Okay, largely similar you’re saying.

Sukumar Srinivas — Managing Director

No, it will be a little cheaper.

Aman Agarwal — Equirus Securities — Analyst

And just lastly, what would be the right to win for APL in this category since there has been large names already present in this segment.

Sukumar Srinivas — Managing Director

I didn’t get. What is their categories.

Aman Agarwal — Equirus Securities — Analyst

What would be the right to win in this segment for APL.

Sukumar Srinivas — Managing Director

Right to…

Aman Agarwal — Equirus Securities — Analyst

What can take their acceptability higher since there are already big names present in color-coated segment.

Sukumar Srinivas — Managing Director

Okay. One, I think good. Apollo is focused on certain thicknesses in color coated, which not many of the other — the big manufactures really make. So that’s a product that can find a lot of new uses list. Second, I think they’ve also got a very controlled kind of a capacity in this. So it’s not like they are coming out with a humungous to compete with the other big brand. So I think they have a limited volume. They’ve got certain USP in terms of the higher thicknesses. And thirdly, the Apollo brand name is very well-established at using the tubes and a very widespread memory to smaller town, districts throughout the country. So I think the reach are much faster in terms of delivery, etc. So I think the flexibility of APL Apollo is certainly a very good USP with which they can comfortably — what you use the word the winnability for them I think could be brief.

Aman Agarwal — Equirus Securities — Analyst

Got it sir. This was really I really presumed. Thank you sir.

Operator

Thank you. Next question is from the line of Aman Soni from Prudent Equity. Please go ahead.

Aman Soni — Prudent Equity — Analyst

Yeah, so, sir you mentioned previously that you are planning to do similar or around 2.4 lakh tons of volume in FY24 as well, but you’re targeting for 30% topline growth. So will this be basically like are you planning to be high-margin, but also a little bit of [Indecipherable]

Sukumar Srinivas — Managing Director

Definitely of that 25% to 30% growth, there will be a contribution in non-steel, we want to take it further up. So if we are looking at at least another — a few percentage points over there, so that is one area where which will contribute to some growth. Second point is they’re also looking at — in the steel area where so many other products in — earlier we were just talking about color coated, we are talking about some of the other flat products, etc., which is an definitely we are looking for at higher growth. The APL Apollo broadly what I mentioned is only steel tubes. We also are expanding beyond that horizon.

Operator

Thank you. Sir, the line for the participant dropped. We’ll move onto the next question. Next question is from the line of from Shray J from Swan Investments. Please go-ahead.

Shray J — Swan Investments — Analyst

Hello. Can you hear me?

Operator

Yes, we can.

Shray J — Swan Investments — Analyst

Sir, my first question is, you just said we did about INR1,600 odd crores from APL Apollo. What was this number for FY22?

Sukumar Srinivas — Managing Director

I’ll just give you the number. We’ve done about 1,21,000 tons approximately in FY 22.

Shray J — Swan Investments — Analyst

Sir I wanted to know the value.

Sukumar Srinivas — Managing Director

Hello?

Shray J — Swan Investments — Analyst

Value. Value is about, you can say broadly about, around INR850 crores. Okay, okay. And my second question is our non-steel business has grown by about 80 odd percent from INR200 crores to INR261 crores. So I just wanted to understand what has changed in the business in the sense that because your non-steel has increased. So ideally we would we would think that your inventory should go up, but we are seeing significant improvement in your working capital. So what is actually driving this improvement in working capital, if you can just give us some granular details on that.

Sukumar Srinivas — Managing Director

Broadly — definitely we are being very very controlled on this key part of the business [Technical Issues]

Operator

Sir, sorry to interrupt you. Sir your voice is not coming clear, it’s coming muffled.

Sukumar Srinivas — Managing Director

Now is it better?

Operator

Sir, one moment. Participants please stay connected while we rejoin the management back to the corn. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected.

Sukumar Srinivas — Managing Director

Hello. Can you hear me?

Operator

Yes sir.

Sukumar Srinivas — Managing Director

Yeah. I think the — one is that non-steel would also mean a little higher inventory which is true. But what we’ve also done significantly is to keep our steel part of the inventory considerably down. I think that is where we were able to maintain the averages and bring the working capital cycle down. So of course it has been achieved over the four quarters. So it is not something that has happened overnight. We started the beginning of the year significantly higher. I think our total working capital cycle at that time of about 41 days or so, which has quarter-by-quarter I think it has come down by two-three days, still we have finally come down to about 32 days in the 4th-quarter.

So I think the steel part which also still add significantly to the — it’s still 90% of the total business. So I think even a 10-day reduction in the steel inventory has helped us bring in the averages down.

Shray J — Swan Investments — Analyst

Okay, okay. And sir just harping again on the ROCE a bit, you’re guiding for about 25%, 30% odd growth in your topline and about 1%, 1.5% improvement in your margin. And given where your working capital is right now and I assume it’s going to be the same for the next year. So don’t we see sir your numbers should be significantly better than 20% in terms of ROCE?

Sukumar Srinivas — Managing Director

I would leave you to do that working.

Shray J — Swan Investments — Analyst

I have done that, so that’s why my question, are you being little conservative on that?

Sukumar Srinivas — Managing Director

No, I think we will still be cautious in the guidance.

Shray J — Swan Investments — Analyst

Okay, sir. All right. That helps. Thank you.

Operator

Thank you. We have the line for Aman Soni reconnected. Next question is from the line of Aman Soni from Prudent Equity. Please go ahead.

Aman Soni — Prudent Equity — Analyst

Hi. So basically you know, sorry the call got disconnected. If you can just help me with my previous question that was basically on the volume growth, you mentioned that volume in the upcoming financial year is going to be pretty much similar. So where is exactly that 25% growth is going to come from?

Sukumar Srinivas — Managing Director

So we we are not just looking at one product. In the steel basket we’ve got steel tubes, we have color coated, we have flat products like HR, PRC. We have got galvanized products. We.ve got GCC. We have angle channel long. So there is a significant amount of steel products. So despite the fact that we might probably grow margin, we only with the APL and NHP tube, our target is to sort of plateau out in the steel tube area and focus more on the other products in these steel categoric. Secondly, also we are looking at, again a — we had a fairly significant growth in the non-steel part of our portfolio, which is currently in the range of 9% to 10%. We want to — as we have given a guidance that in four to five years we would like that to be about 25% of our total topline of the turnover. So I think every year we are calibrating at least a 3% to 4% growth in the non-steel part. So I think this is where the real growth and the topline growth will come from.

Aman Soni — Prudent Equity — Analyst

Okay, so that 2.4 lakh ton volume is just for the steel tubes only, not for the other combined as well.

Sukumar Srinivas — Managing Director

Yes, yes.

Aman Soni — Prudent Equity — Analyst

Okay. All right. And okay, that’s all. Thank you.

Operator

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

Deepak Poddar — Sapphire Capital — Analyst

Hello. Thank you very much sir for the opportunity. So just a clarification in terms of margins, you said about 100 to 150 basis point improvement for FY’24, right, at the EBITDA level?

Sukumar Srinivas — Managing Director

We are looking at, I mean it is 100 to 150. No, we are talking about 50 to 100.

Deepak Poddar — Sapphire Capital — Analyst

I understood that. And in terms, I mean key drivers, what would be two-three key drivers that will drive the EBITDA margin improvement? I think one of the factor you mentioned was about the non-steel business right? Any other factor that we can think of?

Sukumar Srinivas — Managing Director

Well, this is one significant area and we also hope to keep — and then the others are a little more on the internal side, that where we have to look at if we are able to increase the volume substantially and the topline substantially and we keep up sharp eye on our internal cost, etc., etc., that and also should be able to happen — able to contribute to the bottom line.

Deepak Poddar — Sapphire Capital — Analyst

Okay, understood. I understood. And then my second question is on your APL Apollo Tubes. I mean 40% of revenue is from is from that segment, right? So are we looking for more kind of diversification or to reduce the concentration risk for us?

Sukumar Srinivas — Managing Director

In Q3 yes, we are.

Deepak Poddar — Sapphire Capital — Analyst

So what is the strategy behind that and what is the thought process or what are we doing in that front?

Sukumar Srinivas — Managing Director

As I had mentioned earlier, the steel portfolio is pretty large and the most significant being steel tubes because that’s one of our legacy product. So that is an area which we have sort of not focusing too much from a growth perspective. So we would be maintaining a status quo on the top. I mean, volumes that we are trying from APL Apollo or a marginal growth will be there. The focus is also going to be on the other kind of products in steel tubes as I mentioned earlier, like color coated, could be other flat products, etc.

Deepak Poddar — Sapphire Capital — Analyst

Oka. So ideally if your volume at 2.4 lakh tons remain same and other business gross automatically, your share of this business will reduce, right?

Sukumar Srinivas — Managing Director

Correct.

Deepak Poddar — Sapphire Capital — Analyst

Okay, I understood. That’s it from my side, sir. Thank you very much and all the very best.

Sukumar Srinivas — Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Aakash Mehta from [Indecipherable] Investments. Please go-ahead.

Aakash Mehta — — Analyst

Hi sir. Thanks for the opportunity. Just one thing. As an analyst I just want to know how should one analyze the company in the over business segments because it’s; one, that we have move to a marketplace models and now your presentation states the retail and non-retail segment instead of retail channel and enterprise segments. So what would be the strategy going forward?

Sukumar Srinivas — Managing Director

We have kept because we introduced or talked about the marketplace last year and we have been since inception following this sort of a pretty basic based on retail and the other wholesale the channel and enterprise as one. So we wanted to keep it consistent for the whole year. So we did not want to break anything in the course of the last year. So we have continued with the same presentation up to Q4. So there is a consistency in the performance. In the coming year, definitely there is an internal talk going on. Among the retail part, I think still is a very significant part of the business. So we might continue somewhere in the same line, but we will give you a — maybe the presentation would change a little bit from the next quarter onwards.

Aakash Mehta — — Analyst

Okay. So next quarter onwards we should. I mean that’s the only thing I have. Thank you.

Operator

Thank you. Next question is from the line of Hiten Boricha from Sequent Investments. Please go ahead.

Hiten Boricha — Sequent Investments — Analyst

Hello, am I audible?

Sukumar Srinivas — Managing Director

Yes, you are.

Hiten Boricha — Sequent Investments — Analyst

Thank you for the opportunity, sir. So I have only a couple of questions. First one is can you give me the margin difference between steel and non-steel difference — non-steel business.

Sukumar Srinivas — Managing Director

Gross margin level, you can talk of non-steel at around 10% and the steel business will be around 4%.

Hiten Boricha — Sequent Investments — Analyst

This is the gross margin, right.

Sukumar Srinivas — Managing Director

Yes, yes.

Hiten Boricha — Sequent Investments — Analyst

Okay, okay.

Sukumar Srinivas — Managing Director

That is to simply grow up the business. In the non-steel, obviously, the EBITDA is also there will be a substantial difference.

Hiten Boricha — Sequent Investments — Analyst

Okay, okay, I understood. I thank you. And sir my second question is on the rental cost. So on slide number 8 you have given our rental cost was around INR14 per month, which has gone up INR16.8 in last four-five quarters. So would you like to give some comment on this? How it is going to pan out, is it going to sustain here or anything like that?

Sukumar Srinivas — Managing Director

Yeah, I think one thing is when you look at the INR14.1, which was. FY22, I think we have in the COVID years managed to get some concessions and discounts on the rental at that point of time. So I think that was one thing that came down. The rental prior to COVID was INR15 plus and then it came down to the INR14 figure which was this rental per square foot. So then it had started steadily going up in the next three quarters and like you mentioned, with profits still falling, I would say anywhere between around INR17 to INR17.5 it should hold one.

Hiten Boricha — Sequent Investments — Analyst

INR17 to INR17.5, Okay. And, sir, last questions sir, if may I. Any plans to add the retail stores or are we going to continue with 90 or 91 kind of number?

Sukumar Srinivas — Managing Director

I think for this current year we will be plus or minus a couple of stores, two three stores in this number.

Hiten Boricha — Sequent Investments — Analyst

Okay, okay. Thank you sir. Sir, I get back in the queue for next questions. Thank you.

Sukumar Srinivas — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Arpit Shah from Stallion Asset. Please go ahead.

Arpit Shah — Stallion Asset — Analyst

I wanted to understand the ROCE profile between steel and non-steel business. That was my number-one question. My number two question was, just wanted to understand the store economics. And let’s say then you open a store what kind of capex you require or what kind of inventory you require for these kind of stores and what kind of throughput you have on an annualized basis, that I wanted to understand for store economics. And the 3rd question was around the ROCE profile between marketplace for the inventory led model. So what are the difference between the two and why are we opting for a market-based model instead of a inventory model. And the fourth question would be around, is the promoter group ready to sell out company or open to to acquisition to Shankara to any other private-equity play or in APL Apollo Group. Anything on that sir. Those are my four questions.

Sukumar Srinivas — Managing Director

So, that’s very fast. So let me answer your last question. We are not interested in selling out any such things of that sort of an acquisition. No, we have no such plans in our mind now. So that is number-one.

Number two, I think you asked about the ROCE difference between the steel and the non-steel. Aam I right? That was your question.

Arpit Shah — Stallion Asset — Analyst

Yes.

Sukumar Srinivas — Managing Director

The steel for the year FY23 we have taken the average for steel and non-steel will be the similar lines on that 16 percentage because in future when that non-steel revenue grows, the expense will remain the same, the EBITDA percentage will go up. At that time it can become around 18% to 20 percentage for non-steel and steel will remain at around 15 to 16 percentage. On an average for the year it will be around the 16 to 17 percentage increase of our ROCE.

Aman Soni — Prudent Equity — Analyst

Our margins are typically high on the non-steel side and about 10% gross margin.

Sukumar Srinivas — Managing Director

Definitely the non-steel has got a higher margin percentage here.

Arpit Shah — Stallion Asset — Analyst

So our capital employed, let’s say, in terms of inventory, we are not that high compared to let’s say, because we would require little higher inventory, but our margins would actually…

Sukumar Srinivas — Managing Director

[Speech Overlap] high inventory, but it is not that significantly higher.

Arpit Shah — Stallion Asset — Analyst

So ROCE are going to be significantly higher for the non-steel business, right, because…

Sukumar Srinivas — Managing Director

As we start kicking kicking in the economies of scale in the non-steel, automatically you will see that the ROCE is on these non-steel will pickup. Steel also has a fairly good turnaround. So as our volumes pick-up, I mean, even if we remain status quo, I think the next one year the real play-out is going to be on improving our margins significantly, assuming all other parameters remain the same. Definitely, keeping the capital at the same level itself improve the ROCE. However, with an improvement in the margin is what we are looking where the ROCE really get added significantly.

Arpit Shah — Stallion Asset — Analyst

So, next question is store economics, if you can speak more.

Sukumar Srinivas — Managing Director

For the store economics, if you going for a lease property, capex and [Indecipherable] around INR1.5 cores to INR2 crores money is required to set up a store. for which for getting the return on [Indecipherable] around 1 crore of revenue has to happen with and margin of around 6% to 7% of [Indecipherable] within three years it will be the breakeven period.

Arpit Shah — Stallion Asset — Analyst

That is breakeven or that will be payback?

Sukumar Srinivas — Managing Director

I mean, breakeven would happen probably in about a year’s time and the ROCE or the the significant, I mean if all goes as per plan, I think in three years we can recover our costs.

Arpit Shah — Stallion Asset — Analyst

Three year is the payback period for stores.

Sukumar Srinivas — Managing Director

Its a payback period.

Arpit Shah — Stallion Asset — Analyst

And the economics of the three in marketplace was is inventory and model which you are having right now.

Sukumar Srinivas — Managing Director

Yeah, the marketplace, I think one of the key idea was that to fuse this — more of this omnichannel and the kind of — we do get a certain amount — we have this reach with about 90 odd counters. So where we do get a lot of, let’s say, smaller wholesale inquiry. We get small project order. We get a lot of mixed kind of customer base that come and approach a store. So that is why we thought that it makes a little more sense when we look at a store that can cater to the entire market rather than just looking at very focusable from the retail walk-in kind of a business. So I think that is what was broadly be expanding of taking the definition into a marketplace.

Arpit Shah — Stallion Asset — Analyst

Would you call it similar to intra-market what they are doing or a bit different some markets.

Sukumar Srinivas — Managing Director

No. I don’t know. I mean I’m not very conversant with market model. But I don’t think as of now they may have kind of retail offline stores. I mean, if there are people like intra-market, there is online, there is — earlier somebody will talking about the Grasim group coming in, there is JSW. There is quite a number of people in the space for more of a market play. So what we would still like to look at it, yes, for want of a better definition, we have moved towards the place, but I would still say that retail formats continue because that is very clear that the offline stores are very-very critical.

So if some sort of a blended — it’s still a new animal on the ground. So let’s see. I mean, as we move forward, we probably can give you a much clearer destination of the same.

Operator

Thank you. Sorry to interrupt you, Arpit Shah. Ladies and gentlemen, due to time constraints, we’ll take the last question from the line of Lakshmi Narayan from Tunga investments. Please go ahead.

Lakshmi Narayan — Tunga investments — Analyst

Yeah, thank you so much. A couple of questions. First is in terms of your store expansion and the area expansion, right, we are around 90 stores. In just wanted to understand how are you looking at in the next two to three years? And second, in terms of the number of brands that are actually getting on-board for the last year, how much of sales are actually — incremental sales have actually come from new brands that are actually, new logos which we actually added.

Sukumar Srinivas — Managing Director

Yeah, in terms of the first question, the store expansion. We are not looking as I’ve answered this question earlier, a significant expansion in terms of store growth, there would be probably a couple of stores. So I would say plus-minus kind of two-three stores will happen in the coming year. So we’re not looking at significant store expansion in the near future. Number-one.

Number two, coming to the new brands. A lot of new brands are on-boarded in the last six months. We have probably –it mostly is in the non-steel arena, where we have onboarded boarded significant number of new brand. So today I would say from the non-steel part they contribute probably to about 10% to 15% of the topline, but some of these brands are very-very significant and we see quite a rapid traction happening in the coming year.

Lakshmi Narayan — Tunga investments — Analyst

Sir, and last question in terms of your free-cash flow, right, so what do you intend, can we maintain the similar kind of cash flow for next year or how are you…

Alex Varghese — Chief Financial Officer

We still see improvement in the cash flow. We are expecting the net cash[Indecipherable]

Lakshmi Narayan — Tunga investments — Analyst

Okay, and what is your plan of cash flow you’d be reinvesting in the business, like how do you think about it.

Alex Varghese — Chief Financial Officer

The funding will be reinvested for the coming two years for the capex we will be using and rate of interest we will be using it to augment around working capital.

Lakshmi Narayan — Tunga investments — Analyst

Okay, and just the capex. What is the guidance for the coming year.

Alex Varghese — Chief Financial Officer

Around INR25 crores.

Lakshmi Narayan — Tunga investments — Analyst

Okay. Thank you so much.

Operator

Thank you. I now hand the conference over to Mr. Sukumar Srinivas for closing comments.

Sukumar Srinivas — Managing Director

Thank you, everyone, for taking time of your busy schedules in a working day and to attend the conference call today. So thank you so much. In case you have any further questions or queries, request you to either approach us or talk to our Investor Relations associate FGA. Thank you very much.

Operator

[Operator Closing Remarks]