SIRCA PAINTS INDIA LTD (NSE: SIRCA) Q2 2025 Earnings Call dated Nov. 18, 2024
Corporate Participants:
Apoorv Agarwal — Joint Managing Director
Shallu Arora — Chief Financial Officer
Analysts:
Manan Poladia — Analyst
Neekunj Parmar — Analyst
Kunal Tokas — Analyst
Samir Shah — Analyst
Bharat Gupta — Analyst
V.P. Rajesh — Analyst
Dishant Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Sirca Paints Q2 FY ’25 Earnings Call. [Operator Instructions]
I now hand the conference over to Mr. Apoorv Agarwal, Joint Managing Director from Sirca Paints. Thank you, and over to you, Mr. Agarwal.
Apoorv Agarwal — Joint Managing Director
Thank you so much. Good evening, everyone, and thank you for joining us today. With me on the call are, our Chairman cum Managing Director, Mr. Sanjay Agarwal; our CFO, Mrs. Shallu Arora; and Mr. Hira Kumar, our Company Secretary and Compliance Officer. We appreciate your continued interest in Sirca Paints.
We have had another successful quarter, marked by significant top-line growth. Our revenue from operations reached INR105.5 crores, representing a 26.2% increase year-over-year and an even more impressive 34.1% growth quarter-over-quarter. This robust performance is fueled by our strategy of focusing on high-value acrylic products, which are gaining traction in the Western and Southern region of India, beside our Northern India strong hold. This top-line growth is mirrored in our total income, which stands at INR106.34 crores for the quarter.
However, as many of you are aware, the paints and coating industry is experiencing a period of challenging and exciting times, and we haven’t been immune to some of the headwinds thrown by them. Let me address these challenges head on. Firstly, we have heightened — seen heightened competition in the general polyurethane products segment, putting downward pressure on the pricing. This has been a factor in the year-over-year decline in our EBITDA, which sits at INR18.96 crores.
Secondly, the cost of raw materials have fluctuated, impacting our profitability. This, coupled with muted demand in quarter two that let us increase dealer schemes, have put pressure on our margins. Our EBITDA margin for Q2 FY ’25 is 17.97% compared to 20%, which is our guided range. However, I want to emphasize that we are taking decisive action to address these challenges. Effective October, we implemented our strategic commensurating price increase across our entire product portfolio. Besides this, we have escalated our raw material optimization program to gain more efficiency, thereby resulting in saving in costs, which are, in turn, impacting our EBITDA positively. These measures are already showing positive results. Our EBITDA has rebounded significantly quarter-over-quarter, demonstrating a 34.7% increase from quarter one of FY ’25. Similarly, our PAT and EPS have both seen healthy 30.1% growth quarter-over-quarter. We remain confident that these strategic actions will lead to improved margins in the coming quarters.
While we navigate these short-term challenges, we are not losing the sight of the bigger picture. Sirca Paints is strategically positioned to capitalize on the immense growth opportunities in the paint and coating industry. The demand of high-quality innovative products are only going to increase, and we are ready to meet that demand.
Now, I would like to highlight some of our key strategic initiatives. Firstly, we are committed to further expanding our distribution network, which already have 2,476 nodes, excluding our OEM partners. We are continuously investing money in marketing and promotional activity to strengthen our brand visibility and connect with the customers. We are also continuously and actively looking for inorganic growth opportunities as a part of our strategy through acquisitions. A key part of our strategy is to grow our OEM business. We are proud to be preferred OEM vendor for renowned industry players. Our goal is to become a dominant force in the retail market, and we are well on our way to achieve that.
We are also excited about our recent acquisition of brand Welcome from New Wembley Products LLP. This strategic move has strengthened our product portfolio and allowed us to reach a wider customer base. Our investment in technology is another area where we are making significant strides. We recently launched an enhanced version of our Sirca Parivaar app, designed to improve customer engagement and streamline our royalty program. With over 24,750 registered contractors and 17,600 average daily product scans, the app is providing and proving to be valuable tool for building stronger relationships with our customers and influencers.
In addition, we are focusing on expanding our product portfolio to cater to a wider range of customer needs. Our recent additions include high-end wall paints and coatings, reflecting our commitment to diversification and innovation. We are also expanding our footprint beyond India. Our advanced manufacturing facility in Sonipat is now also exporting products to Nepal, Bangladesh and Sri Lanka. This is just the beginning of our global expansion plan.
Before I open the floor for questions, I want to reiterate our confidence in the long-term prospects of Sirca Paints. Our commitment to delivering high-quality innovative products, coupled with our strategic investments and proactive approach to address the challenges, position us for continuous growth and success. We believe in the power of partnership and collaboration. We value the trust you have placed in us as investors and partners. We are committed to delivering strong results and creating value for all our stakeholders, including Sirca Italy.
Now, I would like to open the floor to your questions. Thank you.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin with the question-and-answer session. [Operator Instructions]
The first question is from the line of Manan Poladia from MKP Securities. Please go ahead.
Manan Poladia
Hello. Hi, sir. Am I audible?
Operator
Yes, please proceed.
Apoorv Agarwal
Yes, sir, you are audible.
Manan Poladia
Congratulations on a good set. Sir, my first question is with respect to the new acquisition that we’ve made, Wembley. I’m assuming a part of this INR100 crores is from Wembley and some chunk must be from Oikos. If you could first call out the revenue contribution from these products separately for the current quarter?
And secondly, my other question is on margins. You also mentioned in your PPT that we are facing additional competition and some of the newer players, the non-incumbents have also entered the space as we can see. If you could just comment on whether you think that the current margins are where it’s going to be now from a long-term perspective, or this is a slight slowdown and then you’re looking to go back up to 20% or 21% margin? If you could just call that out, that would be great.
Apoorv Agarwal
Yeah. Thank you. So, see, when we talk about our revenues, so this quarter, the revenue contribution, which was coming from the new acquisition, Welcome, was about INR11 crores. So, almost INR96 crores was coming from our core PU business. Oikos is a recent launch, and it’s moving more or less on the same monthly average of about INR40 lakhs. So, only INR1.2 crores was the contribution from the Oikos, which was more or less the same. So, compared to last year, if we compare only the polyurethane and the Oikos sales from INR83 crores, we grew to almost INR96 crores, so almost about INR13 crores additional revenue was coming from our core business and INR11 crores was coming from the acquisition made under the brand Welcome.
Coming back to the margins thing, see quarter two was actually extraordinary for our industry due to this prolonged rainy season and the demand was seemed to be muted, especially in the month of August and September. So, the scheme outflow from the entire sector actually was on the aggressive mode, so was Sirca. So, our scheme cost for the month of August and September were actually on the aggressive mode. And on the other hand, there was some temporary pressure also from — in our key raw materials. So, both the situations were actually impacting our margins about — for about 2.5%, 3%. But as I told you, and as I mentioned in my words earlier that the — we have taken some corrective measures related to price increase, which happened across the sector and across the competition. So, we are quite confident that in the second half, where we are expecting better demand, with this price increase and better raw material situation, we will be able to come back to our original margin set — set of margins.
Manan Poladia
Just a follow-up on that. So, you had mentioned earlier that you were going to ramp up investments into marketing and branding expenditures. If you could just call out what percent are we currently spending in marketing and branding?
Apoorv Agarwal
See, currently, again, we are more or less on the same percentage that we did last year, which averages between 4% to 5% of our revenue. Though we plan to increase our marketing spend, talking more to the customers and the influencers, but seeing the quarter two scenario where the market condition was tough and the demand was a little on the lower side, our marketing initiatives went very well, promoting the high-end acrylic products, especially in the south and the west region, where we are still on the entry mode.
But on the other hand, in the northern part of India, where we wanted to go more aggressive speaking to customers, we were a little on the back side. And we’re putting more pressures on the south and the — where we interacted more with — directly with the influencers. So, we did a lot of architect meets contracts meet, dealer meets, spent a lot on the influencers, along with the schemes. So, more or less, we are on the same percentage, 4% to 5% of the total revenue, that’s again going in the marketing cost, but majorly B2B.
Manan Poladia
Right, sir. Understood. I’ll just get back in the queue. Thank you.
Operator
Thank you. The next question is from the line of Neekunj Parmar from Elios Investment Advisors. Please go ahead.
Neekunj Parmar
Yeah. Am I audible?
Operator
Yes, sir, please proceed.
Neekunj Parmar
Firstly, very, very congratulations for the Company for basically showing such strong results despite the muted demand and all. So, basically, my question was, like, while I was going through the quarterly report, in the cash flow — the consolidated cash flow, there is a line item which mentioned the financial assets basically, adjustment for financial assets and it shows, like, INR31 crores of entry for the last quarter basically. And so, basically, what are — what is it actually?
Apoorv Agarwal
Okay. So, Shallu, would you like to answer this question related to the financial?
Shallu Arora
This is actually a combination of other non-current asset and other financial assets that are current, and other current assets that are under current assets held and the investment. So, we have [Speech Overlap] reduced the investment. So, in March 2024, we had investments of approximately INR40 crores, now we had an investment of around INR6 crores, because we have utilized these investments on acquisition of Welcome brand.
Neekunj Parmar
[Speech Overlap] Okay. So — but why within, like, operating activity, so when they will go through the CFI basically?
Shallu Arora
Sorry?
Neekunj Parmar
Like, why is it shown in basically the operating activity? So, then they may flow through the CFI in the balance sheet?
Shallu Arora
No. It is under the investment side only. It is under the investments side as per the Schedule II of Companies Act.
Neekunj Parmar
So, basically, as I can see, it’s in the operating CFO side, so that’s my main basically concern, right?
Shallu Arora
No, that’s totally correct. If you still have any query, you can get back to me on my email ID.
Neekunj Parmar
Okay.
Shallu Arora
I’ll give you a detailed information.
Neekunj Parmar
Okay. Great. Thank you.
Operator
Thank you. The next question s from the line of Kunal Tokas from Fair Value Capital. Please go ahead. Mr. Tokas, I have unmuted your line, kindly proceed.
Kunal Tokas
Hello, am I audible?
Operator
Yes.
Kunal Tokas
Okay. Sir, my first question was, what would your market share be in the coatings side in Delhi NCR? And especially, what would the market share of Asian Paints be, now that it is becoming aggressive in this segment?
Apoorv Agarwal
See, if we talk about Delhi NCR, we operate at a strong market share of about 28%. And as we talked about, Asian Paints considering their vast distribution network and polyurethane coating becoming a mass product, if we talk about their primary sales, obviously, they have a larger market share of about 42% in Delhi NCR itself, which has grown in last couple of years. But as I told you and as we have mentioned in our last year and previous calls that Sirca operates very strongly on the secondary front, where the Company is generating strongly the sales from the ground through contractors and architects. So, practically, the Company operates on the model where we are not dumping the material at the retail network, but trying to create the demand strongly.
So, if we talk about our strategy, it’s still more on the secondary side compared to the competition, which is more of like primary and dumping more products at the dealer end. But yes, if we talk about straight away the market share in Delhi NCR, we are at 28% and Asian Paints would be about 40%.
Kunal Tokas
And what would — and has this grown very strongly recently, Asian Paints market share, or, say, in the last four years to five years?
Apoorv Agarwal
No. In last year — in last six years, they launched their similar kind of product range in year 2016, late ’17. And immediately after a year, they are more or less at the same market share, as I mentioned to you. The main reason is their vast distribution network and their primary billing, so that’s why.
Kunal Tokas
Okay. So, in the — so, they launched it in 2017, and since then, they have grown to 42%?
Apoorv Agarwal
Yeah. They have been more or less at the same market share since beginning. So, it’s not that they have grown gradually, or they are increasing their market share, yeah.
Kunal Tokas
Okay. Okay, sir. And any updates on the — on any acquisitions that you were scouting for in South India?
Apoorv Agarwal
Yes. So, still, it’s taking more time than normal at the non-binding stage. So, hopefully, within this financial year, we should be out with our second — news regarding the second acquisition, which is planned to be a brand from south.
Kunal Tokas
Okay. And we had been — you also mentioned that there was some pressure on the general PU side. Is there also some pricing pressure on the acrylic PU side? And how has been the offtake of acrylic PU, the performance?
Apoorv Agarwal
So, the acrylic PU products have performed excellent in the quarter two. And a lot of quality furniture manufacturers, including the high-quality residential side being done by architects has used and moved to acrylic polyurethane products instead of polyurethane, which are in better quality and very low on VOC. So, there, the competition is still very — at very prime, at very initial level. So, we are dominating the position and dominating the price with high margins.
And in the coming years also, for next couple of years, we don’t see very strong competition coming in and the focus of the new entrants or the key players still remains to polyurethane, which is where the numbers are increasing, but it’s becoming more at a primary and as a commodity product. Though with the expertise of Sirca Italy, we are able to compete there very strongly with our world-class manufacturing facility, which is 80% automated. And due to the muted demand or you can say, demand less than what we’re expecting in the quarter two, has aggregated and triggered this increased team outflows. But fortunately and positively for the whole sector, most of the companies have already taken the price correction and the RM situation is back to normal. So, we are seeing that even in the polyurethane, we will be able to recover those gross margins, and the second half can perform much better and contribute to the whole year EBITDA to come in our range.
Kunal Tokas
Okay, sir. That was helpful. And I’ll come back in the queue.
Apoorv Agarwal
Thank you.
Operator
Thank you. The next question is from the line of Samir Shah from Paras Investments. Please go ahead.
Samir Shah
Hi. Thanks for the opportunity. So, on last con-call, we had guided for a minimum of 40% growth for this financial year in terms of revenue and with EBITDA margins of 22%, 23%. But it seems we are not close to that. So, would you like to revise our guidance for this year, or still we can achieve this 40% growth?
Apoorv Agarwal
See — yeah, quarter two, including quarter one, which was because of the extended summers and labor problem in quarter two because of the extended monsoons, and August and September, the demand from the real estate and the home furnishing side went really down, and it was quite a muted demand in both the quarters have — had led to a lesser percentage of growth in revenues than what we expected. Though compared to the industry, we moved a little better, thanks to the new addition of the brand and thanks to the acrylic range of products, where we are still dominating the market with very less competition, which helped us to achieve the numbers, which are much — which are quite — or much better than the industry results.
But going forward, the second half, in any case, with our ground results are expected to be better in terms of the demand. The projects should open up and we are keeping our fingers crossed, that if the later chunk of the second half perform well, and with the better distribution network and acrylic products picking up, which are high value, we should be able — or we should be very close to achieve the number that we quoted in our last — in revenue calls and in last investor call. And so, we are hoping, and we are quite positive that we should reach to those numbers.
Samir Shah
And the EBITDA margins of 22%, 23% for the whole year?
Apoorv Agarwal
So, currently, we have taken a price hike, and which has been done across the sector. Along with that, we’ll have also a better condition related to the raw material. But considering our acquisition of Welcome, where the revenue — we have increased revenues at a gross margins, which are a little less than our gross margins of Sirca products. We are expecting that the EBITDA should stand — year — the whole year EBITDA should stand around or between 20% to 21%.
Samir Shah
Okay. And sir, what is our EBITDA margin on Welcome brand?
Apoorv Agarwal
EBITDA there is coming out to be about 15%.
Samir Shah
Okay. And last year, I think we had done a revenue of INR50 crores for Welcome brand, and somewhere, we were targeting close to INR100 crores for this year. And whereas this quarter, we have done only INR11 crores. So, how much — I mean, what can we expect for this year for Welcome brand?
Apoorv Agarwal
So, yes, last financial year, they did a sale of about INR48 crores, considering our full year sale, for this year, we are eyeing and — we are eyeing a revenue close to INR60 crores. So, as the markets behaved quite mutedly for the mass product range, especially as seen in the results and as seen in the area of competition as well, Welcome also faced a little tough time related because of the extended monsoons. So, the range of the product under the brand Welcome is quite complement where the demand goes down during the monsoons, where the mass polish and hand-polish product takes place.
So, that’s why the Q2, where we’re expecting anything about 14% to 15% went down by 30% according to our original expectation. But with the beginning of the second half of the year, the things are turning out to be positive. And by the year-end, we should — we plan that it should — at a year average, it should end about INR60 crores.
Samir Shah
INR60 crores?
Apoorv Agarwal
Yes.
Samir Shah
Okay. And sir, out of the total revenue for this quarter, how much is in exports?
Apoorv Agarwal
Currently, export is negligible. We are majorly exporting about INR20 lakh a month in Nepal and a single customer in Sri Lanka. Though recently, we have exported a single container also to Russia as on the trial basis, and we are waiting from Sirca Italy and the customer. The full report, as Sirca Italy quite cautious when it comes to the quality, so they want to be 100% sure with the long-term testing of the products in the other markets, which moves out to India. So, that process according to the QC structure of Sirca Italy is taking a little more time. But yes, going forward, we are expecting that our share in the export should increase also rapidly in next one year horizon.
Samir Shah
Yeah. Because I think in last call, you were too bullish on export front, and INR20 lakh a month is too less for you.
Apoorv Agarwal
The INR20 lakh is only Nepal. And the same, more or less INR20 lakh is happening in Sri Lanka, only one customer, though the bigger chunk of export that I mentioned in the last call had to come from UAE and other nations where we are entering into through Sirca Italy, but the first container — the sample consignments with Estonia and one full container to Russia happened a couple of months ago. But yes, the real numbers are yet to come, as I told you that Sirca would take a little more time evaluating the products going out from India to their distributors in Russia, Estonia and other South Asia Pacific regions. And once they are done with the long-term testing of the product, yeah, then the outflow should increase.
Samir Shah
Okay. And sir, my final question, in terms of decorative segment, how much we can expect for this year in terms of revenue?
Apoorv Agarwal
The decorative, we are not eyeing more than about INR36 crores, INR37 crores revenue. So, last year was about INR25 crores, INR26 crores. This year, INR35 crores, INR36 crores. The main focus of the Company remains on the wood coating product. The decorative range of products and high margin range of products from Oikos, especially Oikos, are growing, but the rest of the economical decorative segment, which is an area which is getting very competitive. The Company is using these products as the strategic catalyst and tool to enter the newer territories in south and to enter the newer dealer network in northern part of India, and sell finally our wood coating product.
Samir Shah
Okay. So, what is the reason we are reducing our target for decorative segment? Because if I’m not wrong, last call, you mentioned from INR24 crores, we are eyeing around INR60 crores for this year in the decorative segment?
Apoorv Agarwal
See, quarter — as we have seen in the first half of the financial year, the decorative segment, especially after the arrival of the new players, the new entrants have actually — the market scenario has changed, and in quarter two, the — especially the margins in the decorative segment have seen a massive downfall of about 30% to 40% even in the products like OBD where the realization is just INR30 a kg or liter. So, considering that, the Company is focusing more on the higher margin of products to push Oikos and using the economical regions of decorative, which was INR24 crores this — about INR24 crores last year and this year, expecting to be INR36 crores, only where it requires to enter in the — to enter the market where you need range of wall paints to sell your wood coating products.
But considering our whole year, we are expecting a decent jump from the acrylic and ranges of products, which is moving much, much better, and much better in the — in terms of number than what we expected at the initial year. So, this high price war and reduced margins at the mass decorative level of the products are — we are more keen towards using it more as tools.
Samir Shah
Okay. Thanks, Apoorv, for your detailed explanation. That’s it from my side. All the best for your future quarters.
Apoorv Agarwal
Thank you.
Operator
Thank you. [Operator Instructions]
The next question is from the line of Bharat Gupta from Fair Value Capital. Please go ahead.
Bharat Gupta
Hi, Apoorv. I hope I’m audible. I have a couple of questions. So, first, like in terms of getting out the distribution license from the parent company for the UAE market. So, I hope — you mentioned in the previous calls and also in your remarks that it is taking a bit amount of time. But any timelines, which has been communicated to us? And what can be an estimated market size if I look about with respect to both Russia and with respect to UAE?
Apoorv Agarwal
So, yes, as I mentioned that in the beginning of the quarter to the products moved out to a couple of locations in Russia, Estonia and UAE, even Russia a full container as a trial basis. So, as to a certain range of countries, this was our first export, it took a little more time to get approvals as being a flammable product, which was a one-time job.
And then, as per Sirca Italy norms, the — they would not bypass the process of long-term testing, means the product being used at a different area is being tested for a longer term seeing that if there is no product complaints or product issues related to cracking or drying in the longer term once the material is applied even after six months, there is no problem. So, their tax related to the long-term QC is at least six months where the product is exposed to the nature to where Russia the temperature is going very down, UAE going much high. So, they would do a long-term testing of at least six months. So, we are expecting by the year-end, we should be able to get much more clarity from Sirca about their long-term testing of the products exported from the Indian facility to their old distributors in these South Asia Pacific countries.
The revenue generation, which can happen, especially from Russia and the Asia Pacific is estimated to be about — conservatively about EUR20 million, which was actually the sale of Sirca there about three, four years ago when the market was quite aggressive buying from Europe, which lately had turned out to be difficult. But yes, EUR20 million is at least that — that can start from two to three nations that I’m talking about.
Bharat Gupta
So, for us, it will be somewhere close to $5 million [Phonetic] with respect to Russia?
Apoorv Agarwal
EUR20 million is — I am talking about three, four countries, so, UAE, Estonia, Russia, where Russia plays the most important role because of the global situation. Sirca was able to sell through Belarus earlier, but now, the situation is worse. So, yes, EUR20 million is about $23 million.
Bharat Gupta
Right. So, that will be a target market size for us with respect to the…
Apoorv Agarwal
To start, yes. To start with.
Bharat Gupta
Okay. In regarded, like, what kind of a capex are we planning? Like, I know that clarity is missing. But in terms of like — what kind of capex would be required for reaching out to these kind of revenue numbers?
Apoorv Agarwal
See, currently, our facility is working at about a 60% capacity utilization once the products, which were earlier being imported now being manufactured here, has ramped up. And by the end of year, we are expecting it to reach about 75%. So, still in single shifts, we can use currently initially — immediately, the facility to cater to the export needs also. But going forward, we are a company, once get a full nod for the export would be setting up a facility in Gujarat, Dahej, with a capex of about INR20 crores to INR25 crores-odd.
Bharat Gupta
Correct. So, secondly, coming on to the domestic space, so NCR, in particularly Delhi, which has been witnessing pollution issues with GRAP-4 being implemented. So, there has been a ban on the construction activity. So, in your, like, assessment, how do you read the second half for us? And what steps are we trying in order to diversify our reach?
Apoorv Agarwal
So, yes, unfortunately, the climatic conditions had forced the government to implement the GRAP-4, which has put a ban on the construction activity. So, the quarter three, obviously, is planned to be impacted and the Company is strongly working on the new OEM clientele and the clients in western south retail to cover up the loss of revenues, which will happen from our main region Delhi NCR, though in the beginning of the quarter, we expected the ban to be for shorter duration. But unfortunately, it’s just picked up, and we’re expecting another 15, 20 days in the quarter three to be under the ban. But the same loss of revenue, the Company is strongly trying to cover up from the newer segment of the OEM, where the work will continue to happen and from the enhanced south and west retail network.
And especially, we are anticipating a much better Q4, which will — we should cover up for the quarter three. So, the second half in total should come back to our expectations of the percentage of the revenue growth and should also cover up for our margins.
Bharat Gupta
Because I think with respect to 40% kind of a run rent, I think it will be a steep increase, if I look at the H2 numbers, so we need to do more than INR250 crores of revenue overall. And with respect to OEMs also, the margin profile, how it varies between the B2C side versus the OEM side?
Apoorv Agarwal
See, the final margins that Company gets is more or less the same from OEM and retail network. In the OEM, we have the final product price to the customer. But through the retailer, we have prices after which we have a lot of aggressive contractors and architects and dealer schemes. So, the final price or the final realization to the Company contributes same margin made through from OEM or the retail dealer.
Bharat Gupta
Right. And you mentioned that there has been a good amount of hikes which have been taken in the month of October. So, can you just quantify a bit? And also, like, what kind of pricing hike has been taken by the industry overall?
Apoorv Agarwal
So, if we talk about the wood coating, wood — the wood coating side, the coating side, not the decorative side, the average increase in the market has been about 5% to 7%, especially if we talk about the giant companies. Our price increase and average increase has been about 3.5%.
Bharat Gupta
Right. And that is across OEM side as well?
Apoorv Agarwal
So, there has been immunity to certain key customers where we have a year deal of targets. But besides that, it has been — that has been done for our all-customer base.
Bharat Gupta
Right. Also, in regard to the working capital. So, I think inventory has jumped up a bit during the quarter. I know it’s been a muted one. But overall, how do you look at the working capital scenario, particularly since we are manufacturing it in-house? So, where do you see? Because previously, with respect to the value added and with respect to PU, it was getting out imported, and there was a lot of inventory which was booked. So, currently, how the scenario has changed for us?
Apoorv Agarwal
So, the final — the whole correction will take another four months. In another four months, we will be at much, much, much better — at a much better place related to the stock position, inventory position. And the local production started in late April in full swing after the final nod of Sirca Italy related to quality. And during that time, the local production also began, and we started to liquidate the rest of the inventories that we had from Italy. So, slowly and steadily, the step happened.
In the beginning of Q2, our revenue projections were much higher than what happened, especially when the demand got down in August and September, but our planning related to RM and FG were a little on the higher side. So, that has actually resulted in increased inventories, which shows on the paper currently. But in next four months, we will be in a much better position, because, again, the top 10 products will be here and the whole imported stock will be out, where we will be working at a 30 days inventory. And yes, it should get better. And currently, the import side, we expected the situation to get much better, but, again, due to the problem at sea level at Red Sea because of the Iran-Israel thing, again, the time of getting the high-value products, which we are still importing from Italy has again increased from two months to three months. So, another increase of 30 days. So, the import products have to be kept again a little more considering this disturbance, which are not ending.
So — but besides this, considering the increased import time, but reduction in the products that have been manufactured here, we should be at a better — much better position in next four months. So, four months, it will take to show a complete effect.
Bharat Gupta
Right. And you mentioned, like, overall, the sales for the wood panel has remained at near about INR90 crores-odd. So, just a bifurcation of it, how much would have come in from the acrylic in the water soluble PU side and how much would have been coming from the commodity side?
Apoorv Agarwal
So, more or less INR95 crores was our core wood coatings sales. Out of it, 60% was contributed again by the primary polyurethane products, the clear and the white, where we have seen marked competition among the base coats, especially the base coat, but the margin side in the color segmented products, which are used on the wardrobe and the kitchen, saw a decent margin also and also the sales number was quite high. And the rest 40% were the acrylic and waterborne, which was about 25% contribution last year as we talk about in H1, this year was about 40% in terms of value.
Bharat Gupta
And, like, primary one, so with the entry of Birla also coming in focus, Asian Paints getting more aggressive. So, have we seen any kind of erosion in our market share in this particular domain?
Apoorv Agarwal
See, in this particular domain, we have not seen a conversion of our brand happening to the new entrants or the AP. But currently, the focus of — and the major competition remains at the decorative side, whereas our focus and our main contribution is wood coating side. So, fortunately, from a year or two years now, we see more competition or competition getting more aggressive at the decorative level where the smaller players are facing more heat. But when it comes to a wood coating product, which is a specialized product, where, along with PU, you have acrylic, waterborne and a huge range of products. Still, we are much more confident and much more optimistic and positive that we should be able to secure our market share and increase with the better market conditions.
Bharat Gupta
All right. Apoorv, within — just a last question from my side. So, when we talk about the inorganic acquisition, so will it remain towards the wood coating side, or it can be a different segment, though, in the paint industry, but it will be a different segment, which we are targeting?
Apoorv Agarwal
So, no, it will be in the coatings side. Currently, Sirca is focusing on the coatings, which is related to wood. Now, along with the wood, in the furniture industry, kitchen industry, wardrobe industry, metal is also becoming an integral part of the furniture, where the use of metals, which was confined to only the legs of chair, now is increasing in the other furniture products and wardrobe and kitchen products also. So, we are possibly eyeing an acquisition where the expertise — product expertise is towards the metal side.
Bharat Gupta
All right. And any like kind of — you can say, any kind of a budgeting which we have done with respect to the acquisitions, like how much — what kind of a capex or money flow we’ll be spending over there?
Apoorv Agarwal
See, we are for sure eyeing some price and price effective acquisitions where we get a decent ROI. But yeah, we are capping our acquisition in the range of about INR100 crores, not more than that.
Bharat Gupta
That’s it from my side. Thanks, Apoorv, for answering all the questions.
Apoorv Agarwal
Thank you.
Operator
Thank you, sir. We’ll take the next question from the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead.
V.P. Rajesh
Hi. Thanks for the opportunity. Just two questions. One was regarding the competitive landscape. You mentioned Asian Paints. Can you also talk about the other players who are perhaps larger than we are and what are their market shares? And what kind of competitive intensity you’re facing, given what’s going on in the decorative side?
Apoorv Agarwal
So, other players, currently — our immediate competitors stand ICA Pidilite, which will be 20% more in terms of revenue. Besides this, other key players, the wood coating business, especially the high-quality wood coating business is still less than us. So, their interest and their focus in this area is increasing, but still, we are considered to be the third largest player when it comes to the pure, high-quality wood coatings, which is the 2:1 PU.
The competitive space is getting more — the space — the total paint space is getting competitive day by day, but the competition is — seems much more aggressive in the wall side, decorative side, though fortunately for us, the current focus is more wall with the new entrant. But at the end of the day, it will happen at the polyurethane coating side also. But fortunately for us, with the support of our parent company, Sirca Italy, the company has changed gears and increased our activity and promotion of acrylic ranges of products where the average realization is double than PU. So, with the half quantity, we do a double — half quantity, we do a same revenue of polyurethane, which is gaining traction in the market — in the high-quality market besides this.
In the PU side, with the expertise of Sirca using the historical formulations being present in the wood coating and this polyurethane area since 1973, we are using their expertise to manage quite effectively our COGS considering — so that we can cater to the pricing war, it still has to happen. So, we consider ourselves quite competitive to that space also, maintaining our gross margins with our new Indian facility. So, when it comes to wood coating, we are 100% sure that we will be able to cater to the increasing competition, which is still more towards the decorative side where we contribute only a 3% of our total revenue. But on the wood coating side, we still believe we have a stronger opportunity to grow where we will be able to save our market share and also grow much better when the market conditions improve.
V.P. Rajesh
Understood. Thank you. And my other question was, why would the parent company not directly export to Australia or Middle East, given the logistics costs involved? So, it’s like, I would think that the cost will be higher from sending products from India to Estonia, for example?
Apoorv Agarwal
See, even after considering the logistics cost to Estonia, the cost of production is — the final cost of the product is seeing a big time difference, a lot of key raw material suppliers like Covestro, SAPICI, BYK are now setting up the facilities and making India as a hub for Asia Pacific, where the cost of goods produced in India is seeing a very strong downside and Estonia is moving towards exports from Turkey or maybe other countries near UAE.
So, considering the total fact, even after a higher cost of freight from India to Estonia compared to Italy to Estonia, we are finding out — we are finally coming out to be much more competitive.
V.P. Rajesh
Got it. Thank you, and all the best.
Operator
Thank you. The next question is from the line of Dishant Jain from Quasar Capital. Please go ahead.
Dishant Jain
Yeah. Thanks for the opportunity. I just wanted to get a clarification on the capex amount. So, sir, you’ve spent around INR22 crores in the first half of the financial year, which is more than the last year whole combined. So, can you just help us in understanding where we have spent on the new plant or some new product, can you just help us?
Apoorv Agarwal
Sorry, I skipped a couple of words. So, can you repeat the question? You need the clarity on what side?
Dishant Jain
So, what’s — like, are we spending on — like, are we doing the capex for the new products or for the new plants, because we have spent around INR22 crores in this financial year, six months, which is more than what we have spent in the last full year?
Apoorv Agarwal
No, that is spent for the acquisition of the brand, Welcome.
Dishant Jain
Okay.
Apoorv Agarwal
Yes. We have not done any other new capex as of now. Once after the positive note from Sirca Italy, we will be doing a new capex of about INR20 crores-odd in the Gujarat to set up a new facility to produce another 16,000 tons a year, which can generate a revenue of economic polyurethane products of about INR400 crores. But besides this, we have not done any capex, except the acquisition of the brand Welcome that we did at a very attractive valuation.
Dishant Jain
Okay. Thanks for the clarification.
Apoorv Agarwal
Thank you.
Operator
Thank you. The next question is from the line of Manan Poladia from MKP Securities. Please go ahead.
Manan Poladia
Hello, am I audible, sir?
Operator
Yes, sir, please proceed.
Manan Poladia
Yeah. Sir, I have just one question. If within the INR96 crores, you could call out, what chunk of that is acrylic to you and what chunk of that is regular economic to you? I think that would be great. That’s all I want to ask.
Apoorv Agarwal
See, out of INR96 crores, the contribution from the regular polyurethane products, clear and pigmented, especially where the pigmented side saw a real jump, was about 60% and the 40% was coming from the acrylic range of products. Unfortunately, considering that acrylic is coming from Italy and the timeline has increased, we also saw some products getting out of stock. But yes, the current contribution percentage was about 60-40.
Manan Poladia
Okay. And could you call out the margin differential between the two of these?
Apoorv Agarwal
So, gross margins of acrylic products, finally, the net margins that Company get is about 10% — 10% to 12% more than polyurethane. Though, in the quarter two, the polyurethane sales much better scheme, so acrylic was running at the prices level, the polyurethane was running at a discount of about — additional INR30, INR40 per liter. But if we talk about in the current scenario, yes, there is a better gross margin of about 10% to 12% in the acrylic product.
Manan Poladia
Right. Understood, sir. Thank you.
Operator
Thank you. The next question is from the line of Samir Shah from Paras Investments. Please go ahead.
Samir Shah
Hi. Thanks for allowing me a follow-up. Sir, to one of the previous participants, I think you mentioned EUR20 million is what we can do in exports in next two, three years? I’m sorry, I didn’t understand.
Apoorv Agarwal
Yeah. To start with, about EUR20 million sales is what we see at the beginning level.
Samir Shah
And, I mean, in what, in next two, three years?
Apoorv Agarwal
Yeah. If — so, if we get the nod Sirca Italy, in — yes, in less than a couple of years.
Samir Shah
Okay. Because that comes to around INR160 crores. So, that’s a significant jump in…
Apoorv Agarwal
Sirca Italy has — alone for them, Russia was a market of about EUR9 million. UAE was a market of EUR6 million. Another EUR3 million was coming from Saudi and North GCC states like Qatar, EUR3 million, EUR4 million was coming from Estonia. So, altogether, five, six states were contributing about EUR32 million. To begin with, where Sirca is not able to meet the customer demand of pricing and logistics because of the global unrest, EUR20 million is what we see immediate to happen, subject to approval of the products that have moved out from here — in their long-term testing.
Samir Shah
But then, do we have the capacity right now to have this much of sales?
Apoorv Agarwal
As I mentioned that our current capacity of 16,000 tons a year is running at about 50%, 55%, which is expected to be — to reach that 70%, 75% for Indian demand usage by the end of the year in single shift. The plant still can run at 1.5 shift, not more than that. And to begin with, till the new facility is completely set up, it will take about 8 months to 10 months from the day we start putting up the projects. The current facility should be able to meet the demand of the export for at least 10 months till the new facility is on the — on its feet.
Samir Shah
Okay. And sir, almost two months for this quarter is already passed. And as you said, we had around 15 days of loss of revenue due to ban in North. So, do you see Q3 similar to Q2, or do we see a degrowth in Q3?
Apoorv Agarwal
See, historically, always Q3 has been a little down compared to Q2 and Q4 has been more or less the same or better than Q2. So, considering the fact that we have taken certain measures where we will be able to take care of the revenue loss because of the ban, which is set to happen in the next few days from the other clientele being added, especially at the OEM level and the south level. But overall, as we talk about the — considering the historical data and how the market is, the Q3 revenues are a little lower than Q2 always.
Samir Shah
Okay. And sir, my final question. You just mentioned we can — we have a capex of INR20 crores to INR25 crores for the new capacity. And in that, the peak revenue, we can go up to about INR400 crores in that capacity?
Apoorv Agarwal
Yes. With INR20 crores to INR25 crores capex, we will be generating a similar kind of the capacity, about 16,000 tons a year. And with the focus to sell only the economical ranges of polyurethane product, we should be able to generate a revenue of about INR380 crores to INR400 crores.
Samir Shah
Okay. That’s it from my side. Thank you.
Apoorv Agarwal
Thank you.
Operator
Thank you. The next question is from the line of Kunal Tokas from Fair Value Capital. Please go ahead. Mr. Tokas, please proceed with your question.
Kunal Tokas
Am I audible?
Operator
Yes.
Kunal Tokas
Okay. I just wanted to confirm two things. First is what sort of products will you be exporting? I assume it is not acrylic, PU, but the normal economical PU.
Apoorv Agarwal
Yes, it will be the economical PU, which is becoming a mass commodity product.
Kunal Tokas
And so, it is for this product that you will be setting up the Gujarat facility?
Apoorv Agarwal
Yes.
Kunal Tokas
And the last thing I wanted to confirm was that Sirca India has been chosen to export because no other vendors in nearby region could meet that demand, and because after all cost considerations, you were still most competitive?
Apoorv Agarwal
Yes, because considering the cost of production we have in India, considering the newer chemical players from Germany and Italy are choosing India as a hub for their manufacturing facility, has initiated this path in whole Europe of making India as a hub because of the different advantages related to final reduction in the cost of production and compete with countries like Turkey and UAE, which are becoming — or China, which are becoming very aggressive in the manufacturing. So, that is why they have chosen India for their future growth.
Kunal Tokas
Okay. Thank you very much, and have a good day.
Apoorv Agarwal
Thank you.
Operator
Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mr. Apoorv Agarwal for closing comments. Over to you, sir.
Apoorv Agarwal
Thank you. So, once again, I would like to thank you each and every one of you for joining this call today. And again, I would like to mention that we value the trust you have placed in us as investors and partners. And I would like to comment again that we are committed to deliver strong results going forward and create high value for all our stakeholders. So, thank you.
Operator
[Operator Closing Remarks]