Somany Ceramics Limited (SOMANYCERA) Q2 FY23 Earnings Concall Transcript

Somany Ceramics Limited (NSE:SOMANYCERA) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

Navin Agrawal — Head Institutional Equities

Abhishek Somany — Managing Director & Chief Executive Officer

Kumar Sunit — Senior Manager-Finance

Analysts:

Achal Lohade — JM Financial — Analyst

Sneha Talreja — Edelweiss — Analyst

Ashar — Praj Financial — Analyst

Pranav Mehta — Equirus Securities — Analyst

Rajesh Kumar Ravi — HDFC Securities — Analyst

Karan Bhatelia — AMSEC — Analyst

Manish Mahawar — anti Stock Broking — Analyst

Sinan Mittal — RatnaTraya Capital — Analyst

Akara — Praj Financial — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen. Welcome to the Somany Ceramics Limited Q2 FY ’20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Navin Agrawal, Head Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.

Navin Agrawal — Head Institutional Equities

Good evening, ladies and gentlemen. It’s my pleasure to welcome you to this financial results conference call on behalf of Somany Ceramics and SKP Securities. We have with us Mr. Abhishek Somany, Managing Director; along with Mr. Kumar Sunit, AGM Finance. We will have the opening remarks from Mr. Somani, followed by a Q&A session. Thank you, and over to you, Abhishek.

Abhishek Somany — Managing Director & Chief Executive Officer

Good evening, ladies and gentlemen. Welcome to the earnings call. I think in the list, we also have our CFO, Mr. Sailesh Karaba, online with us today. To begin with, just to give you an industry outlook. The last quarter has been very volatile in all fronts. We’ve had a muted market demand so resulted in a flattish growth, in fact, slightly negative. This was due to various reasons, specifically because of the supply chain disruption in Morbi. We had a one-month outage. We were not participating in that, but there was a huge issue with the truckers as there was hardly any material going in, so no trucks were available. So we had a good 15, 20 days of disruption in terms of volume because of that. We also had various other market pressure in terms of rain, etc.

But those are normally generally there. So nothing speaks specific. But otherwise, on a general front, there’s been a muted demand from the market. One can’t point a finger as to why. Geographically, I think North Southeast, West, all of them have been impacted. — we’re being the strongest in north as far as our volume is concerned, obviously, it was felt a little less there. But otherwise, the disruption was everywhere. It was also coupled with a clear slowdown, which we are seeing in terms of interest costs rising because of that, the real estate segment is going to get impacted. And I think that is all inflationary with the interest rates rising abroad and in India. That is going to keep being heavy on us for the next couple of quarters, maybe six to nine months or who knows more.

The green shoots, of course, there were some very, very positive green shoots this quarter, which we will see the positive signs of that coming in the next following quarters and the year. that was that there were three things which happened. Freight rates have gone very, very low compared to what it was last year, which is the export freight rate, the ocean freight rate. Coupled with that, we’ve had a huge antidumping duty slapped by Europe on Turkey. And coupled with that, we’ve had huge inflationary pressures of gas costs icing way beyond what it rose in India, in Europe. So all of these three things is opening up Europe as a huge potential for Morbi players and this time also maybe for the organized players because a lot of the Turkish companies and the European portraders are wanting to come and buy from India. And India has virtually no antidumping duty. We were expecting a higher antidumping duty, but we then managed to get it at 7% only, which is negligible. That has been clearly offsetted by the freight costs going down.

This is the industry scenario. Morbi still is not completely back about 100, 150 players are still shut. They’ll probably start opening slowly now. Gas has not gone up. In fact, there’s been a little bit of a rebate in gas in Morbi. Otherwise, gas costs overall has gone up in the last quarter. So even they are seeing pressure on volume, but they’re seeing a good amount of uptick in exports. And what we said initially, the export should grow to about INR17,000, INR8,000 from 1,000, 1,500 from last year. Now coming to our numbers. Our numbers, as you can see, there’s really no point looking at the H1 numbers because last year, Q1 was muted because of the pandemic. So let’s look at the Q2 numbers. We’ve had a 9.3% growth as far as sales is concerned. And we’ve had a flattish growth, flattish quarter as far as volume is concerned. — has been hit.

The maximum pressure on that has been basically on the power and fuel. That’s the single biggest item, which has hit us. We’ve not had any price increases ever since the beginning of the year. So that has clearly affected the margins. And because volumes didn’t go up, that further affected the margin. In fact, we ran our plants at 100%. Looking at the opportunity where Morbi was shut, we should be able to push more materials. That also did not happen in the same robustness as we thought it could be. As a result, if you could see a lot of our cash has been moved to inventory. So our inventory has gone up from 34, 35 days to 45 odd days, give or take a city today. EBITDA, as you can see, is being hit as a result of the low volume and also in terms of gas. The positives are that we’ve been able to move a lot of our units to LPG, alternate fuel. So in the quarter, one by one, we moved from one unit to 50% of the units now on LPG and it’s still work in progress.

By the end of November, we would have approximately 60%, 62% of our units on LPG, which will definitely check the gas cost and LPG is significantly cheaper today than natural gas. To give you a flavor and preempting a question, the overall gas price in Q2 was up by INR5 from last quarter and more than — almost 100% from last year’s same quarter. Current prices, of course, have come down by a couple of rupees because of what the more gas rates have gone down, the BPCL GSPC have gone down. Next quarter, we will see further reduction because oil has also come off and our LPG also should give us benefit. So our northern gas price was about 65%, Morbiwas also 65% and South was 75%. Currently, that’s come off, and it’s currently overing around the INR60, INR62 figure, which we believe should go down further during the course of this quarter. Sales have also — in October, we had a muted October that was expected because of Diwali, Dasara and various other festivals, which all sell in one month. So that was again expected.

Coupled with the low growth in which way, the low demand any which ways, so October was also muted October, but like I said, it was expected. So hoping for a better November and December in terms of sales, and also in terms of gas pricing, although that would really show full results in the last quarter. We have been managed to secure some quantities, what we talked about last quarter in the South, which current quantities, we have been able to tie up about 1.5 square meters per month in the south and the same amount of quantity in the north. So going more geographically. And that’s for rational, which we discussed last time about why we divested in one of the Amora plants is because we wanted to go more regional. So that quantity has gone more regional, although it’s an incremental quantity. The ceramic and the GBT is pulling away from PBT. PBT is down from last year’s same quarter, 34% to 28%, whereas GBT is up from 28% to 33%, and ceramic is also gained by 1% from 3% to Sanitaryware baiting, like I said, the entire market was muted.

The Sinatra basketing has also shown only a growth of 3% over the quarter over last year same quarter Y-o-Y. So we’ve had 2% growth in Senate and about 5% growth in basket. But this sector is looking good, and we — our expanded capacity of bad fitting is already with us. I had mentioned that it will start in October. So that’s already started. So that should start giving results this quarter and also last quarter. The average capacity utilization for tiles has been about 88% in last quarter, 45% in Santa anywhere generally quarter two is muted because one line shuts because it rains every year, it’s the same thing. Foshan moved our brand spend has remained at approximately 2% of revenue. It should be at the similar level. In fact, from today onwards, we have a huge campaign breaking out on TV, and you will see a lot more of us even there. Otherwise, the 360 campaign has been flagged off from the end of last quarter.

Our net dealer addition for H1, not this I can talk of H1 because it’s not financial. That has been approximately 150 dealers, which have been net added. As I mentioned, price increases, we did not take anything more than what we took in June, early July, about 2%, 2.5%, which was again up till June after that last quarter, we have not taken any price increases. Forward statements, we still don’t have any guidance on margin, like I mentioned, because it’s still extremely volatile as far as gas pricing and demand is concerned, but we definitely can say that the grade prices have come under check, and we should see a softening as price regime for the next six months at least. Sales growth, we’re still confident that we should be doing high double-digit growth between 15% and 20% in the high teens. So that is still on card, and we are looking forward to a better five months because these five months are clean, five months without too many holidays, etc, which disturbed a lot of the H1.

So this is my overall brief on the Q2, and I would open the floor to Q&A, please. Thank you so much.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Achal Lohade from JM Financial.

Achal Lohade — JM Financial — Analyst

My question was with respect to the supply side, a, has there been any impact of Morbi took a shutdown of one month in terms of the supply from are eventually did it really lead to any price hike by the multiplayers or not at all?

Abhishek Somany — Managing Director & Chief Executive Officer

The outage which they take took was to not get any price hikes, but they were wanting to create more demand in the market and also to check any further reduction. So obviously, that has paid off from the point of view of no further reduction has taken place in prices since August, but they never did it for any price hikes. And as far as supply is concerned, all our joint ventures and all our partners, which are the partners from where we buy have all started their production, our outsourcing part I’m sorry.

Achal Lohade — JM Financial — Analyst

Okay. So the JV plants were working, but the Vanilla…

Abhishek Somany — Managing Director & Chief Executive Officer

So the JV plants also, like I mentioned, we were not part of the outage of the JV pants also were working till about 15th to 20th of August. But after that, we had to take certain parking over there or shutdown there for the last 10 days because the vehicles were just not available for transportation. So I think they are twisted the truckers there to not give us material. So although we did dispatch so good weekend days, we also had certain inclusive production. But that was more purely because there was just too much pile-up of stock because the supplies are very little from Morbi due to truckers being not available.

Achal Lohade — JM Financial — Analyst

So if I think through given we will have inventories across our warehouses, branches, etc, this supply from or units to these warehouses, shouldn’t really have any impact on the sales volume for this quarter, right? I mean I can imagine that they will be in are of that…

Abhishek Somany — Managing Director & Chief Executive Officer

We have not material. We have enough material. you’re asking I guess that’s what you’re asking. Do we have enough material.

Achal Lohade — JM Financial — Analyst

Yes. I mean what I was saying, you gave one of the reasons for the weak volumes was the supply chain issues from RB in terms of truck or survival.

Abhishek Somany — Managing Director & Chief Executive Officer

Not only because of August, we wouldn’t have been — we probably would have had a couple of percent of growth. But otherwise, if the demand was muted. So that problem, we will not have, but the demand is still muted. So that 10, 15 days of outage was there for everybody.

Achal Lohade — JM Financial — Analyst

Understood. And Abhishek, just one more question on the demand side. If you look at the real estate launches by the leading developers, they seem to be doing extremely well. So what I’m trying to assess is that where is this weakness suddenly coming from? Is that just the interest rate? Is there something else which is pulling the demand weakness? And how is it going to change in next month, two or whatever?

Abhishek Somany — Managing Director & Chief Executive Officer

As, I can’t put a finger as to how where it is coming. All I can say is that — at the end of the day, the real estate doing well is a great sign for us. But then we start getting utilized for new production, new applications only a year, 1.5 years, two years after the new launches. So — and anyway, we are not very affected with the real estate directly because we’re not — our revenue does not go too much into real estate, but I was talking more from an industry perspective also where Morbi is very, very exposed on the real estate. So clearly, they’re seeing a slowdown over there because new launches and people are waiting to start building or waiting to start renovating is where we are seeing a slowdown. And as far as real estate is concerned, with steel cement, all of that very up, there is a little bit of a delayed supply which they want.

So they are more by seeing a slowdown. So overall, there is a clearly a slowdown. But really, I can’t put a finger as to why I can keep making analogies and keep making excuses that it was the rain or it was this or that, but that happens every year. There’s no big deal. Clearly, Morbi outage was something which did affect everybody, but that was also, frankly speaking, kind of welcome if it becomes a yearly feature. All of us can then follow suit and shut down plants for maybe 15, 20 days and take our routine maintenance then rather than taking ad hoc maintenance. This time, we were caught of that because the truckers were also not. So overall commentary is that clearly, in the building materials sector, if you see other people’s results also, not ties, but others, there has been a muted volume demand across the board.

Achal Lohade — JM Financial — Analyst

Right. And one more question with respect to the LPG. You have given a mix. But if you could talk about the — why not propane? Is there any issues in operating propane in terms of the quality impact on the time, etc, and the cost for LPG, what is the price, effective price for HCM and for propane and for gas.

Abhishek Somany — Managing Director & Chief Executive Officer

So propane and LPG pretty much have the same thing is that in propane comes in large cylinders, therefore, therefore, you need a lot more space and the peso licensing takes much, much longer. LPG is much, much quicker. — because they come in smaller, there is an alternative of getting that in smaller bottles. And therefore, we move to LPG from a time-sensitive point of view. There’s no point getting propane one year down the line with the infrastructure and the licensing in place. So appropriate LPG, we were able to do very, very quickly. As far as two of our plants are concerned, they are running on propane because we already had an infrastructure there.

So to answer your question, today, the gas price is approximately standard INR65 a standard cubic meter. And if I adjust the kilocaloric value between natural gas and LPG, which is what we’re using, that comes to approximately INR50, INR52 a standard cubic meter. So it’s a good INR10 cheaper than natural gas. And it does not move in the same direction as natural gas. It does not follow it. It’s independent of that. So I hope I’ve been able to answer that question.

Achal Lohade — JM Financial — Analyst

Yes, very much…

Operator

Operator: [Operator Instructions] The next question is from the line of Sneha Talreja from Edelweiss.

Sneha Talreja — Edelweiss — Analyst

Opportunity. So just a couple of questions from mine. Firstly, with regards to — you mentioned that you’ve been seeing.

Abhishek Somany — Managing Director & Chief Executive Officer

Missiles sorry to enter can hear you clearly.

Sneha Talreja — Edelweiss — Analyst

Is it better now? Yes, it’s better…Yes. So just wanted to understand that you have mentioned about demand slowdown a couple of times, and you are hopeful that in the next five months, of course, demand would pick up. Any signs that you’re already seeing in the month of November? Or is it too early to talk about? Like festive season has now gone by. Any progress that we are seeing now?

Abhishek Somany — Managing Director & Chief Executive Officer

Yes and no. I mean it’s just been 10 days in November. So the whole handover of Diwali is just going away with the traders and specifically with Chapujaalso around the corner, so the East was also shut. So obviously, it will be better than the previous months. But how much better? I guess, it’s a little too early to say.

Sneha Talreja — Edelweiss — Analyst

Still, what is giving you the confidence of 15% to 20% is what basically I wanted to arrive at in terms of growth perspective, the numbers in terms of volumes that you mentioned?

Abhishek Somany — Managing Director & Chief Executive Officer

So I said growth in sales volume, obviously, we’re coming out of a low base last year. So H2 will be a higher base. So what’s giving me confidence is that we’ve gone through many cycles with so many years in business. And we’ve seen some very poor years in the last 15, 20 years. And in every scenario, H2 has always been 10% to 15% better than H1. In the worst of years in the best of years. That’s the kind of average between 7% and 14% is the average, which is better than H1. So that’s the kind of confidence taking some reference from what we’ve seen in the past. And we have seen fairly poor cycles in the past in the last 15 years. Every year hasn’t been a great here.

Sneha Talreja — Edelweiss — Analyst

Sorry. So just for clarity, 15% to 20% is volume or the revenue growth?

Abhishek Somany — Managing Director & Chief Executive Officer

I’m sorry. Revenue growth… Got that. Understood. And secondly, you also mentioned a lot about…

Sneha Talreja — Edelweiss — Analyst

Clear on that volume will also move up because we don’t forget we have put three plants. So we are going to utilize that. So volume will also move up recently, very recently.

Abhishek Somany — Managing Director & Chief Executive Officer

Double digit is what we can assume see if you?

Sneha Talreja — Edelweiss — Analyst

I would think so, yes. Sure. Understood. Second question is regarding gas prices since you mentioned you’re moving towards LPG. What is the kind of an average now that we can consider for Q3? Any rough sense that we can get…

Abhishek Somany — Managing Director & Chief Executive Officer

Yes, of course. I can only say what we are — the prices which we’re getting now. Like I mentioned, 50% of our relines in have converted to — and it will go up to 60%, and that’s about it. 40% will still be exposed to natural gas. A blended average will be natural gas is at about INR64 currently, and the LPG is about INR50, INR52. So you can take an average of 60-40 from that. I don’t have a figure directly, but you can calculate…

Sneha Talreja — Edelweiss — Analyst

That’s helpful. Sir, we can do that. And regarding the falling gas prices, with respect to the falling prices that we are seeing now across the board, whether it be the gas prices or propane that we’ve already seen. Any price falls that you anticipate more to take for us to take — will that be also a part because this has generally been a fairly competitive industry. So do we see any price for happening shortly or because the…

Abhishek Somany — Managing Director & Chief Executive Officer

I don’t think price falls will happen because on one side, export has picked up. The dollar is also giving them a lot of boost to lower freight higher rupee dollar. So from that point of view, exports is really exciting them. And mind you, 50% of Morbi also has moved to LPG. So that kind of price decrease has already happened even there. So if we haven’t seen a price decrease now, I doubt we’ll see a price decrease later because whoever had to convert to LPG has converted and whoever cannot — maybe another 50 80 players will convert to LPG. So what the natural gas prices going from 64 to 60 is really not affecting because if the Morbi already moved to that INR52 price. But prices will come off. I don’t think prices will come up of GSPCL anymore. But I do hope and wish and pray that the south prices, which is — we are exposed on spot should come down.

And there, I’m completely on LPG, but that should come down, and we would be then moving back to gas. But in our northern plant is where the biggest delta is because I have constraints of space. Therefore, I have not been able to convert the entire plant to LPG. We still exposed to a reasonable amount in gas. There, I’m linked, if you remember, we’re linked to the crude three-month moving average. And the crude last quarter, we were on the three-month moving average looking at $120, $125 to a barrel because that is what it was when the war started. And now we are looking at a INR90 to INR105 range and going down. So my Qatar gas prices, which moved up from INR48 very sharply in two months, three months to INR65 has already come off to INR60. And I believe this will come off to INR55 in the next two months because of the clear moving average, which is now capturing a lower crude. So — from a gas perspective, I’m really not worried unless a new carbon goes up, that repetition.

Sneha Talreja — Edelweiss — Analyst

Understood. So that clarity was very helpful. I’ll get back in the queue and all the best.

Operator

Thank you. Thank you — the next question is from the line of Ashar from Praj Financial.

Ashar — Praj Financial — Analyst

I just wanted to know, sir, can you throw some light what are the underlying item and the fifth comment of notes to accounts, we have mentioned that the company has invested INR40 crores in the right issue of subsidiaries of Money Max Private Limited. Can you throw some light on the same?

Kumar Sunit — Senior Manager-Finance

Yes. I’d let Sunit and Sailesh either one of them take that question.

Abhishek Somany — Managing Director & Chief Executive Officer

Yes. So this is towards the INR170 crores capex gain field project, which Board approved last to last quarter, and it is in the process of commissioning. So the first computer contribution by way of equity shares to the extent of INR50 crores up has been infused. And that is what you are referring to, since it is 80% subsidiary. So 40%, 80% of INR50 crore comes to INR40 crores, which is subsidy minus ceramics and another INR10 crores, which is equivalent to 20% shareholding is subscribed by another manufacturing partner.

Ashar — Praj Financial — Analyst

What is it regarding to? I will start earlier?

Abhishek Somany — Managing Director & Chief Executive Officer

Yes, you completely missed out because it is the follow-up of activity of the greenfield project, which was announced by us last quarter, wherein INR170 crores greenfield project of large pharma lab tires would be produced in this plant. So it will be a state of the art manufacturing facility, which will be producing very large format and slab size of times.

Ashar — Praj Financial — Analyst

Okay. Got it. Got it. Also just wanted to know what would be our current capacity in title, 73 MSM. And after the expansion that we are looking forward, what would be the capacity by the end of the year?

Abhishek Somany — Managing Director & Chief Executive Officer

So we are at 62 million, 63 million square meters of own production, and we have 73 million access to capacity. As you know, 10 million square meters we buy from outsourced vendors. That remains the same. And this 4 million unit is $4 million, right, the MAX plant. So that $4 million more or less $4 million will get added in second — middle of the second quarter next year. So about July next year, this 4.5 million would get added, which would push the capacity up to close to 77-odd million.

Ashar — Praj Financial — Analyst

Right, right. I get it.And sir, what was the reason for low growth in sanitary and batting — because as I understand, we still have a low base in that segment. And probably, if I may not get it wrong, we could have seen some growth in that segment probably because of the low base. So…What are right?

Abhishek Somany — Managing Director & Chief Executive Officer

It is a low base. And I think it’s just been a very muted quarter in terms of overall demand. I think the dealers were also extremely cautious of buying because of price decreases, so often price decreases across the board. So generally, it’s been a diluted quarter for most brands in the Sanitaryware segment, barring a few industry leaders.

Ashar — Praj Financial — Analyst

All right. All right. And sir, lastly, where do you see margins improving? When do you see margins improving? I mean, going by your comments, I feel like the gas price would be muted or coming down in the next six months. So can we see a slight improvement in margins going forward?

Abhishek Somany — Managing Director & Chief Executive Officer

Yes, logically, absolutely, yes, but it will largely depend on how much volume picks up because clearly, gas prices have come under check. So the margins, obviously, from this quarter onwards would improve. How much they would improve I’m really unable to say because it’s still extremely volatile.

Ashar — Praj Financial — Analyst

Yes, sure. But we can see an improvement going forward from year on, right?

Abhishek Somany — Managing Director & Chief Executive Officer

Yes, yes. For sure. Of course. I mean, like I said, the gas prices went up from INR40, INR50 to INR64 literally in a quarter, and it’s come off already by INR4, 5. And this LPG is only going to help this be further. So we should be looking at another INR three to INR four decrease in gas prices overall. And next quarter, maybe a little more. And like Sneha had mentioned, would there be a lowering of pricing from Morbi that doesn’t seem to be on the card. So I think if you are able to maintain this price of sales and gas price start coming off, obviously, that will show up in the margin.

Ashar — Praj Financial — Analyst

All right. All right. I’ll come in queue if I have more questions.

Operator

The next question is from the line of Pranav Mehta from Equirus Securities.

Pranav Mehta — Equirus Securities — Analyst

Sir, I wanted to understand on your comment that the branded players will also be looking at exports. So if you can throw some light, will you be aggressively looking at exporting at least in EU and the North American reason wherein Tukewas a very big player.I’m sorry, who was the big there?

Abhishek Somany — Managing Director & Chief Executive Officer

Turkey was a very big player. So… Yes. Okay.Okay. Okay. So I think what is happening is a lot of our old contract which we had are where we supplied very little, and they used to buy a lot from Turkey, etc. they are flocking again towards India to see how much material they can buy. So I think this time, there will be a decent amount of — of course, our bases are very low. So I don’t mean that export will become my bread and butter. But it will definitely be much better than what we’ve seen in the past.

Pranav Mehta — Equirus Securities — Analyst

Sure, sir. And sir, my next question was related to the — any update on the recovery of the one-off item that we had seen during 2019, ’20. So any update on the same?

Abhishek Somany — Managing Director & Chief Executive Officer

I’m sorry, I didn’t get your question.

Pranav Mehta — Equirus Securities — Analyst

Sir, the one-off items that we had seen in terms of employee fraud and all this. So any update on recovery…

Abhishek Somany — Managing Director & Chief Executive Officer

Yes. So we had mentioned that last time. On the employee fraud, we have been able to recover half the amount and the rest of the half is still pending in a criminal case. And the other fraud, which happened, there is no further update on that.

Operator

Participants who wish to ask questions — the next question is from the line of Rajesh Kumar Ravi from HDFC Securities.

Rajesh Kumar Ravi — HDFC Securities — Analyst

I have a few questions. First of all, this 15% revenue growth outlook, you mentioned for FY ’23 or FY ’23 because first half itself, the number is above around 30%, if I’m not wrong.

Abhishek Somany — Managing Director & Chief Executive Officer

Yes. But then we please the last year, Q1 was on the pandemic.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. So no, I’m just wanting to understand the second half, you are expecting to grow at a much slower pace.

Abhishek Somany — Managing Director & Chief Executive Officer

Yes.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. And second, on the gas cost, could you share the number as on the three regions for Q2?

Abhishek Somany — Managing Director & Chief Executive Officer

Sunit, you want to give them I’ll give you the…

Rajesh Kumar Ravi — HDFC Securities — Analyst

Basically, currently, the gas price overall is approximately INR64. And if we see in the quarter, it will come to approximately slightly under INR60.

Abhishek Somany — Managing Director & Chief Executive Officer

So sorry, for Q2, how are these numbers, Kasauli and AP 64.

Rajesh Kumar Ravi — HDFC Securities — Analyst

64, 65 and more in Casar and 75% in South. So because in South, we moved 100% to LPG blended this year, this quarter should be approximately 59%, 60%, somewhere there.

Abhishek Somany — Managing Director & Chief Executive Officer

Okay. As against 64 in Q2, we are looking at INR4 to INR5 lower number in this quarter.

Kumar Sunit — Senior Manager-Finance

Yes. Yes, maybe more.

Rajesh Kumar Ravi — HDFC Securities — Analyst

INR4 to INR5 is clear.Okay. That’s quite a good thing. And this Amora capacity divestment, the current capacity that you’re talking about will reduce by this MSL?

Abhishek Somany — Managing Director & Chief Executive Officer

Yes, but we’ve added the same capacity in other geographies.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Sorry, where have we expanded this…I think this — we had discussed this very much in length. So maybe in the interest of everybody else, we can take this off because the divestment and also a large increase in Amur tiles. So ceramics got reduced and morale went up very substantially. So net, there has been an addition, not a super action. We can take it offline.

Abhishek Somany — Managing Director & Chief Executive Officer

Sure, sure. I’ll take this offline. Also, what was your comments on the SAR price in inventories in September…

Rajesh Kumar Ravi — HDFC Securities — Analyst

Sorry…The sharp increase in inventories at September end…

Abhishek Somany — Managing Director & Chief Executive Officer

So we were running the plants at more than 100% capacity to get the advantage where more be shut, and we should be able to get extra volume, but that really didn’t happen. So a little bit of inventory buildup has happened because of that. And also, there’s been a muted demand in quarter two, which also — that also resulted in a slight buildup in inventory.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. So it should normalize in sequent periods?

Abhishek Somany — Managing Director & Chief Executive Officer

Yes, yes, absolutely. Yes.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Thank you all the best.

Operator

As a reminder to participants, — the next question is from the line of Karan Bhatelia from AMSEC.

Karan Bhatelia — AMSEC — Analyst

So what capex are we looking for this year and next year and percaps with?

Abhishek Somany — Managing Director & Chief Executive Officer

Currently, the capex, the big one is MAX, which we already have committed for. Other than that, we haven’t really announced any other major capex band.

Karan Bhatelia — AMSEC — Analyst

And on Sansiri facets.

Abhishek Somany — Managing Director & Chief Executive Officer

We just did a capex, we double digit Anite basketing capacity. So there again, there is no massive capex other than balancing equipment, which we take as retain capex. So there’s no major capex, which has been announced as of now, other than the INR40 crores of various other balancing equipment, changing operators, etc, which we do year-on-year.

Karan Bhatelia — AMSEC — Analyst

Right, right.

Operator

The next question is from the line of Manish Mahawar from anti Stock Broking.

Manish Mahawar — anti Stock Broking — Analyst

Amisha, just specific to the industry, I think a lot of participants asked the question about the demand, right? Just wanted to understand what has changed in the 1Q to 2Q as the demand has slowed down as I think we are easing across companies in the building Middle Espace, the slowdown. So what is the specific reason or if you can throw light in terms of Tier 2, Tier three cities, which market you are seeing is specific any pockets where we are seeing this slowdown or muted growth?

Abhishek Somany — Managing Director & Chief Executive Officer

No, I don’t — like I mentioned earlier, I do not have anything concrete to point a finger at which, for example, in October, we clearly have something concrete, which is all the festive things that happened in a single month. That generally is the case. But this time, it’s even more pronounced because both the Sara Diwali Sauzal happened in the same month. But that is again one month every year, it happens. But for quarter two, speaking of quarter two I really can’t pinpoint anything which has muted the demand we can keep arguing as to what happened, but I do not have a specific answer. I mean we’ve spoken to various dealers, and some of them have to say that cash flow is an issue in the market, whereas our cash flows have been very good if you’ve seen, we’ve only shaved off more of our DSO. But some people are saying walk-ins are low, some people are saying it was extended rain.

Some people were saying that we were waiting for prices to come down. Some people were saying that a lot of spending is happening. — priorities for this quarter after the entire world is opened has moved to other spending on holidays, etc, wedding, other purchases, auto, you’ve seen auto do well. But all those are things which are just here say, if you had to ask me, I really do not have any specific answer as to why demand has slowed down all of a sudden. But again, on the same breadth, I would say that demand has slowed down, but we are in a sector where we are shaving off market share from all other products like natural stone, wood, Togo, etc. So from that point of view, nothing is to be worried on a long term, even on a medium-term perspective, but in the short term, I really don’t have an answer as to what is happening.

Manish Mahawar — anti Stock Broking — Analyst

Okay. And — but in the sense in the retail project business or government side across you are seeing a slowdown? Or it’s the retail dealer side, you are witnessing the problem?

Abhishek Somany — Managing Director & Chief Executive Officer

Across Tier onw, Tier two, Tier three projects, etc, I mean across…

Manish Mahawar — anti Stock Broking — Analyst

It’s a broad bit you are saying completely. — broad product Okay. So what I understand, your guidance if you are looking at a double-digit volume growth in this year, FY ’23 and maybe 15% to 20% revenue growth for this year as a whole, right?

Abhishek Somany — Managing Director & Chief Executive Officer

Okay. And then lastly, what’s your expectation in terms of industry domestic and export for this year as a whole? Maybe your any anticipation or understanding…

Manish Mahawar — anti Stock Broking — Analyst

In what respect are you asking could you…

Abhishek Somany — Managing Director & Chief Executive Officer

Site industry.

Manish Mahawar — anti Stock Broking — Analyst

So true, but you’re talking volume value…

Abhishek Somany — Managing Director & Chief Executive Officer

What are you talking…

Manish Mahawar — anti Stock Broking — Analyst

Volumes, whatever size perspective, if you look at what is the like last year FY ’22 size based on your assessment and what we are expecting here?

Abhishek Somany — Managing Director & Chief Executive Officer

I think we should be at INR30,000 to INR40,000 crore figure this year, industry size. Out of which, about INR18,000 crores would be exports.

Manish Mahawar — anti Stock Broking — Analyst

Okay. So two is you’re expecting a flat type of industry but from a domestic perspective? Because I recall last year, the pembro flat number we are looking at. So been looking at…

Abhishek Somany — Managing Director & Chief Executive Officer

8,000 crores…

Manish Mahawar — anti Stock Broking — Analyst

You’re absolutely right, I…30 crore INR33,000 crores towards the total industry size out of export was INR12,000, 12,000 moves to 18, which is the same INR6,000 getting added to INR32, 33 to make it 38% to 40%…

Abhishek Somany — Managing Director & Chief Executive Officer

Yes, absolutely.

Manish Mahawar — anti Stock Broking — Analyst

Okay. So we are looking at a very handsome market share gain this year…

Abhishek Somany — Managing Director & Chief Executive Officer

Basically definitely…

Manish Mahawar — anti Stock Broking — Analyst

Because 15%, 20% growth in the revenue and about…

Abhishek Somany — Managing Director & Chief Executive Officer

In other words, yes…

Manish Mahawar — anti Stock Broking — Analyst

Yes. In other words, yes.Understood. And last point, lastly, lastly, what were your expectations on senator process as a business for us earlier last call, you bagged for 35% to 40% growth.

Abhishek Somany — Managing Director & Chief Executive Officer

Yes. So I’m still looking forward to a 30-plus percent growth in that segment.

Manish Mahawar — anti Stock Broking — Analyst

Okay, understood.

Operator

Ladies and gentlemen, the management will be taking last two questions. The next question is from the line of Sinan Mittal from RatnaTraya Capital.

Sinan Mittal — RatnaTraya Capital — Analyst

I just wanted to ask a question on a quarter-on-quarter basis, if you can help us understand what — is there any increase in the nonfuel RM costs also? Because quarter-on-quarter, gross margins have come down, whereas fuel costs have broadly quarter-on-quarter tracking level, they don’t kind of end up, not sort of not gone up so much. Is there something there? Or is it just a sort of a…

Abhishek Somany — Managing Director & Chief Executive Officer

Yes, on there, all our glazes are exposed to fuel because there also the firing is done on natural gas. So that also went up some raw materials, imported raw materials, Ukrainian play, etc, went up. But again, we don’t use much of it. So I don’t want to talk too much about that. But yes, the glazes went up and a lot of the compounds for the gases come from abroad, freight rates was still high. Now they have started coming off. So that also went up. Paper was something which went up in the early part of last quarter, but then started stabilizing.

Sinan Mittal — RatnaTraya Capital — Analyst

Understood.

Abhishek Somany — Managing Director & Chief Executive Officer

As you know, fuel prices going up, which made a difference in our freight cost, input inward freight cost also had a major difference where diesel went up. So overall, I think the biggest culprit remains to be fuel and anything which was exposed to fall.

Sinan Mittal — RatnaTraya Capital — Analyst

Understood…

Operator

The next question is from the line of Akara from Praj Financial.

Akara — Praj Financial — Analyst

Just wanted to know our debt has increased a bit. Do we have any plans to reduce it going forward in, say, a couple of years or any target on that figure?

Abhishek Somany — Managing Director & Chief Executive Officer

No. That really hasn’t increased. I think Sunit can give you an overview of that.

Akara — Praj Financial — Analyst

Yes.

Abhishek Somany — Managing Director & Chief Executive Officer

So can you just quickly touch your precise point,?

Akara — Praj Financial — Analyst

Sorry, I just wanted to know if we have any debt reduction target in next couple of years, currently, our net debt is around INR359 crores. So if that would reduce to sizable amount or will it stay in the same range, I just wanted your view?

Abhishek Somany — Managing Director & Chief Executive Officer

So certainly, it would reduce going forward because the larger part of it is the term date and which is — which has the amortized schedule. And that too specifically in a much bigger size in one particular company that is the south plant, where we have the initial project loan in the first phase and some expansion. So we took another ticket size of term loan. And so on an average on a consolidated basis, we keep repaying around INR55 to INR45 crores to INR50 crores annually. So that is something which will keep reducing year-on-year. However, there would be in tandem increase in short-term worrying in the shape of working capital. But obviously, that would not be to that extent.

So year-on-year basis, obviously, there would be a reduction in total debt gradually. But as far as any reduction plan is concerned, there is no reduction plan as such. Since we have made this clarification earlier as well that debt is more relevant number for us on a stand-alone basis. And in Sanlam, we will see very hardly any debt. Precisely, there is no debt. It’s more of a build responding facility, which is actually in a way a trade payable, but because of the coreporting shift from retail payables to the short-term borrowing. Otherwise, there is no debt as such on a standard basis.

Akara — Praj Financial — Analyst

All right. All right. Also just wanted to know, are tile utilization levels are pretty high. So by probably next year, we’ll be adding some more capacity. But is there any major expansion plan going forward in next year or so? Because we are almost reaching peak capacity utilization, I think, so I understand we have tie-ups with JVs and other player other vendors. But do we intend to take any significant expansion in capacities?

Abhishek Somany — Managing Director & Chief Executive Officer

As of now, it’s the MAX plant, which we are focusing on. So probably six months down the line, we should be in a better position to talk about that once we have also got a BI as to how deep routed this muted demand is.

Akara — Praj Financial — Analyst

All right. All right. is…

Operator

That was the last question in the queue. I would now like to hand the conference over to Mr. Somani for closing comments.

Abhishek Somany — Managing Director & Chief Executive Officer

Thank you, Mr. Siani. Thank you all the participants to this conference. This has been, as Mr. Suman said, this has been a tough quarter, not only for us, but for the industry in general. But I think forward to a profitable next quarter, right we could have our operating margins increasing with — there are two factors happening. Factor number one is what Mr. Suman expressed. The conversion from LNG to LPG, I think we are moving there, which should, in any case, get us some debt in the margin. Thus, we are softening — we are seeing softening of gas prices also. So these two are the factors if nothing goes drastically wrong from there, I think they’re looking for the growth next quarter and a good next half year.

Navin Agrawal — Head Institutional Equities

Thank you, everyone, and we shall welcome you again for the earnings call of Q3.

Operator

[Operator Closing Remarks]