Stove Kraft Ltd (STOVEKRAFT) Q3 FY22 Earnings Concall Transcript

Stove Kraft Ltd (NSE: STOVEKRAFT) Q3 FY22 Earnings Concall dated Feb. 09, 2022

Corporate Participants:

Rajendra Gandhi — Managing Director

Balaji A S — Chief Financial Officer

Rajiv Mehta — Chief Executive Officer

Analysts:

Prithvi Raj — Unifi Capital — Analyst

Aniruddha Joshi — ICICI Securities — Analyst

Kunal Shah — Carnelian — Analyst

Himanshu Nayyar — YES Securities — Analyst

Deepak Khatwani — Girik Capital — Analyst

Saurabh Shah — AUM Advisors — Analyst

Binoy Jariwala — Sunidhi Securities — Analyst

Aman Batra — Goldman Sachs — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Ronak Vora — AUM Advisors — Analyst

Romil Jain — Elektron — Analyst

Unidentified Participant — — Analyst

Rusmik Oza — Kotak Securities — Analyst

Aejas Lakhani — Unifi Capital — Analyst

Kalpit Narvekar — Allianz Global Investors — Analyst

Siddharth Purohit — InvesQ Investment Advisors — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q3 and Nine Months FY ’22 Earnings Conference Call of Stovekraft Limited. [Operator Instructions]

I now hand the conference over to Mr. Rajendra Gandhi, MD of Stovekraft Limited. Thank you, and over to you, sir.

Rajendra Gandhi — Managing Director

Good morning, everyone. Thanks for joining this call. I hope your family and friends are all keeping safe, and I pray for the wellbeing.

Today on the call, I’m joined by Mr. Rajiv Mehta, our CEO; Mr. Balaji A S, our CFO; and of course, the Orient Capital team, who are our investor relationship advisor.

We have uploaded our investor deck and earnings press release on stock exchanges and on the Company’s website, I hope everybody had an opportunity to go through them.

On the third quarter, we recorded a revenue of INR298 crores, an increase of approximately 1%. This happened because Diwali last year was in the middle of November, and as a result, the third quarter of the last year witnessed higher volumes on account of festive season. For this year, majority of the Diwali purchases occurred before the beginning of the third quarter. And as a result, impact of Diwali purchases were extremely limited in the third quarter of this year.

During the nine months FY ’22, our pressure cooker category had a volume growth of 40% and accounted for about 24% of our revenues. We continue to rapidly grow our LED business, and in the nine months of FY ’22, we achieved a volume growth of 29%. And this business contributed 7% of our total revenues. Our small appliances business saw a volume growth of 24% and contributed 30% to our total revenues. Our non-stick category has the volume growth of 14% and this contributed to 17% of our revenues. Our cooktop business, induction cooktop, and the gas cooktop category had a volume growth of 65% and 8%, respectively, that is the induction cooktop and the gas cooktop, and both the businesses contributed 11% to our revenues respectively.

On the cost front, during the current year, the Company faced challenges with increase in prices of key raw materials. The Company did not pass on the price increase, as we expected the price hike in commodities to taper down or reverse. Both gross margin and EBITDA margin saw a decline of 400 basis points and 780 basis points, respectively, when compared to the last year. Gross margin and EBITDA stood at INR94 crores and INR52 crores. Having said this, the Company has taken a price increase in Q4 as the commodity cost inflation continues. Going forward, the Company will ensure that gross margins are back on track by passing on the required price hike in line with the market conditions and further strengthen its backward integration.

Now let me also brief you on the two acquisitions which were announced by the Company. Stovekraft has acquired the business of SKAVA Electric Private Limited, on a slump sale basis. The promoter of SKAVA will join the Company as a business head to drive this vertical. With this acquisition, the Company will enter into the business of manufacturing low voltage switchgear solutions, like electrical switches, sockets, distribution boxes, etc. This acquisition will act as a natural extension to our existing products offering of Pigeon LED. Apart from this, the Company also has entered into business of branded modular kitchen segments through acquisition of Metsmith.

[Technical Issues] segments represents attractive market opportunity [Technical Issues] allow us to offer our digital products to our customers at an attractive price point. We will leverage our strengths in both these businesses that is manufacturing expertise, strong brand recall for Pigeon brand and pan India distribution network. Further we envisage to make additional investments in both the segments to ramp up capacity as well as to automate the production line.

We remain focus on increasing our pan India distribution network. And in the current quarter, we have added 7,200 retail outlets, 4,400 for LED, and 2,800 for Pigeon, to our network. As on December 31, 2021, we had presence across India through our distribution network of 70,610 retail outlets. This along with our five product offering at attractive price points will enable us to increase Company’s market share going forward.

Now, I would request the moderator to open the floor for question-and-answers. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question is from the line of Prithvi from Unifi Capital. Please go ahead.

Prithvi Raj — Unifi Capital — Analyst

Rajiv, hi. This question is basically for you. See, given that Diwali base, etc., it’s there for all the companies, it’s not just for Stovekraft. See, despite that the volume growth in this quarter, 20%, 30% decline has been very sharp on Y-on-Y basis. So what explains this? Is it something industry-wise phenomena that you’re seeing, because of inflation, etc., or is it anything related to Stovekraft specifically that had hurt the volume to the extent? And also can you throw some light on how is Q4 progressing?

Rajiv Mehta — Chief Executive Officer

Yes, sure. So, what has happened particularly that industry wide [Technical Issues] e-commerce all other brands in our category has e-commerce pipeline. While at the end of Big Billion Day, which was at the beginning of October, Stovekraft, Pigeon brand, as well as the other brands were on a good days of inventory, e-commerce in general home category and a large amount of inventory for the other brands and as a result of which, they did not pick up as much as they anticipated to pick up. So, we saw close towards 28% decline compared to last Q3 in e-commerce alone, as a result of which the volumes were down. Other channels, which is particularly modern retail, general trade, institutional and export, has seen a rise.

Prithvi Raj — Unifi Capital — Analyst

So, going forward how is the trend in Q4? And can we expect that 15%, 20% volume growth that we have been doing over the last few quarters to come back again?

Rajiv Mehta — Chief Executive Officer

Yes. So, e-commerce is back to normal all other channels have been growing as we expected between 15%, 20%. So, I think, in Q4 we should expect everything to come back to normal in terms of revenue.

Prithvi Raj — Unifi Capital — Analyst

So, Rajiv, is it fair to expect that our growth rates in Jan and probably the first week of February were back to our conventional growth rates of 20% odd, or this is too early to pencil in a recovery?

Rajiv Mehta — Chief Executive Officer

No, it’s back.

Prithvi Raj — Unifi Capital — Analyst

And Rajiv, second on the gross margin front, you mentioned that you took some price hike this quarter. So, what has been the overall RM inflation in this year? And how much is the exact price hike at Q2?

Rajiv Mehta — Chief Executive Officer

See, the RM inflation with a price hikes that we have taken across the two times that we have done is close to 6%, but the RM inflation has been much higher than 6%. What has helped us is also partly our backward integration. So, in a lot of our finished goods, be it WIP or the example we are making our gasket ourselves, we are making our weight valves ourselves, we are making glass lid ourselves, so partly while 6% has been the overall price increase over the years, raw material prices have been much higher, the price increase.

Prithvi Raj — Unifi Capital — Analyst

So, given that our price hike is lower than RM inflation, so what kind of gross margins are we looking at going forward?

Rajiv Mehta — Chief Executive Officer

So, we are going to go back to anywhere between upwards of 32% in FY ’23.

Prithvi Raj — Unifi Capital — Analyst

So, by the end of FY ’23 or somewhere during the middle?

Rajiv Mehta — Chief Executive Officer

No, we will start working on it from the beginning.

Prithvi Raj — Unifi Capital — Analyst

Okay. And just one bookkeeping question, Rajiv, what is the export number in this quarter?

Rajiv Mehta — Chief Executive Officer

Export is about INR16.7 crores.

Prithvi Raj — Unifi Capital — Analyst

So, that has been quite low, right? Because last couple of quarters, you’re growing exports at almost 50%, 60% Y-on-Y. The growth was almost a 50% decline, so what explains this for exports?

Rajendra Gandhi — Managing Director

The overall scenario for the logistics — because particularly American exports, the logistics is managed by the customer. And they were unable to get the containers, that was the major problem, but their shelves were empty, but logistics was a bigger problem. But, since I can only say that the logistic thing is getting streamlined and because the order pipeline is there, and the capacity is there, so it is getting back to normal. Maybe in the third quarter, you will see a reasonable growth, but the pipeline for order is very strong.

Prithvi Raj — Unifi Capital — Analyst

And what is the current order book, Mr. Gandhi, for export?

Rajendra Gandhi — Managing Director

Particularly for the American market, I can say, we have an order book of equals annual sale, but we believe that the logistic thing is getting streamlined, it’s normal then we have orders of in excess of INR70 crores, INR75 crores currently for the next three, four months, which is normally our annualized sales cost in the past.

Prithvi Raj — Unifi Capital — Analyst

Thank you, sir. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.

Aniruddha Joshi — ICICI Securities — Analyst

Sir, thanks for the opportunity. Sir, we have seen across multiple consumer companies that the growth momentum has slowed down post Diwali. So, just wanted to check how was the off-take in the month of December and even in January has the situation improved now, I mean, is the volume uptick is getting better now? So, that is one question.

And question two is, the volume growth that you indicated, is it value-weighted volume growth or it’s a pure number? Means let’s say, we have sold three liter cooker and five liter cooker, so whether we consider it as same or — so, basically we consider it as two cooker sold as volume or then we have value weighted that for the MRP, the way the other consumer companies do? Yes, that’s it from my side.

Rajendra Gandhi — Managing Director

In my address, the number that I have mentioned is by value. And of course, in the presentation, we have also given is the volume growth numbers. Of course, the volume growth numbers for individual unit categories. [Technical Issues] So, we are having growth both in terms of unit numbers and by value.

Operator

Members of the management, sir, sorry to interrupt. We are experiencing a bit audio break. If you can speak closer to the device, please, a little?

Rajendra Gandhi — Managing Director

Are we audible now?

Operator

Yes, this is better, sir. Please continue.

Rajendra Gandhi — Managing Director

So, in my address, I had mentioned — all the numbers that I have mentioned these are in value terms. And in the presentation that is uploaded on the website we also have on Page number 7, you can see all volume growth. And to be more specifically answer the question, it is all single units, each of these numbers are both earlier numbers are also based on single units and current numbers are also based on single units.

Aniruddha Joshi — ICICI Securities — Analyst

Yes, sir, so that was the precise question. So, let’s say, in case of pressure cooker, so if we sell three cooker, we still count as one unit, and if we sell a five liter cooker, still we count it as one unit. So is it correct assumption?

Rajendra Gandhi — Managing Director

You are right.

Aniruddha Joshi — ICICI Securities — Analyst

Yes. Okay. But sir then volume growth means it might be pretty different picture. So — but, yes, got it. And sir, on the second question [Speech Overlap] demand outlook after Diwali, how it has changed in December, January?

Rajendra Gandhi — Managing Director

So, the fourth quarter is comparatively a lower quarter over the second and third quarter, but because the third quarter of last year, that is the current year, was not in line with the numbers [Indecipherable] early Diwali, I can say that compared to our AOP, Annual Operating Plan, we see a good demand back in the fourth quarter.

Aniruddha Joshi — ICICI Securities — Analyst

Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Kunal Shah from Carnelian. Please go ahead.

Kunal Shah — Carnelian — Analyst

Hi, thank you for the opportunity. I have two part to the questions. First is more on the side of the margin part since growth you are saying is back, so I did not get the gross margin number, so wanted to understand whether we can go back to the gross margin that we were having in the range of 35%?

And secondly, if I remember correctly, we had already taken a 4%, 5% price hike in Q2. And then now we have taken another price hike and we have been all the while saying that, we work in very close lines with cost plus model. So, was just wanting to understand this big deviation in gross margin for the quarter, how should one read that?

Rajendra Gandhi — Managing Director

So, of course, the correct price is based on the input cost, more particularly in this quarter, the third quarter, we have seen abnormal price increase in both the input cost, that is material cost, and freight cost that we import. Both these had seen some very abnormal prices increases. And we basis on the likelihood of the prices coming down, and maybe we are not covered up for enough of that price increase. But I will assure you that we have corrected it at the beginning of this quarter. It was for the annualized number nine months number, we were at 35% it is at 32.5% which is top of the 2.5% growth number.

Kunal Shah — Carnelian — Analyst

Sorry, sir, your voice was breaking. So, you said we are at 32.5%, we can expect to be in the range of 35% is what you said, is that correct?

Rajendra Gandhi — Managing Director

No, I said the same period of nine month period of last year, we were at 35% and currently we are at 32.5%. So I will also tell you that period of last year was the opposite of what it is today. The input cost had seen a deep dive in actually — as you said there was a positive impact through the gross margin because the prices were very low, naturally there being a downward trend. Because beginning of the quarter price hike and then during the quarter the price continuously goes down, it tarnish our gross margin, and you have to see the opposite. So, it will be unfair to expect a 35%, it will be also not correct to expect a lower than 32%, in between is what will be the right estimate.

Kunal Shah — Carnelian — Analyst

Okay. And just two follow-up questions on this particular part, sir. If we see our larger peer, right, even they are in the same category, but their gross margins have not affected to the extent our gross margins are affected. So, would it be right to assume that the price hikes by the larger peer would have been there in the quarter in which our margins got affected?

Rajendra Gandhi — Managing Director

I think, it is a function of correcting the price. I think they would have taken a price increase before the third quarter, and so the impact of the middle cost got nullified and we were expecting the prices actually because we believe that they were speaking at the time, and we’ll get that. But actually particularly all the metals, they are seeing a continuous price hike and so the input cost has impacted.

Kunal Shah — Carnelian — Analyst

Okay. And this then extension to now moving from gross forward to EBITDA margin, we have seen an increase in employee expenses in the last two quarters from INR24 odd crores to INR33 odd crores and other expenses to INR40 odd crores. So, if I add both of this, probably we will have an annual run rate of INR300 crores to INR320 crores kind of [Foreign Speech] expenses out there. So, with a gross margin of 33% odd and below that expense line item of INR300 odd crores, what kind of EBITDA margin management is looking at? Because if I take into account a 15%, 20% sales growth, with a 33%, kind of EBITDA gross margin and with the current expenditure run rate, the 14% EBITDA margin what you have been guiding looks like a little difficult. So, am I missing out something on this particular aspect?

Rajendra Gandhi — Managing Director

So, if you want guidance, I would want to say that the gross margins will continue to be between upwards of 32%, so assume it that 33% and all our cost direct and indirect cost whatever you assume is also correct, which will be in the range of 20%. And so, we believe that if everything is normally the expected EBITDA should be between 11% and 13%.

Kunal Shah — Carnelian — Analyst

Okay. And just one more question from my side, sir. We are seeing a lot of changes in the ecommerce platforms the way that kitchen appliances are getting sold, right? So, Cloudtail has been the biggest seller on Amazon has now completely disrupted, right? Also, similarly, so this inventory-led model which was earlier allowed by — which was allowed on ecommerce platforms is now being dismantled to a larger extent, right? So, how do we see that kind of affecting our sales or has that kind of affected our sales in the quarter that has gone by, right, till the time we kind of tie up with other bigger vendors on this platforms if you could help us understand a little bit on that front?

Rajendra Gandhi — Managing Director

Just one second. I think the people are complaining about our line not being clear. [Technical Issues]

Operator

Members of the management, sir, please stay. I’ll just reconnect you all once again. Just give me a minute.

Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.

Rajendra Gandhi — Managing Director

Your question was on ecommerce. I think, you have dwelled into the situation very well. There has been a little change in the way particularly this larger sellers on the ecommerce platforms have evolved or correcting. So, they’ve moved from what you mentioned Cloudtail to other seller. Also, there was a little impact in the quarter more particularly also to do with this transition. Now the new sellers are already in place, and — so the business is as back as normal, it’s nothing to do with large sellers. So, it is only a replacement of one company with another company. Hello?

Kunal Shah — Carnelian — Analyst

Hello? Can you hear me?

Rajendra Gandhi — Managing Director

Yes, I can hear. Am I audible to everybody?

Kunal Shah — Carnelian — Analyst

Yes. This is much better, sir, much earlier than what it was previously actually.

Rajendra Gandhi — Managing Director

Yes, so on the ecommerce thing, it is only there was a transition during this period that the existing company particularly you have mentioned about Cloudtail and some companies like this have been replaced by other companies. So, of course, during the period of transition, there was a little disruption, but that is already normalized now.

Kunal Shah — Carnelian — Analyst

Okay. Thank you, sir. I’ll get back in the queue for other questions.

Operator

Thank you. [Operator Instructions] The next question is from the line of Himanshu Nayyar from Yash Securities. Please go ahead.

Himanshu Nayyar — YES Securities — Analyst

Hi. Good morning, sir, and thanks for taking my question. Sir, firstly, just to understand in terms of the current quarter’s performance, I mean is there any specific geography you would want to point out where you faced a bigger decline on volumes, especially the South market, or was this slowdown broadly equal across our regions?

Rajendra Gandhi — Managing Director

No, actually we track our channels and particularly if we want to track region, it is more to do with modern retail, general trade. But ecommerce is neutral actually. All the shortfall in the revenue, a very large chunk, it is closer to 26% of that revenue — sorry, INR26 crores, which the shortfall was only in the e-com. There are multiple reasons for that. One was that the pipeline for this category was choked that sufficient stocks not particularly to our brands, but in general, and so, there was a little what you call embargo or limited buying. And as we already explained to you there was a transition from existing large sellers to other sellers. So, there was another reason why they had slowed down their purchase. And now again, it is back to normal.

So, region wise, there is absolutely no problem because our general trade has been growing. Our modern retail has of course seen very, very large, I can say handsome growth. If we want to know the number that we have grown on the modern retail, in this quarter, we have grown by 70%. So, of course it may not be exactly comparable to the last year because last year maybe we were selling more on the e-commerce and there was impact of COVID at the time. We did have impact of COVID this time, but compared to the last year period, this period was better. So, the modern retail was all open.

Himanshu Nayyar — YES Securities — Analyst

Okay. Got it, sir. Sir, second question slightly longer-term growth outlook. So, what we are seeing is maybe in this inflationary environment, the players who are focused on the more premium products are maybe not getting impacted, because maybe their target market doesn’t really get impacted that much by this inflation. But given that we focus on the economy products mainly, what are your comments or what are your views on the price elasticity? For example, if this inflation were to continue for some more time, and maybe even increase and we are forced to take more price hikes, do you think demand structurally can get impacted in our target segment?

Rajendra Gandhi — Managing Director

We believe that inflationary, input cost going up is uniform for everybody. And then, of course, affordability and cost increase are factors to be considered. But when all the players in the segment will have this impact. And if there is an increase in overall cost of that particular product, I don’t think it really impacts overall sales. Because if we were — I mean, as a brand and the segment that we operate, if we were the only people to have a price increase, then it could probably, right to assume that it will impact business. But if this is across the brands and across — for the whole category, I don’t think it should really impact. I think it is more of being prudent to ensure that the costs are rightly assumed and passed on. So, I think we are working on that and so we should be back to our normal gross margins.

Himanshu Nayyar — YES Securities — Analyst

Okay. No, sir, my point mainly was to understand given that we are already at a lower gross margin than competition. So, what I was thinking was maybe the other guys have some room to absorb some amount of material inflation. But in our case, I think we have limited flexibility on that front. So, from that perspective, is what I was asking you.

Rajendra Gandhi — Managing Director

So, comparing with anybody else, I don’t think I have an answer for that. But on our business, the way we work, we operate, we believe that we are comfortable at the gross margins that we aspire to have. And as discussed earlier, we would want to be upwards of 32%, but ideally safe to assume at 33%. And we want to ensure that all our cost are covered at 20%. And then if there is no abnormality in between during the project, then we’ll end up to the aspired EBITDA margins.

Himanshu Nayyar — YES Securities — Analyst

And on the growth front, your guidance would remain, or your aspiration would remain to keep growing at this 20%, 25% despite the recent slowdown that you’ve seen?

Rajendra Gandhi — Managing Director

So, again, I would want to say for the nine-month period, we have grown upwards of the number that we are discussing, and also for the current quarter, we are seeing business as normal, as per the business plan. So, we believe that we can continue to grow at that growth rate.

Himanshu Nayyar — YES Securities — Analyst

Understood. Got it, sir. Thank you, and all the best to you and the team. Thanks.

Rajendra Gandhi — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Deepak Khatwani from Girik Capital. Please go ahead.

Deepak Khatwani — Girik Capital — Analyst

Hi, thanks for the opportunity. I just had a question on the tax rates. Tax rate again is lower this quarter, which is supposed to be normalizing going forward. So, could we put some color to it as to what happened this quarter?

Rajendra Gandhi — Managing Director

So, we had assumed higher profit for the year assuming the normal profits for this quarter. And so, you go by that 45% for the first half. And so, we had already covered — I mean, we are already provided for the tax. So, that has got normalized now.

Deepak Khatwani — Girik Capital — Analyst

So, what would be the effective tax rate for the year? [Speech Overlap] Sorry?

Rajendra Gandhi — Managing Director

We had assumed a higher profit numbers for the year. And we had provided for tax at that rate for the first half. Since the profit number is not in line with that annualized number, we have again — so if we want to understand, I will tell you we have assumed at INR125 crore profit PBT and then we have corrected it to INR89 crore, so that is the number. So that’s why for this quarter, you will see that the correction on the tax.

Deepak Khatwani — Girik Capital — Analyst

Okay. And what is going to be effective tax rate for the year, if you have that number?

Rajendra Gandhi — Managing Director

So, we have a carry forward of INR40 crore, so almost 50% of that average rate, assuming 25% is the rate, we will be at 50% of that, 12%, 13%.

Deepak Khatwani — Girik Capital — Analyst

Okay, fine. Sure. Thanks.

Operator

Thank you. The next question is from the line of Saurabh Shah from AUM Advisors. Please go ahead.

Saurabh Shah — AUM Advisors — Analyst

Good morning, sir. Sir, a question on your employee cost, have gone up by about 40% from last quarter to the current quarter — last quarter and year ago quarter to now. Just wanted to understand, sir, what’s happening over there? Because the volumes are not large, so is this just salary increase or what has really happened here?

Rajendra Gandhi — Managing Director

No, so it’s not correct to assume that volumes are not large. I will explain to you in detail. So, last year, we have two kinds of employee cost, direct employment and indirect employment. All the direct employees we had at the end of December 2020 last year, about 2,200 people on our roles, which has ballooned to 3,200 people. The increase in number of people is both to the volume growth and also additional plants that have been installed for backward integration of our facilities. Where every quarter, we have been increasing production capacity and also both some products which we are earlier either importing or sourcing. So, likewise on the indirect cost, I can say we had 924 people, which is now 1,032. So, there is an increase in the number of indirect also.

So, during the Corona time, during that period, of course, we had also rationalized some people. So, all that in — both for the growth by volume, by also the ensuring with the new lines, we have been well capitalized by human resources. So, I can say in the total from 3,200 people, we are 4,200 people family today. So, the number of people have also grown. Of course, there is anormal increment that we provide to our employee. Both put together is what it is contributing to the increased employee cost. But when you will see revenue growth, and will want to then comparative percentage, then it will be normalized.

Saurabh Shah — AUM Advisors — Analyst

Sir, further question on the margins, I heard earlier that, you’re looking at what we should consider about 12% EBITDA margin. Sir, just mentioned with the backward integration and all those efforts, shouldn’t margins be increasing, or you don’t expect this to increase in the near term, say in the next year or so once the full year backward integration?

Rajendra Gandhi — Managing Director

New plants also take some time to stabilize. But as a quality wise we want to slowly increase on the gross margin. But it’s not dramatic. As the policy of the Company, we would want to protect our EBITDA margins maybe a little more than the 12%. But all the benefits that we accrue we want to pass it on, we would want to look at higher growth rates than higher margins. But still, we would want to protect our margin and also protect your position. So, we continuously invest on backward integration to be more relevant to the consumer TG that we are addressing.

Saurabh Shah — AUM Advisors — Analyst

Yes. So the question was like is backward integration more for preserving your quality or you think it should be adding to the…

Rajendra Gandhi — Managing Director

[Indecipherable] supply chain, quality and to control cost.

Saurabh Shah — AUM Advisors — Analyst

Okay. Sir, the last question was on the two new business strikes, the modular kitchens and electric switches, how do you see those businesses scaling the next maybe two or three years? And what kind of margins do you see in the business as you build more scale?

Rajendra Gandhi — Managing Director

Because they fall under the Pigeon brand for us, it is product agnostic, the margins will be similar, but for the initial period when we establish, but since we know the kitchen business already and the LED — the switch business is extension of the LED bulb business, so we believe that both these will contribute.

Saurabh Shah — AUM Advisors — Analyst

But margins should be the same kind of…

Rajendra Gandhi — Managing Director

Same.

Saurabh Shah — AUM Advisors — Analyst

Because just now you were saying they are quite small, so they will be a bit dilutive to margins. Okay, sir. I have something, but I’ll come back. Thank you.

Operator

Thank you. The next question is from the line of Binoy Jariwala from Sunidhi Securities. Please go ahead.

Binoy Jariwala — Sunidhi Securities — Analyst

Hi. Thank you for the opportunity. We are seeing a decline in the volumes and we’ve seen some decline in our net sales realization per unit as well. Can you just explain me what drives the decline in the net sales realization? There is quite a sharp decline on a sequential basis.

Rajendra Gandhi — Managing Director

Honestly, I don’t understand it. Where do you get this data on decline on…

Binoy Jariwala — Sunidhi Securities — Analyst

So, this is the sales divided by the volume data that you shared. That has declined quite sharply on our sequential basis. So, in Q2 FY ’22 the average…

Rajendra Gandhi — Managing Director

Any particular item that you observed it, any particular category?

Binoy Jariwala — Sunidhi Securities — Analyst

Pressure cooker has declined from roughly about 850 to 666, that’s the main which is dragging the entire decline.

Rajiv Mehta — Chief Executive Officer

No, you will not know how many combis we have sold versus how many single unit we have sold. So, the sales divided by the volume is not a comparison.

Binoy Jariwala — Sunidhi Securities — Analyst

Okay.

Rajendra Gandhi — Managing Director

Otherwise, there is no price decrease in any of our categories, because there is inflation in cost itself, so there is no price decrease in any of our category. Unless we are replaced with some categories like kettle or choppers, which we have replaced imports versus our domestic production, where we have had substantial cost benefit which we have passed on, but the product which you are already producing domestically, there is no downward cost.

Binoy Jariwala — Sunidhi Securities — Analyst

Understood. Okay. Second question is on the GT channel. Could you help me with the growth in GT channel for Q3 FY ’22?

Balaji A S — Chief Financial Officer

It’s about 10%.

Binoy Jariwala — Sunidhi Securities — Analyst

Okay. Thanks. That’s it from my side.

Operator

Thank you. The next question is from the line of Aman Batra from Goldman Sachs. Please go ahead.

Aman Batra — Goldman Sachs — Analyst

Yes, hi. Just wanted to understand the A&P spend, how that has changed over the last couple of quarters?

Rajendra Gandhi — Managing Director

No, we continue to spend about 3% and it is based on the revenue, and currently also we are in the same trend.

Aman Batra — Goldman Sachs — Analyst

Okay. So, there is no reduction in the A&P spend?

Rajendra Gandhi — Managing Director

YTD, we are at INR24 crores, and for the quarter, it was INR9 crores. So, YTD is at 2.8% and for the quarter it is at 3.1%, so there’s a small appreciation, very very, small. So, on an average we want to spend 3% on that A&P.

Aman Batra — Goldman Sachs — Analyst

Got it. Just on the discounts which operate on the website Amazon, Flipkart, etc., there is optical discount, I would say, compared to the MRP, is that controlled by the Amazon and Flipkart or do you have any say, because when you sold to their arms so it goes away and the pricing is determined by them?

Rajendra Gandhi — Managing Director

So, we work on a system called MRC for the company, the minimum realization costs for each product. And we will always invoice them at this price. And today, statutorily they cannot sell it below their cost. Of course, the price is controlled by them, but we will not allow them to discount below. We will want to always manage the various channels. So, the channel conflict is what our product has managed. And to keep that stable across the channel, we will ensure that none of these people go below those desired minimum value of sale. But for the company, it is actually the guiding number is the MRC.

Aman Batra — Goldman Sachs — Analyst

Got it. Understand. And just on the margins, you earlier commented that gross margins could go back to 34%. Is it — there seems to be a toned down of expectation earlier 35% gross margins and 14%, 15% EBITDA margins used to be the guidance. So, this 12%, 12.5% EBITDA margin which you are guiding for currently is for the near term or is it kind of sustained for the medium term as well?

Rajendra Gandhi — Managing Director

Because of the Inflationary trend, it’s better to assume that we will be on the lower end of the margin. So, between the range that we expect, so I believe that it will be upwards of 12% for the annualize. And for the near term, if the same inflation rates trend continues, we should continue to expect in that range. Obviously, because all the price correction does not get 100% pass down, whenever there is a decline trend in the input costs, the margin will definitely again shoot up. But currently we are witnessing inflationary trend in the input cost.

Aman Batra — Goldman Sachs — Analyst

Got it. And lastly on the channel financing piece, where are we on channel financing now? How much have you done?

Rajendra Gandhi — Managing Director

More and more of our consumers are coming on channel financing, but there has been a change shift in the e-commerce platform currently, because there is a change from the existing buyers to a new company, and we are funding normally, otherwise they will organize for channel financing. And so at the moment, it’s funded with our resources. But that will again come back to normal. So, I can say upwards of 70% of our revenues are on channel financing. And there would be a little change during this quarter only, last quarter, because there was movement from the existing companies which are buying to other new entities. And that will again get stabilized. It is only a question of a little time.

Aman Batra — Goldman Sachs — Analyst

Got it. Okay. Thank you.

Operator

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

Deepak Poddar — Sapphire Capital — Analyst

Hello? Yes, thank you very much, sir, for the opportunity. Sir, I just wanted to understand the range that you mentioned 11% to 13% EBITDA margin. So, that is from fourth quarter onwards, right? Because that’s when you said that it has come back to your normal kind of growth, right?

Rajendra Gandhi — Managing Director

So, currently, we are — this is for the quarter you can — from the quarter you can safely assume that we will be back to that. But currently, we are YTD at 10%, there’ll be an improvement for the year with the correction in the fourth quarter.

Deepak Poddar — Sapphire Capital — Analyst

Fourth quarter. And even on the margin front, 11% to 13% is what we are expecting in the fourth quarter as well, which you mentioned?

Rajendra Gandhi — Managing Director

No, that’s what I mentioned. YTD, we are at 10% on EBITDA, and for the quarter, there is a slip. And with the improvement in the fourth quarter, we definitely expect the margin to be upwards of 10%. But for the near term, we can say that we are again getting back to that — between that 11% to 13%, 12% is safe to assume.

Deepak Poddar — Sapphire Capital — Analyst

Understood. That’s very helpful. All the very best. Thank you.

Operator

Thank you. The next question is from line of Ronak Vora from AUM Advisors. Please go ahead.

Ronak Vora — AUM Advisors — Analyst

Hi, sir. Sir, I want to ask so, exactly we couldn’t hear what happened with the employee cost. If you can just help me out?

Rajendra Gandhi — Managing Director

Okay. So, there was an increase of about 1,000 employees in the direct employment. We have added new line to increase capacities on our existing plant apart from the backward integration, the factories that have come across. And there also the rationalization during this year where we have limited our number of employees with the growth currently that we are witnessing and the plant growth there is an increase in the number of employee count. Overall what we’re used to be at 3,100 number for the company, it’s currently at 4,200. So, there is an increase in the employee costs. But when you compare it with in terms of percentage, we are very much in line with — to the revenue the employee cost means the same.

Ronak Vora — AUM Advisors — Analyst

Okay. And secondly…

Rajendra Gandhi — Managing Director

It will not be correct to compare it to quarter-to-quarter to realize what is the number you should see, because the employees remain — the cost remains constant more or less throughout each of the quarters and the revenue numbers moves up and down by 10%.

Ronak Vora — AUM Advisors — Analyst

Okay. And secondly in the gas cooktop and non-stick ware segment, sir, we witnessed for the nine months single digit volume growth number. So, what will be the reason for that?

Rajendra Gandhi — Managing Director

So, previously, we were also selling — last year, we were also selling cooktops in the [Indecipherable] company business, that is a lower end of the cooktop and we have — over the last five years, from the year 2014, we have continuously — as a strategy and policy, continuously reduce the sale from this channel. And in the current year, we have brought it down to zero. So, although we are growing it is also a netting of the business that was let gone. Last year, we had a INR20 crores revenue from the channel which we have let gone and brought it to zero.

Ronak Vora — AUM Advisors — Analyst

Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Romil Jain from Electrum. Please go ahead.

Romil Jain — Elektron — Analyst

Yes. Hello, sir. Sir just want to understand the gross margin contraction that we saw Y-o-Y, was there any — apart from the increase in the raw material, was there any impact on the product mix that we usually have? And also the price hike that we took, did it compensate for the entire raw material, or are we seeing more hikes coming in?

Rajendra Gandhi — Managing Director

So, the function is only to do with more with the input cost, and there is a very steep price increase in the input cost, very, very steep price increase. There are two factors; one is the domestic buying that we buy all these metals and plastic, which has seen a steep increase during the year, and also there is an abnormal freight cost increase. As to give you an idea, I’ll tell you, our average cost of one container from the factory in China to our factory used to be about INR1,00,600, which has ballooned to INR6 lakhs. So, the increase is not — it has been abnormal. And to ensure that supply chain does not get affected, we had given a free hand — the availability of containers were also a challenge. So, we have a very good freight forwarder and we have given him a free hand to be in trend whatever is the current trend, the market price to pick up the containers. So, there has been a steep price increase in the input, and that is what has affected the gross margin. On the container cost front I can say it is slowly coming back to normal, but there is a price continuous increase in the input cost of particularly metals like aluminum and steel.

Romil Jain — Elektron — Analyst

Okay. So, now, are we seeing the pressure coming down, or how is the situation on the raw material side now?

Rajendra Gandhi — Managing Director

So, there are multiple raw materials, some materials are stabilizing. And the freight cost are — we are not coming back to the original, but coming into a downward trend. But aluminum input, which is a major input in our various manufacture products that we see a continue to go up, the cost are going up. So, we have corrected the price for this quarter. So, if I say that we will be back to the extremely good times when we had say gross margin at 35%, I don’t see there, but we are definitely looking upwards of that 32%, 33%. So, that’s where we are looking — I mean seeing this quarter.

Romil Jain — Elektron — Analyst

Okay. And the second question is on the competition side. So, just want to understand, obviously, we were waiting for the raw material to fall and it didn’t fell, so we did not pass on the price hike. But is the competitive scenario also very high, which is also avoiding, not letting us increase the price just on the competition piece?

Rajendra Gandhi — Managing Director

So, fortunately yes, at Stovekraft, we are a very confident company and we believe in what the internal think-tank thinks. And with each of this product head has given the freedom to think, and we only go by this that what we assume. And I think it was not correct to assume that the price will stabilize. That’s the only — I don’t think otherwise — we are having volume and growth in channel both, but for the e-commerce situation, it’s the circumstances growth. So, demand side is not an issue for us. At the moment, we are not experiencing any demand. Even now, current times after the quarter also, we are seeing normal demand. So, that is not affecting our, what you call, decision on price increase. This was based on the trend that we had foreseen because the price has peaked, price increase has peaked, but what we have experienced is not this.

Romil Jain — Elektron — Analyst

Okay. And the feedback from the dealer distributor regarding the product quality, any complaints, warranty, all those things, any sense you can give us on that?

Rajendra Gandhi — Managing Director

We continuously improve on our product offering. So I don’t think there is anything to worry about the product quality or the consumer expectation from our brand. We are actually improving every day. Our customer service we are strengthening it every day. So, I don’t see any such issues in that front.

Romil Jain — Elektron — Analyst

Okay, sir. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Divesh [Phonetic] from DS Investment. Please go ahead.

Unidentified Participant — — Analyst

Yes, hi. Good morning. Just wanted to get your comment about two years’ CAGR, because last year the base quarter had a lot of favorable condition, and this year it’s working other rates. But if you were to take a two year point of view, how do you see our performance?

Rajendra Gandhi — Managing Director

We are going upwards of 20%.

Unidentified Participant — — Analyst

Okay. So that’s as per your aspiration what you called out and you think volume wise and value wise combined, we are delivering where you want to be. Is that how we think…

Rajendra Gandhi — Managing Director

These are interlinked both volume and value, because unless there is a decline in the trend on the input cost — value and volume are co-related. For us actually, it’s a volume growth which derives the value growth. And so with both the channels getting stronger, and our product offerings getting stronger, I think to safely assume this despite growth, I don’t see any challenges. At the moment, we are not experiencing any kind of resistance or challenges.

Unidentified Participant — — Analyst

Got it. And then another thing on competitive landscape, I believe you answered to previous participant. I just wanted a different flavor here. Now, if we were to look at all industry peers, the similar issues has been faced by everybody. And we have already announced our intention to sort of have 25%, or 20% of our revenue coming from new entries that we announced, right. I just wanted to get your feel that the core focus areas which we have currently, do you see issue of a medium-term competitive landscape that is triggering us to sort of look at other opportunities? Just wanted to get a medium term plus view from your point of view?

Rajendra Gandhi — Managing Director

No, we are not seeing any kind of resistance or tapering on demand actually, they’re very robust, I can say. Like, we explained to you, there were up appreciation [Phonetic] in the e-commerce channel, there were also challenges in the export channel. But in terms of orders from the export, we have a very strong pipeline of orders. And with what we are seeing on the logistics, I think this is getting normalized and also from our customers, they want to buy more than what they ordered, that is the situation we are seeing. So, I think, on the product offering and the categories that are there, each of these categories, we are seeing very good growth. Got it. All right. Thank you for your input. Thanks.

Operator

Thank you. The next question is from the line of Rusmik Oza from Kotak Securities. Please go ahead.

Rusmik Oza — Kotak Securities — Analyst

Thanks for the opportunity. Sir, question on the employee and the cost. So, if I analysis this year, the revenue you’ll have — you’ll get around INR1,200 crores of revenue, and if you remove the 30% e-commerce contribution, then we are at around INR850 crores of non-e-commerce revenue. Do we need 4,000 employees for this kind of revenue? This is my first question.

Second is, if you can just give us the breakup of these 4,000 employees, how much are on the manufacturing side? How much are on the office side? And how much are in the sales side?

And third related question is, does this high fixed cost eat way or negate the entire impact of a backward integration? Because the purpose of backward integration is to improve EBITDA margins, but if these kind of fixed costs eating to all these efforts, then we are at a situation where we are at EBITDA margin which is a little subpar than the peers in the industry. Your comments on this could be helpful, sir. Thanks.

Rajendra Gandhi — Managing Director

So, on the direct and indirect number, I would want to say that currently out of 4,200, 3,200 are on direct employee role, that is attributing to manufacturing, and indirectly, we have about 1,032. So, these are not comparable numbers to peer, because we are a manufacturing company. Today, we are — closer to 90% of our revenues come from products that are manufactured within the factories of Stovekraft and highly backward integrated.

On the margin improvement from backward integration. Our objective is to ensure that we are relevant to our target customer. And so, majority of the benefits that accrue whether by optimizing on various cost including backward integration, they pass it on to be relevant to the TG.

So, our aspired margin is in the range of what we have been discussing. It is not that we are, with backward integration our aspiration is to increase our margin but it’s to be more relevant to the TG and we’ll focus on a higher growth rate than only increasing the model. There could be small improvement but it’s not that a 100% of the benefit that accrues goes to the gross margin, it will go to the consumer.

Rusmik Oza — Kotak Securities — Analyst

Thanks. Thank you sir.

Operator

Thank you. The next question is from the line of Aejas Lakhani from Unifi Capital. Please go ahead.

Aejas Lakhani — Unifi Capital — Analyst

First of all, I’d like to clarify…

Operator

Mr. Lakhani, we are unable to hear you. Please speak closer to the handset.

Aejas Lakhani — Unifi Capital — Analyst

Is this better, hello? Hello, is this better?

Operator

Sir, your audio is coming too low sir.

Aejas Lakhani — Unifi Capital — Analyst

One second. Hello is this better?

Operator

Yes, please proceed.

Rajendra Gandhi — Managing Director

Yeah.

Aejas Lakhani — Unifi Capital — Analyst

Yeah. So sir, my first question is on the e-commerce, I wanted to understand you mentioned the number as INR26 crores. So, we didn’t have an INR26 crore sale this quarter. And that is on account of the Cloudtail. Could you explain that bit? So is it that Cloudtail is in the process of shutting down and hence they did not reorder from us. Is that the reason why we didn’t have that INR26 crore sales?

Rajendra Gandhi — Managing Director

There are two reasons. One thing is overall, this e-commerce channel had clocked — for the category there was a what you call jam I can say, that — or anticipation of better sales top up their warehouse which for the categories since it was Jam, they were kind of embargo on fresh buying, but also it is not that — of course, the entity Cloudtail is shutting down, but that have been replaced by multiple entities.

And in our category, so there is a new entity already in place. So, there was a transition period, which has also affected the sales in that quarter, but that will all get corrected. So, finally, the minimum stock that they require to maintain they’ll continue to do that. So, that will get corrected. Here, what I mentioned was, the last years Q3 versus this year’s Q3 for e-commerce sales, we were at INR104 crore which is INR77 crores this Q3, so for the period. So there was a drop of 26% or INR26 crores, more or less it’s the same.

Operator

Sir, seems like we lost the connection for the current participant. We move to the next question from the line of Kalpit Narvekar from Allianz Global Investors. Please go ahead.

Kalpit Narvekar — Allianz Global Investors — Analyst

Hello sir. Thanks for taking my question. Si, I joined the call a bit late. So, this might be asked earlier, but if you could share some color in terms of the volume declines that you saw in the rural versus urban say on the general trade channel?

Rajiv Mehta — Chief Executive Officer

See, general trade has actually grown by 10%. We have not seen a decline in this Q3. Of course year-to-date also we are very robust but specifically for Q3, compared to last year general trade has grown by 10% there has been no volume decline.

Kalpit Narvekar — Allianz Global Investors — Analyst

So, let’s say not just on the general trade, but on overall company basis if you know — if you have data on say rural versus urban, where the demand comes from, do you have any color on how much was the decline or the growth for rural versus urban, was there any major divergence?

Rajendra Gandhi — Managing Director

While we not have exact data like that but I don’t think there is any change in the contribution from rural other than — there has been, actually of course we are addressing investor fraternity which has witnessed the same number on the revenue.

But actually, we have grown there are two particular segments where we had challenges; one is in the e-commerce which obviously is well explained and on the exports, it’s because to do with the logistics it’s not to do with demand. And otherwise, we have been growing even in the quarter, both in volume terms and value terms.

There is a decline in gross margins that is due to the input cost. There is increase in employee cost, it has to do with the growth in the overall the size of business. Otherwise, business is as normal.

Kalpit Narvekar — Allianz Global Investors — Analyst

Okay. Sir, so if I’m looking at slide number seven on your presentation, right, so these gas cooktops and nonstick cookware and small appliances have seen 20% to 30% decline on a Y-o-Y basis. I actually don’t know how much that is on a Q-o-Q basis, but have you seen any declines on a quarter-on-quarter basis there and why has there been a higher impact on say these two, three segments right, like gas cooktops?

Rajendra Gandhi — Managing Director

Let me explain item wise. Gas cooktop, we have less than one channel, which we have been continuously doing over the years. And so actually there is a premiumization of the product that we offer today versus what we were selling in the past on the gas cooktop. We have given you on that both on the quarter and the nine-month numbers on the gas cooktop.

So, if you will see the nine month in absolute numbers, there is a growth, maybe in the last year quarter the sale of the stainless steel cooktop that we were selling through this oil company channel was higher and that’s why you’re seeing an overall Q3 drop in the number of units. But overall — and also the lower sales in the e-commerce this is where the impact is there in the gas cooktop business.

And on the nonstick cookware, it has more to do only with exports, almost 50% or by number of units for the nonstick cookware, it comes from our exports. And for the Q3 particularly there was a huge I can say challenge in getting the containers and that was the only challenge in the nonstick cookware. The small appliances is a combination of all several products by unit wise, they will lag a bit but otherwise only the Q3 you have seen a lower number and again this is to contribute to what we would be selling in the e-commerce.

Kalpit Narvekar — Allianz Global Investors — Analyst

Okay, sir. One last question from my side. Just you’ve mentioned that you’ve taken price hike in the 4Q. So to what division would those price hikes be?

Rajendra Gandhi — Managing Director

Around 4% to — different categories, they have a different increase, but I can say overall at a company level between 3% to 4% is what is the price increase that we have passed on to the business and the effective date I can say, though we started from the beginning of this quarter more or less from 15th of January the new prices were effective.

Kalpit Narvekar — Allianz Global Investors — Analyst

Great sir. Thank you so much. Good luck for the upcoming quarter. Thanks.

Operator

Thank you. The next question is from the line of Siddharth Purohit from InvesQ Invest Advisors. Please go ahead.

Siddharth Purohit — InvesQ Investment Advisors — Analyst

Sir just one clarification. You said you lost some shipment to export and is it possible that they will come back during this quarter and any incremental order that you are expecting from export also. And if you can quantify what could be the probable revenue that we are looking in Q4, are we going to make up some losses that we saw in last quarter, if you can quantify that, that will be helpful.

Rajendra Gandhi — Managing Director

Right. We say that currently the order book for the next three, four months that will between say March, April, May, June is upwards of INR75 crores, which normally is our annualized number in the previous times. So, for this — the period between the fourth quarter and the first quarter, the expected revenue from our export is in this range, although we will be able to — of course, we have the capability to execute the whole order. And also, the situation on the container front is also — is not absolutely normal, but it is getting streamlined.

Siddharth Purohit — InvesQ Investment Advisors — Analyst

Okay. And sir, given that now we have some disruption in the Q3. So, are we expecting some sort of maybe aggressive sales and trying to make it up in the Q4. So, could you quantify what’s the internal set of target that we’re looking at in terms of top line?

Rajendra Gandhi — Managing Director

No, so again, I want to repeat the top line for us is driven by the various channels. And we are seeing other than these two, the challenges that we had with the export and with the e-commerce. E-commerce is getting normal with the new entity is also in place and the channel, the block that has been over. So, with both this e-commerce is back to normal.

And on the exports, once the container thing stabilize actually, there is I can tell you a very robust demand, there is a lot of this — our consumers want to look at India from current country of buying. So on the demand side there is a good demand. There were challenges. I think once this container thing gets stabilize so for them the input freight cost because the product is bulky, the freight cost what used to be for them has gone up by five, six times which has impacted the cost of the product also which is getting stabilized.

So, I don’t think there is any abrasion on any kind of demand from any of this channel. So, for us, the growth numbers remain and we are very positive on the analysis.

Siddharth Purohit — InvesQ Investment Advisors — Analyst

Okay sir. Good. Thank you.

Operator

Thank you. The next question is from the line of Binoy Jariwala from Sunidhi Securities. Please go ahead.

Binoy Jariwala — Sunidhi Securities — Analyst

Yes, thank you for the follow-up opportunity. Could you help me with what is the current exposure to FRL as on 31st of December 2021?

Rajendra Gandhi — Managing Director

Yes. So, we have provided for majority of that. One of the reasons for the decline in the margin will also be that. We have some more maybe the end of this quarter by the fourth quarter all of that will be provided for.

Binoy Jariwala — Sunidhi Securities — Analyst

So, in the fourth quarter, provision would be approximately INR3 crores; INR2.5 crores, INR3 crores more?

Rajendra Gandhi — Managing Director

About INR2.5 crores.

Binoy Jariwala — Sunidhi Securities — Analyst

Understood, okay. Sir could you just confirm you said e-com sales in Q3 FY22 was about INR77 crores versus INR103 crores in Q3 of FY21? Right.

Rajendra Gandhi — Managing Director

Correct. INR104 crores versus INR74 crores.

Binoy Jariwala — Sunidhi Securities — Analyst

Understood. And sir what would be the volume decline in e-com channel?

Rajendra Gandhi — Managing Director

So, there is a contribution of several — all the categories. Offhand, I don’t have this number exactly, I mean individual product-wise. But otherwise, in value terms these are exact decline.

Binoy Jariwala — Sunidhi Securities — Analyst

Sorry, in value terms you said?

Rajendra Gandhi — Managing Director

Value terms is that number reaches INR104 crores and INR74 crores.

Binoy Jariwala — Sunidhi Securities — Analyst

Right, right. Okay. On the commodity inflation, what is the total inflation and your key input commodities like aluminum, steel, stainless steel and plastic on a Y-o-Y basis?

Rajendra Gandhi — Managing Director

Plastic, it has peaked and it is getting back to normal not at the original level or COVID level during the COVID times the first COVID wave, all this metals and plastic had actually seen a very steep decline. Once the COVID continuously increase in all these costs, the plastic both the demand and supply and the price have got stabilized, there are also glass which had been a very huge surge in cost input — cost of this glass and also the supply was highly affected. So, these two are getting stabilized and also both on the supply side and the price, but aluminum continues to see an increase in cost and aluminum is one of the major material that we buy.

Both stainless steel and steel have stabilized at the price, there was a steep increase in both stainless steel and steel but they have stabilized at that. It is not that it is further going up. But aluminum, we are seeing further increase every — I can say every month we have seen price increase.

Binoy Jariwala — Sunidhi Securities — Analyst

Fair enough. So, what would be Q3 of, what would be the inflation or price increase broadly for these commodities in Q3 FY22 versus Q3 of FY21?

Rajendra Gandhi — Managing Director

The band is very, very abnormal I can say. Aluminum I’ll give you in dollar terms from $2,000 to $3,000 LME. Currently it is trending towards $3,200. That is a kind of increase, about 50%, 55% cost increase in the aluminum. Even the conversion cost has gone up. So, I can say safely it is close to 60%.

On steel Q3 was at about, I will talk about steel not stainless steel, we consume a lot of steel. Again similar 50% price increase was there in steel. Plastics has also seen between 40% and 50%. Glass has seen about 30% to 35%, paper which goes into the packaging of our products had seen closer to 30%, 35% increase over the last previous year to this year. If it is the same period more or less the same because until the second quarter, the prices were normal. After the third quarter the prices started seeing a price increase.

Binoy Jariwala — Sunidhi Securities — Analyst

Fair enough. So, sir with this, the 3% to 4% price increase that you’ve taken in mid of Jan. And cumulative price increase in the earlier quarters that you’ve taken which is to the tune of 8% to 10%, would you still be able to touch your 30% to 33% gross margins? We’ll need another round of price increase, right?

Rajendra Gandhi — Managing Director

In terms of our price increase, we are in line at that between 32% and 33%.

Binoy Jariwala — Sunidhi Securities — Analyst

Sorry?

Rajendra Gandhi — Managing Director

With the current price increase, we are at the 32% to 33%.

Binoy Jariwala — Sunidhi Securities — Analyst

Okay. Okay, thank you so much.

Operator

Thank you. The next question is from the line of Romil Jain from Electrum. Please go ahead.

Romil Jain — Elektron — Analyst

Sir, just a follow up on the export side, I just want to check whether the gross margins would be similar, company level margins or they would be different?

Rajendra Gandhi — Managing Director

Export margins at EBITDA will remain same but gross margin will be lower.

Romil Jain — Elektron — Analyst

Sir, I could not hear, can you please repeat.

Rajendra Gandhi — Managing Director

Export margins at EBITDA level will be the same for the company. But at gross margin level, it will be lower.

Romil Jain — Elektron — Analyst

Okay. And maybe lower by how much?

Rajendra Gandhi — Managing Director

So to the extent of the operating cost other than the manufacturing. So, we have about 12% to 14% on operating cost. So, it will be lower by 12% to 14%.

Romil Jain — Elektron — Analyst

Okay. And just one more thing. On the cost structure, are we doing any project or some bit of cost restructuring or somewhere where we can add to our efficiency and maybe kind of help the margins increase maybe slightly medium to longer term. But what are we doing on that?

Rajendra Gandhi — Managing Director

So, improvement on various aspects of our business, we continuously keep engaging with the big four on various projects, it’s not only limiting to increase in margins it’s about efficiency, we’re improving the quality of our overall operations. So, these are continuous affair and it’s not that we attempt to do everything at one go and these are continuous affair. We keep engaging with them on various projects.

They will also of course. But then, the objective of the company is very clear, we want to be very relevant to the TG. So, to expect a very high growth in gross margins or the EBITDA, will not be the right expectation, I can say that we want to protect our current gross margins and EBITDA margins.

There has been aberration in the current quarter, but we’ll get back to the normal gross margins and EBITDA margin. So, we continuously work on protecting this, and we want to be more relevant to TG and with that, we also can expect, definitely expect higher growth rates than the industry.

Romil Jain — Elektron — Analyst

Okay. So, can we assume that any incremental, apart from the range that you mentioned on the margins, any incremental benefits that we derive will be incremental to the business for growth?

Rajendra Gandhi — Managing Director

Yeah, yeah, incremental benefit will pass on.

Romil Jain — Elektron — Analyst

Okay, okay. Okay sir, thanks.

Operator

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Gandhi for his closing comments. Over to you sir.

Rajendra Gandhi — Managing Director

We thank each one of you for patiently having heard us and I hope that we are able to answer all your queries, but in case you have any questions you can — because of time constraints, this call was immediately truncated. So, if you have any questions, you please reach out to our Investor Relationship team, they will be and the company will be more than happy to answer any of your questions.

And, I understand most of the questions are revolving around when there have been expectations and maybe on particularly the gross margin numbers there was a slide on that. But, I can only assure you we have a very strong team here at Stovekraft very committed and we’ll be back on our regular guidance. Thank you again.

Operator

[Operator Closing Remarks]