Nov 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Astral Poly Technik Ltd earnings conference call or presentation Friday, October 25, 2019 at 9:30:00am GMT

Ladies and gentlemen, good day, and welcome to Astral Poly Technik Limited Q2 FY '20 Earnings Conference Call hosted by Investor Capital Services Limited. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Ritesh Shah. Thank you, and over to you, sir.

Thanks, Aman. It's a pleasure to host Astral for the quarterly conference call. We have with us Mr. Sandeep Engineer, Managing Director, Astral Poly; and Mr. Hiranand Savlani, Chief Financial Officer. Sir, I will request you to start with the initial remarks and post that we could have a Q&A session. Thanks. Over to you.

We welcome you all for our Q2 results and also on the occasion of lights, Diwali. So first to start with, we wish you a happy and a prosperous New Year and a Happy Diwali.

Everyone must have gone through the Q2 numbers and the results. The -- let me start with our Pipe business. The Pipe business has been doing very good from last 2 quarters. It is on a high-growth path. CPVC has been growing as well as PVC has been equally growing. In this last quarter, as everyone is aware that, there is an anti-dumping duty on CPVC and which has also helped Astral to not only grow in various regions, but to add to the channel partners also in various regions. PVC equally had its own challenge of upward pricing as well as growth because many of the plastic suppliers had situations of not delivering the product on time as a bundle of CPVC and PVC. What we foresee from 6 months from now, that we will be having a continuous growth in both CPVC and PVC segments of all the product line Astral makes. Especially in the CPVC segment, in last quarter, we have also done good on our Fire Sprinkler business. We have done a good number of projects. Many new markets have started now using CPVC in fire sprinkler. We have also added a range of valves in CPVC in last quarter and which will be actually going to the market from this quarter. So we have done expansion in valve manufacturing, CPVC. The plant at Ghiloth in north has, in a very short period of span, reached a capacity utilization of almost 55% -- 65%. So that's a very good sign, and we have started working on additional machines as required in next year at the Ghiloth plant. The plant in south, the expansion is over. We have started manufacturing the borewell column pipe from the south plant to deliver it to the south market: Tamil Nadu, Karnataka, Kerala and part of Andhra Pradesh and Telangana and even the part south of Maharashtra. That is one of the biggest achievement to have grown in this segment, which -- where we are growing very fast. We have also completed a range of PVC products, which we are not making at the south plant, especially the plumbing product: the white PVC. So that's an addition in the south plant. The south has a huge gap of 3 lakh square feet plus, which is now completely operational, having every product line available from that point. We are also going to add fitting operation in south plant, which will be -- the program will start shortly in the next few months, and in the next year, we'll be making all the fast-moving fittings of CPVC and PVC from the south plant at Hosur. So Hosur is now a big facility for Astral, and Astral will keep on expanding its facility at Hosur for the south.

In Ahmedabad, the balance needed expansions are continuously happening at Santej. We are now going for more modernization of the plant and automization of the plant. Ahmedabad plant, the fitting, packing is all automated now. So we have machines which sort out fittings and even pack the fitting. So we have done automization of fitting packing, and now we are going for automization of pipe packing too. So it will be helping us to not only grow faster, but also save on many fronts.

Similarly at the plant at Dholka, we have expanded our valve manufacturing capacity, our capacity of making granite fittings. Agri fitting range has been now completely completed. The range of agri, whatever is available by the competitors in the market Astral has. And we have started work to make a state-of-art plant to only make complete range of industrial and plumbing parts -- plumbing valves. And this plant will again be operational by next year. So there is a continuous expansion program going on at all the plants of pipe in India by Astral.

The solar -- roof solar work, which we had entrusted to a company will be completed in the next month. So we will -- all our plants will have rooftop solar systems operational in a month or so.

The land which we acquired at Odisha, and the work has started, the building plans are freezed. The projects have been freezed. The land has -- the contours have to be aligned, so we have started leveling of the land. And shortly, within next few months, we'll start the construction activity at Odisha. And next year, our next fiscal middle or before the end of next fiscal, the Odisha plant will be completely operational.

Apart from that, the low noise drainage system, which we sell to Indian market has also given us good growth, not only in the Indian market, but for exports also. And we have been now approved by many of the projects here -- in the globe, in Middle East, in part of Singapore. In U.S., there is a market, which we are going to open shortly. In Africa, we have been exporting this product. The PEX product, which we launched, PEX-a. PEX-a is the world-class PEX and the world-class technology in PEX, which is there, has been doing good. We have been getting different projects in PEX. We have been supplying PEX continuously in Astral brand under the technology tie-up with the company in Spain. Most of their fittings now we make in India and source from India from our plant itself or from the brass suppliers. And we would be looking into close on a machine and technology on PEX-a manufacturing, which should be again operational in Astral in coming 1 to 1.5 years. So we will be making PEX manufacturing indigenized in India, making PEX-a, which is globally made by very few companies because it is very tough to manufacture having very high-end technology, and as a PEX, PEX is available in PEX-a, b and c, but PEX-a is the ultimate product in PEX, which Astral is going to bring and deliver it to the Indian market and manufacture in -- will manufacture in India shortly from now on.

We are also looking at certain new technologies in double-wall corrugated pipes, which we will unveil in coming months. Already double-wall corrugated pipe machines are now operational. We are expanded to peak capacity by putting another line in Sitarganj in Uttaranchal to supply to Uttaranchal and many projects in north. We have a machine operational at Ghiloth, which is a bigger machine, which can go up to 1,200 mm in diameter. And we have another corrugator, which will be operational from next month at Hosur. So apart from Sangli, we will be making corrugated pipes in Hosur and Ghiloth, which are 2 Astral plants. And Sitarganj was already a plant where the expansion for capacity and the range has been completed.

Sangli also -- lot of decisions have been made for expansion. Some of the decisions have been implemented. Some of the machines have -- are ordered and on the way. We are already going to expand and put a high-speed machine in corrugated pipes used for cable ducting. We have already acquired a land next to our land, where we will be taking on expansion program for a corrugated pipe, which can be used for water transportation of canals, which will go up to 2,000 mm diameter. The project is underway, and we'll be freezing the same project in the next few months from now.

So even the business where we entered last year is on the path of expansion, growth and bringing in new technologies. Overall, in the Piping business, Astral has retained its forte of technology, bringing new products, modern products, delivering it to the market, making it established and bringing more technological products and better products, but with the best of the technologies available in the globe and most affordable way to deliver it to the Indian consumer. That is what we have been doing, and we'll keep doing it. And we are growing on that front.

The -- another good news is that there is a good growth and expansion even in the plant at Kenya, Nairobi. And Nairobi, Kenya, plant is EBITDA positive. Cash losses have been now no more there. And we will see a good growth and good profits in coming 1 to 2 years from the same plant. And there will be also expansion happening in Nairobi with our partners there.

Overall, the piping scenario, especially with the tie-ups of CPVC supplies and the PVC scenario and the product line and the reach and the network creation, which Astral is doing and continues to do is going to help Astral to keep itself on the growth path for coming quarters and coming years also.

Coming to the Adhesive business. As we had already communicated that we are undergoing a change in our network system. That change is completely over, everything. The new change is in place. New change is stabilized. From last 1 month it is stabilizing. We are seeing growth. We are seeing positive signs of that. We are seeing the reach has increased. We are seeing the way we structured the Adhesive business in segments. Wood: there is a different team, different head. Maintenance: there is a different team, different head. Construction Chemicals: there's a different team and different head. And this is all delivering results, and I assure that coming quarters, there will be very, very positive results, both on the growth side and on the margin improvement side, whatever the best improvements we get.

At the same time, we had already communicated this change and this -- we have completed the entire change very amicably, very efficiently, without any issues, without any bad debts, without any other issues from the market. And this will help us to take the Adhesive business to the second level. We are already expanding the range here. We have already capacity, so we'll be putting new products. We already launched our RESCUETAPE in India, which is doing excellently well, which comes from United States. We have now ResiQuick, which is also on the path of growth, and actual growth is happening there. We have started aggressive market branding activities, which is also helping us. So overall, the business is on the positive side for growth and the future for the business.

Coming to the Adhesive business in U.K., which is also doing excellently there. BOND IT has been doing excellent growth numbers and margin numbers, which I think Hiranand bhai will share. Similarly, the U.S. operation is also in EBITDA positive and for -- no cash losses are happening from last 6 months. So that also is giving a very, very positive result.

So overall to sum it up, the businesses are doing good, Pipe as well as Adhesives. We have a good bandwidth of manpower, which we have increased. We have gone with programs for dealers, plumbers, carpenters, which are now run on apps and are controlled by the technology. We are expanding ourself on the technology front in the business. Product chemistries, bandwidth of team, manpower resources, we are continuously adding key manpower resource because we need them with the growth. The think tank is becoming bigger and bigger from last 6 months, but think tank has become quite big, and we have a good source of manpower, which is helping us in the growth path.

So we assure you for the -- in the coming quarters and months to continue on this path of growth and delivering good growth and numbers in the coming quarters. I'll hand over to Mr. Savlani to take you through numbers, and then we can go through question and answers.

Good afternoon, everybody. Thank you, Ritesh, for hosting this con call. And happy Dhanteras to all the participants, and wish you a happy Diwali and happy New Year in advance.

Now all have the numbers in hand, so I will quickly go through the numbers, and we'll focus more on the Q&A session. So like on a consolidated basis, if you see the Q2 numbers, the revenue growth is around 8.5%, but the EBITDA growth is 24.16%. And PBT growth is 34.54%. Continuously, we are giving the commentary that now our company is focusing more on the margin front, and margin will be better than the top line growth. And because of this tax effect, the PAT jump is roughly about 82%, mainly because of the reduction into the corporate tax announced by -- recently by the Government of India.

Now coming to the segment side. The pipe growth in the last quarter was roughly about 14% in value terms and roughly about 17% in the volume terms. How I have calculated 17% I can explain you that the last year we were not having the volume numbers of Rex. So this year, we have the numbers of Rex. So we have removed from our total number the Rex number. Last year number were only stand-alone number of Astral pipe, not the Rex number. So if you remove this 2,823 metric tonne from a number, which we have published, that is 34,620. If you remove 2,823, it is coming out to be 31,793. If you work out on 27,250, roughly about, it will be 17%. Similarly on a half yearly basis, out of total volume sales number of 66,349, if we remove the half yearly Rex number, volume number of 5,796 metric tonne, it will come to 60,553 metric tonne. If you worked out on last year's volume number of 49,726, it will be precisely 22% volume growth ex-Rex with this Rex number, we already published.

So EBITDA growth in the Piping business was around 36%. PBT growth was 56%, and the PAT growth because of this benefit of the tax, it was a very huge jump, 230%, from INR 30 crores to almost INR 70 crores.

Now coming to the Adhesive side of the business, the revenue growth was negative by 6% in Q2. That is mainly because we communicated in our last communication that we are changing the structure. So because of that, we know to take back the inventory from the distributors -- sorry, from the stockist. So that's why it is shown as a sales return, and that's why the top line is showing negative. But if you remove the sales return, it is a positive number. And that is also one of the reason that inventory has gone up other than the Piping side because of this return of the goods in the last quarter.

EBITDA was also because of that negative because we have to take the loss on the return because when we booked the sales that time profit was there. When we took the return we have calculated the valuation as per the cost. So to that extent, margin has dipped. So because of that, the EBITDA negative by 14%. But overall, if we net out this effect, the EBITDA number is also positive and the top line growth is also positive. And from here on, we are seeing that now we are almost done. I can say almost 95% of the work is done because maybe negligible kind of things can come out to this quarter, but otherwise we are done. So from here on, we are seeing that there should be a margin expansion also and there should be a top line growth also into the Adhesive side of the business.

Now overall scenario of the Pipe and CPVC and PVC, as Mr. Engineer explained, is very healthy, and it is not restricted to only Astral. All the organized players in the industry are doing well. So we are foreseeing that coming quarter it should be a healthy growth. But yes, on the ground, the situation is not that great. So we have to keep always the caution and we have to be careful. So that's why we don't want to unnecessarily speculate the numbers and all for the growth. But overall, the scenario is good. We are seeing a positive scenario on the ground, particularly in the piping sector. There can be a reason of shift from unorganized to organized side. And there can be a reason for some stress on organized player also into the piping sector. So that is also contributing to the all existing organized players in the market.

Market is full of challenges, but within these challenges also, as communicated in the previous quarter that, our company's focus is on the balance sheet quality and which you can see very well in this quarter also. In spite of so much of challenges on the collection and liquidity front in the market, we have tried to tide our collection cycle. And you can see last year, September, the collection was -- receivable outstanding was roughly about INR 280 crores. Again, that this year, it is INR 275 crores, so almost absolute level there is a drop, in spite of that, that the company has grown up to top line by 17%. So we are very, very cautiously going into the market. We don't want to focus only growth, but the main target for our company is to the balance sheet side and particularly into the receivable side. Inventory side also, if you see, there is no much increase in the inventory. Last year, it was INR 445 crores. This year it is INR 485 crores. So roughly about 9% increase in inventory, again the growth of almost 17%. And little bit increase in the inventory was mainly because of the return taken place into the Adhesive business. And as well as we were expecting the price revision into the CPVC front because of the anti-dumping duty. So we have purchased the CPVC a little higher than our normal requirement to take the advantage of the price rise in the market so that we can take the volume advantage in the coming quarters also.

As explained by Mr. Engineer, the expansion work is going on smoothly. And you can see in this quarter also, we have added 15,700 metric tonnes into the capacity. So our capacity, which was last year, 174,000 metric tonne, which has increased to almost 220,000 metric tonne. So expansion is going on with -- very smooth way, and we are seeing that some capacity expansion will take place in the second half also, particularly into the Hosur.

Now coming to the debt side, we are very healthy position, and the net debt to the balance sheet is roughly about INR 170 crores because we are having total debt of INR 229 crores about. And we are sitting on a cash of around -- roughly about INR 59 crores. So net debt is roughly about INR 170 crores, which is negligible debt into the balance sheet.

I have a few questions for Sandeep bhai till the question queue assembles. Sir, first question is on other sales. You did highlight the distribution rejig that we are doing. So sir, can you please provide some details on the changes in management responsibilities with the new additions that we have done. And secondly, by when do we see a 30% revenue growth on a Q-on-Q basis? That is my first question. The other question is, if you could indicate the market size for valves, borewells -- borewell pipes? And lastly, any update specifically on the product launches from [ADS] that we had spoken about earlier?

Coming to Adhesives, the bandwidth of manpower, especially as you asked that how we will -- the reach creation is already complete. We actually had gone in the fashion of keeping very big distributors and putting our distribution channel under them, so our channel was already established and working, and we added quite a few numbers -- quite in few numbers of new distributors at every region. This was a process of almost 8 to 9 months. I don't say it happened overnight. We actually started the change from Jan-Feb of this year 2019, and we actually completed it a month back. Today, the laying of the channels and the distribution network for every state is almost complete. But still, it's dynamic, the addition and deletions will keep happening always. Still it happens in Pipe with such a big size. And we have state heads which are already there. We have the region and we have the smaller people working in the retail market, which are there. We have the heads, which are between them and the state heads are there. And the network of the manpower already was there. Only at the HR level, we have inducted and are in the process of inducting a few seniors at every level. Some of these inductions will happen in coming 10 to 15 days to a month. We cannot disclose any of this information as of now. But a right way of correction, the right way of induction and right amount and right quality and right knowledge, which is needed for the industry to drive the manpower bandwidth is increasing and will be increased in a few days from now.

Getting into your number of 30% growth, which I will not say it is not possible, but at the same time I would say that first let us at least get back to that 15%, 20%. Let us stabilize ourselves. You all know that there are challenges in the market on the front of the rotation of the money. These cycles are a little slow from all angles. And so we want to grow, but not to grow with huge debts in the market. We want to grow with the right distribution channel, where our money cycle is safe and happens just like what is happening in the pipe market as well as in the adhesive market with other companies.

So yes, it is a dream for us to get into these figures of 30 plus, but it will take us some time from now. And we would like not to comment on this, how much time it will take. But that would be our goal to reach. But I assure you that Adhesive is going to give good growth and good numbers in coming months and coming quarters.

Coming to the Valve business. Valve business is huge globally actually. There are very few companies who make valves. And I'm not only talking of valves, which I want to get into is for the plumbing. The Valve business is much bigger in industry than plumbing. And our focus is to get into not only the plumbing valve range, but also in the manufacturing of valves needed for industry like ball valves, butterfly valves and various other ones. So it is a process which will take 2 to 3 years to add this whole range. It is a process which will need high expertise. It is a process which needs quality conscious controls, quality controls, checking controls. So Valve business is something which can be treated as a global business. And we would be also going in Valve business up till higher sizes up to 12-inch and even higher -- bigger size valves. So that is what our program is. And I cannot quantify the numbers, which will come, but I can quantify there will be a good growth, good numbers and always valves globally, you see, deliver better margins than pipes and even fittings. So that is our goal in Valves.

The business of Borewell or the Column Pipe, we have been growing at a good pace in valve (inaudible) ADS. Yes, we even column the ad hoc when it comes to ADS. The column, we have been growing good, and that's why -- that is the reason we have increased the capacity, what we had constrained to deliver to the market a few months back, and we had to lose order or our delivery time was 10 to 15 days. So we are filling this gap. And we are making it more regionalized because south is a big market for borewell pipes. So we are in Hosur. Our transportation cost and our time to make product available can be reduced. So that is there. Now coming to ADS, we already that product here, but we are working on this segment of water harvesting, that is called [work] water. And this is the subject of not only India but the world today. No doubt we got good rains. So people will forget for some time, but actually when you get good rains you have to have good harvest also. So to be frank, let me not come out with any of these pictures on water harvesting and how we are planning. We will be letting you know this -- about this in maybe next con call or at the end of the year. But yes, we are working on this subject. And this vertical, I cannot treat it as a part of plumbing. It is a vertical of water harvesting, and which itself is a big subject. And once we have some firm footing on this, we would come back, but yes, we are working with ADS on this product line.

And we'll come back to you on what we are doing and what are our plans and how we are unfolding them in maybe 1 or 2 quarters, and then we can let you know how we are going to take it ahead from there on growth plan and then -- and the markets. So that finishes my answer. Thank you.

Congratulations on a strong Pipe growth. Sir my first question is, at this point in time, do we maintain our FY '20 guidance? I know that in terms of volume growth we have kind of over-delivered in the first half rather than what we had set out at the start of the year at 15%. But I'm asking you from the point of view of double-digit growth in Adhesives? And also I wanted to understand what's happening in Rex in terms of are we bringing the margins back on track in terms of steady-state levels that we had set out at about 13% to 14%?

Thank you, Sonali, for your 3 questions, where they are in one question. So first, coming to the Pipe side, Pipe, yes, we have communicated 15% kind of volume growth and the first half we have delivered roughly about 22% volume. So yes, we are ahead of our guidance. But market is full of challenges. But as of today, it looks that we are going to definitely cross our guidance. How much we will cross, the time will tell, but the ground reality that right now the market conditions are good. So hopefully, keep finger crossed, we will be overshooting our original guidance of 15%.

Now coming to the second question of your Rex. So Rex is doing well. But yes, volume growth is still not picking up much because of many reasons, particularly whatever we can say, but that area of Sangli is flooded. Even day before yesterday was also heavy rain over there and water was logging in the factory areas also. And even last month also, it was a similar kind of situation. So we will -- now I think sorting out all these issues. And now we have added the capacity to our -- to other plant also for the Rex product. So that is going to help us into the logistic front, and that will help us to grow the volume in the coming quarter. But yes, on the margin front, we are back. We are doing a very healthy margin into that segment also. It is not like a 6% kind of margin, which you see in the last year, but we are crossing the double-digit margin into the Rex also.

Your third question was relating to the Adhesive. Adhesive, also we are -- we have already communicated in the earlier remarks that we are working hard on that. And whatever the correction we wanted to do, I think almost it is done. I said already that 95% of the correction has been done. Little bit may be left out, which can be completed in this quarter. So hopefully, you will see the Adhesive number will also be back. It's too early to say that we will be delivering double-digit growth on a full year basis, but yes, definitely, the second half will be double-digit growth into the Adhesive. We'll try our best to cover up the shortfall in Q4, and we have worked out the plan also for the higher growth in Q4, but keep finger crossed because we are working on multiple fronts. As and when the time will come, we will unlock how we are doing and what way we are doing. So we are very positive, I can say like that, but it is very difficult to say at this stage that on a full year basis we will be able to deliver double-digit growth or not. But we are trying our best. We will see that how best we can deliver.

Fair enough, sir. In terms of CapEx, INR 125 crores to INR 150 crores. Is that the number we should...

Yes, I think we will restrict to that number. And I think we have done roughly about INR 80 crores or so in the first half, INR 75 crores, INR 80 crores. So we are almost on track.

Fair enough. Sir, and my last question, more from the industry perspective. Sir, as you rightly said in the initial remarks that for over the past few quarters we have been seeing quite healthy growth in pipes, especially on the volume front as well. So sir, could you please help us understand which sectors are doing better than the others? And where are we finding traction? What applications are probably the highest contributors in this volume growth? That's just from my side.

In the plumbing sector, CPVC as well as PVC is having good growth. So there is a growth there in the plumbing sector. Also, there is a growth happening in the new products for us also. Especially the sector of the infrastructure's industry is growing for us in the demand of pipes for CPVC and PVC.

One thing which I wanted to add apart from the Rex growth, which you should know, is that the Rex products are always on the growth -- low growth in the monsoon. Because all the products, which Rex makes is for drainage and sewage, which always is laid below the soil. So you have to dig pits and lay these pipes. Globally this happens. If you go to Europe, you go to Germany, you go to United States, everywhere. For all these roadworks and these drainage works, in even United States, are taken up in the summer season. So now on you will see a good growth of Rex product till March. Because this time, the monsoon was long. The rains kept on coming for a longer period, and that is why a lot of these infrastructure works, which are undertaken to use these pipes, were almost at a halt. So I just wanted to clarify on this thing also.

Sure sir, this is helpful. Sir, and probably, as an extension of this, I wanted to check, are we seeing any green shoots in construction coming back? Because you mentioned that plumbing sector is doing well for us. So I just wanted to understand, is this the new demand that we are speaking of probably the replacement demand?

No. It is both replacement and new. Retail level, it is also growing and projects level also is growing. But I don't want to go in deep into the analysis, which you are better off, all of you sitting on the other side. What are the weaknesses in the whole of the industry in the piping segment, which is going to help Astral continue its path of growth. So I think you know everything sitting on the other side about the scenario of the industry, scenario of the polymer, and all this scenario put together will be helping at least Astral piping segment to keep its growth path forward.

A couple of questions. One on this CPVC, and this was also one of the reason for the significant gross margin expansion in this quarter. How long do you see the CPVC scarcity to be last?

See basically, I am -- I should not comment on a government thing. So let the government decide on this.

Okay. But what kind of an approximate number has to be given that the -- I mean how much of the CPVC [stock] coming from the China and the Korea?

Yes. I would not go into that number also because the import data are available. But practically, nobody is importing from last 2, 3 months because actually it is unviable. If you import, you end up paying 90% duty. Actually, his import cost is becoming more than the selling cost of a product.

Look, you can make the figures that if a guy is going to import, pay 90% duty and above that 10% percent on the customs duty and plus all the other challenges and then make a component, then sell, practically I think the -- he's actually going to make loss in selling those pipes. Now when you come to the numbers of China and Korea. If you go in the history, they were giving India 30% to 40% of CPVC. 40% of your monthly need goes out of the whole chain, it is obviously going to create scarcity. That 40% going out of the chain is not going to be fulfilled by 3 manufacturers. Out of which, one only goes in the model of licensing. Again, there is -- there -- constraint there. Then other 2 have global markets also to fulfill. They don't only have Indian market. So practically, this -- there will be a continuous shortage happening on CPVC in the situation does not normalize or stabilize that. So we don't know it is 6 months, 1 year, 1.5 years, how much time it will take to stabilize and normalize the situation. But practically today to import from China and from Korea is not viable for anyone except he decides to be in the market and make loss and still supply the material. He takes a call to make cash losses and still be in the market. That's individual call, that I cannot comment on him.

But Maulik, history says that whenever anti-dumping duty steps being taken by any government in India normally it lasts for 3 years. So -- but of course it cannot be continued with 90% kind of duty, which is totally unviable. But yes, anti-dumping should continue for at least 3 years.

And secondly, government has a time line of 6 months, but past history also said it's not a binded time line. It may even take 6 -- 1 year also or 1.5 years also. It cannot be a binded time line to come to a decision, but -- it is not a -- it is a binded time line, but you can understand that it has options also to keep on doing its investigation and take time. We don't know about that. So we are no way or no capability or not even the authorities to tell you about that.

Okay. And second question, I always ask you, and this is related to the unorganized market. So compared to the last when we spoke to (inaudible) has the enormous unorganized markets [sinking] further because of the various cash crunch issues or whatever you want to? And now the CPVC is again going to hurt some of these unorganized player.

Obviously, the unorganized will have its own challenges. And an unorganized market will keep polymer variants and with CPVC. It's going to have its own challenges. And with the cash cycle is also slowing down in the market. So it's not one front. You can imagine there are many fronts which have been attacked at one go. So we can say that it's just the beginning of the journey, long to go, because you know that the size of unorganized in this country is roughly about 35%, 40%. So INR 30,000 crores of [piece of] industry, 35%, 40% work out to be INR 10,000 crores, INR 12,000 crores industry. So it will take its own time. But today, the situation is that, that not only unorganized people are suffering, even the organized players are facing a lot of challenges. So it is very difficult to say in terms of, or quantify in terms of percentage, but yes, on ground, things are changing, but it's not highly visible clearly because overall market scenario is also slow. So going forward, I think this is -- will be acute and which can be clearly visible, maybe a few quarters down the line, very, very difficult to say when. But yes, next 4 to 5 years, we are seeing that a sizable shift should take place to the organized side.

Okay. And the last question to you, Hiranand bhai. Sorry if I missed that number. What was the Rex contribution in the revenue this quarter? If -- and what is the CapEx we have done for the first half? And what could be the second half?

So like, I think, INR 75 crores, INR 80 crores we have spent in the first half in CapEx. And in that, a couple of machines were related to the Rex, which Sandeep bhai had already explained that 1 machine in Ghiloth and 1 machine in Sitarganj and another I think INR 50 crores or so -- INR 50 crores to INR 60 crores CapEx can come in the second half also, maybe a little more also. We are putting up roughly about additional INR 20 crores into the solar roof top also, where we have worked out the payback of that INR 20 crores will be almost 33% annually. So less than 3 years payback is there for that kind of arrangement. So we have allocated INR 20 crores for solar side. That benefit you will find in the Q4 number because we are targeting to complete -- some portion might be completed in November and the rest of the things will be completed in December. So Q1 -- Q4 onward, this solar-related benefit will be reflected in the number, and you'll see that lot of reduction will be there into the power cost. Because 100% we are going to self-consume. And some portion will go to the Ghiloth -- this east plant also and some machines will be installed in the Hosur also. So almost INR 50 crores to INR 60 crores we have planned, maybe like INR 10 crores plus/minus can also happen.

I don't have an exact number now because it is merged with Astral, but it should be somewhere around INR 37 crores or so. Maybe I'm guessing that, maybe INR 1 crore or INR 2 crores here and there.

Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [29]

Very good set of numbers, for that very congratulations. My first question is the total capacity you had given for the pipe is around 2,21,000 metric tonnes, so how much is the capacity of Rex right now?

Okay. Rex, I have to check. For the last year, it was around 22,000 something and then another 5,000, 7,000 we will get, so roughly about 30,000 metric tonne.

Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [31]

So year-end will be another 5,000, 7,000 metric tonnes will be added, but the next year sizable jump will be added because of east. So originally, we guided that once the east will be completed. Our capacity will be 2,50,000 metric tonnes. I think it can be a little more also.

Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [33]

And on the Seal IT's numbers, sir. Can you give some colors on that as well, like -- because overall Adhesives we can see, but how is on the Seal IT performance for the quarter?

So overall performance of Seal IT was good. They have delivered a constant currency growth of roughly about 5%, 6% in this quarter. And in rupee term, I don't know exactly the number, but constant currency was around 5%, 6% kind of growth, and they have delivered the double-digit EBITDA margin also. So overall looking to the U.K. condition, when the GDP growth is hardly 1%, this year we are expecting that they should be delivering minimum double-digit growth to us and double-digit EBITDA margin also. EBITDA side, they are constantly improving. And with the contribution of this RESCUETAPE will increase, then the margin expansion will be there in the coming quarters. That is what we are targeting. So now Resinova has already started selling the RESCUETAPE. And shortly, we are going to open up the RESCUETAPE into our Astral channel also. So these are the very, very high-end margin products. So if the smallest contribution will increase, then the EBITDA will shoot up. So keep finger crossed that coming quarter, the Seal IT should deliver a good number.

Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [35]

So I think right now, they are doing roughly about USD 700,000 to USD 800,000 quarterly in U.S. dollar terms, which will increase in the coming quarter. So our target is that at least USD 1.5 million, they should reach in maybe 1 year or 1.5 years down the line, minimum.

Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [37]

Yes. I think up in state-of-art R&D and application center. The plans were already there. And we had -- because of the CapEx cycles we had put that hold, but now we'll be starting the work. Now we'll be having one of the world's best state-of-art center for R&D in the Polymers business. The Adhesive has its R&D center. And there, we are also putting up an application center where at one go, minimum 250 to 300 end-users can be trained. Consultants can be brought and technically explain the product. Hands-on training can be done. There can be auditorium for people to go through things. And at the same time, we can have a course also running there. So this is going to be -- the work will start shortly. We have the land next to our plant's [plantage]. We have the plans ready. We have everything in place. I think we'll unfold the -- and we are going to start this project.

And secondly, I already mentioned that we are now giving focus to the renewable energy also. From the environmental point of view also it is good for the country also. And at the same time, it is good for the company also because the payback of this kind of investment is very fast. Like the rooftop, I already said that it is less than 3 years payback. And we are planning to allocate some more money into that side, maybe next year because we are expecting a huge cash flow into the next year. I already explained you our debt is hardly INR 170 crores. And the way the business is growing and the way cash flow is coming to the company, hopefully next year we are expecting a sizable jump into cash flow. So we can allocate some more money into the renewable side, particularly for the self-consumption. We don't want to sell a single unit to the grid. Whatever we will do the CapEx, that will be for the self-consumption. So other than rooftop also, we have worked out that the payback is roughly about 3 to 3.5 years only. So it's a healthy returns into that segment also. So we will come up with the exact number in the plan once we will close this year and we'll [seed] our free cash flow, what is available to us. In the analyst meet next year, at that time, we will give you the numbers.

Yes. Sir, I have 2 questions. One is, how should one look at the promoters' holding in the company? That is -- that's one, if you could detail a bit over there? And secondly, if one looks at the working capital on console-less standalone businesses, which will be reflective of other sales, it has moved up a bit since March from 90 days to 112 days. How should one look at the trend line over here?

So Ritesh, we have already clarified earlier communication that inventory and all into the Adhesive side and all has gone up mainly because of the sales return taken place. So that will be corrected in Q4. And hopefully, once -- sorry, Q3, because Q3, there will be not a balance sheet on the public domain, but we will share all the key numbers in the Q3 con call. So once the Q4 number will be out, full year balance sheet, you will see that there will be a substantial drop into the inventory level also because these are the high inventories, which is not -- we are planning to keep with us because of this price rise into CPVC front and because of this return of goods in Adhesive side. That's why you are seeing inventory is high. But still compared to the growth which company has done in the first half, it's not high. So I don't think there will be any stress into the -- [it, right]? Either Adhesive side or the Pipe side into the working capital cycle.

Secondly, because of the liquidity crunch in the market, we are getting a handsome discount on the cash payment side. So sometimes, you will see that some creditor days will come down, but that is the strategy of the company that if we are getting a handsome discount on cash, we don't have a problem with the cash. And bankers are ready to fund us at 6.5% today. So we will be comfortable to take that advantage and improve our EBITDA. So I don't see any problem into the space to any level in working capital cycle.

Now coming to your question of promoter holding. It is already in the public domain. Whatever Sandeep bhai has sold, that is also in the public domain. And there is no change other than that.

Sir, my question is pertaining to can there be incremental supply from the promoters? I'm just asking to make sure that there's no overhang.

Absolutely, absolutely 0 in the next 6 to 12 months, minimum, absolutely 0. Technically, we are communicating.

Sir, could you comment on how PVC and CPVC resin prices have moved during Q2? And how they have trended so far in Q3?

So like Q2, both were on upward journey. So CPVC has also gone up because of the anti-dumping duty. And similarly, PVC was also on the upward trend in the Q2. And Q3 onward, PVC has started dropping now. The first cut was INR 3 per kg by Reliance in the month of October. And CPVC, we don't see there will be a drop into the price, but more or less, now from here on, it should be maintained. We are not seeing upward rise into the CPVC side in the market.

Very limited space is available into the drops and maybe INR 1 or INR 2, may -- more, may have a cut, but more than that we don't see. Because now the seasonal month will start.

It's a cycle actually. Because of the monsoon and the festive time, there is a little slowdown in some of the demand. And I don't see any further drops, actually. Again, it will go up.

Okay, sure. And sir, in your Pipes, EBITDA reported in Q2, is there any component of inventory gains? And if yes, can you quantify the same?

Okay. So most of the EBITDA margin improvement has come is mostly because of operating leverage benefits and Rex EBITDA that has been improving. That's the key takeaway, right?

Yes, 2 things, rex improvement as well as you can say the realization improvement. Because we have increased the CPVC price by 8%. So that is the main reason into that. It's not only restricted to Pipe business. Even if you see the Adhesive business also, there also gross margin has improved. If you remove -- if you deduct the number from consolidated -- they take to the Standalone Pipe business, you'll see there is an improvement into the Adhesive business gross margins also. But actually, it is not reflected into EBITDA because there was a drop into the top line. So because of that, all my cost has gone up. And whether it is the employee cost, whether it is administrative cost, whether it is any other expenditure costs. But now once the second half will -- the volume growth will start and top line growth will start coming, then all economy of scale advantage will be there. So I am quite confident that in the coming quarter, Adhesive business also will be having a good EBITDA growth because actually gross margin has improved in the first half, but it is not reflected into the -- conversion into the EBITDA because of this low base because of the de-growth in the top line.

Thanks a lot for your responses and congratulations on a good set of numbers and wish you and your team a very happy Diwali.

Congratulations for the good set of numbers. So my question is regarding -- is there any new capacity of CPVC pipe coming into the industry?

I am not aware of this. Maybe existing player might be increasing the capacity, but very -- I'm not at least aware that the new player is getting added. Many people are talking, but I don't think I have any authenticated news with me that somebody is coming with so much of capacity or what. Existing player might be adding the capacity.

Okay. And sir are we seeing any kind of initial sign of benefit from the government, mission of Har Ghar Jal?

Well still, the policy is getting worked out at the government level. They have not announced the final policy draft or anything, how they want to do, but that can be a very big opportunity. But as of today, I don't think any number is available with us. If you guys have, please share it with me. But I think that they are still working.

Okay. And sir, lastly, about the replacement markets. So what could be the opportunity in the replacement markets?

So still the replacement is going on. Because if you see any building, which is below -- the CPVC started in the country in 1999, so almost 20 years or so. You pick up any building 15 years plus, it will be having the metal pipe only in hot water application. So still opportunity is there. Somewhat new to this business.

So what could be the percentage, sir, which is still there, which has not been replaced? Is there a (inaudible)?

Very difficult to find out that number because there is no research being conducted on the replacement market by any of the analysts status quo. At least I don't have a authenticated number which I can share with you.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Ritesh Shah for closing comments. Thank you, and over to you, sir.

Yes, thanks, Aman. Hiranand sir, Sandeep bhai, you have any closing comments? We can close post that.

Thank you, Ritesh, once again for supporting us. And thank you to all participants for participating in the con call, and wish you all a very happy Diwali and a happy New Year in advance.

Thanks, everyone, and looking forward again to connect with you after 3 months from now. And have a great Diwali and happy holidays also. Thank you, everyone, and thank you, Ritesh.

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Ladies and gentlemen, on behalf of Investec Capital Services that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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