Hindware Home Innovation Limited (HINDWAREAP) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Hindware Home Innovation's Limited Q4 FY '24 Earnings Conference Call hosted by Yes Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Udit Gajiwala from Yes Securities. Thank you, and over to you, Mr. Udit.

Yes. Thank you, Manuja. Good afternoon, and welcome, everyone. On behalf of Yes Securities, we invite you to Q4 and FY '24 earnings conference call of Hindware Home Innovation's Limited. From the management side, we have Mr. Sudhanshu Pokhriyal, CEO of Bath business; Mr. Rajesh Pajnoo, CEO of Pipe business; Mr. Sandeep Sikka, the Group CFO; and Mr. Naveen Malik, CEO and CFO of Hindware Home Innovation's Limited. I would like to hand over the call to the management for their opening remarks, post which, we'll open for question-and-answer session. Thank you, and over to you, sir.

Good evening, ladies and gentlemen, and welcome to Hindware Home Innovation Limited quarter 4 and FY '24 earnings call. I hope you would have had the opportunity to go through our results presentation shared with you earlier. I will initiate the call by taking you through the overall performance of our company. In FY '24, our consolidated revenue was INR 2,800 crores and EBITDA stood at around INR 275 crores with margins at 9.8%. During the quarter 4, that consolidated revenue was INR 774 crores with EBITDA at INR 65 crores with margins at 8.4%. The retail business of the company operates in a highly competitive market, especially with the emergence of many online sanitary stores. Consequently, the business sale growth and profitability have remained under pressure. Despite our diligent efforts over the past years, the retail business has continued to incur losses. The Board has decided to discontinue operations of the retail business and approved the sale public liquidation of various risk weighted assets. Based on the preliminary assessment, the company has made provisions amounting to INR 20.30 crore, including an impairment of its investment held in Evok Home Private Limited of INR 9.55 crores. The net impact on the consolidated financial statements amount to INR 15.58 crores. The additional impact, if any, of sale public liquidation of assets will be provided as and when finally assets settled. However, the same would not be material in the opinion of the management. We believe that now is the perfect time to leverage our business synergies. Over the last 6 to 12 months, we had conducted internal studies that demonstrate the potential to reduce scope and improve operational efficiency by integrating certain backend functions of our bathware and consumer appliances businesses and same is underway. Now I will request Sudhanshu to share an overarching update on consumer appliances and bathware business.

Thank you, Naveen. Good evening, and welcome, everyone. Let me start with the bathware business. Despite the subdued demand environment, which resulted in muted revenue growth, our EBITDA margins expanded from 13.9% in FY '23 to 15.4% in FY '24. This expansion occurred even after increased marketing spend on cricket platforms for brand building, such as World Cup and Asia Cup, which were like one-offs in this year. Looking ahead, we further anticipate a further margin expansion of 1% to 2% over the next 18 to 24 months. In FY '24, our revenue stood at INR 1,580 crores with EBITDA at INR 244 crores. And in Q4 FY '24, revenue amounted to INR 421 crores with an EBITDA of INR 65 crores. Customer response to our newly launched products has been very encouraging, with new products contributing 18% to FY '24 revenue. Our net working capital days have also shown improvement, decreasing from 112 days in Q4 FY '23 to 105 days in Q4 FY '24. Our strategic initiatives reflect our commitment to innovation and delivering value to customers. With diversified offerings, a strong brand and an ambitious expansion plan, we are confident of our continued growth. Now I'd like to take you through our consumer appliances business. In FY '24, revenue amounted to INR 422 crores with EBITDA at minus INR 13 crores. Our Q4 FY '24 revenue amounted to INR 108 crores with EBITDA at minus INR 7 crores. Headline inflation and muted consumer sentiment has affected profitability. We are undertaking various steps to reduce costs and enhance efficiencies, and you'll see the results of the same by Q3 of FY '25. We have seen multiple synergies between the CPD and the BPD business in marketing, in customer service, warehousing, logistics, institutional and retail sales. And we are working on those to bring significant cost savings for the entire company. Thank you. I will now hand over to Rajesh.

Good evening, everyone. Thank you for joining us. TRUFLO, our Plastic Pipes & Fittings brand, continues to lead as the fastest-growing brand in this sector. Our FY '24 revenue amounted to INR 734 crores (sic) [ INR 774 crores ] with EBITDA at INR 72 crores and an EBITDA margin of 9.3%. Our Q4 FY '24 revenue amounted to INR 244 crores with EBITDA at INR 26 crores and EBITDA margin of 10.9%. To enhance our market share, we are diversifying our product portfolio to provide comprehensive plumbing solutions. This includes introducing foam core pipes and inspection chambers very soon, also manufacturing of PTMT faucets and accessories in this year. Again, the Double Wall Corrugated, that is DWC pipelines are in progress and to be commissioned around August or September. With a commitment to ongoing product innovation and development, we currently offer over 2,000 SKUs with numerous solutions in the pipeline. We have a network of 300-plus active distributors and over 30,000 dealers, ensuring widespread accessibility of our products. In line with our strategic objectives, the construction of our new manufacturing plant in Roorkee, Uttarakhand, is on track and will be operational by the end of quarter 3 FY '24-'25. That concludes the opening remarks, and I would like to ask the moderator to open the floor for the questions-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Chirag Fialoke from RatnaTraya Capital.

Just 2 questions, and I'll get back in the queue. First, for the Consumer Appliances business, could you give us the gross margins for that business for FY '23 and FY '24? I know you already gave us everything else. But for just these 2 years, is it possible to highlight the gross margin for this business?

The gross margins are in the range of around 28% to 33%, which has slightly come off by around 2%, 3% as compared to the last year.

Is it possible to give us the number? Is it 33% to 28%, is that what we should take?

Basically, we have not been disclosing gross margins separately for this business. So that's why I'm making it a range [indiscernible].

I'm trying to just get to what kind of operating deleverage did we see because of sales degrowth and what kind of actual gross margin compression did we see? Could you tell us just basically what percentage of gross margin compression would have happened in FY '24 maybe if that's easier to answer?

Sorry, I couldn't hear you properly.

Could you just tell us what percentage of gross margin compression happened? So would the gross margin compress the 100 basis points, 200, 300? Just a range of that will be actually helpful.

So around 3% compression happened, 2% to 3%.

Understood. Perfect. And for FY '24, could you highlight the pre Ind AS or the adjusted EBITDA margin or just the lease liability for FY '24?

Do you want to see how much was charged for depreciation and interest?

Yes.

On a console or a stand-alone basis?

Console.

So I'll come back to you on that. I don't have it frankly with me.

Do you have the standalone number?

Sorry?

Is the standalone number available? Can I -- is that possible to...

We'll just give, once your back in the queue, we'll give these numbers to you.

The next question is from the line of Arvind Dureja, an individual investor.

I just had one question and it is regarding the Consumer Appliances business. Now if I look at the -- if I look at this segment, this has been dragging the entire profitability on a console basis. So can't we spin off this business into a separate entity? Or what can be done because this has been dragging the return ratios for a long time? That's it from my side.

So nothing is planned as such to put it in a separate SPV as such. But the good part about this business is we have made good headways into 1 or 2 segments, like cooking -- cook tops and chimneys is one key -- core area wherein we have performed. So where we are losing is more on the seasonal businesses. So we are trying to rework the strategy with Sudhanshu leading the strategy now. Sudhanshu, would you like to add there?

Yes. So I think your question is very valid. The results have of course been dragging the overall consolidated performance of the company. And as a consequence of an action which has been taken to improve this performance, we've gone ahead and actually started looking at how we can leverage the strength of the bath business in the consumer business. So in the last 3 months, we have gone ahead and actually consolidated, for example, our customer service function, which is a very significant cost as well as a very important consumer-facing function for both bath and consumer divisions. So that's now consolidated. It's bringing us substantial savings as well and also improving our customer service in the market. We've consolidated our marketing function because the brand, which is consumer-facing, is also pretty common. Hindware, we have Hindware Smart Appliances and Hindware Italian Collection as our leading 2 brands. So the marketing team definitely can work very synergistically. We've also started working around warehousing, logistics. We started working around institutional sales and even sanitary channel, for example. Our sanitary channel, of course, sell many products which are basically a part of the consumer division. So we believe that the synergies will definitely help us in terms of optimizing our costs as well as driving our growth. And early days right now, we are -- we're extremely positive momentum because of that. As I mentioned in my opening remarks, I think in -- you will see substantial improvement in the next 2 quarters as a result of some of these actions which we've taken.

So just to add to what Sudhanshu said, these actions are actually multifold. One is relating to a reduction of manpower costs. So historically our manpower cost as a percentage of sales has been higher. With this mechanism, we have taken certain layers out in terms of the support functions because they were 2 separate silos, but doing the similar kind of service to the market. And from the customer perspective, our customer was not having an issue -- because both are under the name of brand Hindware, like 2 separate service centers have been merged into one -- now the call centers have merged into one. Similarly, the people who are providing service has been done. So you will see savings going forward on the manpower cost. You will see savings going from -- savings coming in on account of the operations, as Sudhanshu said here. So this will lead to we feel that on manpower and all this together, a 1% to 2% overall effect on savings should come in the months to come.

The participant got disconnected. The next question is from the line of Pranav from Omkara Capital.

Am I audible?

Your voice is not that clear. It's muffled right now.

Is it better now?

Yes, slightly better.

Yes. So I just actually wanted to know what is -- what are we looking forward when it comes to our segments on bathware, consumer and pipes? How do we see FY '24 in terms of revenue and margins? And based on our current debt, what is the movement that we will see going forward as well?

So basically, if you see financial year '23-2024 has been a year where most of the consumer companies had faced headwinds. We feel based on our studies and based on market environment that demand should come back once the election is over, by the middle of the Q2 of this financial year. And once the demand comes back, we will like to stick to, on the bathware business, we had given a guidance that we should be able to grow in the multiples of the market growth ranging around 1.25x to 1.5x in terms of the market, but let's say, the market is growing by around 10%, we should be able to benchmark growth between 13% to 15%. I would request Sudhanshu to actually talk more on this, how he sees the market and so on right now.

So, Pranav, I think what is happening is that the -- in the real estate cycle, we have the product -- projects, which perhaps would have got launched during COVID, it would have kind of fructified at this point in time. However, there were hardly any launches during that period of time. So that's why we're seeing a little subdued demand. So what we believe in the organization is that over a long-term CAGR, the market is, of course, growing at anywhere between 8% to 10% and we maintained our guidance at 1.25 to 1.5x market. So we continue to maintain that guidance. And of course, for a shorter period, when you see the same it may look that your growth were less, but I think at an overall level, we maintain the guidance. So positive part of this is -- the thing is that we have managed to improve our operational efficiencies and as the growth comes back, with the launches which happened post-COVID, we will definitely see profitable, healthy growth in our bathware business. That's what we believe that. And we've already seen that, for example, in our -- in the cycle, the pipe business, of course, comes before, and we've seen strong volume growth in those. So that's an indicator that, yes, of course, volumes are, of course, coming back. Volume is a key indicator of the transactions are happening. So that's what we believe. I think it's just a matter of time. We believe, from quarter 2 end -- quarter 2, we should start seeing substantial [indiscernible] coming back again into market.

Okay. And sir, on the margin side, what do we see our margins going for FY '25?

So we have given the guidance in my commentary that we believe we can improve our EBITDA margin by 1% to 2% in the next 18 to 24 months. We maintain the same guidance.

Okay. And on the pipe side as well, we would be seeing what kind of volume growth and the margins as well.

Rajesh, you can take this, please?

Last couple of years, if you see, you can't guide about the value, but definitely volume because the raw material prices are at its rock-bottom. So the company -- so all the industry is being considered as far as the volume growth is concerned. So we had a volume growth which we have reported of 15%, and we, in future also in the next coming year, we are presuming that yes, definitely, we'll have a volume growth of the same amount, maybe around 15% to 17% guideline, then the [indiscernible] given that volume growth. As far as EBITDA margins are concerned, we have improved a lot in this current financial year, and we are expecting to grow by, say, around 1% more in the next coming year.

Okay. Okay. And sir, just one last question on the debt movement, what are -- where do we see our debt going forward?

Somehow actually, we have not been able to maintain our guidance on the debt level. So debt levels have increased. So on a consolidated basis, we have closed the year with a total net debt around INR 836 crores. And this is costing us around 8.64%. And it has increased as compared to last year because there is an underlying CapEx, which is going on in terms of the pipe expansion.

Correct.

And also, one of the key things which we are focusing on is enhancing our brand presence on the street. So we have invested somewhere around INR 20 crores to INR 25 crores in terms of the brand shops, which we have opened. These are basically the dealer shops, which we do at our expense, but under an arrangement. So these sort of CapEx which we have done, and working capital also, we are also trying to save money there. But I think give us a quarter or so, I think we should be coming back with a fresh guidance and how the debt level should come down. So I would request if we can get a time of 1 or 2 quarters, we'll clarify it.

[Operator Instructions] The next question is from the line of Udit Gajiwala from Yes Securities.

Yes, sir. Just a follow-up from the previous participant. First is on the fundraising that you all have taken the Board approval for. Could you give some more clarity as to what will be the quantum and the use of those funds, sir?

So Board has in-principally authorized HHIL to look at alternatives if we can raise more equity, given the fact that the total debt level is high. And we will be here in process now of finding consultants or financial intermediaries, lawyers who can help us on this. Basis that assessment and based on the dipstick on the market, we'll go back to the Board, I think in the next 1 or 2 months, after which, after the Board announcement of this, we can may perform, we can raise the funds, pass the information to the market as such. But the plan is broadly we can do some right for some preferential and raise some equity capital. I can't talk about the quantum. I can't talk about anything until and unless it is informed by the -- and approved by the Board.

Got it. So primarily, it is for repayment of your debt, firstly?

Yes.

Got it. And so what will be the ongoing CapEx now for, say, FY '25? What is the budgeted CapEx?

So we have ongoing CapEx on the pipes where we are setting up our plant in Roorkee, wherein we still have to invest somewhere around INR 80 crores, INR 90 crores. Plus apart from this, we continue to invest into the development of our distributions and that is development of shops across. So we feel a CapEx of somewhere around INR 120 crores, INR 130 crores, INR 140 crores, that's the range bound what we are looking.

Understood. And sir, ex of any fund raise, I mean, is there any principle that you would -- the plans to repay the debt? If the fund raise is not happening from internal accruals, do you plan to repay any debt on an annual basis? Or it all depends on fund raise [indiscernible]?

As we don't have any subsidiary, all the EBITDA that we generate, if we are not doing -- if we're not spending on a long-term CapEx, everything ultimately goes for the debt [indiscernible]. But give us a quarter or so, I think we should be able to get back with a more firm plan that once -- and we can confirm only once the Board has approved.

Got it. Got it, sir. And sir, lastly, on the pipe side. So the plant is starting in Q3 of next fiscal. So by then, do you see any challenges because the quarter, I guess, utilization was -- in north of 90%. That's kind of unusual in the plastic pipe business. So do you see any capacity constraints in the near-term?

Rajesh?

So we will get that 1 full quarter to utilize the capacities, which we are installing at the initial stage. Hello?

Yes, sir.

Yes, sir.

Am I audible? Okay. So we will be utilizing those capacities for the full quarter, which we'll be installing during our commissioning. In future also, we have the possibility to increase our capacity there because we are making the complete plant, but we are not installing all the machines. We are seeing a good guidance growth as far as volumes is concerned. The only challenge is the value. Once the raw material goes up, then value growth is also pick up, but volumes are always there in this industry.

Understood. And sir, on CPVC pricing front, could you highlight that have the prices bottomed off? Or what's your view on this for this business?

CPVC prices were stagnant in the last 2 years. They are neither going up nor going down. It's only a little of competition that has happened. But we are expecting that Q2 of this financial year, there will be a pickup. As Sudhanshu rightly said, all these people are just waiting for June, all these projects, which are going to start, which are there on the table, which have got early launch, the project has got launched nationwide, they need CPVC, and we are offering almost all the projects of the country now. But it is the kick start of the project. Once that happens, it would be the first thing after the specs will grow there. So we are seeing in the end of -- by the end of Q2, there will be a shift for CPVC demand in the country.

The next question is from the line of Nikhil Gada from Abakkus AMC.

Yes.

Nikhil sir, can you be quite loud.

Yes. Is it audible now?

Yes, please. Continue.

Yes. First of all, congratulations on a decent set of numbers in a weak environment and also one thing regarding the retail business. So that is now behind. So just firstly, on the Bathware business. If you can highlight, I just need some numbers, how is the mix looking like in FY '24 versus FY '23? And how much the dependency on China has reduced?

[indiscernible], what was the first question? I couldn't get it.

Sir the mix in sanitaryware and faucets in terms of premium versus economics compared with FY '23?

Okay. I think, Sudhanshu, why don't you first talk about the China business.