Key highlights

• The Company reported an 12.5% growth in revenue to Rs 424 crore in Q3FY19. Bathware segment continues to grow faster at 26% in Q3FY19 contributing 11% to overall sales. Sales for the segment were Rs 46 crore and Rs 127 crore for Q3FY19 and 9MFY19 respectively. Profit after Tax (PAT) remained flattish at Rs 14 crore in Q3FY19.

• The Company price hikes of 2.5% for tiles undertaken on 25th October and 5-6% for Faucet/Sanitaryware on 1st November have been absorbed. These price hikes are likely to sustain despite a reduction in gas prices as Morbi-based players are yet to initiate any price hike.

• The Company sales volume inclined 8% to 12.77 million square meters (msm). However, tightening of Receivable Cycle efforts to control receivables days led to a volume loss of 0.6msm. Further, Company expects that a high YoY base is likely to impact sales volume growth in Q4FY19 as well. Notably, the Company maintains its higher volume growth guidance in FY20, mainly on account of commissioning of a 3.7msm plant in the Southern region and improvement in the utilization rate of existing capacities.

• Update on Morbi-based Plants: Liquidity crunch issues impacted the Morbi-based manufacturers significantly, which also resulted in sharp deterioration in receivables days increasing to 130-150 days. Notably, builders' segment accounted for 60-70% of their total sales volume, which they are facing challenges in receiving payments. Pay-back period for a plant in Morbi has increased to 6-8 years, as against 3-4 years earlier, which has also reduced the chances of new capacity addition in the region. Notably, capacity utilisation level for Morbi-based units stands at 60-70% currently.

• The Company has been able to reduce its receivable days to 84 days in Q3FY19 from 105 days in Q3FY18. Its consistent efforts to receive Rs40-50 crore are likely to further curtail its receivable days. Net working capital days stood at 81 at Q3FY19.

• The Company sales mix for Q3FY19 -Own manufacturing (37%), JV (38%) & Others (25%). The Company tiles business sales volume inclined 8% to 12.77 million square meters (msm). For Q3FY19, sales volume mix was 5.17 msm from own manufacturing, 4.59 msm from JVs and 3.01 msm from others.

• The Company Ad spend maintained at 3-4% of revenues. Overall, FY19 ad spends will be at Rs 70 crore. Further, trade and non-trade mix stood at 70:30.

• The Company capacity utilization for Q3FY19: tiles segment at 83%, Sanitaryware segment at 60%, and Faucets segment at 93%. The Company expects utilization to improve in FY20 with the industry volume is likely to grow by 3%/4% in FY19/FY20E. The Company expects revenue from Sanitaryware of ~Rs 200 crore in FY19 and expects growth rate for next few years is 25-30% YoY with operating margin of 13.5-14%.

• The Company has estimated a capex of Rs 45 crore for FY19E and Rs55-60 crore for FY20E. The Company Southern plant, having production capacity of 3.7 msm, is undergoing trial run. The net capacity addition for the company would be~2msm as it has exited from the JV with Commander. Further, the capacity increase in the faucet plant would be completed by in Q1FY20.

• The Company expects recent fall in natural gas price augur well for industry which will favourly impact margin going forward. Also Company expects recent announcement by government will boost housing sector and infrastructure creation giving a fresh impetus to consumption and building material sector.