HINDWAREAPNSENovember 15, 2022

Hindware Home Innovation Limited

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85turns

9analyst exchanges

5executives

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Management on call

Rakesh Kaul

WHOLE TIME DIRECTOR AND CEO

Rajesh Pajnoo

CEO, PIPE BUSINESS

Sudhanshu Pokhriyal

CEO, BATH BUSINESS

Sandeep Sikka

GROUP CFO

Naveen Malik

CFO

Key numbers — 40 extracted

Rs. 715 crore

ered healthy growth. For the quarter, Consolidated Revenue from Operations came in at Rs. 715 crore, up 16% Y-o-Y. Consolidated EBITDA for the quarter stood at Rs. 64 crore, having grown by 11% Y

16%

h. For the quarter, Consolidated Revenue from Operations came in at Rs. 715 crore, up 16% Y-o-Y. Consolidated EBITDA for the quarter stood at Rs. 64 crore, having grown by 11% Y-o-Y. Marg

Rs. 64 crore

m Operations came in at Rs. 715 crore, up 16% Y-o-Y. Consolidated EBITDA for the quarter stood at Rs. 64 crore, having grown by 11% Y-o-Y. Margins though were understandably under pressure because of higher

11%

crore, up 16% Y-o-Y. Consolidated EBITDA for the quarter stood at Rs. 64 crore, having grown by 11% Y-o-Y. Margins though were understandably under pressure because of higher raw material prices an

Rs. 16 crore

market sentiment. Consolidated PAT, after considering the results of JV, for the quarter stood at Rs. 16 crore. Figures are on a consolidated basis and rounded off. For H1 FY23, consolidated Revenue from Op

Rs. 1,393 crore

consolidated basis and rounded off. For H1 FY23, consolidated Revenue from Operations stood at Rs. 1,393 crore, growing by 45% Y-o-Y. EBITDA stood at Rs. 131 crore, growing 75% Y-o-Y. PAT came in at Rs. 27

45%

ded off. For H1 FY23, consolidated Revenue from Operations stood at Rs. 1,393 crore, growing by 45% Y-o-Y. EBITDA stood at Rs. 131 crore, growing 75% Y-o-Y. PAT came in at Rs. 27 crore compared to

Rs. 131 crore

solidated Revenue from Operations stood at Rs. 1,393 crore, growing by 45% Y-o-Y. EBITDA stood at Rs. 131 crore, growing 75% Y-o-Y. PAT came in at Rs. 27 crore compared to Rs. 28 crore in H1 of last year (excl

75%

Operations stood at Rs. 1,393 crore, growing by 45% Y-o-Y. EBITDA stood at Rs. 131 crore, growing 75% Y-o-Y. PAT came in at Rs. 27 crore compared to Rs. 28 crore in H1 of last year (excluding excepti

Rs. 27 crore

3 crore, growing by 45% Y-o-Y. EBITDA stood at Rs. 131 crore, growing 75% Y-o-Y. PAT came in at Rs. 27 crore compared to Rs. 28 crore in H1 of last year (excluding exceptional gain Rs. 100.86 crore). Our st

Rs. 28 crore

Y-o-Y. EBITDA stood at Rs. 131 crore, growing 75% Y-o-Y. PAT came in at Rs. 27 crore compared to Rs. 28 crore in H1 of last year (excluding exceptional gain Rs. 100.86 crore). Our strong brand recognition, i

Rs. 100.86 crore

came in at Rs. 27 crore compared to Rs. 28 crore in H1 of last year (excluding exceptional gain Rs. 100.86 crore). Our strong brand recognition, innovative product offerings, and broad distribution network have

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Guidance — 20 items

Naveen Malik

opening

“Going forward, we remain focused on improving our operational efficiency and minimizing input costs by implementing prudent cost rationalization measures.”

Rajesh Pajnoo

opening

“We are on schedule with our brownfield capacity expansion project at the Isnapur plant, Hyderabad with expected completion next month December 2022.”

Rajesh Pajnoo

opening

“Additionally, the Greenfield project in Roorkee Uttarakhand is progressing as planned with the purchase of the factory land already completed.”

Rakesh Kaul

opening

“And also at the same time our increased focus on premiumization for product resulted in increased sales of our silent range of chimneys, and also the next quarter in the patent technology chimneys.”

Ritesh Shah

“Similarly, if you look at the institutional buyers for example, there are people who are builders, who are architects, who recommend brands, when they take up a project, again our institutional team can go and actually recommend our water heater business as well, they also can recommend our pipe business as well.”

Sandeep Sikka

“Yes, if you go historically, we had given guidance last year that we will optimize our working capital by around 15% to 20%.”

Sandeep Sikka

“On the next target, with the acquisition we have given historical guidance also, that we will be optimizing inventory going forward in next 12 to 18 months.”

Nikhil Gada

“Can you give us guidance, what are the best possible margins we can achieve now that we have got the manufacturing division in our fold in sanitaryware and faucets?”

Sandeep Sikka

“I’ll also request Sudhanshu to briefly talk about how the margins should pan out, going forward because we feel that giving the guidance on an absolute number right now it’s a bit difficult Nikhil.”

Sandeep Sikka

“Sikka said we can expect a significant improvement in margins as we go forward.”

Risks & concerns — 15 flagged

Margins though were understandably under pressure because of higher raw material prices and subdued market sentiment.

— Naveen Malik

To combat the impact of rising input prices and preserve our margins, we may consider revising our prices in the coming quarters.

— Naveen Malik

Q2 continue to witness a steady decline in PVC prices, resulting in destocking by channel and inventory loss for most of the players across the country.

— Rajesh Pajnoo

Given the impact of inflation on the discretionary product categories like furniture the segment has been witnessing sales headwinds.

— Rakesh Kaul

But what is happening is, if you see last six months, input prices have been really very volatile, especially when we talk about sanitaryware.

— Sandeep Sikka

I’ll also request Sudhanshu to briefly talk about how the margins should pan out, going forward because we feel that giving the guidance on an absolute number right now it’s a bit difficult Nikhil.

— Sandeep Sikka

Nikhil there has been a continuous decline in the raw material prices of the PVC and CPVC has not been impacted by this.

— Rajesh Pajnoo

And it is happening over the last complete six to seven months, there has been a decline of around 42% in raw material prices.

— Rajesh Pajnoo

Or otherwise, if it doesn’t happen, definitely because past month also there has been post Q2, there has been a decline two times in the raw material prices.

— Rajesh Pajnoo

So, what has happened Nikhil is that there is huge inflationary pressure towards the mass and mass premium segment in the market right now.

— Rakesh Kaul

If you see today, in the financial cost, there is an impact of two things.

— Sandeep Sikka

If you see for a quarter, we had on a consolidated basis and interest of odd Rs.18 crore, we feel that putting a number on a medium to long term range is difficult.

— Sandeep Sikka

So, in terms of a dealer addition, where are we more focused I was saying South is a little bit weak.

— Forum Makim

Right, What is consistent margin that we have in mind for all businesses combined like at the consolidated level once the input cost pressure stabilizes and everything is back to normal?

— Pushkar Jain

The quantification right now is slightly difficult for us.

— Sandeep Sikka

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Q&A — 9 exchanges

I had a bit of a more generic question. First is basically what is the complete strategy when it comes to cross selling products across different divisions, is there an overlap in the distribution channel how should one understand this, that’s the first question. And the second question is what is the minimum hurdle rate that the company looks at while deploying incremental capital in any of the new segments.

Sandeep Sikka

As you see today, we have three distinct distribution channels to the market. One is the traditional sanitaryware and faucets channel, which is more of a display channel. Today most of our products are premium products and they sell basis look and feel. People have to experience the product in the showroom. Another distribution channel which we have is the hardware channel, where most of our CPVC, PVC pipes sell. But this channel is run through the distribution model. Whereas the sanitaryware or faucets channel we run with a combination of a distribution and a dealer network model. Some of the

My first question is on the margins, specifically for the building products and specifically for sanitaryware and faucets. Now this is a second quarter where after the manufacturing has come in that we are seeing margins in this range. Can you give us guidance, what are the best possible margins we can achieve now that we have got the manufacturing division in our fold in sanitaryware and faucets?

Sandeep Sikka

Thanks Nikhil. I understand your question about where it is coming from. If I just inverse your question, your key question is that, with the acquisition of manufacturing, how the margins behavior is. But one thing I’ll just say for the whole business, we acquired this manufacturing on 1st of April 2022, the margins which are relating to manufacturing, they are accruing as a part of the overall P&L. But what is happening is, if you see last six months, input prices have been really very volatile, especially when we talk about sanitaryware. The gas input is the main cost, has increased substant

Sir, I wanted to know the contribution, the brand wise contribution for our sanitary and faucetware business like contribution from Hindware, Hindware Italian and premium brands like you.

Sandeep Sikka

If you see, our premium ratio which starts at the Hindware Italian is almost 50% of our overall portfolio. And for faucets, we are doing as a percentage of overall bath products of around 34% to 35%. Okay. And sir could you give us a breakup city wise like how much would metro cities be contributing, how much tier one, tier two and below would be contributing to our revenue? If you see at the Hindware brand, the top nine cities, or top 7-8 metros are Bangalore Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune which account for our 33% of sales and 67% goes to non-metro and similar trend is t

My first question is on the status of our transaction with AGI Greenpac. So, we had some pending purchases from AGI left so is that completed or what’s the status of that?

Sandeep Sikka

We had stated in the last call that we had to pay around odd Rs. 100 crore around to them, which till September we have already paid around Rs. 50 crore, one transaction relating to land transfer is already completed and the other is about to get completed. Within this quarter or the next month, we should be able to settle the entire thing. The businesses have been transferred, there is only certain formalities which are relating to the transfer of entire title deeds and other things that are getting completed now. Sure. And in terms of our net debt, we have come up to about Rs. 750 odd crore.

Two of my questions are there, on the presentation page number #11 regarding the plastic pipe. So, existing capacity as per my knowledge is 35000 metric tonne is there, but volume Q2FY23 it shows 37,000 metric tonnes. Were there any announcement on that front or some kind of improvement is there?

Rajesh Pajnoo

See we have installed two new machines during this period. So, that is why it has gone to 37000 metric tonnes. And we are in the process of adding up machines. So, we presume that by this quarter end we’ll be having a capacity of 39,000 metric tonnes. End of the Q3? Yes, at the end of Q3. And another question is, in the presentation page number #20, your service network of the 650 technicians is there in pan India. What is the ratio of the female and male technicians? It should be less than 2% because this field is still predominantly controlled by men, because it requires a lot of manual work

So, first of all, I just wanted to ask about the sanitary and faucets business specifically, I want to know the volume growth for the quarter two and H1 basis that is my first question. The second question is the capacity utilization of sanitaryware and faucets plant and what is the production yield coming out of it for the plants?

Sandeep Sikka

Thanks for the question. Generally, this volume from sanitaryware is a sort of a misnomer because sanitaryware comes in different sizes and different forms. We don’t generally disclose, any number on the volume side, like on the faucet side again, the faucet types are very different like in a particular month, we may sell more of diverters in other months, or we may sell more of other things. Market takes it from the perspective of the sales value only. On the pipes segment, there is good volume growth which we have achieved, like we disclosed that on the CPVC side, there has been year- on-yea

I would just like to ask you, post this Rs. 50-crore payment more or less it is settled, what is the consistent ROE and ROCE that we are looking on a long term basis, given our equity securities changed a little bit?

Sandeep Sikka

We strongly feel that on a medium to long term range for our all businesses together, based on the market conditions from time to time but we are confident stretching ROCEs ranging 18% to 24% on an average in a normal market conditions for our combined business. Right, What is consistent margin that we have in mind for all businesses combined like at the consolidated level once the input cost pressure stabilizes and everything is back to normal? We generally don’t give any short-term target, but on a medium to long-term gain on a consolidated basis, we have stated that our EBITDA margin should

Couple of questions. Sir first one is you indicated, a long-term ROCE that we chased for new businesses just wanted to get a sense, like after how many years of being into a particular operation or launching a new segment would you aspire for that number, is it the decision is 18 months, 24 months how should one look at that?

Sandeep Sikka

Ideally if we enter a new business, most probably the incubation period is around five years. If you see, like consumer business, it’s a distinct vertical inside the company. Similarly, when you look at the pipes business, it’s not that the same as sanitaryware and faucet team doing the business. It is a new team led by separate leadership and a separate distinct market distribution channels. There is a fixed cost to the business, we need to set up the entire supply chain, we need to set up the entire manning for controlling the business, be it sales and marketing teams or the foot soldiers to

Well, thank you everybody for joining the call today. Markets are very volatile and it has been volatile as I spoke that, especially on the few of the product prices are increasing, few of the product prices are coming down like for the pipes the PVC prices are coming down. On the gas side, the prices are going up I really understand, it’s for any analyst community they have to really go through the deeper into the data to really aspect the whole thing. The questions have been very, very logical and I hope we have been able to respond to all of them. Thank you again for joining the call.

Notes

1. This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings. 2. Figures have been rounded off for convenience and ease of reference. 3. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Hindware Home Innovation Limited (formerly Somany Home Innovation Limited)

Speaking time

Sandeep Sikka

Ritesh Shah

Moderator

Forum Makim

Rajesh Pajnoo

Rakesh Kaul

Nikhil Gada

Sunny Gosar

Vikash Vijayvargiya

Puneet Khanna

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Opening remarks

Apurva Shah

Good morning everyone, on behalf of PhillipCapital Private Client Group Desk, I welcome all of you to the Q2 & H1 FY23 Earning Conference Call of Hindware Home Innovation Limited. We take this opportunity to thank the management of HHIL for giving us the opportunity to host this post earnings conference call. From management we have with us today Mr. Rakesh Kaul, Whole Time Director and CEO, Mr. Rajesh Pajnoo, CEO Pipe Business. Mr. Sudhanshu Pokhriyal, CEO of Bath Business, Mr. Sandeep Sikka, Group CFO and Mr. Naveen Malik, CFO of Hindware Home Innovation Limited. I now hand over the call to Mr. Gavin Desa, from CDR India for further proceedings. Thank you and over to you, Gavin.

Gavin Desa

Thank you, Apurva. Good day, everybody and thank you for joining us on this call. I just like to add that statements made during this call, may be forward looking in nature and are subject to risks and uncertainties. The management or the company does not take any responsibility to revise these in the interim or make any changes. I now like to hand over to Mr. Naveen Malik to start by giving his opening remarks. Over to you Naveen.

Naveen Malik

Good morning ladies and gentlemen, and a very warm welcome to Hindware Home Innovation Limited’s Q2 & H1 FY23 Earnings Call. I will start the call by taking you through our financial performance for the quarter and half year ended 30th September 2022. Post which the business CEOs will take you through the key highlights of their respective businesses. We are happy with our performance, especially considering the challenging inflationary environment we had to operate in. Despite a subdued demand environment, both our Building Products and Consumer Appliances businesses have registered healthy growth. For the quarter, Consolidated Revenue from Operations came in at Rs. 715 crore, up 16% Y-o-Y. Consolidated EBITDA for the quarter stood at Rs. 64 crore, having grown by 11% Y-o-Y. Margins though were understandably under pressure because of higher raw material prices and subdued market sentiment. Consolidated PAT, after considering the results of JV, for the quarter stood at Rs. 16 crore. F

Rajesh Pajnoo

Thank you Sudhanshu. Good morning everyone. Thank you for joining us. Despite a challenging environment, I’m glad to report that our pipes business register revenue from operations of Rs. 197 crore for the quarter, registering a growth of 24% year-on-year, EBITDA stood at Rs. 6 crore. In H1 FY23 the business reported revenue from operations of Rs. 367 crore registering a growth of 50% year-on-year. EBITDA stood at Rs. 18 crore up 12% on year-to-year basis. Q2 continue to witness a steady decline in PVC prices, resulting in destocking by channel and inventory loss for most of the players across the country. But despite these challenges, I’m happy to report that we have seen a growth in volume over the past two quarters, largely owing to a higher share of CPVC pipes and fittings contributing over ~50% to the business revenue complemented by growth in volume. In Q2FY23, we added more than 200 new products increasing the SKU we offer to more than 1500. During the quarter, we continue to co

Rakesh Kaul

Thank you, Mr. Pajnoo. Good morning everyone out here and thanks for joining this call. So, let me take you through the Q2 performance for our consumer appliances and our retail (EVOK) business at HHIL. In Q2 FY23 our revenue from operations and consumer appliances Rs. 125 crore, registering a growth of 12% same quarter last year. EBITDA stood at Rs. 11 crore registering a growth of 9% over the same quarter last year. In H1 FY22 business reported a healthy revenue from operations of Rs. 254 crore registering a growth of 42% and year-on-year. EBITDA at Rs. 16 crore, increased by 119% on an y-o-y basis. Our continued investment in research and development has enabled us to register more than 33 patents and we have already got two patents provided to us in the inception of the company. We are devoted to creating a compelling and cutting-edge product portfolio with innovative features. In Q2 FY23, we added new products, increase the SKUs, we offer across chimneys cooktops and water heaters

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