Cera Sanitaryware (NSE:CERA) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Earnings Conference Call of Cera Sanitaryware Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Devashi Singh from CERA India. Thank you, and over to you, Mr. Singh. Thank you. Good morning, everyone, and thank you for joining us on Cera Sanitaryware Limited Q2 FY 'twenty seven Earnings Conference Call to discuss the results announced yesterday. We have with us today the management team comprising Mr. Mikas Kothari, CFO and Mr. Deepak Chaudhry, VP, Finance and Investor Relations of Cera Sanitaryware.

0:57 We will start with brief opening remarks from the management, following which we will open the call for Q and A. A quick disclaimer before we begin. Some of the statements made in today's conference call may be forward looking in nature, and a detailed note in this regard is contained in the results document that have been shared with all of you earlier. I will now turn the call over to the management for their opening remarks. Thank you, and over to you, Deepak. Thank you, Devishi. Good morning, everyone, and a warm welcome to all of you for joining us on Cera Sanitaryware Limited's Q2 FY 'twenty seven Earnings Conference Call. I will begin by sharing a brief overview of the operational and strategic developments during the quarter, following which our CFO, Mr. Vikas Kothari, will take you through the financial performance in greater detail.

1:58 CERA continued to deliver healthy growth during Q2 FY 'twenty seven, with revenues growing by 27.4% year on year. Both our sanitaryware as well as the Faucetware business performed well, going by 2438%, respectively. Sanitaryware and Faucetware accounted for 4543% of total revenues, respectively, together contributing approximately 88% of CERA's overall revenues. Importantly, the growth during the quarter was predominantly volume driven with healthy traction across key product categories, including sanitaryware, faucetware, tiles and construction chemicals.

2:48 From a channel perspective, retail demand continued to recover and was complemented by an encouraging performance in the projects business. As many of you would be aware, the projects business has been an important contributor to our performance over the past several quarters. The improving contribution from retail channel is a positive development for the overall business. Another important aspect of the quarter was the consistency of growth with business momentum remaining healthy throughout July, August and September rather than being concentrated in any particular month. It is important for the investors to appreciate that the broader industry environment remains challenging. While demand trends have shown improvement, the operating environment continues to be affected by elevated input costs and supply side challenges.

3:41 Against this backdrop, we believe that Cera's performance reflects the inherent strengths of the business model as well as the multiple interventions we have undertaken to further strengthen our competitive position. Over the past few years, we have consistently worked on further developing our focused markets by strengthening distribution and dealer relationships, improving our market approach and enhancing internal execution capabilities. These initiatives are now beginning to yield tangible results and we believe have been critical factors that have enabled us to win incremental market share. From a geographical perspective, we are seeing healthy traction across the wider set of markets.

4:28 Uttar Pradesh has emerged as an important market for us and the focused markets such as Bihar, Kharkand, Odisha, Chhattisgarh and MP have also shown traction. The work undertaken to strengthen our presence in these markets have helped us broaden our geographical presence and offset relatively weaker demand in certain traditionally strong regions. We continue to focus on deepening penetration and addressing white spaces in existing markets while simultaneously expanding our reach into smaller towns and emerging consumption centers. Coming to the input cost environment, brass and gas remain elevated during the quarter, creating challenges for the industry. We have taken calibrated price revisions across our product portfolio over the past few quarters, including a further price increase of approximately 8% in the Faucetware segment, effective from 09/01/2026, to partly offset the impact of higher brass prices.

5:33 The benefits of this revision are expected to flow through the channels from later part of Q3 twenty twenty seven onwards. As discussed in our previous earnings call, there's a lag between implementation of price hikes and realizing their full benefits, particularly in the projects business, where certain suppliers are executed against previously agreed prices. We have therefore introduced measures to strengthen pricing discipline for future project commitments and better project profitability against further increase in input costs. Alongside these pricing actions, we continue to focus on cost optimization, process improvements and operating efficiencies.

6:19 While the full benefits of these initiatives will be visible progressively, initial outcomes have led to an improvement in the operating margins on a sequential basis. We expect further benefits to flow through the coming quarters as these measures take effect. Our established sourcing arrangements and strong in house manufacturing capabilities continue to provide us with a relative advantage in navigating the challenging cost environment. In particular, our favorable gas sourcing arrangement has helped us to cushion the impact of higher energy costs, positioning us favorably relative to several other industry participants. From a manufacturing perspective, capacity utilization has improved considerably, supported by recovery in volumes.

7:10 Our Sanitaryware facilities are currently operating at utilization level of 82%. In Faucetware, we have been able to increase monthly production from four lakh units to five lakh units by adding certain balancing equipments of plant and machinery within the same facility. We have also selectively brought certain fast moving products in house, reducing our dependence on external manufacturers and strengthening our ability to maintain consistent product availability. This has been particularly relevant given the operating challenges faced by several manufacturers in the Modi cluster. Our ability to service customer requirements consistently has helped us respond effectively to the market opportunities.

8:02 On the brand front, the core Cera brand remains the principal driver of our volume led growth. We remain focused on strengthening our position across the mass and mid premium categories to product development, distribution expansion and sustained brand building initiatives. At the same time, we continue to invest in strengthening our newer brands, including Senator and CeraLuxe with a long term perspective. Looking ahead, we remain confident of sustaining our growth momentum, supported by improving demand and deeper penetration across existing and emerging markets. The investments made in our distribution network, manufacturing capabilities and internal processes over the past few years has strengthened our ability to capitalize on the opportunities ahead.

8:53 While input cost inflation remains an important challenge, we expect profitability to improve progressively during the second half of FY 'twenty seven, supported by the cumulative benefits of pricing actions, cost efficiency initiatives and the healthy volume growth. We are now confident of surpassing the revenue growth target along with our full year EBITDA margin outlook of 13% to 14%. With this, I would now like to hand over the call to Mr. Vikas Kuthari to take you through the financial performance of the quarter. Thank you, Deepak, and a very good morning to everyone. I will now take you through a brief overview of the company's financial performance for the quarter ended 09/30/2026.

9:45 Revenue from operations for the quarter stood at $60.03 crores as compared to INR $4.73 crores in Q2 FY 'twenty six, representing a healthy Y o Y growth of 27.4%. For the first half of FY 'twenty seven, revenue from operations stood at INR 89 crores, reflecting a growth of 23.7% over the corresponding period of the previous year. EBITDA excluding other income for the quarter stood at INR 73 crores as compared to INR 67 crores in the corresponding quarter of the previous year. The EBITDA margins stood at 12.2% in Q2 FY 'twenty seven compared with 14.2% in Q2 FY 'twenty six and ten point one percent in Q1 FY twenty twenty seven.

10:45 While input cost pressures, particularly in brass and gas continued during the quarter, we witnessed a sequential improvement in operating margins. This improvement was supported by the benefits of the pricing actions undertaken over the preceding quarter, alongside our ongoing focus on operational efficiencies and the effective cost management. As mentioned earlier, the benefits of price revisions, particularly in the project business, are being realized with the time lag. The revised price arrangements for future project commitments should progressively support margins over the coming quarters.

11:33 The average cost of gas during Q2 FY 'twenty seven stood at INR 47.29 per cubic meter compared with INR 33.79 per cubic meter in the corresponding quarter of the previous year. Similarly, the average cost of drafts during Q2 FY 'twenty seven stood at INR $9.32 per kg compared with INR $5.89 per kg in Q2 FY 'twenty six and INR $8.37 per kg in Q1 FY 'twenty seven, representing an increase of 58% on Y o Y basis and 11% on quarter on quarter basis.

12:23 In terms of the revenue mix, Sanitaryware accounted for 45% of our revenues, offset were 43%, times 10% and wellness 2%. On a Y o Y basis, Sanitaryware revenue grew by 24%, profit were by 38% times by 9% and wellness by 71%. From a channel perspective, the projects business accounted for 39% of the revenues, while the retail business contributed 61% in Q2 FY 'twenty seven. In Q1 FY twenty twenty seven, we accelerated deliveries for certain projects in view of the rising input costs.

13:12 This resulted in a project to retail revenue mix of 40 three:fifty seven. Going forward, we expect this mix to stabilize at around forty:sixty. Profit after tax for Q2 FY 'twenty seven stood at INR 56 crores compared with INR 57 crores in the corresponding quarter of the previous year. Earnings per share for the quarter stood at INR 43.52 compared with INR 43.92 in Q2 FY 'twenty six. On the working capital front, we continue to focus on inventory management, receivables and overall working capital discipline.

14:06 Inventory days decreased from eighty three days to sixty nine days. Receiver days reduced from thirty three days to twenty eight days, while payables remained unchanged at thirty nine days. Consequently, our net working capital improved from seventy seven days to fifty eight days on Y o Y basis. As of 09/30/2026, our cash and cash equivalents stood at INR $8.97 crores. Our balance sheet remains healthy, providing us with the flexibility to support our ongoing business requirements and other strategic initiatives. Regarding our capital expenditure plans, we continue to progress with the investments outlined for financial year '27.

15:01 Capital expenditure incurred during the first half stood at INR 27 crores against our planned full year outlay of approximately INR 43 crores. Looking ahead, we expect operating profitability to improve progressively during the second half of FY twenty twenty seven, supported by sustained demand, healthy volumes and the benefits of our pricing and cost efficiency initiatives. We are actively working on increasing cost efficiency using automation and AI tools. We are aggressively evaluating various costs in the system, exploring greater automation of processes and identifying interventions that can yield savings.

15:54 We are confident that these actions will contribute visible and tangible benefits in the next couple of quarters and thereafter. While input cost movements remain an important factor, the cost actions and the likely benefits of operating leverage gives us confidence to maintain our full year EBITDA margin outlook. Overall, we remain focused on sustainable profitable growth and maintaining a healthy balance sheet. With this, I would discuss the moderator to open the lines for Q and A. Thank you. Thank you. We will now begin the question and answer session.

16:47 The first question comes from the line of Amit Srivastava with three sixty one Capital. Please go ahead. Hi. Thank you for the opportunity. So just wanted to understand first is, can you give us a breakup of this growth which has come in a scientific and positive as you mentioned, it's more driven by the price volume. So if you can give the breakup like last quarter, have given volume, price and mix, how much it has contributed into this quarter? Yes. Thank you for the question. So like we told, in terms of the growth part, as we are replacing quarter on quarter, so it is purely a volume driven growth.

17:42 So retail demand continued to recover. It was complemented by steady project performance. And in terms of the breakup of the growth for the Q2, so volume has contributed around 16.6%, price division actions what we have taken. They are partially realized in the realization that contributed around 9.1% and mix contributed around 1.7%. So this was the overall company as a whole. And I think you have asked for the breakup with respect to sanitaryware and faucetware. Again, in case of sanitaryware, the volume has contributed 14.3% and the price favorable price was 6.72.7% was the mix impact, which has overall given the revenue growth of 23.7%.

18:41 And in case of Faucetware, the breakup of 38% growth is largely driven by volume that is 24%, favorable price impact that is 10.3% and the balance is the mix impact, which is 1.9%. So just to understand this strong volume growth is coming. So are we gaining a market share because of we have some advantage on a cost side or is it a brand distribution or newer market which is giving us that edge or this price increase which we have taken that pre buy has also given us kind of push to our volume overall. What is really driving it? So down level demand or expansion, all this if you can explain.

19:34 Yes. Essentially, the volume is being driven by increased demand from the market because the pre buying like we have taken two price increases during the last two quarters. But that is something which is only impacting a particular period, like just immediately after the price increase, we'll find the volume going up substantially. But later on, it all normalizes. So the sustained improvement in demand that we are able to see is not on account of just the pre buying portion building up. It is the improved demand, which is already there in the market. And more importantly, it is the fact that the company has taken over the last couple of years when the demand was muted, where we have concentrated on both the external, the distribution channel improving the market, understanding the consumer, understanding our distributors and trying to improve the entire the distribution, the product, the manufacturing efficiency, the sourcing arrangements, they're all now coming up to kind of help us and because the external demand is there, but we find that even meeting that demand becomes a challenge in the current situation, wherein the Mobi where we are dependent like 50% on outsourcing.

20:48 So as of now, I can say that because of the fact that we have taken those initiatives over the last couple of years, that is all adding up. Would you say that we have gained market share? I would definitely feel that over the last three, four quarters, the way that our numbers have grown, market share would have gone up. But it is a little difficult to assess in our specific industry because we find that most of the players are unlisted and it takes a little time for the numbers to come in. But even the ones which are listed have a large number of products. So this particular space has been a bit difficult to gauge as to what kind of numbers they are having. But we are confident that if we not talk about just the external competitors, at least we are very good happy in terms of the kind of numbers that we have been able to achieve over the last, you can say three, four quarters.

21:42 Okay. And in terms of the project business, sir, you said that mix has increased to 43% and which will move towards the 40. Also, it can come in a immediate basis, like in a coming quarter, we can expect that? Or is it a slightly medium term, it will come towards that direction? Second, already happening in this quarter, right? I'll just answer your question about this, but it has already happened in this quarter. In this quarter, the project business was contributing 39% as opposed to 43% what we have done in the previous quarter. Previous quarter was kind of an aggregation because of the input price increases which had happened and kind of profitability concerns that it was raising. We had actively taken deliveries push deliveries of certain projects, which were nearing completion.

22:28 We had kind of people deliveries at that point of time because the inputs were on a continuous rising basis. So that was an aberration. We have already come back to that level of the 39% in the current quarter and we should be at that level of 40 to 60 ratio that we have been traditionally as of now been maintaining over the last couple of years. So we should be near that on a long term basis. But that again depends on the fact that why this has happened not only because projects was an aberration in the previous quarter, but retail has now started growing. So earlier project share was growing because retail was not growing, projects was continuing to grow. So that is why share was becoming disproportionate. Now that retail has picked up and project is also continuing to do well. So our turnover is increasing and the proportion of retail and project should remain in that ratio of sixty-forty going forward.

23:23 And there is still some order book of the older prices where we'll be having a lower margin versus the retail segment? Or is it now aligned Bulk to the new cost of it has been materialized in the last couple of quarters. There would be some parts of it in Q3. But going to the later part of Q3 and Q4, we could be all more or less with new project orders with new project, which will new prices. Okay. Perfect. Perfect. And sir, last question in terms of the margin profile, if we look at in the last two quarters, our margin is slightly subdued than what we were guiding for the full year. So given the guidance, though marginally, it has been lower and has revised downward. But still, the second half is implied very strong margin of 14.5% kind of margin.

24:11 So are we confident that this price increase whatever we have taken and the current cost structure we are able to manage that profitability? In respect of the margins, like we had ended Q1 with 10%, 10.13% in Q1. We had mentioned at that point of time that low margin was a kind of exceptional and that had happened primarily because of a large number of one time factors which had played during that point of time in that particular quarter. Now going into Q2, you'll find that most of those factors have reversed and we have started seeing a kind of upswing in the margin. So I'll just kind of give you an idea about the various things which have played in Q2 and what we expect going forward in Q3 and Q4.

25:01 Just to answer your question in respect of whether you're confident in respect of the total margin coming in the range of 13% to 14% for the full year. So we are pretty confident now that we should be able to surpass our 18%, 20% top line growth that we have projected earlier. And also the margin that we had indicated of 13% to 14% that we should be able to achieve. Just to give you a sense of how this 12.2% has materialized in Q2, I start with, let's say, point 13%, which we had projected for Q1, which had actually come in for Q1. And we have said that 4.5% was kind of onetime effects. So those onetime effects had been reversed in the current quarter.

25:46 So 10.13% plus that 4.5% kind of became 3.83% because that turnover also increased substantially as compared to Q1. In Q2, the turnover was higher. That 4.5% effectively translated into something like 3.8%. So ideally, point 1% was the base of Q1, 3.8% was the reversal of the onetime effects, which had happened at that point of time. So we should have ended up with something like 14.9% kind of revenue sorry, 13.9% of revenue, 10.1% plus 3.8%. At that time, we have taken an impact of projected of 1.5% in case of price rise. Actually, the price rise impact on the company as a whole came out to be 2.5%.

26:37 So 1% additional year gained over there, so which takes it to something like 14.9%. Ideally, our margin should have been 14.9% because of this. At least, the adverse factors have taken effect. In Q2 as opposed to Q1. Also, was an operating leakage impact of 1.9%, like because of the fact that turnover had increased, but the fixed costs are remaining constant. So this 1.9 favorable margin impact was there, operating leverage impact. So ideally, our margin in Q2 should have been 16.8. There were a few negative factors that got it down to 12.2. So just to eliminate these negative factors, the primary factor was the increase in brass prices. Brass prices even over Q1, it went up by roughly 11% to 12%. It was on an average the consumption was at in Q1.

27:41 It came out to be INR $8.37 in Q1, $5.89 was in the previous quarter, INR $8.37 in the previous Q1 FY 'twenty seven. It came out to be INR $9.32 in the current Q2 FY 'twenty seven. There's a 12% increase, which led to our overall 2.1% EBITDA decline. Publicity expenses increased by 0.5. Outsourcing of sanitaryware and tiles kind of the prices had gone up, gas prices had gone up in Mobi. So that resulted in 0.3% negative kind of an impact on an overall basis in the company. Also discounts kind of was a negative 1.7%. This was more in the project, wherein we find that the old projects were still continuing to move. So if the prices go up, but the selling price, which you are actively giving to the consumer remains the same, so the projects remain the same. So the discount typically look higher. That is why the negative impact of discounts, slightly it has gone up in retail also, but which we have taken a lot of steps in the future, which will bring it down again.

28:49 But that 1.7% impact was there on account of discount. All this add up to something like 4.6% negative. I'll just repeat them again, the negative factors. Brass, 2.1% publicity, point 5% sanitaryware and ties procurement, 0.3% discount 1.7%. So 4.6% negative in total, which took our margin from that 16.8% as this negative factor has not occurred to 12.2%. Now going forward, we are confident that in Q3, few of them should be reversing because most of the projects have now started, as I mentioned, old projects are now being completed. And most of the deliveries, which will be happening in Q3 and Q4 onwards, you'll find that there will be 40 new projects with the new pricing.

29:42 So the discounts over there, the pricing effect would take up becoming into effect over there. We expect that negative discount factors of 1.7 to disappear and also improve pricing further to come in into play. So that should be kind of impacting us to a large extent in the future. Plus, have also taken quite a few measures for controlling the retail discount also. The September price increase effect of assets is yet to kind of take into account in the current quarter of q two. That was also paying into q three and q four. So going forward, we are pretty confident that the margin of 13% to 14%, which we have projected for the whole year should be very easily achievable.

30:29 Okay. That's very helpful. Thank you, sir. Thank you very much from that from my side. Yes. Thank you. Thank you. A reminder to all the participants, please restrict yourself for two questions. And if you have more questions, please rejoin the queue for more questions. The next question comes from the line of Sriyansh Jain with 3A Capital Services. Please go ahead. Hello, am I audible? Yes, we can hear Yes. Just one question from my end. Has the current geopolitical scenario helped a company like us in terms of shift from unorganized to organized market, especially in Faucetware division where we have shown excellent growth? Geopolitical situation has done kind of a double edged kind of a situation. It has added problems as well as presented the opportunity also.

31:27 Problems is that the if you look at the blast prices, they have been going up continually over the past, we can say one year or so. And this has been accelerated by the geopolitical situation, wherein it has increased quite sharply over the last couple of quarters. The gas situation had become extremely precarious at the end of previous year Q4 and the beginning of Q1 of the current year. Now at least the prices are higher, but the probabilities are not an issue, but the increased prices are again putting a lot of pressure on the input side, the cost pressures have added. Coming on to the supplier side, we have been able to maintain our sourcing arrangements and we are confident that we don't anticipate any challenges in meeting our demand the way it will be there in the future.

32:20 Mobi players on an overall basis have been slightly impacted. But typically, if you look at the mobile profile for Sanitaryware, you'll find that it is either they are OEM suppliers. So that rate has not been impacted too much because they have been able to pass on the input increase in the input margins to the OEM players like we have procurement costs have gone up over the last, you can say, couple of quarters. So even in their own selling that they are doing in their own brand because the entire market prices have gone up, they've been able to pass on the increased cost in the input side on to the consumers. So there has been some benefit because the fact that the prices have gone up, the consumers tend to move towards more towards the branded players as opposed to unbranded ones. So that has helped to a certain extent.

33:16 But on a primary basis, if I say that, is it only because of the fact that this pricing, Bobby, the situation has evolved in mopey and they're not able to supply to the fullest extent, maybe on their own to the outside consumer. So that would be adding some part to the demand, but it is mostly, as I mentioned earlier also, it is what we have undertaken over the last couple of years for increasing our channel effectiveness and all the other improvement that we have done, which is now kind of yielding benefits and enabling us to take help us to kind of gain market share in a situation where overall economic conditions are a little tough. Great to hear that, sir. Thank you so much, and wish you all the best. Thank you. Thank you. Next question comes from the line of Pupesh Kavya with ICIC Hello. Thank you for this opportunity.

34:12 I wanted to ask Mister Kavya, sorry for interrupting. We cannot hear you. Can you speak a little louder? Am I audible now? Yes. Please go ahead. So I wanted to ask, as you have mentioned, the revenue mix in your presentation, which comprises of 43% from premium, 37% from mid and the rest from entry. So what includes which brands are included in the premium and the rest of the segments? The regions which have been done over here is not on a brand based basis. Most because if you talk about, let's say, Senator or any of the CERALAX, which are the different brands that we have or Polyplus, you'll find that as of now, they constitute a very small portion of these overall revenues.

34:59 Like for Senator, we are talking about, let's say, it should be ending the year with something like INR50 crores, INR60 crores, INR70 crores of number. So the total, if you see the premium and the mid and the entry levels that we are talking about, it is mostly about the CERA brand, where we have offerings across the ranges. So whenever we are talking about the mix over there, obviously, the premium brands will be coming in the premium, but it is mostly comprising of the CERA brand, the premium items, the mid items and the entry level items. Okay. And can you share the contribution from Cera brand? Is primarily like the Cera brand is the one which is kind of contributing the, you can say, 98% to 99% of the entire amount. Because as I mentioned earlier, we are expecting, let's say, total of INR2450 crores kind of a number for the whole year. And let's say, the Netter and Polyplus taken together would be accounting for something like, you can say INR 70 crores for crores taken together. So it's a very small proportion, which is coming in from these two brands.

36:09 Others, the bulk of it is coming from CERA. Thank you. And also, are there any new CapEx plans? And what is the update on Sanitaryware CapEx expansion plan? So regarding the CapEx plan, so in case of asset wear, like we told, this was not a bigger CapEx, but the brownfield what we have conducted two years back, so the capacity was increased from three lakh pieces to four lakh pieces. Now since the infra was already built and we are seeing a good demand, which is coming in both Sanitary and Faucet. So we by making some adjustments in terms of the additional equipments to be procured, Effective from September, we have increased the capacity from four lakh pieces to five lakh pieces per month in case of in case of faucetware.

37:05 And we will review the faucetware demand in the fourth quarter. And if there is a possibility that the demand gets more than this, then we have the space and availability within our current manufacturing facilities to raise it to further from five to around six or seven lakhs in a phased manner. Now coming to the part of Sanitaryware. Sanitaryware, as we have seen before a couple of quarters back, the capacity utilizations were lower. The idea was to get the current plant fully operated. Right now in Q2, the capacity utilization has come to around 82%.

37:51 So we are reviewing this directly related demand, which is on month on month and on quarterly basis, it is showing an upward trend, largely supported by volume uplift. So we will review the situation by end of this year in terms of taking the further decisions with respect to the greenfield project, which for which the land has already been procured. And by end of Q4, we will be in better position to take a decision for the construction of the greenfield project. Thank you. Mr. Caudia, please rejoin the queue for more questions. Next question comes from the line of Sagmek Sarkar with SKB Securities. Please go ahead.

38:50 I had a question on the in house manufacturing percentage for both Sanitaryware and Faucetware. So I think FY 'twenty six, you did around 4153% in house manufacturing. So just wanted to know what the number is currently? And are you looking to scale up the in house manufacturing going ahead? And will this drive margins higher if we increase the in house manufacturing? Thank you, Sandeep. I'll just give you the figures for the current quarter. In the current quarter, the Sanitaryware manufacturing was 41%, outsourcing was 59%. For faucetware, the numbers stood at 35% for manufacturing in house and outsourcing was at 45%.

39:38 Regarding your question in respect of whether shift in the future, like in faucetware, we have been shifting substantial quantities from outsourcing to manufacturing. In sanitaryware also, the idea would be that we'll be trying to shift it in in house kind of a situation going forward. In respect of margins, there would be no impact on the margins per se from shift from outsourcing to in house because this split of the SKUs that we pick from outsource and from in house are very different. Typically, the outsourcing SKUs are those which are simple to manufacture and which we don't want to manufacture in house because we can get it at a very good cost from our outsourcing partners.

40:24 Typically, manufacturing is reserved for the more higher value added and more, you can say, expensive and value added feature that loaded kind of SKUs, which are more difficult for the outsiders to manufacture. So the margin profiles are very different. And as we continue to grow, that split would remain as it is, like we are growing in the premium segment, bulkier pieces are kind of now becoming larger in volume. So as we grow, you will find that the margin profile as such would not change. It will remain the way it is right now. Okay. Thank you. Thank you. Thank you. Next question comes from the line of Reshma Mehta with GreenEdge Wealth. Please go ahead.

41:16 Yes. Thank you. Most of my questions have been answered. Just one question that considering the demand momentum that we are seeing, would you like to spell out some kind of revenue growth guidance for FY twenty twenty eight? Or would you say that that is too early for now? We will continue to say that it is too early right now because we want to wait for 2027 to close and then see how the entire year went in respect of the demand as well as how we are able to scale up our manufacturing and how our outsourcing also holds up to the current kind of situation. And then we want to give kind of guidance for 'twenty eight. The reason I was asking this was because we'll be on a pretty high base, right, at 20% plus kind of revenue growth for the current year. And hence, in FY 'twenty eight on that base, at this stage, would we be confident of achieving at least a double digit kind of revenue growth or even that is too hard to comment at this stage?

42:19 That is what we are trying to say that as of now, it will be kind of difficult to comment on '28 because first we need to end '27 and see where we are landing. And then what the situation is at the end of March because a lot of things depend upon a lot of uncertainties are prevailing in the external market also right now. We do have the world situation, which is a little precarious right now. The India situation is also kind of dependent on that. So how we end March and then we'll be able to project what we can see for '28. Right. And the second question is like, let's say hypothetically, the war comes to an end and the commodity inflation that we have you know, that tapers down. So what happens to price hikes then? And if you could cite an example, let's say, the past, wherein, you know, during such, let's say, post COVID hyperinflationary times, we would have taken price hikes. Then do we reverse these price hikes? What happened in the industry? What did we do in the past? And what do you think will happen in case the commodity inflation subsides?

43:25 Traditionally, what has happened and even in the current situation, I don't anticipate that if the raw material prices do taper down because let's talk about these different divisions separately. If you talk about Sanitaryware, even though the external market has been impacted by a bit dealings due to the increase in the gas prices because of our own arrangements, we have had minimal impact like there has been impact on us also, but not to the extent that players who don't have access to subsidized gas, they have been impacted. So even if the kind of gas prices stabilizes, that will definitely impact our outsourcing kind of cost because that would come down.

44:11 But typically, we don't anticipate that the prices would be impacted because in the past also in case of sanitaryware as well as in the case of faucetware. In case of faucetware, there has never been this kind of a jump, at least what I can remember. But even in the current situation, even if the brass prices come down from the current level of $9.50 to 1,000 what it is prevailing right now. So let's say, something like 600,700, which was there, let's say a year back. So even then we don't anticipate kind of a rollback in prices because even now you find there is lot of impact in the profitability. The manufacturers have been kind of absorbing the increase to the extent that has happened right now. So once it starts, even if it tapers down, we still need to recover the past losses.

45:00 Maybe project pricing would be impacted slightly, discounts may work slightly higher because that you can kind of reverse. But typically there has never been a reduction in prices in the case of sanitaryware or in the case of faucets. Right. So maybe if the demand is lower at that point of time even in the retail channel, we may pass it on in terms of higher discounts to the channel, right? That understanding would be correct? Correct. If the demand pattern does not hold up and the prices of the inputs come down, then maybe higher discounts would be the way of passing it out. Like that was the situation which was prevailing in the last couple of years when the demand was not there and we found that the higher discounts were kind of trying to give an impetus to the demand, like try to meet the lower demand. That we can expect in the future also, like if demand kind of tapers and there is a reduction in the kind of discounts sorry, in the kind of prices which are there for the inputs, then maybe the discounts will be going up.

46:04 And lastly, any more price hikes yet to be passed on? Have we taken any... As of now, we don't we are not looking at any price increases further. Like we had taken one for project wherein the month of September. In Sanitaryware, as of now, we are comfortable. So it's an evolving situation. It's very difficult to say offhand whether what would be happening. But as of now, it seems that for the current quarter, Q3, there should not be any price increases. Sure. You and Diwali wishes to the team. Thank you. Same to you. Thank you. Next question comes from the line of Utkarsh Nopani with Anandrati. Please go ahead. Yes. Hi. Good morning, sir. Sir, my first question is regarding your gross margin.

46:53 So in your initial comment, you mentioned that gross margin in our Sanitaryware portfolio came under pressure on a buy o buy basis in September quarter. However, we were of the view that we should have seen margin expansion in our scientific portfolio as the spike in gas cost for us is quite lower compared to our peers because we have the benefit of closing of low cost ATM linked gas. And we should have also seen some benefit of liquidation of low cost inventory because we have taken a good amount of price hike in our Sanitaryware portfolio. So can you please help us understand what we are actually missing out? Why the gross margin in our Sanitaryware portfolio has come under pressure? See, gas is only one part of the total cost in Fletcher that is being faced by the company.

47:42 You'll find that obviously the impact to CERA is lower than what is there for the entire market. But still, you'll find that the impact for gas, apart from that, you'll find that other factors have also gone up progressively. If you look at the transportation costs, you'll find that the cost of fuel and hence the even otherwise the transportation cost has gone up substantially. We are safe by the fact that we don't have too high of imports because over there, the cost of containers have kind of increased exponentially. Because we have only limited exports, it didn't impact us too much. But there have been inflationary factors, which are playing across the various cost parameters, which are kind of led to the margin decline.

48:29 But with the kind of price increases that we have taken and as we mentioned that it takes some time lag for the impact to come in, you'll find that in the case of Q3 and Q4 going forward, the gross margin for both Sanitaryware as well as for Process should see improvement. No, sir. Your point is very big. I just wanted to understand what will be the share of the gas cost as a proportion of our production cost for sanitaryware? And what will be the freight cost as a proportion of our revenue? The freight cost will be in the region of 11% to 12% for Sanitaryware. For the company as a whole, it comes in the region of 8% to 9%. But for Sanitaryware, because of the fact that the items are bulkier, most of the freight cost is kind of there for the sanitaryware division. So it will be in the range of, you can say, to 12%.

49:18 The gas cost, if you talk about outsourcing, because the price increases that come in from two ways. One is from our own manufacturing, second is from the outsourcing partners. In case of outsourcing partners, you find that for them, it's a substantial part of the total input cost. They are not getting a kind of subsidized gas from GAIL. So that is why you'll find that whenever the gas prices increase, outsourcing cost increases in a proportionate manner, not in the same sense that because, let's say that I think the input cost for gas for outsourcing partners would be in the range of 30% to 35%. So if the cost is doubling, you'll find that the impact that will be coming would be substantially for the outsourcing partners.

50:05 And also because of the fact that we do things at a very small margin because for us, they are supplying us OEM suppliers and for them the margins are extremely thin. So whenever there is an input cost increase, they have no choice but to pass it on to the OEM players. They don't have any scope for a growing increase in the input costs. So that 55% of that business, which we are taking from the outsourcing partner has totally impacted by the increase in the gas prices. I think we have taken two kind of increases in our outsourcing partners. One was 9% in the month of March sorry, April or May. And then again, there was a 3% increase, I think, in the month of September. So a total of 9% plus three you can say 12%, 13% has gone up as a procurement cost from our outsourcing partners.

50:58 So it's a mix of various factors, which is now we are seeing reflected on the gross margin. It's not a single factor, which kind of plays into it. For our own manufacturing, you'll find that gas cost, as you mentioned, would be substantially lower. It should be only if you talk about sanitaryware manufacturing, it should be in the range of, I can say, 11% to 12%. Thank you. Mr. Nopani, please rejoin the queue for more questions. Next question comes from the line of Pupesh Kavdia with ICICI Direct. Please go ahead. Thank you. I just saw company has now achieved a cash balance of around crores.

51:45 Given the pressures from input cost... Mr. Caudia, sorry for interrupting. We cannot hear you. Can you speak a little louder? The company has a much over around INR 900 crores of cash balances. And given the inflationary pressures and freight costs and different factors, there must be some smaller and other good news players in the sanitary, faucets and tile segments maybe scrubbing. Does the management consider any acquisitions of such companies? See these, they are two separate things. The input cost price is something which is impacting all players. So that cash pool that we have has no impact on the kind of input cost increases that are happening.

52:31 Your main contention is that whether we can use this situation as an opportunity for buying out players who are there in these other sectors, like in the former outsourcing vendors who are there or both vendors who are there in the process where ties or the CERATIVA space. So that is a continuous outlook that we keep on doing even otherwise, like when we are taking that plan also, we evaluate a lot whether in respect of we should be acquiring some outsourcing partners or whether we should be acquiring somebody from the industry asset. So that is always an ongoing kind of a thing that we keep on studying. So if something comes up and it looks kind of beneficial, that opportunity is there and that option will always be exercised.

53:19 Okay. Thank you. Thank you. Next question comes from the line of Karan Bhatalya with Asian Market Securities. Amsik, please go ahead. Sir. Good morning. Am I audible? Yes, we can hear you. Sir, I just wanted some clarity on the price hikes, like on the last few quarters you mentioned of few price hike in fourth quarter, few prices in first quarter. So I think the effective price hike is for 12% for Chinese sugar and 16% profit. So anything incremental that we've taken lately? Sorry. You mentioned the earlier prices, price increases that we have taken, but what was your question?

54:04 Yeah. So so 12, 13% for and 16% for. So anything after this we've taken? That was in the month of May, then we have taken another price rise in the month of September in the case of. That was to the extent of 80%. So the total increase in has become 16 plus eight, 24%. Right. 16% in the month of May, 8% in the month of September, taking it to a total of 24. And in the case of CERATIVE, it is 12%, which we have taken in the month of May. Right. So there was no price hike in Sanitaryware after that? No. In September, there was no price hike in Sanitaryware. It was only in the case of faucets. Faucets is more impacted by increase in the input cost brass because that constitutes a significant portion of the total COGS. We'll find that brass would be constituting roughly 60%, 65 because even something which is not directly brass, even the bottled parts, which go along with process is constituting bulk on a bulk basis, which is mostly brass only.

55:13 So that is why 6065% of the cost is impacted by brass. And any significant movement in brass needs to be translated directly into the cost, which necessitates price increase in the case of process where it is more required as against your sanitaryware. Right. And sir, one clarity, when you've given reasons why our margins kind of were short in the Q2 Q o Q, you mentioned of higher discounting to the range of 1.7%. But given the fact that retail demand is strong, project is ongoing. So why this high discount of 1.7% which impacted the 2Q margin sequentially? Let's see from here.

55:59 Yes. What happens is like in the case of projects, if you talk about let's say you have a fixed price, let's say the MRP is 100 and you have a fixed price of, let's say, 60. Now when your price increases, you'll find that price will go up from $100 to $110 but your price would remain at $60 only, the price at which you are supplying to the projects. So that additional amount reflects as an additional discount. And also in the case of retail, certain schemes which have been created, let's say, the beginning of the year, that cannot be reversed immediately because we a quarterly scheme, we have a kind of half yearly scheme and they have certain annual schemes also. So it takes some time for the discounts to be rolled back. They cannot do it immediately because schemes which have already been launched, they cannot be kind of withdrawn immediately.

56:48 So even in the case of discounts, there would be a time lag in kind of reversing them. Whenever you give additional schemes, it takes some time for that to come into effect. And the same thing is also withdraw also because teams have already been launched. It takes some time for them to come into effect. So going forward in Q3 and Q4, as I mentioned, you'll find that a lot of those reversals have already been initiated and that impact will start becoming visible. And also in the case of projects, most of the earlier projects are now kind of closed. And going forward, you'll find that most of the newer priced projects will be coming in. So both the pricing impact and reduction in discounting detail will kind of lead to improvement in margins in the future. Right. Got it. And last question from my end.

57:33 We've taken a rate of increase in sanitaryware prices. We have some benefit of gas sourcing vis a vis more be. So what is their cost increase vis a vis us? As I mentioned in the when the previous question was being asked, like typically for the Modi players, the gas cost has kind of doubled. Their price hike already taken in the market vis a vis 13% for CERA. I cannot tell you what they have taken for their own products, but for the price increases that we have offered because see what happens is it totally depends on the kind of relationships that we have with them and the kind of business which you are doing with them. Because most of our suppliers are, we can say, giving us a substantial volume of their total production, they are not able to pass on the cost increases to the fullest extent, even they kind of take a hit. So we have kind of taken increase of 9% in the month of April, May when the prices have gone up substantially and another 3% in the month of September. So total 12% increase in the prices for our outsourcing vendors, what we procure from our outsourcing vendors.

58:47 Thank you. Ladies and gentlemen, due to time constraints, we have reached the end of question and answer session. I now hand the conference over to the management for closing comments. Thank you, everyone, for attending this call and for showing interest in Cera Sanitaryware Limited. Should you need any further clarification or would like to know more about the company, please feel free to reach out to me or to CBR India. Thank you once again for taking the time to join the call. Bye. Thank Thank you. On behalf of Cera Sanitaryware Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.