ConCall Part2

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In terms of the individual segmentation, we do not disclose the margins. But the margins come
over, as you rightly told, the selective and the possessive. It will be a single decision.

If I will add two margins in time, it will be a single decision. And just one last question. Back the
queue please, as we have other participants.

Thank you. Okay. We will take our next question from the line of Rudraksh Gupta from Navneet
family office.

Please go ahead. Hello, sir. Good morning.

Thank you for offering me this opportunity. I have two questions. I would request you if you can
throw some light on export opportunity referred to in the earlier call of 44FY24.

Is this arising out of the panic situation and supply chain realignment? Or does the company
see it as a strategic focus area in exports? As of now, export constitutes a small portion of our
total revenues. With the current situation which is prevailing right now, we do feel that there is
an opportunity for us to kind of grow a little. But it is not something that we anticipate will grow
by leaps and bounds.

Like we are currently I think it is at three and a half percent of our total revenues. We do not
anticipate it to grow to double digits or something like that. But this actually presents an
opportunity.

Let us see how it goes forward. But the more time will be delivered as to gauge the real impact
of the tariffs and what kind of opportunities are actually present. Okay.

And my second question is that the company has added for the potential revenue of 20 and 100
crores by FY27. Given the aspect, are you still comfortable and confident to be able to achieve
this thing? So, the guidance what we have given, that guidance was given in the scenario where
the market will perform or the market conditions will be positive. So, as you have seen, market
conditions have remained subdued for almost six consecutive quarters, primarily due to the
huge retail demand.

So, the projections what we have made, those projections were made with the anticipation that
the market growth, what we expected, was 7 to 8 percent in case of currency-based segment
and 12 to 13 percent in case of process-based segment. And we had expected to outperform
the market by 6 to 7 percent. However, in the actual scenarios, the market growth has
consistently fallen short of our expectations.

But to be on the positive side, in spite of this challenging environment which is there, our
project pipeline remains very good. We are confident to meet our growth target as the retail
momentum improves. So, the idea here is that the market, it is dependent on the market
conditions.

Market conditions, once they improve, this is that we will outperform the market by 6 to 7
percent to our strong expectations and focused strategic initiatives. Okay, sir. Thank you so
much.

Thank you. We will take our next question from the line of Sonali Sardaukar from Jefferies India.
Please go ahead.

So, thank you for the opportunity. So, my questions are on the industry basis. So, you know,
real estate cycle generally has been steady over the past 4 to 6 quarters, a bit weakening
probably over the last 1 or 2 quarters.

So, overall, in the industry, and I am talking about your competitors as well, could you please
probably shed some light as to why the volume growth is coming slower? Because if we were to
look at the real estate launches which happened about 2 to 3 years back, then intuitively that
demand should come in the system right now, probably in FY25. So, that has not really
happened over the industry. Any particular reasons why you feel that is? And also, any pricing
pressure you have seen either in sanitary or tiles in FY25? I will take your second question first,
your pricing pressure.

There has been some pricing pressure in FY25. The slowness in the demand which has been
prevailing in the current year, the industry has been overcrowded with over-supplier and over-
capacity, with the result that most of them are offering higher discounts. So, in account of the
fact that we find that even higher discounts have gone up slightly in the last 1 year, and it has
not enabled us to take price increases over a period of time.

So, we have kind of tried to balance that by way of better efficiency and cost management so
that the profitability and the margins, they remain intact. So, going forward also, like we do not
anticipate as of now, in the immediate near future, we do not intend to increase our pricing.
That is based on again the trajectory which is continuing in the current quarter also, in the
current Q1 also.

In respect of your first part of your question, when you are talking about the industry and real
estate, your typical pricing as you mentioned for real estate would be, nearing completion
should be in the range of 3 to 4 years. So, ideally projects which are started in FY21-22 should
have been started in nearing the completion cycle by FY25-26. So, we have started seeing that
upswing in our project business in the last 1 financial, in the last 1 year.

And we anticipate that FY26, the number should be start taking even in higher numbers. So,
what is the quantum of price cuts that you have taken or rather discounting that you have
taken in FY25? And my last question is about the tiles. I understand you outsource your majority
of your tiles business, but what are your views on the more the exports and also going forward
in FY25, do you expect the exports to resume? I will talk about the price cuts first, which you
asked in the first part.

We do not have price cuts in our business. What we do is the amount of quantum of discounts
which are being offered, they typically go up. So, over the last 1 year in the retail sector, the
discounts would have gone up something like 0.5 to 0.75 per cent.

That is on the retail side. In the project business, it is a little more complex because it depends
upon the size of the business. But on an average, the same level would have gone up in the
project business as well.

So, that was in respect of price cuts. In tile exports, we do not have too much of exports as you
have just mentioned. We are mostly in the business of procuring and doing trading business
within the domestic market.

So, we would not be the right people to comment on the export position, which is on an
industry right basis. Sure. Thank you, sir.

Thank you. We will take our next question from the line of Pranav Mehta from Equitous
Securities. Please go ahead.

Yeah. Good morning, sir. And thank you for taking my question.

Congratulations on good… Thank you very much. Sir, my first question is related to the breakup
of episode, if you can share for sanitary ware, faucet and tiles and other categories for 4225
and versus 4224. That was my first question.

And sir, my second question was related to the rupees 34 crores credit bench right back that we
have seen in the cash flow over the previous days. Yes. So, what I was saying, the second
question was related to the rupees 34 crores of credit balance right back in the operating cash
flow.

So, wanted to understand where exactly in the P&L this effect has been taken. Thank you,
Pranav. So, regarding the first question, the breakup of the revenue.

So, largely if you see the quarter 4, in the quarter 4 sanitary ware was 48 percent, the faucet
ware was 40 percent, wellness was 3 percent and tiles was 9 percent. And… Sir, if absolute
breakup if you can give, that would be… So, sanitary ware it is 269 crores, faucet ware it is 222
crores, wellness it is 16 crores and tiles it is 63 crores. And… And sir, similar in 4224? For the full
year? Sir, 4224, if you can share for full year, it would be… For the previous year's quarter, the
sanitary ware figure was 273 crores, faucet ware was 202 crores, wellness was 10.96 crores and
tiles was 50.7 crores.

Is that okay? Yes, sir. Yes. Okay.

That is from my side. Thank you. Thank you.

Ladies and gentlemen, in order to ensure that management is able to answer queries from all
participants, kindly restrict your questions to two at a time. We will take our next question from
the line of Udit Kajiwala from ES Securities. Please go ahead.

Yeah, hi. Thank you for taking up my question. Sir, in terms of the real estate demand that you
mentioned in your opening remarks, so I mean what is the kind of fraction you are seeing there
and is it an order book kind of a business for you? As I mentioned earlier, like you were earlier
bringing up as a part of a total, proportion of a total sale, project constitutes a 30% which has
gone up to 35% and then 40% in Q4.

The way it functions is that depending upon the number of bathrooms which are being offered,
it is classified as a project business. If it is classified as a project business, the kind of discounts
which are typically offered is higher. Normally what you are saying is right, depending upon the
size of the project, the degree could be varying over a period of time.

Like for larger projects, in different states we find that it is different, but let us say we talk about
Gujarat, we find that in larger projects, the builder would typically have a sample room
constructed just at the time when he has started the project and will take an order at that point
of time, so the deliveries would happen maybe after some time. It will not have to start
immediately, it will only happen over a period of time and typically the deliveries are set over a
period of 2 to 3 years, normally 2 years. And for the smaller projects, you could typically find
that once you give the order, within a short time frame, the deliveries start and get completed
also.

So, it depends upon the kind of builder and the size of the project. Typically, we can say that 60-
50, 50% of the deliveries happen in first year and 50% in the next year for larger projects.
Understood, understood.

Entered the caping that you have referred for the sanitary ware, so there are no plans on it as
yet or you are still considering any timeline? So, as of now, it is on hold, like we have purchased
the land, but we have communicated earlier also. The land acquisition is complete, but the
construction activity will keep on giving on a quarterly basis, depending upon the demand
scenario. As of the end of the year, we are not able to start with the construction.

Understood. Thank you. All the best.

Thank you. We will take the next question from the line of Samyak here from Marcellus. Please
go ahead.
Thank you for the opportunity. My first question is, while you gave us some color on the
discounting aspects, I just wanted to understand whether you see the discounts have peaked
out or going forward, you expect them to increase on account of the slowdown in demand. So,
just your thoughts on that.

The discounts have kind of now flattened. Like, if you look at, as I mentioned earlier also, the
pool has flattened in Q3 of FY24. So, in the first few quarters, it was an increasing trend of
discounts, but in the last couple of quarters, the discounts have stabilized and are remaining
constant at those levels which are already reached by the Q2 of FY25.

So, now they are stable, you know, in an increasing trend. So, what impact do you expect them
to improve? Like, the discounts will again become lower going forward. Got it.

Perfect. And my second question is on the process. So, like in Q2 of FY25, there was some
channel restocking due to the price increase and that led to some liquidation in last quarter.

So, has the liquidation of the restocking been done or completed in Q4? Or you think some
reduction in stock is still pending? So, as you have rightly told, the price rise was taken, I think,
from October onwards. There was an impact. What you have seen in the quarter 2, where the
growth has come higher because of the price rise taken.

Now, if you see the quarter 4 figures, so the growth is now 10%. And if we need to characterize
this growth of the increase what is there, the volume has increased by 2.8%. The product mix
has improved by 3.5%. The price impact which is now stabilized in terms of liquidation being
completed, that has given the impact of 1.7%. Okay, sir. Thank you so much.

Thank you. We will take our next question from the line of Janish Kariya from Union AMC.
Please go ahead.

Yes. Thank you for the opportunity, sir. So, first question is with regards to the premiumization
that we are planning.

So, considering we are planning to ramp up the senator and list brand, which will largely be in-
house manufactured. And considering we are still guiding for 2,900 crores of revenue in next 2
years, hoping that retail demand will revive. So, why do not we go ahead with the CAPEX and
rather than delay it.

I understand we still have capacity and we can outsource it. But considering the
premiumization, hope of demand revival and the CAPEX will be announced next quarter also, it
will take 2 years to commercialize. So, just your thoughts on whether we will be missing out on
upcycling demand because of short of capacity or not be able to properly capture the
premiumization that we are trying to do because of shortfall in capacity.

Just your thoughts on that, sir. Janish, you are right that we are taking a premiumization drive.
As Mr. Vikas mentioned in his questions and in his answers earlier, like senators and lists, we
have mentioned in our previous calls also that we intend that over the next few years, we will
be constituting something like 10% of our revenues.

The production, the products which comprise in senator and list are a mix of manufacturing as
well as outsourcing. Some products are always outsourced, like if you see these faucet frames,
you find that most of the showers, cars, etc., which are being offered over there, will always be
on an outsourced model only. It will never be in-house.

So, the premiumization drive, if you see, is not something which will be kind of driving the
manufacturing capacity. The manufacturing capacity is primarily driven by our main core
segment of sera. So, over there, till the time that we do not start seeing an improvement in
demand, it is not really making sense for us to start with the expansion project.

We are slowly monitoring the situation. As we mentioned, it will take roughly 18 months from
the start of the project to get completed to be operational. So, once we start seeing the kind of
demand improvements, we can start and we complete it within 18 months.

In the mean time, we have adequate inventories and outsourcing arrangements which can take
care of any incremental demand or upsurge in demand which happens in the interim period.
So, we do not see it as a challenge. Within that 18-month period, that will continue in many
more stages.

Okay. Does that answer your question? Yes, that answers my question. Second question is on
the marketing spend.

So, although your premium products will be 10-12% of the revenue over the next 3 years, can
we see an aggressive marketing expense going forward? Maybe 2.5% to 3% is the range, but
additional 50-60 business points for the premium products that we are trading? So, as far as
our marketing spend is concerned, we are strategically reviewing the scenarios in terms of the
current market position also. And we are focusing on those particular spend where we think
that in the current scenario, the ROI is in terms of reaching out the share of voice is higher. So,
as you have told, now Senator and Sarah Lux, these are the new brands which are added in our
family, Sarah.

So, definitely there is an allocation of the budget will be there in FY26 also. And the spend will
be done considering the market and how we want to target each of these brands. Thank you.

We will take our next question from the line of Abhishek Chheda from Canada Rodeco Mutual
Fund. Please go ahead. Yes, sir.

Sir, thank you for the opportunity. Sir, two questions from my side. Sir, first is on this B2B side,
you said that it was 40% in first quarter.

So, can you give the contribution for the full year that is FY25? What was the B2B share? That
was one. And related to that is what is the ratio the company is okay with? Would the company
be okay to take it to 50-60 or what it is? That is one. So, secondly on this retail piece, is retail
actually remaining flat for us or it is de-growing for us? And thirdly, sir, what is the reason for
sequential decline in the gross margin because that is a steep at around 250 basis.

Of course, it remains in the guided range, but still if you can talk a bit on this. Thank you. I
shared many questions at one time, but I will try to remember and answer them one by one.

First, you asked B2B was 40% at the Q4. What was there for the full financial year? For the full
financial year, the project composition was 38% of our revenues. This was for B2B FY25.

If you can repeat the balance part of your question, if the retail, why is it de-growing? Sir, on the
retail side, sir, is it actually remaining flat for us or is it de-growing? If you see our total
revenues, we have been kind of going at 5-6%. And if you look at the proportion of this project
business, they have been going at the proportion of our total revenues. So, retail has been kind
of, if you do the mathematics, you will find that it is more or less remaining constant.

I think you also asked whether we anticipate the project business to go further in the coming
years. That will totally depend upon how the retail business picks up, because we are seeing
that fraction in the project business. And as I have mentioned in my earlier calls also, that we do
not have that higher difference between the margins in the project and the retail business.

That would be something like, you can say, 5-6%. So, the difference in the margins, even if the
proportion increases, as you have been mentioning, if it increases from 40% to 50%, it could
impact the margins by, you can say, 10% of 5% of the definition which is there between the
project and the retail business. On an overall basis, it will impact us by 0.5%. So, we are not too
worried about that, because we are hopeful that the retail business could be picking up in the
future.

And this proportion should ideally remain at 40% to 45%. But even if it increases, the impact on
our evictor margins could not be too great. And, sir, the last question on the gross margin and
in sequential declines, any specific reasons you would like to call out? So, as such, if you see the
gross margins for the quarter, or if you see in terms of the quarter, you are talking about
quarterly.

Quarterly, it was, first quarter it was 55%, and now it is 50%. Your question is why it is declining,
correct? Yes, sir. No, so in terms of the gross margins, if you see, the full year basis, if you see,
for the financial year 25, our gross margin is 62.51, and the previous year, if you see, financial
year 24, it is 62.86. So, there is a slight decline, slight decrease, you can say, in terms of the
overall gross margin on the overall full year basis.

Perfect, perfect. Thank you. Thank you.

We will take our next question from the line of Shubham Pariyar from Tamohara Investment
Managers. Please go ahead. Hi, am I audible? Yes, please.
Yes, definitely. Thank you for the opportunity, and thank you for answering my question. So, my
question is on the strategy side.

So, how are we going to strategize ourselves in the market? We use an entry-level brand and
positioning ourselves as a premium brand going forward. Your voice was not too clear. Can you
just repeat the question? So, I am asking about the strategy aspect.

So, as of now, we are positioned as an entry-level brand. So, how are we going to differentiate
ourselves and compete in the market as a premium brand going forward? I think your
understanding in terms of positioning, Farah, is not correct. So, we are a mass premium brand
with the portfolio or with the products we are focusing.

So, as you have seen over the period of past few years, you have seen there is a steady increase
in demand for the premium products also. So, now we are strategically introducing our two
new brands, Sarah Lux and Senator, which will show our premium face, and that is going to
mean that we have already told that these two will be contributing around 10% of our total
turnover in the coming next two to three years. Okay.

And how are we going to compete with the existing players in that segment? So, that means for
the Lux and Senator, we are now completely focusing on how we can compete with the
competitors. So, as a stepwise thing, what we have did is, there is a separate team which is
going to focus on this Senator part, which will be under the leadership of Mr. Ramesh Bahiga,
as told in our concord. Then we are separately focusing on the separate flagship, Ipto.

So, by 31st March, we have already having 17 stores for the Senator, and this year we have
targeted roughly 40 to 45 more stores to add on to this. Apart from that, the complete
portfolio, which is premium in nature, is almost now finalized and it is going to be displayed
across all these flagship stores. We are also connecting with our architects, the Architect
Connect and the other influencers, which will lead in terms of showcasing the product and its
technical strengths, which is going to be there to compete with the competition.

Thank you. You're welcome. Mr. Kapital, please go ahead.

Hi, good morning. Just one question. I couldn't quite pick up the reason for sequential gross
margin decline, 53 down to 51.

Is it due to higher discounting of another nature to push sales? Because your reduction in cash
discount sales on Tetra should ideally have improved gross margin sequentially. The discount
reduction has not happened. We are just anticipating it should happen in the future.

As of now, the discount has, in the current financial year, has increased by a decade compared
to the previous year. So, what happens is, the gross margin is a composition of both the kinds
of discounts which are being offered as well as the efficiencies which are going into the
composition of the cost of the product, both on the procurement side as well as the
manufacturing side. So, the discount has increased over the last one year.
The decrease in the gross margin is only to the extent of 0.4 percent. The discounts may be
with an increase by higher margins than 0.4 percent. But the cost efficiencies have also kind of
made a good-to-be increase in discounts.

So, what's the reason for this? We know that in the overall cases, from F4 to F8, where you go to
F8, where you try, the decrease in gross margin is only there to the extent of 0.4 percent. Is it
also a mixed-leg thing then? Processors might have done better QoQ. Could that also be a
reason? It could be, because the gross margin is a composite of so many factors.

So, such small deviations will keep on happening only year-on-year and quarter-on-quarter
basis. It is very difficult to really pinpoint as to what reasons have gotten into quarter-one to
quarter-two, quarter-two to quarter-three, kind of a deviation with a rattle of 1 and 2 percent.
But on an overall yearly basis in time, it is more or less remaining constant from 52.86 to 52.51
percent.

Sure, sure. Thank you, Deepak. Yes, thank you.

Thank you. And I'll hand over the call to the management team for closing comments. Over to
you, sir.

Thank you, everyone, for attending this call and for showing interest in Serap and Xerion
Limited.

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