Disc: No opinion yet. Still under synthesis.

Ceated notes from FY19 till FY23 conference call to understand the bsiness’s landscape and trajectory. Shared for the benefit of the fellow VPer:

Business Segments: Below 4 –
1.Roofing: Brand – Charminar(asbestos) and Fortune (non-asbestos, higher price. | Key Raw Material – cement and fiber | primarily focused on the rural sector | Q1 Best Quarter | Fiber suppliers are handful and dictate pricing | Reach in 21,000 outlets
FY19:
• Brazil stopped fiber export. Have Russian and Kazakhstan suppliers.
• Fortune – R&D done in-house. Introduced into the institutional segment, which uses steel sheets or RCB, and Fortune is cheaper than steel or RCB. Customer to feel performance for a year before repeat orders. Expect big revenue in the next 4-5 years.
• Q1 being the major portion of our revenue
• Asbestos raw material increased about 20% increase.
FY21: Fortune’s mfg. technology changed to Humid Cure, which has better manufacturing efficiency, from autoclave. Product looks good. Sold 7,200 metric tons to institutional customers.
FY22:
• Leadership extends across pricing, quality, distribution, and connects. Fortune brand continues to garner business growth and robust traction.
• Q4 (inventory levels kept higher) is always a build-up for Q1.
• Will never increase capacity in asbestos roofing in HIL.
• Why non-asbestos cement roofs not being able to penetrate this market where the transition was going on? Lack of alternative product. Fortune business not been able to grow as per expectation. Earlier autoclave technology was very, very high on costs. Last 12 months using Humid Cure technology, which we were stabilizing. Can’t go full out into the revenue, past 12 months application is overall the seasons are over. Today it is proven. There is a dedicated team that is developing clients and market for it. Pricing is something where a differentiation still exists, which also constrains the demand.
• Fiber price increased between 22% to 24%. Product price increased nearly 3%, which means the under recovery is about 60%. Fiber, prices are new normal, at a macro level has a supply constraint situation as very few sources of fiber globally. That means that there is a little bit of higher power in the hands of the suppliers.
• Roofing market reach which spans more than 21,000 outlets and a coverage, which extends to more than 60% tehsils in India.
2. Building solutions: Birla Aerocon (AAC blocks), Panels (with inhouse board manufacturing)
• FY19: Earlier ROCE was negative. Now getting the strength back, consciously taking this step to grow this business. Will be setting up capacities for both blocks and panels.
• FY21: Building materials has wet walling solutions and dry walling solutions. In wet walling, AAC blocks is our biggest product. HIL has about 18% to 19% market share. In fact, blocks are known as Aerocon block in the market. Have presence in South, West and North, but we were completely not there in East. Panels, we do about Rs.60-70 crore business and we are about 60%-70% also. That’s about Rs.120 crore business totally in India.
• FY22: Augmenting roofing plant in Odisha to make boards during off-seasons when capacity utilization goes down to 45-50%. These will be utilized for upcoming new panels facility.
3. Polymer solutions: Pipes and fittings, putty and construction adhesives | Expect Revenue of 1,500 crore by FY26 | 1,500+ SKUs of pipes and fittings
FY19:
• Putty business. a) it is a negative working capital business for us and b) the productions have set up very well… … don’t have agri pipes
• Big names in the market who evolved in the last 20-25 years. But this business will grow to Rs.400 crore levels in the next 2-3 years and deliver profitability.
FY21: Pipes have established player and HIL just started. 3 things work in pipes- brand, quality, and ground connect. Big distributors aligned with established players. So, we are going to smaller guys, going to the plumbers.
FY22:
• In polymer solution business, margins remain under pressure due to volatility of resin prices and high cost of other chemicals and polymers. PVC prices have come down during this quarter, leading to an element of inventory loss. The putty business too is impacted by the higher material cost and competition. However, our strategy of geographic expansion continues to help us better growth.
• Touched INR 500 crore. Was 55 crore 3~4 Years back. Expect INR 1,500 crore in 3~4 Yrs.
FY23:
• 1,500+ SKUs of pipes and fittings. … recently entered the underground drainage segment. The Putty segment has been marked by intense competition and a soft price regime – focused on the twin planks of cost reduction through R&D efforts and improving the price positioning with increased market and brand pull. Construction Chemicals, which is new foray in this space offers both high growth and profitability.
• One is the inventory loss, and second is when the prices came down, we lost contributions on the immediate sales. All put together, we lost around Rs.25 to 26 crores in the first two quarters of the year.
• poised for significant growth and another segment to watch out for.
• [November 02, 2023] believe PVC and CPVC prices have largely bottomed out
• Construction Chemicals. did 21 Cr revenue, including tiles adhesive
4. Parador [Europe]: Flooring solutions. Acquired in the middle of FY19 [Sales @ 140 million Euro]: Plants in Austria and in Germany. Strong R&D culture. Initiated sales effort in 3 different parts of the world, including a JV in China and partnership in Nordic countries. Had 30% excess capacity. Post acquisition, hired a sales director, initiated eCom for DIY individual customers, introduced Six Sigma and Lean Manufacturing, refined cross border supply chain to reduce material costs.
FY21:
• Sales @ ~ 170 million Euro. Profitability will grow as we grow the topline because the fixed cost is paid. Parador a 10% EBITDA and a higher single digit growth. Want to grow in China, the Nordic countries, Spain, France, Switzerland, UK besides Austria, and Germany. Q1 & Q2 will be difficult because there is a very huge pressure on HDF availability. Prices of HDF, Lumber and Chemical prices are scaling through the roof.
• Parador India has not taken shape primarily because the need for a very high-end high variant flooring is very niche in India and because of pandemic last 12 months roughly this market has been slow.
FY22:
• Huge scarcity of raw material, doubling of key raw material costs, increase in energy cost, and tripling of sea freight impacted the operations.
• Parador buys 80% of Lamellas (oak) that comes from Ukraine.
FY23:
• Parador reported a revenue of Rs.1324 crores for FY23 with a loss of Rs.40 crores.
• [Aug 2023 Conf Call] Onboarded CEO. Neel [David Bradham] comes with extensive experience of driving growth and scaling up businesses in the flooring industry across Europe, North America and the Asia Pacific. In his former role, he has been associated with Flooring giants such as Mohawk, Interface and most recently, Milliken & Company, where he has played a variety of roles on both operations, commercial functions, and more recently as P&L leader for these businesses. In the early part of his career, he has also been an investment banker and a strategy consultant. First milestone to make Parador a EUR 500 million-plus global brand over the next three years to four years. First is to deepen our market presence not just in Europe, but also in North America, Middle East and Asia. The second a more solid coverage of the commercial segment. Commercial typically accounts 40%~ 60% of the overall market in any geography. The third continued focus on quality and innovation in products and design, and creating product lines. Intensified branding and marketing efforts and the new product development. It is the hidden gem in HIL’s portfolio.
• At a contribution margin level and overall cost structure, business is set. Material cost perspective, in the right zone. Price realization in the right zone. As soon as revenues ramp up, a lot of that will start flowing down to the EBITDA level.
• On material cost, down to 54% versus 65% last year. Refinanced the existing loan facilities to shave off financing cost by ~ 200 basis points.
• October- signs of recovery in volume are visible. Order intake is outpacing sales, including from the DIY channel in Germany. Inflation in Germany is at its lowest level in 24 months. Interest rates are also stable for now. All these indicators give reasonable confidence that the worst period is behind us.
• Gross margin of ~ 50% level possible. 5 quarters of drop in sales would have bucked the trend when we meet next and should be EBITDA positive in Q3FY24.
• Competitors laid off people, but not us because we managed to take cost out.
• USP: quality of product, brand that offers a range of comprehensive flooring product and known for superior aesthetics and design attributes with own manufacturing, sales potential of EUR 350-odd million from existing manufacturing capacities. Made in Germany is a big plus.
• Added sales team aggressively in the UK, Spain, Nordics, Middle East, and North America. Spain result is visible, Others yet to contribute.
• PBT breakeven, EUR 45 million sales per quarter needed.
• Realization of Parador opportunity in the Indian space remains an equal focus. Next call, would share more detailed contours of that strategy.

Generic:

• MD & CEO – Dhirup Roy Choudhary from FY19 to FY22 | Mr. Akshat Seth from 2023
• FY21: Transforming company into a “Global One-stop Building Materials Solutions” provider. $1 billion aspirational vision. Revenue contribution from asbestos was 78% in FY17 but now ~30%.
• Cyclic element of the business. Q1 (Best) >> Q4 (Nxt) and Q2 & Q3 will be weak. Q2 always lean quarter, both in India, given the rains and the monsoon, and in Europe with the vacation season.
• Average yearly maintenance capex – 40 crores
• FY21 was a booster year [13% OPM] because a lot of cost was subdued owing to COVID. FY23 was an odd year in terms of a performance [6% OPM].
• FY23: 2026 ambition of $1 billion turnover with robust profitability. Revenue from Roofing business – 1115 Cr., Building Solutions – 500 Cr., Polymer business – 526 Cr. and Parador – 1324 Cr.
Few themes being pursued: Premiumization of the products. Increase scale of segments to improve profitability. Infuse automation and technology. Drive operational efficiencies. Actively looking at adjacencies to bring more operating leverage.
• Current CEO [Akshat Seth] started off at the Group Office leading growth in strategy for all portfolio companies. Worked extensively with HIL in the past for the polymer foundation, M&A.
• Consolidated steady state operating margin? 11% to 12% operating margin in a 2-to-3-year horizon given that this is also a growth part of our evolution.
• Change of leadership is an element of impatience and aggression considering the aspiration. Reviewed and reassessed the strategy and continue to do so. Products profitability not less attractive from an overall industry perspective.
• Leaving roofing aside, double revenue in each of the other segments will gets us closer to the USD 1 billion along with some inorganic play. The growth story that we are charting out of doubling in each of these segments, roughly 60% to 70% should come through organic means and 30% should come from inorganic means.
• Raw materials: Fiber, imported-2 or 3 global suppliers. Cement sourced locally. PVC resin, imported and Indian suppliers. Parador: Oak within Europe. HCF, MDF within Europe & from Asia. PP & PU from China and specific grade from Japan.
• Pipes and fittings and Building Solutions business, see investment of around 500 crores in the next 3 years’ time. Yearly average cash generation is 150 crores post dividend and tax and shall suffice for the capex. The working capital requirement in Roofing and Building Solution business are not too much. Working capital percentage to revenue for Roofing is ~10% whereas Building Solution is in single digit. Pipes and fitting business require working capital will be in the range of 15% to 20% due to multiple SKUs and depots. Might require WC debt of less than 100 crores.
• Next 3 years, capex requirement ~ 500 crores for growth and 100 crores for maintenance.