Earnings Call Transcript - XNSE:CERA 2026-11-05

Operator

Ladies and gentlemen, good day and welcome to the earnings conference call of Sarah Sanity Ware 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. Should you need assistance during the conference call, please signal an operator pressing star and zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Tevrishi Singh from CDR India. Thank you, and over to you, Mr. Singh.

Speaker 8

Thank you. Good morning, everyone, and thank you for joining us on Sera Scientist and Limited Q2F527 Earnings Conference Call to discuss the results announced yesterday. We have with us today the management team comprising Mr. Vikas Kothari, CFO, and Mr. Deepak Chaudhary. We will start with brief opening remarks from the management, following which we will open the call for Q&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 I 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 Deepa. Thank you, Devishi.

Speaker 9

Good morning, everyone, and a warm welcome to all of you for joining us on Sarah Sanity UI Ltd.'s Q2 FY27 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. Terra continued to deliver healthy growth during Q2F by 27, with revenues growing by 27.4% year-on-year. Both our sanitary ware as well as the faucetware business performed well, growing by 24% and 38% respectively. Sanitary ware and faucetware accounted for 45% and 43% 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.

Speaker 8

From a channel perspective, retail demand continued to recover and was complemented by an encouraging performance in the projects business.

Speaker 9

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. 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 focus markets by strengthening distribution and dealer relationships, improving our market approach, and enhancing internal execution capabilities. These initiatives are now beginning to yield tangible reserves, 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. Uttar Pradesh has emerged as an important market for us, and the focus markets such as Bihar, Jharkhand, Odisha, Chhattisgarh, and MP have also shown traction. The work undertaken to strengthen our presence in these markets has 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 divisions across our product portfolio over the past few quarters, including a further price increase of approximately 8% in the faucetware segment, effective from September 1st, 2026, to partly offset the impact of higher brass prices. The benefits of this revision are expected to flow through the China's from later part of Q327 onwards. As discussed in our previous earnings call, there is a lag between implementation of price hikes and realising 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 disciplines 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. 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. Our connectivity facilities are currently operating at utilization level of 82 percent. In faucet ware, we have been able to increase monthly production from 4 lakh units to 5 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 Morbi cluster. Our ability to service customer requirements consistently has helped us respond effectively to the market opportunities. On the brand front, the core Sera 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 sustain brand-building initiatives. At the same time, we continue to invest in strengthening our newer brands, including Senator and Sera Lux 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 have strengthened our ability to capitalize on the opportunities ahead. While input cost inflation remains an important challenge, we expect profitability to improve progressively during the second half of FY27, 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 a full year EBITDA margin outlook of 13% to 14%. With this, I would now like to hand over the call to Mr. Vikas Kothari to take you to the financial performance of the quarter.

Vikas Kothari, CFO

Thank you, Deepak, and a very good morning to everyone. I will now take you to a brief overview of the company's financial performance for the quarter ended September 30th, 2026. Revenue from operations for the quarter is stood at Rs. 603 crores as compared to Rs. 473 crores in Q2 FY26, representing a healthy YOY growth of 27.4%. For the first half of FY27, revenue from operations is to that rupees. 1089 crores, reflecting a growth of 23.7% over the corresponding period of the previous year. EBITDA excluding other income for the quarter stood at Rs. 73 crores as compared to Rs. 67 crores in the corresponding quarter of the previous year. The EBITDA margins stood at 12.2% in Q2FY27, compared with 14.2% in Q2FY26, and 10.1% in Q1FY27. 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 a time lag. The revised price arrangements for future project commitments should progressively support margins over the coming quarters. The average cost of gas during Q2FY27 stood at Rs. 47.29 per cubic meter compared with Rs. 33.79 per cubic meter in the corresponding quarter of the previous year. Similarly, the average cost of brass during Q2FY27 stood at Rs.932 per kg compared with Rs.589 per kg in Q2 FY26 and Rs.837 per kg in Q1 FY27, representing an increase of 58% on YOY basis and 11% on quarter-on-quarter basis. In terms of the revenue mix, sanitary ware accounted for 45% of our revenues, faucet ware 43%, tiles 10% and wellness 2%. On a wire-wise basis, sanitary ware revenues grew by 24%, faucet ware by 38%, tiles by 9% and wellness by 71%. From a general perspective, The project business accounted for 39% of the revenues, while the retail business contributed 61% in Q2 FY27. In Q1 FY27, we accelerated deliveries for certain projects in view of the rising input cost. This resulted in a project to retail revenue mix. Of 43 is to 57. Going forward, we expect this mix to stabilize at around 43 is to 60. Profit after tax for Q2 FY27 stood at Rs.56 crores compared with Rs.57 crores in the corresponding quarter of the previous year. Earnings per share for the quarter stood at Rs. 43.52 compared with Rs. 43.92 in Q2 FY26. On the working capital front, we continue to focus on inventory management, receivables and overall working capital discipline. Inventory days decreased from 83 days to 69 days, receivables days reduced from 33 days to 28 days, while payables remained unchanged at 39 days. Consequently, our net working capital improved from 77 days to 58 days on YOY basis. As of September 30, 2026, our cash and cash equivalents stood at Rs.897 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. Capital expenditure incurred during the first half stood at Rs. 27 crores against our planned full-year outlay of approximately Rs. 43 crores. Looking ahead, we expect. Operating profitability to improve progressively during the second half of FY27, 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. 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 gains us confidence to maintain our full-year EBITDA margin outlook. Overall, we remain focused on sustainable, profitable growth and maintaining a healthy benefit sheet. With this, I would dispense the moderator to open the lines for Q&A. Thank you.

Operator

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Amit Srivastava with 361 Capital. Please come in.

Amit Srivastava, Analyst — 361 Capital

Yeah, thank you for the opportunity. So, just wanted to understand first is, can you give us the 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, you have given volume price and mix how much it has contributed into this quarter.

Vikas Kothari, CFO

Yeah, thank you for the question. So, like we told, in terms of the growth part, as we are witnessing quarter on quarter, so it is only a volume-driven growth. 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 mixed contributed around 1.7%. So, this was the overall company as a whole. And I think we have asked for the breakup with respect to sanitary wear and faucet wear. So, again, in case of sanitary wear, the volume has contributed 14.3%. And the favorable price was 6.7% and 2.7% was the mixed impact, which has overall given the revenue growth of 23.7%. And in case of faucet wear, the breakup of 38% growth is largely driven by volume, that is 24%, favorable price impact, that is 10.3%, and balance is the mixed impact, which is 1.9%.

Amit Srivastava, Analyst — 361 Capital

Okay. Sir, just to understand this strong volume growth is coming. So, are we gaining a market share because we have some advantage on our cost side or is it a brand distribution or market which is giving us that edge or this price increase which we have taken that pre-buying has also given a kind of push toward volume overall. What is really driving itself? Ground-level demand or expansion? All this, if you can explain.

Speaker 9

Yeah, essentially the volume is being driven by increased demand from the market, because the fee 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, you'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 step that the company has taken over the last couple of years When the demand was muted, 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 distribution, the product, the manufacturing efficiency, the sourcing arrangements. They're all now coming up to kind of help us because the external demand is there, but we find that even meeting that demand becomes a challenge in the current situation where in the Mobi, where we are dependent like 50% on outsourcing. 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 the numbers have grown, market share would have gone up. But it is a little difficult to assess in our specific industry because you 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 is going to be able 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.

Amit Srivastava, Analyst — 361 Capital

So, in terms of the project business, you said that mix has increased to 43% and which will move towards the 40%. So, it can come in an immediate basis, like in a coming quarter, we can expect that, or is it a slightly medium term, it will come towards that direction.

Speaker 9

It has already happened in this quarter. In this quarter, the project business was contributing 39% as opposed to 43% of what we had done in the previous quarter. Previous quarter was kind of an aberration because of the input price increases which had happened and the kind of profitability concerns that it was raising. We had actively pushed deliveries of certain projects which were nearing completion. We have kind of pre-polled the delivery at that point of time because the inputs were on a continuous rising business. So, that was an aberration. We have already come back to that level of the 39 percent 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 going 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 turnover is increasing and the proportion of retail and project should remain in that ratio of 60-40 going on.

Amit Srivastava, Analyst — 361 Capital

And there is still some order book of the old prices where we will be having a lower margin versus the retail segment? Or is it now aligned to the new quarter? That would be true there.

Speaker 9

The bulk of it has been materialized in the last couple of quarters. There will be some parts of it being still Q3, but going to the later part of Q3 and Q4, we should be all, we can say, more or less with new project orders, with new project, which will be new prices.

Amit Srivastava, Analyst — 361 Capital

Okay, that's the last question in terms of the margin profile. If we look at in the last two quarters, our margin is slightly superior

Speaker 6

than what we were guiding for the full year.

Amit Srivastava, Analyst — 361 Capital

So, given the guidance, though marginally, it has been lower and has been revised downward, but still the second half is implied very strong margin of 14.5% kind of margin. So, are we confident that this is whatever we have taken and the current cost structure, we are able to manage that profitability?

Speaker 9

Uh, in respect of the margins, like, uh, we had ended Q1 with 10%, 10.13% in Q1. Uh, we had mentioned at that point of time that, uh, uh, that no margin was a kind of exceptional, and that had happened primarily because of a large number of one-time factors which had played, uh, during that point of time in that particular quarter. Now, going into Q2, you'll find that most of those factors have reversed, and you've started seeing a kind of upswing in the margin. So I'll just kind of give you an idea about the various things which are played in Q2 and what we expect going forward in Q3 and Q4. Just to answer your question in respect of whether we are confident in respect of the total margin coming in the range of 13% to 14% for the full year. 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 have 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 10.13, which we have projected for Q1, which had actually come in for Q1, and we have said that 1.4.5 percent was kind of one-time effects. So, those one-time effects have been reversed in the current quarter. So, 10.13 plus that 4.5 kind of became 3.83% because that turnover also increased substantially as compared to Q1. I mean, Q2, the turnover was higher. That 4.5 effectively translated into something like 3.8%. So, ideally, 10.1 was the base of Q1. 3.8 was the reversal of the one-time effects which had happened at that point of time. So, we should have ended up with something like 14.9 percent kind of a revenue sorry 13.9 percent of a revenue 10.1 plus 3.8 percent. At that time, we have taken an impact of projected of 1.5% in case of price rise. Actually, the price rise impact on a company as a whole came up to be 2.5%. So, 1% additional we have 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. Okay. In Q2 as opposed to Q1, Also, there was an operating usage impact of 1.9 percent, like because of the fact that the turnover had increased, but the fixed costs are remaining constant. So, this 1.9 favorable margin impact was there, operating usage impact. So, ideally as margin should have been 16.8. There was a few negative factors, I put it down to 12.2, so I will just 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 percent. It was, on an average, the consumption was at 589 rupees in Q1. It came out to be, sorry, 837 rupees in Q1, 589 was in the previous quarter. 837 in the previous Q1 F527. It came out to be 932 rupees in the current Q2 F527. There's a 12% increase which led to a overall 2.1% EBITDA decline. Publicity expenses increased by 0.5, outsourcing of sanitary wear and tiles kind of the prices had gone up, gas prices had gone up in Moldy, 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 you find that the old projects were still continuing in Q2. So if your prices go up, but the selling price which you are excessively giving to the consumer remains the same, so the projects remain the same, so the discount typically looks higher. That is why the negative impact of discounts. StrikeMeet has gone up in detail also, but we have taken a lot of steps in the future, which will bring it down again. But at 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, 0.5%, sanitary warranties, procurement, 0.3%, discount, 1.7%. So, 4.6 negative in total, which took a margin from, like, 16.8%, had these negative factors not occurred, to 12.2%. Now, going forward. We are confident that in Q3, a few of them should be reversing because most of the projects have now started, as I mentioned, being old projects are now being completed. Most of the deliveries which will be happening in Q3 and Q4 on this, you'll find that there will be 40 new projects with the new pricing. So the discounts over there, the pricing effect would be coming into effect over there. So, we expect that the negative discount factor of 1.7 to disappear and also improve pricing further to come into play. So, that should be kind of impacting us to a large extent in the future. Plus, we have also taken quite a few measures for controlling the retail discount also. The September try to increase the effect of faucets is yet to kind of stick into account in the current quarter of Q2. That will also be playing into Q3 and Q4. So going forward, we are pretty confident that the margin of 13 to 14 percent which we have projected for the whole year should be very easy to achieve.

Amit Srivastava, Analyst — 361 Capital

Okay. That's very helpful. Thank you, sir. Thank you very much. From that, Mr. Van Vysel.

Operator

Thank you. Thank you. A reminder to all the participants, please restrict yourself to two questions, and if you have more questions, please rejoin the queue for more questions. The next question comes on the line of Shriyansh Jain with 3A Capital Services. Please go back.

Shriyansh Jain, Analyst — 3A Capital Services

Hello, I'm audible.

Operator

Yeah, we can hear you.

Shriyansh Jain, Analyst — 3A Capital Services

Thank you for the opportunity, sir. Just one question from my end. Has the current geopolitical scenario helped a company like us in terms of ship from unorganized to organized market, especially in faucet to a division where we have shown excellent growth?

Speaker 9

Geopolitical situation has done a kind of a double-edged kind of a situation. It has added problems as well as presented the opportunity also. Problems is that the, if you look at the brass prices, they have been going up continually over the past, you can say, one year or so. And this has been exacerbated by the geopolitical situation wherein it has increased quite sharply over the last couple of quarters. The gas situation has 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 high, 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. So, MOBI players on an overall basis have been slightly impacted, but typically if you look at the MOBI profile for sanitary wear, you find that it is either they are OEM suppliers, so that has not been impacted too much because they have been able to pass on the input, increasing the input margins to the OEM players. Like we have, our procurement costs have gone up over the last, you can say, couple of quarters. So, even in their own selling which they are doing in their own brand, because the entire market prices have gone up, they have 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 banded pair as opposed to unbanded ones. So, that has helped to a certain extent. But on a primary basis, if I say that, is it only because of the fact that this pricing, the situation has evolved in Mobi 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 improving our channel effectiveness and all the other improvements 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.

Shriyansh Jain, Analyst — 3A Capital Services

Thank you so much, and wish you all the best.

Operator

Thank you. Thank you. Next question comes from the line of Pupesh Kavdia with ICICI Direct.

Pupesh Kavdia, Analyst — ICICI Direct

Thank you for this opportunity. I wanted to ask... Mr. Kavriya, sorry for interrupting.

Operator

We cannot hear you. Can you speak a little louder?

Pupesh Kavdia, Analyst — ICICI Direct

Am I audible now?

Operator

Yes, please go ahead.

Pupesh Kavdia, Analyst — ICICI Direct

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 statements.

Speaker 9

The decisions which have been done over here is not on a brand-based basis, because if you talk about, let's say, Senator or any of the Sarah Lux, 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. For Senator, we are talking about, let's say, it should be ending the year with something like 50, 60, 70 crores of number. So the total, if you see the premium and the mid and the entry levels that you're talking about, it is mostly about the Serra brand, where we have offerings across the ranges. So whenever we are talking about the mix over there, obviously the premium brands would be coming in the premium, But it is mostly comprising of the seraph and the premium items, the mid items, and the entry-level items.

Pupesh Kavdia, Analyst — ICICI Direct

Okay, thank you. And can you share the contribution from Sarah Bryan?

Speaker 9

It is primarily like the Sera 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, a total of 2450 kind of a number for the whole year, and let's say the Netter and Polyplus are taken together, would be accounting for something like, you can say.

Pupesh Kavdia, Analyst — ICICI Direct

Thank you. And also, are there any new CapEx plans and what is the update on sanitary wear CapEx expansion plan?

Vikas Kothari, CFO

So regarding the Catex plan, so in case of process where, like we told, this was not a bigger Catex, but the brownfield what we have conducted two years back. So, the capacity was increased from 3 lakh pieces to 4 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 equipment to be procured, effective from September, we have increased the capacity from 4 lakh pieces to 5 lakh pieces per month in case of faucet wear. And we will review the faucet wear 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 legs in a phase manner. Now, coming to the part of sanitary ware, sanitary ware, 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%. So, we are reviewing this collectively 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 decision 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.

Operator

Thank you. Mr. Kaur here, please return the queue for more questions. A reminder to all the participants, please stick yourself for two questions and return the queue for more questions. Next question comes from the line of Sagnik Sarkar with SKP Securities. Please go ahead.

Speaker 9

Yeah, thanks for the opportunity. I had a question on the in-house manufacturing percentage for both sanitaryware and faucetware. So I think FY26, you did around 41% and 53% 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. Thank you, Sarnik. I will just skip with the figures for the current quarter. In the current quarter, the sanitary ware manufacturing was 41 percent, outsourcing was 59 percent. For faucet ware, the numbers stood at 75 percent for manufacturing in-house and outsourcing was at 45 percent. Regarding your question in respect of whether it has shipped in the pieces, like in faucet ware, we have been shifting substantial quantities from outsourcing to manufacturing. In TNFTware also, the idea would be that we'll be trying to shift it in the 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 the split of the SKUs that we take 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. 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 of more bulkier pieces are kind of now becoming larger in volume. So, as we grow, we will find that the margin profile as such would not change. It is the main, the way it is right now.

Speaker 8

Okay. Thank you.

Operator

Thank you. Thank you. Next question comes on the line of Reshma Mehta with GreenEdgeWell. Please go in.

Reshma Mehta, Analyst — GreenEdgeWell

Yeah, thank you. Most of my questions have been answered. Just one question that, you know, considering the demand momentum that, you know, we are seeing, would you like to spell out some kind of revenue growth guidance for FY28, or would you say that that is too early for now?

Speaker 9

We will continue to say that it is too early right now because we want to wait for 27 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 28.

Reshma Mehta, Analyst — GreenEdgeWell

The reason I was asking this was, you know, because we'll be on a pretty high base, right, at 20% plus kind of a revenue growth for the current year. And hence, in FY28 on that base, you know, at this stage, would we be confident of achieving at least a double digit kind of a revenue growth or even that is too hard to comment at this stage?

Speaker 9

See, 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. You have the world situation, which is a little precarious, right? 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 2018.

Reshma Mehta, Analyst — GreenEdgeWell

Right. And, you know, the second question is, like, let's say, hypothetically, you know, the war comes to an end, you know, and the commodity inflation that we have seen, you know, that tapers down. So, what happens to price hikes then? And if you could cite an example, let's say, from 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?

Speaker 9

Traditionally, what has happened 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 we talk about sanitary ware, even though the external market has been impacted by a bit due to the increase in the gas prices, because of our own arrangements, we have had minimal impact. There has been an 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 costs because that will come down. But typically, we don't anticipate that the prices would be impacted because in the past also, in case of sanitary wear, as well as in the case of faucet wear, in case of faucet wear, there has never been this kind of a jump, at least what I can remember. But even in the current situation, even if the grass prices come down from the current level of 950 to 1000, 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, again, now you find there is a 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, you still need to recover the past losses. Maybe project pricing would be impacted slightly, discounts may go up slightly higher, because that you can kind of reverse. But typically, there has never been a reduction in prices in the case of sanitary wear or in the case of faucets.

Reshma Mehta, Analyst — GreenEdgeWell

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.

Speaker 9

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. 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 this demand kind of papers, 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.

Reshma Mehta, Analyst — GreenEdgeWell

And lastly, any more price hikes yet to be passed on? Have we taken any?

Speaker 9

As of now, we are not looking at any price increases further. We have taken one for process where in the month of September. In Sanatriware, as of now, we are comfortable. So it's an evolving situation. It is very difficult to say offhand whether what would be happening. But as of now, it seems that for the current quarter, 2-3, there should not be any price increases.

Reshma Mehta, Analyst — GreenEdgeWell

Sure. Thank you, and Diwali wishes to the team.

Speaker 8

Thank you. Same to you.

Operator

Thank you. Next question comes from the line of Utkarsh Nopani with Anandrati. Please go ahead.

Speaker 9

Yeah. Hi. Good morning, sir. Sir, my first question is regarding your gross margin. So, in your initial comment, you mentioned that gross margin in our sanctuary portfolio came under pressure on a viable basis in September quarter. However, we were of the view that we should have seen margin expansion in our sanitary portfolio as the spike in gas cost for us is quite lower compared to our peers because we have the benefit of losing 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 Sanity Bear portfolio. So can you please help us understand what we are actually missing out? Why the gross margin in our Sanity Bear portfolio has come under pressure? I think gas is only one part of the total cost that is being placed by the company. You'll find that obviously the impact to Sera 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. Alternatively, if you look at the transportation costs, you find that the cost of fuel and hence the even otherwise the transportation costs have 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, but 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 have kind of led to the margin decline, 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, We find that in the case of Q3 and Q4 going forward, the gross margin for both sanitary wear as well as for faucets should see improvement. No, sir, your point is very big. I just wanted to understand what would be the share of the gas cost as a proportion of our production cost for sanitary ware, and what would be the freight cost as a proportion of our revenue? The freight cost will be in the region of 11 to 12 percent for sanitary ware. For the company as a whole, it comes in the region of 8 to 9 percent. But for sanitary ware, because of the fact that the items are bulkier, most of the freight cost is kind of there for the sanitary ware division. So, it will be in the range of, you can say, 11 to 12 percent. 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 Gale. So that is why you'll find that whenever the gas prices increase, the 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 percent. So, if the cost is doubling, you find that the impact that will be coming would be substantially for the outsourcing partners. And also because of the fact that we do things at a very small margin, because for us, they are supplying as OEM suppliers, and for them, the margins are extremely thin. So, whenever there's 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 grobbingly increasing the input cost. So, that 55 percent of that business which you 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 the outsourcing partners, one was 9 percent in the month of April or May and then again there was a 3 percent increase I think in the month of September. So a total of 9 plus 3, you can say 12, 13 percent has gone up as a procurement cost from our outsourcing partners. 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 pays into it. For our own manufacturing, you find that gas cost as you mentioned would be substantially lower. It should be only if you talk about sanitary ware manufacturing, it should be in the range of you can say level to 12 percent.

Operator

Thank you. Mr. Nopani, please rejoin the queue for more questions. Next question comes on the line of Pupesh Kavdia with ICSA Direct. Please go ahead.

Pupesh Kavdia, Analyst — ICICI Direct

I just, so, the company has now achieved a cash balance of around 900 crores, given the pressures from input costs.

Operator

Mr. Kavad here, sorry for interrupting, we cannot hear you. Can you speak a little louder?

Pupesh Kavdia, Analyst — ICICI Direct

The company has amassed around 900 crores of cash balances, and given the inflationary pressures and rate costs and different factors, there must be some... Smaller anonymous players in the sanitary, faucets, and tight segments may disturb you. Does the management consider any acquisitions?

Speaker 9

I see these, they are two separate things. The input cost rise 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. Your main contention is whether we can use this situation as an opportunity for buying out players who are there in the other sectors, like in the former outsourcing vendors who are there or vendors who are there in the process where it lies or the connectivity space. So, that is a continuous outlook that we keep on doing even otherwise, like when we are taking that land also, we evaluated a lot whether in respect of we should be acquiring some outsourcing partners or whether we should be acquiring somebody from the industry as such. 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, that option would always be assessed.

Speaker 8

Okay, thank you.

Operator

Thank you. Next question comes from the line of current Battaglia with Asian Market Securities. I'm Seth, please go ahead.

Speaker 6

Hi, Seth, good morning. Am I auditing?

Pupesh Kavdia, Analyst — ICICI Direct

Yeah, we can hear you.

Speaker 6

Yeah, sir, just wanted some clarity on the dry tide, you know, like on the last few thoughts you mentioned. A few price hike in fourth quarter, a few prices in first quarter. So, I think the effective price hike is what, 12% for 10x3 variant, 16% for faucet. So, anything incremental that we've taken lately?

Speaker 9

Sorry, you mentioned the earlier prices, 5 increases that we have taken, but what was your question?

Speaker 6

Yeah, so, well, 13% for 10x3 variant, 16% for faucet. So, anything up there is? We have taken?

Speaker 9

That was in the month of May. Then we have taken another price rise in the month of September. In the case of Pocetware, that was to the extent of 8%. So the total increase in Pocetware has become 16 plus 8, 24%. 16% in the month of May, 8% in the month of September, taking it to a total of 24. And in the case of Pocetware, it is 12% which we have taken in the month of May.

Speaker 6

Right, so there was no price hike in Sanipiwell after that.

Speaker 9

No, in September there was no price hike in Sanipiwell, it was only in the case of posits. Fossets is more impacted by increasing the input cost, brass, because that constitutes a significant portion of the total cost. We find that brass would be constituting roughly 60-65 percent, because even something which is not directly brass, even the bottled parts which go along with the process is constituting bulk on a bulk basis, which is mostly brass only. That is why 60-65% of the cost is impacted by brass, and any significant movement in brass needs to be transmitted directly into the cost, which necessitates price increase. In the case of faucet where it is more required as against your sanitary ware.

Speaker 6

Right. And so one clarity that you've given reasons, you know, why are margins kind of were short? In the Q2, QOQ, 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 is this, you know, higher discount of 1.7% which impacted the QQ margin sequentially? Let's see from that.

Speaker 9

Yeah, 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 the 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, at the beginning of the year, that cannot be reversed immediately because you have a quarterly scheme, you have a kind of half-year scheme, and you have certain annual schemes also. So, it takes some time for the discounts to be rolled back. They cannot do it immediately because skills which have already been lost, they cannot be kind of withdrawn immediately. 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 once you withdraw also, because schemes 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 will find that a lot of those reversals have already been initiated and that impact would start becoming visible. And also in the case of projects, most of the earlier projects are now kind of closed and going forward, you will find that most of the newer priced projects will be coming So, both the pricing impact and reduction and discount in detail will kind of lead to improvement and margins in the future.

Speaker 6

Right, right. I got it on the last question from Mayan. We have taken a 13% increase in sanitary ware prices. We have some benefit of gas sourcing vis-a-vis Morbi. So what is their cost increase vis-a-vis us?

Speaker 9

See, as I mentioned in the, when the previous question was being asked, like, typically, for the mobile players, the gas cost has kind of doubled.

Speaker 6

Their price has already taken in the market, these are the price of 13% for share.

Speaker 9

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 relationship that you 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 an 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.

Operator

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.

Speaker 9

Thank you, everyone, for attending this call and for showing interest in Serra Sanitary Wear 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 CBRN. Thank you once again for taking the time to join the call. Bye. Thank you.

Operator

Thank you. On behalf of Serra Sanitary Wear Limited, that concludes this conference. Thank you for joining us. You may now discuss your lines.