Sir, just continuing on the CPVC resin manufacturing. So, two things to understand. First, let's say, from third quarter of FY '27, once the plant will be operational on a full-year basis, as you have mentioned the margin to improve. So, for us as a Plumbing division, how one can look at margin improvement?
So, coming to your first question, this margin expansion will definitely be there. Exactly how much will be there the market situation will decide because we have to take a call at that point of time that how much we want to pass on to the market to gain the volume very fast, and secondly, how much we want to retain to improve our margin. So, we are going to split the profit into volume growth as well as into margin growth. Now, regarding your second question 40,000 plant will not be definitely sufficient for us because the way we are expecting the growth in the coming time, we may be requiring more capacity in the future, but right now I think to start with 40,000 is more than enough and balance we can source from our Japanese partner with whom we have tie up.
Sir, as you have highlighted your adhesives four months growth, possibly can you do the same for the pipe division also? And secondly, in June, the growth has came, it is not in the cost of margin, like nothing have changed from the strategy front, nothing cost cut, price cut, any such strategies has been adopted by Astral?
No, no. Margin is always of a priority to us. So, for this type of growth, we are not going to cut our margins and do the business. So, whatever margin for the piping business, we have guided 16% to 18%. We have always guided the investor community that we will try for the 16% to 18% EBITDA in the piping business. I think we will stick to our guidance of 16% to 18% for the annual basis. [Hiranand Savlani]: No, no. For the sake of growth, even if margins are 1% or 2% lesser, we do not mind it. As far as the demand is there in the market and we feel that we are able to get good growth by dropping 1% or 2% margin, I think we will be happy to do that thing.
What percentage of revenue will you target from this acquisition, say in FY-26 and 27? Sir the backward integrations and acquisitions I can see that you are diversifying beyond plumbing. So, what percentage of the revenue do your target for non-plumbing segments, say for next two years sir?
See, it is very hard to quantify right now madam, because they are only making fittings. And in that also a lot of range expansion is going to happen. And on top of that, I have to develop some of the piping product to go with the fitting. So, it's very hard, because it will all sell as a system. So, very hard to quantify right now that what percentage of top line will this happen. [Hiranand Savlani]: So, backward integration is not diversion. It is the same plumbing product only we are doing the backward integration. So, it is not the altogether different product we are doing. It is a part of the plumbing only.
So, my question is regarding, despite our market share in the piping business is still relatively in the higher single digit, and the other new businesses that we have say paints and adhesives have comparatively even lower market share. So, where do you see this business say, five years from now, seven years from now, and what is the volume growth or probably top line growth that we can sustainably expect from this business, considering that we have a lot of new businesses?
So, see, volume growth we are expecting minimum double digit in next five years that is what internally we are working. Now, with this recent announcement of this backward integration, there are high probability that our volume may go toward this higher direction. So, one this plant will be ready, and all these numbers will be in our hand, and we will work out our strategy, and based on that we will communicate to all of you that what will be the new strategy for Astral. But the way we have understood, the way we have worked out the number, it is very, very promising, but it is too early for us to give you that number. Let us first be ready with the plan, ones the commercial production start, one or two months we work on that, and we work out our exit saving. And based on that, we will revise our number.
Sir, my first question is regarding your pipe realization. So, if we see it was down at a much higher pace on a Q-on-Q basis compared to our peers, despite we have a low exposure to the agri-pipe segment, and we have a high exposure to the CPVC pipe portfolio. So, wanted to know whether this is because of steep decline in the CPVC resin prices in the June quarter. And if you could also quantify what has been the sequential change in CPVC resin prices in the June quarter period?
So, I think CPVC prices are definitely down. There is no doubt about that thing. But I think what is the actual price has dropped from where to when? Nobody is having the authenticated data because everyone is buying from a different, different store. And every player's pricings are different. Even local players are not selling at the same price. So, they are selling at a different price. Japanese are selling at a different price. Lubrizol is selling at a different price. So, very, very difficult for anyone to compare that, that from where to where it has gone down. [Follow-up on Astral's specific change]: So, we do not share all this internal information that this much is down or this much is up. Because we do not share all these individual numbers. But yes, definitely I can see that trend goes down.
Second, sir, on the volume front, so obviously the quarter was muted. There also if you can explain for us CPVC in terms of the growth and then the industry growth and now July 30% growth that we are seeing, so double digit when we are saying the guidance for FY '26, the austerity is 13%, but does that mean once the ADD will come, this double digit could be a even 15%, 20% kind of a number is also possible?
So, there are two things. One is that double digit can be anything. It could be 10 also, 12 also, 15 also, 20 also. There are many different parameters at play. ADD is not the only parameter. Once the ADD comes, price will settle at a certain level. After that, we need BIS for the price to even move further up, and also we need the government spending to increase in the system and we also need the building material segment as a whole, especially on the construction front, at the developer level, the demand should also go up. [Hiranand Savlani]: And I can add to that. If all will be in favor like suppose anti-dumping come, BIS come, then you are right, we can go up to 15%. It will not be a big challenge.
If I look at data for last 14 consecutive quarters, our volume growth versus Supreme which is 3x our size, we have lagged consistently. Overseas adhesives business as we have seen at least for many years, 10 consecutive quarters, it has been weak. Paints when I look at, it is encouraging commentary. Finally, our ROE has been consistently coming down. So, if you can address all of this?
So, let me address one by one. Your first comment on the volume comparison with our competitor, look at the competitors' number. If you see, the major chunk of volume came from the Jal Jeevan Mission, okay. In Jal Jeevan, Astral was not there because we are not manufacturing HDPE pipe. So, two years, there was a huge spending by Government of India, particularly pre-election sizable spending because government wanted to showcase the water that we have done so much of work. So, sizable growth has come from that segment. Now regarding your second question on paint side, yes, we have communicated in the past also, that we were working on the strategy because we wanted to launch the Astral brand and we were doing a lot of homework at the back office level. So, that is going to help us in the coming time because the moment you launch the new brand, a lot of spending will be there and on a Rs. 200 crores top line, if you are spending even Rs. 10 crores for any marketing expense or anything, it worked out to be 5%. Question was continued pressure on ROE, yes, definitely you are absolutely right. We are also very worried about that thing also. The reason is that in last three years, if you see, we have spent close to about Rs. 1,500 crores of CAPEX. Now in next coming two to three years time, you will see CAPEX will be on hold and the utilization will improve so that definitely it is going to help to improve our ROI and ROC more.
Yes. When I look at data, you start the year with CAPEX guidance, and you end up doing at least 2x or higher CAPEX by the end of the year. So, I think capital efficiency is something you should really focus on.
No, I fully agree with you, because lot of decentralization exercise was going on, and when you enter into the market at that time you realize that certain things are needed. So, because of that you have to change your CAPEX plans also. But I can assure you that particularly in the pipe division this year will be the last year for the CAPEX. After that two, three year, will be only maintenance related CAPEX. And then you will see lot of improvement. Because ultimately company has already spent money. So, then benefit always for the CAPEX comes at a later stage and it is unfortunate that the market condition was not in our favor. Now if the polymer not have dropped by 25% kind of level in last two years, then this situation could not have arrived.
Just two questions from my end. Firstly in your opening remarks you mentioned about improving demand scenarios, wanted some update on that, is it on the retail level, project level, building material side, where is the improvement, which is actually seen, is it on a pan-India level, certain geography? Some flavors here will be helpful.
So, I will tell you on the demand side, basically, see demand side pan India demand definitely has not opened up. It is certain pockets and geographies are doing better, and certain pockets and geographies are still in the improvement space. Looking into this festive period especially Raksha Bandhan, Janmashtami and the long weekend of 15th August, we are hopeful that once all these festive times pass, September is looking to be very promising in terms of demand as of today's trend. I may be wrong, things may change, but as of today's trend, we feel that from September the market has to open because this year Diwali is in the middle of the October month.
One is related to the employee expenses for the quarter, which I can see that has increased. So, what is the reason for that? Are we continue to be at this level?
So, Praveen, we have communicated earlier also that because of continuous falling polymer, the top line is getting eroded. So, because of that the percentage terms, it is going up. Absolute level, it is going very negligible. But percentage level it is showing very high, because we have entered into the multiple new businesses. So, because of that, we have to appoint the new people, not only on the ground level, but at the senior level also. But now base effect is going to play its role in from the coming quarter onward. And there you will see there will be a drop in the employee cost.
My first question pertains to the current CPVC procurement. So, as of now, as we do not have any backward integration for the CPVC resin, so from where do we procure the CPVC right now? And after the backward integration, what percentage of our total consumption will be used as a captive consumption then?
So, right now, we are procuring our CPVC from Sekisui Japan, okay, and some from DCW in the local level. So, we are procuring from multiple sources. We are procuring good quality CPVC resin. And after this plant completion, it will be basis on the demand scenario, at that point in time, we will be able to answer that how much of our internal demand does this 40,000 tons resin suffice because 40,000 ton is just the resin. On top of that, I have to do the compounding. So, when you do the compounding, another weight is added so that 40,000 tons when converted to compound becomes almost 46,000 tons or 47,000 tons.
With the acquisition of Al-Aziz Plastics, how will this product mix complement Astral's existing portfolio? And what synergies are you expecting in next 12 months to 18 months?
So, Al-Aziz makes multiple products. It makes electrofusion fitting for water supply, for gas. It makes PPR fittings. It makes some PPH products. It makes very different variety of products. Some of these systems will utilize the fittings that are manufactured by Al-Aziz. So, we have good long term plans with the fittings of Al-Aziz. On top of that, a lot of Al-Aziz fittings are used in the industrial application and a lot of them are used in water supply application as well. So, once the government demand starts, again the demand for Al-Aziz products will start. We can utilize the Al-Aziz product for clean water supply, for gas supply, for wastewater supply, a lot of different product categories and product lines, we can manufacture using this fitting.
I just wanted to understand about the plumbing and the adhesives, that has been our core business for many, many years now, and the new one is on the paints and Bathware. Just wanted to understand the penetration of this two lines, the Bathware and the paints in our distribution reach.
So, Bathware also, 70% of our channel is selling Bathware we had done an internal survey, and in Bathware also we are present across multiple 1000 outlets in India. And our distribution reach is going up. We are present in three geographies majorly now in the Bathware side, North, West, and South. East we have to still ramp up, East we will ramp up in the coming year or so. Because to ramp up East we have to onboard a lot of manpower, so that we have decided that once the West, North and South stabilize, we will gradually enter the East geography as well. So, Bathware also our aim, and if we are not entering the different geography, then committing a 25% to 27% growth for the year is also not possible.
Sir, just extending the discussion further on these categories. Lot of product categories need investment on branding as well apart from manpower, more and more we are adding B2C products, apart from paints, Bathware the core categories of adhesive also has that stuff like tanks will also need some kind of branding, because lot of retail demand is out there. Typically, the business is spending about 3%, 3.5% of top line into branding. Should we expect more spending into this line item and get further brand strength to further ramp up these sales?
Rahulji, you see how the Astral workout the branding strategy. Because when we entered into the adhesive business, multiple brands were there. So, because of that we have to spend a lot money on the branding side. So, what we did, we consolidated that business into one brand, bondtite. Earlier, if you see there were a multiple brand for individual category wise of chemical you can say, and that we consolidated and make it a one brand bondtite. Secondly, in our new businesses like Bathware or paint, what we have done, we have given the brand Astral to them, which is already established brand. No need to explain anyone what is Astral. So, today, all our Bathware products are carrying Astral brand. Similarly, paint is also carrying Astral paint. So, they are getting the big advantage of the parent brand. We have not kept a separate brand so that we have to do the separate branding for that.