Control Print Limited (522295) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Control Print Limited Q3 FY '21 Investor Conference Call hosted by Asian Markets Securities Limited. [Operator Instructions], Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhatelia from Asian Markets Securities. Thank you, and over to you, sir.

Thank you so much, Ayesha. Ladies and gentlemen, good afternoon, and welcome all to the Control Print Limited 3Q FY '21 Earnings Conference Call hosted by Asian Markets Securities Private Limited. From the management side, we have with us Mr. Shiva Kabra, Joint Managing Director; and Mr. Rahul Khettry, CFO. I now hand the conference to Mr. Rahul for his opening remarks. And then we shall open the floor for question and answers. Over to you, Rahul. Thank you.

Thank you, Karan. Welcome, everyone, to the third quarter FY '21 earnings conference call of Control Print. We appreciate your taking out your time from your busy schedule to attend the call. Hope you and your loved ones are safe and healthy. Mr. Shiva Kabra, Joint Managing Director, joins me on this call. Let us start with the brief of Control Print followed by specific analysis of the financials in the current quarter and end with the Q&A session. A detailed presentation has already been put up on our website as well as in the investor presentation notified on the exchanges of this call. For those who are probably reviewing the company for the first time, Control Print is in the niche coding and marking segment, which is an oligopolistic market with 4 major players, 3 of whom are MNCs and Control Print is the only Make-in-India manufacturer. This gives us an advantage to sell our products locally and compete strongly with the other multinational players. We are the only integrated player with capability to manufacture printers as well as consumables in India, gaining us an advantage to share the benefits with our customers. This also gives confidence to customers for long-term partnership with Control Print. We have our manufacturing facilities in Nalagarh in the state of Himachal Pradesh for the manufacturing of printers and in Guwahati in the state of Assam for the manufacturing of consumables. Both the manufacturing locations are state-of-the-art facilities to produce good quality products. All our consumables are manufactured in the Guwahati plant. And in addition, we have also started manufacturing some printers in that location. We have a strong sales and service team of 350-plus engineers across our 12 branches, which gives us the advantage to service our customers efficiently because predominantly, the after-sales service is very critical to maintain the customer satisfaction. The 12 branch offices across North, South, East, West and Central India gives us the advantage to be in direct contact with all our customers in a timely manner [Technical Difficulty] production. Post sales of printers, there is a continuous demand for consumables over the life of the printer, which typically lasts 5 to 7 years, depending on operating conditions. We have our complete attention on our customers' requirements to ensure their production is never affected and service requests are attended immediately, thereby gaining our customers' confidence. We have an end-to-end SAP ERP system set up, which ensures maximum transparency in accounting, sales and after-sales service as well as total control from raw material planning and ordering to receivable collection and is integrated with our CRM system, which gives the confidence to the team, the customers as well as our auditors and investors. We have a widespread customer base catering to multiple industries like pipes and cables, metals, automotive, food and beverages, FMCG, pharma, et cetera. And we continuously endeavor to customize our products to reach out to other industries to increase our installed base. We have the entire range of products in our portfolio to meet the coding and marking requirements of the industry. The details are elaborated in our company presentation. As of today, the company has an installed base close to 13,000 printers across industries, which enables the sale of consumables across the life cycle of the printer. We are very confident that we have the best-in-class products to meet the requirements of most of the substrates which gives additional advantage to the customer to do business with Control Print. With a strong foundation and 5 pillars that is man, machine, material, technology and finance, well-established to augment our business plan, we are continuously striving for greater heights. Let me give a brief analysis of the financials of Q3 financial year 2021. The aftermath of COVID-19 continues to affect the economy and the business environment, although most of the manufacturing sector is operational after the unlock of the national lockdown. The customers continue to ramp up the production volumes, but with caution. The manufacturing volume in most of the industries is at the level which is required to complete their order book, but not building high inventories and the animal spirit is yet to kick in. These are extraordinary situations when the strength of the company is tested, and we can assure you Control Print is geared up for any challenge. We are financially stable and robust and have exceeded our pre-COVID revenue volumes with a year-on-year growth of 16.2%. This stability of Control Print has also been reaffirmed by credit rating agency CRISIL with an A rating after considering the short- and medium-term impact of the COVID pandemic. Our investors can maintain their belief on the company's management for an optimistic future. We had a strong comeback with highest quarterly sales with year-on-year revenue growth of 16.2% in spite of challenging times. The reason for growth in revenue was due to good volume growth in printers and contribution of mask division. We also recorded the highest printer sales in any quarter, which will strengthen the installed base. The company continues to maintain healthy margin with profit before tax, excluding exceptional items at approximately 17% and EBITDA at approximately 22% with scope of improvement due to better product mix and higher revenues figuring economy of scale. We have continued to maintain EBITDA margins north of 22% on a long-term sustainable basis. Profit before tax was higher than year-on-year led by stringent cost controls in spite of higher depreciation charge and higher CSR spend. I will now brief you on the performance of various divisions, products and business segments. Printer had a volume growth of 18% and positive demand in spite of a challenging environment, which is a strong signal for increase in momentum of industrial production. The increased installed base will drive the business in the coming quarters. We bagged 2 orders in the dairy segment through state tenders and continue our dominance in the dairy industry. We also made significant inroads in large food and FMCG companies, which were predominantly competitor accounts. The flagship division, CIJ, witnessed traction with growth of 8% which could have been higher if the customers' productions were normalized. The growth was mainly due to production of some of the industries where we have a strong hold, like pipes, cable, steel, food, FMCG beverages. It was also encouraging to see growth in some of the upcoming sectors like dairy, pharma, paints. Our product launch of TIJ printers, high-resolution printers and TTO printers continue to have a strong traction due to acceptance of the printers and the technology by the market. These verticals are surpassing their highest sales every quarter, and we are confident they will continue to add value to the company's business plan. With dedicated national level managers driving these verticals, with focus on specific sectors like dairy, beverages, bakery, frozen food, ready-to-eat, pharma, packaging, plywood, lubricant, coding, et cetera, we hope to cement our leadership position in these applications. We have realigned our sales team to specialize in these segments, which will give these new products the desired impetus . These new printers have done some good installations in the past few months and coming quarters should witness growth. We have also assigned separate managers to focus on the OEM sales and key account customers, and the strategy is showing encouraging results and should yield good quantum of business. Laser business is expected to deliver growth as product technology is being improved, and the team has been changed. This has yielded good dividends with positive response from the customers and new opportunities are in the pipeline. The current quarter has achieved highest Q3 sales in 4 years for this segment in the laser business. The facemask production has started, and the company has declared commercial production with effects from 24th July 2020. This will continue -- this will contribute to the company's business plan, but we are not making any predictions due to the volatile market conditions. The company has strong cash flow, and this has helped us reward the shareholders with an interim dividend of INR 4 per share, which is higher than the INR 3.5 per share declared as an interim dividend declared in the previous year. While COVID-19 has impacted economy as a whole, we believe that the worst is behind us and with return to normalcy in Q4, we hope a similar trend of growth trajectory. Traditionally, Q4 and Q1 are strong quarters for the company. So next 6 months should continue the momentum. Fundamentally, the company remains strong, and we are focused on our plans and strategy as we are confident of the growth potential to deliver positive results. The floor is now open for questions.

[Operator Instructions] The first question is from the line of Vaibhav Badjatya from HNI Invest.

Sir, I have first -- I have 2 or 3 questions. So in terms of consumable sales, so if I try to understand that what is our consumable sales based -- on an average basis per customer vis-à-vis competitor, I don't want the exact numbers, but would it be lower than our competitors? Or would it be higher than our competitors?

So Vaibhav, I wouldn't be knowing the figures of our competitors because it all depends on how the printers are installed and in which industry. So it's because there are various products in our coding and marking from CIJ printers, to laser printers, where there is no consumables, and we have the TIJ, TTO printers, all work with different technology and the customers themselves, depending on the industry, either on 1 shift or 2 shifts. So it's a very difficult question to answer as a comparison.

But approximately, by far -- this is Shiva, by the way. So approximately, I'll say, with the 3 prime competitors, Videojet Technologies, Markem-Imaje and Domino Printing Sciences in India. So I think we are quite at par with them. Of course, it depends on like Rahul said, each segment has its own characteristics. But we are roughly at par with them. There are some smaller people who supply, I think, they get, in general, much smaller customers, more C and D grade customers, where the business for printers is significantly less. But of course, this is only for one type of printers. So you can only compare one printer type to another. You can only compare CIJs to CIJs; you can only compare TIJs to TIJs and so on.

Yes. So sir, the thing I wanted to understand is that due to our distribution, our ability and reach, is it the case that in our total sales mix, sales from smaller type customers are relatively larger vis-à-vis the competitors are kind of -- are more focused towards large accounts. Is it the case?

No, not at all. I think that the difference between us and our competitors is we have more of an industrial base, and we have more of a FMCG, food, beverage and pharmaceutical base. We have more of a base in pipes, cable and wire, steel, cement. It's like more on the building construction materials, like, we've got a higher percentage of revenue coming from there. We have a higher percentage of revenue coming from these sectors. So -- but we are trying to -- as Rahul has explained, we're trying to also build or strengthen the food and personal chem. Personal chem, we have actually good place, but especially in the food and beverage sector or health care, we've to kind of really focus on those 3 sectors to expand our sales.

Right. And secondly, do we have stamp roller business also within this or -- within the company or we don't have any sales related to stamp roller, [indiscernible]

Say what?

With stamp roller?

No, no, no. We only have the products which are listed on our website. So we don't -- so I mean, all our products are digital technology based basically.

Okay. So there is nothing stamp roller that we do?

No, we don't have contact coders and embossing and stamp. We don't [indiscernible] those.

Okay. Okay. Got it. And lastly, in terms of -- again, this is on a like-to-like basis on product -- similar product. So in terms of printers, would our -- would we price our printers to all vendors competitors to kind of as an initial endorsing into the business. Or is it more or less...

It's at par is what I'd say. Again, there are different models of printers. So obviously, like in certain types, there's 2 heads, there's 2 jets. There's a pigmented printer. So there's printer which requires food-grade or need to be -- used for food packaging specifically. So they need a food-grade approval and so on. So they get charged differently, but I'd say roughly for the same type of printers it's the same price across our competitors and us. At least the 3 key competitors is what I'd say, again. We don't really focus beyond that. So the pricing is approximately the same between all of us for the similar type of model. I'm talking mainly about the continuous inkjet. In the other types of models, there could be more variations. But again, it's broad based the same. So what happens is sometimes, there's some strategic pricing by them or us depending on whether client is more valuable to us or them or something. But largely, I'd say, on an average sale, it's pretty much the same.

Okay. Okay. Let me come back in the questioning queue, I have no queue. But I will come back in the question queue.

[Operator Instructions] The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

Yes. A couple of questions from my end. If I look at last 5 years, you've done a CapEx of approximately INR 90 crores. Gross profit has increased from INR 55 crores to INR 145 crores. And additional sales is around INR 80 crores. So on current capacity, how much sales can we generate at optimum level?

So basically, the -- some part of the CapEx increase that you're seeing is an accounting entry because of implementation of AS in 2017-2018 where the assets were revalued as per the guidelines of NDA. So definitely, our CapEx is not at INR 90 crores. If I have to put a rough figure over 5 years, you would have probably after implementation of our Guwahati facility, that was in 2016, until date, we would have probably done maybe INR 20 crores, INR 22 crores, in that range, I guess. So some part of it is...

Guwahati also. But I don't know.

So some -- yes, if you've included Guwahati, that about INR 25 crores to INR 30 crores will get knocked off. Plus the revaluation of assets because of NDA. And again, for India, there was some change where some inventory had to be moved to fixed assets. So all this combined is what you're seeing at INR 90 crores. Ballpark, like I told you, it would be maybe INR 20 crores, INR 25 crores in that range. And the second part of your question, we believe that up to INR 300 crores or maybe even up to INR 350 crores if I can stretch it, we should be okay at the current capacity level. So we don't see any large capacity expansion apart from debottleneck of certain constraints within the certain sector. We might have to invest some amount for the next few years, but no major CapEx [indiscernible]

Sure. And in the presentation and on the call, you mentioned we having a diversified customer base. If I look at last 3 years of sales, they are up 10% and 5 years is around 10%. So despite we being a relatively smaller company, what are the challenges to grow this business? Because I would imagine if we have a far more diversified customer base and no industry is large in terms of contribution to sales, we should have grown faster. And what will it take to grow at a much higher base, 18%, 20%, 25% over the next few years?

Yes. So I think that there were some challenges that were there a few years ago, as you put it. So I think the first thing was that our product range was not comprehensive across the entire sector. And we -- there's a lot of investment in that. In fact, there were a lot of questions on inventory and those sorts of things because we had to broaden our product range. And not only make it but then you'll have some issues really quite competitive. So that was the first part of it, which we did not have about 5 years ago -- maybe from the last 2 years, we really have a very select leading product portfolio. I think this year was going to be a big year of growth for us. And unfortunately, the coronavirus happened at the wrong time for us. Otherwise, I think we'd have really been significantly higher in revenue and definitely into profitability also this year. And it also happened at the worst time, which was through the March end to the summer season, which also is one of our maximum kinds of foods, consumable sales more than the other months. So there was a bit of a loss out there. So this year is more of a -- and of course, as you know, we are quite broad-based in the manufacturing sectors. When the entire manufacturing gets affected, at the end of the day, we get affected because we're not a direct-to-customer manufacturer. We are supporting manufacturers and in turn, they are selling to the customers. And if their production reduces, there's nothing much we can do. So our industrial base got probably more affected than the FMCG and definitely, we see that in the numbers, industry-wise. So that also affected us more through the first 9 months. So I think that we've been doing some good things. It hasn't completely shown up in the numbers. We were really expecting that last year and this year would show up more on the numbers. Again, last year also, we would have crossed INR 200 crores if that last 10 days or 15 -- 12 days, we couldn't send anything out. So I think you're right on the -- we're getting back on the right path at least these few months, now the momentum is returning. And I think that with the changes that we've made across the Board with our entire SAP, with our CRM between our product range, our service strength, our training, our hiring. In every single aspect, our marketing significantly improved. So I'm quite sure you see the results going forward for at least the next 2 to 3 years maybe. We've got a competitive edge in our product portfolio and our coverage. I think we're going to see some benefits of that. This year was muted because of unavoidable circumstances, which everyone is aware of. And -- but I think there's not that much we can do. We've still had a pretty good year considering the circumstances.

Yes. Just to add to that, I think growth at high teens or close to 20% is definitely achievable, and that's what we are trying to make these -- add product portfolio, add customers. And in the long run, I think it is definitely achievable. As Mr. Shiva said, over the next 2, 3 years, hopefully, we will see the results.

Shiva, you mentioned our contribution to industrial is larger as compared to the MNCs who are more on the consumer side.

Yes.

So does that affect the margin profile also? And what's the road map? And if you could also give some color on top 3, 5 industries, what is the contribution to our sales?

Yes. So I think that being industrial versus FMCG or food, beverages, is not really -- I don't think there's any much difference in any of the industries. What -- in my personal -- like, whatever we've checked, there's not really much of a difference between the 2. I do think like in this particular time, it affected us quite negatively because I think the industry was definitely affected much worse than the food and beverage, which we saw some suffering. Dairy was still growing even through the lockdown periods and everything. Food is not much affected. But certain other things, especially in the industry, it was affected and I think, again, we saw some customers, like the bigger customers have recovered a bit faster. But the small- to mid-sized customers have taken a little bit more longer to get their volumes back to that old pace is what we're seeing. So maybe in this particular situation, it affected us a bit negatively. But again, if there's a lot of infrastructure growth or all that type of thing, hopefully, it will benefit us more moving forward. But again, I guess part of the reason we're expecting to grow faster is we're expecting to, at the end of the day, make some inroads into the food, the beverage and the pharmaceutical sector. We're quite good in personal care, but we dragged in food, beverage and pharmaceutical. Like, we need to up our market share in those 3 spaces.

Sure. And lastly, if you could give us some color on top 3 or 5 industry contribution to sales and service income for us?

Yes. So Rahul got the data. But I think it's the same one. It would be food, for sure.

Pipes, cables, food and steel, FMCG.

Maybe steel. Yes, FMCG, personal care, et cetera.

That would be approximate what turnover to sales and service?

This would be close to about 40%.

Fine. And I think Rahul mentioned about INR 13,000 crore base, that was for the industry, right?

Yes, all printers included.

Yes. And what would be our installed base? If you have a ready number...

No, no, I said INR 13,000 crores is our installed base, not...

INR 13,000 crores is Control Print installed base.

And the industry, do you have any ballpark numbers?

So I think I've got -- Shiva, you would be better at this.

You're talking across all companies?

Yes, yes. So the 4...

Yes. So the 4 of us would be about INR 70,000 crores installed totally, INR 70,000 crores, INR 75,000 crores; INR 25,000 crores to INR 30,000 crores would be the small. So like maybe INR 90,000 crores to INR 100,000 crores will be the overall market, out of which INR 70,000 crores to INR 75,000 crores are the 4 of us. And INR 25,000 crores or so is small pirates -- or people -- or INR 25,000 crores is people who are our printers but using someone else's ink. That's it. So that will be the fragmented part of the market.

Sure. That was helpful. And lastly, what kind of tax rate and benefits do we have and this tax rate should continue till when? When do we get to 25%?

So basically, we have our incentives on GST for our Guwahati facility. That is up to 2025. And post that, we can utilize our MAT credit for the next 50 years, which has been in a recent amendment. So technically, it can go up to 2040 at MAT levels in terms of cash flow.

The next question is from the line of Devanshu Sampat from Yes Securities. [Technical Difficulty] The next question is from the line of Deepan Sankara Narayanan from Trustline PMS.

Congrats for good set of numbers. Just wanted to understand what is the contribution of printer, consumables and other segments in the current quarter as compared to last year also?

So definitely, like I said, that printer volumes have increased. So printers are about 22% to 23%. Consumables are in the range of 50% to 52%. And spares and services, about 23%; Mask division is a little less than 5%. So yes, the ratio of consumables has to increase, which I keep mentioning in the change of product mix. And then you will see a definite upside on the profitability, which we discussed. So it's a good sign that printers are increasing. And once the consumables start like we mentioned, that Q4 and Q1 are our strong quarters, we hope that profitability will follow more than the levels of...

[indiscernible] for the numbers for the last year?

So last year, in Q3, the numbers were -- printers were at about 21%; consumables, at 58%; spares and service at about 21%.

Okay. Okay.

So we are about some 6%, 7% down in consumables, which we have to recover. I mean, that's because of the current situation, like I mentioned in my opening remarks, that companies are still producing just to meet their orders. No one is losing anything. Everybody is back into the game. But that animal spirit is still missing, where people are not producing to build inventories. That's what our channel partners and sales team tell us. So once that kicks in, we will definitely see a much higher share of consumable.

Okay. Okay. So I, even at this current level, the consumables and printers, they -- have they been reaching closer to our FY '18 level? Or picking maybe very far away from this?

Sorry, Deep, I didn't follow your question. Could you repeat?

Yes. Consumables per printer per day kind of number. So we were somewhat picking somewhere around FY '18.

So see, right now, obviously, with the sale of higher printers, the change in the industries that we are supplying to as well as the current mix of printers, the per printer revenue is slightly reduced, and this is what we are working on to try and increase. But yes, it would be about 10% lower than what it was earlier, which we hope that with higher production of our customers, they should again go back to original volumes.

Okay. Okay. Okay. And also, what is the contribution of new age printer sales to our overall printer sales?

You mean the new launched printers, is that?

The TIJ, TTO kind of printers.

So yes, these, as I said, these are continuously gaining market. And now they are close to about 18% to 19% of our revenues, which we think will further increase. So what we have lost in the cement segment, we've definitely been able to gain here. And we feel that these products will continue to add into the business.

Okay, okay.

But the products are well accepted in the market, we can assure you. It's best-in-class; even technology-wise, it's ahead of our competitors, and we are breaking through into multiple accounts replacing our competitors. So even the new -- I mentioned that the printers are the highest we have sold in any quarter. I'm told that many of these are replacement of our competitor printer. So that definitely gives us more confidence on our technology.

Okay. Okay. And we are also happy to note that we have made significant inroads into large food and FMCG companies. So will it be any different in terms of in the consumption of consumables or higher margin, something like that, in these new segments?

Not really.

Yes. So these are large...

It is because of the phase, right, because we won in that area. So if we have more printers, it's good for us.

Okay. Okay.

But the good part, Deep, I would like to say is that these are accounts in which we've been working for the last 3 to 4 years. And now is the time where we've been able to break through because we have always mentioned that in our industry, there is a lot of customer loyalty. It is for us as well as for our competitors. So a large FMCG company who has been using our competitor accounts for more than a decade or maybe even 2 decades, it is -- it takes a lot of effort to get into those accounts. But like Mr. Shiva said that once you're aimed, you get the whole gamut of printers and believe some of these large companies have printers, which can be over 100-plus printers. So we are in the game now, and we hope that our sales team will continue their good work and gain business.

[Operator Instructions] The next question is from the line of Devanshu Sampat from Yes Securities.

So just wondering with the person who just asked the question, so I had a similar question. So see, if I look at your consumables for printer, right, assuming the life of a printer to be 7 and whatever you sold 7 years or whatever you sold in the last 7 years, being your installed base, so your consumables per printer has fallen to about 1.08 lakh from a peak of 1.3, which was in FY '18. And if I take the average of about last 5, 6 years, it's been about 1.2 lakhs per consumables per printer for your -- so how much -- is this all of this attributable to the decline that we've seen in FY '20? Is all of it attributable to, say, the situation that we are in now? Or is it something to do with the mix change also, which is why the numbers cannot go back to -- in more than in excess of 1.25 or something of that sort?

Devanshu, I would believe that it is a mix of both. Definitely, our industry and the variant of printers that we are now supplying has changed the mix for the per print revenue. But as I mentioned, it may be down 10%. But some of it is because of the customers are yet to achieve their whole production. Like, I was asking one of my salesperson in our recently concluded managers meet. And I said, what level are we now with customers producing at? So he said, we are close to 80%, 90%. So I said that's not bad. So why are you complaining? And why are we not seeing the volumes? He said you won't believe it that earlier that we were at 110%. So that's what the difference is. I mean people still got that 20%, 30% gap, which is yet to come in. I mean, companies producing at 110% of their capacity are -- now we don't see that anymore. So if we can reach those levels for -- 100%, 110%, is not for everybody. But still, I believe companies do have 20%, 30% upside in terms of productions on the same capacity, which means our consumables per printer can go up, and let's hope that happens in Q4 and the quarters after that.

Okay. Okay. And can you please help me with the printer volumes in the 9 months, in the year till date '21 and also a year ago?

So this current quarter, it is about 790 plus -- close to 790 printers. Devanshu, you'll have to add up for the previous ones, you have the numbers. So I don't have it front of me right now. But I guess -- just give me a minute. So for 9 months in the current year, we would have been touching about 1,800 plus printers, which in the previous was, again, similar figures, which means that in spite of losing the first 2 months of April and May, we are matching the last year numbers. And definitely, Q4, we should surpass last year numbers.

Yes, sir. Okay.

1,800 printers in 9 months.

Okay. And so will your depreciation come back to the INR 23 crores run rate June quarter onwards, once the you -- I mean, I'm assuming the -- with a year, you'll be entirely depreciating that...