Control Print Limited (522295) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Control Print Limited earnings 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.

Thanks, Bilal. Ladies and gentlemen, good afternoon, and welcome all to the Control Print Limited 2Q FY '22 Earnings Conference Call hosted by Asian Markets Securities 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 can open the floor for Q&A. Over to you, Rahul. Thank you.

Thank you, Karan. Welcome, everyone, to the Second Quarter FY '22 Earnings Conference Call of Control Print. We appreciate you all taking out 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 a brief on Control Print followed by a specific analysis of the financials of the current quarter and end with the Q&A session. The detailed presentation has already been put up on our website as well as in the investor presentation notification on the exchanges for 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 both printers as well as consumables in India, giving us an advantage to share the benefit 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 to this, we have also started manufacturing some printers in that location. We have a strong sales and service team of 350-plus engineers across our 11-plus branches, which gives us the advantage to service our customers efficiently and timely since after sales service is very critical to ensure that the production lines of the customers continue to function continuously, thereby maintaining customer satisfaction. The 11-plus branches 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, since our products are critical to their production process. Post sale of printers, there is a continuous demand for consumables over the life of the printer, which typically lasts for 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 customer confidence. We have an end-to-end ERP system set up with -- which ensures maximum transparency in accounting, sales and after-sales service as well as total control from raw material planning and ordering to receivable collections 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, metal, 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 in the industry. The details are elaborated in our company presentation. As of today, the company has an installed base of 14,000-plus 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 an additional advantage to the customers 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 confident continuously striving for greater heights. Let me give a brief analysis of the financials of Q2 financial year '21/'22. The manufacturing activities in Q2 was encouraging and gives an indication of the recovery of the Indian economy. The Index of Industrial Production, the IIP, has also shown an upward trend in the last few months due to increased production across industry. With the decline in the COVID infection rate and the increased vaccination, the fear of the third wave is much diminished and the mood of the nation as well as the industry is optimistic for a quick bounce back for higher growth expectations. There was a strong traction witnessed both for consumables as well as printers as the companies were increasing production as well as capacity. These are extraordinary situations when the strength of the company is tested, and we can assure you that Control Print is geared up for any challenge. We are financially stable and robust and will continue to perform in spite of the unforeseen challenges. This stability of Control Print has also been reaffirmed by our 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. This quarter's performance delivered an all-round growth in revenue and margins and volume growth. We achieved the highest quarterly revenue of INR 62.72 crores, with year-on-year growth in revenue of 18.2%. Also sequential growth in revenue of 15.3%. The reason for growth in revenue was due to good traction in consumables as the industrial production across most of the industries increased. So it is not comparable as Q2 of previous year was partially affected by lockdown. The profit before exceptional items increased 32% year-on-year, increased 36% for the half year and increased 38% sequentially. The profit before tax increased 30% year-on-year and 80% for half year. The EBITDA increased 23% year-on-year and 31% for half year and witnessed highest quarterly EBITDA. The working capital days improved significantly by 21 days quarter-on-quarter and 30 days half yearly due to better inventory management and receivables recovery. The company maintained healthy margins with profit before exceptional items at 18.9% and EBITDA at 25.5% with further scope of improvement due to better product mix and higher revenues triggering economies of scale. We should continue to maintain the EBITDA margins north of 24% on a long-term sustainable basis. Let me brief you on the performance of various divisions, products and business segments. Printers had a positive demand in spite of a challenging environment, though the installations were slightly delayed. The increased installed base will drive the business in the coming quarters. The company received a large repeat order from the dairy segment. We have received pan-India success in the sugar segment with key customers from the upcoming sugar season. The flagship division CIJ witnessed traction with growth of 15.5% in half year as the production of the customers was increasing. The growth was mainly due to improved production of some of the industries where we have a stronghold, like dairy, healthcare, food, cable and wire, agrochemical and was also encouraging to see growth in some of the upcoming sectors like pharma, paints and wood. New product launches of TIJ, TTO and Hi-Res are showing good traction and with some good installations in the past few months. We have dedicated managers and teams to drive these verticals with focus on dairy, beverages, bakery, frozen food, ready-to-eat, pharma, packaging, plywood, lubricants and carton coding. These new products continue to grow every quarter, which builds confidence on the potential of these products in the coming years. Laser printer business is growing steadily as product technology has improved and a new team is driving the business. It has yielded good dividends with positive response from customers and new opportunities expected in the coming quarters. Service revenue has also shown good growth in value terms, which contributes towards profitability. Our strategy to separate verticals for key account and OEM business for focused approach is showing encouraging results and should feel good quantum of business. LCP business reported an increase in the previous 2 quarters with some revival in cement accounts and pan-India supplies in sugar industry. We are changing our focus to non-LCP business, and some new applications and the team is confident of generating business in the coming quarters. The company has a strong cash flow and the trend is expected to continue. Control Print retains its position in the list of top 1,000 companies on the stock exchange by market cap on the National Stock Exchange. While the pandemic retreats and with the increase in the vaccination population, will result in robust growth of the economy and we hope for a similar trend of growth trajectory. Fundamentally and inherently, the company remains strong, and we are focused on our plan and strategies as we are confident of the growth potential to drive positive results. The floor is now open for questions. Thank you.

[Operator Instructions] We have a first question from the line of Gaurav Shah from Harshad Gandhi Securities.

First of all, congratulations on a good set of numbers. I have a couple of questions. First is with respect to the EBITDA margin. Do you think that EBITDA margin of around 25% this quarter is sustainable, especially with the energy prices going up recently? And my second question would be on the -- with respect to the sales growth. Do you think which -- we can achieve growth of around 25% to 30% going forward with the manufacturing picking up in India?

Thank you for the question. Yes, I mentioned in my presentation also that EBITDA margin above 24% is definitely sustainable. We have always maintained this stance. And I think anything between 24% to 28% is what we have previously also given the guidance that it is achievable on a sustainable basis.

So I have a follow-up question on that. So do we enjoy any pricing power with our customer? Like, and how much inventory we maintain with set of consumable...

Sorry, I didn't follow you.

Do we enjoy any pricing power with our customers?

See, we generally -- usually have long-term contracts with our customers. And our product is such that we don't really get into quarterly discussions on pricing with our customers. It's mostly on a long-term basis. Of course, if there are certain abnormal situations like right now, the freight has substantially gone up and certain commodity prices have also increased. So we are approaching our customers for price increase. So over the next couple of quarters, we should see better price set, I guess.

Okay. And second question on the sales growth.

So sales growth, definitely, I think anything in double-digit is possible. High teens is what we have always maintain that we can grow anything between 15% to 20%. And with, as you said, that industrial production picking up, we are very confident that this is possible in the second half of the year.

So are you winning any market share from our competitors?

Yes, we do believe that. We have been gaining competitor accounts also. And last year, we gained some market share, but the results of this year for our competitors is not yet published on public domain. So we don't have the real figures, but our internal assessment does believe that we should gain market share in the previous financial year.

[Operator Instructions] The next question is from the line of Swechha Jain from ANS Wealth.

I have few questions. My first question is, would you be able to give us the revenue breakup in terms of the printers and consumables separately?

Yes. Is that or you have more questions to...

I have more questions.

So I'll give this and then you can ask me. So for this quarter, our printers breakup would be about 18% to 19%. Our consumables is 51% to 52%. Pairs and service would be about 23%, 24% and about 6%, 7% of the mark.

Okay, okay. Sir, my next question is, like you said -- you just guided to the earlier participant's question that we are looking at a sales growth of 15% to 20%. But what I understand is the market size, the whole -- overall the industry size is just limited to INR 1,300 crores to INR 1,500 crores. Am I correct, sir?

As of now. But it is, as you know, it's growing for the industry. So we hope in a couple of years, we should touch $2,000 crores.

Okay. So with that, I just want to understand, even if it's a INR 2,000 crore kind of an industry over the next 4 to 5 years, so do you think at some point in time our revenue growth would be capped at a particular level? If not, then if you could just give me some sense that how would our revenues grow over the next 5 to 7 years, given that the industry still remains like INR 1,500 crores or INR 2,000 crores kind of an industry? So just wanted to understand how overall revenue...

Our assessment is that the industry should continue to grow strongly, and this should hit INR 2,000 crores to INR 3,000 crores in the 5 year, as you say, maybe INR 2,000 crores in a couple of years. And Control Print, like we've maintained, it's going kind for the market share of 25%, which today is at about 19% to 20%. So with the growing industry and our market share increasing, we should be in a strong position, 5 years down the line. As of now, we are putting an immediate target to reach INR 300 crores in the next couple of years. And thereafter, we'll go for the INR 400 crores mark. So from Control Print of view, I think maybe we can hit INR 400 crores in maybe 4 to 5 years.

Right, right, right. So I have two more questions. Can I ask them? Or should I join the queue?

I think one more and then maybe your can join.

Okay. Sure. I'll do that, I'll do that. So just wanted to understand with respect to the mask division, what are we looking at? I mean, do we plan to grow the mask division? Or if you could give some color to this, sir?

So on the mask division, we've already made our investments and the machines are already in place. We have our raw material and certifications also. So though we started the mask division in the pandemic as most of the CSR activity..

Rahul, I'll just answer that question. Is that fine?

Yes, please.

I mean, for us, it's not a strategic thing right now. It's there what is there, if I may ask. And how it goes? It goes. But it's not the focus. I think, obviously, that's...

Right. Right. Sir, no more -- no more...

98% is we should get.

Okay, okay, okay. So no further CapEx or anything on the mask division, right?

No. We did some, but that is only to get our certifications for the NIOSH and the FDA, but that was only we would it as it probably just take everything. So there is -- it's not like a strategic course.

Sir, I have 2, 3 more questions. And I'll just join back the queue. Thank you, sir.

The next question is from the line of Devanshu Sampat from Yes Securities.

Just a few questions from my side. So one is, is it fair to see that working capital situation and the tightening of the same. Can you throw some light on what initiatives we've taken and whether this is something that is sustainable?

So Devanshu, I think Rahul might answer that better. I'll just give that to him.

Yes, Devanshu. Like we've been discussing that inventories means working capital part, which we've been focusing on. And we have been able to work on better inventory management in spite of higher revenues. So we have mentioned previously also that there is a minimum critical amount of inventory, which needs to be kept to service our customers as well as with the range of printers increasing the SKUs increase for us. So now with increased sales, we don't need to keep adding up to the inventory. And we feel that even further increase in sales, we might be able to hold on to maybe the inventory level. So that advantage we will keep gaining as the sales increase. On the working cap -- on the receivable front also, we've tightened it up a little bit in terms of approaching our customers faster and putting some pressure for them to release our payments on the due dates. But not -- as I had mentioned previously also, we were not very bad off in terms of receivables. So that -- slight improvement there, but the major betterment has come from inventory side.

Okay, okay. You can bet. And just continuing with the question that the previous participant was asking you, right? So I was thinking about this myself. Maybe you can give me your view on this. So why the coding and marketing business is struggling along, right, it's INR 1,200 crores, INR 1,300 crores kind of business which you're expecting to reach INR 2,000 crores. And it's also fair to assume that it's not an easy business to replicate because you need a considerable support staff and network, which is required. But now that we have this in place, are we thinking about anything beyond this category beyond coding, marking to leverage on this network that we have? Any thoughts and plans over here?

Yes. So if I take that question, so the market itself is growing at about 10% to 12% a year compounded like if you look at it over a longer period. It might have been a little bit faster earlier. Of course, like in the last 2 years, it's very tricky to predict because of the whole COVID situation. It's not -- the market has really grown actually in the last couple of years. It's been quite up and known for us since May -- March of 2020. But overall, related to manufacturing growth, as manufacturing grows, there will be a coding and marking growth. And obviously, the second thing which Rahul explained same for us is that whether we're able to grow our market share in conjunction with the market growth. Now what we've seen is that for -- which I've mentioned some things, as you get about $5,000 to $6,000 per capita GDP, the coding and marking market grows about 2x the manufacturing growth rate and then it slows down to about 1.5x to reach about $10,000 to $12,000. And after that, the growth is more in services not really in manufactured goods. So at that point of time, it sort of feels that the GDP growth. But it's -- like you said, there is a fair positive cash flow business without really much reinvestments required. So if you're talking from that angle, the profitability versus the free cash flow is quite similar.

I'm basically what I'm getting at is expanding your market size, right, like, okay, you have coding and marking with this...

This market is to get from -- we were about 18.5% pre-COVID. If I take March 2020, is that correct, Rahul? And then so we're targeting 25%. Now the thing is very difficult to predict what happened in the last few -- like so much time because, first, our competitors are they do file on the ROCE. We've not got the results recently. And at the same time, it's been a little bit up and down for everyone. It's very difficult to read what's happening in the last so many months since the pandemic began. But obviously, the idea is to grow the market share. And like you said, beyond that, how we leverage our network? So we do have a very strong network. We do have some potential thoughts on what we could do. But we need some very concrete. We'll get back to you on this what I'd say. In the meantime, the idea would be to start on this as sufficiently and definitely focus on growing our coding and marking market share. And that's where our focus is. So we were looking at some geographical expansion. That's sort of gone very silent because of the COVID travel, we can't really move forward. Maybe in the coming financial year, we'll look at that again. We were looking at certain other countries. But we are continuously looking at new products and opportunities which are allied to what we do.

Sure, sure. So yes, so I was basically asking a big picture question like, I mean, maybe from a 3- to 5-year perspective, you're thinking about possibly any other industrial products that we can get into outside of the coding and marking. So that's what I was trying to get it.

So with the intersection of digital printing and the packaging industry, and obviously, what the type of printers in the manufacturing technology and know-how we have is very related to the digital printing industry. But that's a very wide range because even your billboard printers are different printers, even your home office printers, your laser printers and inkjet printers or digital printers, for example. Then you have large specialized applications, especially textiles and other things. So there are certain applications which fit in quite strongly with what we do. I won't really talk about that until we have something concrete out of the table. That's one area and, of course, we are totally linked to the packaging industry because at the end of the day that's the customers we sell to. We sell to customers, package their products, organize packaging. And so those are the two areas, the adjacencies, which are very close to us. So the option is geographical expansion or to get into these two sectors, if you can think of the right option and the option to take out.

Devanshu, just to add to that. We're just keeping our eyes and ears open. And if there's anything concrete, we'll update. But at the same time, as you say that if any option feel that there is a new opportunity, please do reach out to us.

Some of our inorganic options.

And sir, just a last question from my side. So over the last 18 months, of course, the markets have been fairly favorable. I mean, they moved up quite a bit. And if you notice, Control Print's valuations have been still in the low to mid-teens band and relatively -- I mean for the business that we are in steady business or in the good return ratios and good balance sheet and everything. So just wonder if the management is thinking about sending out some signal to the market either a buyback or probably some -- management probably looking at increasing stake? Any thoughts about this, especially considering that we're generating about INR 30 crores, INR 35 crores of cash each year with no major cash requirement, as you said, to take us to the targeted revenue results. So any thoughts on this?

Devanshu, these are price sensitive discussions, and we're not doing it on this call. Once the Board takes a decision, we will inform the markets.

I think we have also increased our dividend consistently. And we are -- I don't know what the percentage would be, but we do have some low dividend policy -- distribution policy in place that [indiscernible] performance with the rules. And so the idea would be to make sure that if we don't find any opportunity in front of us that can be available, then I think we would definitely reward shareholders, I can assure you of that. But if we find growth opportunities available, whether inorganic for or like I said, in adjacencies, then we have a definite plan which we also can look at, then we will also look at that. So that's my answer to you. But at the moment, there's absolutely I think concrete, I mean that there will be something that the directors would take that call on if that situation came and we have cash which we cannot deploy effectively.

The next question is from the line of Shalabh Agarwal from Snowball Capital.

My first question is, sir, we acquired a small company a couple of months back, a very small acquisition that we did. We acquired ICIPL. Can you just give us some sense on why this acquisition was made? Were they making inks for us? Because it seems they are making inks for other brands also. So some insights into that maybe helpful.

Shiva, you'll take that?

Yes, sure. So if you take up the industry structure, there's 4 organized players that's ours and, of course, Videojet printing sciences and they are marking a margin. And the 4 of us combined about between INR 1,100 crores and INR 1,200 crores, depending on what the latest numbers are. And then the rest of the industry is about INR 300 crores, INR 400 crores. So INR 1,500 crores, INR 1,600 crores industry. Like it's about 25 -- 20%, 25% of the industries and that what we call unorganized segment. And so essentially, the biggest company in the unorganized segment was a company called Jet Inks. They ran into some issues during the COVID time. And the CEO of that company quit because of some indifferences with the investor of that company or I don't get to that thing, but essentially he quit and he started his own business. And because he knows this area, inks an area which we are not really present in, you can see it's a more price-sensitive area. And so we have taken the option to sort of launch a second brand targeted at that segment of the market. But it's totally disconnected. So Control Print is only like a manufacturing partner for this company. Like we own it, we are -- we are the owner of it, and we're a manufacturing partner, but it's not part of the Control Print network, if you get what I'm saying. It's somewhat slightly different segment of the market is what I'll say, which we couldn't get into without either lowering our service quality levels or pricing levels and so on and so forth. So -- but those guys are -- yes, so like there are some times the customers are a little bit more price sensitive and who have high service requirements and so on or like more of that and then there are the type of customers we have more 24/7 and what they get about is that at the end of -- they just want reliability 1, 2 and 3 and then all the other questions down. And so that's...

So Jet Inks brand will now be owned by Control Print?

No, no. Jet Inks was a company that he was the CEO. And he's separated and started this new company called ICIPL. So Jet Inks -- we have no connection with Jet Inks. He was the ex-CEO, so he has knowledge of this market. So we wouldn't do it if we didn't have a competent manager in place, that's what I would say. It's a different market...

Okay. So this CEO will work along with us, right?

Yes. He is the CEO of that ICIPL now. He was the ex-CEO of Jet Inks and because he -- that opportunity was there and he needs growth capital and it was fitting into us. And of course, we have synergies because we already have all the technologies in place. The manufacturing particularly we have -- for us it's a marginal -- it's a marginal investment to just make a printer which is for that market.

But is this ICIPL -- is this new company which has been acquired, are they also servicing other brands for consumers?

Yes. Other brands, including us. So they are partly pirates and they have like -- now what we're doing is we are sort of moving them to their own brand of printers, separate from a Control Print brand, which is what I'll say. So suppose they were selling under the name of, I don't know, Samsung, now they started a new brand called Galaxy or something like that company is Galaxy or like Huawei, or Honor, like that, those 2 separate companies, we are Huawei in that's Honor. Is that clear? I think is that -- do you understand what we're...

Shall we go ahead for the next question?

Yes.

[Operator Instructions] The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.

Congratulations on good set of numbers. Sir, I just want to -- sir, I have a couple of questions. The first is the tax advantage which we are enjoying, can you just help me out in understanding until how many years can we -- I mean, are we eligible till that? I mean, 16% to 18% tax on the income, until what year will we enjoy it?

So currently, it is up till 2025 for our Guwahati facility that we set up. It was a 10-year tax advantage. But on the cash flow, if we have to say that the MAT credit can be carried forward for 15 years after 2025. So maybe it can go up till 2040 depending on how much MAT credit we accumulate. As of now, I feel that we should cross about INR 100 crores of cash credit by 2025. So the MAT credit, we are right now, it's only going to kick in after 2025. So till 2025, there's no question. It is purely paid on MAT basis. And after 2025, we will get the MAT credit advantage on the cash flow, which can be for another 15 years up till 2040.

Okay. I got it. And there is one line item which is finance cost in our profit and loss account. While we don't have any debt, either -- neither short term or long term, can you just help me out in understanding what is that?

So this is the latest that Ind AS 116 has come up with wherein whatever is on a rental basis, if it is more than 1 year lease, then you have to split it between -- you have to assume it as your deemed asset and our depreciation on it and then interest cost. So basically, the rental income, if you will see our previous, maybe a year or 2 years earlier, you will find that there is a rental cost that we were paying for our offices across the country. And that now has lowered and transformed into higher depreciation and some amount of interest. So it's like you calculate the present value of the next 5-year rental and account for it. It's Ind AS 116, which is slightly more confusing. I don't know why they've gone into it.

I got it. And one last question, sir. While you said that you are expecting your sales to reach by at least INR 400 crores in next 4 to 5 years, what kind of CapEx will we require here?

So I believe up to INR 300 crores, we should be comfortable. Beyond that, we will have to make some CapEx, which will be decided at that point of time. So up till 2, 2.5 years, we still should be able to manage without major CapEx. But beyond that, we'll have to evaluate.

Thank you very much. The next question is from the line of Saket Kapoor from Kapoor Company.

Sir, firstly, if I could just -- yes, sir. If I could sum up, sir. Earlier in the call, sir, we were looking for that direction wherein we could be more confident of this being a linear trend going forward. So do you feel that the feelers on the ground give us that confirmation that this -- the type of -- the highest turnover that we posted on a quarterly basis, the base can be now moved up, and this is not a one-off quarter?

Yes. I strongly believe that this is not our best, and there is definitely scope of further increase. And at the current installed base, we should do better. Things have improved, but some of the industries that we have a strong installed base is still not at optimum, and we hope to see improvement in the second half.

Well, you spoke about this dairy business part and sugar. So out of the total pie, what percentage would be -- will we be catering to them, sir, the dairy and the sugar business as of now?

Honestly, sugar is seasonal. It's only from November to March. That's 5 months that the industry runs. So I mentioned it because now we are in October and maybe the next 4, 5 months, we should get some additional revenues from that sector. So again, it's not a big pie. But next couple of quarters, it will be some additional revenues coming in. And dairy is definitely growing for us. Right now, it is not a very significant chunk. But as I've mentioned in all the previous calls, it is catching up and it has good growth potential. Right now, it will still be in single digits, for sure.

Higher single digits?

No, not very high. But it will be like that.

We do not disclose that...

No issues, sir. No issues. That's -- when I look at the clientele profile, Mr. Kabra and Rahulji, I found all the marquee names. But in spite of that, then why are the trade receivables part is so high? These people, these are like JK Tyre supply Indian Oil. There also, the cycle is so elongated that we have to wait. Just some understanding on the same.

So I really do understand when we always question the receivables. Currently, our receivables in coding and marking business is at 67 days, which I don't think is something which would raise an eyebrow because, generally, the terms, even with the bigger players, is 45 to 60 days. And once we consider the transit time from Guwahati to some of the locations, it is 10 to 15 days. So people only start counting after it receives in their factory and the ERP system books to bill. So I think 67 days is a good pan-India-based receivable deal. It had come down by a few days, but it's not going to come down to 35 days.

Okay, sir. Because what I felt is that it is a necessary component, so we can now look for a cash-and-carry model here. That was my understanding, given it is the need because without that, the production lines and all things would not proceed. So we can't command that kind of urgency in that sense, depending upon this is being key.

We can command the model that you're mentioning. But we like to be cordial with our customers, and because it's a long-term partnership, if we will overpressurize them to gain some additional cash flows, we might lose the customer to our competitors. So I don't think that's a proven strategy. We would like to continue with slight credit terms, it always helps in the long-term sustainable business. And our cash flows are not stressed, so we don't need to really disrupt things.

The next question is from the line of Anish Jobalia from Banyan Capital Advisors.

Congratulations for the highest quarterly revenues as well as robust margins. So I would like to keep my questions related to the margin. Now as for presentation, we had a favorable product mix in this quarter. And hence, is there any reason which would help to understand the gross margin decline on year-on-year as well as gross basis?

Just could you repeat the last few words, the gross margin?

Yes. So just if you would help to understand why the gross margin declined on a year-on-year as well as a sequential basis? So despite the product mix...

It's like a slight drop. I do agree with you. Gross margins, there is a slight drop, but that is mostly because some of the components, globally -- you know that there is a shortage of the semiconductor and a lot of electronic companies are affected because of that, and an increase in the global freight rate. So these two components have definitely affected us. And the prices have gone up, which I've mentioned that we are now starting to discuss with our customers to pass on a marginal pricing. We haven't previously done it for the last couple of years, but now it's a scenario where we would like to approach the customers since it's a global trend.

So sir, is this company likely to get the return then in H2? And because of which, our margins are only going to be better, say, versus H1?

Sorry. Your voice is breaking, yes. Your voice is breaking. So...

Better? Are you able to hear me now? Hello?

Yes. I can hear you now.

Okay. So I just want to check, sir, that can we say that these problems are getting corrected, say, in H2? Because of which, the gross margins will actually revert to a higher potential than what we did in this quarter and operating leverage also is likely to play in our favor. Because of that, the margins should be better in H2. Is that the right expectation?

So my view is that I think -- Rahul and we're hopeful that we should do better sales in the second half than we did in the first half because we were badly affected in Q1 and even all the way through July, I'd say. So we are hoping for an increase in sales in the second half. But you have to be honest, like as far as this issue of the components and the shortage we are facing for the microprocessor, it's only becoming worse right now for us to get semiconductors in place. We are paying a lot of premium to actually just make sure that our production does not stop. So I don't see things changing like for like another 3, 4 months. I don't know what's happening exactly, we're getting it, but we have to pay more money for everything.

So yes, like adding to what Mr. Shiva is saying, right now the market is very volatile, and getting components is our first priority. We have got some things lined up, and they seem to be -- it should not affect us as such in terms of supply, but it has to be very closely monitored and price is highly fluctuating. So at least for the next 6 months, we might have to still pay slightly higher prices, and we're not sure if gross margins can improve. Maybe next year will be better visibility.

Yes. Freight costs, I think Rahul already said that, but I think also like that is also a factor, not hugely, but some of the mix.

Yes, yes. Freight, both for sea freights and air freights, have drastically gone up, which, again, we are in discussion with our customers.

Fantastic. So sir -- and if I were to...

I'm sorry to interrupt, Anish. Would you like to come back in the queue?

Okay. Sure.

The next question is from the line of [ Jatin Kay ] from [ Alpha Capital ].

Congrats for a good set of numbers. While my most of the questions have been answered, just one question. What is our capacity utilization currently? And what will be the peak revenue at 100% utilization?

So at our printer factory in Nalagarh, we will be about 75% to 80%. And in our Guwahati facility, we'll still be at about 50%, 55%. But peak, according to us, should cross INR 300 crores. Beyond that, we will have to look at more CapEx.

Sure, sir. And so given we have good balance sheet, good and even debt-free and low free cash flow needs, so my suggestion would be we should -- I think we are giving good dividend, we have been maintaining around 50% dividend payout. So my suggestion would be, given the market price where it is, we should consider a buyback and all.

We will let the Board know of your suggestion. Thank you.

We have a next question from the line of Swechha Jain from ANS Wealth.

I wanted to understand with respect to the printers that we sell, you said the life cycle is typically 5 to 7 years. So I wanted to understand what typically happens to the printer at the end of the life cycle. Second, I mean, does the customer has a choice to go back and install some other printers? Or it has to be our printer? One was that. Second, I also wanted to understand that, typically, where is the demand created for our printers? Does it usually happen when a greenfield expansion takes place? Or even when a brownfield expansion is taken by a customer, our printers also play a role at that point in time?

Should I take those questions?

Yes, yes, Shiva.

So just the first part. As far as the life cycle of the printer goes, normally it is more than 5 to 7 years. It's a bit longer than that you if you could see like the working life of printer would be 10, 12 years. What happened to some of the biggest customers, they -- I mean except I'm not -- maybe just some industry like chemicals and fertilizers and of course, cement and software, generally, the life is short because the atmosphere is difficult. But what happens is, normally after 5, 7 years, a lot of prime customers, they tend to upgrade their printers because for them, absolute line reliability is critical. Most of the times, we give them some sort of like a discount when they change from our existing printer to the upgraded printer. And in most cases, we refurbish the existing printer and then try to sell it. We do not mean successfully, but we are now trying to refurbish some of those printers and sell them as a sort of like a cheaper option for some of the customers who could be more sensitive. And that's the first question I hope I answered. And the second was, I think you were asking about where do we -- so -- I mean, of course, in the end, all printers would have to be scrapped and broken down and recycled. So obviously, we -- if they come back to us, we do recycle, then we've got like the authorized recycling, I think, e-waste and all that. So we have all of that in place. And there was one other element to your question, right? Just if you can repeat the end part.

Yes. And -- yes, the last part was when is the demand generated for a printer? Is it typically at a greenfield expansion or even when a customer do a brownfield expansion?

Yes. So any new manufacturing line requires a printer. So each line because you're printing on the production line itself. So most customers, what they do is to set up a factory. Especially nowadays, they acquire like extra space with the view that there are sort of like, say, 5 or 6 production lines. And as and when demand keeps increasing, I've already got the space to keep adding like more sheds and more our printers. So the brownfield expansion will continue for some time to come. And of course, greenfield is, obviously, always going to require printers. So both of those, as long as any manufacturing capacity increases, they require more additional printers for that. So both would cause an [ increase in capacity ].

Also just to add, Shiva, also on existing products, which were not being printed earlier are now getting into printing. So even our existing factory can have a requirement.

So yes, that is a big source of demand for us because in India, they still have moved from unorganized packaging to organized packaging. And in organized packaging, there's a move towards from preprinted or older technology still towards digital technology. So that almost [ are the cause ].

Okay, okay. Sir, I just need two more data points. If you could help me with the number of printers that we sold in Q2 and the revenue from the mask segment. I think you just mentioned this number, but I kind of missed it out.

Yes. So I think the 20% of the revenue was approx from printers, like I think about 2%, 3% approximately is from the mask.

Yes.

Okay. And the number of -- so...

Printers, yes, number of printers is just like...

Maybe in Q1, the mask was slightly more than 3% -- 2%, 3%, but whatever is. That's about it.

So the quantity of printers was about 750 plus, about 750, 775 printers. Quite similar to the Q2 numbers -- Q1 numbers.

[Operator Instructions] The next question is from the line of Shalabh Agarwal from Snowball Capital.

Just circling back to my -- our earlier discussion, Mr. Kabra. This acquisition, does the -- is there any risk of any confusion getting created in the minds of our customers where we are selling a premium product, but we are kind of also backing a product which is into a market which is -- which has its own dynamics and it's probably not that premium?

So I think that the way we are positioning it is that it is a quality manufactured product, obviously, through us. But in the end, our sales and service is totally different. So it's your choice if you want the best, you -- I mean, from the Control Print. And if you want like a good product, which is a bit more reasonably priced overall in terms of service and price, fluids and everything, it could be -- that's an option actually to consider. So there is always a chance, but there's a clear pricing gap between the two of us, then it's really everyone's [ choice ].

Sure, sure. Is there anything more that we are looking to invest in this company going ahead? Will it require more investments from our side to really scale that business?

So right now, it's in a loss-making phase as it grows because -- I don't know if you all know our business, but we don't need a certain number of printers installed. The costs are significantly higher than your revenues. I think it will continue to lose money until, I don't know, some amount of PAS is created, at least. It might not require the same amount of cost, let's say, Control Print, because we already have the manufacturing facility and the logistics and all the other stuff. So relatively, the investment is more marginal for that company, for ICI, then for our subsidiary. But yes, there is usually an investment phase, and it is going to continuously lose money for, I don't know how, whatever. Rahul, like maybe...

I don't think it will require anything large that you should be worried about. It's not something significant which needs for us to inform the investors. But yes, if there's a small requirement, we will definitely fill the gap.

Sure. And the lastly...

But as of now, they're getting their own bank finance also. So they should be self-sustaining.

Mr. Agarwal, please come back in the queue. The next question is from the line of Saket Kapoor from Kapoor Company.

Yes, sir. With the economy picking up, any update on the real estate part of our -- the subsidiary, Liberty Chemicals? And sir, in addition to that, from the OCI part also, other comprehensive income, we have seen this time a loss. Markets have remained buoyant over this quarter. So if you could explain or throw some light on the same?

So I'll just give the first answer. Mr. Kabra himself is looking at the entire real estate thing and he's not here today. To my knowledge, there's no real movement in the whole entire land plot. It's -- I mean there's some litigation we're trying to get to this quarter. And the thing is the whole court system has stopped, frankly, for the last -- at least for like nonurgent cases, for the last 18, 20 months. So that's already one way or the other. Maybe I think now things -- I think hearings might start again and like court might go back to normal. Maybe some movement there. And as far as the OCI goes, Rahul might give you a better reply on that.

So Saket, on the OCI also for this quarter, it's a very small amount. That would depend on how our portfolio played out towards the end of the quarter. But the amount is small, but I would request you to look at half year where we are INR 2.63 crores positive. So quarter, I'm not too sure, but half year, really good so far.

Sir, actually, why I dwell on it was that our portfolio stock selection is -- we are beating the market in all terms when I looked at the portfolio in March when the annual accounts were there. So that was a surprising part because the market has moved up significantly. So there should have been significant gains in that way. So that was my reason, even on a completely...

Half-yearly, we've done some -- gained strategy also.

Yes, sir, I've seen it, sir. Yes, I've seen it.

Most of the gain, according to me, had come in March '21 itself, where we were -- you know the figures. And since this is mark-to-market, you can't have the same thing growing at that rate every quarter. But if we see the last year, it was a big gain, which was already mark-to-market. So you have to see it from March to September, again, we have gained. But of course, that -- again, it's a market thing, which you know better than us.

And that link is available for us, sir?

We've been increasing our exposure in this market. And for the -- like, of course, like, again, this is a Board of Directors thing and Mr. Kabra looks in specifically. But I don't think we've had much churn -- too much churn in our portfolio that we've been losing. Maybe some things gained and then there's more stagnant and so on.

But you have to compare it, Saketji, mark-to-market. You can't compare it from last year because we already marked it in the books up till March. And now it's only March to September. So whatever, these are the figures that are there.

These are audited figures, so they have been done. Just a small point the Board said. We paid income tax...

Mr. Kapoor, I'm sorry to interrupt you.

Yes. Income tax also were INR 4.5 crores attributable for this year only or prepaid expense item also?

No, no. It's always for this year. I didn't get the question.

Sir, I was asking that for the first half, our income tax payment is to the tune of 4 crores 45 lakh rupees. So is this entire amount attributable to this year's performance only? Or does this have any other tax paid, which was due for earlier years? Any assessment on that?

No. If it was earlier, it goes into prior periods. It will not come into current year. So INR 4 crores is for current.

Current year. So that gives some indication.

The next question is from the line of Anish Jobalia from Banyan Capital Advisors.

My question around margins, I could not complete last time. So if I were to again think from the longer-term perspective, and you have -- you are already confident of reaching, say, INR 400 crores of revenues in the next 5 years. Plus Rahul, sir, has been saying that the sustainable margins are at 24% to 28% range. So it would be very helpful to understand from you what -- how should we think about the margin trajectory going forward, given that the revenues are on an increasing trend? So can we expect that the margins also will be an increasing trend along with that because our incremental contribution is from higher margin products like the new products that we have, like TIJ, TTO, et cetera? Plus there's also an operating leverage potential, so how should we think about, say, over the next 5 years, what can our margins be in the base case?

So my belief is that the margins will -- should increase as sales increase both slightly at the gross margin level. I'm talking like -- don't look at it over like 1 quarter, 2 quarters, but if you would ask like 3, 4 years profile, it should slightly increase as we get more leverage and more fluids in more consumables and service business as compared to printer business. And as far as the EBITDA, we would -- rather the SG&A, we would expect more or higher operating leverage there because we already have a full team of manpower and factories and a lot of other expense have been already included. So we put up a bigger jump in EBITDA margins. But of course, because of fluctuations that happen, like right now with the whole COVID situation and what about the knock-on effects in terms of cost of parts and freight and all this. So like there can be, of course, changes from quarter-to-quarter, but we would be too small a company to, frankly, evaluate it at such every quarterly basis.

Sure. But I mean if you were to think about, say, margins maybe to INR 400 crores, would it be possible to pencil it down to a more narrow range to think about considering your business...

As of now, the visibility is this 24% to 28%, which I mentioned is sustainable even with increased revenues as of now, but things are very dynamic and keep changing. If things improve more than that, we will be happy to [ increase ].

Sure, sure. I understand. But even with 28%, is it more realistic to assume that when you reach INR 400 crores margin, it will be closer to that? Or it will be still in a very broad range of 24% to 28%? And why is it such a broad range that you are looking at? Because there are not too many factors that kind of impact our margins given that we are a high gross margin business.

Okay. So it's always based on product mix. If the consumable portion, like you said, higher profitability sales more in a particular quarter, you will find it closer to the higher band of 28%. And if the printers sell more, it will be on the lower band. So I think 24% to 28% is not a very large band considering that there will be change in product mix quarter-to-quarter. And even on the long-term basis, I think we are inching up towards the higher percentage. It all depends how much our consumables are sold based on industrial production. We're confident if we're higher than consumables, we will be closer to 28%.

The next question is from the line of Shalabh Agarwal from Snowball Capital.

Sir, at the industry level, are we witnessing -- because Rahul has mentioned that there has been a cost increase because of various factors. So at the industry level, are we witnessing our MNC competitors increasing prices of their products in the market?

So I think in the last 18 months, it's a bit -- nobody's really done too much of anything because everyone has been preoccupied just ensuring their supply chains and their service and the safety of people. So I wouldn't say like right now, there's been a change, but now people will all have to employ the strategy because like if our costs have increased, I assume -- I won't say it, but I assume that there might have been a similar effect for our competitors.

Sure, sure. And if they are not manufacturing here, then their costs would have probably gone up higher compared to us, right?

So normally importing primarily from China, but I don't know offhand. So we don't track them very, very close in the last 18 months, and we did not get the data from the ROC either. But it's difficult to say because everyone has his own transfer pricing policies also. So that's a lot of hidden mix. We don't get a straight naked cost and cost plus pricing. So it's difficult to say.

So at the ground level, the prices are still competitive. If they have won, they -- maybe they are taking an extra hit because their costs would have gone up more than us, but able to get better pricing, but still competitive.

I think so far, everyone's not really changed pricing much in the last, I don't know, 16, 18 months or something -- 18-plus months now, it's all up to you.

Sure. And sir, these MNC players, they have this global tie-up with big FMCG companies, as in if -- their supply is placed at a global level and then distribute it to different factories. So how does it happen?

So normally, they do have some preferred supplier tie-ups in some cases. So there are some companies, like Coke and Nestle or [ J&J ] who have that, but it's not like a -- like when it comes to big operation like India, then everyone wants their own local service and support and whoever they are most comfortable with. So there are a lot of companies like Unilever or Pepsi or so on where we supply a lot of printers there, even though they do have like some sort of a tie-ups because in the end -- I mean it's not a monopolistic thing. It's like a preferred supply arrangement and preferred, it could depend on what the local factory manager prefers. So in the end, if you want to go for whatever they think is their best supplier and there are lots of companies like Ferrero and so on, like who have sort of locked the list, who have technically a tie-up but that they are using our printers largely. So I think like sometimes those things matter, but I wouldn't see it like it's -- like if everything works smoothly, then nobody cares is what I'd say. And in general, Indian pricing, frankly, is much lower than the global pricing arrangements. So even the local companies like to ignore those arrangements because if they give the global pricing here, they won't have any sales because, obviously, we sell at X and they are selling at X and the global agreement is like 2.5 X, then why would they buy that?

The next question is from the line of [ Sunil Patel ], an individual investor. As there is no response from current participant, we'll move on to the next question that is from the line of at Saket Kapoor from Kapoor Company.

Rahulji, you told about this non-LCP business, I missed that link. What were you trying to convey? That more trust will be there? Lesser trust will be there on these non-LCP business? I missed the point completely.

No. There will be more trust. As you know that cement has been diminishing for us, so there has been some revival and we could contact some customers. But that team is still now trying to promote like some new products in the steel segment. The sugar is what they have only delivered. So the team, which was more focused on the cement side, is now putting their energies on sugar as well as some steel anew. So if you open up a new product, it gives us good revenue. So that has shown some green shoots at this time.

The next question is from the line of Karan Bhatelia from Asian Market Securities.

Rahul, you keep mentioning about the new launches, TIJ, TTO, Hi-Res. So it's good quarters that we've had in the portfolio. So to date, what contribution to the total volumes or revenue has it become? So just a ballpark number.

These are inching up, and now they should be definitely in double digit, closing into about 15%, 17%, in that range. And we have good hope from them even in the future.

And just last big on the depreciation policy. We were hinting to complete the mask project by end of the year. So incremental INR 1.5 crores per quarter depreciation, correct? Or we want to keep the mask project ahead of time?

Yes. I think a couple of years more.

So this INR 4 crores of quarterly run rate stands, right?

Yes, at least for the next 1 year or so.

Okay. That's it. I think we don't have any other further questions. Any closing comments, Rahul or Shiva, you may make?

I think, first, thanks for everyone who spend a lot of time and effort taking our call, especially in this busy season and a happy Diwali and a safe Diwali to all of you. As far as we are concerned, I think things are now coming back on track. It's been a bit over difficult 18 months or so. But it seems things are normalizing. I don't want to say anything because the last time we said the same thing, and we all know what happened in the second wave and so on. But I hope that if there's no COVID, that the market goes back to normal and we are able to capitalize on strong product portfolio and a strong team and strategy that we've created, which we didn't get to really take in place before COVID disrupted us. So I'm really hoping a positive 18-month period. And by then, I think a lot of people will ask questions, what's next, or are you going to do the buyback and something. I think that one of tying to those questions become more relevant as to what the next steps would be, the next level from INR 400, crores INR 500 crores to the next size.

Thank you, everybody, for your participation in this busy earnings season. Currently, there are 10 calls which are today between 4 and 5. So thank you all for giving the importance to Control Print and wish you all a happy and a safe Diwali. Thank you. Thanks, Karan.

Thank you management of the Control Print.

Thank you.

Thank you, participants. On behalf of Asian Markets Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.