Creative Newtech Limited (CNL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '21 Earnings Conference Call of Creative Peripherals and Distribution Limited, hosted by Bridge Investor Relations Pvt. Ltd. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. The statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ketan Patel, Chairman and Managing Director of Creative Peripherals and Distribution Limited. Thank you, and over to you.

Good afternoon, everyone. Welcome to Creative Peripherals and Distribution Limited Earning Conference Call for the Third Quarter of the Financial Year 2021. I would like to begin by expressing my gratitude to all of you for taking the time to join us. On the call with me today is Mr. Abhijit Kanvinde, our CFO; Mr. Vijay Advani, the Whole Time Director of the company; and Bridge IR, our Investor Relations team. Before we get into the business and financial performance of the last quarter, I would like to share a brief insight into our company. Creative Peripherals is a dynamic company, which has come a long way and crossed several milestones over the recent past. Today, we are not just market entry specialists for niche experiential brands across India and international market, but also licensee for contract manufacturing for a Fortune 100 global giant, Honeywell. Our company specializes in market entry for global brands and works closely with its clients to achieve optimal market penetration and growth. Our network encompasses all 3 channels, online, retail and general trade, thereby giving us a strong leverage to reach out to a wide marketplace. Furthermore, our value-added business model provides end-to-end solutions from market research and competition analysis to formulating and executing regional-specific marketing and presales strategies for brands. We use a multipronged approach to grow our business based on 3-pillar strategy. The first key aspect of our business is brand licensing and contract manufacturing with Honeywell. We have a long-standing agreement for contract manufacturing and distribution in over 25 countries across APAC and Middle East region. The product portfolio with Honeywell is also growing substantially, with air purifiers being the latest addition. Other products cover connectivity as well as audio entertainment solutions. We aim to expand this licensing line of business by adding more international brands. Contract manufacturing is an attractive model of business for various global brands, wherein they can leverage local players, market reach to increase and grow their products market share. We plan to utilize our experience gained with Honeywell for other international brands wishing to follow a similar model. The second pillar is our expertise and strong hold in market entry and penetration for niche brands. Currently, we have a strong, long-term association with over 20 global-renowned brands, which are leaders in their field. These are categorized in 3 broad divisions: IT, Imaging and Lifestyle and Security Products. Our value-added service like executing brand marketing strategy and post level -- post-sale service, along with this wide spectrum of products has helped our company achieve economies of scale and become a single sourcing point to our customers. Today, Creative Peripherals is a much sought-after name among OEMs as well as subdistributors and retailers being a critical link in the supply chain. We continuously enhance the bouquet of brands with new and high-margin products. One of the high segment potentials among this is gaming products, which is gaining fast adoption in the Indian market. The third pillar of our product strategy is our recent offering, Ckart, our very own online digital B2B e-commerce platform. Ckart is a game changer in our industry and will play a crucial role in expanding our business with new and existing customers at minimal additional cost. Overall, our focus is on these 3 main growth pillars, offering experiential products and enabling niche global brands to enter and establish new markets, expand our licensing business and become an online platform for all customers through Ckart. We continue to aim for higher operational efficiencies and adding high-margin value-added products to our portfolio. Association with Honeywell, ZEISS, BaByliss, GoPro and Cooler Master, et cetera, are steps towards that direction. I would now like to take you through some key recent developments. As you are all aware, most of the year 2020 faced headwinds for COVID-19 virus outbreak. This pandemic has brought the whole supply chain and entire economies towards staggering hault. It impacted every aspect of our lives, including personal lives and industries across the world. Like every other business, we also faced the impact of the lockdown even as industries reopened gradually. We decided to take this opportunity to further refine our internal practices and improve our operational efficiencies and skill sets. As more and more activities are going online, we expect an upswing in demand for IT and consumer electronics products. Moreover, I'm happy to share that in August 2020, we launched our digital platform, Ckart. As I mentioned earlier, Ckart is our online digital B2B e-commerce platform built in-house by a dedicated team. Ckart hosts all the customers in the supply chains and enables them to transact, discover and share products and brands to their buyers in their company's name. This platform also assists them to showcase their inventory and trade among each other, facilitating higher volumes and expanding the product portfolio being offered through Creative Peripherals. They will also be able to host their white label micro-site on our platform. We even showcased the speed and ease of use of Ckart when we demonstrated the first order online during the launch event. This platform will fortify our presence as a platform for customers as well to improve our working capital cycle and profitability. One of the key purpose of this platform is to help our customers expand their reach and make it easier for them to do business. On the other aspect, we recently renewed our contract manufacturing agreement with Honeywell for another 5 years as well as we expanded our distribution scope with them to 29 countries across India -- outside India, I'm sorry. This gives us access to Middle East and APAC regions. Our deep association with the Fortune 100 company like Honeywell could serve as a guiding example for our brand, wishing to leverage the licensing manufacturing model. On the distribution front, we continually update and expand our brand portfolio to keep it fresh and relevant. Some of our recent brand agreements include distribution of ZEISS range of nature observation products, like binoculars and monoculars, an agreement for Honeywell for air purifier, tie-up with Edelkrone to distribute their range of photography and videography accessories and the recently launched GoPro HERO9 series camera. Furthermore, we recently tied up with Reliance Retail to distribute a broad range of Marvel- and Disney-branded products. This include: audio products such as wired and wireless earphones, headphones and speakers; personal grooming products such as hair curlers and straighteners as well as small home appliances like toasters and sandwich makers. This tie-up gave us access to huge market across multiple product verticals, expand our geographical coverage and would translate to higher revenues, taking our business to new heights. Such associations not only diversify and expand our portfolio but also enhance and testify the company's recognition among global brands. As the consumer sentiments improve, we are expecting strong demand for such products in the Indian market, both online and off-line. And as Ckart gains momentum, we foresee a strong growth in customer base without much additional cost, which should translate into higher top line and profitability. In only a few months since launch, we have already been seeing significant new orders from existing as well as new customers on Ckart. So from an overall business perspective, that is all from my side. I will now hand it over to Mr. Abhijit Kanvinde, our CFO, who will take you through the financial performance of the company in quarter 3 and 9 months FY '21. Thank you.

Thank you, sir, and a very good afternoon to you all. I will share highlights of our standalone financial performance, after which, we will be glad to respond to your queries. Our financials are reported as per IND-AS guidelines. Looking at the quarter 3 FY '21 financial results. In the quarter ended 31st December 2020, our company achieved net revenue of INR 161.99 crores, growing 25.11% year-on-year. This was mainly driven by a robust demand for IT and gaming products, including Samsung and Cooler Master, as well as addition of new lifestyle products. The EBITDA stood at INR 6.51 crores as against INR 6.45 crores in the previous corresponding period, increasing almost 1% year-on-year. While our raw material cost increased due to change in product mix, we were able to maintain the EBITDA margins through various cost control exercises to improve internal operational efficiency. The net profit for the quarter is at INR 3.73 crores as compared to INR 3.62 crores in quarter 3 FY '20, a year-on-year growth of 2.89%. Our EPS for the quarter was INR 3.21. Now turning to the 9 months FY '21 financial results. In the 9 months ended 31st December 2020, our company achieved net revenue of INR 338.33 crores, representing an increase of 4.38% year-on-year. This is primarily driven by strong recovery in demand for various products over the past months, which offset the impact of nationwide lockdown during the initial months of this period. After we were reopened at a lower capacity after lockdown, business has been gradually gaining momentum and is now showing the signs of being on the track. The EBITDA stood at INR 12.82 crores as against INR 14.92 crores in the previous corresponding period. We incurred employee and other fixed expenses during the lockdown, which offset the impact of higher-margin brands, thereby resulting in margin contraction. Raw material costs also grew due to change in product mix during this period. The net profit for the 9 months is at INR 6.69 crores as compared to INR 8.08 crores in 9 months FY '20. Our EPS for this period, that is 9 months FY '21, is INR 5.76. This is all from my side. We can now open the floor for questions.

[Operator Instructions] The first question is from the line of Ayush Agarwal from Mittal Analytics.

Congratulations on a good set of numbers. Sir, I have a couple of questions. One, in the commentary, Mr. Kanvinde had mentioned that our growth has come from the IT and gaming products like Samsung and Cooler Master. So with other segment that we see the growth, the INR 19 crores, INR 20 crores has turned into INR 66 crores -- INR 61 crores in Q3. What were the key products or brands that led to this growth? And we were under the impression that this is our highest-margin segment, yet we see a huge margin contraction. So I would like your comments on this, sirs.

Okay. Ayush, very nice observation. This last quarter has been a quarter where there was a huge turmoil on the logistics side. So most of the manufacturers whom we deal with either are in Taiwan and China, though they may be U.S.-owned companies. And the whole logistics chain was a problem. So you could not get containers. So usual time for shipping was, say, 21 days. And during this time, to get a container used to take 21 days. The freight from $800 to $1,000 went up to $3,500, $4,000. And on above that, whatever material which you forecasted, it was not easy to get. So it was -- we were in a dilemma that do we try to maintain our cadence of sales? Or do we actually stop for a while and then don't take a margin hit. Then internally, we thought it would be prudent that -- to get the momentum going because we would have another good quarter this year. And that's why we took out internal call that we will absorb the logistics -- absorb the rise in the raw material cost, and we will not pass it to our partners and to our end consumer. So that's why you see a dip into the margins there. But we are seeing already a reversal of the same in this quarter. And I think net-net, we would have a good year in the end.

So sir, just a follow up on this. Had the logistics cost not been there on the container freight, as you said, and we know the issues pertaining one and these are some other companies as well. So on a normalized basis, what kind of profitability would we have seen if this issue wasn't there?

Yes. So currently, we are seeing as high as an increase of 2%, 2.5% cost, both on the freight side and on the import side, that's the one part. And second, the aftereffects of the COVID, the supply chain is now starting to see the problems. So most of -- so consider our -- one of our faster-moving products, say, in Honeywell is a 4-port hub. Now the chips are under allocation, and then you have to plan for 6 months in advance to get the stock. And the prices of the chips also has gone higher. So I think Abhijit can ratify it, but I think we could have made easily 2% to 3% higher margin overall.

Absolutely. Yes, the fall in the margin, as Ketan said, has been due to the change in product mix, okay, in our lifestyle products. It's a category where lifestyle and other products, including security, are clubbed. And we have sold some -- taken some opportunity business there, and that has been at a lower margin. There have been products which we have sold to corporates and other entities. There, those margins have been in the range of 3% to 4%.

So sir, can we say that there is one-off component in this?

Absolutely. This is one-off. And as Ketan said that the logistic is slowly coming on track...

I'm not talking about the cost, sir. I'm talking about the sales that the security products that you are talking about, can we consider that as a one-off, not the margin?

Yes. Ayush, you can consider this as one-off. And one of the key things now is that people used to operate with just-in-time inventory for a while, right? Now we are trying to operate with just-in-time plus, and this plus stands for the added risk of logistics going haywire or states going into a shutdown, all that. So probably in the next quarter also, we may have a slightly higher cash flow thing...

And working capital.

But -- and working capital thing. But we will not have then a problem on margins because we are now stocking slightly higher quantity of material than required, considering that there would be still some disruption for the next 3 to 4 months due to this pandemic.

Correct. So sir, can you -- if you can quantify this one-off, that would be really helpful. And like you had mentioned that Cooler Master and the BaByliss brand that you had introduced in the grooming segment, that also I think is categorized into the other segments. So if you could quantify like what kind of growth did we see in that apart from the security that was a one-off? So one, that if you can quantify the one-off in this quarter and other, if you can like quantify the growth in our 4 segments?

So it is -- so Cooler Master basically falls into the gaming category, but it is also a high-performance computer component, right? And it gets used into servers. It gets used into high-end graphic machines. And also, it gets used into anybody who wants to kind of use into cryptocurrency or other kind of stuff. So what has happened is because certain segments, like cryptocurrency or high-end -- what is the word? The high-end graphics terminal, there is a card which is a graphic card. That graphic card is also into a short supply because of worldwide shortage on the chipset. And that's why Cooler Master sales also was slightly affected in terms of margins and other stuff. But I think if everything falls in place and -- this quarter, I think Cooler Master -- we have already spoken to parent companies also to reimburse a part of freight. And also, we have told the parent companies to reimburse a part of the cost, which has gone higher, and they are obliging to that. And plus, we are also now thinking that since the momentum is there, we could also pass on some amount of cost on to the partner or the consumer who is going to buy that. So I think in this segment of Cooler Master, BaByliss and other stuff, we are sure that close to -- in terms of percentage margin, we come from 10% to 6%, right?

Yes.

Yes. We should come to a net gross margin percentage of 8%, 8.5% in this quarter. That's what we are seeing.

Okay. That's really relieving to hear, sir. Just last one, a suggestion, and then I'll come back in the queue. Like we mentioned different segments in the sense that IT and Imaging, we also say that the contract manufacturing part and then the market outreach part. So if you can also break up the revenue in that segment and provide in the presentation or the press release, that would be really helpful to track the numbers of Honeywell and the likes of that.

Surely. This has been asked by a couple of other guys also. So in the next presentation, we would give separate numbers for each of the 4 segments, yes.

The next question is from the line of Anup Sudhendranath from KOMPASS ANALYTICS.

Two questions. One, from a strategic perspective, can you speak a little bit about Ckart and sort of where do you see that platform helping? And how do you see that platform helping you from, say, a longer-term perspective? Also, strategically -- secondly, strategically, how do you look at sort of new brands or products that you want to be associated with from a longer-term perspective?

Can you repeat the second question about the brands and products? You said for the longer perspective, how do we select the brands? Is that what you said?

Yes. That's what -- from a strategic perspective, how do you decide sort of brands that you want to sort of work with or where you want to bring in your expertise, which is already there in the market? How do you think about it?

Okay. So coming to -- I'll take this question. And both are super questions, very close to my heart. Ckart is a platform which we develop so that our -- and it's a B2B commerce platform, where our partners can transact, discover new products and share their products to their buyers in their own company's name. And Ckart, today, for example, any business has become a platform. So Uber is a platform, Ola is a platform, your Swiggy, your Zomato. And anything which is between the consumer and the producer will get sold on a platform. It could be a product, it could be a service. That's the first part. Second, if you look at the overall pandemic, online has come out as the biggest influencer during the online. So your groceries, for example, from 16% has gone to 24% being influenced by online. Your mobile phones from 48% has gone to close to 63%, being influenced by online. And then a lot of our partners are off-line stores, and they don't have an omnichannel presence. So Ckart helps them to have their own white label stores where a customer can buy our 4,000 products, which are populated on his store and also get the flexibility because in the smaller store, they were -- the customer will get a flexibility of advance -- of traditional credit, they get the flexibility of buyback, they get a flexibility of buying on installment and other stuff. So Ckart would really enable our partners to go online. And in a distribution space, if you think, our working capital gets involved into basically funding the creditors -- funding the debtors, and second is funding the stock. Now Ckart will help us because as our customer base will keep growing, not everybody will be on credit and they will pay upfront. So our debtor's funding will go lower and lower. And as sellers themselves start opening their own stores, we will start offering their inventory to our existing partner. So without funding inventory, we will be able to sell products to our customers and make a markup on that. So that way, the fundamental things of cash flow and free cash flow gets better. Second is because Ckart has drop shipment, in future, we may ask the retailer or the SI, system integrator, to use our warehouses as their stocking point. So that also becomes an advantage to us that the partner does not require a warehouse. And since his dependency of warehousing, the platform and also deliveries is on us, the stickiness with that partner will be much more. And we have already seen close to -- from April 5, the first month we did a billing of almost INR 1,50,000 on Ckart. And as of yesterday, we were close to INR 65 crores sales on Ckart. We had total INR 65 crores of sales happen through Ckart. We had almost 350 new customers on-boarded, besides the customers we have on Ckart. And close to 8,200 orders were executed on Ckart. So that platform is becoming a very important tool, plus it has other benefits of personalized collaterals in the partner's name. It has a smart pricing matrix where a partner can really just add a percentage and the price list will be made as per his choice. It also has drop shipment. It also has training modules. So I am thinking that Ckart over a period of time will help us in both the ways, digitizing our customers and digitizing all the internal processes of Creative. And it will ultimately help us to save at least 1%, 1.5% on PAT basis, I think. So that's how Ckart works. Coming to brands, there are -- so India's population is the millennials are -- almost 65%, 68% of our population is now less than 35 years old. And each of these populations, they value experiences more than anything. So for them, a product specification is not important because all products are me-too products. For them, pricing is not very important because affordability programs, overall availability of the product and transparent pricing because of the e-commerce and Internet. So pricing also does not play a key role. Only a product where you have a great community bonding and you can share your content which you create through that product or on that site and -- which gives you a great consumer experience, that kind of brand only will do well. In fact, there's a survey which says that by 2022, the customer experience will be the biggest differentiator ahead of price and product specification. So as a company, if you look at our portfolio, be it GoPro or be it Olympus or the latest, be it ZEISS or Edelkrone or on the other side, Cooler Master, they are all products which deliver a very unique customer experience. So usually, we would take brands which are great on customer experience, execute brand strategies for the brand. Get evangelists, get influencers, get the social media in place, get the marketing in place, and that's how we select a brand. Second, there are also brands which don't deliver a great consumer experience but which are growing at a CAGR of 20%, 22% per year. So for example, consider the men's grooming segment. The creamer, the shaver, the dryer, all have been there for ages. But in India, this category is growing exponentially close to 20%, 25%. In this category, Philips rules with almost 80%, 85% of market share. In this category, online rules by having 65% market share of all the sales. So to break into this category becomes an easier proposition. So that's why we took a brand like BaByliss. So to summarize, any brand which gives us great customer experience, any brand which has a -- which is underpenetrated category in India and is growing at a very fast speed, that's the brand. And of course, there are other parameters like whether we have the skill set to sell that brand, whether the market share worldwide for that brand is higher or lower. Consider ZEISS, for example. These are binoculars which are starting only from INR 40,000 and upward. And we have started clocking sales of around INR 20 lakhs, INR 25 lakhs a month in the first couple of 2 months what we have started, and we found that there is a huge population of bird-watchers. A lot of people have moved to their native. A lot of people because of the pandemic have a lot of time on hand. So they are following this hobby, and that's why these binoculars do well. Now we could easily penetrate this market because we had Olympus, and a lot of Olympus cameras goes for anybody who likes wildlife photography. And we have the right influencers who could talk to that product. Everything is becoming from a photo to video. Everybody now wants a video of how they make a cake in the house or, for example, a bike which is done well, they want to shoot that. And Edelkrone has got its jibs and its videography equipment, which helps even prosumers, not professional, but pro-consumers to shoot world-class videos with their phone in all the angles possible on a DSLR camera. And it's the fastest-growing videography accessories brand in U.S., California. And that's how -- when we spoke to our influencers and they wanted this brand be tied up with them and we got that brand. So usually, some sort of market intelligence, then how the brand affinity is for India and whether it's a faster-growing category and whether it will deliver a great consumer experience, there are some of the ingredients which we would use to select a brand, yes. And sorry to be slightly longish on this answer. Abhijit hates it, but these are my favorite section, so usually I'm quite elaborate on that.

The next question is from the line of [ Riya Mehta ], an individual investor.

Congratulations on a decent set of numbers. I just have a few questions. Sir, how much has Honeywell contributed to the top line? And in terms of EBITDA, how much are we earning from it?

So you want to take it?

Yes.

Abhijit would answer that.

For the 9 months, the Honeywell has contributed approx INR 20 crores to the top line. And from the EBITDA perspective, Honeywell is 15 to 17 EBITDA percentage brand.

Okay. So sir, what kind of revenue do we plan to see in the next 2 to 3 years from Honeywell? And since Honeywell roughly gives upwards of 15% EBITDA margin, so going forward, overall EBITDA, how do we see?

So, [ Riya ], Honeywell now, we have got air purifiers, and also we have got license to go to complete Southeast Asia and also the whole of Middle East, Egypt, Saudi Arabia also. Now Honeywell for the next year, we are planning close to a sale of INR 100 crores plus. And so currently, from -- so last quarter, the sales for Honeywell would be close to INR 10 crores. And now we are thinking that by April, May, we would have all the categories. So audio would be completely there. We would get the complete season for air purifiers plus the other categories. And plus, we also think that the project business for government would start because of the new budget. And Honeywell Passive, Honeywell fiber cables, Honeywell Passive components, all would start doing well. So next year, we think that Honeywell should be close to INR 100 crores plus in our business. So we are looking at a growth of close to 20%, 25% on our March closing business. And I'm saying these numbers because we already started planning for April. And I think this will get our overall EBITDA between 5% to 7% overall.

Correct. Absolutely.

So Honeywell next year should be close to between 20% and 22% of our overall business. And then year proceeding that, it should be around 35% of our overall business.

Okay. And sir, my second question, you mentioned about gaming products in your opening remarks. So can you please throw some more light as to how we see this growing? What kind of revenue are we targeting from this?

So that is -- actually, when we say a gaming segment, actually, gaming products are from the high-performance computer component. So for online gaming, you require a computer which has very high efficiency and which is very powerful. And this sector, because of the lockdown and because overall the youth population has taken up to gaming very well, and from what we hear, gaming, e-sports would become a medal sports in this Asiad also. And there are a lot of courses also being started at universities to how to design gaming PCs, to how to run a gaming business, to how to create a gaming team. I think this business will grow upwards. And we started with Cooler Master last year. Cooler Master right now is close to -- would be around -- by March, we should close it between INR 55 crores to INR 60 crores. Next year, I think Cooler Master should be around INR 80 crores, INR 82 crores business. There's another brand, PNY, which is also into gaming, that's having -- which has graphic cards mainly. And every gaming PC or every AutoCAD terminal or any rendering machine would require a graphic card. Any cryptocurrency machine would require a graphic card. And that business is currently at a cadence of, say, INR 1.5 crores, INR 1.7 crores a month. Next year, it should also move to a cadence of around INR 3 crores, INR 3.5 crores a month. So that would be close to INR 40 crores, INR 42 crores. There's another gaming brand which we have, Thermaltake. And Thermaltake is famous for its coolers, components, and it also is famous for designing your own PCs. And Thermaltake currently is at a cadence of 50 lakhs a month. And next year, we think it will go to a cadence of almost INR 12 crores to INR 15 crores a month. So overall, gaming is going to do very well. Also in PNY, if there is one movie in India, which comes like, say, Ra.One or Robot or something where a lot of graphics will be used, that one movie in Bollywood is enough to give you a sale increase of INR 50 crores to INR 60 crores. So for the last at least 3 years, we have not seen -- 3 to 4 years, any movie coming out from the Bollywood or -- segment. But once the -- everything resumes, we think that also should be a good thing.

Okay. [ And sir ] [indiscernible]

Sorry, could you repeat the question? It is not audible.

[ Sir ] [indiscernible]

Sorry, [ Riya ], we cannot get you very well.

[indiscernible] [ now ]?

Yes, slightly. Go ahead. We'll try to figure out what you're saying.

[indiscernible]

Sorry to interrupt, Ms. [ Mehta ], but you are -- your voice is breaking. [Technical Difficulty] We'll move to the next question, which is from the line of [ Aniket Redkar ], an individual investor.

First of all, congratulations for the good set of numbers in Q2 -- Q3, I mean. Yes. Sir, I have a couple of questions. Hello?

You are audible. Go ahead.

Yes, yes. I have a couple of questions. My first question is, which are the top 3 fetching brands this quarter, revenue-fetching brands? And which brand contribute more -- highest revenue growth?

Okay. So this quarter, Honeywell, Samsung, Cooler Master and GoPro is there. Fortunately, Honeywell and Samsung, both are showing a lot of traction. Honeywell from the point of view because we added air purifiers and certain of our categories like Passive Networking and all has picked up very well. Samsung, because everybody is working from home and suddenly we are seeing a large surge on 22 inches and above monitors. And Samsung for the last quarter is almost INR 23 crores of our business of the total business of...

INR 158 crores.

INR 158 crores.

Okay. Okay. Okay. Sir -- and which brand contributes the higher EBITDA margin from our portfolio?

So Honeywell, Cooler Master, GoPro, they would also give you a very high EBITDA margin. [ Aniket ], while higher EBITDA margin is very necessary for our business -- so in the business where we are, the highest rotation whichever brand can give to our money, that's the biggest actually litmus test. So for example, a brand like Olympus, where we can rotate our cash 4 times a year and a brand like Samsung, where we can rotate our cash 9 times a year, Samsung would be our preferred choice than Olympus. So how much rotations we could do from a brand that is one of the most important criteria while choosing a brand.

Okay. Okay. So sir, can you throw some light on the tie-up of the Reliance Retail? I mean which are the product line we have chosen? Who are the OEMs? Then what is the duration of the agreement? So...

So I'll give you a brief. So Reliance, because they have such a huge presence in retail, they have also gone on the licensing way, and they have taken the license of Disney, Marvel, and they also taken the license of BPL and Kelvinator. And this material, they want to push it to the consumers through their various formats of stores they have. So the Reliance Smart, they would want to push it. Through Reliance Digital, they would want to push it. Through JioMart, through Reliance Digital Online, they would want to push this material. Now having said that, they really understand that they cannot cater to the complete market. And hence, they wanted somebody who could also take these brands to the other retail formats, to other smaller retailers, and that's what the tie-up is. It's an exclusive tie-up with Reliance to promote all the brands. Other than the Reliance stores, we would be distributing it to across India. The range for Disney is, obviously, because it's the Fan at Heart collection, it has audio, it has small domestic appliances and other stuff. In BPL, they have large domestic appliances like fridge, washing machines. They have TVs and also they have fans, lights, LED lights, bulbs, buttons and all these things. And they have small domestic appliances also like toasters, mixers, grinders, everything. So it's a huge business opportunity for us and it's an opportunity because either you have the channel or you have the product to develop a channel. So this will help us to develop the electrical channel, plus it also helps us to increase our portfolio on Ckart. So we probably believe that over a period of time, we would have catalog sales. What is the catalog sales is? When you go to JioMart and you say you have, say, 100,000 customers, "We have 4,000 products. Just make our 4,000 products available to your 100,000 customers." And vice versa, tomorrow, JioMart can come to you and say, "We have, say, 20,000 products and you have, say, 10,000 customers. Make our product available which are relevant to our category, and that also we can make that available." So that's the case. Usually these agreements are auto-renewable, but the period is 1 year. So currently, we have an agreement with them for 1 year. And if both the parties agrees, it keeps on renewing. That's the case. And Reliance just wants to concentrate more on retail and other stuff. So they really wanted one strategic partner for this business, and they have chosen us for that.

Okay. Okay. Sir, can you give some idea about the margin we get from the products under this tie-up?

So the margin mix is close to 8% to 10% on gross basis. One of the key advantage also of this is that partly your sales force also gets funded from Reliance. So you gain another close to 2% on manpower funding. So the agreement stands for between 8% to 10%. And because they fund your manpower and the manpower cost is close to 2%, you get that additional 2%.

Okay. Okay. Got it. Got it. Sir, my another question is, how do we see our Imaging product segment right now? Because last time, you said that it's impacted just because of the COVID.

Yes.

So -- yes, now people are moving out and just spending their holidays. So how do you see this Imaging products in the next quarter?

So a couple of things are there. Since in the Imaging products, we are on the higher side of the pyramid. So our products are all, say, INR 35,000, INR 40,000 plus and our binoculars are, say, INR 40,000 plus and our SLR cameras or mirror-less cameras are from INR 1 lakh plus. The traction would be slightly slower. But we are seeing a lot of traction because people have now lot of time for themselves to work on their hobbies. That's one part. And second, everybody has made a plan to travel some point of time. And people really want to create good memories. That's one. Second, the biggest traction would happen is digitization. So now -- we just now had a classic example of somebody buying our mirror-less camera and it was a textile house. And since their customers cannot travel, they wanted that the customers remotely can see the fabric, the true color of the fabric. How do they do that? So as we see more and more amalgamation of digital in our life, we will see Imaging in a new avatar. It would not be just consumer, it would also be enterprise also. That's what we foresee. So for example, the last -- one more thing to add. So everything becomes online, for example, then all your product shoots happen. And then to do a great product shoot and to sell your product, you require A-plus content, and something like Edelkrone is the most needed thing to get candid shoots for products from all angles. So I think it's time, we may not see a great traction in the quarter, but you will see good upward traction in the whole year, next coming year.

The next question is from the line of Sanjeev Goswami from Fractal Capital.

I just wanted one clarification before I ask any questions. See, the Honeywell relationship, I think you mentioned that you're also being contract manufacturing for them. Is it right?

Yes. We get it contract manufactured for them through Honeywell-audited factories across China, Taiwan and a couple of them in India.

Okay. So basically, they are factories to whom the contract manufacturing orders is placed by Honeywell or is under their, what you can say, arrangement, and we get it, orders, from there. It's not that we are doing manufacturing?

No, no. I'll just give you a bit of -- so Honeywell has no role to play except getting the factories audited. So for example, we get our fibers made at Birla Cellulose for example. So we would tell Honeywell that Birla Cellulose is our chosen vendor to make fiber. And Honeywell would go on audit for social, whether there is incentives being given to all, where there is no child labor, whether there is that -- and then they will do the technical audit, whether the company is capable of manufacturing cables for Honeywell standard. And that's where their role ends. And then either we set up our own factory or we get some factory to manufacture the product. So currently, because we don't have expertise to set our own factory, we get it manufactured through these 8 to 10 vendors, which have been certified by Honeywell. So the specification is ours, the design idea is ours, and the contract manufacturer manufactures it according to that.

Okay. Fair enough. No, that is useful. Sir, second thing is that you talked about this Reliance relationship that you have where you have 1 year kind of license, but you have exclusivity for 1 year from those products, right?

Yes.

Similarly, for all other products that you are distributing, do you have the exclusivity?

Yes. So usually, most of the products we take, it is either all India exclusivity or a regional exclusivity for that product. Some brands renew their license 2 years, Honeywell renews its license every 5 years. In Honeywell's case, their average licensing tenure has been 22 years plus with each partner. And some brands would want to do it in 1 year's time. But out of the 20 brands, what we do, all 20 are either region exclusive or product exclusive with us.

Perfect. So sir, in that case, do you have the complete pricing freedom in the sense you can decide at what price to sell? Or there's some gross margin which are fixed you have to sell within those gross margins?

Okay. So usually, it's a collaborative exercise with the brand because today's consumer is very, very smart. You can't charge him more because he knows the price across the world. So usually, for example, if a brand, say Edelkrone, the latest -- or ZEISS, for example. So this brand comes to us. We would look at what is the suggested retail price in U.S. And then based on that, we work out the price which is a suggested retail price in India. Then looking at the product size, looking at the Indian demographics, maybe we suggest them that let's lower the price a bit or let's run an affordability program and fund that program. So for GoPro, we run an affordability program in conjunction with Pine Labs, in conjunction with Bajaj, where you can take a GoPro camera as less than INR 3,000 a month for a 10-month installment. That's what we do. So that helps in people taking an upgrade for that product and also buying the product. So usually, it's a collaborative exercise. Once the exercise is finished, then mostly our margins are tagged to that. So in Edelkrone, our margin is tagged to, say, 25%. So probably some affordability program is supposed to be run. The company may fund that or the company may lower the price so that we can fund it from that. So that's how usually it happens.

Yes. Yes. A couple of questions more, sir. One is on the international side. I do understand that you also have distribution rights for some of the brands in the MENA countries as well as Southeast Asia. So what is it that we bring to the table in terms of distribution relationships that we have in those regions?

So Sanjeev, a very good question. So we realized when we started the Honeywell business in 2017/'18 that to get a larger scale and to get a lot of people -- because the consumer in Southeast Asia, consumer in Middle East spends a lot of money on this product than they spend in India. And we realized that much earlier. And then, for example, if you want to go to Germany to get your dye done, then probably your MOQs for manufacturing should be higher. So we set up a wholly owned subsidiary for us in Hong Kong, and that helps us to get our material shipped to the whole of Middle East and, when we start Southeast Asia, then the whole of Southeast Asia. And then you approach distributors at various countries. So in Middle East, Redington distributes part of Honeywell products there. And then every country has their own set of smaller distributors who cater to the mom-and-pop stores. And we currently have manpower in Middle East as a part of that. And now since our portfolio with audio also would get completed by March, April, we plan to go to Egypt, Turkey, whole of Middle East from the next financial year, that is April. And there are various -- so Honeywell also helps you to take part -- so wherever Honeywell takes part in an exhibition, we can also take part be as a Honeywell stall. And when somebody approaches from the various countries, Honeywell helps us to identify distributors for that place.

Okay. Sir, in India, how many dealers or retail touch points do you have relationship with or connect with?

So in all, we have close to 8,000 partners who have built with us. But we don't consider them as our regular partners. So we have an internal protocol where a customer, if he bought material more than 3 times a month, then only considered to be our active customer. So currently, our active customer cadence was always between 2,000 to 2,200, but after Ckart coming into picture, currently, we are at almost close to 3,000 because of the drop shipment. Customers prefer to buy smaller quantities also. So out of 8,000, 3,000 customers would buy more than 2 to 3 times a month.

That is useful, sir. Last question is, I was just seeing your related party transactions, there are 2, 3 companies like Compunics Technologies, Secure Connection, Bittech. [ Those all ] -- our company seems to have quite a few transactions. And these are promoter-owned companies, right?

Yes. So I'll just give you an example so you'll get it. You said there are 3 companies. One is Secure Connection, right? So for Honeywell business, we do all our business through Secure Connection from Hong Kong. Because when you go to the market and you carry a Honeywell card, you want -- don't want to carry a Honeywell and a distributor's card because the other distributors may get offended, first. Second is Honeywell is a very, very strategic business. And tomorrow, you don't know, probably Honeywell may get interested into this business or somebody else may only get interested in that business. So that's why we got Secure Connection. Also in Secure Connection, because when you want to represent a brand across, say, Asia, you require somebody who can really be the face of the brand. So we have Mohit Anand, who is ex-head of Xbox, Microsoft in India, and he was Head of Belkin, also a similar product like Honeywell for Asia, he was the Director. So he is the face for that. And that's why Secure Connection exists. Bittech is our services arm. And most of the brands like GoPro, like Olympus, like Edelkrone, they don't have service centers here in India. Plus they don't have offices. So they require somebody to also run a bit of -- or pay their marketing material, money and all they want to pay other than the distributor. So Bittech, we used to have before -- because before we got listed, and I think I'm talking to you 7, 8 years, 9 years back, we used to run Epson service centers, we used to Transcend service centers through Bittech. So that's why Bittech exists. And the whole point of Bittech is to help brands to get their RMAs in place.

Also in Creative, we are not doing any servicing. We are doing only sales. So it's a different entity and different arm which we have created.

And last is Compunics. So Compunics is a company where I hold some share and that's why it comes into the related party transaction.

But everything is at arm length.

It's an arm's length. And for a while, since it's a small business, we had thought that probably we would close it down. But when the Honeywell opportunity came in 2018 end, we said we should keep this company so that it helps us to foray into Middle East and it can help for a while Secure Connection because it is in Hong Kong, to get the manpower and people in place. So that's the logic for all the 3 companies.

Okay. That was useful, sir. And just to clarify, is there any plan in terms of trying to consolidate everything under one roof so that there are no questions with regards to related party transactions and all?

So for Secure Connection, we will not be able to -- because Sanjeev, a lot of times, when you go to hunt a talent, for example, I'm saying, right? A talent wants to not work for a multi-distribution or a market entry specialist. A talent wants to work for only a brand, and he wants to carry a brand card. So when my people, say, go to Sri Lanka, they carry a Honeywell brand card. And on the back side is written that licensee, right? So -- and that's why probably this could be there. Bittech is minuscule and if it is of any hinderance, we can really separate that out or probably if Abhijit one point of time says that we want to start RMA services and repair services under Creative, then definitely it can get consolidated.

The next question is from the line of [ Prasad Kulkarni ], an individual investor.

First of all, congratulations for very good results.

Thank you so much, Mr. [ Kulkarni ].

Thank you.

Yes. Sir, this question is regarding our Imaging product. Like, we have Olympus and ZEISS in our portfolio. This Olympus and ZEISS, they have very significant presence in medical-surgical imaging equipment, like, surgical cameras and robotic surgery and all. So do we have any plan in future to capture this market also?

Mr. [ Kulkarni ], I should say that you've studied the brands very, very well.

It's a brilliant question, actually.

And Olympus has worldwide 85% or almost 87% market share in medical equipment and endoscopy camera. And similar, ZEISS is the leader in lenses and -- but one is a Japanese company and second is a German company. And they move at their own space, and they want to really, really be sure before going further. So from both the premises, while we may be interested, the companies may take some time to choose. That's the first part. And second also is that we really don't have the required skill set to market because the customers will be a doctor and -- whether distribution works in this space or whether the distribution doesn't work in this space, we really don't know that. So whenever we get that opportunity, we will have to evaluate it. But a straightforward answer to your question is we don't think anything in the next 18 to 24 months happen.

However, I would like to add on ZEISS. ZEISS also have camera lenses and photographic camera lenses. Okay?

Cinematography.

So cinematography camera lenses. So that is something which is in line with our strength in the Imaging division. And possibly if something comes up in that, then we are surely going to take it up because it is in the same channel. Thank you, Mr. [ Kulkarni ].

One more, sir, small addition. Because -- since we deal in B2B segment, right now almost 80% to 85% of Indian medical sector is still controlled by individual hospitals. And these individual hospitals, they don't have direct access to these big brands, like Olympus or ZEISS. So if someone like our company ventures into this area and we can fill this gap, this can be a very exciting field, and the margins can be very high, sir.

Thank you so much for that, Mr. [ Kulkarni ]. And I'll just tell you that we have an IIT Bombay alumnus, Mr. Anish Kulkarni, who is working closely on Ckart along with [ Purvi ], who is also a founder. And the whole digitization initiative of Creative is under Anish. And Anish used to work with Philips for 5 years and -- in their medical equipment division. And he had also suggested a similar thing. But while talking to him, we understood that we will have to take a different kind of ISO certification to be into the medical equipment thing. And we had a good discussion. Now based on your suggestions, we will really actively look into that and report back to you probably if you are there on the next quarter call.

Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to Mr. Ketan Patel for closing comments.

I thank the entire team of Creative for their untiring efforts, hard work and dedication, which makes the company resilient to upheavals such as the pandemic. Also, I appreciate all of you for participating in our conference call. Please do get in touch with our Investor Relations team for any other further questions. Thank you so much.

Thank you very much.

Thank you.

Thank you. On behalf of Bridge Investor Relations Pvt. Ltd. that concludes this conference. Thank you for joining us, and you may now disconnect your lines.