Creative Newtech Limited (CNL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Creative Peripherals and Distributions Limited Q4 and FY '21 Earnings Conference Call. 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. These statements are not guarantees of future performance and involve risk 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 Distributions Limited. Thank you, and over to you, sir.

Good afternoon, everyone. Welcome to Creative Peripherals and Distributions Limited Earnings Conference Call for Audited Fourth Quarter and Full Year ended March 31, 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, CFO; Mr. Vijay Advani, Whole-Time Director of our company; and Bridge IR, our Investor Relations team. Before we get into the business and financial performance of last quarter, I would like to share some brief insights and recent developments regarding that company. Starting with some key recent developments. As you are all aware, most of the last year faced headwinds from the COVID-19 virus outbreak. The pandemic has brought the whole supply chain and entire economics to a staggering halt, it impacted every aspect of our lives, from personal life to business and industries across the world. Like every other businesses, we also faced the impact of the lockdown. Even as industries reopened gradually, we took this opportunity to further refine our internal practices and improve our operational efficiencies and skill sets. Thus, our annual performance practically represents business for only 9 months, as there were nearly no business operations during the initial months due to the COVID-related lockdowns. However, the second wave of this pandemic has been again hampered not only logistics and business but also consumer sentiment. With partial lockdowns in place across several regions in India, we have been working with lower employee capacity, encouraging our employees to work from home and stay safe. As the impact of the second wave wanes, we hope to faster upstream in activity going forward. Also, once traveling and tourism resumes demand for photography, videography and related products is expected to recover. On 1 more upbeat note, we are going to change the name of our company to Creative Newtech Limited. As I mentioned earlier, our business and vision far exceeds just distribution. Today, we are well established as brand licenses with a long-term agreement with Honeywell and are building further on this line of business. With Ckart, we have entered the online B2B marketplace vertical, and we see this as a key turning point for our business. These changes, along with our vison to be one-stop-shop for our partners call for this new name, which better represents our company and vision to be at the forefront of new technologies. Also, we recently tied up with Reliance Retail to distribute a broad range of Marvel- and Disney-branded products. This includes audio products such as wired and wireless earphones, headphones and speakers; personal grooming products, such as hair colors and straighteners as well as small home appliances like toasters and sandwich makers. This tie-up gives us access to huge market across multiple product verticals, expands our geographical coverage and will translate to higher revenues, taking our business to new heights. We are now expanding this tie-up by adding a range of [ lifestyle brands ] and home appliances from BPL. Having such a household name in our brand portfolio also broadens our market reach. In June 2021, we suffered an unfortunate fire incident at our Bangalore warehouse. While some of the inventory was damaged, all of it is insured. It is heartening that there was no human injury or loss of life in the incident. We have followed all the necessary procedures to be undertaken and a surveyor has been appointed who is investigating the incident. We shall share more information on this once we get this full comprehensive report of the same. Coming to a brief introduction to 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 specialist for niche experiential brands across India and international markets, but also licensee and contract manufacturers for our Fortune 100 global giant, Honeywell. We specialize in market entry for global brands and work closely with partners to achieve optimal market penetration and growth. Our network includes all 3 channels: online, retail and general trade, thereby giving us a strong leverage to reach out to a wide market base. Furthermore, our value-added business model covers end-to-end solutions from market research and competition analysis to formulating and executing region specific marketing and presale strategies for brands. We have a 3-pillar strategy to grow and expand our business sustainably. 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 30 countries across APAC and Middle East regions. We have a broad and continually expanding product portfolio with Honeywell, with air purifiers being the latest addition. Our products cover connectivity as well as audio entertainment solutions. We aim to expand this licensing of business by adding more international brands. Contract manufacturing is an appetitive model for business for various global brands, wherein they can leverage local player's market reach to increase and grow their product's market share. We plan to utilize our experience gained with Honeywell for other international brands wishing to follow similar models. The second pillar is our expertise and strong hold in market entry and penetration for niche brand. Currently, we have a long-term association with 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 services like executing brand marketing strategy and postal 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 such a sought after name among OEMs as well as sub-distributors and retailers alike, being a critical link in the supply chain. We continuously enhance this bouquet of brands with new- and high-margin products. Some different brand additions to our portfolio include Edelkrone and ZEISS. The third key aspect of our growth strategy is Ckart, our 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 minimum additional cost. Overall, our focus is on 3 main growth triggers: offering experiential product and enabling niche global brands to enter and excelling in new markets; expand our licensing business; and become an online platform for all customers through Ckart. We continue to strive for higher operational efficiencies and adding high-margin value-added products to our portfolio. Associations with Honeywell, ZEISS, Edelkrone, et cetera, are step in that direction. Coming to Ckart, our new business initiative, I'm glad to share that our platform has been making significant strides since last August. As I briefly mentioned earlier, Ckart is our online digital B2B e-commerce platform built in-house by a dedicated team. It hosts all our customers in the supply chain and enable them to transact, discover and share products and brands to their buyers in their own company's name. This platform also assists them to showcase their inventory and train amongst each other, peculating higher volumes and expanding the product portfolio being offered through Creative Peripherals. We even showcase the speed and ease of our use of Ckart when we demonstrated the first order online during the launch event. Within the 6 months of launch, many of our existing as well as new customers have joined the platform, making it a huge success. We have launched the seller module of the platform, which will allow our partners to sell their entire inventory of products to their customers through Ckart, including products that are not directly under Creative's portfolio. Additional, we will also enable partners to have their own e-commerce site hosted on our platform. These features really benefit the partners and would garner further adoption among players. Ckart will fortify our presence as one-stop-shop for customers as well as improve our working capital cycle and profitability. On the other aspects, we recently renewed our contract manufacturing agreement with Honeywell for another 5 years as well as expanded our distribution scope with them to 29 countries outside India. This serves access to Middle East and APAC regions. Our deep association with the Fortune 100 companies like Honeywell would serve us as guiding example for other brands, wishing to leverage the license manufacturing model. We will soon be launching a wide range of audio entertainment products and a new variant of air purifiers by Honeywell. On the distribution front, we constantly update and expand our product's brand portfolio to keep it uptrend. Some of the recent brand agreements include those with Colorful technology, MSI, Edelkrone and ZEISS. Such association diversify and expand our portfolio and reflects 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 this higher top line and profitability. So from an overall business perspective, this is all from my side. I will now hand it over to Mr. Abhijit Kanvinde, our CFO, who will take you through the final sale performance of the company in quarter 4 and FY '21. Thank you.

Thank you, sir, and a very good afternoon to you all. I will share the highlights of our stand-alone financial performance, after which we would be glad to respond to your queries. Our financials reported are as per IndAS guidelines. Looking at the quarter 4 FY '21 financial results. In the quarter ended 31st March 2021, the company achieved net revenue of INR 177.15 crores, growing 38.02% year-on-year. This was mainly driven by robust demand for IT brands such as Samsung, Cooler Master and expansion of Honeywell product portfolio. The EBITDA stood at INR 7.24 crores as against INR 3.13 crores in the previous corresponding period, increasing 130.98% year-on-year. While our raw material costs increased due to change in the product mix, EBITDA margin improved due to higher sales and lower marketing and advertising and other expenses. The net profit for the quarter is at INR 4.09 crores as compared to INR 0.94 crores in quarter 4 FY '21, a Y-o-Y growth of 337.68%. Our EPS for the quarter was INR 3.42. Now turning to the full year FY '21 financial results. In the year ended 31 March 2021, our company achieved a net revenue of INR 515.47 crores, representing an increase of 13.92% year-on-year. This is mainly driven by strong recovery in demand for existing and new products, led by Samsung, Cooler Master and which offset the impact of nationwide lockdowns during the initial months after reopening at a lower capacity after the lockdown, business has been gradually gaining momentum. The EBITDA stood at INR 20.06 crores as against INR 18.06 crores in the previous corresponding period, having grown by 11.08%. Higher sales and lower other expenses, such as marketing and advertisement cost, led to growth in EBITDA. However, higher raw material expenses and changing product mix led to EBITDA -- contraction in EBITDA margin. The net profit for the year is at INR 10.78 crores as compared to INR 9.03 crores in FY '20, a year-on-year growth of 19.41%. Our EPS for the year is INR 9.18. This is all from our 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 great set of performance for the whole year despite the scenario. So I have -- can you hear me properly? Hello? Am I audible?

Yes, Ayush. We can hear you very well.

Okay. Okay. So sir, my first question is, in our press release, we have mentioned that growth was driven by GoPro, yet we see a huge decline in the Imaging segment year-on-year. So could you help us with the GoPro numbers in FY '21 and what it was in FY '20?

Yes. This is Abhijit. For FY '21, the GoPro -- we did of around INR 74.5 crores, okay? At FY '20, it was higher. It was approximately INR 120 crores to INR 123 crores, okay. Plus as you must -- as you would appreciate that first 4 to 5 months of last year, last financial year, were of lockdown and [indiscernible] wasn't there almost, okay? So that's the reason GoPro hasn't done so well in this financial year.

Right. Right. That's good to know. And also a suggestion since we have an entire page on GoPro in our presentation, it would be really helpful for the investors if you could show these numbers because otherwise, we keep asking these questions, and it takes a lot of time. So for...

I appreciate. I appreciate.

Yes. Yes. So my second question is, again, we see a lot of growth in our other segment, which is Lifestyle and Security. And in the last quarter, you had mentioned that we made some business with some corporates on the security side, and it was a low-margin business. And again, this quarter, we see a huge rise in the revenues and the margins are lower. So first question, is there another one-off business to those corporates? And if you could quantify the numbers for FY '21?

Yes. Yes. So the numbers for FY '21 for this other revenue is in the range of INR 120 crores, okay? This is an opportunity business for the corporate which we have done. This is included in opportunity business -- we feel we'll get some part of it in this quarter, but it is not predictable. Why we did this is because the regular products like Viewsonic, Spintronics were not selling due to lockdown, okay? So we had to do something, okay? Similar to a business we did in the first quarter of last year, which was medical devices, to be on the track and survive. That was the intention.

Yes. And Ayush, further to add what Abhijit said, in the COVID, the product mix definitely changed because our lifestyle changed, the way we worked actually changed a lot. And second was the -- how do you give credit to somebody? Because if it's an individual, if it's a smaller organization, then there is always a risk for that. So internally, we said that we want to keep the momentum going on and corporate -- because work from home was picking up very well, a lot of people's balance sheet did not allow larger vendors to give them credit and this opportunity was for us. And we said that let's build up on this opportunity. And if there is some merit in it, then we will also encash it along with when the other products starts selling it. So as a result of that, for this year, we set up our own corporate division. We promoted at least 3 of our branch managers from Nagpur, Bangalore and Puna and they are reporting to directly Mr. Vijay Advani. We're also looking at somebody on the Corporate Head of Sales side because we think that this business also will be a huge business. And the unpredictability of COVID is so much that we want to deal with a fairly larger organization. Coming to products like GoPro, which are typically very outdoor products until the travel resumes and there is no embargo from various countries for people to travel outside of India, that business will be a little lower. But to offset that because video is becoming the preferred medium of communication we are in talk with companies who are into videography who give -- companies who give bloggers equipment to create their video logs to stream directly from their home. So we are in talks with them and probably this quarter and the coming quarter, you will find a lot of brands from this so this will not only offset the business which we are losing because of travel. This will -- and when travel comes back, this will again be a booster to that. I hope we have answered your questions satisfactorily.

Yes, sir. These are good insights, and it is heartening to see that we are -- our company is able to maintain sales even during these times and take up these initiatives, which are even though lower in margin are quite remunerative, I'm guessing. So it's safe to assume that we did around this INR 120-odd crores from this corporate business? And you mentioned that it is going to continue in the years ahead as we've set up a complete separate division for this?

Yes.

Yes.

And the kind of margins we do in this is around 3%, 4%?

Yes.

Yes. So on a gross basis.

So now what it is, we are building on it. So for example, I'll give you a case of a MNC bank. Now they had newcomers joining them. And they were not going to the headquarters and they were directly joining from home and their welcome kits were supposed to be delivered to them home. It consists of a computer, it consists of a Honeywell Spike arrestor, it consists of our bag, some stationery and all that. So on the Ckart's platform for this corporate, we built up a welcome page where the new joinees could join in, they could claim their welcome kit. The billing was done to the corporate directly. The drop shipment happened to the new joining employee. He could track his shipment. The company didn't have to track whether the invoice, the GST has been claimed and not. And that was kind of a slightly -- in terms of not just delivering, it was also value-adding that the company gets all the information and other stuff. So in this kind of business, the company is willing to give us a slightly higher margin. So I think corporate business, over a period of time, will start falling into our regular business of 8% to 10%.

Correct. Correct. Absolutely.

All right. That's good to know, sir. Sir, my next question is on the IT business, that has also done well this year. And you had mentioned last quarter that work from home culture is picking up and school from home culture is also picking up. And that is why we had made a lot of sales and monitors under Samsung and other brands. So if you could quantify Samsung numbers in FY '21? And what do you -- what according to the management they feel that this was due to COVID. So if some quantum could be provided, then it would be easy for us to segregate the kind of numbers that we did last year and this year?

Okay. So this year, Samsung, we did approximately INR 95 crores on a year basis, okay? Besides Samsung what also fired was Cooler Master, okay? And...

PNY.

And PNY. Okay. These are also IT brands for graphic cards, okay? Samsung, this year, we see a clear vision of our guidance of INR 12 crores to INR 15 crores per month, okay? Right now, that's the guidance which we have from Samsung. So it will be in the range of INR 140 crores to INR 180 crores. And Cooler Master, we clearly see a vision or guidance for the INR 5 crores on average per month. So these 2 are the major IT brands. Besides that, of course, Honeywell, okay? Last year, we did Honeywell INR 26.65 crores, okay? However, this year, we think that -- Ketan, you want to talk about Honeywell, 2 minutes?

Yes. So, Ayush, Honeywell, because we got the licensee for 30 countries and we also got the licensee for air purifier, and air purifier is now coming to like your basic, so every household wants to have an air purifier. Because of COVID, the quality of air has become very, very important. So we have refreshed the complete range. In the new range of Honeywell air purifiers, we be launching -- we will be launching from July not only in India, but in India, Middle East and Egypt and Saudi Arabia. Honeywell Inc. -- that Honeywell Inc. U.S. and Honeywell, India, both have also signed up a contract with us to buy Honeywell air purifiers. And hotel chains are now deploying air purifiers in every lobbies and every room. And I'm glad to share that Marriott Hotels Worldwide has chosen our product of Honeywell air purifiers to be kept in the lobbies and rooms. So we are very gung ho about the whole Honeywell business. And from the most pessimistic of the view also, we think that in this current financial year, Honeywell, we should close between INR 80 crores to INR 100 crores plus and minus. And Honeywell business is very important because it's a 40% gross margin business. So -- and it's our endeavor that over the next couple of years, with Honeywell and 1 more licensing brand, we want to have 30% to 35% of our business from licensing because it's a gross -- higher gross margin business plus it also gives us the control of the product development cycle, manufacturing cycle and also the control over our partners as what products they would buy. So we are quite optimistic about the Honeywell air purifier business. And last thing, in Honeywell, we are also launching the audio range completely right from Bluetooth, wireless headsets to speakers to other stuff. And the worldwide audio market is currently of $25 billion. And I think with the Honeywell brand and the kind of products we'll introduce, we'll get -- surely get good traction into that.

Sir that's really good to know. And is it safe to assume that 40% gross margin and 15%, 17% EBITDA, as we had guided earlier for Honeywell would be doable?

Yes. Because what has happened is Ayush is all our tooling costs, all our people cost is now starting to pay dividends because 1 product manager. So currently -- so for example, Honeywell air purifiers, we ordered 22,000 units for the June, July, August quarter. And this year, we think we will sell almost between 35,000 to 40,000 units just in India for Honeywell. So the same product manager who used to look at the overall business of the INR 26 crores will look at the business of INR 80 crores, INR 90 crores. So we will get economies of scale in that. So I think we will easily be at the EBITDA of 15% to 17%, plus our margin in Middle East is 50%, not 40% because the Honeywell brand name carries a lot of weight there.

All right. All right. That's really good to know. My last question is on our Ckart, what would be the number of partners that we have currently? And how many were onboarded in Q4? And you think we mentioned that around INR 65 crores of sales was done until Q3, so what is that number today?

Okay. So a couple of things on Ckart. The first and the foremost thing is Ckart is a digital platform, which helps our current partner and also helps us in onboarding new partners who can transact, share new products and also do drop shipments and other stuff. As of -- so my figures are from, say, 1st August to the 30th of April. On Ckart, we did almost a business of INR 180 crores. And now we have almost all Creative partner, that is almost 6,500 partners, on Ckart. And there are almost 484 partners who are completely new and they were onboarded because of Ckart, and they transact only on Ckart without speaking to anybody in the organization. So -- and Ckart's seller module also we launched just last month. So our pitch has changed. Before we used to go and say, [Foreign Language] and now our pitch has changed that [Foreign Language]. So a person is very much interested instead of buying to sell his products, so that gets a lot of traction. Plus, Ckart finally will be our blue ocean because if you have seen in the distribution business, your money is invested into 2 factors only. One is inventory and one is trade receivable. With Ckart, we'll be able to go to thousands of partners. So we will sell them only in cash. So we will not have trade receivables. And with the seller model launching and with that also the private label website for the seller launching in their name, sellers' inventory, we will be able to offer to our customers. So we will not have to invest in inventory. So the key to this is the execution path. And if we execute it well, Ckart will definitely bring our cost of overall operations down and also the reach to various partners, Ckart will help us.

[Operator Instructions] The next question is from the line of Ayush Shah (sic) [ Harsh Shah ] from Dimensional Securities. [Operator Instructions]

This is Harsh Shah from Dimensional Securities. My question is on the Ckart side. So when you say that you are impending new vendors and new products, so we are talking about products which are outside of the business which we do, right?

Yes. Both the products, Harsh, the products which we do and also the products which our sellers would want to sell.

But doesn't it compete with -- so isn't there conflict of interest, I mean those products which would compete with the products which we do under brand licensing and contract manufacturing?

No, it would not conflict because as it is, there's a market share for each product. You are just enabling the customers to transact on that, right? So you are -- so for example, we do Samsung. So we don't do LG, right? But our customers, according to the product specification and according to needs of their customer, would also want a Samsung and also want an LG. And without holding the inventory, without credit risk, if we can offer them LG from the sellers and we can make some percentage of margin on that, it really helps. And none of the brands have, say, 100% market share. Usually, every brand were 20%, 25%, a good brand will be a 20%, 25% market share. So there is always scope for other brands. This gives us a lot of insight also of what kind of product sells, what kind of customers are buying product, who are the customers who actually we can convert it or we can offer them our products which are not competing with them. So that really helps. So for example, tomorrow all to a new sector. So say CCTV. We don't do only. Tomorrow people start selling CCTV products on Ckart. Obviously -- or Honeywell passive components of CCTV cables, HDMI cables, Samsung TVs all can be offered to the same set of customers. So yes surely it helps, it's a complementing thing rather than a competitive thing.

Understood. Understood. And when you say that you did a business of around INR 180 crore on the Ckart platform, so how much would be of our product? And secondly, how much revenue did flow to Creative Peripherals?

So currently, Ckart and Creative are kind of the same side of the coin. So what Ckart logs in currently, the revenue, is of Creative only. So there is no new revenue, which is other than that of Creative and Ckart. The only thing it helps is, it automates the complete process. So instead of us having a back end for sales order and then our sales guy going and punching the orders and all that, all that happens from Ckart. So it will, in the long term, help us. Let's say, for example, we are 220 people currently managing a business of say INR 530 crores. With 250 people, we'll be able to manage a business of INR 2,000 crores. So that is what will be the value addition of Ckart. And plus as soon as we start monetizing in future in terms of getting ad revenue from vendors and other stuff selling extended warranty on that part, selling digital products like software on that. That would be solely revenue of Ckart.

The immediate advantage what probably you can think of is that 400 new customers have probably booked -- have come on Ckart. And these are the additional -- this is additional revenue which we have generated, which has gone the -- credit has gone to the Creative.

Sir, do you mean when I look at the revenue of around INR 520 crore for FY '21, sir, do you mean to say that INR 180 crore has come from your Ckart out of that?

Yes, but not necessarily from new customers. It is our old customers also, we have adopted on Ckart, that's also something.

Okay. So if I remove that INR 180 crore from this business, then Y-o-Y basis, we have actually degrown from INR 450 crore to somewhere around INR 320 crore. So...

No. That business irrespective Ckart would have been there or not there, it would have happened. But this Ckart being there, our people, instead of employing new people instead of having new resources, the business is happening. That's the first part. Second is the same customers, we are being able to offer them a larger portfolio. So it's a very short period because we started this in October and then again, we moved into a lockdown in the March month. Till December also, we were in a partial lockdown. So once we get the full set of numbers for the coming year, then it would be a wiser thing. And plus, there are a few brands who are direct-to-retail customers, not the end customer, direct-to-retail stores. And they have approached us to use Ckart as a platform to reach to their customer. Second is, everything is becoming a platform. So imagine tomorrow Ckart connecting with Flipkart for their B2B sales or connecting with Bajao.com or connecting with Lifafa or connecting with JioMart. So that will be all additional revenues, which will start coming in. Yes.

Fair point. Fair point. And just the last question. So our sales mix for FY '21 has changed drastically compared to FY '20 with Imaging -- revenue from Imaging going from 43% to 15%. So if we talk about FY '22 or maybe FY '23, which will be more of a normalized year, how do you see the sales mix coming in?

Okay. I think there would be -- still the sales mix would be a little different because our overall the way we work, the way we live has changed completely. So as time comes, we will have a look. So, for example, from each household, having 1 computer and 1 tablet, we moved to 4 computers, 4 tablets, right? And then the TV also from 1 or 2 TVs, everybody has their own personal device for entertainment. Larger enterprises, for example, if you were a call center and you had 3,000 employees in 3 shifts then you required only 1,000 desktops, today, if you have 1,000 people working from home and 2,000 people coming to office, you'll require 2,000 desktops. And the way people now use digital medium to do that, that changed. Our marriages have changed. Yesterday, I myself attended 2 weddings on YouTube. One was in Delhi and one was from Chicago, my friend's daughter was getting married. And as our life keeps changing, I think better devices for streaming, weddings; better devices for streaming games. The cryptocurrency today has almost -- is not a legal tender, but it's still now an official in India. So your sales for PNY or sales for Cooler Master, your sales for ThermalTech which are all high-performance computer components will go higher and higher. So the product mix may change a bit, but we'll come back to original margins. And as a company, we endeavor that we have a gross margin of between 8% to 10% overall for all the products.

Absolutely. And just to add as a percentage, in coming years, I think that, it's again, my understanding, we will be around 50% to 55% in IT, okay, around 30% in media, okay? And in other lifestyle products will be approximately 15% to 20%. That will be the mix.

The next question is from the line of [ Bigandh Bandh from SVIP Capital ].

Sir, I had a couple of questions. Should I shoot all together or should I go 1 by 1?

However, you like. We can go 1 by 1 also.

Okay, sir. Sir, so you were mentioning that the revenues of the last year should be considered as the 9 months revenue. So should we consider that as the average going ahead as quarterly revenue for the next year?

Actually, to be honest with you, first quarter we did a turnaround of around INR 66 crores. And the full year, if we say, we did INR 520 crores, okay? So if you can say -- if you actually calculate it, the arithmetic itself is the 10-month run rate, yes? So if it is a 10-month run rate, then here, we can safely assume that, on a normal basis, we should be at INR 50 crores to INR 55 crores of run rate per month, okay? However, yes, this is an assumption, and I'm sure this is a minimum what we will do. My point here is that the first 2 months of this current year has been partial lockdown, not partial, actually a major lockdown...

Complete lockdown.

A complete lockdown in major cities, okay? So we -- not that we haven't sold -- we have done well in spite of the situation. But unfortunately, we are hoping that from June onwards, this situation will come to normal. And under that circumstances, I think personally, like if you do well, we should be in the range of INR 750 crores to INR 800 crores on the top line business. This is again my estimate.

Sorry, sir, that was for next year, you are saying that?

Yes, yes. Next year.

Next year, yes, of course.

That's great. All the best, sir, for that. So the other question was that the new tie-up that we're having, that's great to know about that, about the company. So with that, would we -- so the current inventories and our working capital, would that increase? And would we get our capital locked because of that, a little more than that?

I will answer -- want to elaborately answer this question, okay? If you see our working capital and compare it with last year, okay, the working capital, as what it stands today is 56, okay, days, as compared to 59 days in the last year, okay? This is first point. The -- since the -- there has been a lockdown, okay? And you will appreciate that we purchase in advance, okay? So there has been an increase in working capital in absolute terms and the working capital figure has gone up, okay, from at INR 74 crores -- INR 75 crores of last year, it is almost INR 85 crores to INR 90 crores of net working capital we have, okay? But this ideal -- this is a temporary phenomena because of the lockdown of and on, the management of working capital has not been in -- so judicious, okay, because most of the things were not in our hands. So the working capital turns has come down from 6.16% to 5.47%. Little -- last to -- what we estimate to do is between 7% to 7.5%. If we do this 7% to 7.5% or 8% of working capital turn, then whatever funds are there in the business, they are enough to generate this kind of turnover, the INR 750 crores what we are talking. I will not be able to borrow more. I will not need to borrow more. Have I answered your question well?

Right, sir. So the borrowings would be -- would remain around the same limit?

Absolutely. Absolutely.

That's great, sir. That's great. And sir, just 1 thing, last question, was on Ckart. Sir, so we're looking at growing it substantially. So what kind of capital are we looking to infuse in that business in marketing, upgrading, whatever?

Okay. So I'll be very candid with you on this. Ckart, the business model...

Hello?

Yes, sir. Yes, sir.

Yes, yes. The Ckart business model is very different from the brick-and-mortar business. And there are only 2 expenses to that business. One is having the technology team and second is having the marketing to get the more number of users on the site and to increase the gross merchandising value on the Ckart platform. Currently because Ckart is part of Creative and the PAT and the profitably matters a lot. We are not going aggressive in terms of going after newer and newer customers for Ckart. As our balance sheet will be able to support, we will slowly amp-up the marketing campaign for Ckart to gather more and more customers on it. The platform is very robust. And I think, and please consider this not a very boastful statement, our technology of giving our users their own private label website. So for example, if you are buying customer and you want to have your own website with your own domain name, we can just have that website ready in a matter of hours with almost 4,000, 5,000 of our SKUs. And also if that partner has 300, 400 of his own SKUs, we can have that. So -- and then the partner feels elated because, number one, now he is an omnichannel partner, plus he is slightly better than his peers because their peers don't have an e-commerce website. So the Ckart platform is really good. And if we will be able to give the proper resources to that in coming 2 to 3 years, I think we can have more than 100,000 partners on Ckart and almost 20,000 to 22,000 sellers on Ckart.

That's amazing to know, sir. So the growth that we are targeting and with the same kind of debt and the expansion of Ckart, we could be in another league altogether. That's amazing to know, sir.

Thank you.

Thank you.

The next question is from the line of [ Krisha Shah ], individual investor.

I have a couple of questions. The first one being like who do we consider like our top 2 competitors domestically?

Okay, [ Krisha ], nice question. We are kind of a very hybrid model, and that's why we kind of changed the -- trying to change the name of the company also from Creative Distribution -- Peripherals and Distributions to Creative Newtech Limited. And in the distribution space, because we try and deal with products which are -- which provide great customer experience, we would have a kind of smaller niche companies and not -- but the people then -- and if in the distribution space, you have to compete -- if you have to compare there is Redington, there is Ingram but they are all INR 20,000 crores plus, and we are not even INR 1,000 crores. And in the -- what we are trying to create with Ckart, it is like a JdMart or it's like a Udaan or it's like a IndiaMart. But all the 3, they don't have a financial model where the customers, after coming to that site, can transact. And mainly Udaan is now more of an NBFC model where they make their money by giving credit and IndiaMart and JD, Just Dial are subscription models, while building a subscription model is very difficult. Again, once you build that model, then to go for hyper growth becomes very difficult in a subscription model. But in Ckart's space because we own the product. And as we keep ending brands going exponentially faster becomes easy plus you also have the financial model, so people can transact. So you can make a cut out of that financial model. And as you start getting intelligent data, probably, if you want to add an NBFC or you want to onboard an NBFC and make a commission out of it or you yourself want to do that, that are numerous profitabilities on that. So to answer your question, we are a bit of everything. And the business world is also that the lines are blurring between say, a retailer and a distributor and a brand. So that's the thing.

Okay, sir. Okay. And the second question is how do you plan to improve the cash flow position of the company? Like are there any measures taken for the same?

Let me answer this question. Yes. You see this -- the current financial in consideration for which we are having the call, there has been a stress on working capital. The quantum of working capital has increased. And the basic reason was our inventory turns, okay, the inventory turns have been not up to the mark. And that could be the one of the reasons of your working capital being high. One cannot be blamed because our planning in terms of inventory and [indiscernible] it has been -- has gone [indiscernible] during the lockdown, you see. So if you have an offside on lockdown, then -- and however, we need to plan our inventories in advance, this is bound to happen. So how are we likely to -- and are planning to improve on this? We want to have better inventory turns, that's one. We want to have improvement in net working capital, okay? By what I mean is lower number of days in inventory and [indiscernible] and higher credits. And also, we are looking at improvement in gross margin. So we are -- if Honeywell, for example, okay, to what Ketan has said then technically, we will have absolutely good free cash flow and which we feel we will have the coming financial year.

Okay. Okay. And my last question is how much progress do you see Honeywell do in the next 2 years? And are there any other brands lined up for licensing?

Okay. So Honeywell, our endeavor is that through licensing business Honeywell and 1 more in the next couple of years, we want to have 30% of our business coming from Honeywell. Next year, at least, you can expect between INR 80 crores to INR 100 crores of the projected INR 750 crores-plus business of Honeywell. And the year next to it, at least around INR 250 crores should start come from Honeywell. The statement is a bit ambitious, but we were doing Honeywell only in India. Now we have licensed for 29 more countries, including India, it would become 30 countries. And we have just started our operations for Middle East. We have now sales director for Egypt and Saudi Arabia, so as we start recruiting distributors there. Second is in Honeywell, in our current SKUs, we have at least 14 to 15 SKUs, which have become 0 products, and there is a strong demand from corporates and online channels for all the same. So that also will add to it. And we are in talks with a couple of brands for licensing in the space of medical devices and also in the space of appliances. But with our uneven experience, we know that we should not rush into anything. And initially, it's kind of very capital consuming thing and it also has a higher, say, 120 days working capital cycle. So we are thinking that first we stabilize Honeywell completely. And as we crossed the INR 100 crore mark, then probably take up the other brands.

Okay. Just to add in Honeywell, we are adding a couple of categories and the products. So one is a category we call it which includes sound bar, speakers, party speakers, even the earphones, earpods and so on and so forth. So we will be launching these by July end and August early, okay? And that itself is a huge, huge category and -- you know about it -- you know the success story of Boat in India, so that is what we'll be launching. The numbers will come from there. Purifier, okay, is looking at -- looking to be a very, very star product, okay? And there is demand, which is -- there's -- and traction which is coming, so we will do approximately INR 20 crores of purifiers in the next years. And then, of course, because of the breadth, we will do more revenue.

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

Congratulations on the decent set of numbers. I have couple of questions.

Yes.

Yes. So keeping in mind the recent tire incident, what are the precautionary measures put in place? And how much damage was caused in monetary terms?

Okay. So [ Ruchi ], thank you for asking this question.

It's a difficult one.

It's a difficult one. But -- so first of and all, there was no loss of life in that case and the damages are less than INR 20 lakhs or so...

INR 20 lakhs to INR 25 lakhs.

INR 20 lakhs, INR 25 lakhs max is that also. That's what if the insurance disallow. Our overall insurance for branch offices and warehouses close to INR 16 crores, and the inventory there was less than INR 2 crores. And our overall insurance for distribution centers is INR 60 crores, including that's one. Second, once this incident happened, I personally went there at the site, saw everything, and now we have started to do a comprehensive fire audit for both the warehouses -- both the distribution centers, 1 at Chennai and 1 at Bangalore. And post that finishes, we will also have a comprehensive fire audit done for all the branches also.

Also in that's the major stock which we have in inventory.

Yes. So that we will -- so we will take all the precautions which are necessary. So we had the fire extinguishers in that place. And because Karnataka was working between morning 7 and 10, our office was also operating from 6 a.m. in the morning till 10:00. So when the fire broke out, actually our staff was there, they try to use fire extinguishers, but could not stop that. But we are taking almost all precautions to see that kind of incident does not happen in future.

Okay, sir. And sir, my next question is regarding the recent tie-up with Reliance Retail. Sir, what is the duration of the agreement? And how have we decided the products that we are keeping?

Okay. So with Reliance Retail, they have a duration of 1-year renewable. And besides what Reliance sells in their stores across India, we will be, too, able to offer these products to everybody. And the categories which we are getting into this market for this category is more than INR 50,000 crores-plus. And to get into a newer channel, either you have to have products to offer them or you should have the channel where a company comes and we use the product to offer them. In this case, with the help of Reliance, we will build up the whole electronics and smaller as domestic appliance category. And Reliance plants are huge on this, but we are expecting that between INR 70 crores to INR 100 crores we will be able to do in this coming financial year on this product. It will also help us to increase our bid of distribution for Honeywell active products because honey will stress and well networking cable Honeywell, HDMI cables, they all sell to electrical channels, and this will also help us to leverage the Honeywell channel for the same.

The next question is from the line of [ Aniket Rerkar ], individual investor.

I have a couple of questions. Sir, my first question -- hello?

Yes. We are there.

Yes. Sir, my first question, based on the recent agreement with and Colorful Tech, we have done, so we approach to such brands or get the brand approach to us?

In some cases, we approach the brand. But in both these cases, the brand approached us. I think Colorful is a big player in SSDs and they are #1 in graphic cards. So seeing our performance in PNY through export data, they may have come to know, and they approached us. And MSI is more into all-in-one desktops and gaming, PCs and other stuff. And when they approved that we saw is a good opportunity because work from home is happening, and everybody requires that. So in both these cases, MSI and Colorful approached us. But sometimes, if we see a good product, we may also approach a brand.

Okay. Okay. So how do we select the brand to tied up with? I mean based on what parameters, like margin expectation because before we select any brand?

So there are 4, 5 things on that. Number 1 is whether the brand fits into the channel what we are doing? Second is does the brand have India strategy? Third is, whether the brand is #1 in the region So for the case of Colorful is the #1 brand in China for SSD for the last 4 years in graphic cards for the last 7 years and for gaming, laptops, also, they are #1. So that gives us immense confidence that this brand can do very well in India. So third is whether the brand is ready to give us exclusivity? Fourth is whether the brand is ready to invest in resources, in marketing in India? And the last part comes, whether the brand is offering us a reasonable margin to us? So these are the factors we consider. Same is the case in MSI. We didn't have a desktop and small PC products. So we took that our existing channels were ready to do that. MSI wants to promote their product exclusively on Ckart, and MSI will also promote Ckart on its social media. So that was again an added advantage. And they were offering us the right margins for the product. So we do that.

Okay. Okay. Okay. Sir, on an average, how many brand company aims to bring on the board in a year? Is there any target specific?

No, we don't have that. But that's something to my goal sheet, actually. So my goal sheet says that in an average year, I have to get 3 to 4 brands in the company. But now with Ckart coming in to picture, a lot of brands, which would want to go direct to retail are approaching us. So I think now we will have at least 8 to 10 brands which would we will be onboarding every year, that's what it seems like.

Okay. Okay. Sir, can you throw some light on Hong Kong subsidiary and its role in our business?

Yes. See, the Hong Kong subsidy was kind of formed in order to take care of animal business, which is -- which we can directly supply to Middle East and other countries, basically. For example, when we have 29 more countries and 1 of them is India, so some -- logically, some portion of it, we'll bring it to India the most portion of it we'll not bring it to India. From Hong Kong, we'll directly supply to the distributors there. In the last year, if you see the consolidation -- and compare the top line is the standalone, okay, and we synergies, we have added INR 10.8 crores of sales because of these 2 subsidiaries. And we've added INR 3.3 crores of gross margin because of these 2 subsidiaries. So this -- then going forward, the expenses have been more on the gross margin, and therefore, we have lost some money, INR 1.37 crores, okay? These expenses have been all -- albeit, the professional fees, the freight and other things, they are higher because they are over it, okay? And this turnover was low in the last financial year. However, I personally feel and we are having all the focus on increase the business of those subsidiaries. Logically, when Honeywell business increases, the subsidiary business would also increase. And we are very confident that -- so in this financial year, there will be a positive synergy on profit after tax after consolidation. There has been a negative synergy, but this year, if we have positive synergy.

Next question is from the line of Ayush Mittal (sic) [ Ayush Agarwal ] from Mittal Analytics.

Am I audible?

Yes, you are audible.

Yes, you are.

Yes. Sir, we see that we have been getting more and more of association with Honeywell and they have been giving us access to more products. And we have lots of expectations from this relationship going forward. The latest addition of the purifier is something very significant when I look at it, so I'm trying to understand as to buy Honeywell is like -- till it was IT cables and other IT regulatory product, it did make sense, but purifier is something which is very brand-specific to Honeywell. Sir, how are the value-adding to them? And why have they given us if you can share something on that side?

So a very good question. Honeywell itself is now transforming, right? And they want to transform into AI and they want to become the Google of machinery. So any from where basically for a machine other products. So they want to become a software company more and more, and they want to be in higher technology. So what Honeywell did was Honeywell divided itself into 4 companies. And they also formed a company called Residue. And they -- now Residue also uses Honeywell brand licensing for a very big product Honeywell, which were thermostats, which used to be in every hotel, every refiner everywhere where temperature has to be controlled and monitor. So -- and now Residue is paying royalty like us. It's a Honeywell company, but it pays royalty to the parent company, Honeywell. So Honeywell has not categorically told us, but I think they've understood that they are a very enterprise company and large projects and large infrastructure work they want to do. And anything which is consumer facing, they started the journey with us 3 years back. And as we keep doing well, they want to give us all consumer facing this. So we had a very, very big Indian company actually competing with us when we wanted to do this purifier licensing business. But Honeywell chose us because their licensing team is only of 4 people, their revenue is close to $350 million from licensing. And they want somebody who understands Honeywell, the working culture very well. So today, even if I want to change a design on the box, Honeywell has something called DLS. It is Honeywell design, language, sign. And design has to pass through that. Then Honeywell has altering process for the there's a social audit and there is where the technology that you have to pass through that. Then Honeywell also have its own design ID. So almost when we launch this air purifier, you have to for one air purifier close to $42,500 because Honeywell wanted it in a certain way. So I think this is a complete American mindset where they want to work with fewer people, but they want to work with people who understand the ethos of that company very well. And they think that the consumer is not their play. And if somebody builds up the consumer division, then probably who knows they would either take that division or that company under Honeywell or we'll keep giving more and more products in that range. So that is what. And Honeywell has not categorically said these things, but this is what I think that is.

[Audio Gap] would be. But when you come specifically to a product like Purifier or will we be able to add value to that?

Yes. So for example, Honeywell works we see very closely on the specification, okay? So I'll just tell you about the Honeywell tillage Honeywell was there, they were using HEPA filter 11. Now when we started to do this Honeywell sale you use an HEPA 13, which is a very good product to stop COVID, right? And then that helped us to get a test done with whether how HEPA does not allow the COVID virus which is 0.15 micron and HEPA can stop something which is 0.01 also. So it does not allow the virus to circulate into the air. And then it also helped us to source a composite HEPA cum carbon filter. And then Honeywell becomes a distributor for us and then they also offer. So when they were talking to Marriott and Marriott wanted them to control their air quality because Honeywell is a champion in that, and then individually rooms they wanted, then they will offer the same kind of a product. So I think Honeywell understands it very well that at their level to get into air purifiers and get into the specification and getting developed, it would be much costlier affair. It is much easier that -- because a lot of flexibility required, right? Today, if you want to spend, say, $42,500 on a the decision at our place is kind of a times that we speak to Abhijit, we see the forms and do it. And in the case of Honeywell would take much larger time and hence much larger time to get a product to the market, which go to market with us become easier. So I think that's what the root [indiscernible].

But for a product like this, where there's so much of advanced technology and you need to do some R&D and all those things, it also requires a lot of outlay of capital and expenses and then to market it advertising and all those things. So though Honeywell will be doing those things, but for a partner, they would also might be expecting much bigger size and balance sheet and those things, while we might be 2 smaller company for them.

Yes. Can be the case, but in our case, capital outflow is not very much. And for Honeywell, their marketing is already there. So for example, any trade fair they do across the world, we are invited. So any trade fair in their booth, we can set up a small booth of ourselves and display all of our products to -- there. Plus, they have whatever samples and all what we build, they get it shipped to U.S. and then when they're internal machine -- so I think Honeywell does not have -- Honeywell has close to 19 partners like us whom they meet every year once in any country like Beijing or Singapore and then their team understands all this. So I think they have a method by which they want to keep getting similar products. And I think air purifier no longer is a very, very high precision thing because besides Honeywell blue air molecule, there are a lot of companies which has got this technology now. And that could be -- but you might be right, but in our case, I don't know. They were doing. They said themselves we are manufacturing it. But they stopped it in 2018 end. And then they floated the RFQ during 2019 and then we bid and we bought it.

Okay. Okay. Great to know all these things, sir. Sir, second and my last question is like we are also seeing some other companies which are coming on board and these are very large companies in their own countries. As we do more of these partnerships, what about the cash flows and balance sheet strength? Like you would need to have more inventory, more working capital than those requirements as you scale up with these brands. What are the thoughts on those front?

Right now, our -- if you see our debt-to-equity ratio, okay? On a consol basis, this is 0.81:1, right? I think if we -- Honeywell has good gross margins. So what we need to do is -- we would like -- no, that's what I discussed with working capital cycle management. We would like to have better working capital turns. We will have to reduce our working capital days, right? And again, additional borrowing if it need be in for working capital, we will be able to stretch our balance sheet. It is not going very beyond...

Till now, we are not seeing any change in working capital. Rather, it has been getting extended in recent years.

Yes, your observation is correct. And we were, in fact, last year also aiming for 7 inventory turns to 8 inventory turns, and that's what we have set our target this year also. But the last 18 months have been very, very difficult because we almost project our inventory for at least 3 to 4 months with almost all parent companies with whom we deal. So for example, Cooler Master comes from Taiwan. We give them a projection 3 months end. And this time before of the lockdown, it happened that all our inventory became paid up and the material kept going. So March, we went into lockdown, so the material came in April also, it came in May also. And your observation is currently right. We have to improve on that aspect. You will surely see things start returning to normal. This will happen next month. Second, in Honeywell, now most of the factories and vendors are almost now more than 2, 2.5 years. So in Honeywell, our cycle from 120 days has become 60 days and because the vendor has started giving us a credit of 60 days. And the third most important part is that in case of India, we were the manufacturer kind of contracts we were getting in contract manufacturing. We were shipping it, we were stocking it as a distributor, and we were selling it. So in Middle East, we have not taken that route. In Middle East, we will be the contract manufacturer, but we will have distributors over So the 60 days of 1-month stock and 1-month credit in the market, what we were funding in India, will not be funded in Middle East. So our cycle will further reduce and that will help us to achieve over 7 to 8 turns. Once we have that, then the free cash flow from operations on will help us to grow. And the point you have mentioned has been with a couple of other analysts and firms also. And I would just like to assure you that it is on the top of our mind. And if things start becoming normal, we will see a sea change in how the working capital is managed.

Ladies and gentlemen, due to time constraint, we will take that as a last question. For any questions, you can connect with Mr. Rahul Trivedi or Ms. Savli Mangle from Bridge IR. 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 how we will purchase the pant. Also, I appreciate all of you for participating in our conference cork.Please do get in touch with our Investor Relations team for any further questions. Thank you so much.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, on behalf of Creative Peripherals and Distribution Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.