Creative Newtech Limited (CNL) Earnings Call Transcript & Summary

. Ladies and gentlemen, good day, and welcome to Creative Newtech Limited Q1 FY '22 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 the date of this call. These 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 Newtech. Thank you, and over to you, sir.

Good afternoon, everyone. Welcome to Creative Newtech Limited Earnings Conference Call for the first quarter ended 30th June 2021. Our company, as you all would know, was formerly known as Creative Peripherals and Distributions Limited. 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 development regarding the company. Starting with some key recent developments. As you are all aware, most of the last year faced headwinds from COVID-19 virus outbreak. The pandemic, which brought the whole supply chain and entire economies to a staggering halt, impacted every aspect of our life, from personal life to business and industries across the world. Like every other business, we also faced the impact of the lockdown. Even as industries reopened gradually, this year also started on a similar note with the second wave of pandemic hitting our nation leading to lockdowns in the several states to cope the virus spread. Much like most other industries, our operations were also hampered in terms of logistics and demand. 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 in, we hope for faster upswing in activity going forward. Also, once traveling and tourism resumes more actively, we believe that the demand for photography, videography and related products are also expected to take over. Having said that, we believe that it is during these challenging time's opportunities to further refine our internal practices and improve our operational efficiencies and skillsets can happen. And we have been actively doing that. I am happy to share that we recently changed the name of our company to Creative Newtech Limited. Our business and region far exceeds beyond our -- beyond just distribution. Today, we are well established at 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 vision to be a seamless platform for all partners in this creative need for this new name, which better represents our company and vision to be at the forefront of bringing new technology to the market. On the distribution front, we continue to expand and refresh our portfolio with new niche brands and product. which are relevant to the time. Some of our most recent brand alliances include those with Hyperice, a U.S.-based company specializing in technology-based muscle recovery and massage products well known in the wellness and fitness strategy; MSI, a well-renowned company main in computers; and Colorful Technology, a specialist in SSDs to name a few. Also, we recently tied up with Reliance Retail to distribute a broad range of Marvel and Disney branded products. These 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 gives us access to a huge market across multiple product verticals, expands our geographical coverage and would translate to higher revenues, taking our business to newer height. We recently strengthened this tie-up by adding a range of light bulbs, fan and home appliances from BPL. Having such a household name in our brand portfolio also broadens our market reach. In terms of brand licensing, our deepening association with a Fortune 100 company like Honeywell would serve as a guiding example for other brands wishing to leverage the license manufacturing model. We are in the process of launching a wide range of audio entertainment products and a new variant of air purifier by Honeywell in the mid-September 2021. To support the anticipated growth from various lines of business in July 2021, we raised INR 11 crores of funds through a preferential allotment of equity shares and warrants. The proceeds from this will be used to support our growth plans in Honeywell and to scale up our overseas operations. 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. But what is more happening to note that there is no human injury or loss of life in the incident. We follow all the necessary procedures to be undertaken, and a surveyor has been appointed, we're investigating the incident. Coming to a brief introduction to our company. Creative Newtech is a dynamic company, which has come a long way and through several milestones over the recent past. Today, we are not just a market entry specialist for niche experiential brands across India and international markets. We're also licensing contract manufacturer for a Fortune 100 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 trading, thereby giving our strong leverage to reach out to a wide market base. Furthermore, our value-added business model covers end-to-end creation from market research and competition analysis to formulating and exhibiting region-specific marketing and presales strategies for brands. We have a 3-pillar strategy to grow and expand our business sustainability. 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 region. 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 this licensing line of business by adding more international brands. Contract manufacturing is an effective model of business for various global brands wherein they can be very local players, market which to increase and grow their products market share. We plan to utilize our experience gained with Honeywell for other international brands wishing to follow similar models. So the second pillar is our expertise and strong role in market entry and penetration for niche brands. Currently, we have a long-term association with 20 globally renowned brands, which are leaders in their fields. These are categorized in 3 broad division: IT, imaging, lifestyle and security products. Our value-added services while executing a brand market strategy and 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. Truly, Creative Peripherals is such a sought-after name among OEMs as well as sub-distributor and retailers alike being a crucial link in the supply chain. We continuously enhance this bouquet of brands with new and high margin brand. Some recent brand additions to our portfolio, including Edelkrone and ZEISS. The third key aspect of our growth strategy is 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 costs. Overall, our focus is on these 3 main growth figures of our experiential products and enabling niche global brands to enter and establishing new brands, 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 products to our portfolio. Association with Honeywell, MSI, Edelkrone, et cetera, are steps in this direction. Coming to Ckart, our new business initiative, I'm glad to share that our platform has been meeting significant size once launched 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 buyer in their own company's name. This platform also assists them to showcase their inventory and trade among each other, calculating higher volumes and expanding the product portfolio being offered through Creative Peripherals. We even showcase the speed and ease of use of Ckart when we demonstrated the first order online during the launch. Within the first 6 months of launch, many of our existing, as well as new customers, have joined the platform, making it a huge success. We recently added a seller module on 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 portfolio. Additionally, we will also enable partners to have their own branded microsite hosted on our platform. These features really benefits the partner and would garner further adoption amongst peers. Ckart will fortify our presence as one-stop shop for customers as well as improve our working capital cycle and profitability. Our brand associations diversify and expand our portfolio and reflects the company's recognition among global brands. Even a speculation of third wave of COVID looms, improving consumers sentiment would start demand for such products in the Indian market, both online and off line. And Air Ckart gains momentum. We foresee a strong growth in customer base without additional costs, which should translate into higher top line and profitability. So from an overall business perspective, that is all on 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 1 FY '22. Thank you.

Thank you, sir, and a very good afternoon to you all. I will share the highlights of our consolidated financial performance, after which we will be glad to respond to your questions. Our financials are reported as per INDAS guidelines. Looking at the quarter 1 FY '22 financial results. In the quarter ended 30th June 2021, our company achieved net revenue of INR 135.88 crores, growing 110.57% year-on-year. This was mainly since last year's first quarter was severely impacted by the nationwide lockdown. Growth was also supported by demand for IT products such as Samsung, Cooler Master and [indiscernible]. It is notable that this represents operations of less than 2 months due to the lockdown across several states in India. However, June has been one of the highest revenue months and similar trajectory is seen in July as well. The EBITDA stood at INR 4.11 crores against INR 1.90 crores in the previous corresponding period, increasing 116.91% year-on-year. While our raw material costs increased due to a change in product mix, EBITDA margins improved due to higher sales and relatively lower other expenses. The net profit for the quarter is at INR 1.23 crores as compared to INR 158 crores in Q1 FY '21, a year-on-year growth of 113.43%. Our EPS for the quarter was INR 1.44. This is all from our side. We can now open the floor for questions.

[Operator Instructions] The first question is from the line of Suraj Nawandhar from Prithvi Finmart.

Sir, my first question is regarding the difference between the stand-alone and the consolidated numbers. If I look at the revenue, there is hardly increase of like a couple of crores. But if I look at the expenses, which are above EBITDA line, they have grown by around INR 4 crores to INR 5 crores. So what is it -- what am I missing here? If you can throw some light on it.

Okay. I agree that the difference between consolidated top line and stand-alone top line, the sales are -- by around INR 2 crores, okay? And the expenses are -- and therefore, the subsidiaries, you must understand that the first quarter sales was almost not there, okay, as per our expectation. We are -- in the subsidiary, we sell it to Middle East and other countries. And due to the second wave of lockdown, almost -- most of the countries were in a lockdown state. The expenses were higher in the other expenses, which we have in subsidiaries. They were the salaries and salary and other establishment expenses. And that is why our profit after tax and for the console. And when if you compare, it is lower by INR 1.8 crores as compared to the stand-alone. These higher expenses, I'm sure, will be set up in coming quarters when we sell well in our subsidiaries. And I'm sure by third quarter, we should expect a good performance. And we expect that the console will bring synergies and console will be higher than the stand-alone performance.

Just to add to what Abhijit said, the subsidiary is mainly for Honeywell. So we have got licenses to sell Honeywell products across 30 countries in India, which we got last October. And then we started taking relevant approvals from various governments. So for example, if you have to go to Saudi Arabia, you require the Sasol certificate. If you have to go to Dubai and Middle East, you require the AsMA certificate, the DRA certificate and other stuff. And as you might be knowing, we are launching a complete new range of air purifiers and also close to almost 55 to 60 models of volume for India and also for international market. And for that, we have to have an international sales team. So the -- and we don't have a subsidiary in Middle East. So all our expenses currently are booked in the Hong Kong subsidiary. And that's why you will see this difference between revenue because all the expenses for the Honeywell business are being put into that subsidiary. So in a quarter's time, probably next quarter when we talk, you will see a considerable change into that. And also, you will see that the efforts and the investment that we have made into the international market will start bearing roots because the margin in India, we get 10% to 15% basis more margin than we sell in international markets.

Gross margin.

Gross margin. So that's the -- so in India, if you make 40% gross margin. In international, you will make 50% to 55% margin. So the expenses are setting. The revenue has not started. That should start from mid-September to October when we launch the audio, and we launch the air purifier in India and international markets. I hope we have answered your question fairly.

Yes. Yes. Very helpful. So Q2 also, we will see some consolidated being less than stand-alone. And Q3 onwards, you will consolidate higher than stand-alone, right?

Yes. Yes. That's what we are hoping, and we are definitely hoping that things will pick up. July has been a good month for us, ever highest. So if we maintain this traction with grace of God, we should be doing well.

Okay. Sir, in last con call, you had given a guidance of INR 750 crores to INR 800 crores of revenue. So now given the impact of the second wave, would you want to revise that guidance or stick to it?

We would like to stick to it. We had given a guidance of almost INR 750 crores of top line. Okay. And which we will surely cover is by the end of the year. And we have given a guidance of INR 18 crores to INR 20 crores of PAT. So we hope that we should be able to maintain 2.2% to 2.5% -- 2.25% of PAT, and we should comfortably be able to reach to what guidance we have given earlier.

Okay. And sir, we are going to do or the Honeywell business through Hong Kong subsidiary. So with whatever that is going on with respect to sort of an anti-China take, so do you see any impact in the future on that subsidiary?

So we had an option whether to have the subsidiary in Singapore or to have the subsidiary in Hong Kong. We thought Hong Kong would be better because its proximity to China. If there is ever an impact, we can easily move the subsidiary to Singapore. But one thing we will have to remember that the dependence on electronic business is overall on China. So there may be anti0Chinese sentiments in India, but that's not reflected across all the geographies where we would be doing the business. That's the case one. And second, if the sentiments are there but still the ecosystem for the next 5 years, 7 years, does not look like that the dependence on China can move out. And the last part is if the Make in India and support that, that if the Make in India campaign picks up well, then whatever is our consumption for India can be then outsourced to an Indian manufacturing company.

Yes. Right. Sir, my next question is regarding the preferential allotment that we have done to raise funds for the new business that we are aiming for the Honeywell business? So why not do rights issue instead of doing private provisioning?

Okay.

Why did you ask this question?

It's a good question. Please appreciate that we -- the investors that we have got, we were in talks with them for almost 2 years, okay? They are observing that -- they were observing our performance. And after 2 years, they offered us -- offer to invest in us. The second one is on our rights. As you are aware, the right issue is something -- is at the option of the shareholder to fulfill or to put in, okay? So we thought that this was current positioning that we get the investment from -- through preferential mode because if some rights are not what you've got subscribed, okay, then we do not have that shown or guarantees of the inflow of money. That is -- and it's a long process. So we are always on the toes, okay? So we thought this was a better option, okay? But going forward, if there is an opportunity, we will definitely like to going for the right issue in coming years.

Okay. Okay. So my next question is on the e-waste management. If I go on your website, there's a separate tab for it, but I don't see anywhere in investor presentation or anywhere mentioning about anything. So what do we exactly do? Do we get any revenues from it? What is our business model? If you can throw some light on it.

So there are a couple of things for that. Anybody who is into electronic trade now falls under EPR, Extended Producer Responsibility. So the brands which are present in India, they fulfill their EPR responsibilities. The brand which are not fulfill in India, their agent or the distributor who gets their product, they have to fulfill the EPR responsibility. And as the part of the EPR responsibility, we have to publish on the website, what are the measures we are doing for the e-waste management, which are the centers from where we pick up the material and other cases. So currently, we are not thinking of making any revenues from them. It's just a statutory thing, which we are fulfilling for our brands and for the Indian government.

Our next question is from the line of Sunil Menezes, an Individual Investor.

Ketan and team, for excellent performance for this quarter, especially on a stand-alone basis.

Thank you so much.

Thank you.

Yes, I think we talked a month back, I think, in an investor call. So you answered some questions on the guidance for the year. Just I'm interested to know more about Honeywell business. So last time, you mentioned that maybe this year, we will target around INR 100 crores, and we will further grow to INR 200 crores next year. So this is a business which can improve our margin substantially. You mentioned that we have around 35% to 40% of gross margin here.

Yes.

So if you can give more guidance on that because that is where -- I think last time you mentioned that the Marriott and some hotel groups are also interested in the purifiers and we are launching that product shortly. Further, we are expanding in Middle East. So if you can give us some guidance on what trajectory we will be in this business this year and maybe next year?

Thank you, Sunil. I believe you are joining from Bahrain.

From Abu Dhabi.

Abu Dhabi, yes. Okay. So yes, Honeywell is the very important pillar in our strategy as it delivers close to 40% gross margin to our business and higher in international markets. And look, there is a product cycle, right? So when you say that last year, Honeywell business was close to INR 16 crores and why this year, it will become INR 100 crores, that is because of 2 reasons. One is we have extended geographies. And currently, we have almost now 250 products in Honeywell in mobility, in power conditioning, in air purifiers and now audio work. With air purifier and audio, they are a very consumer-oriented products, and their CAGR is growing very high. Air purifier in India was a seasonal product, mainly for the northern part of the country. But because of COVID, now everybody wants a far better quality of air, and that's why air purifier has become like the basic necessity as you wanted a refrigerator, washing machine or air conditioner or TV, everybody wants air purifier. So currently, also, if you see in this year's strategy, we are only aiming to open the Middle East, Saudi Arabia, market. And then next year, we want to go to the other markets. Any product to become popular also for the retailer to sell also requires a 3 to 4 per month cycle before he understands the product answer. So currently, we are on the right runway. For example, our last month figure of you also, we see Honeywell should be around INR 3.5 crores to INR 4 crores already. So by the end of the year, we should be between INR 80 crores to INR 100 crores. And as we open territories like Singapore, Malaysia, Thailand, which falls as a license to us, we definitely think that next year, INR 200 crore, INR 250 crores is achievable target. We just signed up a couple of days back with Albanali Group, that's the leading distribution house owned by the Sheik of Bahrain. They signed up with us for Honeywell. And as we sign more and more distribution houses in Middle East, we are sure that this guidance can be 100% met. And we have -- so as far as our guidance is concerned, we take a very, very conservative approach because we don't know and how long the COVID effect would be there. So this is a very conservative guidance we have taken. If you see the overall audio market, the audio market is close to $25 billion yearly. So to do -- if we do well in 3 years' time, our audio business should be close to INR 300 crores, just the audio business if we do well.

Okay. My next question is on Ckart. I think you have been mentioning in a couple of calls that this is initiative, and I did know that Internet-enabled businesses are doing extremely well in this COVID time. So any plans on moving Ckart as a subsidiary? Or what is the future plan? Anything other than keeping it as a part of Creative or we want to move it to a different company or a different structure?

So very good question, Sunil, and I think you read my mind kind of. One thing we are very clear and sacrosanct of the fact that the platform business or the new age Internet business requires a different skillset, a different culture and a different remuneration structure also. And so we have a very good Board. We have Professor Suresh Bhagavatula from IIM. He has a PhD in social networks. He has his colleagues who teach platform businesses at all the B schools. So we are talking to a lot of them to understand that what should be the right treatment to Ckart for the future. Currently, we don't know whether we will spin it off or something, but we will wait for the Board advise we will understand and then we will take it forward. So currently, we have not decided anything on that. But in a quarter's time, we should be able to have a blueprint. So we have a vision for Ckart for 2024, which I think we have already -- I think in our overall vision, we have spoken about it. So whatever is a necessary organizational structure is necessary to achieve that, we will do that. But currently, we have not decided.

Next question is from the line of Ayush Agarwal from Mittal Analytics.

Congratulations on a good set of results. Most of my questions have been asked. But I'll just take an update on Ckart that what are the key metrics that we are tracking for Ckart and how are they doing? Is it average order sizes? Is it -- I mean, how many more retailers have been onboarded? What other metrics is the team looking at? And what is the progress on them?

Okay. So we track various metrics on Ckart, right? There are 2 ways people can put order on Ckart. One is the direct to retailer or the distributor puts the orders on Ckart or my sales team can put an order on Ckart. So we see to -- we follow that metric and our constant endeavor is that all the orders get put in by the retail or the distributors themselves. So from inception, if you want to -- so we launched this in August as a software, and then we've moved ahead. So more than 15,000 orders currently and more than INR 200 crores-plus sale has started happening on Ckart. Ckart and Creative are kind of the same side of the coin. So mostly, everything is there. Now our seller module is also in place. And with the seller module, the retailer or the distributor will be able to offer their own product on Ckart. So with Ckart, overall, what we are trying to do is in the business what we have. Your money is into only 2 things. One is it gets into inventory and second is credit. And with Ckart, we are trying to create a platform where we can play on somebody's inventory. And if there are larger number of buyers on the platform, we don't have to extend credit. So then it becomes a blue ocean that, the 2 most important things, credit and inventory or money does not step and the customer gets the convenience of ordering, convenience of having his own name, marketing material, convenience of tracking his order, convenience of having his own website. So that's one thing. Second met price is that we check with how many platforms can see can Ckart get connected. So because we think that the future is that one platform will talk to other platform and then offer products of each other to their respective customers. So that's the second met price. Third is we also try and see that how many orders can Ckart overall handle. And then the basic metrics of how many customers visited Ckart site, how many times they spent on the site, how many people opted for training, how many people opted for discovery of new products. So these are the various metrics we are looking at. While we are quite old into the brick-and-mortar business, this is a fairly kind of a new age business. We understand it well, but we are looking at skillsets, which can do better justice to this business.

Absolutely. That's good to know, sir. Just to request that along with the presentation, we can have Ckart on the orders that were processed during the quarter and like with sales valuation and a number of others and how many retailers That would be one that would be really helpful for the community to note how the platform is growing.

Got it. So you are saying that we also start publishing progress on Ckart separately, right? Are you?

If there are no competitive, this thing reasons to not do it, otherwise, I think the company should do it. It's a good practice, and it will help the investors learn more about the company as well.

Surely. Surely. So we'll speak to the Board, and we'll try to incorporate this. Thank you so much.

My second question, sir, is when we look at the imaging results this quarter, it's quite high. I mean INR 8.5 crores revenue and INR 4.7 crores segment results. So what am I missing here? What happened this quarter in this segment?

No. So a couple of things are there. One, imaging is still underperforming overall because of the travel restriction. So imaging has suffered for 2 ways. I see more than the COVID, the whole problem with CDIT is because of the chip shortage, which is affecting the car, the division and for us also, supply chain is a huge issue. If you can secure supply chain and if you can get it on time or at least you get the supplies, then the sales can happen because the world is slowly opening up. So we think that by next quarter, travel and tourism and outdoor should pick up the place. Second is the profit more than 50% is because we readjusted our cost of goods. As you know, we had one case going on for GoPro. So in fact, MPC that are different for that money is coming back. And that by accounting standards, we have to adjust it into the cost of goods. So the cost of goods keeps going down, and that's why you see such a huge profit there.

Right. Understood, yes. I remember you have spoken about the GoPro.

Very sharp of you too.

Next question is from the line of [ Ravindra ], an individual investor.

Yes. So my question is talk a bit about the competitive landscape about the business, like who are the main competitors? Could we see the growth trajectory in the medium term, 3 to 5 years?

So [ Ravindra ], very good question. But I think because of the COVID and because of our millennial generation being 70%, less than 35 years of age being more than 70%, 75% of our country, we think that electronics is the new FMCG. So you have fast-moving consumer goods. Now you have FMEG, fast-moving electronic goods. So because for the millennials, the gadgets is what takes them, right, the availability was abundance. Every product was kind of similar. Every product specification is kind of similar. So the biggest differentiation is product, which gives a great customer experience. And as a company, we think that we want to pick up products, which resonate with the new FMEG kind of generation. And who are looking for a great experience product. So if you look at our recent tie-ups also, say, Hyperice, right? It helps you to move. So today, a lot of people with sedentary lifestyle, they sit in front of laptops or people go for a walk, for cycling. So it does 2 things, right? It helps you to either warmup before your excise routine or walking routine or it helps you to relax your strained muscles during, say, a gaming -- online gaming or you sat on the computers for a long time. And I gave you this whole context is because there are very few companies who really, really are into this segment, right? So we are dysenteries of a couple of companies. So if you consider distribution, then our peers can be Reddington and Ingram and other people. But they are the huge, huge companies. They are -- their 50% of business comes through mobility where we are not there in the mobile phone business, right? And if you consider into the licensing space, then somebody like a page industry does a good thing on the licensing space, in the listed space, I'm saying, right? And in the platform business, either Udaan or IndiaMART could be there. So currently, it's kind of 2, 3 businesses into Creative Newtech. And so you'll have to take your call when we become say -- Honeywell becomes 30%, 35% of our business, then we can call that we have kind of a licensing business company like a page industry or say, Ckart becomes a larger than that. So that way, there are smaller -- there are some companies, which do businesses like us, but they are much regional and nothing is national. So for companies are Hyperice, right, now when they were in India for almost 2 years, right, and they didn't have a right -- I will not say right partner, they didn't have a partner which could be across India. So now they want to scale up and they want to really do it big, and I think they sponsored a lot of all the big teams across the world, all of bigger athletes actually. So they want to do that, and that's how we became their right choice for that. Well, I hope I'm not confused and answer your question clearly. Or did I confuse you more?

No, no, no. Got some idea. And second and last question is, do you have any further plans to raise funds this year or maybe next couple of years?

No, we have recently done a round of equity raise, So we don't think with our existing debt structure and additional equity, I think we should be able to go till the year-end, as far as our requirement of funds goes, okay? In case additional money is required, we will float it through working capital loan or debt, but not this year.

[Operator Instructions] Next question is a follow-up from the line of Suraj Nawandhar from Prithvi Finmart.

So my question is right now, if I'm not wrong, we do only hardware distribution right now. So is there any plan to get into distribution of the software's or the cloud services or anything of that sort?

So kind of our company, Suraj, is placed. So before any product or software services or whatever we take, there are a couple of things which we want. One is we want exclusivity. Second is we want a certain fixed margins on that, right? If you want exclusivity and fixed margins, then there is -- we should be able to value it, right? Otherwise, that relationship cannot work a lot. So on the cloud services side and all, you are more of an agent where everything happens between the 2 companies, and there is no value add on other side. But yes, it really helps you to have a great cash flow because usually, there is not more working capital requirement. So if an opportunity comes in, we are not averse to it, but we are not actually actively pursuing that opportunity. On the other hand, we are trying to do nonproduct items. So when you don't have -- you have only digital delivery and not physical delivery. So something like an extended warranty, something like a 3-year cover-up, something like marketing services that we are trying to build it on the Ckart platform, but not generally.

Okay. Okay. Sir, I just needed a bit more clarity on the Honeywell business.

Yes. Go ahead, please.

So as and when we will start the Honeywell business, so will we be paying a fixed royalty to them? Or how does the revenue sharing between us and the Honeywell works?

So a couple of things, Surajji. Number one, we've already started the Honeywell business. Right now, we have added 2 more categories. One is air purifier and audio. We are already into passive networking in Honeywell. We are already into mobility solutions. So your docking stations, your chargers and other stuff, and we are also into line conditioning equipment of Honeywell. So these 2 ranges we would be adding to that. Second is we also have now almost 30 countries into our portfolio where we can use the Honeywell logo, get it from certain manufacturer and market the product. Now Honeywell operates very simply. They want the factories to be audited by themselves. So you can manufacture products only which are audited by Honeywell. Second, it wants a fixed royalty on your first sale. So after buying from the factory when I sell my product, I pay a royalty of close to 3% to Honeywell. And the last one is that before the products are dispatched, the Honeywell wants to do the QC. So if we follow these 3 things -- and you obviously have a minimum guarantee for the royalty because they want you to develop a market in a certain way. So these 3 things, if you do well, then Honeywell does not bother you much. Of course, as a partner it helps you by giving you specifications. It helps you by suggesting which models will work. It helps you in getting -- so for example, the Marriott Hotels worldwide are going to use our Honeywell air purifier de facto. And that's a relationship, which Honeywell brought to us because of their association with Honeywell in terms of air conditioning, temperature control, other stuff, right? So that's what Honeywell gets you. Now why did we choose brand licensing is because if we develop a product and we put our brand name, we may get a 10% markup. But if we develop a product and Honeywell's brand name is used, we could make a 30%, 40% markup. When we go abroad with the Honeywell name, we get a seat on the table, people take us seriously. And the last is the knowhow, which keeps coming from Honeywell as knowledge sharing. So when we are launching the new air purifier, they said, instead of HEPA 11, use HEPA 13. It will help you to stop the COVID virus because HEPA 13 has 0.1 filtration, and COVID virus size is 0.15 micron. So that's how Honeywell keeps adding value to this. In the agreement which we now renewed till 2025, now we've gotten a fixed royalty. So tomorrow if I sell more, my Honeywell royalty is fixed at a certain fixed value. So about that, I will not have to pay to Honeywell anymore.

So even if that 3% of the sales value goes about that agreement value, you will not pay?

So we do say INR 80 crores, it is 3% kind of the value. But tomorrow if I do INR 120 crores also, I will not have to pay 3%, then the value remains the same.

So whichever is the higher, you have to pay?

No. In this case, whichever is the lower, we have to pay.

All right. Sorry, whichever is the lower. Yes, right. And sir, on the Ckart business model, so the people who are not distributors of the Creative and use the Ckart platform, do they have to pay any charges on, let's say, registration? Or do we charge them for every transaction that they do? What is the revenue?

Currently, so 2 ways the revenue can work. One is by cost optimization, right? In a distribution business, the number of partners you add more of, that much manpower you will have to require, that much customer support executives you will require. With Ckart, all that gets eliminated because the person also does that. Once we get a substantial traffic, then brands will become -- would want to get the real estate on the first page of the screen. So from marketing, you can get the revenue. Second in Ckart, there is one good feature that any partner who wants his own website can get his own website in 3 hours with our 4,000, 4,500 products on that website. So he gets upgraded from a retailer to a omnichannel partner with retail and online. And these partners, right now, everything is free to them. After they reach a certain stage, we may think to monetize that. And the last part of the revenue is if as a platform we give Ckart to use to some other partners, then probably as a fast model, we will be able to get the revenue. Currently, because it's part of Creative, it's not charging any transaction fees to Creative because the whole financing, funding, development has been done with Creative's resources. So currently, that's the stage.

Next question is from the line of Pradipji, an individual investor.

Just wanted to get information on the other brand apart from Honeywell, which you mentioned last time that you want to have around 30%, 35% of the business coming from licensing? So any progress made on that? Have you zeroed in on the other brand? And what stage are we on that?

So Pradipji, you are talking about new licensing brands or...

Yes, licensing brands apart from Honeywell, the high-margin brand?

So we have initiated talks with a couple of brands. Our internal team suggests that we build the business of Honeywell to close to INR 250 crores to INR 300 crores, that's 25% to 30% of our top line and then start doing other brands. Having said that, to get -- because of our learnings, we have understood after Honey that you can't go to the market with a category which is not complete. You can't go to just single country. All that and you can -- you will require registrations, certifications and they all require a 5, 6 months period, right? So we are in talks with a couple of brands, and we are looking at if we can get lesser SKU, higher ASP kind of products with that brand. Then probably in another 8 to 10 months, we will be able to go ahead. So we are talking to a couple of them. I will not say that we are into the fag end of the discussion, but we have just initiated the discussion and started.

Okay. Okay. If you could just add this data point, what was your sales in the month of June?

So June, we did INR 69.7...

INR 69.73 crores.

INR 69.73 crores, that was our highest ever sales. And in July also, we surpassed June. So we were close to INR 70.15 crores. So these were consecutive months highest ever sales. So June, I would have associated to because we had almost not worked for 45, 50 days and June was the first clear-cut working. Because this time in the COVID, it was not about West and Mumbai, it was more about South for Kerala been closed, Chennai been closed, Bangalore completely being closed, Pune being closed, Calcutta being closed for a while. That's the case. So I think June was part of that, but July also was a great month.

Next question is a follow-up from the line of Sunil Menezes, an individual investor.

Ketan, it's actually nice to hear a lot on Ckart. So you mentioned that this is a first of its kind B2C business in India. And it appears truly a disruptive business model. And you mentioned that anyone can do business through Ckart, but we all know that Internet-driven businesses all depend on how we -- how the masses of people at large are aware of the brand. So have we done anything or are we doing anything so that we popularize this Ckart either through social networking or some other channels?

Okay. So a couple of things, Sunilji. One is that I am in a dilemma because I live quarter-by-quarter currently, right? My quarterly results are so important currently. And because of COVID, we have not generated substantial profit into this business. So I completely resonate with you in terms of that we have to amp up the marketing. And that's what is our internal plan that as our internal accruals start building up, and we start looking at a PAT of, say, 2%, 2.5%, then part of that can go on building up the Ckart platform. Plus also, currently, there is one circle of our 8,000-odd retailers or business partners who work with us, whom we want to get them completely on Ckart. Second, the BPL lightning business we started where we are getting distributors and retailers, so that we want to onboard to Ckart. So right now, the lower hanging fruit for the next 3, 4 months is that we can get our people on Ckart. And our pitch also changed, right? With the seller model till now, we were saying [Foreign Language]. Now we are going to partners and saying [Foreign Language]. And any retailer, any partner is more enticed when he hears this word that we help them sell, not help them buy only. So I think that's the case. Still a quarter because the times are so unpredictable that you have to plan month-by-month and not year-by-year, that's the case. So completely agree with your facts. And that's why if you go back to the previous question, what Suraj asked for in the start, we will, overall have to wait for a while and see that what is the treatment we give to Ckart, either we hive it off as a subsidiary or what do we do, that's the case.

Okay. That's good. I think as you mentioned, more people know of the features, I'm sure we will have more people onboarding and trying to do their own website or your own business, right? My next question is with Ckart, you mentioned that we can do so many things. And one of the stuffs you mentioned last time in -- I think during Q4 call, that for Ckart, our partners and retailers can sell other products as well, right? That is Samsung or some other brands, which they are carrying. So with that, what -- for me, I think this is a great opportunity for us, where if our retailers can sell their products, and we can get X percentage as a commission or whatever it is, so that should go directly to our bottom line. So do we see this as an opportunity so that we can encourage more our retailers, and it can improve our profitability as well?

Yes. So we -- that's what we call it a seller module, and we have already launched our seller module. We have tried with 7 to 8 retailers and -- see, India is a country that every brand has their own strategy, right? So today also, Samsung, besides GST also, coming in place. For Pune I have to material buy in Pune only. I can't buy material for Samsung in Bombay and shift to Pune because they track all their inventory by region by serial number, right? And this Ckart has to resonate that fact also, right? So when a seller comes on my site and tries to sell some material, say, LG's, which he is not supposed to sell, then that's the reason. Or vice versa sometimes the seller tells us that I can sell only for this region. So my product should be displayed only on this region. So when we launched the seller module and we did our beta and then we spoke to a few partners and then there were a few suggestions which came from them. And we have built up their suggestion, like they wanted a calculator, which could tell them that what is the final amount they will get back from us. Then they wanted kind of ETA to be displayed there. Then they also wanted the Amazon pricing to be displayed. So what is the offer they should give. So all that, we have built it up. The beta is happening. And I am sure that will really, really change the dynamics for Ckart and for Creative as a whole.

Ladies and gentlemen, that was the last question for today. I now hand over the conference to Mr. Patel for closing remarks. Over to you, sir.

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 calls. Please do get in touch with our Investor Relations team for any further questions. Thank you.

Thank you.

Thank you.

Thank you very much, members of management. Ladies and gentlemen, on behalf of Creative Newtech Limited, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.