Creative Newtech Limited (CNL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '22 Earnings Conference Call of Creative Newtech Limited. 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, this conference is being recorded. I now hand the conference over to Mr. Ketan Patel, Chairman and Managing Director, Creative Newtech limited. Thank you, and over to you, sir.

Good morning, everyone. Welcome to Creative Newtech Limited earnings conference call for the second quarter and half year ended September 30, 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, our 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 the last quarter, I would like to share some brief insights and recent developments regarding the company. Starting with some key recent developments, as we are all aware, the effect of COVID-19 pandemic continues to be felt through the initial months of this fiscal year as well. The second wave of the pandemic wreaked havoc and several place witnessed lockdowns during a substantial part of the first quarter. Production and logistics across various industries, including ours suffered during the period. In fact, our half yearly performance practically-referred operations was less than per month. However, with many markets reopening, the scenario is better and improving significantly. This half year has definitely been better than the corresponding period last year, which was most severely hampered by the lockdown in 2020. Thus, year-on-year growth has come in from a recovery in the overall market, coupled with our company resilience. The pandemic has brought in new lifestyle standards, such as working from home and having educational classes online. This has also spurred demand for IT products and services. On another note, I'm glad to share that we recently changed the name of the company to Creative Newtech Limited. Our business and vision far exceeds beyond just distribution. Today, we are well established, has won licensees with a long-term agreement with Honeywell and are building further on this line of business. With Ckart, we have entered the online B2B market-based vertical and see this as a key turning point for our business. These changes, along with our vision to be a seamless platform for all partners, indeed created a need for this new name, which better represents our company and vision; to be at the forefront of bringing new technologies to the market. We also arranged our segmental structure to better align with our business structure and strategy. Our brands are now categorized in following 4 segments: Fast-Moving Social Media Goods, FMSG, which comprise new and niche products that appeal to the younger demographic and have a fast turnaround. The brand was driven by social media penetration and wide adoption. This is one of the fastest-growing and higher-margin segment; Fast-Moving Consumer Tech. This segment includes a service and fast-moving consumer technology products that cater to personal as well as organizational demands such as Samsung, iBall and ViewSonic; Enterprise Business, this comprise of products which are supplied to enterprise and have high volume. Some brands in this category include MSi, Printronix and Philips; Fast-Moving Electronic Goods, this segment covers our alliance with Reliance, through which we offer home appliances, bulbs and lights from brands such as BPL and Kelvinator. This segment better represents our brand portfolio and give better clarity on high-margin and high-value products. We express and refresh our portfolio periodically with new niche brands and products which are relevant for our time. One of our most recent brand addition is Hyperice, a U.S.-based company specializing in technology-based muscle recovery and massage product, well-known in the sickness and wellness category. Our recent tie-up with Reliance Retail is to distribute a broad range of Marvel and Disney-branded products, including audio products like earphone, headphone and speakers; personal grooming products, such as hair colors and face masks; as well as some home appliances like toasters and sandwich makers. The tie-up gives us access to a huge market across multiple product verticals to expand our geographical coverage and would take our business to newer heights. We recently strengthened the association by adding a range of lights, bulbs, fans and home appliances from BPL and Kelvinator. Having such household names in our brand portfolio also broadens our market base. In terms of brand licensing, our strong association with a Fortune 100 company like Honeywell would serve us as a guiding example for other brands wishing to leverage their licensed manufacturing model. We have launched a wide range of audio products and a few variants of air purifiers for Honeywell. We have also received appropriate approval from various countries to distribute Honeywell products across APAC. Our long gestation period for this should now fructify as we will get access to 29 countries for these products. 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 warranties. The proceeds from this will be used to support our growth in Honeywell and to scale up our overseas operations. Creative Newtech 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 entity for niche experiential brands across India and international markets, but also licensed contract manufacturer for a Fortune 100 global brand Honeywell. We specialize in market entry for global brands across diverse verticals and work closely with partners to achieve optimal market penetration and growth. Our network includes all 3 channels: online, retail, and central-based, thereby giving us a strong leverage to reach out to a wide marketplace. Furthermore, our portfolio covers a wide range of products from enterprise groups to partnering consumer groups. We have a 3-pillar strategy to grow and expand our business substantially. The first P of our business is brand licensing and contract manufacturing. With Honeywell, we have a long-standing agreement for contract manufacturing and in distribution in 29 countries across APAC and the Middle East region. We have a broad and continually expanding product portfolio with Honeywell, with air purifier being the latest addition. Other products, our connected audio adjustment solutions, we aim to expand this line of business by adding more international brands. Contract manufacturing is an expective model of business for various global brands, wherein they can leverage local players' market reach to increase and grow their products market share. We plan to utilize our experience gained with Honeywell for other international brands wishing to follow similar models. The second pillar is our expertise in market entry and penetration for niche brands. Currently we have a long-term association for over 20 global well-known brands which are leaders in their fields. As I mentioned earlier, they are categorized in 4 broad divisions: FMSG, FMCT, EB and FMEG and cover a diverse range of verticals. Today Creative is a much sought of domain among OEMs as well as sub-distributors and retailers alike. Being a critical link in the supply chain, we continuously enhance the bouquet of brands with new and high-margin products. The third key aspect of our growth strategy is Ckart, our online digital B2B e-commerce platform. Ckart is a game changer in our industry and will play a crucial role in expanding our business with new and existing customers at minimal additional cost. Overall, our focus is on these 3 main growth figures, offering experiential products and enabling niche global brands to enter and establishing new markets, expand our Honeywell business and become an online platform for all our customers through Ckart. We continue to strive for higher operational efficiencies and adding high-margin value for these products to our portfolio. Our associations with Honeywell, Hyperice, Cooler Master, et cetera [indiscernible]. Coming on Ckart, our new business initiative, I'm glad to share that our platform has been making significant strides with its influence. As I mentioned earlier, Ckart is our online digital e-commerce platform built in-house by a dedicated team. It lets our customers and enable them to transact, discover and share products and brands to their buyers in their own company's name. Ckart also assists them to focus their inventory and trade amongst each other, speculating higher volumes and expanding the portfolio being offered to Creative. Many of our existing, as well as new customers have joined the platform since launching making it a use factor. The recently added seller model in the platform allows partners to sell their entire inventory of products to their customers through Ckart, including products that are not directly under Creative's portfolio. Additionally, we enable partners to have their own branded micro-type posted on our platform. This feature really benefits the partner and would garner further adoption among players. Ckart will fortify our presence as one-stop shop for customers as well as improve our marketing working capital cycle and profitability. Our brand association diversify and expand our product and reflects the company's recognition among global brands. Even as speculation of the third wave of COVID looms, the improving consumer sentiment shift to online operation demand for such products in the India market, both online and off-line. With approval in place, our Honeywell business should also pick up pace in APAC market. And as pick-up gains momentum, we foresee a strong growth in customer base without much additional cost, which should translate into 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 financial performance of the company. After Abhijit's present, I would like to take you all through our company's presentation, which has been uploaded on the NSE website. So you may kindly download it if you haven't. Over to Abhijit. Thank you.

Thank you, sir, and very, very good morning to you all. I will share the highlights of our consolidated financial performance, after which, we will be glad to respond to the queries and which will be after the presentation by Ketan and me. Our financials are reported as per Ind As guidelines. Looking at the Q2 FY '22 financial results. In the quarter ended 30th September 2021, our company achieved a net revenue of INR 231.91 crore, growing 110.76% year-on-year. This was mainly since last year's second quarter was severely impacted by the nationwide lockdown. Growth was also supported by demand for FMSG and FMCT products, such as Samsung, Cooler Master and Honeywell. The EBITDA stood at INR 8.67 crores as against INR 4.11 crores in the previous corresponding period, an increase of 111.16% year-on-year. Higher raw material costs due to change in product mix, along with increase in employee expenses has offset the impact of higher sales, leading to EBITDA -- rather leading to this large EBITDA margin as a percentage. The net profit for the quarter is at INR 5.8 crores as compared to INR 2.06 crores in Q2 FY '21 and year-on-year growth of 181.46%. Our EPS for the quarter was INR 4.24. Coming to H1 FY '22 financial results. The half year ended 30th September 2021, our company achieved a net revenue of INR 377.09 crores, growing 110.69% year-on-year. This was mainly since the last year corresponding period was severely impacted by the nation-wide lockdown. Growth was also supported by demand for FMSG and FMCT product like Samsung, Cooler Master and Honeywell. It is notable that this represents operations for less than 5 months due to the lockdown across several states in India during first quarter. However, June was one of the highest revenue month and similar trajectory was seen in July onwards. The EBITDA stood at INR 12.78 crores as against INR 6 crores in the previous corresponding period, increasing 112.98% year-on-year. EBITDA margin improved slightly despite a higher promotional and advertisement expenses and employee costs. The net profit for the period is at INR 7.03 crores as compared to INR 2.64 crores in H1 FY '21 and year-on-year growth of 166.62%. Our EPS for the period was INR 5.66. This is all from my side. Over to you, Ketan sir, for the presentation.

I hope everybody has a copy of the presentation or have downloaded. I'm not going to go through all the slides. I'm just going to talk about a few slides. So if you can go to Slide #8. Here, we are talking about our 3 pillars of business. The first is brand licensing business where we have licensed contract for Honeywell for various consumer and enterprise products. Our rights on these products are for design, casts, manufacturing, and we can sell Honeywell-branded products in many APAC countries as well as govern products pricing to a large extend. Expanding Honeywell's business line and aiming to get more international brands under the licensed model, that's our endeavor. And we will be maintaining an asset-light model while expanding the licensed business. Our new 4 categories FMSG, FMCT, FMEG and EB. So we have a specialist end-to-end solutions for FMSGs for global brands who want to enter India. We have a portfolio of close to 20-plus brand, and we are very well-positioned for the fast-growing aspirational young population in India. In fact, the millennial population stands around 75% of our overall population, which is less than 25 years. Most brands, which we deal in, in the FMSG categories are market leaders in their categories and command niche value in the market. We will keep continuing and enhancing our portfolio with high-margin and high-growth potential products. And our multi-channel network of online retail and general trade will help us to do that. Last is our Ckart customer service platform. That's our online digital B2B commerce platform. It hosts all of our customers and enable them to discover, share and transact with each of these products. It's a captive marketplace for subscribed business partners. We have value-added features in that, which includes drop shipment, invoicing, smart prices, seller module, customized marketing, collateral and facilitates customers who have their own e-commerce site. This will also expand the company's product domain. And with growing digitization in industries, Ckart would pave the way for future-ready business model. Now let's go to Slide #11. So according to the new categorization, we have in FMSG, we have now Honeywell, Cooler Master, Colorful, Edelkrone, Insta360, Thermaltake, Hyperice, BaByliss, PNY, Olympus, Zeiss, Disney Marvel as brands. In FMCT, we have now iBall, Samsung, ViewSonic and Rapoo. FMEG, we have BPL and Kelvinator there. And our Enterprise Business, we have AOC, Philips, Printronix Line Printer and InVue Retail Solutions. FMSG is very critical because the key drivers for the growth are that young millennials. As I said, they want to capture every moment of their social life and posts live events on social media, along with live streaming. And this has given a multi-fold growth to personal use Internet-connected devices. Every millennial in is life follows at least 3 to 4 hobbies and practices 1 or 2 hobbies regularly, and this has led to a tremendous growth in activities like trekking, wildlife photography to sports, cooking, music, cycling and this has made this segment the fastest-growing segment across the globe. The consistent increase in sedentary work and increased health and beauty consciousness has led to an exponential growth in demand for home recovery equipment like Hyperice and home grooming products like BaByliss and gaming accessories like Cooler Master. The increased strength of gaming products has also given great increase in demand for cooling products and high-performance computer components and processing gadgets. Virtual reality, just now, even Facebook changed their company's name to Meta. This is all because people are no longer watching photos, they are looking at video. Virtual reality is now a thing of the present and not of the future and people will require high-performance computer components to do that. So Cooler Master, PNY and other products really help us to do that. Slide #13. I'll just take you through the figures for the global grooming industry is now $422 billion with a CAGR of 4.82% year-on-year. This industry is very underpenetrated in India. And in India, their CAGR can be as high as 25% a year. The global fitness industry is now $10.31 billion. Post-COVID, people are really taking good care of their health and very conscious about their sickness. That industry is growing at 6.74%, and it is in a very nascent stage in India, and it will grow much higher than the international market. The global gaming industry is now close to $300 billion, and online gaming is anticipated to grow at close to 12% a year. Slide #14 shows the various kind of products what we have. So for Hyperice, the brand ambassador, now company has recruited Virat Kohli. So you can see that photo in that. The Insta360, that's the new camera. Insta also have a range of cameras to capture virtual reality. And Insta pricing will go from INR 30,000 to at least INR 9 lakh in terms of their cameras. Then you can see the Cooler Master cabinet and the newly launched Honeywell audio products you can see. There's an Insta360 virtual reality camera in the photo, Slide #15. Olympus, Zeiss and Edelkrone are there. Slide 16 is about FMSG products. So they are great products for gaming from Samsung, personal grooming products from BaByliss, NVM SSDs and graphics cards from PNY and audio products from Disney Marvel. Now we will go to Slide #19. So I'd like to talk about the Honeywell so Slide #18 and 19 are there. So something about Honeywell. Honeywell is a Fortune 100 company. And Honeywell has a very successful and robust trademark licensing business, which generates close to $350 million a year. Our exclusive trademark license with Honeywell is in 29 countries spanning from Southeast Asia, South Asia and Middle East. We currently offer a wide suite of products spanning consumer to enterprise segment, from enhancement products for laptops and smartphones and TVs to audio products to air purifiers to enterprise class infrastructure through our structured cabling products. The entire product cycle from industrial design to specification and privacy is owned by us, and it is completely managed by us. We have adopted a fabless manufacturing across 24 facilities PAN Asia for Honeywell product line. All these factories are approved and audited to Honeywell with stringent audits and compliant places. We'll go now to Slide #21. So the biggest entry barrier for a brand currently is the amount of certifications you require. And we have spent a lot of time in the last 4 years to get all the certification, right from SASO to TRA to CE, ISI [indiscernible]. So that's what we have spent on. Slide #22 shows you our new range of Honeywell air purifiers. Slide #23 shows you the range of our audio products. I will now take you to slide #33, and that's where Abhijit would want to add -- #34.

Number 34. Thank you, Ketan. I would like to just talk about the half yearly financial consol performance. Though I have already talked about the percentage rise and increase in top line and bottom line, however, I wanted to talk little detail. Clearly, the first half of this financial year, we have grown by 110% as compared to -- in total income, as compared to last financial year, same time. What is important, according to me, is the EBITDA as a value. It is again double. So the EBITDA for this half is 12.78%, and as compared to last year it was around 6% so that's double. The interest costs are in line with the increase in business and marginally increased. So that's how I think that the working capital has been properly utilized. And also, the profit after tax has increased to INR 7.07 crores from INR 2.64 crores. So it's almost 168 percentage point jump. Net profit margin, we normally are able to hit approximately that level of 2%, first half, I feel that as the product mix has changed, so therefore, we have reached 1.86% as margins. But I'm sure that in our industry, normally the second half is always better than the first half as far as the sales growth. So I'm very confident that our overhead will be quite -- we've got synergy there and we're going to rationalize them, therefore, we should be in a position to post the profit margin close to -- in the range of 2% to 2.25%. This was on Slide #34. I would like you to also go to Slide #40. This is a consolidated financial highlights for our performance for past 5 years, So it's very clear, if I -- let's talk about revenue from FY '17. Revenue of INR 212 crores, FY '21 was INR 526 crores. EBITDA, FY '17 was INR 5.17 crores and FY '21 by INR 18.73 crores, a good CAGR. The PAT, that is the significant increase. FY '17, the PAT was INR 1.34 crores, FY '21, the PAT is INR 9.38 crores. Also, we've tried to find out the incremental PAT with EBITDA and grows as a percentage. So the numerator is incrementally that PAT between the 2 years, and denominator is EBITDA. And we have seen that there is a growing trend and there's a trend of growth from FY '19, it is [ 50.95% ]. So our conversion from EBITDA to PAT has become in FY '21, 83.77% and that's a pretty good sign. And I'm hoping that we will continue at this rate. I think that's all from my side, and we are open for the questions, if there are any.

[Operator Instructions] We have a first question from the line of Suraj Nawandhar from Sampada Investments.

Good afternoon, sir. First of all, congratulations...

I'm sorry to interrupt. We're not able to hear you very clearly. Please use the handset. Thank you.

Hello, is it better?

Yes, better than before.

Yes. Congratulations on a good set of number. First question, I have on the business structure of Honeywell. If I understand correctly, we are going to do everything, all of our Honeywell business through our Hong Kong subsidiary, right? Am I correct?

Yes. Go ahead. I'll answer, yes.

I was going through your annual report and if I look at the shareholding of Creative in Secure Connections, in FY '20 annual report, it was 70% and now it has come down to 52%. Why is it so?

So I'll just answer your question. Suraj, yes, so how we have structured our businesses is that because now we have 29 countries, so we have this subsidiary in Hong Kong through which we will cater to Middle East. And for India, the subsidiary will then be given to Creative and then Creative will further distribute and market products of Honeywell in India, right? The Honeywell business cycle initially when we started this business was close to 120 days. And you cannot go to the market without the full stack of the products. So currently with the audio coming into picture, we have close to around 290 SKUs in Honeywell now. So in order to fund that inventory and the whole process, we required some amount of equity there. And I think it's close to 2 years back we diluted 25% at INR 10 crores at a valuation of INR 45 crores debt. And that has helped us to launch new products. And we have now no further intent of diluting any further. The only reason being that now the Honeywell overall cycle has come down to close to 62 days. That's the case.

Who has won that 18%?

Okay. That's a certain individual from U.K. [ Fast-3 Trading ], they have bought that.

Can you repeat the name, sir?

Fast-3 Trading, they are a family from U.K.

Okay. And was this reported to the exchanges?

Yes.

Of course.

Yes, yes.

Because when I spoke to the IR, he said it wasn't reported to the exchanges, the dilution of the -- your additional 18%.

Who said so?

Your Investor Relation team. I spoke to them after I went through your annual report, and they said that it wasn't reported to the exchanges. Because I could not find an exchange filing.

Sure, sure I will get back to you on this.

Okay. Sir, in the last con call, you said that Honeywell's sales will start from mid-September. So how is it going now? Has it started? Are we on time? Or are we delayed because of second wave or what is the update?

So ideally, we would have wanted the audio also coming in, in the month of October, the Diwali. But we missed the audio launch by a month. We have launched in November. But otherwise, the air purifiers and all other products are right on track and the air purifier's season is from November to almost late February, mainly in the northern part of India and in the eastern part of India. And we have all our products on -- with us for India and for Middle East also, and we will be on track this year to do almost INR 80-odd crores of business in Honeywell.

So from second half, margins should look much, much better.

Yes. Yes. Incidentally, we closed at INR 19.7 crores in the first half in Honeywell. First 2 months was almost semi-lockdown conditions because due to second wave of this financial year. However, we're very confident that we'll do well in the second half.

Okay, sir. Sir, one question on the previous point. You said that you had divested 10% for INR 45 crore valuation in Secure Connections. So at what valuation we have divested this 18%?

Yes. Right now -- I will come back to you because that insinuation is not agreeable to me right now, but you can write an e-mail to us and we will reply to it.

But it was -- we divested 25% at a valuation of close to INR 40 crores, INR 42-odd crores.

INR 40 crores, INR 42-odd crores.

Okay. Okay, sir. And then just one last question. In the investor presentation, we are saying that in the next 90 days, the new countries will come in. So is it over and above 29 countries that you're planning...

Already, Suraj, this 29 countries licensee we have. Now we'll go step by step. So initially, we have taken up Middle East, so Egypt, Bahrain, Oman, Qatar, UAE, these are the countries we will go first. After we start doing that, we'll do Turkey and other parts of Middle East. And then we will go to Singapore, Malaysia, Burma, these places. So it's a gradual process. As we get our products ready, as we get our specifications ready for these countries and we get the desired skill set, right, because when you go to a different country, it is not just the product. You require the right team there. And currently, we have a team in place for Middle East. And once we start doing better in Middle East, then we will go to the other countries. But the licensee is already for 29 countries. So if we have the wherewithal and we have the skill sets and the products, then we can go to all 29 countries tomorrow also.

Right. And the last question, any outlook on the debt, where it will pick up or it will increase even from here as our business grows? What is the outlook on the debt?

Outlook on the PAT?

Outlook on the PAT?

Loan, loan, debt.

On debt?

Yes, loans.

Okay. You see, we feel that it's a completely related question. So without prejudice, I'm not supposed to give guidance, but we are confident that our top line will be in the range of INR 800 crores to INR 835 crores in this financial year. And the PAT would be in the range of maybe between 2.10% 2.2%. In that connection, and what is happening is that we are -- if you see our working capital cycles, number of days has come down this half. It will -- we will have little higher working capital number of days. However, we feel that INR 10 crores to INR 12 crores additional debt will supply to handle this kind of growth in turnover. So it will not be a major financial -- finance cost impact.

We have next question from the line of [ Sunil, ] who is an investor.

Congratulations to team Creative on great results. Ketan, I understand that we are in retail business, where profit is mainly driven by sales volume, right? It's not a high-margin business. So we have achieved around [ INR 240 million ] revenue in this quarter. And you guided in the past saying that a high-margin Honeywell business should generate around INR 100 crores revenue this year and around INR 250 crore revenue next year. And this comes with -- you mentioned at around 35% gross margin domestically and around 50% internationally. So -- and you mentioned that if this started, around INR 80 crore we can make in H2. So if I extrapolate that, our H2 should be somewhere maybe around INR 500 crores. So if I then -- I am just trying to look at how FY '23 can look. So if I look at that and the incremental around INR 150 crore revenue from Honeywell. So can we say that we can make around INR 1,200 crore revenue in FY '23?

Yes, Sunil, so I'll answer 3 parts. First, I'll answer your last one. Yes, we can look at the revenue of close to between INR 1,100 crores to INR 1,300 crores in the FY '23.

But I want to just correct the estimate of our turnover for the -- this financial year. I think we should be able to do INR 80 crores – INR 80 crores to INR 100 crores for this financial year.

For Honeywell.

For Honeywell.

Yes, that's the first part.

Yes, that I think -- yes, that's what -- you mentioned that. You guided that. I'm talking about FY '23, Abhijit.

And as a company, our whole endeavor is that business from licensed products and our own brand, that should come to close to between 25% to 30% of our overall turnover. So it may not happen, say, in '23, but we have a fair confidence that whatever is our turnover by year FY '25, we have to be close to 25% to 30% of -- our business from licensing and business from own brands should be close to 25% to 30%. And why this is very important is because the Honeywell business and our own brand business would give us a margin of close to 30%, 35% domestically and close to 45% to 50% international. And now we have entered a category like audio. If you see the overall audio category market, the whole market is close to $25 billion. Out of that $25 billion, if we build the audio category very well, audio itself has a potential of becoming a INR 1,000 crore category in, say, 5, 6 years' time. So we are well-poised with Honeywell range of products and as we start getting the right partners and distributors for various countries, whatever we are thinking, we'll start manufacturing. And the last part is that, as I explained in my slide, that the certifications for all products take a very long period of time. But currently, for all the air purifiers, all for audios and other products, for all these almost 20-plus countries, we have got all the necessary certifications there. So it will really help us to build that.

So just to add to Ketan, this month end, we are hoping to launch around 60 to 65 SKUs of Honeywell audio. And that's what is the good news, domestically and internationally. And also your extrapolation of INR 1,200 crores, looks realistic, okay? But we are -- I'm sure we will do our best to gun for that and try and exceed that number.

Thank you. So yes, my -- the same question actually related. Now I'm coming to just something on EBITDA. I think it's very important that we just try to understand because this is going to be a new high-margin business for us, right? So if I take, Ketan, INR 250 crore of Honeywell, I mean, you said, we make around 30%, 35% margin there and then remaining INR 1,000 crore, our business is there. So I feel that we can cross maybe INR 100 crore of EBITDA next year. Can we say that our margin is going to increase substantially -- the EBITDA margin for FY '23?

If not FY '23, but as a percentage, we are expecting that EBITDA will be in the range of 4%, 4.5% to 5% in coming years. Margin will definitely increase substantially, no doubt about it. What you are saying is right. It all depends on how we learn, how the other countries fructify and things like that.

Yes, yes that's fine, Abhijit. I know that. I wanted to get an idea because you've been guiding that your margin might...

Obviously, because the other businesses, the average margin is in the range of 8% to 12%, okay? And in Holywell, of course, the margin is much higher from the gross margin perspective.

Okay. That's good. So it's good that we -- I think I'm sure company will positively surprise on margin, and that's good for us. Now on the other businesses, other than Honeywell, is there -- if you can give us some color, commentary on any initiatives which we have to improve margin? You mentioned, Ketan, the seller module, that should also get in additional margin. So anything on cost optimization or anything to improve the margins on the other businesses outside Honeywell?

Correct. So we are also, this month, launching our brand Duster for robotic vacuum cleaners, right? And similarly, Hyperice, for example, that category never existed in India. And this kind of niche products, which the millennial and the social media generation, which really likes that, these all products comes with extremely high-margin because these products are all experiential products and the go-to-market strategy of this product is very different from our box moving products. And since we have all the skill sets to take this experiential product to the market, the brand really offer us high-margin as well as the exclusivity as well as they help us to get into newer channels with this product. So our overall endeavor has always been on the bottom line. And as we build the economies of scale, so for example, there is a certain turnover, right? After you reach that turnover, whatever else you do, everything gets added to the bottom line. And that's what is our thought process that you start doing a certain amount of turnover, and then everything else can just fall into the bottom line.

Yes. So to give an example, Hyperice and Insta, have been the initiatives where the gross margin is much higher than the traditional products, what we used to do, more than 15%. Also, Zeiss, Edelkrone, these are in the range of 25% margin products, just to give you an example.

Okay. So yes, just on that, so will this get reflected? When it will first get reflected? Will it get reflected in Q3 or Q4 or in FY '23?

No. So gradually, you'll see a good improvement on the bottom line. I think from the fourth quarter, you can...

Fourth quarter and then you will get the traction, because a product needs some time to settle. It's a new product introduced in India. So 4 to 6 months it takes.

We have next question from the line of Sandip Agarwal from Edelweiss.

I have only one question regarding this slide, which shows your classification of revenue into various buckets where we see the Enterprise Business and the FMSG and FMCT and FMEG business. So my question is, is it so that because of the supply chain issues, the FMSG numbers have obviously gone up quarter-on-quarter in absolute numbers, but the percentage jump doesn't look so strong? So how much of that has got impacted because of the supply chain issue? That is number one. And number 2 is that, where do you see this thing reaching in FY '23 and FY '24? So my idea is to understand that in FY '23 and FY '24, what will be the proportion of the fast-growing businesses like the FMSG, FMCT, FMEG? Or alternatively, what will the proportion of the Enterprise Business, which is a low-margin business? What kind of replacement of Enterprise Business as a percentage can we see to other businesses? So if you can answer, that will be very helpful and congrats on a really good set up numbers.

Thank you, Sandip. So I'll take your question. Number one, the supply chain issue has been there in lot of fronts for at least IT. One is the chip shortage. So it's a power chip, so it goes from a as low product like a INR 500 product to a high product like a INR 10 lakh product also. So the supply chain has been an issue. Then second, after supply chain, probability of containers and the freight for the flight has also been an issue because all flights are not still open and all countries are not operating at full potential. That is the first part, which is kind of -- these figures could have been much, much better if the supply chain would have not been an issue. Second, there has been already a price increase of more than [ 30%, 40% ] on each product. So we think that by February, March 2022, everything should start to fall in place in terms of supply chain, in terms of availability of products and the prices will also get corrected. By that time, hopefully, and fingers crossed, travel -- unrestricted travel to foreign locations also would have begun, and that would really -- because when people go out, when people dine in restaurants, when people go on trek, when they go on cycling, when they go for paragliding, skiing, other stuff, they really want to share a lot of content. So this should go up. That's the first part of the question. Second, our endeavor is that, over a period of time, FMSG should become close to 55%, 60% of our business. And the Enterprise Business will keep going down and down because it's a very low-margin business. And it's kind of an opportunity business for us. So whenever we have free cash and whenever it may not impact our cash flow cycle, then only we do that business. Otherwise, the whole focus is on the FMSG business. So as I -- and since a lot of our products fall into that, I think by year '24, '25, we should be -- at least 55%, 60% of our business would start coming from FMSG.

I think more than 60% for sure.

I hope I have answered your question?

Yes. Thank you, that's all and good luck for the current quarter.

Thank you.

Thank you, sir.

We have next question from the line of Ayush Agarwal from Mittal Analytics.

I hope I'm audible?

Yes, Ayush, you are audible.

Sir, a couple of questions. First is, I would like to understand what -- which brands are driving the growth in the Enterprise Business segment?

Okay. So there are lot of products. We have Printronix. So the car industry was kind of down, so Printronix falls into that. So that business has started happening. Then you get corporates also up because of the work-from-home thing. Every -- so for example, there was [indiscernible] and they -- 3 people used to use the same PC. Now we require 3 PCs for 3 different people. So mainly IT, this line printer, storage and mobile phones. And this is the main products which drive that business. Still InVue has not picked up very well because stores are not opening. Once that also starts, that will also start adding. So we have now got a slide in the presentation where we have earmarked also which, which products falls into the Enterprise Business.

So that's what I'm asking, like from AOC, Printronix, Philips, InVue, which brand was...

Monitors, for example, Ayush, their price has almost tripled. A monitor which was...

INR 3,700 is approximately, I think, less than INR 8,000 now.

INR 8,000, that's because of the chip shortage. And if you have the availability, you can just supply it to the consumers.

Got it. And sir, second question is, sir, I may have missed this announcement or something. But I don't see GoPro on your presentation. So has GoPro left and since you're doing Insta360, which looks like a direct competitor to GoPro, so what is our approach towards this?

Yes. So 2 things, Ayush. Number one, GoPro overall for the last 2 years was -- in terms of sales was also greatly affected because it was a high-value product, and it was an outdoor product. And GoPro, in order to protect their balance sheet, at least asked more than 350 people to leave, mainly from India after the lockdown. And the new management at the helm wants to go direct-to-consumer. And they want to offer product at $100 cheaper way to the consumer directly from the site. So they dismantled almost their distribution structure here. And the chip shortage was so huge that they could not provide products for the U.S. consumer. So we then started our initiation with Insta360. The advantage of Insta360 is that it has -- it's a complete -- it has all the products right from for virtual reality to standard your -- or sports to outdoor and the range of the pricing range is from close to INR 40,000 to INR 8 lakh. And they have 2 very good products, which are great for virtual reality and there's a huge demand for that. And that's why we took up Insta and dropped GoPro.

Sir, great news on Insta and congratulations on that, but I personally feel and I think your IR can also advise you on this, GoPro was a major business. And I think it's a material information that should have been declared to the exchange. So that's one suggestion from my end, that it should have been communicated to the exchange that GoPro -- you're not doing business with GoPro anymore.

We'll surely do that.

Yes, because, I mean, I'm sure that this was a major chunk of our business in FY '19 and so -- and until last con call, we were aware that as travel opens up, GoPro business would pick up again. So I was really confused to not see GoPro on the slide and see Insta360 which is a direct competitor.

I don't know whether my answer may give you any respite. But usually...

No, no, I'm sure -- I mean, it did. But the only thing is that we expect this information to come in real-time since it is a material information.

Yes. The only thing is sometimes it is that when you're into a transition, you have certain stock which you want to liquidate. And while your agreements are not in place with, say, Insta, just does not want to make that announcement. And that's why we said let everything fall into place, and then we will do that. But point well taken and we will surely implement it from future.

Sir, thank you for the consideration. Sir, and my next question is, now when I look at your FMCG -- FMSG portfolio, it is a huge portfolio with really good brands. And as you have mentioned that this should be 55%, 60% of our business going ahead, I would like to understand, especially on products like Hyperice, MSi, which are very high-value products and Edelkrone. So what is the approach here? And what is the marketing strategy we are adopting or these companies are adopting in India? And what kind of traction are you seeing?

So let's start with the new baby Hyperice, for example. So Hyperice, again, I will tell you the whole journey, you'll understand. So Hyperice is more from the U.S. perspective, right? And they were as a sport recovery product. So you run a marathon and say you recover in 3 days. With Hyperice, you will recover in, say, 24 hours or you can -- you will recover at half the time. And it's a Inc. 500 company in U.S. and their approach is very simple. They get all athletes as investors. So Lebron James from the basketball team, he's an athlete investor there, Virat Kohli is an athlete investor, Naomi Osaka is an athlete investor in that company. And when they wanted to come to India, we saw their product and then we said that cricket does not feature on your app. Kabaddi does not feature on our app. For us, outdoor sports is more about walking, cycling, running, marathons, that's about it. And the company was very respective and they told us that they would get that implemented here. Now Hyperice is more from experiential product. So when you really use that product, that's when you really know how great that product is, and then you want to share it. On that suggestion also, I think, and I'm not sure, but Virat also, they would have taken because he's a kind of iconic cricketer, and they would have take that. And then once that was built up, we got the product guy, he is a doctor, he is a physiotherapist, interested in sales. So because he should know the body, he should know the muscles, he should be able to train others at the gym, he should be able to train the people at the marathon. So that's what we built up. And now we are present at Croma, we have got great amount of sales there, we are present at Amazon, we are present at Reliance Digital. And slowly, we will be present at all 5-star stores and gym with recovery places for Hyperice. Similarly for PNY, for its brand, which have SSDs and graphic cards, here you don't have to do much. Because of the chip shortage, the graphic card is also in huge demand, huge demand. So here, except the social and the training on which graphic cards to be used for which gaming machines, we are not doing a lot. Coming to Edelkrone, it's the product for the future, because everything from a photo is coming into video. And Edelkrone helps you to capture flawless videos by a single person managing your camera, managing the motion of your camera from your mobile app. And the go-to-market strategy about this is to go to photographic schools, go to specialty stores, go to production houses and go to manufacturing and manufacturers, give them a demo of this product, and then they start buying. One surprising thing both for Hyperice and Edelkrone is that Hyperice has got something called Normatec, which is kind of a INR 2 lakh product. And we have just launched it on Amazon and people without even touch feel has about 3 pairs of Normatec from Amazon. And similarly, for our Edelkrone, we have seen that equipment worth INR 3 lakh, people have gone and bought it, which suggests that these products have a huge demand. They were not available in India. People research these abroad. They thought they want to get this product, when they found that it is available through reputed partners here, they have gone and bought it. So our whole thought process remains that when you get the product, speak to the company, get their India-specific marketing strategy right, execute that marketing strategy, get people with the right skill set and take it forward. Hyperice was kind enough because they have aspirations to become a $40 million sale in 3 years in India. So they have signed up with us exclusively for 3 years. So we can focus without any pressure on that brand.

These are great updates. Thanks for such a detailed answer. My last question...

I'm sorry to interrupt. Would you like to come back in the question queue? We have people waiting in the queue.

Sure.

We have next question from the line of [ Kalpesh ] from JSJ Advisors.

This is [ Kalpesh ] [indiscernible]. First of all, congratulations on very good set of numbers. I have a couple of questions. I was hearing you and Abhijit ji. But on the margin front, I have one question, particularly when you are hinting that EBITDA can improve from 3.59% to something like 4.5%. But when we are hearing so many heavy-margin products to be introduced and also Honeywell product stream, we will have a higher share and all that thing coming in, do you think this is a very understatement from our side to say -- should we expect more on the EBITDA front?

See, honestly, speaking, it's a guidance which we want to be -- and we'll be very conservative in giving any guidance. Honeywell is the game changer, as Ketan rightly mentioned, from the perspective of margins and therefore EBITDA. So rolling of Honeywell project and to new countries, new territories would definitely involve some additional costs. So we are definitely talking about gross margin, but beyond gross margin, there will be additional costs. I'm sure the 4.6% or [ 5% ] would be a number which is reasonable, but we will try and go beyond that. So rolling in -- forwarding new countries will have additional expenses. And therefore, we are being conscious in talking about the EBITDA numbers.

Kalpesh, for any new products to -- at least it takes 6, 7 months, new territory takes 8, 9 months to settle if you have the right people and the right manpower there. So to start Middle East, we have been almost investing from last 5, 6 months and that's why our consol was always coming kind of...

Okay, just to deviate then, I want to highlight this that, Kalpesh, in the last quarter, the first quarter of this financial year, our standalone PAT was INR 3.02 crores and our consol PAT was INR 1.22 crore. So there were consol expenses, which are bringing our consol down. Now you can see that our consol PAT for the full half is higher than our standalone PAT. That means the synergies have started coming further from the subsidiaries. And first is, further, the sale was not there. The international markets were closed. So similarly, just to add to Ketan, there will be more expenses.

Yes. So I would answer in this fashion, that when we launched this Honeywell previously, we had SKUS which we wanted to take to the consumers, to the retail shops and those doors. Then the second set of products when we launched, we knew that now there is enough people who wants to buy this product, we launched products which are required for B2B enterprises -- for enterprises sections like docking stations and 20 meters, 15 meters cables and other things. Now then we got into some of the products, the basket components, which we know will grow in huge volumes in few of the industries. Now we are again going to launch the products, the sound category which will probably mean for more for the consumer segment. So that will definitely involve more costs, but the spread will be good and visibility will be very better. So that's the reason we are probably a little bit conservative in saying our EBITDA and profitability.

Absolutely, absolutely. So it would be safe to presume that on a first half year to half year basis, we should be seeing a consistent improvement coming in not only in the gross margin, but EBITDA also?

Every quarter-on-quarter, we'll see consistent improvement coming in because the economies of scales are setting in. And it is also giving reward to our investments for the last 4 years in the Honeywell Brand. So today, each product, if you have to invest in the [indiscernible] for air purifier the [indiscernible] costs almost $70,000. So you invest it in front end then you amortize it on the product pricing over a year's time. So I think in a couple of years, you'll see very good traction because then all our investments would kind of have been done.

Absolutely, absolutely. I'm quite sure, probably we must have made a lot of effort on that front also. Sir, my second question is on the Ckart front. I mean, we had a good discussion on that day also on Ckart front. So how has been the progress of late? Is it more now getting acceptability among your B2B guys? And are you seeing on a -- this quarter, you are seeing more traction? Because what we are hearing is that this -- from all the consumer durable and other guys that there has been shortage on the material front, and we are running short on various materials. Are you also sensing that type of demand from your B2B guys?

So shortage has kind of been, Kalpesh bhai, a new normal for the last 14, 15 months now. After COVID set in, initially, there was no demand, and then there was acute shortage. So that has been there. Coming to Ckart, so Ckart, we keep developing and making changes on the product front very well. And currently, it's a B2B platform, right? So it will never have, say, a 5 million, 10 million customers on it. But if we had to just talk about numbers, we have done close to business now INR 225 crores-plus on Ckart. And we have got close to now 1,200 new partners added on Ckart. And the synergy of Ckart is that eventually, it will help us to make margins on other people inventories. And as our base for B2B partners increases, our credit to them will decrease, and it will then help us to have a great free cash flow from operations. Just one caution for you is that -- but the success metrics of Ckart is much different from success metrics of Creative. And we are cognizant of that fact, and we will kind of have a different success metrics for Ckart for us to really measure whether we are making great progress on that.

Sure, sir. So just lastly, I just wanted to congratulate you for very good presentation, very detailed and very elaborate presentation. And again your call was also quite elaborative. And I mean, thankful to everyone who have contributed to the sale. Thank you, sir.

Thank you so much. And the accolade deserves to Purvi, my IR who is on the call and the marketing team, they did very well. And of course, Abhijit, because he gave the right set of numbers. Thank you so much for that.

Thank you so much.

We take the next question from the line of [ Sunil, ] an investor.

Ketan, I'm coming back to this Ckart. I know you were very passionate about this in a couple of calls. And you mentioned during the last call that you have engaged a professor from IIM, and you are looking at the possibility of spinning it off or giving some shape to this in future. So any progress on that?

So we are in discussion. We have spoke to the Board. We have spoke to a few consultants. I think a decision we would make in another almost -- it will take a couple of months to make a decision how we want to go about it. Because, see, how we are -- Sunil, is very different, right? This is a new age business, but nowadays new age business everybody wants to burn cash. And somehow, Abhijit cannot make a balance sheet which will burn cash. So kind of we are -- we are stuck there. I'm sorry, but that's where we are stuck on that.

Thank you. We have next question from the line of [ Sarang, ] an investor.

Can you hear me?

Yes, we can.

Yes. So my question was around this Honeywell business. You said this year, we would do somewhere around INR 80 crores to INR 100 crores. So I just wanted to understand how much we have done so far in this first half?

So how much we have done in the -- till 6 months in Honeywell?

Yes. So as you are aware, first, internationally first few months -- to 2, 3 months were a washout. So YTD, Honeywell what we have done is INR 19.8 crores in almost 3 months.

So with the launch of air purifiers and the launch of audio, we are quite sure that we will be close to the INR 80-plus crore mark this year for sure because we also have now started receiving orders from -- so our distributor for Egypt is finalized, our distributor for Kuwait is finalized, our distributor for Bahrain is now finalized. And they have all liked the product, they all checked the products. And so we are quite confident that we will surely do this. So this quarter also, we think that we should be close to INR 20 crores-plus in annual business minimum.

Okay. Sounds good. And one related question I had was that, in general, is all our Honeywell business licensing or do we have kind of split of some products of Honeywell we take care in terms of distribution and then air purifier and audio products are the ones where we have licensing agreements? Is that a correct understanding?

No, Sarang. All our products are licensed and all products we own the brand IP, we own the design and do it. Just as a reverse, that some products Honeywell buys and sell from us. So for example, Marriott Hotels, Honey would buy air purifiers from us and sell it to Marriott. Our structure cabling, our fiber cable, Honeywell would buy from us and sell to their enterprise customers. So that's a bit of reverse in that.

And also, Sarang, we have classified our business into -- major 2 parts, one is an active component business and one is the passive business. Now active business consists of purifiers, sound and there are other products. That is driven by Mohit, and the passive one is driven by Mandar. They are 2 very senior people, they're driving this business. And overall Honeywell business is a licensee business, similar, same.

Got it. Okay. Okay. And in general, all the Honeywell international business is done through Secure Connections in Hongkong, right?

Yes, except I think, Nepal and Sri Lanka may happen from -- and probably Bangladesh for passive. For active because we get it manufactured in Taiwan and China, everything would come from this.

We have next question from the line of [ Ashu Kumar Agarwal ], an Investor.

So my question is about Ckart. Are we deriving some, say, profit out of it or it has still not started contributing to our businesses?

Ashu ji, if I understood your question well, are you saying that are we making any revenue from Ckart currently?

Yes, exactly.

Yes. Yes. So currently, Ckart and Creative are kind of same side of the coin. So a lot of customers may opt to use direct ordering system or may use Ckart to order other stuff. And currently, Ckart is not -- because it's part of Creative, it's not charging anything. Abhijit would like to add.

Actually, I want to add something. Our business is that we sell to sub-distributors who sell to retailers who normally sell to consumers in case of -- in a normal IT channel. Now what happens is sub-distributors are for particular products and for particular territories. Now if a sub-distributor wants to buy Honeywell, so he can definitely -- but though he -- Honeywell is our brand, so he can place an order through Ckart. So from that angle, sir, there is always increase in our business that the entire range of products, what is available on Ckart is available for the sub-distributors who are not dealing in that product. And there are several orders which have been placed. I can give you examples of GoPro being sold. I can give you examples of Honeywell purifiers being sold, and Honeywell other products being sold. So there is a traction, which is happening through Ckart. We have not right now identified it and differentiated it between Ckart-driven sale and Creative Newtech-driven sale. It is all coming together.

So we have identified the sales, but we are not marking anything.

Yes, we are not marking it as separate at this stage.

Okay. So that was about Ckart. And I was little interested about Hyperice. So it is also a high-margin business and very recently we have done collaboration for that. So what kind of revenue we may expect in next year, let's say, FY '23 out of it? Currently or maybe next 5, 6 months, it won't contribute much, but let us say, next financial year, what could be the contribution -- sales contribution you can expect from Hyperice?

A couple of things are there. Company, Hyperice has an ambition to do at least $35 million, $40 million. And for this, you can consider $1 as [ 100th ] of a margin and the GST and other stuff. So that's the aspiration of the company, what they want to do in 3 to 4 years. And that's how probably they would have worked it out, and probably they may get other people also on this. Well, as a company, we don't take it that way. We first see the synergy, how it's happening for the first 3, 4 months and then build it up on that. And then based on your performance and how the future looks like, we do that. So for Hyperice, it may be kind of $30 million, for us we will [ party ] that $8 million to $10 million over the next couple of years. But we will have the necessary manpower, and we will also have the necessary infrastructure that if it picks up very well, and we have to grow it, then the resources and the [ mains ] won't stop us. So that's how we approach kind of conservatively, but there is lot of optimism every business. So that's what it is. And Hyperice, overall, if you google it worldwide, they are aiming to do, I think, at least quadruple their revenue in the next 3 years.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Ketan Patel for closing comments. Over to you, sir.

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

Thank you very much.

Thank you. Thank you to the members of the management. Ladies and gentlemen, on behalf of Creative Newtech Limited, that concludes this conference. Thank you for joining with us, and you may now disconnect your lines.