Creative Newtech Limited (CNL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Creative Newtech Limited Q3 and 9 Months 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 date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ketan Patel, Chairman and Managing Director, Creative Newtech Limited. Thank you, and over to you, sir.

Good afternoon, everyone. Welcome to Creative Newtech Limited Earnings Conference Call for the third quarter and 9 months ended December 31, 2021. Our company, as you all would know, was formerly known as Creative Peripherals and Distribution Limited. I would like to start by thanking all of you for taking the time to join us. On the call with me today is Mr. Abhijit Kanvinde, our CFO; Mr. Vijay Arvani, Full-Time Director. 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. This quarter witnessed the third wave of pandemic affecting markets to some extent. However, luckily, the wave was not as strong as the previous ones, and the impacts are already winning. However, our 9-month performance, practically the present operations was less than 8 months as the initial month of the fiscal year was affected by lockdown. Looking at the present situation, markets have opened up and consumer confidence is firing up well. These 9 months have definitely been better than the corresponding period last year which was more seriously hampered by the lockdown in 2020. The year-on-year growth has come in from a recovery in the overall markets, coupled with our company's diverse product portfolio, in the post pandemic lifestyle with standard such as working from home and online education classes, demand for IT and lifestyle products has been on the rise. Our business and vision far exceeds beyond stuff distribution. Today, we are well established as brand licenses with a long-term agreement with Honeywell and are building further on this line of business. This is also garnering attention of other global banks, which are looking at brand licensing as a beneficial approach. With Ckart, we have entered the online B2B marketplace verticals, and we see this as a key turning point for our business. On the distribution front, we rerate our segmental structure to better align with our businesses and status. Our products are now at categories in the following 4 segments: fast moving social media good, FMSG. This comprise new and niche products that appeal to the younger demographic and our fast turnaround. These brands are driven by social media penetration and wider option. This is one of our fastest growing and higher-margin segment. Fast Moving Consumer Technology, this segment includes established and fast moving consumer products that cater to customer as well as organizational demand such as Samsung, iBall and Viewsonic. Enterprise business this compromise product, which was applied to enterprise and are high volume, some brand in this category include MSi, Printronix and Philips. Fast moving electronics goods, this segment covers our alliance with Reliance, through which we have offered home appliances, bulbs and light from brand such as BPL and Kelvinator. This segment better represent our brand portfolio and give better clarity on high-margin and high-volume products. We expand and refreshed our portfolio [indiscernible] with new niche brands and products which are relevant to our time. Some of our most recent brand addition, including Insta360, Fujifilm and Hyperice, a U.S.-based company specializing in technology-based muscle recovery and massage product as well as -- a well-known in the wellness and fitness category. Our tie-ups to the Reliance cover the range of Marvel and Disney branded products, including audio entertainment products, personal grooming products such as hair color and straightener and some home appliances like toaster and sandwich maker. That tie up gives us access to huge market across multiple product vertical and expandable geographical coverage. We also added light bulbs and home appliances from BPL and Kelvinator to this portfolio, having such household name in our portfolio also broadens our market name. In terms of brand licensing, our association with Honeywell continues to grow stronger. We have got required certification to launch in various countries across the Middle East and APAC region. We also recently launched a wide range of Honeywell Air Purifier. The benefit of this association should show that now onwards as we scale up this line of business. Our distribution network covers all 3 channels online, retail and general trade, thereby giving a strong leverage to reach out to a wide marketplace. Furthermore, our portfolio covers a wide spectrum of products from enterprise goods to fast moving consumer products, association with Insta360, Fujifilm are example of social media base product, which target the young demographic and are high-growth potential products. Overall, our focus is on 3 main growth figures, offering experiential product and amending rich global brands to enter and establish a newer market expand our Honeywell business and become online platform for all customers to Ckart. Ckart is going well since launch at a good adoption rate among our channel partners. We recently incorporated our wholly-owned subsidiary, which would be dedicated to this e-commerce business. We expect Ckart to expand our customer base without much additional cost. Lastly, it gives me great pleasure to see that Creative is gaining recognition as the go-to specially for many niche brands, which benefits from our value-added service model. I will now hand it over to Mr. Abhijit Kanvinde, who will take you through the financial highlights for quarter 3 and 9 months FY '22. Thank you.

Thank you, and good afternoon to you all. I will share highlights of our consolidated financial performance, after which we will be glad to respond to your queries. Our financials are reported as per IND-AS guidelines. Looking at the quarterly results. In the quarter ended 31st of December 2021, the company reported a total income of INR 302.36 crores, growing 79.47% year-on-year. This was mainly, since the last year's first quarter was impacted by the COVID-induced lockdown. This growth was also supported by improvement in our enterprise business segment and demand for our product from Samsung, Cooler Master and PNY, amongst others. EBITDA stood at INR 10.56 crores as against INR 5.21 crores in the previous corresponding period, increasing 102.52% year-on-year. Higher sales promotion expenses were offset by impact of change in product mix and overseas sales, leading to improvement in EBITDA margins. The net profit for the quarter was INR 7 crores as compared to INR 2.42 crores in the Q3 FY '21 and year-on-year growth of 189.39%. Coming to 9 months results. In the 9 months ended 31st of December 2021, we reported total income of INR 679.45 crores, growing 95.55% year-on-year. This was mainly since last year's corresponding period was severely impacted by national lockdown. Growth was also supported by enterprise business segment and demand on products like Samsung, Cooler Master, PNY, Honeywell amongst the others. It is notable that this represents operations of less than 8 months due to the lockdown across several states in India during the first quarter. That EBITDA stood at INR 23.34 crores as against INR 11.22 crores in the previous corresponding period, increasing 108.12% year-on-year. EBITDA margin improved slightly despite a higher promotion expenses. The net profit for the period is INR 14.03 crores as compared to INR 5.05 crores in 9 months FY '21 and year-on-year growth of 177.52%. This is all from our side. We can now open for -- the floor for the questions.

[Operator Instructions] The first question is from the line of Digant from SBIP Capital.

Congratulations on a great set of numbers. Sir, I just wanted to know what is the reason for the other expenses to be so high? It's about INR 16 crores versus a normal run rate of INR 7 crores. That was our first question.

Yes. This quarter, we had higher sales promotion expenses, that is advertising and sales promotion expenses. And we had some clearing charges, which were higher. So if you compare it for a quarter, the clearing charges were almost INR 2 crores, the sales promotion was in the range of INR 5 crores. That is the -- that the exact addition to -- as compared to the last quarter.

Right, sir. So should we take this as the number going ahead in the future quarter?

Actually, it all depends on the performance of the particular brand. It is a very strong product mix perspective. So we cannot take this as a runway. Next time, for sure, the sales promotion and advertising will be lower as compared to this one.

And this quarter is also a festive quarter. And so you actually -- because there is a huge problem in logistics happening, so we are trying to not keep stocks in Hong Kong and keep it here. So for the couple of months, so the logistics does not hamper the sales. So because we launched this Honeywell Audio and Honeywell Air Purifiers during this quarter, we got the inventory was almost INR 12 crores to INR 14 crores imported this quarter. and some of them came by air also. So that's why you see that. But that will get amortized as we sell the inventory in the next quarter.

Absolutely.

So can we expect some better run rate in the revenue for the next quarter?

I think we'll be able to maintain the previous quarter's numbers in the coming quarters.

The guidance what we have given and hopefully, that is what we will meet this time. The guidance was in the range of INR 825 to INR 850 crores for the full year, okay? So -- and yes, we are hopeful that we will be able to reach and maybe cross that number.

So sir, if it's around INR 800 crores INR 850 crores, there could be a much lower number compared to even the September quarter.

Yes, so usually you under commit and over deliver the export which it's principle had been. So I give you that probably we'll do as much as what we did in the -- in the quarters. So we will probably exceed that one.

[Operator Instructions] The next question is from the line of [ Sunil ], an individual investor.

It's an excellent quarter, so I have a couple of questions. One is if you can throw some light on Honeywell business in -- we have just started, this is new product line for us. So how is the Honeywell performance in Q3 and in Q2? So just sequentially, just want to see if there is any traction on this business. And then how you see going forward in Q4 and then FY '23, because in the -- I think past 2 calls, you guided that Honeywell should contribute around INR 250 crores to our revenue in FY '23.

Okay. So, this is Abhijit. The annual -- this quarter, okay, we just launched Air Purifier in this quarter, and the new Air Purifier in this quarter, the new range. And a Audio was launched almost November end early December. So the real filing of these 2 categories will happen in next quarter. Another -- to answer your question, this quarter, we did Honeywell altogether in consolidation of almost INR 18.5 crores and year-to-date Honeywell would be -- for 9 months would be in the range of INR 45 crores, around INR 45 crores. Okay. So we are hoping that by end of the year, we shall be -- end of this financial year, we should be in the range of INR 65 crores to INR 70 crores only Honeywell.

And what about your next year target?

Yes. I think -- the Audio -- I think I would hand over to Ketan for your answer.

For the next year, a couple of things are there. Our aspiration is to do between INR 225 crores to INR 250 crores in Honeywell, and that's what we are planning also. So by expanding geographies, so the Middle East, we have now Ali Bin Ali as our distributor for Qatar. [indiscernible] as our distributor for UAE, Blooms is our distributor for Kuwait and Egypt. And whatever statutory compliance, statutory -- for that particular regions and countries necessary that's going on. So as we expand region and as we expand the product category, I think the aspiration of INR 225 crores to INR 250 crores would be met in the next year in just these regions where we are talking about now. Saudi remains to be open. And then probably, if we have the bandwidth, then we would start from next July to open SIA, that is Southeast Asia. So Singapore, Malaysia, if we get the right tenant. So and a couple of -- now we also decided that in Honeywell, we will have 2 launches a year. So we'll have a launch in June for the summer products and in October for the festive season. So with the launching of the new products and filling the product gap, we should be there. And considering that COVID would not impact further than what it has been impacting. So that's where we are.

Okay. So the reason why I think we talked about it, you mentioned and I think the last couple of calls with them because end of the day, I think a lot of the improvement in EBITDA and net profit will definitely come from this product line as we have higher margins, right? So it's very important to know where we are going with that. So thanks for that. So my second question is, if you can just explain why our EPS at the consolidated level is lower than the standalone, whereas in Q3, it was other way. And I see that our standalone consolidated net income is higher than the standalone. So just if you can throw some light and mention the performance of subsidiaries on that because I understand that we have 3 subsidiaries there, 2 are fully owned by Creative and 1 is Secure Connection, which is 62% owned by us. So if you can just throw the light on why EPS at the consolidated level is lower than standalone?

Yes. Let me answer this question. Our standalone performance was -- one second -- was INR 1,214.65 lakhs and INR 12 crores and INR 14 lakhs and our consolidated profit after tax was INR 14.02 crores. In spite of that, our share of consolidated profit has been INR 10.68 crores. So your question is from INR 12.5 crores, it should have been higher. Why is it low? The reason behind this is that there has been -- we like to have Audio launch of products in this quarter. So lot of as subsidiary or lot of material inventory was sold by subsidy, okay, to our holding company, almost 12 crores to 14 crores of extra inventory was sold. Now as per consolidation norms, you need to remove the profit, which is a marker on the inventory and do an inventory adjustment. Therefore, some of the inventory adjustment was done and therefore the profit is INR 10.63 crore, our share of profit was INR 68 crores. Now what is going to happen is, this inventory was taken in the month of almost November, this inventory is going to be sold in next quarter. Therefore, all these markdown will be added as profitability in the next quarter plus the normal profitability. So we are expecting and hoping that next quarter will be bumper kind of a profitability. All right, have I answer your question first half?

Yes. So that's fine. I think I didn't get the detail, but what I expect is that with our Honeywell revenue...

Sunil, how Abhijit explain mean because I'm likely from the engineering background so finance is a challenge sometimes. So there is a -- so for example, whatever a Secure Connection sells to Creative India, if that inventory is not sold in India, that inventory is again returned back.

In the profit, I'm talking adjusted, after it's adjusted.

So Secure Connections sends a lot of stuff to India. Which is not sold because it came in the end of November and December, and we got slightly higher inventory, which will get solved in January, February and March. So that profit in the subsidiary was showing higher, and then we had to write it back when we take it in the consol because that's the statutory guideline. So when this inventory moves out, that profit will start to come back.

Come back to -- so next quarter, we will see higher profits in -- as we expect, higher than the synergy and higher the results will be higher than the normal standalone profits.

So I got it. So that's fine. I think -- then I think with the -- with this, that should be a kind of windfall gain for us in Q4 when we sell this inventory, plus on top of it, with the Honeywell business firing in Q4, we should see a substantial increase in our margin in Q4 at consolidated level. Am I correct?

And then our end of year next year to get the back from, say, 1.8% to 2.5% to 3% and then eventually in 2025 to 5% that will start going. That will show that we are on that trajectory, as Honeywell start doing INR 400 crores plus.

The next question is from the line of [indiscernible] Private Limited.

Yes. Thanks for the wonderful summary, and it was a congratulations for that. Am I audible?

Yes.

Yes, you are audible.

Yes. So we have a 70% stake in the Secure Connection as per the financial year '20, whereas in -- as per the financial year '21, that stake goes down to the 52.48%. And I have seen that this stake sale was not disclosed to a shareholder. Can you please share details about how the valuation and usage of the fund from this transaction? This is especially important because Secure Connection is going to represent a lot of our growth in coming years. So it would be great if you can clarify on this.

Yes. One thing is that we have taken opinion out of our council. And as per their opinion, we had to only disclose this in the balance sheet, whenever any consolidation -- whenever the share dilution was done. This was done last year. This is one answer to your question. The second point is that this was done -- let me -- understand the philosophy of valuation, and I will tell you the valuation also -- the philosophy of valuation is that we have -- in Creative, we were doing other business, just the Honeywell parts case needs a lot of working capital to grow, okay? So that is the reason we diluted at around INR 45 crores, 25% of our share and received INR 10.5 crores to a group from U.K. called [indiscernible] trading. Okay. The other shareholder in Honeywell ACL was -- he is Mr. Mohit Anand. So he also had to dilute, earlier it was 70-30, Creative and Mohit Anand. Now he had to also dilute and become at 22.5% almost. And Creative should -- was -- has become 52.5%. So the dilution is basically to find it and help grow Honeywell business, okay? On the -- from the car line perspective, we are completely sure that we haven't violation -- done any violation to that extent. I personally checked this with my counsels corporate profession in Delhi. Do you have any other question, sir?

The next question is from the line of Sarangha A, an individual Investor.

Hello. Can you hear me?

Yes, sir. You're audible, you may go ahead.

Congratulations for wonderful set of numbers. So pretty much most of my questions are answered. But I have some more on the -- on our Honeywell business. So you mentioned that we have done about INR 45 crores so far in the 9 months. In terms of margins, is it possible to kind of highlight what kind of margins have been on this INR 45 crores? I understand that this is early stage, so I think that we will have some front-ended pause in terms of setting up all the -- in different countries and all. But still, is it possible to give some guidance around that?

Sir, it is -- at this juncture, it is very difficult for me to pin point the margins going forward. But holistically, what is our endeavor on margin, I can say. We appreciate that in India, our gross margin has been in the range of 37% to 42%. And whatever we send and to mitigate some other across other countries. Our gross margin has been in the range of 50%, okay? Now what does just that boil down to, to our current EBITDA expenses. Right now, the numbers are in the range of INR 70 crores -- INR 65 crores to INR 70 crores in this year, and there are a lot of setting up of expenses, new recruitment and things like that. But going forward, we see that the EBITDA margins for Honeywell business will be in the range of 13% to 17%, okay? Now after -- our share, okay, after tax, we took 52% of that because when we consol, we will have to take 52.5% to our Creative. But this is going to be a fabulous opportunity I feel. It's at the margins, if you grow the Honeywell business, this Creative and other consolidation entities, we will go to some -- the next year, we will be very good if we grow annual business the way we want to.

No, absolutely. I've been following the commentary for last year or so. And I can -- it's heartening to see the strategy on rolling and the execution. So definitely, congratulations on that and thanks for that. One small related question, is it possible to kind of give some kind of split between India business of Honeywell versus overseas? So basically, the idea is what -- how much of that business comes under Creative and how much of that comes under Secure Connection? Or is it too early to talk about it?

Mostly 95% right now is India business, okay, because the first 2 quarters were outstanding lockdown conditions for Middle East and other countries. So this quarter Middle East business has started piling. This was almost INR 4 crores in this quarter. And that we have INR 45 crores -- INR 4 crores is middle east and -- this is for this quarter. Going forward, we see that it will be 75%, 25%...

No, 60%, 40%.

60%, 40%, I'm sorry 60%, 40%. India 60%, 40% abroad, yes? It is a benchmark, we would like to give.

I will just give you a perspective. So for example, we want to go to Saudi Arabia. So they require something called as SASO certification, which we already have. Because we did SASO for Saudi Arabia. Now when we have to get into Saudi Arabia, we have to get some products certification with the name of a local entity there. So in our case, it would be the name of the distributor who chooses to do Honeywell there. So sometimes that takes a couple of months' time to do that. So as far as Middle East is concerned, in countries like us, Kuwait, Egypt, Qatar and UAE, everything is done, the first orders have come in, and it will move ahead. Now when we try to go to, say SIA, that is Singapore and Malaysia and other places, there they don't have such norms. You just have to be CE certified, that is certified in Europe, and you have to be ROHS compliant, which normally all factories have this, because normally this is product healthcare there. So we think that over a period of time, we would have a balance of 50% sales in India and 40% sale abroad in this territories. And then as we keep expanding the territories, probably it would get reversed, 40% would be -- but that's far, a couple of years...

Couple of years down.

Second thing is the margin, because most of these countries have lower, the margins in abroad is also higher. So even if 60-40, we will be able to deliver same margins what it delivered in India. So for the last -- in the INR 18 crore business, what we did, INR 4 crores was Middle East and INR 14 crores for India.

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

Congratulations on a good set of numbers.

Thank you.

Sir, my first question is, I mean, thanks for the details -- all the details in Honeywell business. So that was my first question but that got answer. My next question, sir, is on our enterprise business. We have seen huge, huge growth happening in this, and you have been saying that it's because of work from home and everything that is happening. But do you think -- what amount is sustainable in FY '23 and beyond, because this is contributing significantly to our top line? And it's also helping us in the profitability as well. Some commentary on that side would be helpful.

So Ayush, a couple of things. The COVID turbulence bought 2, 3 things very forward. First of all was stock was thin whoever had the material available, they would do well. Second was logistics was hampered. So you had to forget just-in-time inventory and move to just-in-time plus, the plus stands for taking into account the COVID logistics problem into that. That's the second part. And third, fundamentally important was that any company should be very liquid in terms of its cash flow and money, and that's what for the last 6 to 9 months, we have been kind of our endeavor is to do that. And because of that, a lot of opportunity used to coming, because larger corporates, you really wanted to buy stuff, brand wanted to give stuff. But brand would want a person whom credibility was much higher because they also did not want to take the risk or brands wanted to do the business in cash. They wanted upfront payment and whereas we also wanted upfront payment from the partner, which really suited our EV business. We think that whatever circumstance this is, till the next financial year also, the same growth will be maintained. Second is, because we saw the opportunity into this, we have started building up our skill set on this business. So initially, we didn't deploy any special manpower to build this business. So currently, as we are working on the next year's plan, we will start building this business. So it would be safe to say that this business for the next year, definitely would be there without any issue. Second is, yes, you are very right that it adds something to the bottom line also. So we have internally -- Abhijit's guideline is that, that in the enterprise business, we will not have a working capital of more than 5 to 6. So our working capital does not jeopardies our long-term goal of building Honeywell very well -- building FMSG very well. That's the first thing Abhijit has told us. So that we keep into mind by building this business. And I think till -- so the financial year '22, '23 will not have a problem, plus we [indiscernible] of the fact that after a certain turnover, everything gets into the bottom line, because you made the minimum expenses. So that is really fueling the profitability. And we are not taking very large numbers on that. We are just taking quarter-by-quarter. But it seems that the next 4 quarters, we should not have a problem, for sure.

That's helpful, sir. So my next question is on the Honeywell business itself first, on continuing an earlier participant's question, that I understand the need to dilute extreme Secure Connection. But when we ourselves have been so bullish on this entire business, don't you think that INR 45 crores as a valuation was too low for INR 10 crore funds, which could have been raised in a much cheaper way?

Ayush, when we gave that INR 45 crores according to me was a very terrific valuation, because Secure Connection did not have any kind of revenues at that point of time and Creative market cap that point of time was close to INR 65 crores, INR 70 crores. So we had to really convince them on that valuation then that -- and we just too INR 10 crores because that point of time, see our -- the company was also kind of considered as a mere distributor kind of thing. And that point of time, the working capital cycle, every investor we met at the working capital cycle would crop up. And then Honeywell business also was miniscule then and it was taking up 120 days working capital because we were developing all the products there. So that time, we thought that, that decision is right. On the hindsight now, it feels that we sold ourselves cheaper at that point of time. But at that point of time, we thought that is the right decision. And I think that INR 10 crores really helps us to scale up there, that point of time.

Okay, sir. And then my last question is, I think I may have misheard it, but did you say that we are targeting INR 200 crore plus in Honeywell in FY '23 itself?

Yes, sir. '22, '23, right?

Yes.

Correct, correct.

Financial year '23, '24.

Okay. FY '24, you are targeting INR 200 crores plus?

That's right. It's our endeavor, this is a plan on which we are working, sir. And God has to support us, that's all I can say.

The next question is from Ganeshan, an individual investor.

Congratulations on the consistent outperformance that the company has been showing and...

Thank you so much, sir.

Just very not financial questions as such, but generally on GoPro business. So I understand that we had an exclusive agreement with GoPro. But nowadays, we're seeing advertisements from a delivery distributor Luxury Personified.

Yes.

Yes. So I was just curious on how this arrangement works and where is the role that Creative takes? Because I see that they also distribute to Reliance Digital, which we also have a direct partnership with. So maybe if you can throw some light on that one first?

So a couple of things. Usually, whatever brands we tie up, our endeavor is to tie up with that brand exclusively. Either you tie-up exclusively across India or you tie-up exclusively across customers. So for example, you take the whole of large commodity or the model which is that the Reliance, Croma falls in or the e-commerce falls in, that's how we take it. When the COVID happened, GoPro was a very high ASP product, so each GoPro camera is close to INR 30,000, INR 40,000. That was one. Second is the product which people usually use for outdoor when they travel, right? So that product got the maximum beating for 2 reasons. One, it was a high ASP product and it was for travel. Both were not shooting. Third the chip shortage was also affecting the supply of the product. And so GoPro kind of -- laid down 270 people in their headquarters and the whole of Asia team was dissolved. And then they had somebody new who was -- wanted to do direct to consumer that is B2C. So GoPro was selling cameras at $100 cheaper on their website, then they were selling through their channel. So most of us who have built the GoPro brand and who understood our territory is very well understood that the strategy won't work off, because nobody takes a subscription of $100 in India. So that strategy did not work. But again, we had nobody to talk to because the whole of Asia's team from Pacific Director to everybody was not there. So internally, we spoke internally and then we said that let's talk to GoPro and split ways. And they were not getting any newer products on virtual reality and other stuff. And then we had to give opportunity with this brand call Insta360, which is camera, right from INR 18,000 to camera worth INR 8 lakhs, which are now to build virtual reality product because the meta works and all was coming. And it would be not prudent, but you are exclusive to GoPro but you have another competing brand also. So then we spoke to GoPro and we split. And I think Luxury Personified with their -- saw this as an opportunity, so they would have taken it.

Okay. So now we are no longer associated with GoPro as such? And entire thing, the business distribution has been shifted to a new player? Is that the correct understanding?

Yes.

And another question was on -- since we are -- the Honeywell business, you have given a very detailed presentation on how the way looks forward and the potential that Honeywell has for us. Is there some also discussion that purchasing a strategic stake in our company, considering we are expanding product lines that currently Honeywell doesn't have at all and they would also like to be a part of the growth journey?

Who? Honeywell would be -- like the growth journey you were saying? I didn't get the question right. I got it. I just lost you for a second.

Okay. So my question is that since we are launching a lot of new products for Honeywell, right? Which are not directly sold by Honeywell as on today and we are manufacturing for them and also distributing. So will -- is there any possibility or is there any discussion for Honeywell to take the stake at, let's say, Secure Connection level or at a Creative Newtech level to also be a part of this growth journey with Creative? Or is it just going to be a distributor and like an outsourced manufacturer kind of arrangement?

I think it should be more of that model because Honeywell more and more wants to become a firmware company for devices. So they want to become the Microsoft of industrial devices. So they had their iconic product, the thermostat also, which is now licensed to a Honeywell 100% owned subsidiary residue, and Honeywell in previous has done acquisitions. So for example, they took the largest distributor under their fold, and then they took switch manufacturing company under their fold. So that could happen. But right now, there are no cases, nor they have indicated nor we have spoken. Currently, our endeavor is that when 2025 comes in and Creative says, the top line is close to between INR 2,000 crores to INR 2,200 crores, INR 2,300 crores, Honeywell business should at least be 30% of that business. So we want it to be INR 600 crores to INR 800 crores. That's when probably Honeywell may even start noticing us because it's a large conglomerate, right? They have $35 billion upwards this and -- so there is nothing which they've spoken or there is nothing they have indicated. And when time will come only then we'll come to know. Right now, there is nothing.

Understood. And just last question I'll try to squeeze in, was that -- we have a certain partnership with Reliance Digital, where we are -- Reliance Retail, where we are supplying a lot of appliances mainly from the Marvel and the Disney part of it. So wanted to understand that arrangement where maybe on the MRP typically, how much does Reliance Retail have a buffer? Because I was just recently at a store and I saw one of the speakers which was costing around INR 9,000 selling for as low as 2,500. So I was wondering that why would there be such a big gap? One, maybe the inventory is not moving quick? Or 2, maybe they have such a large margin that they are willing to offload at a lower rate. So most curious in that part.

Okay. So 2 things for you. When the excise duty went off and the GST came in it, right, before that, the government had a norm that when you import a product, you have to declare the MRP, till today also we are declaring the MRP. But then it was that whatever MRP, you declare less 30% rebate you get. And then on that you have to pay. So people get very realistic duties at point of time. After GST came in, there is nothing. You pay GST on your import price, and MRP is still a norm. So what people do is when they have an MRP, which is on the certain countries. So they may think to have an MRP twice the value because there is no duty you're paying on that, right? So that's why we show the customer a larger discount. A lot of companies would have a higher MRP for products which are very realistically noncomparable model wise with other people and the customer sees that he is getting a 30%, 40% duty. So currently, how the trade works is, there is an MRP, which has no relevance, then there is an MOP that is market operating price. So when we go to sell a product, for example to Reliance, say Honeywell we go and sell them, right? So we will say, sir the MRP is INR 100 but the market operating price of this product is, say INR 60. And then we will give you 30% lesser than the MOP, so MOP is something which is relevant. So that is what you saw at the Reliance, just that they might have out a higher price. So that would be the case.

The next question is from [ Suraj Nawandhar ] from Sambhar Investments.

Sir, my first question was on the INR 250 crores revenue on the Honeywell side that you indicated. Is it that our share is INR 250 crores or the overall business will be INR 250 crores and our share will be 52% of it?

So the total business will be INR 250 crores, and our share would be 52.5% of the profit.

Okay. And is it possible to start giving segmental reporting for Honeywell business separately? So we'd all know how much is the business going and what are the margins and everything.

We can't do that. So for you whatever happens in the Secure Connection subsidiary is Honeywell business, 100% business Honeywell. So whatever is standalone of Secure Connection, you can consider it as Honeywell. But I still -- I and Abhijit will figure out whether we can give segmental year also for India, so if you want to know that.

Sure. And sir, one small suggestion regarding the early participant's question regarding stake dilution in Secure Connections. You said that it was not required by the regulation to disclose it. But as group corporate governance standards, you could have done it, because the Secure Connection is going to be the face of the company from now onwards. It's going to be a growth engine for the company. Such as even though it was not required by the laws you could have done it as a group corporate governance? So in future, this is a small suggestion for you that if anything as a major as this comes up, you please disclose it to the exchanges?

So it's a lesson well learnt and I -- we understand that this is a very important part, and that's what I and Abhijit endeavor would be there. That smallest of smallest detail even if from the compliance point, it is not necessary, but from the investor point if we feel necessary, we would definitely, definitely publish it on the NSE website. And that's a lesson well learnt, last quarter also, somebody gave us this suggestion on the same topic, and that's what we will do, 100%.

Your next question is from the line of [ Sunil ], an individual investor.

Just back with the favorite subject, which you always like, Ckart. I know there is no question so far, and I think last time, we had a lot of questions, and you are very passionate about it, right? So I know that Ckart is one of the pillar of our strategy. And in December, we have formed another subsidiary, which is, I think, Creative retail. Maybe by that announcement we could make out that maybe it is something to plan with the Ckart. So I just want to know, is the Ckart going to facilitate Creative business? Or is it going to be contributor for growth in Creative's profitability. And if it is latter than how it is, if you can just throw some light on that?

Yes, Sunil. So Ckart is a very important pillar of Creative. Its inception was to facilitate Creative. As we went through we thought that it can add profitability to Creative, right? And in Creative, if you see the working capital gets involved at only 2 places. One is to stop the inventory, second is to give credit. And Ckart actually resolved both the problems for Creative, because as our buyers become sellers, then we sell on their inventory. So we don't have to really block our capital on inventory so much. And as our sellers keep increasing and they go online, then we don't have to extend credit. So Ckart, we see a real, real advantage. Now from our standpoint of -- even bandwidth point of view, there is an opportunity here where Creative itself can become a semicon in some period of time if we really concentrate on the Honeywell business. And there another opportunity in Ckart where also it can do well. But we have to have the right skill sets, the right measures, right metrics to measure the performance of Ckart, right? And we are kind of in a dilemma whether we -- because it's a separate business you've to build in, right? And it's a business where you may have to cash bond one hand, we don't understand any business where cash bond is required, right? So our DNA is not of that kind. So -- and while Honeywell distribution, FMSG products, all we understand very well. So we internally think that we'll keep growing Ckart either through a subsidiary or a part of this, really achieve the Honeywell numbers of growth and then start filling Ckart as well as scout for right skill set of people to do that, right? Because currently, because due to investors like you, at least the resources problem is solved. But second biggest thing for business to succeed is the right skill set of people. So if we get the right skill set for Creative, then we will push the pedal for Ckart, then we'll push the pedal there. But right now, we think that Creative with lesser efforts can really create value for all of us. So that's what we are going to do. And as we get the right skill set, we will do that. But yes, Ckart consider -- it's very dear to us, and it will keep building efficiency for us and also it has an opportunity to start becoming a contributor to Creative, if we can do the other part of skill set right -- so one endeavor is that now we are going to measure the revenue pickup separately over a period of time.

Okay. Yes, the second follow-up question is on the -- I think you touch today as well when I ask the question at the beginning, you had mentioned earlier that our immediate target is by FY '25 maybe around INR 2,500 crores. And out of that, you mentioned that 30% of the revenue should be from our own brands like the Honeywell or Hyperice, other stuff. So are we quarter-on-quarter measuring on that? So are we progressing in the right direction in this regard?

That's what is -- my goal set. So the Board also and my goal set, so my goal set is all about that business from Honeywell and licensing and our brand should go up. And when we do our annual numbers also, there's a measure to see whether business is increasing. So for example, for the next year we take a modest growth of 20%, 25%, and we end up between INR 1,100 crores, INR 2,000 crores. That's the time it's -- Ckart is INR 200 crores, Honeywell INR 200 crores, then it would be almost 18%, 19% there.

Just to add up to what Ketan said, our Board has given us a clear indication and a guidance that you must do Honeywell -- take Honeywell to a size, before you add any other licensee. And the size is between -- Board has given us a guidance that it should between INR 180 crores to INR 220 crores. If you achieve that, okay, generally, you are -- then that is not an aberration. And then you can think of adding more licenses. So we are going by the Board guidance. So next year, we may not have any more licenses and focus on growth of Honeywell.

The next question is from the line Amit from [indiscernible].

While adding brands. And is there an internal target on how many new brands we add for our distribution?

So every brand works through the length, whether it's a brand which is being built on customer experience or not, that's the case. So usually, we would review almost 6 to 7 brands a year. And out of that, we will take 2 to 3 brands. Now the current guidance is don't take very small brands which can't scale up very well. I think in a year, if we can add 2 good brands, it would be -- I think it would be a good number for us. So 2 brands per year is what we are looking at.

And how long is the agreement with the brand? I mean, if they become large enough, do they move to their own distribution network, we saw it in the case of the FMCG space with Red Bull. So Red Bull will did some work with brand in India and then eventually moved to their own distribution. So how do we derisk when certain brands grow?

So couple of things that -- there is 2 cases, right? Either you have outgrown the brand, the brand might have outgrown you or no longer your objectives meet. That's the case. So that's the whole reason that when we take up our brand, we execute the brand strategy. We look after their -- after sales service, we look at the training, the brand pays for the point-of-sale solutions in the stores, the retail POP is the brand pays for it but it is into kind of our control, that's all that POP. So usually, this goes -- so for example, the Hyperice brand, which we took up, right? It's Inc. 500 company from U.S. last year their revenue from Hyperice was $300 million just in U.S. We picked it up -- they've signed up a 3-year exclusive with us, and then they want us to do Hyperice for 3 years, and they want us to do a sale in another year 3 years of $10 million a year. That we transfer to almost INR 200 crores Indian if we add our margin and other stuff. So if all that moves well and we keep adding value add to the brand, that relationship will keep continuing. But there -- sometimes there may be a change of guard or somebody coming in and Hyperice may say no, we want to go direct to the consumer or something. Where the B2C is also being handled by us in the case of Hyperice, because that's the learning we got from workload, so this when Hyperice came in we said that, your India handle, Hyperice.in also we'll manage as a service for you. So ideally, there is no magic formula that I can say that the brand will stay for a long time. But for in our case, if you say all the brand average has stayed with us for more than 12 to 14 years.

I now hand the conference over to the management for closing comments.

I thank the entire team of Creative for the hard work and dedication, which pushes the company forward. Also, I appreciate all of you for participating in our conference call. Thank you so much.

Thank you very much. Thank you.

On behalf of Creative Newtech Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.