Creative Newtech Limited (CNL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Creative Newtech Limited's Q3 and 9 Months FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ketan Patel, Chairman and Managing Director from 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, 2023. I would like to start by thanking you all for taking time to join us today. On the call with me are Mr. Abhijit Kanvinde, our CFO; and Adfactors, our Investor Relations team. To begin with, Creative has continued to grow through the dynamic market changes on the back of its lean business model and selective product portfolio. The quarter ended by [ helping ] exceptionally eventful products. So before we dive into the financial highlights of this quarter, let me quickly outline some notable recent development that took place during this period. Firstly, we are proud to announce a significant milestone for Creative Newtech as we entered into a partnership that will help shape the future of our company as well as the gaming industry in India. We have signed a joint venture and brand licensing agreement with U.S.-based gaming system giant, Cyberpower Inc. through our subsidiary, Creative eCommerce Ventures Private Limited. We are the exclusive brand licensee for the Cyberpower brand in India. This agreement represents more than just a business deal. It signifies a leap forward in our market presence within the India flourishing gaming industry. With this agreement, we will have access to partnerships to Cyberpower with renowned IT companies like NVIDIA, Microsoft, Intel, AMD, to name a few. We'll also be having our own B2C website of Cyberpower where consumers can configure themselves gaming PCs and can also buy pre-configured gaming PCs. Just as our previous brand licensing agreement with Honeywell is propelling us forward, this partnership with CyberpowerPC promises to elevate our company to new heights and expand our brand licensing business. Under this agreement, we shall manufacture and integrate bespoke high-performance gaming computers, equipment and accessories tailored to the unique preferences of consumers. This would leverage the Make In India initiative as we provide customized gaming systems under the CyberpowerPC brand. The products covered both include gaming PCs, laptop, accessories and more. This collaboration aligns perfectly with the growing enthusiasm of e-sports and digital gaming in India and beyond. Speaking of the market opportunity, the potential for growth in the gaming industry is immense with the Indian market for gaming PCs and equipment expected to reach $1.5 billion by 2027. The e-sports market valued at $165.7 million in 2022 is forecasted to grow at a CAGR of 17.2%. With over 444.4 million players in India alone, the demand for high-performance gaming product is undeniable. As we embark on this exciting journey, we anticipate exponential growth opportunities for both the parties. On another note, through our Hong Kong-based subsidiary, Secure Connection Limited, we have tied up the leading distributor of technology products in Indonesia, PT Bintang Mas Rezeki Nusantara. We also tied up with Axiom Telecom in Saudi Arabia. This move will help us expand our geographical footprint in Indonesia and GCC region, which is high-growth potential area. Through this, we shall bring our entire range of Honeywell-licensed product to the Indonesian market and the GCC market, leveraging the local distribution channels. Both the markets present immense opportunity for growth given its thriving economy and widener consumer base. We also acquired incremental 8% stake in the Honeywell subsidiary, taking our stake to 77.5%. Coming to our distribution portfolio, we signed a strategic agreement with Palred Electronics to distribute their pTron brands of products across various regions in India. Palred is a domestic company specializing in mobile accessories such as audio products, smart wearables, power banks, et cetera. Their pTron brand is quickly gaining popularity, especially among the younger demographic. We shall be offering a diverse range of pTron audio, smart wearables and other mobile accessories, meeting the burgeoning demand in the market. Leveraging our extensive off-line channels, we are poised to deliver exceptional value and drive growth in this segment. Overall, we are excited about the opportunities ahead and look forward to creating lasting impact through our partnerships and brands. Now I hand over the floor to Mr. Abhijit Kanvinde, who will take you through the financial highlights of the quarter and 9 months.

Thank you, Ketan bhai. Thank you, and good afternoon to you all. I will share the highlights of our consolidated financial performance, after which we will open the floor for questions. Our financials are reported as per Ind AS guidelines. Looking at the consolidated Q3 FY '24 results. The company reported a total income of INR 516.31 crores, growing 20.36% year-on-year. This was primarily driven by good demand for PC segment and other brands like Samsung, Cooler Master, Honeywell, ViewSonic. In terms of segmental performance during this quarter, the FMSG segment accounted for 14.09% of the revenue, FMCT accounted for 11.1%, while EB comprised of 74.80% of the revenue. The quarterly EBITDA stood at INR 16.27 crores as against INR 12.69 crores in the previous corresponding period, an increase of 28.23% year-on-year mainly due to higher revenues. EBITDA margin for this quarter stood at 3.15%, higher than 19 bps as compared to corresponding quarter last year. Higher contributions from Honeywell helped us to improve the margins. The PAT for the quarter is INR 11.55 crores as compared to INR 7.69 crores in Q3 FY '23, a year-on-year growth of 50.16%. EPS for this quarter is INR 7.29. Looking at the consolidated numbers for 9 months. The company's floating income in the 9-month period stood at INR 1,420.47 crores, growing 42.15% year-on-year. This was driven by healthy demand for products like Samsung, Cooler Master, Honeywell, ViewSonic and growth in enterprise business segment. The EBITDA for the 9 months FY '24 stood at INR 41.17 crores as against INR 33.62 crores in the previous corresponding period, an increase of 22.44% year-on-year. EBITDA margin for this period stood at 2.9%. Better operational efficiencies were offset by change in product mix impacting the margins. The PAT for 9 months FY '24 was at INR 27.89 crores as compared to INR 20.8 crores in 9 months FY '23, a year-on-year growth of 34.11%. EPS for 9 months FY '24 is INR 17.71. In January 2024, the company announced the plan to undertake the share swap to increase its stake in the subsidiary, Secure Connection Limited. This is all from our side. We can now open the floor for questions.

[Operator Instructions] The first question is from the line of Aditya Gaggar from A.G. Capital.

Could you tell me the Honeywell licensing, what is the revenue contribution? And what are the products in that? Can you give me the bifurcation of the products?

So Honeywell, totally, in the 3 quarters, we have done close to now INR 130 crores business. This quarter, we did Honeywell close to INR 55 crores as a business. In Honeywell category, Mr. Aditya, there are 4 categories which we deal in: one is air purifier; second is electronic essentials; third is audio; and fourth is our SCS, structured cabling business. Yes. You require any other information more than this?

Yes, yes, yes. Air purifier, what is the revenue, and electronics, audio, cabling, et cetera?

If you send me an e-mail, I will send you the details about -- because air purifier, this is the season. And I'll send you the details for all the 4 because we have consolidated numbers through the subsidiary. So you can send me an e-mail or call post this call, I will give you the details of the all 4. Yes.

Okay. And when we say that next year, we would do INR 500 crores business from the Honeywell, so what will be the major contributors among these 4 products would be? Some percentage terms, if you can give.

Okay. Aditya, first is, Honeywell may not happen INR 500 crores next year. It may happen next to next year, that numbers would come. And majorly, Honeywell, we are now expanding our territories. So for example, Indonesia got opened last quarter. Saudi Arabia also got opened last quarter. So we signed up with the agreements with the distributors there. And the first material is now on the way to reach -- Indonesia, it's already there. In Saudi Arabia, it will be reaching now. Egypt, also we have now opened that. So in the same categories, because we are expanding the geographies, our business will grow exponentially. That's one. Second, in CapEx, it's like air purifier, overall, the consumers' awareness and knowledge about the product has grown to a very high level. And that's why, for example, air purifier as a category is only growing at 24%, 25% CAGR. So that will also additionally fuel that growth. So that's how we foresee that Honeywell will be a high-growth business for another 4 to 5 years, for sure.

Yes. But air purifiers will be 50%, electronics will be 30%, I need that percentage. What are...

So Aditya, if we do our job well, then audios would be the largest category. We just launched close to 59 products mainly in the audio category. We also had a few in the charge and SIM category. And one of our AirPods is getting good attraction on online basis. So if that category does well, that will be the largest. Otherwise, for Honeywell -- SCS and Honeywell air purifier would be the category. Currently, the trend is that air purifier from the seasonal category may become an all-year-round category, but that time will only tell, we'll have to see how it goes about.

Okay. So this year, we would be clocking somewhere around INR 160 crores to INR 180 crores in this Honeywell business. So next year, it would be -- is it safe to assume that INR 300-plus crores would be from Honeywell?

I think next year, safely, you want to assume it could be between INR 260 crores to INR 280 crores. But we plan to go slightly aggressive in terms of our advertising budget from Honeywell. And if that goes all very well, then yes, we should touch that number.

Okay, great. Great. And whatever the new deals you have signed, right, like Palred you said and others...

Cyberpower is the main for us from U.S.

Yes. So when this contribution will be taking place? Like you said, revenue, then when it will be kicking up nicely, we can see that results?

Ladies and gentlemen, the management line has been disconnected, kindly stay connected while we try to reconnect them. Thank you. [Technical Difficulty] Ladies and gentlemen, thank you for patiently holding. The management's line has been reconnected. Over to you, sir.

Do we have Aditya still on the line?

Yes, sir.

Sorry, ladies and gentlemen, for the interruption. So yes, Aditya, so the recent announcements are 2. One is Palred. Palred is -- they have a brand called pTron, it's a normal distribution agreement. It will help us to go to the mobile channel. The one which we have announced with Cyberpower is more on the lines of Honeywell. But in this case, we are having a JV with that company in our subsidiary, Creative eCommerce Ventures Private Limited. In this JV, Cyberpower will give us all technical knowledge, also give us access to their relationships with large brands like Microsoft, NVIDIA and other companies. And also they will give us the e-commerce knowledge to run the website, our D2 website in India. So that's the contract with them. I think we should start seeing some numbers coming from early next year, second quarter, because this business will take some time to build up. The team has already been hired now, and we have got some good people from leading brands to join us. And they have now started the soft run for the website and other stuff. So I think by March, we should up and running with the website and then how we start getting traffic on the website, plus we will also be selling on Amazon and also through Reliance and other partners. So you should see the numbers for this particularly from next -- second quarter next year.

Yes. Because it's an assembly unit which we have to set up. And it's a quasi-manufacturing kind of, yes, Aditya?

What is the revenue projection do we have from this business, sir? What are we targeting, internal targets for this business?

Over a period of next 3 years, we think we should be roughly between $40 million to $50 million as a whole once we start the operations per factory in 3, 3.5, 4 years, we should. That's what has been their trend. When they opened up in Germany and then U.K., that has been the case.

So basically, you're saying from the licensing business, we would roughly go around, if I do the calculation, INR 800 crores to INR 1,000 crores revenue will come from the licensing part, right, in the next 3 years?

Yes, considering both because this is licensing plus a JV in the subsidiary. So that's what it should look like in the next 3, 4 years' time.

So what is the difference between JV, the percentage, what comes to us or...

With Honeywell, it is that they allow us to use the brand. And they then work with us closely on the specifications and other parts. Here, JV is a real partnership, right? They are partnered in that company. So we get to use the brand also. We get to use their technical knowledge also and then we split the profit. So they have also a stake in the company.

[Operator Instructions] The next question is from the line of Kunal Ochiramani from Kitara Capital.

Sir, I wanted to know what will be the share of exports going ahead as our geographies are going to increase? Any new countries coming soon apart from Indonesia, Saudi Arabia and Egypt? And what is the revenue you are expecting from export markets?

So ideally, Kunal, we have 38 countries where we can go. What we have said is that countries with the highest population and the right per capita income should be our focus countries. So that's how we took Saudi Arabia, Egypt, Dubai. Dubai from the point of -- it's a strategic location. When we went to Southeast Asia, we took Singapore from the point of strategic location. And of course, in Southeast Asia, the biggest countries are Indonesia, Thailand and Malaysia. So currently, Indonesia is open. Thailand also, we have signed up, but we have signed up with an Apple reseller there who runs Apple Stores. So he will obviously do only mobile accessories. So for the rest of the products, we have to find distributors there. So over a period of time, I think in the next 2, 3 years, the business should be close to 75% export and 25% local. That's what we'll look -- looks like.

Okay. And what would be the revenue share from pTron?

Okay. So pTron is currently mostly an online-only brand, and they do a [ virtual ] revenue online close to INR 200 crores a year. And they are aggressively planning now to come to off-line through us. So it depends upon the company, but we would set up a modest target of INR 2 crores a month from the next quarter.

And as you're saying, Cyberpower will be the next big thing. What is the nature of product, if you can explain? And how much revenue could we expect?

Okay. So Cyberpower is basically high-performance computer component, high-performance computer components getting to the gaming industry. They also go into servers. They also go into machine for auto gear for 3D and now the AI machine. So all of them, they require a good graphic processing unit as well as they also require faster CPUs and also a good amount of cooling so that the computers don't get heated up and then slow down. That's first case. Currently, the gaming industry, for example, if you see, is $1.5 billion by 2027, it will become. And currently, it did $165.7 million, right? And we are growing at a CAGR of 17.2% in this industry. So if you see, there is no B2C website or a website where a consumer who is mainly the millennial, right, the demographics for this is the millennials and Gen Z, if they want to buy, there is no website where they can immediately -- there are websites, but not a very popular one. So we have here the first-mover advantage. That's the first case. Second, Cyberpower -- and with them, they also have another company called iBUYPOWER. Both of them put together are close to a $1 billion company in the U.S., and they have close to 50-odd percentage of the market share there. So with their expertise, we think that in the next 3 to 4 years, we will become a leading player in the gaming industry in India. And with the AI picking up, people will also buy the high-performance computer components not for just for gaming, but for AI also.

Sir, how much revenue could we expect in FY '25 and '26, '27?

Once we start the operation, the next 3 years around, it would be safe to estimate close to between $40 million to $50 million.

Fair enough. That means INR 300 crores.

Yes.

Sir, you have any further questions?

No.

The next question is from the line of [ Mann Ashar ] from [ MA Capital ].

Congratulations for a good set of numbers.

Thank you for that.

Yes. So just wanted to understand a few things about the Cyberpower. So will there -- this is a manufacturing deal, right? You will have to put an assembly line and so forth.

Correct.

Okay. So will there be any fresh capital required for the same?

Okay. So this business, you don't require a state-of-art factory. Basically, you require a neat and clean manufacturing space where you put up an assembly line because the main components are GPU, then the CPU and then the motherboard and the RAM, which are more or less finished components which you assemble together. Second is, this is mainly made to order, so people go on the website, select the products they want. So there's a configurator on the website where they select all the products, and then it gets manufactured and shipped to the consumer. Once you have a decent idea of what the consumer is buying, then you can have prebuilt PCs, which then you can sell to Amazon, Flipkart, Reliance, Croma and other stuff. So that's the base. The beauty about this business is that since this is an end consumer-driven business mainly, there is not much capital requirement because you get the money first with the order and then you kind of assemble the machine. So nothing -- we would not require any large capital for this business for sure.

Okay. So what I understand is that this is just a pure assembly business. Gross margin should be lower than what we are getting in Honeywell, right?

Okay. So this business, mainly the gross margins are lower, they would be in the range of 14% to 17% because we are dealing with the end consumer directly. If it was a B2B business, then the gross margin would still be lower, close to 5% to 7%. But since you are selling directly to consumer through the website, between 14% to 18% should be that.

And EBITDA margin should be?

EBITDA should be higher because the denominator, the capital required is lower.

Got it. Got it. And what will be the -- since this is purely for India, so since India being a price-sensitive economy, what will be the average price range of the products that we'll be offering?

I think average price abroad is $1,800. For us, it would be close to $1,200. So around INR 1 lakh, INR 1 lakh, INR 1.10 lakh. That's what current gaming PCs starts. And as you also know that we already have Cooler Master and PNY in our gaming category and also Colorful in our gaming category. So this whole tie-up will help us in 2 ways. It will help us to get good distribution brands under our portfolio. And also, it will give us insight on the consumer trends. So we'll be able to plan better in that space.

Okay. And right now, we are expanding our foot in other economics for Honeywell. Is there any clause in our agreement with Cyberpower so that we can expand our foot in other economies such as Indonesia right now, what we are doing for Honeywell?

Currently, out of U.S., we are in U.K. and Germany. The whole of Asia and Middle East is -- they don't have anybody. India, we are there currently. It would be too early to comment because the relationship has just begun. In a couple of years, looking at what we do here, then we could look at newer territories. But India is also -- we have the first-mover advantage. There is no other website we see so popular. There is no other brand also which is there. And with Cyberpower, we get great access to larger IT companies like Microsoft, NVIDIA, Intel, AMD. So I think next 2, 3 years, we should concentrate on the India subcontinent only.

Okay. Okay, good. And what is the percentage share of our ownership in the JV?

Okay. We would be 49%, they would be 51%.

Sure. So I don't think there will be any material impact in the next 3 years in terms of additional bottom line that we'll be adding through Cyberpower, right? Because what I'm understanding through the basic math is that 5%, 10%, 15% at max contribution of bottom line will be from Cyberpower.

Yes, that's true.

Okay. And what I was understanding is that the Board was stating that you will only onboard the new brand after the Honeywell brand crosses INR 230 crores of revenue, INR 220 crores, INR 230 crores of revenue per year. So are you on the roll for the same this year?

Yes. So we are already at INR 130 crores. We should be around INR 170 crores, INR 180 crores this year. So next year, in the second quarter, we should have that traction. So we are on the right path. We don't have a problem in that case.

Okay. Good. Also, sir, in the last meeting that there was a suggestion stating that if there's any new deal where we will be picking up the stake in our subsidiary, please view the same with the debt rather than equity because any further equity dilution is capping the upsell for existing equity shareholders. Because we, as an investor, when we take the entry, we look at the prospective market cap and further valuation of the equity is capping our upside at this point, considering that equity is costly for us right now. And the company being BBB rated, I don't think that the cost of debt should be more than 9%, 10% per annum at max. So is there any rationale behind more dilution?

No, actually, you are speaking what is on my mind, exactly what you said. So right now, we are not going to dilute anything for a while. And our interest cost is close to 10%.

Okay. Okay. And is there any onetime cost that was being told last time in the quarter stating about any patent registration also this quarter?

When we launched with the 59 products, it's close to $350,000-odd of certification costs and the die costs and other IT costs, we have to take, that we take in the COGS and concluded. So we are going to launch close to 90 products, out of that 59 have already launched, rest are on the way to launching. So that's onetime cost we have taken it into consideration.

When can we expect that no more further registration costs, this onetime cost will be hitting our P&L?

No, that's not on our case, right? The BIS is from Indian government every 2 years, you have to kind of renew the BIS. The cost is not as much as applying for a new product. And similarly, as we go to newer territories and we launch new products, certification is a way in which the government protects its economy also and also sees that the products which are coming to that country are safe. So that is a thing which we'll have to look at. But yes, when you have a Honeywell air purifier and then you launched 7 products, then you will not launch similar amount of products. You will launch 2 or a single product or 3 products in that air purifier space overall, which will continue for the next 3, 4 years. So overall, when the pie becomes larger, the certification costs and all that will get amortized and will not have a much larger effect.

Okay. And that 4.5% to 5% in PBT margins that we were guiding for, when can we expect the territory for the same to begin?

I think '25, '26, you should start seeing whatever we have said.

Okay. And what I understand from this pTron deal is that it is completely off-line channel business, right?

Currently, yes.

Then why is Gujarat and Mumbai excluded from the deal? Because it is one of the major markets for enterprise business or, as we say, trading.

They already had somebody which they wanted to do a trial. And that's how -- they have somebody there with them who want -- they want to do this to regions there. And for us also, now we have got the whole India, but we will also start phase-wise with at least 6 to 7 states and then take it further, not all at one lot. And the company would also have wanted that they don't have all the eggs in one basket, they wanted at least to have a couple of guys, one smaller guy, one larger guy, looking at the whole country.

Okay. Sir, just a suggestion from my end. The Cyberpower deal, I don't think we'll be making a huge lot of addition in our bottom line. And this is margin dilutive business from what I understand. Considering the Honeywell business, which is highly margin business, which is highly accretive business, shouldn't we consider taking on the brands which are in the same line of margins as Honeywell's?

Yes, we should. And in the later, what happens is once you get into the gaming, you have a certain amount of volume, then probably you could have your own brand or you could take up a brand which then you can take to the gaming world, right? That way, you amortize your cost, plus your go-to-market also becomes very less expensive. So that's the whole plan. In this case, because it's a JV, they would have their own set of people, CEO, everything who will do, we will just sit on the Board. That's the case. So our whole focus will be Honeywell for a while.

Okay. And I don't think this JV deal is adding a lot of value...

Sorry to interrupt Mr. Ashar, I would request you to rejoin the queue for follow-up questions. The next question is from the line of Harsh Shah from Dimensional Securities.

Congratulations on great numbers. So most of the questions have been answered. Just one thing on the enterprise business because over the last 2, 3 quarters, you were discussing that because this is a low-margin business, you might not want to increase this pie of the business, whereas I have contradictory review that if it's adding to your ROCE and your cash and your profit, you should continue to do this business. And for that matter, I would even contradict the previous participant's opinion of entering the Cyber PC business because as long as it is giving you access to new brands, technology, if it's adding more money to your bank account and more -- because I would look at ROCE and not margin. That is what, as a shareholder, I would do. So I just wanted to get a sense on that strategy. So will you continue to grow this enterprise business from this base? And what is the outlook there?

Harsh, thank you for asking this question. Actually, yes, as long as we grow at 50% year-on-year, we will only be -- internally, we think only these 2 matrices make sense for us, how much incremental net profit we add every year and how much working capital cycle we improve every year. And ROCE would be the subset of the PAT only. So that's the 2 matrices which are going to -- we are going to work for the next at least 5 years until we can grow at 30%, 40%. Once we start growing at 10%, 15% or 12%, that's when we would then see whether which products do. Otherwise, ROCE is the best metric we should focus on, and I completely resonate with your view.

The next question is from the line of Prateek Chaudhary from Saamarthya Capital.

Could you tell the air purifier sales for this quarter out of the INR 55 crores that you saw for the Honeywell business?

I will give you that number exactly because why I don't have that is a lot of time in the same month, we bill it, but because it's all online sales, we have an 8 or 9 months -- days' lag of delivery date. For their warehouses, in this particular case, we give a delivery date. So our CFO says that any delivery spending more than 4 days, he takes a sales return. So that's why, Prateek, I probably have your card, I think we have met before. Otherwise, you write an e-mail and I will send you the details. Or post this call, if I have your details, I will send you the...

Yes. And just to what the CFO said, that sales beyond how many months are considered as returns? What...

4 days. If I bill on 1st and I don't deliver till 4th or the customer doesn't take the delivery by 4, we'll take a sales return. Not months, I'm saying days.

But you're saying that the sales cycle is 8 to 9 months is what you said.

No, 8 to 9 days.

8 to 9 days, okay. Okay.

So for example, if Amazon places an order, say, on 30th of January, they will give me only the warehouse date of delivery, say, 9, 10, 12, that's how they will give me. That's the case. So if I would have billed them something on the month end and I would not have delivered in 4, 5 days, then Abhijit would have done a sales return. So I'll just check and give you the exact number.

So only on account of that, your -- I'll connect with you separately on this.

So I don't have that exact number. And I would -- I'll give you that exact number...

Right. And this -- you were talking about $350,000 as the cost of certifications...

Also in the 38 geographies.

Okay. So this was -- so this cost was expensed through the P&L?

Yes, it's expensed in the -- so we're taking on the COGS of the goods.

9 months -- certification is a different line item. And we know all the -- more than other things, we have been expensed out in the COGS in 9 months.

It's not in the quarter only, it's spread out in the 9 months of this year.

So 59 products were launched this quarter. So most of them...

But I think it starts much earlier. So it would be 6 months kind of a deal. This quarter would have a higher share.

Okay. Yes, got it. And this -- the JV that we spoke about, you were telling about gross margins to be 14% to 17%.

Yes, 14% to 18%.

14% to 18%. See, there, I would like to add something. Today, we are estimating -- it's a beginning, so we are estimating modest quantities. Okay. So we would be buying the material from the distributor. And right now, our JV partners are so big that they have association directly with Intel, NVIDIA and other -- Microsoft directly. So they are with special rates. Today, the benefit of those special rates would not be available to us since we are just beginning. All right, going forward, when our numbers go up, okay, those special rates will be available to us. And therefore, our gross margin would go from 17% to maybe 30% -- 25%, 30%, okay? And that is the beauty, and that's why manufacturing is important to us. So today, 17% is not what we are targeting, in my humble submission.

Okay. Okay, sir. And for your EB business, we did a fantastic turnover this time, but our margins came about less than -- EBIT margins were less than 2%. Was there any specific reason for that?

So there were -- because actually, you look quarter-on-quarter on the figures as per case. Because we work with all these brands, sometimes they are also under pressure because of the high-season sales of this. So this also would get rationalized in the coming quarter for sure with the brand.

Okay. And what -- roughly, what margins do you expect in the segment, average margins?

See, normally, if you see, the average margin has been in the range of 2.5% -- 2% to 2.5%, all right. And this time, the last quarter was a little higher, okay. And this quarter was [ 1.17% ], okay. So actually, it is rationalized to 2.5%. This is -- if you see many quarters, okay, we have never fallen below 2%. This is the first time the sale has -- it is a double-whammy, almost INR 3 crores less in gross margins as compared to last quarter in EB. The double-whammy is that the sale has increased by INR 80 crores, okay? But the margin overall has fallen. So we have taken -- this quarter, we have been lower. But I am 100% sure that we will come to more than 2.5% in the coming quarter and more, so that we will be able to recoup also this loss kind of.

And what is the sort of...

This is the first quarter, I would say, that we have gone so low tax.

And what sort of quarterly revenues could you do in the EB segment?

So currently, our whole EB works only about how much capital we have free, and it works on back-to-back basis only. We get advance, we pay advance. That's the whole stuff on that. So if we get the opportunity this quarter also because we had to fund it, we have the capital, and we will do similar numbers in that.

The next question is from the line of Vignesh Iyer from Sequent Investments.

I just wanted to know when it comes to the Honeywell business, at what levels are we expecting to close this year? And what are our positions for FY '25? And could you also tell me what is the growth guidance or the internal estimate that the management has for the total revenue?

Okay. So 3 questions you asked. First was Honeywell, what do you think we will do this year. We will close the Honeywell between INR 170 crores and INR 180 crores. You said what would happen the next year, roughly around between INR 260 crores to INR 280 crores should happen the next year. And the overall number this year, I think, we should close at around INR 1,600 crores.

More than that, INR 1,650 crores.

Around INR 1,650 crores, overall, we will close.

You're talking about INR 1,600 crores in FY '24.

No, FY...

This is FY '24, we are referring to, more than INR 1,600 crores.

Okay. And future growth?

Future...

So usually, we would like to grow at the same pace as what we are growing for the next 3 to 4 years because there's much opportunities there next year.

The next question is from the line of [ Mann Ashar ] from [ MA Capital ].

I just wanted to know whether we are cash flow positive for this quarter since there was some lumpiness in the cash flows previous quarter.

We are very marginally cash flow positive in months. But I'm very sure that by year-end, we will have a normal cash flow positive -- operations cash flow positive.

Okay. And last question from my end is that is there any significant pattern in the revenue recognition number of us, I mean, in which quarter is the highest to sales? Just to understand the business more clearly.

Usually, the second and third quarter when the festive season is there, that's when the higher sales number is there. Plus, because now we are going to different geographies, so Middle East will have a different site. Indonesia also -- for example, if the air purifier is seasonal, Indonesia has their season during June, July, whereas Delhi has in October, November, December. So I think over a period of time, once we go to more than 15, 16 countries, then this seasonality will go down, and we would have good average numbers all the quarters.

The next question is from the line of Vinay Nadkarni from Hathway Investments Private Limited.

Just wanted to check out, you said your FY '24 would be around INR 1,650 crores...

Excuse me, sir, I'm sorry to interrupt, your voice is breaking, sir.

Okay. Can you hear me?

Yes.

Yes. I'm saying you have -- FY '24, you said, is around INR 1,650 crores. But your 9-months figure is approximately INR 1,390 crores till now. So are we looking at the degrowth in the next quarter because last year's fourth quarter was around 300 plus, right?

Yes. No, we are not looking at degrowth, only I'm trying to be cautious. So next call, I can [ come happily ] on the next call. That's what I'm trying to do, Mr. Nadkarni.

We are not expecting any degrowth, my friend. It will be a same run rate or a little better.

Yes. Then it would have crossed around INR 1,700 crores, INR 1,800 crores, but fine. The last thing -- the last question was around your margins being -- operating margins being very [ mutual case ]. When do you see that margin going up to at least some higher single-digit numbers?

Yes. So far, right now, because we are in the high growth zone, as a company, we have taken a call that we'll focus on the ROCE as long as we can improve our working capital cycle. And as long as every year, we can grow our PAT by at least 40%, 50% in absolute value, we would do that. And then once we, say, in 3-, 4-, 5-year cycle, once we start slowing down a bit, that's when we will try to go to a higher margin. That's one part of the business. Second is as Honeywell business starts growing also, we should start moving towards 4% to 5% PAT. I think that number -- on the overall turnover, I'm saying, I think that's what...

And that will happen in the next 2, 3 -- 2, 2.5 years.

Yes. For FY '25, '26...

'26 is the time when we will see good PAT numbers for [indiscernible].

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ketan Patel, Chairman and Managing Director from Creative Newtech Limited, for closing comments. Over to you, sir.

Thank you, everyone, once again for your participation in our quarter 3 and 9 months FY '24 earnings call. In case of any further queries, you may get in touch with Adfactors PR or feel free to get in touch with us. We look forward to interacting with you next quarter. Thank you.

Thank you very much.

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