Kamdhenu Limited (KAMDHENU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q4 and FY '21 Earnings Conference Call of Kamdhenu 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 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] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Satish Agarwal, Chairman and Managing Director of Kamdhenu Limited. Thank you, and over to you, sir.

Good afternoon, and a very warm welcome to everyone present on this call. Along with me are Mr. Harish Agarwal, my Chief Financial Officer; and SGA, our Investor Relation advisers. Before we proceed ahead, I hope you and your near ones are safe and doing well in these unprecedented times. I hope you have received our results and investor presentation by now. They are now available on our website also. Firstly, I'm pleased to inform you that Board of Directors of the company has recommended a dividend of 8%, that is INR 0.80 per share for the financial year '21. FY '21 has begun with challenges across the world. The spread of COVID-19 year in March 2020 has led to severe disruption in business operations across industries. There are complete nationwide lockdown that was announced in March '20. Both our plants were closed for some time, and we adopted work-from-home policy. However, with the unlocking of the economy and easing of restrictions, we begin with our manufacturing operations in mid-May '20, and it has led to increased business activities. We restarted our operations gradually, and we have witnessed a strong quarter-on-quarter improvement in both our business segments. Capacity utilization at both the plants increased gradually over the quarters through the year FY '21. Despite of these external challenges, we have ended FY '21 on a strong note. We have delivered a steady performance in a year that has been marked by uncertainty due to COVID-19. In spite the COVID-19 impact, our company has clocked revenues of INR 625 crores with EBITDA of INR 50 crores and PBT, without excluding exceptional item, of INR 31 crores for overall business for FY '21. Now to first touch upon the business highlights and performances of the Paint business. I have been in the decorative business segment for more than a decade and since then have rapidly scaled up the business. Though through advanced sales and development, we have been able to offer a wide range of highest quality paint at affordable prices, ensuring complete customer satisfaction. With our increased concentration on Tier 2 and Tier 3 regions, our products are available across India. We have a strong distribution network and diversified product portfolio with 40-plus SKUs. We have built a formidable 4,000-plus dealer network across multiple cities, regions and cultures. We are continuously striving on expanding our pan-India visibility through aggressive spend on advertising and promotions. With a focus on sustainability, Kamdhenu Paints are made, all their paint products eco-friendly, ensuring the duty of nature remains intact. Our company is focused on increasing share of premium and environmental-friendly products. We have given continuous importance on advertising and promotion with that focus. We have recently collaborated with Preity Zinta as a brand ambassador for decorative paint business and the brand name Kamdhenu Paints. This collaboration will help enhance the brand's pan-India reach as we call and drive greater consumption across the country with Preity Zinta, cruising as a brand ambassador with a wide appeal among the masses. It is set to blend effectively with the ethos of the brand, aptly representing a modern woman who performs every role seamlessly. We have witnessed certain delay in the restoration of remaining building, plant and machinery due to second wave of COVID-19. Full-fledged operations are expected to commence soon, which will further boost our growth trajectory. In the near term, paint industry players are likely to witness headwinds due to higher raw material prices and second wave of COVID-19. However, going ahead, we'll expect normalization of activities. Further to update you on the insurance claim. The insurance company during 2021, while in the process of evaluating claim amount and based on this interim assessment, out of such insurance claims recoverable, an amount of INR 10.03 crores is likely to be deducted. Accordingly, the company has written off INR 10.03 crores as exceptional item. An amount of INR 5 crore and insurance claim, recoverable has already leased to Kamdhenu Limited in FY '21, and the balance amount is expected to be realized in the current financial year. Now I would like to update on the Scheme of Arrangement. The Board of Directors of the company in its meeting held on 25th January '20 approved the proposed Scheme of Arrangement including demerger of Paint business into a separate company. The company also received observation letter from [indiscernible] NSE and BSE on 28th September '20. The company has already filed a Scheme of Arrangement with already NCLT as can be, right, on 15th March '21 for approval. We are expecting to complete hiring of the Paint business within FY '22. Upon completion, the demerger of Paint business will impart better management focus, facilitate administrative convenience and ensure optimal utilization of various resources. The proposed demerger will provide for greater accountability and scope for independent expansion of both the Steel and Paint businesses. Now moving on to the key updates on the Steel business. With sales unlocking and reopening of the economy, we started with nothing, recovery in demand with increase in the construction and infrastructure activities. Our modules from franchisees and our own manufacturing operations have increased quarter-on-quarter. This is on account of our strong brand, resilient business model and well-entrenched distribution network across the country. Also, our reduced business strategy with focus on high margin, B2C sales, asset-light franchisee business and increase in our own manufacturing has led to strong results. Steel demand has remained robust and continues to rise on back of pickup in construction activities. Steel demand is driven by gradual pickup in real estate with a relaxation in stamp duties in some states and government trust on interest expense. Government schemes like Housing for All by 2022, Pradhan Mantri Awas Yojana and Bharatmala projects are likely to spruce up the demand for the construction material used in housing and infrastructure. This will drive the demand for our products available across country through our franchisee-based model. Our country has been affected by the second wave of COVID virus. However, with further unlocking of the economy and government initiative of vaccination program now open to all above 18 years, we will achieve large-scale immunity among the population, and economic activities will be back to previous levels in due course. To conclude, FY '21 has been a year with steady performance. We are seeing a strong demand for our product offerings. Here at Kamdhenu, we always believe in improving cost efficiencies and committed to developing world-class products to address the evolving needs of the consumer. We are looking to penetrate further in-markets where our presence is less and strengthen our footprint in existing geographies. Going ahead, we are committed towards introducing new products and expanding our business with more franchisees and dealers. Now I would like to hand over the line to Mr. Harish Agarwal, CFO of the company, to update the financial performance of the company.

Thank you, sir. I will take you all through the financials for Q4 and FY '21. First, about the Paint business, total sales from Paint for Q4 FY '21 stood at INR 67.3 crore as compared to INR 62.2 crores in Q3 FY '21, which is an increase of 8% quarter-on-quarter and stood at INR 55.34 crores in Q4 FY '20. For FY '21, total sales stood at INR 202.07 crores. We expect the momentum in Paint business to sustain going forward with reopening of economy and pickup in the business activities. Paint segment contributed 30.30% of revenue in Q4 FY '21. Our own manufacturing volume has been increasing gradually quarter-on-quarter. The overall volume, including outsourcing, have increased by 10% quarter-on-quarter to 9,580 kl in Q4 FY '21 and stood at 7,562 kl in Q4 FY '20. Coming to the Steel business. Our steel volume, including franchisee route, have increased by 11% quarter-on-quarter to 7.26 lakh metric tonne in Q4 FY '21 as compared to 6.57 lakh metric tonne in Q3 FY '21 and 6.05 lakh metric ton in Q4 FY '20. For FY '21, our volume, including franchisee route, stand at 23.90 lakh metric tonnes. Total brand turnover for Q4 FY '21 stood at INR 4,061 crores as compared to INR 3,353 crores in Q3 FY '21. Quarter-on-quarter growth of 21% and stood at INR 2,720 crores in Q4 FY '20. For FY '21, it stood around INR 12,000 crore. Royalty income through franchisee was up by 13% quarter-on-quarter at INR 26.6 crores as compared to INR 23.5 crores in Q3 FY '21 and stood at INR 22.2 crores in Q4 FY '20. For FY '21, it stood at INR 85.3 crores. Revenue from owned manufacturing was up by 32% quarter-on-quarter at INR 128.5 crores in Q4 FY '21 as compared to INR 97.7 crores in Q3 FY '21 and stood at INR 87.2 crores in Q4 FY '20. For FY '21, it stood at INR 337.8 crores. Profit before tax for the Steel business stood at INR 16.9 crores for Q4 FY '21 as compared to INR 13 crores in Q3 FY '21, quarter-on-quarter growth of 30% and stood INR 6.7 crores in Q4 FY '20. For FY '21, profit before tax stood at INR 47.1 crores as against INR 37.3 crores in FY '20 excluding exceptional item of INR 24.38 crores. The company has recouped its business strategy of reducing B2B sales and focus on improving efficiencies in own manufacturing and on franchisee-based business model, which have led to increased margins and better efficiencies driving growth. Our ROE of Steel business as on 31st March 2021 stood at 29.7%, an increase of 680 basis points from 22.9% in March '20. Our debt-equity ratio stand at 0.3x as of 31st March 2021. For the overall business, revenue for Q4 FY '21 stood at INR 222.4 crores as compared to INR 183.4 crores in Q3 FY '21, a quarter-on-quarter growth of 21% and stood at INR 235.6 crores, including B2B sales of INR 70.90 crores in Q4 FY '20. For FY '21, our revenue stood at INR 625.2 crores. Our EBITDA was up by 50% quarter-on-quarter to INR 20.4 crores in Q4 FY '21 as compared to INR 13.7 crores in Q3 FY '21 and stood at INR 8.7 crore in Q4 FY '20. Our margins for the quarter stood at 9.2% for FY '21. EBITDA stood at INR 49.8 crores. Profit before tax, excluding exceptional items, stood at INR 15.6 crores in Q4 FY '21 as against INR 9.6 crores in Q3 FY '21, a quarter-on-quarter growth of 61% and stood at INR 3.4 crores for the Q4 FY '20. For FY '21, profit before tax excluding exceptional items stood at INR 31.1 crores. Our cash flow from operations stood at -- to the tune of INR 50.2 crores in FY '21. Our return ratio has been continuously improving on account of increased efficiencies in the businesses. Our ROE stood at 7.8% as on 31st March 2021, and ROCE stood at 12.3% as on 31st March 2021. Our debt-equity ratio stands at 0.5x. With this, I would like to open the floor for question and answers, please.

[Operator Instructions] The first question is from the line of Dinesh Kotecha from KRIC.

[indiscernible], which is at [ UC ]. You have made some projections of INR 450 crores and INR 1,000 crores of revenue for the paint industry, I think, and a margin of 8% and 11% from minus 2%. I mean I would like to know, what are the basics of this and what are the assumptions that you have taken for this particular growth figures. That's first question.

Thank you very much. [Foreign Language] INR 450 crores and INR 1,000 crores by FY '26. [Foreign Language] [Foreign Language] EBITDA margin at minus 2%, 7% or 8%, 11%. That could be just a volume increase [Foreign Language] [Foreign Language] and hopefully, we will be able to achieve the targets. Definitely by '22 and '23. The INR 450 crores target is easily achievable [Foreign Language]. [Foreign Language] So another next 5-year, INR 1,000 crore gap [Foreign Language].

And sir, second question is what are the areas of cost discipline that we have got benefit of this year? [Foreign Language]

[Foreign Language] important quality be improved or costing with the introduction of new products or alternate products. [Foreign Language] save money, transportation costs and minimized cost. [Foreign Language], looking ultimately to your costing reduced over the year, [Foreign Language].

Right, sir. Sir, a core question on [Foreign Language] Tier 3, 2 or Tier 3 cities have looked at 70% market -- 70% of population have [Foreign Language]?

[Foreign Language]

Right, right. Sir, last question, [Foreign Language]?

[Foreign Language]

[Operator Instructions] The next question is from the line of [ Amit Shah ] from [ ACE SECURITIES ].

Sir, I have 2 questions on Steel. Sir, our brand turnover has seen a sharp increase in Q4. So what is your guidance for the current year?

[Foreign Language]

So sir, how is that -- I mean so how are you feeling the scenario in Q1 with the second phase of COVID-19?

[Foreign Language]

Okay. Sir, nice to hear that. Sir, my second question is what is the average CMP prices for Q4 FY '21. And how has been the increase over Q4 last year and last quarter, Q3?

[Foreign Language] 46,128 per metric ton a year or last year [Foreign Language] priced INR 38,198. Q3 average pricing was INR 31,200. It's about 46,000. That means INR 5,000 a tonne Q3, Q4 [Foreign Language].

[Operator Instructions] Next question is from the line of [ Arvind Kothari ] from [ AS Advisor ].

I have 2 questions pertaining to Paints business. Sir, you talked about price increase in paints. You said 80% to 90% of the total increase is already taken. My question is, I mean, when we have taken this price hike, in which month?

50% price hike has been implemented in the month of June, which is the current running. And balance price hike is implemented with effect on 1st July. [Foreign Language] further price increase in 1st July. [Foreign Language].

Right. The reason why I was asking this because as raw material prices have been increasing significantly since December, I mean did we take any price revision in quarter 4?

No, no, [Foreign Language]. [Foreign Language] No company has currently improved increase. [Foreign Language].

Sir, as I understand, the Asian paints has implemented this price increase of about 2.8%, if I'm not wrong. I mean, this 80% to 90% of our -- the price increase comes out to be what percentage change as compared to the previous price?

[Foreign Language] [Foreign Language] 3% pricing increase in finished product. So that means some 6% raw material price increase [Foreign Language].

Right. Understood.

[Foreign Language]

Right. So sir, I think, second quarter impact the price increase [Foreign Language].

[Foreign Language] definitely improved right now, second quarter.

And sir, my next question is on the demand side. And how has been the demand -- paint demand overall in the past 3 months, I mean, April, May and June? And what kind of guidance you want to give for the full year FY '22?

[Foreign Language] target 25% to 30% sales in April, [Foreign Language]. [Foreign Language] it's the current year, made 50% or next year 50% growth [Foreign Language].

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

Sir, my question is on full utilization [Foreign Language].

[Foreign Language]

Overall, [Foreign Language].

[Foreign Language] production capacity of INR 450 crores or 30,000 kl [Foreign Language] although contract manufacturing and low outsourcing therefore are [Foreign Language] 36,000 KL capacity, installed capacity, INR 150 crores. The total [Foreign Language] INR 600 crores [Foreign Language].

So sir, on the next 2 to 3 years, [Foreign Language] 20% growth [Foreign Language] offline, sir?

[Foreign Language] '22 or '23, minimum 50% growth legacy [Foreign Language] and hopefully, we will achieve it, 50%. [Foreign Language] March '26, INR 1,000 crores turnover [Foreign Language].

Okay. Sir, borrowings, [Foreign Language] '20, '21 [Foreign Language]?

[Foreign Language] working capital limits will be reduced [Foreign Language].

[Foreign Language]

[Operator Instructions] The next question is from the line of Achal Jain from Jain Capital.

I have a few questions. Starting firstly, sir, what is the view on increasing competition in the Paint segment with the entry of companies like [indiscernible]?

[Foreign Language] 80, 90, 100 years key companies. Over a period, we won, ago, brand loyalty [Foreign Language].

Got it. Next question, you aptly mentioned here the answer. Unorganized to organized [ leadership ] over that. Sir, post implementation of GST will, on the ground, actually transition is from market share from organized to -- from unorganized to organized sector.

[Foreign Language]

Okay, sir. Sir, lastly, what is the current utilization level at both the plants?

[Foreign Language] 70% utilization [Foreign Language]. [Foreign Language] lower, 70%, 65% utilization -- capacity utilization [Foreign Language]. Steel [Foreign Language] 36 lakh, 37 lakh turnkey capacity [Foreign Language] 50 lakh [Foreign Language]. Steel demand continuously grow every year [Foreign Language] asset-light model [Foreign Language]. [Foreign Language] unorganized sector cope with implementation of certain changes in their plant, upgradation of quality, capacity utilization of plant [Foreign Language]. [Foreign Language] almost 60%, 70% capacity utilization [Foreign Language].

The next question is from the line of Sunil Chandra from Hem Securities. As there is no response from the line, we'll move to the next question, which is from the line of [indiscernible] from Median Capital BMS.

My first question is what is the debt breakup in Paint and Steel business at the moment.

Can you repeat it?

Debt breakup -- what's your debt breakup in Paint and Steel business at the moment?

Okay. In the paint business, we have working capital of INR 60 crores. And in the Steel business, we have INR 30 crore working capital limit. And for the COVID loan, we have INR 15 crore COVID loan in Paint business.

Okay. So the Paint's working capital INR 60 crores, and COVID loan, INR 15 crores; and Steel is INR 30 crores.

Yes.

Okay. And what has been our marketing spend in the Paint division in FY '21?

Market spend, around -- actually, this year, there was a change in the presentation of the revenue. So what we have done, we have net of some sales around INR 35 crores. Total expenditure, that was around INR 60 crores on the Paint business. Out of that INR 35 crores. [Foreign Language] INR 237 crores [Foreign Language] because of certain GST and TDS complications. [Foreign Language].

Okay. And what would this be for FY '22?

Same position [Foreign Language] schemes [Foreign Language] based on the turnover [Foreign Language].

Percentage-wise.

Percentage-wise [Foreign Language].

Okay. Got it. So do we need to increase the marketing spend to get from the current base of INR 200 crores to INR 600 crores? Or our bases is ready, our distribution system is ready, and we do not need that much increase in the marketing to achieve that number?

[Foreign Language]

Okay. And will we be EBITDA positive in FY '22?

'22 [Foreign Language]?

[Foreign Language] EBITDA positive [Foreign Language] FY '22?

Definitely. Definitely, sir.

And the royalty income has been INR 85 crores this year in Steel business. Next year, you're assuming INR 94 crores. So in presentation, you have given a guidance of INR 150 crores in FY '23. So how will you be able to pull that INR 150 crores, almost 50% jump then?

[Foreign Language] INR 94 crores, INR 95 crores [Foreign Language] conservative side. Otherwise, INR 100-plus [Foreign Language]. Although 50% [Foreign Language] by FY '23 [Foreign Language].

Okay. [Foreign Language]?

[Foreign Language]

Okay. [Foreign Language]

[Foreign Language] unique business model, asset light. [Foreign Language]

[Foreign Language]

[Foreign Language]

Next question is from the line of Sunil Chandra from [ SM Securities ].

[Foreign Language]

Sorry to interrupt you, Mr. Chandra, but your voice is not audible. It is sounding muffled. Can you please check?

Okay. Sorry.

Mr. Sunil Chandra left the queue. [Operator Instructions] The next question is from the line of Sachin Shah from [ SS Securities ].

So I have a couple of questions. First is there is an exceptional item of INR 10 crores, which is lost due to fire accident. What is the status of that claim? how much you have already received from the insurance company? And how have they sanctioned the remaining amount now?

[Foreign Language] building, plant and machinery [Foreign Language]. [Foreign Language] based on the interim assessment by the surveyors [Foreign Language].

Okay. And what will be the status of your Phase 2 of refurbishment of your own plant?

We will complete [Foreign Language].

Okay. Operational [Foreign Language].

Yes. Operational or [ BBM ], it can full flat production month [Foreign Language].

Okay. And another question is what is the status of the demerger of your Paint business. By when do we expect to list or count the new ventures? Will you look...

Please, please, go ahead.

So will you be looking forward for a private equity or a strategic partner in the business? What would be the objective?

[Foreign Language] strategic partners via private equity or fundraising [Foreign Language].

[Foreign Language] The paint business are for subsidiary or company venture center [Foreign Language]?

For the years, your company [Foreign Language]. [Foreign Language] depending on the structure of the deal. [Foreign Language]

Okay. [Foreign Language] share capital for a network of newly listed company would be shareholding [Foreign Language]?

Share holding is now 1:1 [Foreign Language]

The next question is from the line of Deepak, an individual investor.

Yes, sir. Sir, [Foreign Language] let's say last 10 years, [Foreign Language] overall turnover to CAGR 25% around it. So next 5 to 10 years, can we expect if we are expecting 50% growth in Paints to [Foreign Language] same in the next 5 years, 25% CAGR, sir?

[Foreign Language]

Sir, is not Paint 50%; overall, revenue mix is not including Steel business?

Overall, [Foreign Language] with 50% growth [Foreign Language].

Sir, is the profit margin [Foreign Language] what will be the desired EBIT margin or EBITDA margin going forward, it achieved sales of INR 1,000 crores in Paint business?

[Foreign Language] INR 1,000 crores.

Okay. On demerger success, any expected time line?

Sir, the first hearing is meant on July 6 [Foreign Language].

[Foreign Language] last question [Foreign Language]. [Foreign Language] What are the tailwinds which are giving confidence of 50% growth? And lastly, competitor thinking entry business such as Shalimar Paint or [Foreign Language] people go with dealers or Asian paint [Foreign Language].

[Foreign Language] [Foreign Language] Market share say INR 100 crores [Foreign Language].

Ladies and gentlemen, as it was the last question for today, I would now like to hand the conference over to the management for closing comments.

I take this opportunity to thank you, everyone, for joining on the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with me or SGA, our Investor Relation adviser. Thank you once again. Thank you.

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

Thank you.