Kamdhenu Limited (KAMDHENU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Q2 and H1 FY '20 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 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. Satish Agarwal, Chairman and Managing Director. Thank you, and over to you, Mr. Agarwal.

Good afternoon, and a warm welcome to everyone present on the call. Along with me are Mr. Harish Agarwal, Chief Financial Officer and Strategic Growth Adviser, our Investor Relations Adviser. Before we proceed ahead, I hope all of you and your loved ones having the best of health. We have uploaded our results and investor presentation for the quarter on the stock exchanges and company's website. I hope each one of you have a chance to go through the same. The business environment has evolved post second wave of COVID-19 pandemic. The company faced challenges in Q1 FY '22 due to restrictions of varying degrees across different regions of the country post restrictions. Business operations have normalized and the economy is coming back to pre-COVID-19 levels. With large destination drives happening across the country and significant drop in COVID-19 cases, there has been a revival in demand. A lot of confidence is evident post second wave of COVID-19, which will augur well for operations of business and should enable a more stable and conducive operations environment. Our company has delivered a strong performance in the both paint and steel business in Q2 FY '22 on the back of revival in demand and favorable macroeconomic scenario leading to pick up in economic activities. Demand for paint products was driven by pent-up demand and festive season across the country. And the steel demand was on account of speed up of construction and infrastructure activities. Our company has reported recovery in business trajectory in second quarter. Good revenue growth of 58% year-on-year basis at INR 215 crores. Capacity [indiscernible] plant is increasing gradually on a month-on-month basis. Now firstly, I would like to touch upon the business highlights and performance of the paint business. We have recognized a strong economic recovery and improved demand conditions in the industry, which has enabled us to clock revenue of INR 63 crores in Q2 FY '22. During the quarter, our value growth was higher resulting volume growth year-on-year on account of change in product mix and selling of high-value products like premium emulsions, color and extra strainers. We are focused on increasing the share of water-based paint products and launching new variants in the market. Further, I would like to update on the insurance claim that as of 4th October '21, our company has fully received an insurance claim of INR 15.44 crores towards the loss of a stock. Insurance claims towards building plants and machinery is in the process and expect it to be received within the financial year. Secondly, I'm happy to share that our own paint factory at Chopanki, Rajasthan, which was under partial operations post fire incident, is now fully functional with the state-of-the-art facility and upgraded manufacturing capabilities. Our company is ready to fulfill the demand for products from this facility in the quarters ahead. CARE Ratings Limited upgraded rating of the company to CARE A- and A2 under credit, but with developing implications for long-term and short-term banking facilities, respectively. CRISIL Ratings Limited had also assigned the same rating to the company. As per CRISIL, the Indian tools industry is expected to clock a revenue growth of around 12%. This fiscal helped by improving consumer sentiment and economic recovery. Consumer preference on the strengths towards home improvement, refurbishment and gradual increase in real estate activity shall drive growth prospects for paint sector. Paint companies are facing high raw material price issue and parts [indiscernible] taking time. However, we expect prices to stabilize in quarters to come, due to the demand for decorative paint shall continue to grow on back of shortening of repainting cycle, growing urbanization and increase distribution and reach of organized players. Now coming to the scheme of arrangement, the unraveled NCLT has approved first motion application of the scheme of arrangement, including the demerger of paint business of the company into a separate-listed entity on 4th August, '21. Both approval of the scheme of arrangement by the equity shareholders, secured creditors and unsecured creditors of the company in their respective meetings, held on 25th September, '21. Under the supervision of the honorable NCLT, Chandigarh [indiscernible], the company has filed second motion petition physically with honorable NCLT for this approval on 5th October. The approval result of the value expected to be completed by end of the current financial year. Now moving on to the key updates on the steel business. Economic and construction activities started back post the second wave of COVID-19, and sales have picked up from June '21 onwards. The operations of the franchisee units and own manufacturing plant are operating smoothly. Our capacity utilization is [ 24% ] of Diwali for Q2 FY '22. As mentioned in last quarter that we have realigned our manufacturing capacity of our steel plant from 156,000 to 120,000 metric tonnes. This has enabled us to concentrate on development of new products and training of franchisee staff. We have been able to leverage our strong brand and well-entrenched distribution network across the country to clock franchisee sales of 6.03 lakh metric tonne volumes for Q2 FY '22. Our company plans to enhance its steel TMT bar capacity through its franchisee production facilities from 38 lakh metric tonnes per annum to 50 lakh metric tonnes per annum over the next 2 years. The steel prices have been on the increasing trend. However, during Q2 FY '22, we witnessed mismatch in demand and supply, which have led to fall in realization as against raw material prices, which did not come down due to unprecedented increase in coal price. However, currently, the prices of finished products are back to Q1 '22 levels, and we expect good growth momentum ahead. Demand for steel product continues to be robust with the government push towards infrastructure expense. To conclude, we command a dominant market share in the organized retail segment of the steel and paint industry. We have started to align our brands as brands of people's choice and increase our brand turnover to INR 22,000 crores by FY '23-'24. The future of the economy looks bright as it passes through competitive times. We are poised to grow much faster in the coming decades based on our product excellence, human resources, brand equity and market growth. Now, I would like to hand over the line to Mr. Harish Agarwal to update on financial performance of the company.

Thank you, sir. I will take you all through the financials for Q2 H1 FY '22. First, about the paint business. Total sales from paint business for Q2 FY '22 stood at INR 62.9 crores as compared to INR 39.8 crores in Q2 FY '21, growth of 58% year-on-year and it stood at INR 33.14 crores for Q1 FY '22, a growth of 90% quarter-on-quarter. We expect the movement in paint business to continue. Going forward, we pick up in business activity and consumer preference for renovating and refurbishing houses. We have reported positive EBIT, not adjusted for [ unallocable ] expenses of INR 3.6 crores in Q2 FY '22. Paint segment contributed 29% revenue in Q2 FY '22. Our overall volume from own manufacturing and outsourcing stood at 8,351 KL for Q2 FY '22 as compared to 6,293 KL for Q2 FY '22, a growth of 32% and stood at 5,092 KL in Q1 FY '20, a growth of 64% quarter-on-quarter. To quickly summarize half year numbers. For H1 FY '22, total sales stood at INR 96 crores as compared to INR 72.6 crore in H1 FY '21, an increase of 32% year-on-year. For H1 FY '22, we have achieved positive EBIT of INR 1.51 crores. For H1 FY '20, our volume stood at 30,443 KL as compared to INR 12,038 KL in H1 FY '21, a growth of 12% year-on-year. Coming to the steel business. Our steel volume, including franchisee route, have increased by 7% year-on-year to 6.27 lakh metric tonne in Q2 FY '22 as compared to [ 5.8 lakh ] metric tonne in Q2 FY '21 and 5.80 lakh metric tonne in Q1 FY '22, a growth of 8% quarter-on-quarter. Total brand turnover for Q2 FY '22 stood at INR 3,792 crores as compared to INR 2,645 crores in Q2 FY '21, a growth of 43% and stood at INR 3,485 crores in Q1 FY '22, a growth of 9% quarter-on-quarter basis. Royalty income through franchisee was up by 10% year-on-year at INR 22.5 crore in Q2 FY '22 as compared to INR 20.50 crores in Q2 FY '21 and stood at INR 21.5 crores in Q1 FY '22, a growth of 5% quarter-on-quarter. Revenue from own manufacturing was up by 67% year-on-year to INR 125.5 crore in Q2 FY '22 as compared to INR 75.1 crore in Q2 FY '21 and stood at INR 88 crore in Q1 FY '22, a growth of 43% quarter-on-quarter. To quickly summarize the half year numbers for H1 FY '22, our volume, including franchisee route, stand at 12.08 lakh metric tonne as compared to 10.07 lakh metric tonnes for H1 FY '21, a growth of 20%. Total brand turnover for H1 FY '22 stood at around INR 7,277 crores as compared to INR 4,618 crore for H1 FY '21, a growth of 58% year-on-year basis. Royalty income through franchisee for H1 FY '22 stood at INR 34.1 crore as compared to INR 35.2 crores in H1 FY '21, a growth of 25% year-on-year basis. Revenue from own manufacturing for H1 FY '22 stood at INR 213.5 crores as compared to INR 110.6 crores in H1 FY '21, a growth of 93% year-on-year basis. For the overall business, revenue for Q2 FY '22 stood at INR 215.5 crore as compared to INR 136.1 crores in Q2 FY '21. year-on-year growth of 58% and stood at INR 145.9 crores in Q1 FY '22, a quarter-on-quarter growth of 48%. Our EBITDA was up 60% year-on-year to INR 14 crore in Q2 FY '22 as compared to INR 8.7 crores in Q2 FY '21 and stood at INR 11.6 crores in Q1 FY '22, a growth of 21% quarter-on-quarter. Our EBITDA margin for the quarter stood at 6.5%. Profit after tax stood at INR 7.7 crores for Q2 FY '22 as against INR 2.5 crores in Q2 FY '21. The growth was 204% year-on-year and stood at INR 5.6 crores in Q1 FY '22, a growth of 37% quarter-on-quarter basis. Let me please summarize the half year numbers. Revenue for H1 FY '22, our revenue stood at INR 361 crores as compared to INR 219 crores in H1 FY '21, a growth of 65% year-on-year basis. For H1 FY '22, EBITDA stood at INR 25.6 crores as compared to INR 15.7 crores in H1 FY '21, a growth of 63% year-on-year basis. For H1 FY '22, profit after tax stood at INR 13.2 crores as against INR 4 crore for H1 FY '21, a growth of 234% year-on-year basis. Our cash flow from operations stood to the tune of INR 17.8 crores for the period ended 30th September 2021. Our return ratios have been continuously improving on account of increased efficiencies in the businesses. As of 30th September, 2021, our return on equity stood at 12.9% and return on capital employed stood at 15.5% as on annualized basis. Our debt-to-equity ratio stands at 0.4x. With this, I would like to open the floor for question and answers.

[Operator Instructions] The first question is from the line of Priyanka Singh from Atidhan Securities.

My first question is what are your current utilization levels at both of your plants? And what was the utilization in the quarter gone then?

Our steel plant utilization is 84%, whereas we have just started full capacity operation in the ag business, so it would be around 75% in this month.

Can you throw some color on the debt level at the end of this quarter in both the businesses, separately?

In the paint business, we have around INR 70 crores. And in the steel, we have INR 40 crores working capital facilities from the bank only.

And lastly, can you provide the breakup of your branding and promotion expenditures for both of your paint as well as steel business for this quarter? And I think overall...

This time, it is very difficult to the separate factory expenditure on the branding for paint and steel business. Once the process of demerger complete, then we will be able to bifurcate these expenditures on the paint business as well as steel business. Now, we are making combined expenditure on the brand cum business.

And what would that be as a percentage of sales?

Can you repeat your question?

Your total branding expenses, what would that be as a percent -- as a percentage of your total sales?

This time in the Q2, we have spent around INR 12 crores. but against a revenue of INR 115 crores. So it will be around 5% to 6%.

[Operator Instructions] The next question is from the line of [ Nidhi Khanna ] from MK Advisors.

So I wanted to understand that the raw material prices of our company's products are rising significantly since the last few quarters. We've seen that the Asian Paints have taken a price hike of close to 9% in Q2 FY '22. So is there anything that we are also doing in this direction? Are we taking any price hikes in the near term, or have we already taken?

When -- as everyone knows that the raw material prices of the paint business are continuously increasing. In July, first, you just understand that most of the companies revised the prices accordingly whenever the Asian Paints rises. Accordingly, we have also revised about 1.5% price increase in the month of July and now again, 1.5% increase in the month of August. That was impacted partially in the Q2 basis. And now again, between 15 to 12 November, we have also announced an average price increase of 8%, which varies from 8% to 10% in different categories. In 2 categories, our low-priced products, the increase is somewhat less, but average impact on the realization will be 8% in the coming quarter or the Q4 also.

This is certainly helpful. I also want to know, sir, that how has the demand shaped up in Q2 FY '22 and post July 2021? And what is the growth guidance for H2 FY '22 that you can share with us?

Whenever we consider the growth guidance for this current financial year, in Q2, the main reason for dismal sale could not be much more -- would have been much more because due to the [ trades ] in the Eastern UP and most of the parts of the countries. The sales of paint business was greatly affected, which is now going normal. And in second as to -- from the current fiscal, we hope that the growth in comparison with last year will be 40% to 35% average on an annual basis. Did you hear that reply?

Thank you, sir. We lost the line. [Operator Instructions] The next question is from the line of [ Amit Shah ] from [ ACE Securities. ]

Sir, I have a couple of questions. Does the company plan to do any further CapEx in paints and steel business?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] What is your thought process to this -- again, behind this expenditure on brand building?

[Foreign Language]

Sir, the cash flow from operations of our company stood at INR 18 crores as on September '21. So what is the sales of these plants?

Working capital, for the purpose of working capital.

And sir, lastly, what all...

For the reduction of bank borrowings.

And sir, lastly, what is the reason for increasing our other expenses by 20% on a year-on-year basis and 16% on Q-on-Q basis...

It is the proportion of the sales. Sales has also increased.

So there is nothing extraordinary in this expense?

No, no.

Any one-offs? No, no. There is nothing extraordinary. Within the proportion of sales.

[Operator Instructions] The next question is from the line of [ Nidhi Khanna ] from MK Advisors.

Sir, I just wanted to know that in our paint business, what is proportion of business that comes from our own manufacturing versus the outsourced category?

[Foreign Language]

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

[Foreign Language]

[Foreign Language]

[Foreign Language] You said that INR 12 crores will be spent on the brand together -- I mean, in one. So what is the brand value, actually? [Foreign Language]

[Foreign Language]

Sir, congratulations, [Foreign Language]. And secondly, congratulations also for receiving that insurance claim of INR 15.44 crores for the materials that was destroyed. [ Makita ] insurance premium, as you said, it will be -- I mean, you are expecting by the year-end, right, FY '22, 31st March? Now I would like to know these ones have been received after the September quarter, right, insurance claim?

[Foreign Language]

Insurance claim for the income receiving [Foreign Language].

It is not the income. It is against a loss, already booked.

So extraordinary, then it will be an extraordinary item, right?

[Foreign Language]

At the time of loss, we have passed the entree, and a loss to receivable from insurance companies.

Loss, we already booked?

Yes. Yes.

Sir, again, another one thing I wanted to know was, any major challenge or constrained job [Foreign Language] successfully?

You were talking about paint business or the steel business?

Both the businesses. I mean, any major challenges or constraints that you have really overcome, which was putting some hindrance to your performance.

[Foreign Language].

[Foreign Language]

[Foreign Language]

[Foreign Language] Is it on target?

[Foreign Language]

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

My first question is, any particular product segment, which you have gained market share in our paint business?

[Foreign Language]

And secondly, restoration of the new facility in October '21, and now it is operational. So what is the revenue potential that facility can deliver for the second half of FY '22? And what products would be manufactured from the own paint facility?

[Foreign Language]

Sir, last, what are the schemes that the company offers to its dealers at instances?

[Foreign Language]

The next question is from the line of [ Atul Kothari from Progwell Securities ].

Sir, can you highlight as to -- [Foreign Language].

[Foreign Language].

[Foreign Language]

[Foreign Language] [Foreign Language] If I'm wrong, sir, we have applied for a second motion of application for the scheme of arrangement to NCLT. So sir, the process of demerging, [Foreign Language].

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] [Foreign Language], are you looking out for any private equity partners or strategic partners? [Foreign Language] then we will start this process, [Foreign Language].

[Foreign Language]

[Foreign Language].

[Foreign Language].

[Foreign Language]

[Foreign Language], right?

[Foreign Language]

[Foreign Language] as of now?

[Foreign Language]

[Foreign Language] Sir, basically, if I'm not wrong, [Foreign Language].

[Foreign Language]

Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Satish Agarwal for closing comments.

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

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