Kamdhenu Limited (KAMDHENU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 and 9 Months FY '22 Earnings Conference Call of Kamdhenu Limited. This conference 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 would now like to hand the conference over to Mr. Satish Agarwal, Chairman and Managing Director of Kamdhenu Limited. Thank you, and over to you, Mr. Agarwal.

Thank you, ma'am. Good afternoon, and a very warm welcome to everyone present on this call. Along with me, I have Mr. Harish Agarwal, Chief Financial Officer and Strategic Growth Advisor, our Investor Relations Advisors. Before we proceed ahead, I hope all of you and your loved ones are safe and keeping well. We have uploaded our results and the investor presentation for the quarter on the stock exchanges and company's website. Hope each one of you had a chance to go through the same. With revival in economic activity post the second wave of COVID-19 and India's large vaccination drive, we progressed well in vaccinating a large number of people, we have led to stable business environment and positive consumer sentiments. Our company has continued to maintain momentum in our business in the quarter gone by. The ongoing third wave of COVID in India has so far been less exigent than the previous waves. We are well prepared for the learnings of our previous experience to tackle the current situation. We have not witnessed any material impact on our business. Q3 FY '22 was a steady quarter for the company. On year-over-year level, our company has achieved top line growth of 24% and PAT growth of 7% in Q3 '22. I will talk in more details with regard to steel and paint business performances separately. Now, first coming to paint business, I would like to highlight on the performance during the quarter and 9 months. The company has achieved revenue growth of 25% on a year-on-year basis in Q3 and 29% year-on-year in 9 months FY '22. This is on the back of full-fledge operations at our paint factory at Chopanki, Rajasthan from October '21 onwards. It has the state-of-the-art facilities and upgraded manufacturing facilities with new machinery. With the outset of full-fledge operations, we expect significant uptick in our business trajectory in the quarters' going ahead. Demand for our paint products have remained strong driven by festive season and prolonged wedding season in India. Consumers are more inclined towards home improvement and making their spaces look better, which has led to increased demand. Over the past few quarters, paint companies are facing inflationary trend in the prices of raw material, and this challenge has continued in Q3 also. The competitive price hike of 10% to 11% during Q3 FY '22, there has been some softness in raw material prices in the current quarter, and we expect it to stabilize soon. Demand for decorative paints has been witnessing strong traction over the past few quarters, and we expect this momentum to continue on back of shortening of repainting cycle, housing demand and consumer preference to build pucca houses. Our company is focused on increasing share of the premium and environmental-friendly products and introducing new variants in the market for the coming masses to meet the varied consumers' requirements. I would like to update on the insurance claim towards building, plant and machinery is under finalization stage, and the claim amount is expected to be received within this financial year. Now, coming to the Scheme of Arrangement, the Honorable NCLT, has accepted the second motion application done by the company on 16 December 2021. And now they have fixed 22 March 2022 for the consideration of the final approval of the Scheme of Arrangement. In order to expedite and accommodate the issuance of shares with regard to the Scheme of Arrangement for demerger of paint business, in a proactive move, the Board of Directors have approved increase in authorized share capital of company from INR 30 crores to INR 41.5 crores, divided into 3 crore equity shares of INR 10 each ranking pari-passu in all respect with the existing equity shares of the company and 1,15,00,000, that is 1.15 crores preferential shares of INR 10 each subject to the approval of shareholders of the company. Now, I will move on the -- to give key updates on the steel business. We have clocked a revenue growth of 23% on a year-on-year basis to INR 149 crores in Q3 FY '22 and 55% year-on-year growth in 9 months FY '22. During the quarter gone by, our company has faced challenges due to external issues of pollution in Delhi and NCR region. TMT manufacturing plant at Bhiwadi was under partial operations or shut down for 27 days due to ban imposed by NGT in Delhi and NCR region. Moreover, construction activities in Dalian and NCR region were also banned for 35 days by the Honorable Supreme Court. Also, 3 of our franchisee plants are located at NCR region. Therefore, production was partially hampered at these plants due to ban imposed by the National Green Tribunal. Further, unprecedented monsoon, festival holidays and slowdown in construction activities further impacted the overall demand for franchisee sales in Q3. Operations are back to normal levels at our own manufacturing plants and franchisee units, and we expect good demand momentum ahead. Our company plans to enhance the market share of TMT bars and increase the production capacity of its brand, Kamdhenu Nxt, through franchisee route. As mentioned in the last quarter, we are expanding the production capacity of franchisee units in the state of Telangana, and it is progressing well. This is in line with our vision to reach capacity of 50 lakh metric tons in next 2 years. We are confident of achieving high franchisee sales on back of a strong product quality and superior strength and large distribution network to reach remotest areas. The recent government budget outlay towards affordable housing, we expect it will boost the demand for construction material. Also, government push towards infrastructure, development and metro and rail projects will further propel demand for steel products. To conclude, we expect the demand momentum to continue with business activities getting back to normal level. At Kamdhenu, we strongly believe in enhancing shareholders' value and strive to achieve the same through continuous evolution and upgradation of our efficiencies. We are also looking to penetrate further into markets where our presence is less and strengthen our footprints in existing geographies. With our strong brand and large distribution network and huge product portfolio in both paints and steel business, we are well placed to grow faster in the coming decades and provide value-added products for the common [ merchants ]. Now, I would like to hand over the line to Mr. Harish Agarwal to update on the financial performance of the company. Thank you.

Thank you, sir. I will take you all through the stand-alone financials for Q3 and 9 months FY '22. First, about the paint business. Total sales from paint business for Q3 FY '22 stood at INR 77.5 crores as compared to INR 62.2 crores in Q3 FY '21, a growth of 25% year-on-year and stood at INR 62.9 crores for Q2 FY '22, a growth of 23% quarter-on-quarter basis. We expect growth trajectory in our paint business on account of rise in real estate buying, revival in housing demand, change in consumer behavior with focus on enhancing and beautifying their personal space and homes. We have reported positive EBIT, not adjusted for unallocable expenses of INR 4.3 crores in Q3 FY '22. Paint segment contributed 34.2% of revenue in Q3 FY '22. Our overall volume from own manufacturing and outsourcing stood at 9,141 KL for Q3 FY '22 as compared to 8,701 KL for Q3 FY '21, a year-on-year growth of 5% and stood at 8,351 KL in Q2 FY '22, a growth of 10% quarter-on-quarter basis. To quickly summarize 9-month numbers, for 9 months FY '22, total sales stood at INR 173.5 crore as compared to INR 134.8 crore in 9-month FY '21, an increase of 29% year-on-year basis. For 9 months FY '22, we have been achieving positive EBIT of INR 5.8 crores. For 9 months FY '22, our volume stood at 22,584 KL as compared to 20,739 KL in 9-month FY '21, a growth of 9% year-on-year basis. Now, coming to steel business. Our steel volume, including franchisee route, have stood at 6.33 lakh metric tonnes in Q3 FY '22 as compared to 6.57 lakh metric tonnes in Q3 FY '21 and 6.27 lakh metric tonne in Q2 FY '22. Total brand turnover for Q3 FY '22 stood INR 3,973 crores as compared to INR 3,353 crores in Q3 FY '21, a year-on-year growth of 19% and stood at INR 3,792 crores in Q2 FY '22, a growth of 5% quarter-on-quarter basis. Royalty income through franchisees stood at INR 23.2 crores in Q3 FY '22 as compared to INR 23.5 crores in Q3 FY '21 and stood at INR 22.5 crores in Q2 FY '22, a growth of 3% quarter-on-quarter. Revenue from own manufacturing was up by 17% year-on-year to INR 113.8 crores in Q3 FY '22 as compared to INR 97.3 crores in Q3 FY '21 and stood at INR 125.5 crores in Q2 FY '22. Now, to quickly summarize the 9-month numbers. For 9 months FY '22, our volume, including franchisee route, stand at 18.4 lakh metric tonnes as compared to 16.6 metric tonnes for 9 months FY '21, a growth of 11% year-on-year basis. Total brand turnover for 9-month FY '22 stood at around INR 11,250 crores as compared to INR 7,970 crores for 9-month FY '21, a growth of 41% year-on-year basis. Royalty income through franchisee for 9-month FY '22 stood at INR 67.3 crores as compared to INR 58.7 crores in 9-month FY '21, a growth of 15% year-on-year basis. Revenue from own manufacturing for 9-month FY '22 stood at INR 327.3 crores as compared to INR 207.9 crores in 9-month FY '21, a growth of 57% year-on-year basis. For the overall business, revenue for Q3 FY '22 stood at INR 226.5 crores as compared to INR 183.4 crores in Q3 FY '21, a year-on-year growth of 24% and stood at INR 215.5 crore in Q2 FY '22 quarter-on-quarter growth of 5%. Our EBITDA was up by 6% year-on-year to INR 14.5 crores in Q3 FY '22 as compared to INR 13.7 crores in Q3 FY '21 and stood at INR 14 crore in Q2 FY '22, a growth of 3% quarter-on-quarter. So our EBITDA margin for the quarter stood at INR 6.4 crores -- 6.4%. Profit after tax stood at INR 7.7 crores for Q3 FY '22 as against INR 7.2 crores in Q3 FY '21, a growth of 7% year-on-year and stood at INR 7.7 crores in Q2 FY '22. Let me quickly summarize the 9-month numbers for the overall business. For 9-month FY '22, our revenue stood at INR 587.9 crores as compared to INR 402.9 crores in 9-month FY '21, a growth of 46% year-on-year basis. For 9-month FY '22, EBITDA stood at INR 40 crore as compared to INR 29.3 crores in 9-month FY '21, a growth of 37% year-on-year basis. For 9-month FY '22, profit after tax stood at INR 20.9 crores as against INR 11.1 crores for 9-month FY '21, a growth of 88% year-on-year basis. With this, I would like to open the floor for question-and-answer.

[Operator Instructions] The first question is from the line of [ Esha Savla from Arya Securities ].

Sir, what are your current utilization levels at both our plants? What was the utilization in current quarter and the quarter gone by? Have you faced any impact from the third wave of COVID?

Yes, we have a little bit impact of the COVID in the Q3, and there are some impact in the Q4 also as January was the peak for this COVID. And the average utilization of our plant is around 75% of the steel and around 60% of the paint.

Okay, sir. And sir, have you introduced any new products in paint and steel business over the last few months?

No. It's a continuous process. In the steel, we used to introduce our new product over a period of 2 -- after 2, 3 years. And in the paint business, it is a regular feature for developing the project. But in the last 3 months, we have not introduced any new product.

Okay, sir. So sir, can you throw some light on your CapEx plans in both of these business?

Right now, we don't have any CapEx plan for the steel and paint. In the steel business, we have the franchisee business model where we are expanding our capacity from 38 lakh metric tonne to 50 lakh metric tonne through the franchisee route, where investment is made by the franchisee units. We don't make any investment in the steel business. In the paint business, our existing facility is sufficient to achieve the sales turnover of around INR 450 crores. So after achieving or by reaching nearby, we will plan for the next plant.

The next question is from the line of Sumit Kumar from [ FX Investment ]. [Operator Instructions]

Sir, I have a couple of questions on the paint business. Sir, can you share, I mean, what is your view on current increasing competitive intensity in paints industry and [ NP ] players like Grasim and JSW Paints?

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And sir, my next question is on raw material prices and all. All -- I mean, we understand that all paint companies are increasing. I mean, they are seeing inflationary trend in raw material prices over the last few quarters. Sir, can you share by what percentage has raw material prices have increased on quarter-on-quarter or Y-o-Y basis? And what is the quantum of price increase we have taken in Q3 FY '22?

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

So firstly, your current -- your company has 1,600-plus tinting machines installed at dealer outlets. Sir, what is your view on the increase in usage of tinting machines? And like, are we planning to add any more tinting machines going ahead?

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Okay. Okay. And also, like many paint companies have introduced waterproofing as default product in the paint. So what is your view on waterproofing products?

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Okay. Okay. And lastly, like are you on track on achieving your stated revenue target of INR 450 crores by FY '23 and INR 1,000 crores by FY '26?

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The next question is from the line of [indiscernible] from [ Moneylife Insurance ].

My question is regarding the Scheme of Amalgamation. So one of the entities being merged is a promoter entity called Kay2 Steel. And so, what I -- so I went through website and information available publicly about Kay2 Steel. So what I found was that it is engaged in a similar line of business, follows the similar franchisee models and also kind of operating similar geographies. So my question is -- sir, I have 2 questions. My first question is regarding -- like why was this arrangement? Like why do we have this kind of arrangement where a promoter entity was engaged in a competitive line of business? And secondly, after the amalgamation, will Kay2 be a separate brand that Kamdhenu will be maintained? Or will the network and franchises will be amalgamated and only one Kamdhenu brand will be used for steel?

[Foreign Language] With regard to brand, that is separate belong others, not with this company. [Foreign Language]

Got it. Sir, my second question is regarding, see, we kind of -- since we rely on franchisees, which are largely MSMEs and small enterprises. And we have been hearing that the unorganized sector and the small companies have taken a hit due to the COVID-19 pandemic. Sir, I wanted to understand that are you seeing any kind of stress in the balance sheet or the businesses of your franchisees? And like would this kind of be a risk going forward for our company?

[Foreign Language] To that extent, we are impacted. Otherwise, not.

The next question is from the line of [ Mukundan Rao from MBSN ].

It's a 2-part question that I have. The first one is about just how you talked about how the industry got impacted due to the NGT in the NCR region. So the first question that I have is, what kind of a contingency plan that we are going to have? Because this is going to happen maybe in the coming future also. So what is the contingency plan that we have to take care of this issue, which should not affect our financials greatly? That's number one. Second question that I have is, we have talked enough about the paint business. I totally understand that concept. But what is the future for the steel industry going forward, the plans that if you can elaborate a little bit more, that will help?

I got your first question. [Foreign Language]

Yes. No, if you can expand a little bit more on the future that you have on the steel division of the company, basically?

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The next question is from the line of Dinesh Kotecha from KRIC.

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The next question is from the line of [ Pushkar Somaiya ], an individual investor.

Sir, can you please tell me what's the peak revenue you can do in your paint business?

Can you repeat your question, please, a little loudly?

What is the peak revenue you can do in your paint business?

In which situation you are asking? You are talking about our capacity, maximum capacity?

No, in paints, what revenue can you do at 100% capacity?

Yes. That is INR 450 crore from our own plant and INR 150 crore from the outsourcing. Total INR 600 crore turnover we can achieve.

We can expect this to be achieved in FY '23?

No. It's a capacity. It cannot be treated as achievement of the sales because there is a line of production. There are certain water-based, other are powder-based, other are solvent-based. So it will depend on the requirement of the market. So there is a demand in the market, there is a capacity in the plant. So we have to match them according to the requirement of the market.

Sir, given the requirement, how much can we -- how much revenue can we do in paints business?

Yes. If that would remain same, INR 600 crore. If the demand comes from the market as we have in the plant, so it will be INR 600 crores.

Okay. And in your steel business in this quarter, how much is your own manufacturing and how much is outsourced in the franchising model in the current quarter?

In the -- you are talking about Q3?

Q3, yes, and 9 months, it will be helpful.

9 months, Q3, yes. I will give you the figure. In the 9 months, we have achieved 17.8 lakh metric tonnes from the franchise route, and 67,000 from our own plant. This is for 9 months. For 3 months, from the franchisee route, it is 6.12 lakh metric tonnes and 24,000 from our own manufacturing.

And what is your capacity of the [indiscernible]?

Our own capacity is 120,000 metric tonnes.

And is that -- okay. And what is the EBITDA per tonne you did in this quarter?

EBITDA is 6.4%.

EBITDA per ton?

Per tonne cannot be calculated. You have to calculate the royalty on per ton basis. That is around INR 375 per metric tonne, royalty -- average royalty, which we are charging from the franchisee unit.

Sorry, can you repeat, sir?

During the quarter, Q3.

INR 3.7 per unit -- per metric tonne?

No, no. INR 375 per metric tonne.

INR 3.75 per, sir, this is standard INR 3.75, it remain constant?

It is not constant. It may be INR 370, it's an average of last 3 months, Q3. It may be INR 370, it may be INR 380, INR 390 depending on the collection.

Okay. And 17.8 lakh tonnes you've sold in 9 months, and you spoke about expanding via the franchisee route. So can you lay out your expansion plan for the next 2 years?

Yes, we are expanding from 30 -- our present capacity -- recent capacity is 38 lakh metric tonne. And we are expanding 38 lakh to 50 lakh metric tonne over a period of next 2 years through the franchisee route only.

You are not going to do any CapEx for this? CapEx on the [indiscernible] producers?

No. We are not incurring any CapEx in our own plant or in the franchisee. Capacity will be increased by the franchise itself. They will make the investment.

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

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[Foreign Language] ASP, average realization price per liter.

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[Foreign Language] That's what we are seeing, sir.

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[Foreign Language] what are your debt levels?

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[Foreign Language] what is the potential revenue potential for the full year?

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Ladies and gentlemen, as there are no further questions, I would now like to hand the conference back to the management for closing comments.

I take this opportunity to thank you, everyone, for joining on this 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 Relations Advisors. Thank you once again.

Thank you. On behalf of Kamdhenu Limited, this concludes this conference. Thank you all for joining. You may now disconnect your lines.