Kamdhenu Limited (KAMDHENU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Kamdhenu Limited. This conference call may contain forward-looking statements about the company which are based on 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. 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 the call. Along with me are Mr. Harish Agarwal, Chief Financial Officer; and the Strategic Growth Advisors, our Investor Relations Advisors. [indiscernible] an investor presentation for the quarter on the stock exchanges and the company's website. Hope everyone had the chance to go through the [ phone ]. Quarter 1 of the financial year 2023 started on a strong note. Our company delivered robust performance despite high commodity prices. The domestic exchange industry was impacted by falling global pricing and the imposition of a 15% export duty on certain steel products. Export duty changed the consumer sentiment in India in anticipation of further fall in prices, [ combined bidding ] from the local user industry, and eventually consumption fall. Industry-wide export also dropped by 26% due to the weaker global demand and the imposition of export duty. There has been increased buying of TMT bars across the Indian spot market, like Chhattisgarh, Delhi NCR, and Mumbai over the last few weeks. Prices are expected to remain stable or may move further up. Coal prices have remained firm, which has, in a way, supported this segment. As per industry leaders, the demand for auto industry, construction, and infrastructure segment continues to remain strong and should support the overall steel consumption during FY '23. Now coming to the steel business. Our company has reported revenue growth of 70% year-on-year to INR 191 crores for Q1 FY '23. This was on account of increased construction activities due to the government push for infrastructure development, focus on the development of roads, and railways, PM Awas Yojana shall lead to demand creation for steel products. EBITDA grew by 7% to INR 15.4 crores during the quarter. We saw commodity inflation, which has not been fully passed on. We will pass this cost in the coming quarters. Our franchisee volumes, as well as volumes from our own facilities, grew by 30% on a year-on-year basis. Our company constantly monitors their research and development division and the ongoing process. Our company has further enhanced its capabilities by adopting new technologies like converting steel commodity into high-yield strength bendable TMT steel bars to be 4% lesser in rate and 20% stronger than other normal TMT steel bars. Our premium product Kamdhenu PAS 10000 TMT has a unique feature of double rib, double strength, double [indiscernible], making it unmatchable strong, and more suitable for highly seismic zones and high-rise constructions. Our differentiated business model based on the source [ life cost sector ], with our own capacity and capacity of franchisee has been favorable for our company to scale up efficiently. It has benefited us to maximize the returns with minimal investment. Our company is known for consistently delivering superior quality across product range. In addition to the vast product range, our international certifications across various product categories are a testimony of the standards we offer. Going ahead, we are focused on increasing our annual capacity through the franchisee route from 38 lakh metric tons to 50 lakh metric tons over a period of 2 years. As you are all aware that our company was in the process of demerger of paint business into a separate legal entity, we are pleased to inform that the [ unleveled and CLT ] wise its order dated 03 June '22, has approved the scheme of the arrangement, including the demerger of the paints business of the company into a separate legal entity. The scheme of arrangement has become effective on 18 July '22 upon filing a [indiscernible] order with the Registrar of Companies, Delhi and Haryana. Pursuant to the scheme of arrangement became effective. The paint business of Kamdhenu Limited has been transferred to and vested with Kamdhenu Color and Coatings Limited with effect from 1st April, 2022 being the appointed date. This demerger shall enable better management focus, and operational flexibility and allow businesses to independently pursue growth plans. This shall further enable both companies to raise necessary funds, find strategic investors and employ specialized manpower for each business and thereby create a platform home to pursue next level of [indiscernible]. In view of the demerger of the paint business from Kamdhenu Limited, its shareholders shall get an equal number of equity shares in mirror image of INR 5 each to be issued by Kamdhenu Ventures Limited, a 100% holding company from Kamdhenu Color and Coatings Limited. The allotment and listing-related formalities are in process. The paint business demonstrated robust performance with revenue growth of 65% year-on-year to INR 54.7 crores. Also with our focus on increasing the premiumization of portfolio, our volumes increased from our own manufacturing and we reduce the manufacturing of products from contract manufacturers. 78% of our paint revenue is water-based and we plan to increase the share of premium texture paint products where margins are higher. We are consistently developing environment-friendly products as we step towards an environment, steel was shipped, our endeavor is [indiscernible] to penetrate further into existing markets, explore new markets and expand the dealer network in Tier-3 and Tier-4 cities. To conclude, our company holds a strong market share in the organized retail segment of steel and renowned brand name in paints. Our Pan-India presents with 8,000-plus steel dealers and 4,000-plus paint dealers spread across India shall enable us to reach the remotest area. We wish to align the brand as a brand of the people's choice. We are eager to enter our next sector of resolution with a scheme of arrangement being effective. We are well set on the path to achieve a growth trajectory going ahead. With this, I will hand over the call to our group CFO, Mr. Harish Agarwal for the financials. Thank you all.

Thank you, sir. I will take you all through the financials for Q1 FY '23. Our steel volume, including franchisee route, have stood at 7.54 lakh metric tons in Q1 FY '23 as compared to 5.8 metric tons in Q1 FY '22, a year-on-year growth of 30%. Our TMT volume from own manufacturing stood at 24,429 metric tons in Q1 FY '23 as compared to 16,917 metric tons in Q1 FY '22, a year-on-year growth of [ 34% ]. Total [indiscernible] turnover for Q1 FY '23 stood at INR 5,309 crores as compared to INR 3,485 crores in Q1 FY '22, a growth of 52% year-on-year basis. Royalty income through franchisees stood at INR 27.6 crores in Q1 FY '23 as compared to INR 21.50 crore in Q1 FY '22, a growth of 28% year-on-year. Revenue from one facility was up by 73% to INR 152.60 crore in Q1 FY '23 as compared to INR 88 crores in Q1 FY '22. Total sales from steel business stood at INR 191.20 crores for Q1 FY '23 as compared to INR 112.7 crore in Q1 FY '22, a strong growth of 70% year-on-year basis. Our EBITDA stood at INR 15.40 crore in Q1 FY '23 as compared to INR 14.4 crores in Q1 FY '22, a growth of 7% year-on-year. Our EBITDA margin for the quarter stood at 8.10%. Profit before tax stood at INR 13.50 crore for Q1 FY '23 and against INR 13.3 crores in Q1 FY '22. Pursuant to the scheme of a regimen became effective [ for paints ] business that is demerged business of Kamdhenu Limited has been transferred to and vested with Kamdhenu color and Coatings Limited with effect from 1st April, 2022 being the appointed date. Therefore, the company has not disclosed the consolidated financials with effect from... [Technical Difficulty]

Ladies and gentlemen, the lines of the management have got disconnected. Ladies and gentlemen, thank you for patiently holding. We now have the lines of the management reconnected. Over to you, sir.

Yes. I shall now take you through the financials of the paint business. Total sales from the paint business for Q1 FY '23 stood at INR 54.7 crores as compared to INR 33.1 crore in Q1 FY '22, achieving a growth of 65% year-on-year basis. Our overall volume from own manufacturing and outsourcing stood at 7,082 KL in Q1 FY '23 as compared to 5,092 KL for Q1 FY '22, year-on-year growth of 39%. EBITDA for Q1 FY '23 stood at minus INR 1.2 crore as compared to minus INR 2.8 Q1 FY '22. Our profit before tax was minus INR 3.8 crores as compared to minus INR 5.8 crores in Q1 FY '22. With this, I would like to open the floor for question and answers.

[Operator Instructions] The first question is from the line of [ Ashey Jain from Jain Capital ].

Sir, I have a few questions. Firstly, sir, I was looking that, our royalty income has grew by 28% on a year-on-year basis. So could you tell the amount of royalty company is charging per ton? And does the company have any plans to increase the royalty income going forward?

In fact, we are trying to increase the volume rather than increasing the rate of per ton. So our main focus is on the increase of volume. In fact, we have an agreement for 3 years and 5 years with the franchisee unit and at the time of renewal, we definitely try to increase the rate by INR 25 or INR 50 per metric ton. So it is not practically possible to increase every quarter.

Okay. Sir, my next question is on steel capacity. So the company has plans to increase TMT steel capacity through franchise route. So -- and you have also identified franchise unit and selling [ enough ] where we intend to increase the capacity by around 25%. So any update or progress on that front? And has the company found any other reason apart from Telangana, where the capacity can be increased for franchisees?

Yes. You have rightly pointed out that we are increasing our capacity by 25% in next 2 years. And the present capacity is 38-lakh metric tons, which will be increased to 50 lakh metric tons through the franchise route. And our main focus is on increase the capacity, not by increasing the number of franchisees. Therefore, what we are doing, we are increasing the capacity of our existing franchisee unit itself. So we are giving first opportunity to the existing units if they are not able to increase their capacity due to certain their own issues, then we will find for the new. But in the past one year, we have also increased from 33 lakh to 38 lakh metric tons, and these are increased through the existing franchisee only. And we are hopeful that the existing units are quite capable of doing the enhancement of [indiscernible] capacity.

Okay. Okay. Sir, lastly, continuing on the franchise route. So the franchise volumes have increased by 30% on a Y-o-Y basis. So could you throw some light on from which region the sales have increased? And what is the amount incurred by franchise units towards the ad spend, the advertising spend?

In fact, our total sales volume comes from across India, but if you see the East and North, our overall revenue, 60% come from East and North and 40% from the South and West. Almost Eastern North is equally, you can say 30:30. But if you compare with the south and west, then it would be 25% from the West and 15% from the South. So this is a broad breakup of the revenue, which are coming. And so far as an increase and it is increasing from each region, not in particular, any region that is increasing. There is an overall increase in all regions.

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

Sir, I've got a few questions as far as our steel business is concerned. So sir, in our steel business, revenues from our own facilities were up by 73% on a year-on-year basis. So was this growth driven by volumes or was it on account of higher realizations.

It is both. In Q1 of FY '22, we were having production of around 16,000, and this time we have 24,000. And at the same time, the price was INR 52,000 plus the average price in Q1 FY '22, and this time, it was INR 62,000. So it is on account of both increasing the volume and increase in the selling price.

Okay, sir. And sir, what is your view on the demand trend going ahead?

Demand is increasing day by day because there are construction activities. There are government projects which are going on. So we are seeing good demand in the market.

Okay, sir. Secondly, sir, our company has realigned the capacity of still manufacturing facility to 170,000 million tonnes per annum. So what efforts have been undertaken by the company for product development and innovation of products?

Yes. This is a continuous process which we are doing. In fact, we are using our plant as an R&D center as well as a training center of the employees, which we depute in the franchisee unit. In each and every unit, we depute 2 persons, one for the quality monitoring and other for the operational issues for dispatch monitoring, and coordination with the market. So all this training work is to be happening in our factory. So that is why we have realigned. Otherwise, we can produce 156,000 from our one factory. If we compromise on the training and the R&D work.

Okay, sir. And sir have there been any new products launched lately by us?

Yes, we are working on that, but it is an early stage to say that when we are going to launch, but we are working on that.

Okay, sir. And sir, my last query is regarding the branding and the promotion expenses for the steel business. So what was the promotion expense for the steel business in Q1 FY '23?

We have spent around INR 15 crores, INR 9 crores by the franchisee units, and INR 5.5 crores from -- INR 5 crores from Kamdhenu and INR 9 crores from the franchisee side, overall, INR 13 crores, -- INR 14 crores is spent on the steel business. Okay, sir. And sir, what is the target for the entire year as a percentage of sales? This year, we are trying to make royalty of around INR 110 crores. In this quarter, we achieved INR 27 crores.

Okay. Sir, I wanted to ask you what would be the branding expense for the entire year? For our steel business in FY '23?

We are working on that because we have to change the model of branding in this year. In the past 2 years, there was a lot of change in the trend because of COVID. So we are working on that. And there are certain models for which we have to start the foreign tours and also the Bollywood Night. So we are working on that. So right now, it is not possible for me to build the figure -- exact figure on the branding expenditure, but we are working. We are aggressively doing [ all ] the branding [ work ].

The next question is from the line of [ Yash Sachdeva from Finterest Capital ].

So sir, I had basically 2 questions that you talked about the inflation in the commodity prices. Sir what major arrangements have been done by the company for the control of our pricing relating to this? And secondly, you talked about price hikes, which you are looking to pass on to the customers. So what would be the range of that? Just wanted an idea on that?

You are talking about the steel business only?

Yes, yes. Yes. Steel business.

In fact, we are into the secondary market, where we buy raw material, the ingot and [ billets ] from the market and the re-role in our plant or our franchisees plant and sell in the market. So there is no big impact of the price hike because in the same proportion, raw material price increased, finished product price increased, finished product price decreased, raw material price decreased. So there is only an impact on the stock line in the factory. So it is -- the cost inflation and deflation will affect the primary producer...

Cost and realization.

Okay. Right, sir, right. And sir, regarding the second question, what price hike -- what is the range of price hike that we are looking to pass on?

The entire price hike is passed on to the ultimate customer, except minor market -- local market fluctuations. Most of the price increase is passed on to the ultimate consumers.

Right, sir. So could you please, sir, quantify that price hike? Like what would be a range?

In fact, it was INR 10,000 from Q1 FY '22 to Q1 FY '23, it was a price hike of INR 10,000. The average price for Q1 '22 was INR 52,000. In this quarter, it was INR 62,000. But in the present price of INR 1,000 plus/minus is going on in the month of July.

[Operator Instructions] The next question is from the line of [ Amoksha ] from Shriram Securities.

Sir, can you tell me what are the current utilization levels at the steel and paint plant?

In steel, we have around 80% capacity utilization of our plant.

Okay. And what about the paint plant?

Paint plant, we have around 40% utilization of our existing capacity.

Okay. Could you throw some light on the demand scenario for steel products?

Yes, there is a demand in the market because there are government projects, which are going on, there are infrastructure projects and there are housing projects also, [ Prime Minister ] and at the rural areas, there are organizations from [Foreign Language]. So there is a demand in the market.

Okay. How have the prices trended currently in the steel business -- do you see any major opening in prices in the near term?

[indiscernible] can you repeat the question?

How are the prices trending in the steel business? And do you see any major softening in the prices in the near term?

No, no, no, no. There is no major difference. The present agent rate is around INR 64,000 a metric ton on the average of all gauges. In fact, prices -- there are price differences of INR 4,000 to INR 5,000 between the dias. If you buy that 12 MM, if you buy the 8 MM, if you buy -- the [indiscernible], the average price is around INR 64,000. And someday, it is INR 1,000 down and the other day, it is INR 2,000 up. It is just ranging around INR 64,000 to INR 65,000 per metric ton.

[Operator Instructions] The next question is from the line of [ Pankaj Jain from Mahavir Investments ].

Sir, in the scheme of arrangement has been signed, the demerger of the paint business came into effect from 18th July. So when do we expect the Kamdhenu Ventures getting listed?

We will file the application in the month of August, and we are expecting to be listed in September or in October.

And sir, what would be the management structure and the shareholding of Kamdhenu Ventures?

Post-merger, it would be 59% promotor and 41% public.

And the management structure sir? Who would be running that business?

Yes, Mr. Saurabh Agarwal will look after as the MD of the paint business. And Mr. Sunil Agarwal would be the non-independent Chairman and Mr. Sachin Agarwal will be the Director. Out of 4, [ promotor ] and Director of Kamdhenu Limited, 3 will take care of paint business.

Okay. Okay. Got it. And sir, lastly, with the [indiscernible] business getting demerged and the company is planning [indiscernible] about INR 100 crores revenue by FY '26. So will we be looking at any strategic partner or a private equity or any funding [ raising event ]? If you can throw some light on that end?

Yes, we are working on that.

Okay. So there would be some strategic investment or maybe funds raising which can come in the future?

Yes.

[Operator Instructions] The next question is from the line of [ Amit Shah from Ace Securities ].

Sir, I have a couple of questions. Sir, firstly, are you on track on achieving your stated branded revenue turnover of INR 22,000 crores by FY '22 and royalty income of around INR 150 crores by FY '24?

Yes. Yes, yes. We are on track. We are on track. You can see that in this quarter, we achieved INR 5,300 crores turnover. So if you multiply it by 4, then 20,000 we can achieve in '23 itself.

Correct.

So we are on the track. Whatever we have projected, it will be definitely achieved.

Sir, can you share any strategy to achieve that?

You are already having the results and numbers, then there is no specific strategy required. We are targeting INR 22,000 crores turnover in '24, then in '23, we have already crossed [ INR 20,000 crore ] so what kind of strategy you are looking for? We are -- our strategy is successful. Whatever we are doing...

We already surpassed the target.

Sir, my next question, sir, does the company plan to appoint any brand ambassador for the steel business for promotion of our TMT products?

No. We have no such plan. In fact, we have a different strategy of branding our steel product. So we are working on that. I have also answered a few questions there, that we have the different strategy of branding. So we are not looking for any celebrity to associate with our brand.

So are we planning to do any marketing campaign like other steel players, Shyam Steel is doing?

We have our own plan. We have ATL activities, VTL activities. Every day, there are -- there may be any program either in [Foreign Language] or in the 5-star hotel. So we used to organize various events -- that may be for masons, that may be for architects, maybe engineers, maybe contractors, developers, welders, dealers, distributors. So we used to organize the various types of events, and it will happen on a daily basis.

Right, sir. Sir, and lastly, sir, in our presentation, we have shown trading sales of around INR 11 crores in Q1 FY '23. Sir, could you throw some light on what as our company has recoupled strategy of reducing any B2B trading business?

In fact, in the past years, we were doing this activity of outsourcing of the steel product and selling from our stockyards. But last year, we realigned our policy and reduce the B2B sales. But in some cases, we are doing it. And this amount is very less quantity, which we are doing. In a month, we are doing only 500 metric tons as against 8,000 of our own manufacturing. So it's a compulsion in certain area, which we are doing it. Otherwise, this is not our focus area to make any trading [ or the TNPR ].

[Operator Instructions] The next question is from the line of [ Kanika Kotari from Tradex Private ].

My question is that in the paints business, prices of raw materials have been on -- like they have shown an increasing trend. So have you been -- do you think you've been -- the company has been able to pass through the price in the last quarter?

Yes. We are trying to pass on the price inflation of raw material to the customer, but there is a limitation on our part because whenever Asian and Berger paints increase their prices, then we are able to increase our prices. Otherwise, not. But in the last quarter, there was a price hike of around 2% to 3%. And we have also taken the similar price hike in our MRP prices.

Understood. So can you give an idea of what is going to be the trend going forward in the coming quarters?

In the coming quarter, we are not seeing any further increase in the raw material price, except 1% or 2%. So that will depend on the strategy of big players. If they are increasing their price, then we will definitely increase the price. Otherwise, not. But we are not seeing any much fluctuation of the raw material price as well as the selling price.

Okay. And sir, the next thing that I wanted to ask was, can you please pass comment on the demand scenario for paints business in Q1 FY '23?

Yes. Demand is increasing as compared to last year. Last year, we sold around 5,000 KL, and this year, we are able to [ sell ] around 8,000 KL. And in terms of value, we sold around INR 33 crores material in the Q1 last year. And this year, we have INR 54 crores. So there is a demand. Demand is increasing in this year.

Okay. Great. And which regions are you looking to enter going forward?

[ In fact ], we have 33 sales depots across India. And obviously, East and North is better than the South and West.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the 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 Strategic Growth Advisors, our Investor Relations advisers. Thank you once again.

Thank you. Ladies and gentlemen, on behalf of Kamdhenu Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines.