Kamdhenu Limited (KAMDHENU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 H1 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, Mr. Agarwal.

Good afternoon, and a very warm welcome to everyone present on the call. Along with me are Mr. Harish Agarwal, Chief Financial Officer and Strategic Growth Advisor, our Investor Relations Advisor. We have uploaded the result and investor presentation for the quarter on the stock exchanges and company's website. Hope everyone has a chance to go through the same. India, the world's second largest crude steel producer, posted 11.4% growth in finished consumption during April to October to 65.5 million tons. Indian demand remains the bright spot in major steel markets as domestic consumption is seen growing at a high single-digit rate over the next 12 to 15 months. The steel industry is poised towards growth on the back of construction sector, which is going to a pan-India driver of steel demand in the country. This would be driven by strong government thrust for infrastructure development and housing for all. Further support to the development of the steel industry is expected to come through the Make in India initiative. The demand for TMT bar has also been picking up on account of demand from the infrastructure and the essential projects, which will be huge. Demand for decorative paints have 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. We are poised towards growth by focusing on the premiumization of portfolio. On the raw material front, commodity prices have been very volatile and have seen a sharp rise, but now the prices seem to be stabilizing gradually. Our company has reported a revenue growth of 25% year-on-year to INR 191 crores for Q2 FY '23. For H1 FY '23, revenue stood at INR 382 crores, delivering a growth of 44% year-on-year. With the wide portfolio of products from TMT bar, structural steel and color coated profile sheets, we are well established to cater any demand going ahead. We further plan to expand our franchise and dealer network and also enhance the steel TMT capacity by increasing annual production capacity from 38 lakh metric tons to 50 lakh metric tons through franchisee route by FY '24. We have an increased focus on own manufacturing and franchisee business along with a pre-curated business strategy of reducing B2B trading sales which relates to lower working capital, hereby enhancing capital efficiencies. We command a dominant market share in the organized retail segment of steel and paint industry. With our strong brand, new product categories in decorative paints, marketing and distribution network and unique asset-light model, we are well placed to capture any opportunities in future. Focus of paint business continues to penetrate into existing markets, explore new markets and expand the dealer network in Tier 2, 3 and 4 cities. Our strategy remains on manufacture and sales of premium paint products and reduction in manufacturing of commoditized products. In order to achieve this goal, we are outsourcing our low value products from contract manufacturers, adhering to the stringent quality standards. We wish to inform that the Kamdhenu Ventures Limited has received an in principle approval from BSE and NSE on 3rd November and 7th November, '22, respectively, for listing of equity shares pursuant to the scheme of arrangement. We are delighted to inform that we are raising funds to the tune of INR 70 crores. This will help to reduce our debt and make us debt free, which will also help create a better brand positioning in the industry. The company's Board of Directors has decided to create offer, issue and dealer, convertible warrants on a preferential basis in one or more tranches up to a maximum of 50 lakh balance. Each warrant gives the holder the right to convert into equity shares with the face value of INR 10 and get one fully paid up equity share in exchange for each warrant within 18 months of the date of issue at a price of INR 141. With this, I would 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 Q2 and H1 FY '23. Our steel volume, including franchisee route have stood at 6.8 lakh metric tons in Q2 FY '23 as compared to 6 lakh metric tons in Q2 FY '22, a year-on-year growth of 13%. For H1 FY '23, steel volume grew by 21% to 14.1 lakh metric tons. Our TMT volume from own facility stood at INR 26,785 MT in Q2 FY '23 as compared to INR 25,190 MT in Q2 FY '22, a year-on-year growth of 6%. For H1 FY '23, TMT volume grew by 21% to INR 51,214 MT. Total brand turnover for Q2 FY '23 stood INR 4,916 crores as compared to INR 3,792 crores in Q2 FY '22, a growth of 30% year-on-year basis. For H1 FY '23, total brand turnover grew by 40% year-on-year to INR 10,225 crores. Royalty income through franchise stood at INR 26.2 crores in Q2 FY '23 as compared to INR 22.5 crores in Q2 FY '22, a growth of 16% year-on-year basis. For H1 FY '23, it grew by 22% to INR 53.8 crores. Revenue from own facility was up by 24% to INR 155.8 crores in Q2 FY '23 as compared to INR 125.5 crores in Q2 FY '22. For H1 FY '23, it grew by 44% to INR 308.40 crores. Total sales from steel business stood at INR 191.3 crores for Q2 FY '23 as compared to INR 152.7 crores for Q2 FY '22, a growth of 25% year-on-year basis. For H1 FY '23, it grew by 44% year-on-year to INR 382.5 crores. Our EBITDA stood at INR 12.2 crores in Q2 FY '23 as compared to INR 10.7 crores in Q2 FY '22, a growth of 14%. For H1 FY '23, it grew by 10% to INR 27.6 crores. Profit before tax stood at INR 10.9 crores for Q2 FY '23 as against 10.1 crores in Q2 FY '22, a growth was 7%. And H1 FY '23, it stood at INR 24.4 crores, a growth of 4% year-on-year basis. Pursuant to scheme of arrangement becoming 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 day. Therefore, the company has not disclosed the consolidated financials with effect from 1st April, 2022, onwards. Although I shall now take you through the financials of Paint business. The total sales from Paint business for Q2 FY '23 stood at INR 64.4 crore as compared to INR 62.9 crores in Q2 FY '22, achieved a growth of 2% year-on-year basis and grew by 24% in H1 FY '23 to INR 119.1 crores. Our overall volume from own manufacturing and outsourcing stood at 8,590 KL in Q2 FY '23 as compared to 8,351 KL for Q2 FY '22, a year-on-year growth of 2% and it grew by 16% year-on-year to 15,601 in H1 FY '23. EBITDA for Q2 FY '23 stood at minus INR 0.7 crores as compared to INR 3.1 crore in Q2 FY '22 and stood at minus INR 0.5 crores in H1 FY '23 as against INR 0.3 crores in H1 FY '22. Our profit before tax was minus INR 1.9 crores in Q2 FY '23 as compared to INR 0.3 crores in Q2 FY '22 and for H1 FY '23, it stood at minus INR 5.7 crores. With this, I would like to open the floor for question and answers.

[Operator Instructions] Our first question is from the line of [ Prachi Sharma ] from [ Ace ] Investments.

I just have a couple of questions. In our Paint business, what is the proportion of business from our own manufacturing and what is outsourced?

In this first half, we have turnover of INR 119 crores. Against that, INR 92 crores from own manufacturing and around INR 27 crores from the outsourcing business.

All right, sir. So my next question is, so as you mentioned, our royalty income grew by 16% year-on-year and 22% in H1. Could you tell the amount of royalty our company charged per ton?

Yes. The average for 6 months is INR 384 per metric ton. And the volume is, in the Q2, it was 6.82 lakh metric tons as against 6.02 lakh in the last year Q2. For H1, last year, it was 11.66 lakh metric tons, and this year, it is 14.12 lakh meteric tons.

[Operator Instructions] Our next question is from the line of Akshay Jain -- I'm sorry, [ Ashay Jain ] from [ Jain Capital ].

I have a couple of questions. Firstly, what is the -- what were your branding and promotion expenses for steel business for this quarter -- last quarter, Q2 FY '23?

In the Q2 FY '23, it was INR 12.5 crores jointly spent by Kamdhenu as well as its franchisee units.

Okay. And secondly, how is the demand scenario for Paint business? And how do you see it panning out going ahead?

Yes. You see demand for Paint business is continuously growing. As you know, Kamdhenu is only working for the decorative segment and decorative paints. And you can very well understand that the Q2 was a rainy season and we were having huge floods in each and every part of the country. And accordingly, in Tier 2, Tier 3, Tier 4 cities, the demand for low-priced items, that means distemper, putty, primers and low-priced enamels or emulsions was there. No doubt, growth of the total volume in our unit was there. But just because of the sale of low-priced items, the overall working and, you see, overall profit were not reflected accordingly as we were expecting. But now, October onwards, the demand for the premium products has come back and hope Q3 will be much better than the expectation.

Our next question is from the line of [ Shivam ] from [ VG ] Brothers LLP.

Am I audible?

No, sir, we cannot hear you very clearly.

Hello? Yes. Now I am audible?

Sir, are you on your handset? Can you switch your handset, please?

Yes, I'm on my handset only.

Go ahead, sir.

Sir, I would like to ask a question. Actually, I'm somewhat new to your company. So can you just tell me about some of the -- some of your competitors, which companies plays in TMT bars?

[Foreign Language]

Hindi and English both are fine.

Okay, okay. [Foreign Language]

Okay. Sir, competitors [Foreign Language], competitors?

[Foreign Language]

Okay. And sir, South [Foreign Language] like Beekay Steel has a lot of presence. So are your margins better in South from Beekay Steel? Or is it like competitive?

[Foreign Language]

[Foreign Language]

[Foreign Language], sir, South [Foreign Language] how are the margins?

Compared to other part of the country, South [Foreign Language]

Is it because of the dominant presence of Beekay Steel in South?

No, no, not due to dominant presence. It is because we just entered the South late, after 10 years. We entered this business in North in 1995. In South, we entered the business in, say, 2015. So slowly and slowly we are progressing the sales in the South also.

[Operator Instructions] Our next question is from the line of [ Akash Mehta ] from [ Capaz Investments ].

I had 3 particular questions. First one is on the utilization level. So can you tell me the current utilization levels at your Steel and Paints plants?

From 80% capacity utilization in the Steel business. In our Paint business, we are gradually [indiscernible]. But right now, it is around 35%.

Okay. And second question is on the demand scenario. So could you throw some light on the demand scenario for your Steel products? And also, how is the trend in the prices of raw materials been?

I think it has been answered in the day 4 -- I think in the previous question, it has been answered. And again...

Sir, I may have missed out.

[Foreign Language]

Correct, sir. And now the last question, how do we plan to increase our current franchise and dealers' network as such?

[Foreign Language]

[Operator Instructions] Our next question is from the line of [ Abhishek Dave ] from Bright Securities.

Hello?

Yes, sir, we can hear you now.

Yes. Okay. I would like to ask, in our Steel business, revenues from our own facilities were up by 24% in quarter 2 and by 42% in H1 FY'23. Was this growth driven by volumes? Or was it on account of higher realizations?

Can you repeat the question? Actually, your voice was [ blurry ]? Can you repeat the question?

Hello? Hello?

Can you just repeat the question?

Yes. Am I clear now?

Yes.

Yes. In our Steel business, revenues from own facilities were up by 24% in quarter 2 and by 44% in H1 FY '23. Was this growth driven by volumes? Or was it on account of higher realizations?

It was mix with the realization and with the volume. Then the volume -- if you want to know the volume, then the volume has increased from own manufacturing. That is in the Q2 last year, it was 25,190 metric tons. This time, it is 26,785. For the H1, last year, it was 42,108 metric tons; and this time, it is 51,214 metric tons. So this is -- way of volume, it is increased to 22%. But in terms of value, it has increased to 44%.

Okay. One more question. Can you throw some light on the CapEx plans in your both businesses?

In the Steel, we are not having any CapEx plan. And in the Paint business, at a level -- first, we would like to utilize our capacity. Then thereafter, if we achieve the turnover of INR 500 crores to INR 600 crores, then we are planning to have another plant. But in the next 1 year or 2 years, there is no CapEx plan.

Our next question is from the line of [ Anup Shah ] from [ Srinath ] Securities.

So congratulations on the fund raise. I just wanted to understand why are we doing it in the Steel business and what are our plans?

Yes. Our plan is -- in fact, we have aimed to reduce our debt and to make the company 0 debt and also to have new brand positioning. And the other is redefining our franchisee business model. So this is the main objective of the fundraising.

Okay. And any update on the fund raise in the Paint business?

Yes, we are planning on that. In the last interview, I appraised that around INR 200 crores we are planning to raise the fund in the Paint business for re-positioning of brands and making some CapEx for the future, after 1 year or 2 years, and also working capital. We are planning to raise the funds by inducing some strategic investors.

Our next question is from the line of [ Parth Wasani ] from PK Advisors.

I just had one question. Sir, can you tell us by when the Kamdhenu Ventures will be listed?

Yes, within this quarter.

Okay, within this quarter. Okay.

We already got the in principle approval, and it is expected that SEBI will clear the proposal in November and the corporate action and some other formalities will be complete in December itself.

[Operator Instructions] Our next question is from the line of [ Sandeep Goyal ] from [ Devi Fintech ].

So you just mentioned about that your capacity utilization for Steel business is around 80%. So is it for the franchisee business or...

This is our own plant.

Okay. And what about franchisee?

Franchisee is around 60% capacity utilization.

Okay. So is it increase or decrease from the previous one?

Yes, it is increasing.

Thank you very much. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Yes. 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 [ SC ], our Investor Relations Advisor. Thank you once again.

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