Kamdhenu Limited (KAMDHENU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of Kamdhenu Group. 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 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, I have Mr. Harish Agarwal, Group CFO; Mr. Saurabh Agarwal, MD of Kamdhenu Ventures Limited; and SGA Advisors, our Investor Relations advisers. We have uploaded our results and investor presentation for the quarter on the stock exchanges and company's website. Hope everyone had a chance to go through the same. We have delivered a strong performance for both the steel and paint in Q2 and H1 FY '24. Coming to our steel business first, that is Kamdhenu Limited. During H1 FY '24, revenue for the company stood at INR 393.6 crores, reflecting a growth of 3% on year-on-year. Total brand turnover for H1 FY '24 stood at INR 11,935 crores as compared to INR 10,225 crores in H1 FY '23. That is a growth of 17% year-on-year basis. In India, the demand for TMT steel bar is on an upward trajectory, spurred by robust construction activities in both urban and rural areas. These bars are favored for their strength and durability, making them essential for infrastructure development and real estate projects. As the nation continues to invest in modernization and building resilient structures, the demand for TMT bars is expected to maintain its strong growth momentum. What distinguishes us from our competitors is our franchisee and dealer-driven model. With a network of 8,500-plus dealers and a strong presence through our large number of franchisees, our brand's reach continues to expand significantly while being asset-light. We also have a strong brand name when it comes to providing superior quality products, further emphasizing the company's commitment to excellence. We have successfully navigated through short-term challenges by leveraging our capabilities while maintaining unwavering efficiency and will continue to do so going forward. Now I would like to hand over the call to Mr. Saurabh Agarwal to give you an update on the paint business. Over to you, Mr. Saurabh.

Thank you, and good afternoon, everyone. I would like to give you a brief on the paints business, that is Kamdhenu Ventures for H1 FY '24. In H1 FY '24, we continue to see strong momentum in the paints business. Revenues grew by 7% year-on-year to INR 127.5 crores. EBITDA stood at INR 8.9 crores, a significant turnaround compared to minus INR 0.5 crores during the same time last year. This can be primarily attributed to our constant efforts to improve our sales mix with a large focus on premium products. Demand for paints and steel has witnessed remarkable growth in recent years. This surge can be attributed to several factors, including a booming real estate sector, increased urbanization and a growing middle-class population with higher disposable income. Additionally, the government's focus on infrastructure development and affordable housing schemes have further fueled the demand for paints. As consumers seek to enhance the appearance and longevity of their products, there is a growing preference of innovative and eco-friendly paint solutions with a diverse range of choices and the construction and renovation sectors on the rise, the Indian paint industry is poised for continued expansion in the years ahead. Kamdhenu Ventures in H1 FY '24 has raised funds amounting to INR 65.25 crores through potential issuance of qualified institutional buyers. This fundraising endeavor served the crucial purpose of ingesting capital into Kamdhenu Colour and Coatings Limited, our wholly-owned subsidiary. A significant portion of the raised funds, INR 57.76 crores, has been invested in our subsidiary by the way of subscription of INR 57.76 lakhs, 0.01% optional convertible redeemable preferential shares of phase value INR 10 each at an issue price of INR 100 per share of KCCL. The funds have been utilized in several purposes, which includes meeting the working capital requirement of the paint business and the reduction in working capital debt. To further align with our commitment of recognition and rewarding our shareholders' trust, the Board of Directors of the company had approved the issuance of fully paid-up bonus equity shares of INR 5 each to the shareholders of the company in the proportion of 1:1. The bonus equity shares shall rank pari-passu. We at Kamdhenu Ventures continue to focus on underserved smaller town through our extensive distribution network. As the economy grows and these cities start urbanizing, the demand for paint-related products would rise with increased infrastructure projects. Our strategy would be to forge partnerships with numerous dealers to expand our reach across several geographies in India. We would also continue to improve our sales mix total premiumization of our product portfolio by launching a larger array of higher quality, innovative and premium products while expanding into new segments. The company has strategic planning of forging partnerships with numerous new dealers across India, augmenting its production capabilities by adding new plants, testing under-penetrated markets, premiumization of product portfolio through the launch of innovative products and expanding into new segments and expanding nationwide visibility. All together, Kamdhenu Paint has envisioned itself to become the preferred choice of customers. Our innovative and expansive product portfolio would be a key contributor to growth and help unlock further potential in this company for years to come. With this, I would hand over the call to our group CFO, Mr. Harish Agarwal, for the financials. Thank you all.

Participants, please hold on. We have got the line disconnected with the management. Please hold on. I'm trying to reconnect back with them. Yes, sir, we can move ahead. Participants, we have the management on the line. Sir, we can go ahead.

Thank you, sir. First, I would like to take you through the financials of the steel business. Now I would like to share the highlights for Q2 FY '24. Our steel volume from franchisee route has stood at 7.51 lakh metric tonne in Q2 FY '24 as compared to 6.82 lakh metric tonne in Q2 FY '23, a year-on-year growth of 10%. Our TMT volume from own facilities stood at 29,398 metric tonne in Q2 FY '24, registering a growth of 10% year-on-year. Total brand turnover for Q2 FY '24 stood at INR 5,804 crores as compared to INR 4,916 crores in Q2 FY '23, witnessing a growth of 18% year-on-year. Royalty income through franchisee stood at INR 29.6 crores in Q2 FY '24 as compared to INR 26.2 crores in Q2 FY '23, a growth of 13% year-on-year basis. Revenue from own facilities stood at INR 155.4 crores in Q2 FY '24 as compared to INR 155.8 crores in Q2 FY '23, having almost same level. Total revenue stood at INR 185 crores in Q2 FY '24 as compared to INR 191.3 crores, registering a degrowth of 3% year-on-year, mainly on account of reduction in B2B sales. However, EBITDA stood at INR 13.3 crores in Q2 FY '24 as compared to INR 12.2 crores in Q2 FY '23, a growth of 9% year-on-year. Profit after tax stood at INR 10.2 crores for Q2 FY '24 as compared to INR 8.2 crores in Q2 FY '23, a growth of 24% year-on-year. Now I would like to share the highlights for H1 FY '24. Our steel volume from franchisee route has stood at 15.68 lakh metric tonne in H1 FY '24 as compared to 14.12 lakh metric tonne in H1 FY '23, a growth of 11%. Our TMT volume from own facilities stood at 61,491 metric tonne in H1 FY '24, registering a growth of 20% year-on-year. Total brand turnover for H1 FY '24 stood at INR 11,935 crores as compared to INR 10,225 crores in H1 FY '23, a growth of 17% year-on-year. Royalty income through franchisee stood at INR 61.5 crores in H1 FY '24 as compared to INR 53.7 crores in H1 FY '23, a growth of 15% year-on-year. Revenue from own facilities stood at INR 331.6 crores in H1 FY '24 as compared to INR 308.4 crores in H1 FY '23, registering a growth of 8% year-on-year. Total revenue stood at INR 393.6 crores in H1 FY '24, registering a growth of 3% year-on-year. Our EBITDA stood at INR 29 crores in H1 FY '24 as compared to INR 27.6 crores in H1 FY '23, a growth of 5%. Profit after tax stood at INR 22.2 crores for H1 FY '24 as compared to INR 18.2 crores in H1 FY '23, a growth of 22% year-on-year basis. Let us go through the numbers of Kamdhenu Ventures Limited now. Kamdhenu Ventures reported strong performance during the second quarter and half year ended fiscal '24. First, to give you the highlights for Q2 FY '24. Revenue for the quarter stood at INR 65.8 crores as compared to INR 64.4 crores in Q2 FY '23, a growth of 2% year-on-year. EBITDA stood at INR 4.9 crores as compared to INR 0.7 crores last year, a large increase due to an improved product mix coupled with improving operational efficiencies. Our debt has turned positive to INR 3.4 crores in Q2 FY '24. Coming to the highlights for H1 FY '24. Revenue for H1 FY '24 stood at INR 127.5 crores as compared to INR 119.1 crores in H1 FY '23, a growth of 7% year-on-year. EBITDA stood at INR 8.9 crores as compared to minus INR 0.5 crores last year, indicating turnaround in the paint business. Our PAT stood at INR 5.6 crores, which was minus INR 5.5 crores in H1 FY '23. Average selling price per kg/liter for H1 FY '24 stood at INR 88. Water-based product contributed 83%; odor-based product, 6%; and solvent-based product, 11%. With this, I would like to open the floor for the question and answers.

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

So I had some questions on the steel business. Firstly, how are we planning to increase our franchisee and dealer network?

We have planned to increase the capacity through the franchisee route, which is at present, we have 40 lakh metric tonne capacity of TMT bar, which we are going to increase to 50 lakh metric tonne very soon. And we are continuously increasing our dealer network across India by appointing new dealers.

Okay. And what are our plans to increase our penetration in South and West regions?

Can you repeat the question?

So basically, what are our plans to increase our penetration in South and West regions?

Yes. We have the plan to increase the capacity of the franchisee unit, and we are also looking for the other franchisee unit to add the capacity in that regions.

Okay. Okay. And why has there been an increase in the short-term debt in the balance sheet?

No, it's a INR 1 crore against the FDR.

Sorry, sir, INR 1 crore?

Kamdhenu Limited steel company is a zero debt company. There is no term loan. There is no working capital. But in our balance sheet, you are seeing a limit of -- a borrowing of INR 1 crore. This is against the FDR, only limit against FDR.

Okay. And lastly, what would be the target brand turnover for FY '24?

We are targeting brand turnover of around INR 25,000 crores in FY '24.

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

Sir, my first question is with the overall slowdown in the household spending and the weak demand environment across the country, what are the strategies that the company has adopted to address the same?

About paint or business? Paint or steel?

Steel business.

[Foreign Language]

Sir, majorly paint business.

[Foreign Language]

[Foreign Language] of around INR 1,000 crores for FY '28 in paints business. [Foreign Language] How do you plan to reach that INR 1,000 crores of revenue by FY '28?

[Foreign Language]

Sir, lastly, [Foreign Language] new entrants which are trying to hold foot like Grasim and JSW, they are also entering the paints business with aggressive pricing and strategies [Foreign Language] Why will one prefer our paints over the other?

[Foreign Language]

Sir, last thing [Foreign Language]

[Foreign Language]

[Operator Instructions] The next question is from the line of [ Ms. Payal Shah ] from Investor.

My questions are related to the paint business. So my first question is, even though oil prices have gone up, our raw material costs have declined on a Y-o-Y basis. So could you please comment on the same, like...

[Foreign Language]

[Foreign Language] for this particular business?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] I think this will look good.

[Operator Instructions] The next question is from the line of [ Mr. Rajiv Mehta ] from ACE Capital.

Yes. So I want -- I had a couple of questions. So sir, could you throw some light on the demand scenario for the steel products and the paint business? And also how has been the trend in the prices of the raw material?

[Foreign Language]

Okay. Okay. And sir, so [Foreign Language] we've seen negligible contribution. So how do we expect it to continue going forward?

[Foreign Language]

Yes, steel business.

[Foreign Language]

Yes.

[Foreign Language]

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.

I would like to thank everyone for being part of this call. We hope we have answered your questions. If you need more information, please feel free to contact us or Mr. Deven Dhruva from SGA, our Investor Relations adviser. I would also like to extend my heartfelt wishes for Diwali and the upcoming festive season. Thank you.

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