Kamdhenu Limited (KAMDHENU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '25 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 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, MD and Chairman of Kamdhenu Limited. Thank you, and over to you, sir.

Good morning, and a very warm welcome to everyone present on the call. Along with me, I have Mr. Harish Agarwal, Group's CFO; and Mr. Sunil Agarwal, Chairman of Kamdhenu Ventures Limited and Strategic Growth Adviser, our Investor Relation Adviser. We have posted our results and investor presentation for the quarter and half year ended 30th September '24, on the stock exchanges and company's website. Hope everyone had a chance to go through the same. Coming to our steel business first. India's steel demand is poised for significant growth, driven by ambitious production targets and robust government support for infrastructure. After the recent Deloitte India and Indian Steel Association report, India aims to boost crude steel capacity to 300 million metric tonnes by 2030 and 500 million metric tonnes by 2037. In FY '24 alone, domestic finished steel consumption fell by over 14%, mainly fueled by construction and infrastructure. Future projections estimated demand could reach 275 million metric tonnes by 2034, underscoring steel's critical role in India's expanding economy and urbanization. After a challenging Q1, we are pleased to report a recovery of revenue growth for Q2 primarily driven by increased construction activities, despite some regional flooding challenges, Q2 FY '25 revenue reached INR 190 crores, reflecting a 3% year-on-year growth with our volumes sales saw a robust growth of 11%. We also witnessed robust sales volume growth from our own manufacturing facility of 8%. Revenue growth from our own facility has been low due to a fall in average sale price of TNT bars. With the government's emphasis on capital expenditure and substantial investment in activities and initiatives like Housing For All and other infrastructure projects, we expect an upsurge in demand for TMT bars in the near future. We also achieved significant improvement in PBT margins, which rose to 11% from 7.3% last year. Our brand reputation for quality and reliability continues to set us apart, attracting new franchisees and driving strong growth in royalty revenue, which increased by 11% to INR 33 crores. This royalty revenue remains highly capital efficient, delivering substantial returns with major capital investment by leveraging our brand strength. This performance underscores our ability to expand our franchisee network while consistently meeting customers' expectations for reliable products. We continue to see large growth opportunity due to several industry tailwinds, including a strong government push for infrastructure, which includes schemes like Housing For All initiatives and allowing that growth CapEx outlay for FY '25. And lastly, a shift of consumer preference towards branded construction material. To conclude, given the favorable dynamic within our industry, coupled with our robust brand, unique asset-light model and high-quality product offerings, we are well positioned to sustain growth going forward. Now I would like to hand over the call to Mr. Sunil Agarwal to give you an update on the paint business. Thank you.

Thank you, and good afternoon, everyone. I would like to give you a brief update on the paint business for the year gone by. India's paint business industry is set for a steady growth, driven by increasing urbanization, rising disposable income and a shift towards home and interior improvements across both urban and rural market. Valued at approximately INR 75,000 crores, the industry is projected to expand a CAGR of 9.4%, reaching an estimated INR 125,000 crores by financial year '29. This growth is supported by demand from residential and commercial projects, along with government initiatives in infrastructure and housing. Additionally, rising preference for premium product is gaining traction, alluding to the industry's potential for sustainable growth in the year ahead. During half 1 financial '25, our revenue reached to INR 109 crores, reflecting a year-over-year degrowth of 14%. EBITDA degrew to INR 7 crores from INR 9 crores in half 1 of '24 with EBITDA margin of 6.7%, while we navigate challenges such as the shift in the sharp period from Q3 to Q2 and a heavy monsoon in the Eastern region impacting demand, we anticipate a robust recovery in the upcoming season. Growth in rural demand spurred by a well-distributed monsoon, and our strong distribution network is expected to drive the sales momentum. Our expansive dealer distribution network remain critical to our growth and strategy, ensuring product accessibility across various markets, building strong partnerships with our dealers remain a priority as these relationships are essential for enhancing the market penetration, particularly in semi-urban and rural areas. Our commitment to premiumization continued to fuel performance as reflected in the increase of our average selling price per kg or per liter from INR 58 in the financial year '15 to INR 79 in half 1 of financial year '25, a growth of 37% over the year. Expanding our portfolio with premium and differentiated product allow us to meet evolving consumer preference, particularly the demand for quality and ecofriendly options. The strategy is not only strengthened revenue, but also enhance margin performance. With a comprehensive portfolio of quality products at competitive price, we are well positioned to meet diverse customer needs. Our sustained expansion, focus on innovation and dedication to sustainability equip us to navigate the current demand environment and support our growth trajectory. Coming to way forward, we will achieve growth through both higher values and increased volume. To drive value, we are working on raising our average selling price by focusing more on premium value-added products. For volume growth, we will expand further into regions where we have been building a strong dealer network. We are confident we can scale quickly by combining our unique dealer-driven model with the ability to offer high-quality product at affordable price. We remain dedicated to serving smaller undeserved towns through our wide-reaching network of over 4,300 dealers. With the economy growing and strong government support for rural development, we expect rising demand for paint products due to new infrastructure projects. We are excited about the path forward and are committed to delivering growth-driven improved profitability and cash flow conversion. To conclude, with a comprehensive portfolio of quality products at competitive price, we are well positioned to meet diverse customer needs. Our sustained expansion focus on innovation and dedication to sustainability equip us to navigate the current environment and support our growth trajectory. With this, I will hand over the call to our group CFO, Mr. Harish Agarwal for the financials. Thank you all.

Ladies and gentlemen, the management line has been disconnected. Please stay connected, we shall reconnect them shortly. Ladies and gentlemen, the management line has been reconnected. Over to you, sir.

Thank you, sir. I would like to take you through the financial of our steel business. I would like to share the highlights for Q2 FY '25. Our steel volume from franchise route had stood at 8.3 lakh metrics tonne in Q2 FY '25 compared to 7.5 lakh metric tonne in Q2 FY '24, the year-on-year growth of 11%. Our steel volume from own manufacturing stood at 31,778 metric tonnes sales compared to 29,398 metric tonnes, a year-on-year growth of 8%. Royalty income from franchisee stood at INR 33 crores in Q2 FY '25, as compared to INR 30 crores in Q2 FY '24, a growth of 11% year-on-year. Operation revenue stood at INR 190 crores in Q2 FY '25 as compared to INR 185 crores in Q2 FY '24, a growth of 3% year-on-year. Our profit before tax stood at INR 21 crores in Q2 FY '25 as compared to INR 14 crores in Q2 FY '24, a growth of 55% year-on-year. Profit before tax margin stood at 11% for Q2 FY '25, which was 7.3% in Q2 FY '24. Profit after tax stood at INR 16 crores for Q2 FY '25 as compared to INR 10 crores in Q2 FY '24, a growth of 56% year-on-year. Now I would like to share the highlights for H1 FY '25. Our steel volume from franchisee route had stood at 17.1 lakh metric tonnes in H1 FY '25 as compared to 15.7 lakh metric tonnes in H1 FY '24, a year-on-year growth of 9%. Royalty income through franchisee stood at INR 68 crores in H1 FY '25 as compared to INR 62 crores in H1 FY '24, a growth of 10% year-on-year. Total revenue stood at INR 375 crores in H1 FY '25 as compared to INR 394 crores, a degrowth of 5% year-on-year. Our profit before tax stood at INR 41 crores in H1 FY '25 as compared to INR 30 crores in H1 FY 24, a growth of 38% year-on-year. Profit before tax margin stood at 10.9% for H1 FY '25, which was at 7.5% in H1 FY '24. Profit after tax stood at INR 31 crores for FY '25 as compared to INR 22 crores in H1 FY '24 with a growth of 41% year-on-year. We continue to remain debt-free as on 30 September 2024. ROCE and ROE on an annualized basis stood at 28.9% and 22%, respectively. Let us go through the numbers of Kamdhenu Ventures Limited now. First, we will give you the highlights for Q2 FY '25. Revenue for the quarter stood at INR 55 crores as compared to INR 66 crores in Q2 FY '24, a degrowth of 17% year-on-year. EBITDA stood at INR 4 crores as compared to INR 5 crores in Q2 FY '24, a de-growth of 29% year-on-year. EBITDA margin stood at 6.3% for Q2 FY '25. Profit after tax stood at INR 1.2 crores for Q2 FY '25 as compared to INR 3.4 crore in Q2 FY '24, a degrowth of 65% year-on-year. Coming to the highlights for H1 FY '25. Revenue for the H1 '25 stood at INR 109 crores as compared to INR 128 crores H1 FY '24, a degrowth of 14% year-on-year. EBITDA stood at INR 7 crores for H1 FY '25 as compared to INR 9 crores in H1 FY '24, a degrowth of 18% year-on-year. EBITDA margin stood at 6.7% for H1 FY '25. Profit after tax stood at INR 3 crores for H1 FY '25 as compared to INR 6 crores in H1 FY '24, a degrowth of 50% year-on-year. Average selling price per kg or liter for H1 FY '25 was stood at INR 79. With this, I would like to open the floor for question and answer.

[Operator Instructions] The first question is from the line of Rajesh Mangal Agarwal from Rajesh Mangal & Co.

I have some couple of questions regarding this paint business. You told during this presentation, the paint business -- you told that this paint business industry India is INR 75,000 crores, okay? And our turnover in March '24 is only INR 292 crores. That is less than 0.5% of the total industry demand. So my question is what all we are taking -- what course of actions we are taking to improve this sale amount? Second question is regarding this, we have the dealer network of 4,364 in H1 '25, in your presentation, you have told that the total number of dealers is 4,364. And whereas in financial year 2010, it was 3,230. Only 35% we have increased the dealer network, only 35%. Hope this figure will not lead us for a better result. And third thing, in your presentation, you have given this, the total tinting machine is 1,450 only, 1,450, only, okay? We have dealer network of 4,364, whereas our tinting machine is 1,450, that is near about 35%. So -- and last but very panic thing is on 26 September, our share market price is INR 58. And today, it reaches to INR 20, a degrowth of 67%. How I can -- myself like an individual investor will see, [Foreign Language]. Please elaborate?

[Foreign Language]

[Foreign Language] we are planning to increase our sales to threefold, okay? So what is your criteria, what is your assumptions? How this figure we will increase?

[Foreign Language]

It's really very true. But sir, in my opinion, we should improve our dealer network also, and we are spending too much money in our advertisement also, we have such a huge celebrities for our advertisement. In your presentation, you have given so many actress names, details, et cetera. [Foreign Language].

Definitely, [Foreign Language].

[Operator Instructions] The next question is from the line of Riya Sharan from DT Capital. As there is no response from the current participant, we'll move on to the next question. The next question is from the line of Rohit from SK Securities. Ladies and gentleman, the management line has been disconnected. Please stay connected. The next question is from the line of Ashish Raut from BSM Securities.

So the first question is on the paint segment. So our dealer count has remained stable at approximately 4,360. Are there any specific challenges affecting the dealer network expansion for our business?

[Foreign Language].

Okay. Okay. And my second question is on, can you explain the primary reasons for reduction for TMT bar? Are there any specific markets or supply chain factors driving the same?

Repeat your question.

Okay. Can you explain the primary reason for the reduction in our average selling price for TMT bar? Are there any specific market or supply chain factors driving this?

No, no. Pricing, you mean to a pricing [Foreign Language] TMT bar [Foreign Language]?

Yes, yes, yes.

[Foreign Language]

The next question is from the line of Anisha Saha from KU Advisor.

I wish to have two questions on the paint segment. So I wanted to ask what are their targets, split between the value and volume for the growth for... [Technical Difficulty]

The line for the current participant has been disconnected. The next question is from the line of Atul Daga from Daga Securities.

I just had two questions on the paint segment. Sir, could you share the earnings guidance for the next 2 years considering current market trends and strategic initiatives?

For next 2 years? Hello, what you want for the next 2 years about the paint?

Yes. Could you share earnings guidance for the next 2 years considering market trends and strategic initiatives?

In fact, we have made a road plan for next 4 years. And we are targeting to achieve the turnover of INR 1,000 crores from the present level with a margin of around 15% EBITDA.

Yes. Yes.

Will it be sufficient for you?

Got you. Sir, one more question I had, is Kamdhenu Paints grows as a brand, right? So how are you tracking penetration in terms of market share? And what are your goals for new some like on this?

For new?

Sir, as Kamdhenu Paints grows as a brand, so how are you talking penetration in terms of market share? And what are your goals -- can you shed more light on this?

[Foreign Language] most of the sale, around 80% sale is coming from Tier 2 cities. So Tier 2 cities [Foreign Language].

The next question is from the line of Puja Mehta from JC Securities.

Sir, I have one question. With the government initiatives like the Housing For All and increased CapEx outlay, how much growth in demand for the TMT bars are we expecting in FY '25?

We are expecting 15% growth in the FY '25 in term of 1 year.

The next question is from the line of Riya Sharan from DT Capital. As there is no response from the current participant, we will move on to the next one. The next question is from the line of Anisha Saha from KU Advisor.

I got disconnected earlier. I just had two questions from the paint segment. So my first question was, what will be our target split between value and volume for the growth of the paint segment?

The line for the current participant has been disconnected. The next question is from the line of Rohit Mehra from SK Securities.

My question is regarding the steel segment. Could you clarify the main factors contributing to the relatively flat brand turnover revenue? And how do you see this evolving in coming quarters?

[Foreign Language]

[Operator Instructions] The next question is from the line of Yug Modi from AP Capital.

Sir, just had one question. What specific steps are being taken to expand the dealer network further, particularly in the semi-urban and rural areas where demand is projected to grow?

[Foreign Language]?

Sorry to interrupt, the current participant has left the queue. [Operator Instructions] The next question is from the line of Kamdhenu, who is an individual investor.

Sir, paint business [Foreign Language] there's a degrowth in terms of turnover and profit after tax. So as an investor, we're really worried about the going concern of the company. [Foreign Language]?

[Foreign Language] There is no worry at all about the going concern. [Foreign Language].

[Foreign Language]

[Foreign Language] going concern is driven by balance sheet, not by the P&L. You are referring P&L and asking the question on the balance sheet. So going concern...

[Foreign Language] the price of the share matters the most. We have invested the money for the growth of it, not for the erosion of it. Now from the peak of the price, it has shattered by 70%, which is a great concern for a retail investor like me.

Yes. That's fine. That's fine. [Foreign Language] market forces, international forces, economic forces [Foreign Language].

The line for the current participant has been disconnected. The next question is from the line of Yug Modi from AP Capital.

Sir, I just had two questions. Sir, what specific steps are being taken to expand our dealer network further, particularly in semi-urban and rural areas where the demand is projected to grow for our paint segment?

[Foreign Language].

Okay. So lastly, could you share our target for adding franchisee capacity in FY '25? Are there any new partnership in progress that will support this expansion for our steel business?

[Foreign Language] 34 lakh metric tonne, 35 lakh metric tonne TMT bar and other steel products [Foreign Language] the main important [Foreign Language] Kamdhenu being a marketing and branding company. [Foreign Language] franchisee or stakeholders [Foreign Language] all over India, [Foreign Language] but that is only through the franchisee route.

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

Thank you, all. I would like to thank you, everyone, for being part of this call. We hope we have answered your questions. if you need any more information, please feel free to contact us or Mr. Deven Dhruva from SGA our Investor Relation Adviser. Thank you once again.

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