Mallcom (India) Limited (539400) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mallcom (India) Limited Q4 and FY '24 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Ms. Stuti Shah from Valorem Advisors. Thank you, and over to you, ma'am.

Thank you. Good morning, everyone. My name is Stuti Shah from Valorem Advisors. We represent Investor Relations for Mallcom (India) Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the fourth quarter and financial year 2024. Before we begin, let me mention a short cautionary statement. Some of these statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which would cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by the information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management team participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Rohit Mall, General Manager; and Mr. Shyam Agarwal, CFO. Without any further delay, I request Mr. Rohit Mall to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Stuti. It is a pleasure to welcome you all to our earnings conference call for the fourth quarter and financial year ended 2024. Let me give you some of the operational highlights for the quarter and financial year ended 2024, after which our CFO, Mr. Shyam Agarwal, will brief you on the financials. The company achieved a branded sales percentage of 41% during FY '24, up from 36% in FY '23. This was because of rising demand of branded range of PPE in India, Middle East and Southeast Asia. This was also in accordance to the lackluster growth in Europe and some supply chain issues that we face for our private label market. As you may be aware, in the financial year 2024, the government manufacturing unit at the city was fully shifted to and integrated with the newly set up government unit in Chandipur, West Bengal. This new facility offers larger infrastructure, increased space and higher manufacturing capacity leading to improved productivity. The temporary disruption in the raw material supply chain for the government unit, as reported earlier, has been completely resolved, contributing to higher turnover and productivity during Q4 FY '24. On the CapEx front, in the first quarter of FY '25, the company commenced the second phase of expansion at Chandipur, West Bengal, setting up a new unit for manufacturing industrial safety shoe. This project involves a built-up floor area of 50,000 square feet with a CapEx of INR 20 crores. Commercialization is expected by the fourth quarter of FY '25. The total CapEx outlay for FY '24 was INR 26 crores, and the company plans to invest an additional INR 60 crores in FY '25 funded through internal accruals. Additionally, the greenfield project at Sanand, Gujarat for Protech gloves and other PPE is progressing as scheduled with the first phase of construction likely to be completed by July 2024, an investment of INR 38 crores has already been made with an additional investment of INR 40 crores before the unit becomes fully operational. During the FY '24, the company maintained a long-term rating of A with stable outlook assigned by ICRA. The company retained its status as three star export house and an ARO status holder, awarded by the Ministry of Commerce and the Ministry of Finance, respectively. Now I will request Mr. Shyam Agarwal, our CFO, to brief you on the financial performance of the company.

Thank you, Rohit, and good morning to all the participants. I would like to provide an overview of our financial performance for the fourth quarter and the financial year ended 2024. In the fourth quarter, the company achieved its highest consolidated quarterly turnover of INR 122 crores resulting in a growth of almost 9% year-on-year. EBITDA for the quarter stood at around INR 17 crores, with EBITDA margin at 13.48%. The net profit was reported at around INR 12 crores with PAT margin of 9.64%. For the financial year ending 2024, the company's operating revenue reached around INR 420 crores indicating a flattish growth of almost 3% year-on-year. EBITDA for the year stood at around INR 58 crores, which declined marginally by 1% with EBITDA margin of 13.72%. The net profit was reported at INR 36 crores with a PAT margin of 8.63%. Thank you. With this, we can now open the floor to the questions-and-answer session.

[Operator Instructions] The first question is from the line of [ Saki Nasa ] from [ Nasar Investments ].

Sir, congratulations on a decent set of numbers in a kind of a muted international environment. As I see, India has performed pretty well compared to your international operations. Sir, I would like to understand the growth -- I mean what next for 2025-'26? What kind of growth rate you are looking for and also your mix between India and international and also Mallcom brand and your white label thing, sir? And also a bit of margin profile with your new production facility coming up.

Thank you for the question. So we -- in terms of growth, we are expecting something like a 15% growth from here for the next year and we're geared up for that. In terms of -- so India versus rest of the world and branded versus white label, so branded is mostly in India, so I'm going to use it interchangeably. So the percentage split, we are looking at a similar percentage split as what we had this time or so -- maybe it could be a slightly increased percentage in white label because the white label did not perform that well this year, so we are hoping to recover that. So I don't see much difference in the percentage split for '25-'26. And I think the margin profile we are expecting to have something similar as compared to this year because a lot of the products, which are going to be launched new are going to come only in the latter half of the year.

Sure. And Rohitji, did you -- are you noticing a better compliance from the Indian industry in terms of safety standard, sir, going forward? Or I think the government is tweaking labor rules and stuff like that, at least in terms of safety. So do you see that on a ground level, sir?

Yes, definitely. That is happening. So the labor regulations are getting stricter and -- so from all ends, I think, this is happening from the government's end, from the authority's end, let's say, the Bureau of Indian Standards as well as the company, some of the MNCs or the larger corporations in India, they would like to follow a certain level of safety standards and comply to it. So I think it is happening from both ends. Yes.

And a question for Shyamji, sir. What level of debt would you be happy with, sir, till the year end and the next year, sir?

Talking of debt?

Yes.

Yes. See, basically, we are not borrowing anything to meet our long-term capital requirement, so only working capital. So as you see, the level remains almost -- debt equity is 0.25 to 1. And see, already we are sitting with some cash, which is, you can see it in our balance sheet. So I think it should remain similar because we are generating cash and we already have cash in our balance sheet. So nothing much is going to change. And the only borrowing we'll have would be working capital borrowing.

[Operator Instructions] The next question is from the line of Agam Shah, an individual investor.

Sir, a quick question. On the CapEx front, you said, broadly INR 38 crores we have spent. And including both the units, Sanand and Ghatakpukur, we'll be spending another INR 60 crores, right, in next year?

Yes. Yes, yes, that is correct. Yes, INR 60 crores minimum we plan at CapEx for FY '25, right?

So including this as well as INR 38 crores, which you have spent this year, so approximately around, let's say, INR 100 crores. So when can we see the full benefits of all this coming in? And what kind of asset turns can we do on this CapEx? When can we have the optimum utilization levels, which you foresee?

So let me just explain you how it is happening and why it is happening. So we have already stated our -- the target -- until FY '28, we target INR 1,000 crores and for that, we needed to prepare this infra ready and to whatever demand comes in future and so we can meet that demand and we should have infra ready. And this is -- the second point is that Mallcom is a 40-year old company, and we needed to replace and consolidate also our facilities. So both things happening together. So CapEx, which we have done recently last 2, 3 years and still going on is a major one. And now we see that it will take care of both the consolidation, replacement and future growth requirements. And target for this is already stated. So we expect a 50% minimum growth for next year. And let us see that we achieve this target of INR 1,000 crores by FY '28.

Sure. Sir, the number you stated by FY '28 that will require at least 20% CAGR revenue growth. So FY '26-'27 will cover up for it since you are targeting next year 15% growth, so is it like that? So once all the CapEx is...

Yes, target remains, we are not changing this. So we will be definitely trying to meet that and that's why we are investing, and all the investments and the CapEx happening is on track.

So the growth will be back-ended, right, towards the target? So FY '26-'27 will see a much larger growth, right, in this event?

This is what we target. This is what we target, yes. The plans are like that only, yes.

Okay. And what can be the margins then when we reach, let's say, INR 800 crores, INR 1,000 crores by FY '28?

Margin should be in the range only. So whatever -- see, the product profile is not changing much. But yes, with the better technology and some upgrades as per market requirement, but product more or less remain same. So margins should be in the range -- at that range only. Whatever we are doing a little bit variation, but not much expected.

So can you increase more than 15% or not, or remain in that range?

See, definitely, we will try, but as of now, it is in the range of 14%. So it may be 50 basis points up or low, that is possible.

Okay. And there were some -- I think, this year also there was some land sale or which you were planning to do. So any updates on that?

Yes, it is happening. It is in progress. So yes, we have already shifted our unit, garment unit and the land is already in the process of development now, yes.

And what kind of cash flow we can expect from that?

That we need to wait and see. So we have -- you already know the -- it depends upon the market. So we cannot predict anything as of now.

The next question is from the line of Dilip Sahoo, an individual investor.

So sir, I just wanted to understand in terms of -- like you rightly said, brand and India business are kind of synonymous and non-branded and export are also synonymous. So our growth of, say, 20%, 25% over the next 3 years or maybe that will take 4 years, it doesn't matter whether you are at INR 1,000 crores at '28 or '29, but is it predicated on a similar growth in both branded and white goods? That's question number one. And my second question is, coming to the distribution of product, which is basically hand and feet versus body, is there a margin difference, and the manufacturing versus outsourced difference between, say, gloves and shoes versus -- and headgear versus a garment or something? Is there a -- are we manufacturing certain items in-house versus outsourcing? And what kind of margin difference is there?

Okay. Yes, so with regards to your first question, growth -- so until actually last year, we were predicting a lot higher growth in the branded sales versus the white label. However, some -- because of some of the geopolitical changes, which are happening and maybe some -- a lot of big countries are going for elections. So waiting for that also because that will decide a lot of things how supply chain moves across the globe. So if that is favorable, so that can mean also decent growth from the white label also. So now we are hopeful for a white label business also experiencing a decent growth. It remains dependent on some of the macroeconomic factors and the geopolitical factors. So we'll have to just wait for that. But yes, we are hopeful of the growth and much higher growth in branded sales as compared to a white label. And with regards to the distribution of products and the margin difference. So usually, all our margin profiles are dependent on whether it's branded or unbranded and what product category. So usually leather gloves is something which in at least the private label space does not command that much margin. Rest are overall on a similar margin profiles that you see on an overall level. And most of our products are in 90% or maybe more, 95%, we are manufacturing on our own. So we don't outsource, let's say, manufacturing and even -- only the ones that we're doing are some stitching pieces, things like that, which the factories cater to us only, but the final good is definitely coming out of our units for 90%, 95% of the cases. Only in case of our branded products, we are importing some items.

Good. Good. My understanding is that if you are going to, say, grow at 20% for next 5 years, you are saying that the branded India business will grow higher than 20% and non-branded and international business will grow lower than 20%, on the assumption that the geopolitical situation across was great, fantastic. Now I just scanned around Peenya, which is a large industrial area in Bangalore and went to a couple of places, which basically fell into this head and feet and protective, this thing. Now within the branding, what I saw is a bunch of carton lying and these stores are very industrial in nature and there's no real branding per se, of any competitor real either. But essentially, the visibility of the product brand is a bunch of cartons lying in the front of the -- this thing. And of course, our Mallcom's cartons looks much better than the competitor carton in terms of -- it's not sagged and it's not broken. But necessarily, what do you mean by branding in this kind of a business?

Right. Firstly, I would like to thank you for the question and the effort that you took to be a real investor and check what is happening on the ground. So much appreciated. So just on the branding front, yes, absolutely correct that at our dealer's place, there's very little scope of brand visibility because of the space availability with them. We've tried to do something in the past, but it hasn't worked really well because they would like to maximize the space with the stocking of the products than any other thing. So what we do essentially to build our brand is we reach out directly to the end user and try to create a pull from them. So for example, we'll regularly do technical symposiums, our seminars in industrial belts, where we'll call all the safety officers and purchase officers and explain them more about safety, about new products that we are doing. And so that's something that we do. Other thing is we do some outdoor campaigns where hoardings or branding are in the outside place, but again, more in the industrial belts. We've recently done some ads on, let's say, OTTs and theaters, mostly catering to Tier 2, Tier 3 cities because that's, again, where our audience is. We do a lot of digital branding and marketing. So from each division as well as branding on digital front. That's something that we are regularly doing. And again, participated in exhibition, different industries, different locations. We regularly participate there and that's where we talk about our brand. So these are some of the various avenues where we try to establish our brand.

Yes. Sure. In terms of hand and feet, those are like must essential you cannot -- they are "nondiscretionary" for many of this industrial unit. And obviously, that reflects in our product also, they are more than 60%, 70% of our business. What would be the other things like eye protection and body protection? Is there -- so I think we are well placed in hand and feet, but what about the garments and eyes, and those so-called not essential, which may not be. In many factories, if you go to India, they don't use eye gears or body gears, et cetera. So how -- is this industry specific, how you're trying to promote these 2, 3 product lines?

Right. So with regards to workwear, it's very -- again, a very highly competitive segment in India per se because there's no such standard, which has to be followed. So any tailor who can get hold of the fabric is essentially our competitor. And in these cases, because there are a lot of sizes and customizations, people tend to nearshore all these suppliers so that they get faster supplies. So here, we are trying to focus on quality. We are trying to focus on larger brands where -- and let's say, international brands, where they have a certain specification, where they would like to need certain criteria or standard and that's where we would like to target our energies, too. So we are not trying to compete with anybody and everybody in this segment, we are trying to do specialized work only. But definitely, we have to put in more effort into that domain, and we have started doing that. Recently launched our high visibility vests for the market, some specialized coveralls, flame retardant, et cetera. So that's what we are doing on the workwear end. And on the eyewear and things like that, yes, that is also something that we are currently trading only. But in the future, we plan to manufacture those items as well. And it's, again, it's a more volume less value item and not something, which is used everywhere or people don't feel the need to use it. And again, goes back to some standards being followed. MNCs coming in and the government making it mandatory, so that should help elevate the market, but we are gearing ourselves. So in the next 2, 3 years, we'll definitely see some movement in that segment as well for ourselves.

Great. Can I ask 1 last question or I can come back in...

Sorry to interrupt. I request you to come back for a follow-up question. [Operator Instructions] The next question is from the line of Harsh Doshi from Analyse India.

I wanted to know whether the garment supply chain issue is 100% sorted now? And is that the reason for healthy revenue in Q4?

Yes. That is one of the main reasons because there were a lot of backlogs, which had been created, so with orders in hand, we were not able to execute it. And now we've completely come out of it and have been able to establish different supply chains, yes.

Understood. Also, I wanted to know what was the capacity utilization level in Q4 and the full financial year?

See, basically, it would be flexible. So it goes by different product categories. So maybe talking of leather gloves, it is almost 90%; maybe garments, it is 20%. And for synthetic gloves, it is around 70%; and your safety suits, it is again almost around 80% we are doing. But it is flexible. So it is not fixed like it is not in a continuous processing plant, so we can work in 1 shift or 2 shift depending upon -- some of the product category, we can outsource also. So part of the manufacturing process can be outsourced also. But on the standard capacity, the way we are working, the range I explained, that is what we are doing and it remains almost similar in all the quarters.

Understood. Understood. Okay, sir. Sir, last question. What would be a typical asset turn in our industry?

That is a bit difficult to -- because industry itself is -- so we hardly find our peers and very hard -- information is not publicly available because you may compare us with some of the listed entities doing safety shoes business, very few are into garmenting. And gloves, I don't find much of the listed entities, so it would be difficult to compare.