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

Okay. And sir, are there any chances like in other export -- other industries and BS IV was implemented where it's difficult to import from China. Is there anything possible in our industry also?

Yes. That's what I was mentioning that if we have the required certification by BIS, then it will start getting more difficult to import. So in the products which there are certification required, it is -- the imports are far, far lesser than in products where no certification is mandatory.

So okay, within your segment, you are saying in some products it's mandatory, some products it is not mandatory, right, sir?

Yes, right.

Okay. And has this happened in the last 2, 3 years because of which we are seeing some growth?

Has what happened?

The BIS implementation, has this happened in the last 2 years or it's an old phenomenon?

So BIS is continuously updating the certifications, adding some new certifications as well. But for our product range, no, the ones which don't have it, nothing has happened in the last 3, 4 years and the ones which have BIS have been there for quite a few time -- a few years, yes.

Okay. And sir, now on gross margin, I wanted to understand what is the gross margin difference between our white label business and branded business?

So it is not -- as we also mentioned earlier, it is not depending upon white label and branded. It depends on the product category. So on average, it is in the range of 15%. So maybe in case of leather gloves, we have lower margin. But in case of other like garment and safety shoes, and dip gloves, we have almost similar margins, both for white label and branded products.

Okay. I was talking about gross margins. You're saying EBITDA margin is similar, you're saying. Correct?

Correct.

Mr. Anand, I would request you to rejoin the queue so that other participants get an opportunity to ask their questions. Next question is from the line of [ Rushabh Shah from Buglerock PMS ].

Sir, in the previous call, you mentioned that import into India isn't easy because different industries work in different manner and there's a lot of bureaucracy as well in the country. But if there is no standard, then anyone can order anything like 100% they can order. So how difficult is to deal with this and how difficult to deal with all these things like no standards, everything for Mallcom?

So Rushabh, there are -- for the products where there are standards and certification, it's difficult to import and/or it's mandatory for the importer to ensure that it meets the requirement. And also, in some cases, the supplier needs to have that kind of certification. But in products where the standards do not exist in the Indian context, it is far easier to import. And that's one of the bigger challenges we face in the Indian market that cheap Chinese imports and completely noncertified products are being imported. And that's what we hope and expect that BIS will come out with the Indian standards for such product categories and make support -- to support the local manufacturers.

These kind of products, you may not be having a problem in exports, right?

Sorry...

Cheap quality China products, you may not be having a problem in the export market?

No, no, exports. So Europe, U.S., everywhere, they have their standards and certifications in place. So unless your product is certified, you can't export into those countries.

Since we are in the -- my next question is, since U.S. was never a big market for us. And in the past also, we have stated that we are putting all our efforts, but it was a slow-growing market. And also entry into such markets is very difficult. But once you enter these kind of markets, the customer sticks with you for a very long time. So my question is, have we progressed into the U.S. market? And have we been able to crack the U.S. market?

Yes, we have been. Our efforts are also going towards it, and we have been able to crack some customers from that market. And that's why that market is showing growth -- good growth for us. And like mentioned earlier, it's a slow and steady kind of operation. So we have to keep building on to the relationship to the particular client and expect to increase volumes with them. So yes, we have been able to crack that market.

So since we have been able to crack that market, how -- what percent...

I would request you to rejoin the queue if you have any further questions. The next question is from the line of Bijal Shah from RTL Investments.

Congratulations on a good set of numbers. I have one question. So you have given a guidance or aspiration about INR 1,000 crores kind of revenue. So how confident are you of achieving that? And that would mean a very meaningful acceleration in growth. So are you confident of -- are you seeing already that the growth is set to accelerate in coming quarter or coming year?

So we would still like to stick to the guideline, and we would like to put that -- keep that pressure on us going. And that's why we are taking all the measures necessary to ensure our bases are strong, supply chain issues are solved and the go-to-market strategy is properly laid out. And the efforts are towards ensuring the targets are being met. So we are still hopeful about that target, and we are working towards it.

Okay. And should we see an acceleration in growth? I mean you have done a lot of groundwork already. So the factories have come online and commercial production is also set to start. So should we see some acceleration in growth? Or it is going to be slow?

Yes, that has to be. So there is no alternate to that because if you are looking for INR 1,000 crores turnover in FY '28, so there is a minimum requirement of growth, which we need to achieve. And this is what we are saying that the target is set. We are following it. And there is a groundwork already done. So then we need to work on this and try to achieve it.

The next question is from the line of Ankit Gupta from Bamboo Capital.

Congratulations for a good set of numbers. So my first question was on we have been trying to sell our products to contract manufacturer white label products to some of the large MNCs and also trying to increase our product basket with them. So if you can particularly talk about how has been the progress there with some of these large MNCs, which will have procurement of billions of dollars. So how has been the traction there for us? And how do you see this building up over the next 2 to 3 years?

It has been fairly going well. And it's -- so also you have to understand with these kind of customers, you have a lot of suppliers approaching them and trying to get into their radar. So we are also -- because we already have touch points and already are supplier to them. So it makes it a little bit easier to get access. And the results are there. It's good. And with these customers, also, they have their own idea and agenda of how they want their supply chain and where do they want to put it, how much country risk, how much supplier risk do they want to put. So they are wary of what percentage are they getting from which kind of suppliers. So they also try and restrict of how much business you can do with them in a particular product category. So -- but I'm not saying there's no chance of growth. There's a lot of scope, and we have been able to be on good terms with them and have been able to increase our business with them. But it's -- because it's a large corporation -- these are large corporations, it does not happen overnight. It takes a longer gestation period. But that's happening. We are confident of these accounts.

Sure. And my second question was on our top line. If we look at last December FY '24 Q3, the numbers were impacted because of the supply chain issues as we know that. But last 3 to 4 quarters, our top line has been in the range of around INR 120 crores to INR 130 crores per quarter. And despite some scale up, our margins have also not improved. So 2 questions there. So basically, when do you see this top line crossing this barrier of INR 120 crores, INR 130 crores? And like why hasn't the increase in our scale of operation resulted in improvement in margins, which normally should have happened given our scale and some operating leverage would have come in?

So let me tell you how it is happening that the volume which you see of INR 120 crores to [ INR 135 crores ] is the volume which we have been doing all these years for last 2, 3 years. And -- now as you know that all the facilities are ready. And these were the facility, we did investment into capacity building like adding floor area. So now we are increasing our capacity, also putting new machines and increasing capacity slowly. So it cannot be done overnight. So definitely, we see that out of the new investments which we are making into machinery, now capacity building for production, that should add up to our turnover going forward. And regarding the margin, as you know that in our type of product category, the scope is not much there because whatever margin we have like 15%, 16% margin we operate. So almost 60% goes into raw material in most of the products. So there is hardly much scope. Maybe with the increase in the phases of operations, we may see some margin increase, but there is not much scope there.

Sir the surprising thing is we have, in fact, seen some decline in margins over the past 2 quarters and...

Yes. So that is happening because of our effort to increase our volume and branding and product awareness. So we are investing into 2 things basically, one into marketing efforts and second is to streamline the operations also, so increase the production efficiency also. So yes, these are the efforts which we are putting in. Going forward, we should see results out of this. So with the increased capacity and lesser cost on this account, some margin improvement is possible.

Sure. And just last question, our target for reaching INR 1,000 crores by FY '28. Given like we have put in a lot of CapExes over the past 3 years, and we have been trying quite a bit to enter into large accounts and increasing our product basket with them. So do you think we'll start seeing acceleration in growth from next year onwards, let's say, this year, we might end up with -- if you look at our 9-month numbers, we are up 13%. And on a full year basis also, if we look at it, we'll end up somewhere around INR 480 crores, INR 490 crores kind of top line for this year. From that base to double our top line in 3 years seems to be a bit of steep task. So like will we start seeing 20%, 30% kind of growth from FY '25, '26 onwards? Or it will be more of a back-ended kind of growth, which will come in '27, '28? Or how do you think about it?

It should start improving. So as I mentioned that first for the current year, we should be targeting around 15% growth. And from next year onwards, definitely, the additional volume will come up with the investment we have done. And Yes. So that would not be immediate, gradual only, and we keep adding and we look -- we keep looking for the newer market, newer customers also. And in our type of industry, yes, it is possible that capacity addition can be done like installation of machinery on shorter period, shorter notice. And that we will keep doing based on demand scenario.

The next question is from the line of [ Zaqi Nazeer ], an individual investor.

Congratulations on a strong set of numbers. Rohit Ji, I would like to understand that in the last quarter gone by and the current quarter going ahead, do you see any pull on the general industry front and orders not flowing in because of slowdown? What about the export and the domestic part of it, sir?

So on the export part, not yet. We are yet to see that there is a pullback and orders not coming as expected. But definitely, when looking at the projections that the customers have shared, it is lower than previous year in the export market for wherever we are seeing, especially the Europeans and others. So that is what we have seen, but we are yet to experience it when we start getting and executing the orders. So that's on the export market. And on the domestic market, there has been some slowdown with the auto industry and some key industries. But I don't think it's a major slowdown that will -- we have to start raising eyebrows and question. And I think the scope of growth and the market is still huge, and it's still a lot left on the table to capture. So I don't think it should be a worrying cause right now for the domestic market.

And Rohit Ji, what white label goods we supply, are these designs given by the principals or these are primarily Mallcom designs, which are labeled under their heads?

So it happens both ways and also some are standard designs. So it depends on the product as well. So usually for workwear and footwear, the customers would like to share their design or they ask us to design something. And when we give them, they make their changes to the design. And for gloves, it's largely common designs, which are used across. There are some specialized specific gloves, which people would like to do it, then there are some other customizations on the printing, packing, et cetera, that they would also like to do. But it happens both ways, I would say, for footwear and workwear.

And do you think by third quarter of next year, these capacities which are -- which we have put up will reach their optimum capacity, sir?

It should. Definitely, for the new Chandipur Phase 2, that we are definitely hopeful because that's a product category that we know and we have been into it, so we are aware. In Sanand, the PU glove is a new category that we started manufacturing now. And that is a place where we have to really put in the marketing effort to ensure that it reaches its optimum level. So that is what we'll have to -- once -- only once we start having the samples and the trial run completed, we'll be able to know and go to the market and check whether this -- how quickly we'll be able to reach at optimum capacity. And a larger chunk of it should come from the Indian market.

The next question is from the line of Priyankar Sarkar from Square64 Capital Advisors LLP.

Just a basic question. How long does it take for the customers to approve products? That's one. And does the approval time vary between products, for example, between garments and shoes?

So for a white label customer, the approval can vary. So if the customer's need is immediate, it can happen very quickly. If they're just looking at something, just comparing, benchmarking, some larger organizations have like 8, 10 weeks of just having price benchmarking, quality benchmarking, then the supply rating and things like that. And even larger companies will have to onboard you, so they'll have a visit to your facility before they finalize anything, they will need audits and things like that. So the gestation period can take from, let's say, a month to 2 years, depending on the size of the customer and the product category. For gloves because these are -- a lot of the gloves are standardized, this approval comes earlier because usually it's the same thing which is being supplied. For workwear and shoes, definitely, it takes a longer time. And sorry, I missed your second part of the question.

I think between products also do the time vary, for example, between garments and, for example, shoes?

Yes, yes. So yes, correct. So for garments and footwear because this is more customizable and this is more brand-oriented, also has a fashion element to it. So this takes usually longer time. But gloves are fairly standardized. Most of the gloves, I would say, 70%, 80%. So those happen faster than the footwear and workwear.

Okay. Sir, if I may ask another question. You mentioned that U.S.A. -- I just want to ask you, the U.S.A. picking up faster than EU, though you mentioned that you are not yet to see slowdown in EU because that's very contrary to what we have been reading in the media and the international newspapers and magazines. So just wanted to get your sense, is U.S. still going faster?

U.S., yes, because we are starting from a smaller base also in the U.S. So for us, it's growing faster. Maybe for the entire economy and the larger mass, it's not. But because we -- we had a very small presence. So for us, that's faster. And for Europe, because we have order books, which we see 2, 3 months in the pipeline. So that till the time we are executing those it's okay. And like I said, the projections definitely have come lower than the last year's numbers from the customers. But because we have not yet reached that cycle, so we have not experienced the slowdown. So once -- based on the projections, when we start getting the orders, we'll know, okay, it's really a slowdown because it happens -- the news happens first there. And for them to push it to the supplier, it takes a cycle of which takes 2, 3 months. So there will be a lag in this case. The next question is from the line of Rushabh Shah from Buglerock PMS.

PPE world market size is $60 billion and most of it is catered by China, approximately 75%. So in the past 4 to 5 years, have you seen a shift from the PPE world market mostly being dominated by China to other countries as well?

Yes, there has been certain shifts because of whatever has started happening in the global economy. And this has happened to all the other Asian non-Chinese countries. It has also happened during COVID and post-COVID, some people have started manufacturing in places near their countries. So countries like Turkey, for Europe, countries like Central America and Mexico for U.S. So that has also started happening and all these capacities are being taken from -- largely from China. But since the volumes and the scale of operation is huge in China, I think no other country in the world is ready to take even, let's say, 10% of market share from them so quickly. So I think -- it's a question of how fast you can build the infrastructure to -- and the raw material ecosystem to ensure that we're able to take the market share from China significantly.

Okay. So not so quick, but going further -- going down the road in next 5 to 6 years down the road, do you see India contributing to a portion of PPE market?

Yes, that would be my guess that, yes, India should be able to contribute more for supplying PPE to the world, especially with regards to leather, with regards to textile, technical textile, yes, there should be more market share of Indian suppliers in the world PPE market.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments.

Thank you all for participating in this earnings conference call. I hope we were able to answer your questions satisfactorily and at the same time, offer insights into our business. If you have any further questions or would like to know more about the company, please reach out to our Investor Relations managers at Valorem Advisors. Thank you. Stay safe and stay healthy.

Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference. You may now disconnect your lines.