Mallcom (India) Limited ($539400)

Ladies and gentlemen, good day, and welcome to Mallcom India Limited Q4 FY '26 Earnings Conference Call hosted by SMIFS Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Ginodia from SMIFS Limited. Thank you, and over to you, sir.

Yes. Thank you. Good evening, and a very warm welcome to everyone to end the call. On behalf of SMIFS Limited, I'm pleased to welcome you all on the earnings call of Mallcom Limited. We are happy to have the management with us today for the question-and-answer session. Management is represented by Mr. Rohit Mall, Associate Vice President; and Mr. Shyam Sundar Agarwal, Chief Financial Officer. We will begin the call with opening remarks from the management, followed by an interactive Q&A session. With this, I hand over the call to Mr. Rohit. Over to you, sir.

Thank you, Saurabh. Good evening, everyone. It's a pleasure to welcome you all to our earnings conference call for the fourth quarter and financial year 2026. I'd like to begin by extending our sincere thanks to SMIFS for hosting today's call. Let me start by sharing a few operational highlights for the quarter under review before handing it over to our CFO, Mr. Shyam Agarwal, who will take you through the financial performance. FY '26 was a year that tested our resilience even are we simultaneously completed the most ambitious investment phase in the company's history. Despite a challenging external environment, our domestic business continues to be the growth engine expanding by approximately 20% year-on-year, while exports faced headwinds that we are actively working to overcome. In FY '26, the company experienced lower sales realizations from OEMs due to almost a full year of probability of tariffs in the U.S. and bleak demand in the EU. Both our new manufacturing units are now fully commissioned and operational. The product unit at Sanan Gujarat has commenced commercial production. Simultaneously, our new setup for designing and manufacturing of Industrial Safety Show at Cendapor in West Bengal is also now fully operational. While these facilities are currently ramping up utilization, they are key enablers of volume-led growth in the coming years. On the product portfolio front, we strengthened our offering through the commencement of in-house manufacturing of PU-quoted gloves and PVC combos. These products serve as important import substitutes, enabling us to offer certified high-quality solutions to the domestic customers while also catering to the growing demand in international markets. Apart from the successful completion of major CapEx cycle, making us ready to take the next trend of growth in the near future. The company kept investing in creation of talent pools by fresh hiring, needed to drive growth as well as has continued to participate in both domestic and international affairs organizing technical seminars, investing in brand promotion, which should help in the long run to eat with goal of being a major market player across all geographies. During the year, we also established a dedicated marketing arm in the UAE to specifically address the Middle East and Africa markets, which we believe represents a great opportunity. With that, I'll now hand over to Mr. Shyam Agarwal, our CFO, who will walk us through the financial performance of the company.

Thank you, Rohit. Good evening, everyone. I would like to provide an overview of the financial performance for the fourth quarter and year ended 2026. On a consolidated basis, for the fourth quarter of the financial year 2026, our operating revenue stood at INR 147 crores, registering a growth of 7% year-on-year. EBITDA for the quarter decreased by 11% year-on-year to INR 14 crores. EBITDA margin came in at 9.4%, reflecting a decline of 185 basis points year-on-year primarily on account of higher raw material costs during the quarter. Profit after tax for the period is stood at INR 6 crores, translating into pet margin of 4.29%. For the financial year 2026, operating revenue stood at INR 540 crores, listing a growth of approximately 11% year on year. EBITDA for the year stood at INR 61 crores while EBITDA margin came in at 11.21%, reflecting a contraction of 130 basis points year-on-year. The motion EBITDA margin was primarily driven by higher raw material costs, lower sale flation and increased employee expenses as we scale up in power to support our new malting facilities. Profit after tax for the year stood at INR 30 crores, translating into PET margin of 5.56%. It is important to note that the profit figure for FY '26 and FY '25 are not directly comparable. FY '25 included a onetime capital end of INR 25 crores arising from the sale of a -- thank you. With this, we can now begin the question and answer session.

[Operator Instructions] First question is from the line of Aditya from Securities Investment Management.

Sir, in the opening remarks, you mentioned that 1 of the reasons for lower margins was lower sales value realization, so if you can just help us understand which products have seen a contraction in kind of product casing. And in such an inflationary environment, why would the end product prices see decree.

So this is largely we are talking about the export market where we are OEM vendors. That's where we are seeing lesser realization than before because as we also mentioned, the demand situation has been very bleak. So in a lot of cases, even to maintain market share, we have to offer some concessions, even in the U.S. market, as you know, this year has not been so great. So just to get that market share and not let that customer switch to other countries or other players. This is something that we had to offer and that's why there's been less realization. Further, also in the domestic market, see the price increments happen with a lag. So it's not that as soon as the input cost start rising, we can pass it on immediately. And in the OEM market, it takes even for the time because it's a long lead time business. So that's where we had lower realization in this year.

Understood. And now going forward, if you could just talk about the media raw materials for us and what kind of price increases you are seeing?

In the raw materials you're saying?

Yes, which are the major raw materials for us? And what kind of price increase you are seeing?

So major raw materials for us are largely in 4 different categories. These are textiles, leather, polymers and synthetics like PU, PC, these kind of NBR these kind of chemicals. So we've seen increase in mostly, I think, across the board, you've seen an increase due to whatever is happening globally. A lot of these products are petro-based. So that's where we've seen increase. Some of these raw materials also have to be imported. So you've seen increase in the rock prices, increase in the exchange rate difference, which is hurting us, increase in freight costs. So and also now even with the indirect cost of energy, we are seeing increases.

So now for the export markets, what are we doing? So are we passing on the price increases or there is pressure on the pricing, as you mentioned previously that the refined is low, competition is high. So are we taking a margin hit in the export market currently?

It depends on the market. Some markets have done well. South America has done well for us. Australia, Russia has done well. These are our OEM markets in our own branded markets. Middle East has been okay. I wouldn't say great. Africa, I have done well. But yes, Europe, not so well. U.S., we all know the situation. So in those spaces, Europe being 1 of our largest market, we were not able to immediately pass on the price. It happens it will lag and in some cases, we haven't been able to because of the bleak demand that there is. So -- but -- given the situation right now, we are hoping that this FDA with Europe gets signed soon. So at least we get some respite. And also with U.S. at least is the situation is not what it was until maybe January, February, where it was completely prohibitor. So that's also something that we are expecting. We'll be able to now pass on the prices to the customers. But yes, not in all cases and not immediately, we haven't been able to pass on the price.

Understand how are some of your competitors reacting. So we might also might be seeing higher prices? Or do you think in such an increase scenario China is better pleased compared to us?

Depends on what -- which competitors if you're talking about competitors who are exporting, yes, they're also facing similar issues. China because a lot of the materials they are able to buy locally. So they face this pressure lesser, at least for the currency devaluation and the freight they don't face as much pressure as we do. But the rest of the products, they are also facing the similar pressure. In yes, domestic markets, we know that everybody has increased prices, especially in the last 2, 3 months where people have stopped taking orders and 1 part is the increase in price and the other part is unavailability of that raw material in the middle. That was also the instance where it was difficult to get some of these raw materials or it was being Russian. So yes, I think overall, there has been an impact on the prices. I think just people are taking different strategies. Some are doing it immediately. Some are taking time in the export markets, some are trying to -- adjusted with the currency in inflation. So they're taking a hit on the margin. So I think different competitors are using different strategies. But it's still short term, we will get to know the complete picture maybe in a couple of months.

Just to summarize on the margin front, you expect the margins to remain subdued in the near term unless and until the raw material prices or the big decrease or the demand improves. Would that be a fair understanding?

I think, yes. Currently, we are in uncertain situation with whatever is happening. And the first thing we need is some stability.

Got it. And now, sir, if I look at your LatAm markets, we are seeing quite a good growth over there, so if you could just help us understand what is leading to such growth? And what is the positioning of Mallcom as compared to your peers in that market?

So I think 1 big reason is we have been a supplier to that market for a long term. I think it's been more than 15, 20 years that we've been supplying in that market. So we have a little bit of reputation there. And it's not a very open, easy market, not everybody does business there, not everybody is aware of how to do business there because it's not like a U.S. or Europe market. It's a different kind of market. So I think that and the fact that we have a decent customer base there, which we are building on, that has helped us. And also Argentinian market is opening up, that has also helped us because for the longest period, it was -- it used to be a good market, but then again, they had their own economic issues and they were not able to remit dollars outside the country, but now with the recent change in government in the last 2, 3 years, that has also opened up, so that has also helped us.

Are these goods sold in Mallcom -- or these are will goods.

Level.

Okay. And -- in LatAm markets. So how do we put it ourselves against any kind of bad debt?

So that way we are very strict with our payment terms. Most of either we work on LCs or we work on some advance or we secure our payments, we don't offer any sort of credit to them. Only the credit is offered till the time the goods would reach there because that also takes sometimes 100 days to each. Other than that, before the goods is received by the customer, we ensure that we get our payment.

Understood. And look, with the U.S. size is now reduced, are we seeing any increase in empires from our U.S. customers because we were looking to increase the share over there become new capacities coming online?

Yes, we were looking and then all of the tariff situation happened. So we are still in touch, but we are -- I think they have some A list of countries, some preferred countries with whom they operate. And unless I think we sign a free trade deal or some sort of a deal with U.S., it's definitely going to be challenging to the customers. But we are doing our job and we are in touch with all the customers, and we are trying to increase as much as possible. We are just happy to not lose a customer. Yes, definitely, the volumes have reduced, but it's not because of our product or quality or price or anything, but because of the situation. So we are hopeful that once things settle down, we'll be able to get back on our journey of increasing the market share there.

But now with the current tariff structure, I believe we are better leave against China and almost on an equal footing against other countries. So wiring a little more aggressive over there. What is the challenge in skill not...

Not at -- or at least in our product categories, we are not at a better position than other countries. We are almost on an equal position as compared to other countries, if not worse off. So we don't have any duty advantage or anything like that. So it's just let's say, the same. But also in between at least for the 9 months of the year that went. We were in a much worse of position and that allowed a lot of the importers to hunt for suppliers from other places and start the supply chain. So it's difficult to keep shifting, keep moving supply chains and once moved, it's difficult to get back. So it is a journey, which will again take a little more effort than what it was, I would say, 1 or 2 years ago.

How much time does it generally take from inquiry to validation or to placing an order and generally, should 1 expect any material orders cutting this year from U.S.? Or do you think this would slip into next year?

See, it can take from 3 months to 2, 2.5 years. We've had such customers across and like I said, it will depend a lot on the kind of trade deal that we signed with them. I think U.S. has something called a TAA list of countries, Trade Agents Act, a list of countries where the preferred countries who the -- basically, the government tells you, okay, deal with these countries. And India is 1 of the countries which is outside this list, India. I think India, Russia, China and Brazil are outside this list. So I think we have to work extra hard, extra hard to get the orders from them. So it largely depends on how the 2 countries work this out. But yes, it's very difficult to say at this point of how this will pan out this year.

Okay. And if I look at your like newer products like nitrile and PU gloves. So how is the pricing as compared to imported products? And at current pricing, do they make company-level gross margin or beyond lower than that?

No. So the newer products, we are able to compete with the imports. The big problem with the import is not just the pricing, it's also not being standardized products. So I think if we compare standard product to a standard product, then yes, we are able to compete with the pricing. And yes, we are able to hold on to our margins.

So are the margins for these holdouts higher than the company-level gross margins or...

I think it will be on the similar lines. It will be on similar lines at the company level.

Okay. Okay. And sir, this quarter, the growth in domestic markets was a little slower. So any particular reason why? And how is the demand scenario in domestic markets. So are we seeing lower demand from some of our end-user industry segments due to this war?

So last month, like the last month of the quarter particularly was a little stunted, I would say, because of the situation and the sentiment getting a little cautious and unexpected. So -- and with situation like having no gas for some industries and workers being asked to go and things like that. So that definitely impacted what could have been a good quarter. So that was definitely there. And even now, we are seeing the impact of the same. So yes, definitely, the East Asia prices has had an impact, and people are definitely wanting to -- they're on a cost coloration mode because of, like I said, unavailability of some of the raw material or the price of raw material, major input raw materials going up, so they would like to save on costs wherever possible.

Sir, in this scenario, how are we compared against unorganized players because they might also be facing this challenge of higher raw materials and unavailability of raw materials. I believe we will be much better play as compared to these unorganized players. So wouldn't it be positive for Mallcom in such a scenario to gain market share?

Yes. Definitely. Definitely, this is a scenario that will be positive for us. And if this last long, then definitely, it will be very positive for organized players because a lot of the unorganized players will not be able to survive in such a scenario, and we are seeing that happening as well. But yes, in addition to that, the demand also should be something which keeps on growing, and it should not dampen demand from the other side. But yes, for organized versus unorganized. This is a better off scenario for organized players like us, yes.

Okay. And sir...

Sorry to interrupt Aditya, maybe please request you to rejoin the queue, sir, for more questions. Next question is from the line of Zakir Nasir from Naser Investment.

And I think you've been through a little tough quarter. But nonetheless, how do you see your volumes or value going forward? Would you be confident of achieving at least 10%, 12% growth in the current year?

No, yes, definitely. See we -- like at least some things which are working in our favor is like we had set out for that our share from our branded or our domestic market should increase. So that is happening. And we have now more fit in our domestic market and Middle East and Africa. So we are hopeful. And the 10%, 12% is the bare minimum we should be hitting, and we are confident of doing that for this year. And if things go well and some things go in favor, maybe more than that as well.

But you are pretty confident of doing that much, at least. Of course, baring unforeseen kind of...

Yes. That much is yes, bare minimum.

And what would what -- you can't call it aspirational, but what would you see the normalized EBITDA margins to be Rohitji, I mean we did around 10% this quarter. So what do you think that 14% to 15% is more of a normalized order -- world order kind of margin we would expect, sir?

Yes, I think we would like to go back to the EBITDA margins that we were at before all of this and before our investments and everything and now that everything has been done. Yes, that is the margin profile that we would like to maintain.

And what is the -- and what is the management comfort in terms of the debt you would like to carry on books? So I think right now, Dujari, if I'm not mistaken, it's INR 120 crores. So in the next couple of years, where would you want to see that figure, sir?

So Shyamji can comment better on this but yes, largely...

Yes, Rohit, so basically, it is only -- there is no TL. Only INR 5 crores we have took and -- that also -- because we will be applying for capital subsidiary for our sudden project, and we need to have that funding. And otherwise, you will see that the working capital loan is similar to last year. So despite fresh investment, we could manage it internally. And it is -- now it is almost maintained. And going forward, definitely, with the lesser CapEx and more of cash generation, we are thinking of and hopeful that the debt level even for working capital should be going down further.

So in the next 3 years, could we expect the finance cost to be almost close to 0 kind of stuff Shyamji?

Yes, that is possible with the current level of operations and current outstanding, which we have -- you know INR 110 crores, INR 115 crores, that is definitely with most of the major CapEx happening. And in that situation, most of the debt we can pay in next 3, 4 years.

And 1 last question, sir. The past 3 months, you've seen a lot of formalization of the Indian labor sector. I mean whatever you say labor code or the entire labor scene has been changed in the country. So would you see it as an advantage for Mallcom.

Definitely yes. So Rohit you can answer on the industry side. Otherwise, impact on the Mallcom, see mostly we are in compliance. And so hardly there would be impact on the gratuity side also. And regarding the industry, definitely, Mallcom is going to benefit, which Rohit can refer to yes.

Yes, I would want to know your thoughts on the industry-wise impact of this labor changes.

No, definitely. See, it's good. It's a welcome change. And the more for there is in -- with respect to labor, I think it's better for organized players like us. And it will definitely make it into a much bigger market for PPE as well. So it's definitely a welcome change. And we expect to bring a lot of returns to us.

[Operator Instructions] Next question is from the line of Kawa Mata, who is an individual investor.

Just 1 of questions. So the first...

Sorry to interrupt Kawa, your voice is breaking, your voice is breaking.

Can you hear me now?

Yes, please go ahead.

Is it better?

Yes, please proceed.

I just had a couple of questions. So the first 1 is, just wanted to understand that the exposed markets and the macro environment is very stringent. So there's a lot of tariffs that have been going on, there is deep demand from EU as well. And still, the company has reported a 11% growth on a year-on-year basis. I just wanted to understand what are the key domestic demand drivers? And what is the domestic outperformance structurally sustainable.

To your second part of the question, yes, this is something sustainable. The drivers are basically both external as well as internal. External, like we were mentioning the formalization of the wage code, that should help having more of MNC's set up shops in the country that will also help the BIS getting more stricter not just with Indian companies but even with foreign suppliers, that is also selling that aids and finally, the consumer or the worker or the labor are getting more aware and as and when their wages increases, they would like to keep themselves more protected. So all of this will help in the growth and is helping the growth. And internally also, we are trying to penetrate deeper into the country having more -- expanding our distribution network, putting more efforts in marketing and branding, having more feet on the street. So these kind of things and also, obviously, making all the investments to have more of import substitution and provide a basket of products. So all of this should help and it is designed in a manner that we can support ongoing on the growing domestic needs.

Yes, sure. Got it. And I think you mentioned about this previously as well, but just wanted to understand it a little more deeper. So the volatility in the margins across the every quarter, just wanted to understand how much pricing power does the company really have on the ground on the -- in front of the, let's say, raw material changes that are happening.

So like I mentioned earlier, there are 2 factors. One is our white label business and 1 is our branded business, branded business, obviously, because of our brand, which has been established in the last 20 years, we command better pricing power in the market. In the OEM, the competition is tough and are growing. And especially with the weak demand, you cannot command a lot of pricing power but hopefully, going ahead with some of the markets, like I said, South America is a market where we've been able to do well. Once we are able to sign some good FDAs with Europe or even maybe U.S., we should be in a better position to come on the price. But yes, that's largely a very competitive market and not in all the products, in some value-added products, yes, that's where we are trying to enter, and that's why we are trying to have our own pricing power and defined margins, but not in all regular commoditized products, we are unable to hold prices.

Sure, totally. And just a follow-up on that. So what are you looking at? What is the outlook for the revenue and margin for the FY '27 and across exports and domestic?

See, we are trying to get back to our margin profile of where we were when we started last year and how we have been earlier. But yes, lot of ifs and buts in it at this moment. And in terms of revenue growth, we are expecting more from the domestic market than export market. But hoping that everything is behind us, we expect to outperform this year in terms of revenue growth as well.

Next follow-up question is from the line of Aditya from Securities Investment Management.

Sir, if you can just talk about some the marketing development activities, which Mallcom is doing in the export markets to grow in U.S., Middle East, Africa. So what is the company doing to track new customers?

So in the Middle East, we now have team that is working to grow the Middle East and the Africa market. And obviously, we have all these sales person who is every 1, 2 months who are on the field in all of our exporting countries, including South America, U.S., Europe, Russia, Australia, Middle East, Africa. We regularly participate in fares and exhibitions to promote our products there. And regularly, we invite our customers and potential customers to visit our facilities so that they can understand about the capacity and capabilities that we have built. And now also, obviously, with the digital age, it's more easier to be connected with everybody across the globe. So that's what -- that's the regular marketing effort that we have been doing. And in addition to that, we are -- whenever we are launching a new product, we are sending out samples, giving them promotions on it so that we are able to pitch that product to them.

How big is the sales team for the export markets? And do you have any permanent establishment in any of our export geographies?

No permanent establishment anywhere. Mostly, it is being serviced from the head office. And in the export team, if you talk about traveling salespeople, they're about 8 of them who are traveling to all these export markets?

Understood. Understood. And more, sir, I understand that -- are you seeing that in export markets take a lag, and it is dependent on competition. But in the domestic markets, have we taken price hikes and how competition also doing in the domestic markets?

Yes, we have, in fact, in the last quarter, we've revised our price list twice to be able to pass on the prices. But still you have to respect some of the previous prices, some long-term rate contracts that you have because at the same time, you cannot afford to lose a customer or your channel partner cannot afford to lose a customer as well. So still, it takes a little -- there's a little bit of lag you have a pending order which we have to fulfill, so you have to ensure that also before you can just implement the price rise or at least that's what we follow. So yes, in -- and then the customers have -- the competitors have done similar or maybe other kind of things that mostly -- I think everybody has increased prices. A lot of people stop taking orders and the price rise started happening. A lot of people canceled the open orders that they had. So a lot of things our competitors are also doing to ensure that they are able to pass on the prices.

Understood. Understood. And sir, how much inventory does a domestic distributor keep with himself and do they stock higher than the increased prices?

It depends. There are all kinds of distributors, some do stock, most do stock. Some of them don't stock, they pay back-to-back orders with us. But yes, and they work on rotation. But yes, they do stock and especially when they know prices are going to rise. A lot of them do try to stock in whatever manner they can to have -- to at least take -- buy time to pass on the prices to their customers.

Okay, understood. And what will be the CapEx which the company will be incurring in the next 1 or 2 years?

So this year, we did around INR 34 crores. And for the current year, we have a budget of around INR 10 crores to INR 15 crores, so going forward, we hope that the year-wise CapEx should be in the range of INR 10 crores to INR 15 crores as of now. This is what we plan.

And this INR 10 crores to INR 15 crores is majorly maintenance CapEx? Or you are also going to incur some additional lines at Sanand.

No, no. We will be adding new machineries at an and the village in -- maybe in Kolkata also, Chandipur also, so depending upon the demand. But including maintenance, as well as additional CapEx we -- as of now we think of should be in this stage only.

Okay. And if I look at your cash flow, so there is this capital subsidy of INR 5 crores, which we received last year and we reversed that INR 5 crores this year. So what is that pertaining to?

Yes. So this is for the Chandiput project, where we have set up the SU unit and unit-wise capitalized this year only. And the cost, the subsidies adjusted with the machinary cost. So we received additional INR 2 crores this year. And total amount is INR 7 crores we received as subsidy against 14 crores of machinary cost and that is just with the machine.

So by why is there a negative this year of INR 5 crores.

Because it was -- earlier last year, it was shown in the capital subsidy, but it should be adjusted because it was not capitalized last year and only capitalized this year. So the amount is adjusted with the machinary cost this year only.

Okay. Understood. any subsidiary which we are expected to receive for Sanand?

Yes, yes. So yes, definitely, we are going. We are eligible for that. And in this year, we'll be applying for this. So it's for the tax side policy there in the range of INR 10 crores we should be getting.

Next question is from the line of Suhag Dhai, Individual Investor.

My question regarding Sanand worldwide operations. So they are now like it's now commencing commercial production, what utilization level are currently being achieved? And what revenue potential does the facility hold over next 2 to 3 years?

So it's Sanand, we have just -- it was more of CapEx into infrastructure building, and we have started with a small message there. And with this setup, as of now, we are running at around 50% capacity and we are trying to improve it casually. And for the year, we target in the range of anything with the existing capacity, it should be in the range of INR 40 crores minimum, INR 40 crores on annual basis.

Yes. Okay. And my other question is regarding that, the company has recently operationalizes new manufacturing binding for PV coated gloves and previously Gammon in import substitution, what is the addressable market size for this category in India? And how does the Mallcom intend to differentiate itself against low-cost Chinese import.

So PVC -- sorry, PU gloves in India, yes, at least would like the import figures, if it is to be trusted, probably India imports roughly around anywhere between INR 80 crores to INR 90 crores of these gloves or maybe more and that is something that can be addressed and it's a growing market, especially because this gloves have been introduced in the market only in the last 5, 7 years, probably post COVID. And for PVC, gumboots, it's also growing market. We don't have the exact figure or how big the market is, but these boots essentially are used during monsoon season during -- in the rain and in outdoors, especially a lot in infrastructure and construction projects. So we are at trying to target that market with it. And also for both of these product categories, we expect to get some export revenue from it as well because these are much more established product categories outside India than in India. So that's what deal is.

As there are no further questions from the participants, I now hand the conference over to the management for the closing comments.

Sure. Thank you all for participating in the 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, we would like to -- company, please reach out to our Investor Relations managers at Valorem Advisors. Thank you, and wishing you all a great day ahead.

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