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

Ladies and gentlemen, good day, and welcome to Mallcom India Limited's Q1 FY '27 Earnings Conference Call. [Operator Instructions] please note that this conference is being recorded. I now hand the conference over to Purvangi Jain from Valorem Advisor. Thank you. And over to you. Ms. Jain.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the relations of Mallcom India Limited. On behalf of the company, I would like to thank you all for participating in today's earnings call for the first quarter of the financial year 2027. Before we begin, let me mention a quick cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. So forward-looking statements are subject to risks, which could cause actual results to differ from those anticipated. Such statements are based on management's belief as well as assumptions made by and 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 period under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. Rohit Mall, Associate Vice President; and Mr. Shyam Sundar Agarwal, Chief Financial Officer. Without any further delay, I request, Mr. Rohit Mall to start with his opening remarks. Thank you, and over to you, sir.

Thank you,Purvangi. Good afternoon, everyone. It's a pleasure to welcome you all to our earnings conference call for the first quarter of the financial year 2027. I'd like to begin by extending a sincere thanks to Valorem 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. Despite the challenging and volatile market environment during the quarter, we delivered a meaningful improvement in profitability, supported by lower raw material costs, improved operational efficiency at our Sanand plant and our continued ability to pass on cost increases to our customers. On the product innovation front, we expanded our safety solution portfolio with the launch of a new mold role for [indiscernible] and commenced its manufacturing at our Sanand plant, further strengthening our manufacturing capabilities. We also introduced European and American certified stream retired workwear, enhancing our product offering and expanding opportunities in developed international markets. Another key highlight during the quarter was the overwhelming response to our SMILE reseller program, which has helped expand our distribution network to over 1,000 resellers across India. Significantly improving our market reach and customer flexibility. While operational performance remained encouraging, the quarter was not without challenging. Congestions at major seaports resulted in delays in the procurement of certain critical raw materials as well as the customer deliveries impacting operational time lines. Nevertheless, our teams responded effectively to minimize disruption and ensure continuity of operations. As we move forward, we remain confident in our growth journey despite the operational challenges faced during the quarter we delivered a strong improvement in profitability, underscoring the resilience of our business and the effectiveness of our execution led by a stronger product portfolio, expanding marketing manufacturing capabilities, a wider distribution network and a continued focus on operational excellence, we believe we are well positioned to drive sustainable growth and create long-term value for all our stakeholders. With that, I'll now hand over to Mr. Shyam Agarwal, our CFO, who will take us through the financial performance of the company.

Thank you, Rohit. Good afternoon, everyone. I would like to provide an overview of the financial performance for the first quarter of the financial year 2027. On a consolidated basis for the first quarter of the financial year 2027, operating revenue stood at INR 110 crores, reflecting a sequential decline of 25%, primarily due to model in international revenues and the disruptions arising from the waste. EBITDA for the quarter remained stable on a sequential basis at INR 14 crores. EBITDA margins improved to 12.51%, 317 basis points quarter-on-quarter. This improvement was primarily driven by better price realization, lower raw material costs and improved operational efficiency. However, the margin fees partially offset by lower operating cost adjustment on account of reduced turnover during the quarter. Profit after tax for the quarter stood at INR 7 crores registering a growth of 5% quarter-on-quarter. Consequently, PAT margins improved to 6.0%, reflecting an expense of 174 basis points over the previous quarter. Further during the quarter, domestic revenue stood at INR 64 crores, registering a growth of 10% quarter-on-quarter and achieving the highest ever first quarter domestic revenue for the company. International revenue stood at INR 46 crores. The strong domestic performance was despite continued pricing volatility, reflecting the company's disciplined market execution. Thank you. With this, we can now begin the question-answer session.

[Operator Instructions] Vivyansh Jaju with Trinetra Asset Managers.

My first question is as the global customers are continuing to diversify beyond the China. Are we seeing any particular -- in the order pattern, is there any change like they are giving more multiyear sourcing orders from existing customers only from us like any observation is there, is this better?

Yes, definitely, there is movement and especially with the news of India, Europe free trade agreement. And with also India, U.K. free trade now effective, there's definitely more interest and inquiries floating through us, maybe from China or any other countries? Yes, that is something which is happening continuously. But yes, we have to also look into the basic raw material prices, how they are moving and how competitive will be in the global arena.

Okay. And the next question is around like too much backlash regulations are increasing across the regions. So are we witnessing any demand from new geographies where it was not a meaningful contributor earlier?

Yes. That's also something that we are witnessing. We are exploring more countries in the African market. India, I think in itself is a big geography where we are witnessing this shift due to changes and improvements in the safety requirement. So I think most of the developing nations will go through this phase, and we are seeing this happening particularly in India, Africa, Middle East yes.

And last question was like the contribution from the products which are there, how has these evolved over the last few years? And do you expect this premium range product will be become a larger part of our portfolio?

Yes, that's what our intention has been. We've been trying to push for more value-added products over the last 4, 5 years. and focus on stay away from a very, very commoditized business. So I think that has already started happening with us, and it will continue to happen with us, and that's where we -- a lot of product innovations and upgradations. So that's a strategy we have been taking for some time. And we have already seen mix, product mix changing because of that.

[Operator Instructions] Next question comes from the line of Aditya with Securities Investment Management.

I just wanted to understand how are the raw material prices are trending currently? And how should we look at margins going forward?

See, it depends on product to product. So some products which are very closely related to crude and petroleum are the prices have been at an escalated level, that have not gone to the pre-war levels, let's say. But other products which are not sold the corelated to the petrol, it's okay. But then there are other factors into play because we've seen all our transport costs have increased, energy costs have increased. So overall, there has been an increment in overall cost. Obviously, with crude prices correcting a little bit. There's been some respite. But yes, overall, when we started the calendar year as compared to that, it's definitely on a higher level.

And then compared to Q1, are they -- on an overall basis, have they seen a decrease or they're still around similar levels? And sir, secondly, have you taken any price in the export markets to compensate for the higher raw material cost?

See, as compared to Q1, definitely, prices are improving because some of the prices that they were in March and April, it's getting a little more, let's say, streamlined. But, It's very, very volatile. It depends every day, every week basis. And in terms of passing on the cost, yes, we are gradually trying and passing on the cost to our customers. But with a lot of them, we have orders in hand or agreements of not changing price for a long-term period. So there is a lag between when we experience price increase and when we can pass it on. But gradually, as and when possible, we are in that process.

And for the export sales, which is around 55%, how much would be a spot sales versus a 3-month or 6-month contract sales?

Again, it depends on the product category. Roughly, I would say, 60% or 70% is something which are planned and the rest is something that are based on spot sale. But in each spot sales also, it's not like for each product we have to always negotiate on the price and the best L1 wins. Some of them are planned and the prices don't change is that their buying cycle as such. In some commoditized items, definitely, L1 prices are considered every time. So yes, I would say roughly 30% of the export is on that.

And this export degrowth, which we have seen this quarter, so is it primarily due to only logistics or the underlying demand is also weak? And how much sales have you lost in Q1 because of this trade issue?

Both, I would say, there has been a big demand also from the rest because of their own crisis and their own economy -- the economical situation. And other than that, because of the logistics also we've lost because simply port congestions and we are unable to ship out goods even when they are ready and sitting in our warehouse for a long time. So both -- and roughly we will be definitely targeting better growth, at least some double-digit growth from last year. So that is what I would say, the opportunity, which has been missed in this Q1.

And how is the market in Europe currently behaving. So we were witnessing some degrowth over the last quarter as well. So how is the Europe market doing currently? And overall, how do you expect the Eurpoe market to grow this year?

I think it's getting better. It was in a pretty bad shape earlier. I think that part is probably gone, and we are getting better there, more orders which are flowing. And there's more positivity around the India-EU trade deal. And there's a lot of enquiries going. But the effectiveness of the trade deal only, I think, comes next year. So we are definitely hopeful that as compared to last year, we'll do better in Europe this year.

But sir, if I look at last year, we did around INR 170 crores and now if I look at Q1 to Q1, we have already lost INR 20 crores in sales in Europe. So do you expect to recover all of that going forward in the next 3 quarters?

That's what we are targeting, yes.

Understood. And how on the LATAM and North American markets doing? Because we have seeing a degrowth over there as well?

Right. For Latin America market, actually, last year was pretty good for us. And so a lot of customers are still holding on some stocks. But we are still marketing well there and order flow is debt. So that market also, we are expecting to recover and add some new customers to our portfolio as well. So that's what the expectation is. With the U.S. market, again, pretty volatile things keep changing. The different news which keep coming. We are a little uncertain. I still don't know how to look into that market. But yes, we are keeping our marketing efforts on, and we are trying to get new customers or even the existing customers increase our market share. So hoping that we can beat the last year's number from North American market as well.

But sir, one thing we used to talk about when we undertook this CapEx was that with the help of these larger facilities, we could get bigger customers and [Technical Difficulty] have you signed any decent sized contracts because, from your commentary, it doesn't seem that you have any contracts. So if you just help us understand where are we in this process and what is delaying this process.

So for some of the investments that we did, we already have some last contracts, be it workwear or footwear. For the newer investment in Gujarat,we've always mentioned that largely it was done for the domestic market and our branded market. And then obviously, for the record market as well. So we don't expect that pretty -- very quickly, we have a large contract. But there also, we are in the process of securing some contracts. We also have to see the business environment when costs arising everywhere people are uncertain and they don't place orders or don't change suppliers at that point. So -- but I think how we've progressed for our footwear and even in workwear. We are hopeful that in other product categories also where we've made investments, we'll be able to secure some larger contracts in the export market.

Okay. And sir, how much turnover are you expected to do from Sanand this year? And we had 2 lines, and we are looking to 1 line. So where are the new lines coming?

So the turnover Shyamji can explain. And now with 2 lines, we have made it into 3 lines, which are operating already. And production -- and a production of production is already underway, and we are looking to further engage capacity there. And Shyamji can comment on the...

So for the Sanand unit, we have the yearly target of INR 40 crores, which we at a minimum, we want to do and looking at the performance which we could achieve in the first quarter, I think we are on track. So that is possible.

And how much did we do from Sanand last year?

It was a very small figure around INR 5 crores, because only last -- fourth quarter we are working here.

Got it. Understood. And sir, in the presentation, you mentioned that we have launched this flame retardant works. So can you just talk about what kind of opportunity size it opens for us. And was this an old initiative or it was more of a push from our customers?

So in terms of market size, it's pretty big in the international market and now also gaining momentum in the Indian market, also very big in the Mideast market. So anywhere where there is oil and gas and steel, anything even -- anything to do with higher temperatures, more tenses, flashes and infuse these kind of governments are used. And this is something that we were already doing for our white label customers, obviously, in their brand and their certification. And now we've decided to step into it with our own brand and certification with our own -- specifically in our own branded market and also to easy access to our labor customers also who can piggyback on our certification. So that's what the expectation is, and that's how we came into -- decided into getting into this. Also in the rise of Indian is manufacturing these publics now it's making a more cost competitive in the international market because earlier, most of the fabric was imported from China or other countries. But now with this changing environment, we believe it's a good time to enter into this product category.

Understood. Got it. And how big of a market would this have in India?

Difficult. In India, it's very difficult to estimate these markets. There's no formal study done for this.

Got it. Understand. And now, sir, if I look at your product profile, they are generally multi-use products in the sense that our product can be used in multiple industries. But as a company, are we looking to get into more wishes maybe manufacture products which are specific to a particular industry where there's higher specialization and the margins are also better.

See, PP essentially is not restrictive to an industry. It's not something that only works for a certain industry. It works based on the hazard and the risk. So if that hazard or risk is prevalent in any industry anywhere you would have to use that PP. So when we plan to add something to our product portfolio, we don't look at the industry per se. We definitely look at the risk and hazard associated and how closely it is to our current operations and how we can get the product commercially viable. Yes. If an industry with that particular hazard or risk is growing in the market, then it makes it a compelling argument to get into that product category sooner or later. So that's how we look into it. And that's how we'll approach adding products to our portfolio.

And lastly, sir, on Middle East, have we started supplying there? Or there is still some disruption?

Yes. So we are supplying. There was -- in the middle, we couldn't supply anything, those containers have at the sea, which was not getting delivered, but now it's again this month also, we supplied some Yes.

[Operator Instructions] Next question comes from the line of Rushabh Shah with Buglerock PMS.

My question is we have seen an increase in prices of raw materials, and we are facing pricing pressure. So we cannot pass on to the customers in the export market. So my question is what are the difficulties we are facing in passing on the prices to the customers, are they preferring higher brands like 3M, Honeywell as compared to Mallcom?

we operate into different verticals, one is in our own brand and white label. So in our own brand, we can pass on the prices much faster than in when we are a white label manufacturer. And we have done that as well. It's just that there will always be a lag when we face the price pressure and when we pass it all just that the lag is smaller in case of our own branded market, and we've been able to do it from the beginning of this crisis. We've been able to pass on the prices. But there are long-term contracts, which even our dealers have with the end users, and they don't want to change it very often and there's always a risk of having other brands entering the customer. But also my new, the price size has been for everybody almost equally, right? So it's not that it's just us who have had to increase prices or face price pressure, everybody even including 3M and other players have to do it. And that in my level, it's -- it's not that we cannot pass on the price, it takes time because, again, there are long-term contracts, and our customers have contracts with their customers. So it takes time before this price increment can be completely passed on. So we do pass it on. It's just a matter of time.

Okay. My next question is what you have done in the domestic market is a commendable job but in export market, we have not been able to get that traction yet. So what kind of challenges are you facing? Because in a couple of calls back, you have said that we have done everything to increase our share in the export market. We participate in say the exhibitions, samples for our newer products till there, it is difficult to track the export market. So what challenges are we facing?

See, historically, we have been an export market player we have more than 40 years' history of exporting our products. And it is only in the last 4, 5 years that the domestic market has started growing at a much, much faster pace. So -- and that's where we see that the market is a little insulated to everything which is happening outside of the country. in the last 5, 7 years, export market has faced all kinds of tumorous situations from COVID to wars -- multiple wars, economic crisis. things like that, logistical issues. So that's definitely an even tariff issues. These are the things which dampen the interest from the international buyers. So -- and also this works in cycles. So we are still confident we'll still keep on putting our effort. There will be some wins and some losses, but we are still confident about the export market. And once with these free trade agreements like that, we have seen it with Australia, we've seen it with UAE that it has helped our call. So we are hopeful that the U.K. and European Union as well. And then finally, hopefully, when the U.S.A. agreement also comes in. So we hope that it works also in our benefit. So we are being patient with our export market. And we know we have the right kind of products, right kind of pricing. So we will be able to get more market share in the export market.

So sir, as you say that majority of our exports come from Europe region. You have also said that the industry situation was not good. So my question is, there were -- there might be some players in our competition and who started lowering the prices and selling the products. So in that market, did we think of acquiring any small player to increase our market share because the industry situation was not up to the market in Europe. So have you thought or anything on those lines?

Sorry, I didn't understand your question. So is your question, have you thought of acquiring some players? Or have you got...

No, no acquiring players in the European market.

Okay. Not as of right now because it's traditionally been a market where our customers are present. And we run the risk of cannibalizing our market if we go and acquire some company and start our own distribution there. So we've been a little skeptical of this idea. And plus our thinking is that the major markets are the developing markets for our product categories. So I think if we have to do some of the inorganic growth, it should be in these territories.

Okay. Next question is that we have spoken about the differentiation starts as compared to the competition with the value-added products and the complicated products. So the question is what is the share of revenue for value-added products and what are we going to increase that?