Mallcom (India) Limited (MALLCOM.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Mallcom (India) Limited Earnings Conference Call hosted by PhillipCapital India Private Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital. Thank you, and over to you, sir.

Thank you, Arjun. Good afternoon, and a very warm welcome to everyone. On behalf of PhillipCapital, I'm pleased to welcome you all on the earnings call of Mallcom (India). We are happy to have the management with us here today for question-and-answer session with the investment community. The management is represented by Mr. Rohit Mall, Associate Vice President; and Shyam Sundar Agarwal, Chief Financial Officer. Before we start the call, we'll have opening comments from the management. And I now hand over the call to Mr. Rohit. Over to you, sir.

Thank you, Vikram. Good afternoon, everyone. It's a pleasure to welcome you all to our earnings conference call for the first quarter of financial year '25-'26. I'd like to begin by extending our sincere thanks to PhillipCapital 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 detailed financial performance. Let me begin with the CapEx update. The trial runs at our newly set up Protech unit at Sanand, Gujarat has been successfully completed, and the unit commenced commercial operations effective 1st July 2025. We have spent INR 95 crores for Phase 1 of the project, and we expect a turnover of around INR 10 crores to INR 15 crores from this unit in the current financial year. We also plan to slowly increase the production capacity of synthetic gloves and helmets at this unit. For that, we have planned an additional CapEx of up to INR 10 crores this year, mainly towards importing more lines and machines. The second phase of expansion of our Chandipur unit is largely complete. This phase involves setting up a new facility for designing and manufacturing of industrial safety shoes with a buildup area of almost 70,000 square feet and a CapEx of INR 25 crores. The unit is now operational, and we expect it to generate a turnover of about INR 25 crores to INR 30 crores in the current financial year. Further consolidation work is planned during the current quarter. I'm also happy to share that Mallcom received the Silver category award in the Eastern region among 2-star export houses from FIEO for the financial year 2021. This recognition reflects our continued commitment to export excellence. We have also established an office in the UAE to strengthen our presence in the Middle East and Africa region, which we see as a high potential branded export market. With that, I'll now hand over to Mr. Shyam Agarwal, our CFO, who will walk us through the detailed financial performance of the company.

Thank you, Rohit, and good afternoon, everyone. I would like to provide an overview of the financial performance of the first quarter of the financial year '25-'26. On a consolidated basis for the first quarter, the operating revenue stood at INR 122 crores, reflecting a growth of 19.5% year-on-year. EBITDA for the quarter was INR 18 crores, up by 23.1% year-on-year, with EBITDA margins at 14.38%. The net profit was reported at INR 10 crores with PAT margin at 8.09%. The increase in EBITDA margin on a year-on-year basis from 13.96% to 14.3% was mainly attributable to a reduction in our manufacturing [ operation ] and other expenses. Thank you. With this, we can now begin the question-and-answer session.

[Operator Instructions] The first question is from the line of Mr. Aditya from Securities Investment Management.

Sir, firstly, I just wanted to understand, we did a revenue of around INR 190 crores to INR 195 crores in shoes last year. So was it primarily for domestic markets?

Yes, that's correct. Largely for domestic market, a major share is going to the domestic market. And then -- but we are also exporting lesser percentage, but yes, we are also exporting.

Understood. When I look at our total domestic revenue, which was around INR 200 crores, so are we primarily a shoe brand in India, and we are not able to supply other products in the domestic markets?

A large contribution of the domestic revenue is contributed from shoe. I wouldn't say that we are not able to supply other products. We are supplying other products. But you have to also realize that shoe as a category has a higher average revenue per unit than other categories as well. So volume-wise, maybe our mix may be a little different. But revenue-wise, yes, large contribution to the branded or domestic revenue is contributed through shoes. But we are also supplying other categories like head protection, gloves, workwear in the domestic market.

So Rohit, just to clarify, I would like to mention that Indian market traditionally has been the first in the category of safety products, industrial safety product. It picked up, the safety shoe is the most preferred product. And so this was the segment which grew faster. And now the market has started accepting the other category. Helmet was always there where we are not earlier present, but now we are trying hard, and we are capturing some market share there. But hand safety and body safety is something which still needs to be developed, but it has started developing, and we are there. So this segment of -- this segment has also started growing now. And we are there.

Understood, sir. And I think in the previous con call, you have mentioned that domestic would be one of the major drivers for our growth in the next 3 to 4 years. So just wanted to understand the reasons for the same. So is it better distribution reach for us or supplying different products other than shoes? If you could just elaborate, what would lead to higher growth in domestic markets going forward?

So there are some internal reasons and some external reasons. So external reasons, there are a lot of tailwinds in this industry. You have more -- better policies from the government for occupational safety and health. You have companies who are becoming more stringent about their requirement. You have MNCs who are asking for such products. And then internally, we are expanding into different product categories. In the same product categories, we are launching different products. We are emphasizing more on our supply chain and ensuring deliveries are happening within time and to all places within the country and now also exporting to Middle East, Africa. We are strengthening our distribution channel as well as our sales channel to ensure that we are keeping up and increasing the rate of growth of the revenue from this market. So these are some of the reasons which is helping us keep up with the growth.

Understood. [indiscernible]

Sir, could you come again? There was a static disturbance. Hello? Sir, there's still disturbance at your end. You are not audible, sir. Maybe, sir, you could rejoin the queue because we do have participants on the line. All right. We'll move on to the next participant. The next question is from the line of [ Mr. Rushabh Shah ] from BugleRock PMS.

I had two questions. Since you said you are expanding your distribution reach and our business is based on completely on distributors, so how many distributors have we added in the past 2 to 3 years? And sir, when times are tough, how do you take care of your distributors?

The exact numbers, I will not have it ready at this moment, but I'm sure we have added at least 8 to 10 or maybe more distributors in the last 2 years. So for us, there might be...

Sorry to interrupt. Distributors you've added in domestic market?

Yes. Domestic as well as international markets. So Middle East, Southeast Asia, Africa, all these places, we've added. And so these are the registered distributors, but then there are also a lot of people who we are distributing to, but they're not registered because we have a criteria to making them a distributor. We just don't make a distributor at the first go. So unless the criteria is met, we don't make the distributor. And secondly, if your question is when the markets are not good and how we're managing our distributors and how we're doing it. So see, we have been in this business for a long time. Our distributors know what kind of products we deal in, what are payment terms, what is the quality of the product. So the brand is being built in the industry of whatever we have been doing in the past. So we do support them when time comes and when the market is not so good. But as of now, what we are looking as of right now in the last couple of years or going ahead, we see there's a lot of opportunity in the market. We don't see a slowdown at least for our products because it is going into various industries. But when time comes, we do support our distributors, and that's why some of our distributors have been associated with us for more than 10 or 12 years.

No, I was not asking about the market slowdown. I'm asking like how -- like you said, you support your distributor. So what do you do to support your distributor?

You have to be more specific. I did not understand the question completely.

In terms of, let's say, distributors having some problems. So like, how do you help them out?

No, there is a marketing support which we provide to them and maybe some freight also, we provide sometimes. So it depends. So Rohit, you can explain on this.

Yes. So we have a sales team which is there on ground near the distributors, also who's visiting them, interacting with them on a regular basis. There's a customer support team which is assisting them. There's a finance team which is assisting them for payments or credits. They can -- there's escalation metrics which we have in place, which they can reach out to if they want to -- want a redress of some problems or any support from us. If they want us to visit to a customer together, we shall be available with them. We support them with marketing materials, with branding materials, with passing on the leads. So these are the various kinds of support we provide to our distributors.

Fine. My second question is, I wanted to know, sir, how difficult is it to get approval for our safety products in Europe? And especially, which country is most difficult to get?

So European Union works as a whole. It's not country specific, but there are EN standards which you have to get your products approved by and for you to sell into Europe. So -- and the EN standards also depends. Some are -- some standards can be met easily. And there are various levels in the standard also, Level 1, Level 2, Level 3, things like that. So it depends on which testing you're talking about, which product category, how -- or what is the kind of risk or hazard associated with it that will define the complexity of getting the certification for it. And since we've been in the business for a long time, so we have a lot of certification across our product categories. And some have basic certifications, some have more complicated certifications, let's say.

My last question is on the tariff part, sir. How our products would be affected?

Tariffs into the U.S., as we all know, it's very fresh. So even our products are in the -- something that will be affected, impacted, but we'll have to wait and watch. Our exposure to the U.S. is not as high as maybe some of our other competitors. We are more exposed in the European market than the American market. But largely, all these products are produced in Asia. So we have to see how we place against our competition from Asia. But yes, all our products have been impacted by the tariffs. So we'll have to wait and watch if both the countries sign some sort of a trade deal.

The next question is from the line of Mr. Sucrit Patil from Eyesight Fintrade Private Limited.

I have to congratulate you that on the past 2 years, you have made -- good wealth on the shareholders' behalf also. So my question is -- I have a long-term question. Is that with Mallcom's global footprint across 50 countries and rising demand for ESG compliant PPE, how is Mallcom integrating sustainability circular design or material innovation into your product road map? And could this become a differentiator for premium global contracts for the FY '29, '30? Would you -- I would like to hear your thoughts. And can you please share a view on this?

Yes, that's a great question and something that we are dealing with right now. So we are already on the path for this. So there are various aspects to becoming ESG compliant. So one is you have the ESG-compliant facilities. And then in the products, what are you doing in the final product -- sustainable. So some of our facilities -- and the endeavor is all of our facilities at some point become ESG compliant, so -- which is in terms of having renewable energy. We do have solar panels for our leather production. The entire heat generated currently for our [ dipping ] glove facility is through biomass, and that is where we take care of circular economy also because this biomass is generated from rice husk, which is abundantly available in West Bengal. And then the ash that is created, that is also converted into fabrics. So it is completely circular and completely renewable energy that we are creating, and we save a lot of CO2 and SO2 emissions because of that. In terms of the product itself, we are using a lot of recycled materials, be it polymers, be it polyesters. We are using recycled materials in all these places. We are even trying for -- with chemicals, how can we input more and more recycled materials without losing the sanctity of the material and without failing the test that is required. So the efforts are going towards that as well. Now in Europe, a lot of people have started using digital passport for products where they're measuring, okay, each product contributes how much to the carbon emission. So we are being asked a lot of these questions where we are also trying to find solutions for. And a lot of our customers have been happy with our products and earlier where they were manufacturing. Now when they shifted to us, they have been able to improve the carbon footprint per product, and that's the data they give us. And they also evaluate us on a regular basis based on how much energy we are emitting, what kind of work we are doing for our compliance, how we're taking care of our people and the environment nearby. So going ahead, definitely, it will be a big advantage for companies who can do it because the market, especially the European market and the Australian market, some more advanced markets are heading towards such practices. And this will become very much like a mandatory thing in -- by maybe FY '29, '30. And we are geared up for that. And as a company, as our values stand also, we want to head towards that direction, be it with the product, be it with the facility, be it even with packaging solutions or logistics solutions, we want to head in that direction.

The next question is from the line of Mr. Ritwik Sheth from One Up Financial Consultants Private Limited.

Sir, a couple of questions from my end. So firstly, what kind of growth do you expect for FY '26 and '27?

So going ahead, we would like to maintain similar or higher growth rate in the range of 20%, 25%. That is what we have been targeting and trying to target if we want to meet our overall growth. So that's a number we are still going to stick by. And let's see how well we are able to perform.

Sure. And this will be despite the U.S. tariffs? Because assuming that it goes on for some time, the sales would be lower. So this would be despite the U.S. tariffs?

Yes. See, a couple of points on that. One is, our exposure to the U.S. is limited. It's not a major market for us. We were definitely planning to make it a major market. There was a lot of push and expectations on the market. But right now, it's still not a major market. We will continue to put our efforts because we feel that this is temporary and you never know what's going to happen. Secondly, there -- when one market closes, there are other markets which opens up. So now we have a [indiscernible] with the U.K. Hopefully, we'll have some deal with Europe also signed up. The domestic market, the Middle East market, these markets are still growing. So there are other avenues also. And we feel even with the U.S., this is not something which they can sustain because a lot of products, what we make, nobody in the U.S. is making it. It's all being done in Asia. And we've seen after COVID, everybody wants a double supply chain at least. So I don't expect the entire business to get disrupted because of this. There might be some hindrances to it. But I think if we are able to stay in the business for long enough, we'll be able to see positives from it. So whatever the situation is, I think it is temporary, and it does not change our growth plans.

Sure. That is encouraging, sir. Sir, secondly, on the margins, Q1 margins were very good, around 14.5%. So could this be a new normal going forward?

Shyam-ji?

Yes. So we have been maintaining this. The margin should be in the range of this 14%, around this figure only. And in the quarter, we have definitely saved on some few expenditures we are doing in the past. Like last year, we did some consultancy expenditure, which is a major one for us, almost 1% of the turnover. So that, we have started saving this year. And then some other expenses also are there which we are trying to save. So going forward, we see that this margin should be maintained in the range only, right.

Sure. And just one last question. Sir, the Sanand facility, you mentioned that INR 15 crores will be from this unit in FY '26. So sir, we are -- I think we are under the understanding that we can do approximately INR 100 crores from this unit with current capacity. So is that a lower guidance given by you or 15% utilization will be there for 9 months for this year and then it will ramp up next year?

So Rohit, let me answer this. So no, no, no, it is not like this. So what we have done that as we mentioned in the past calls also, that this was more of infrastructure creation where we have invested into land and building. And we have set up the minimum basic line of machinery. So now we have [indiscernible] Rohit mentioned that now we have planned to set up more line of machinery. So till now, it was infra creation with basic machinery setup is there, we have done trial run. We have started commercial production. But again, we have to increase the machinery. So that's why with the current setup, we have project -- given this projection of INR 15 crores, around in the range of INR 15 crores, we will be doing during the next half year. But in the process, we will be in the process of setting up new machineries also. And once the setup is there, then we should be reaching targeted turnover of INR 100 crores. So at full capacity, not this year, next year, FY '27, definitely, we should have a better turnover. If not it is INR 100 crores, near INR 200 crores, maybe that figure only.

Okay. So we have spent close to INR 90 crores and another INR 10 crores, we will spend in this year. And then our total revenue can be around INR 100 crores at peak?

Yes, yes. With that investment because as of now, it is more of infrastructure and basic machinery set up there.

[Operator Instructions] The next question is from the line of Mr. Aditya from Securities Investment Management.

Sir, in the domestic market, generally, what kind of customers and products would MNCs like 3M and Honeywell would be having? And what kind of customer base would we be having?

So in terms of the product category, 3M and Honeywell operate in a little different product category. For example, 3M is largely above the neck, which is head protection, ear protection, eye protection, face protection. They do largely that, and that's a very small category for us at this moment. And Honeywell does overall, except garments. And largely, they do a global operation, not something specific for India for both these companies. And they're fairly highly priced for the Indian market because they have those kind of cost structures and those kind of brands. So wherever you will see a global RFQ or a global tender, you will see maybe Honeywell or a 3M or wherever it is a very specialized kind of work which somebody like a 3M will only provide and you'll hardly have 1 or 2 competitors in India, then you'll see 3M. And in other cases where if there is unavailability of product, then you will see Honeywell and 3M. For example, we compete with Honeywell in synthetic gloves, also, we compete with them in head protection also, et cetera. So in Indian market, they are fairly highly priced and largely concentrating on bigger MNCs and brands. And for us, we cater to the [ bath ] market as well as the premium also. And largely, we are into foot and hand and body protection, which they don't operate largely into.

Sir, just wanted to get a better understanding. In the domestic market, why would a customer prefer a Mallcom product over Liberty or a Bata kind of a product? So just wanted to understand what is the customer looking for? What are the factors he's looking at before deciding on which brand to go for?

So various factors they look into. A, they look into the product quality and if it meets the basic requirement, the [ BI ] standards, for example, or if they have some additional requirements they look into it. B, they look into the pricing of the product. C, they look into the [indiscernible] how fast can they get their product, then they'll look into the service levels, what is the aftersales service, if the final seller to them provides some credit or not. Those kind of financial considerations, they'll also have. Largely, these are the 3, 4 things that we look for. And finally, it depends on the size of the company, they would not like to have a lot of vendors for these kind of products. They would like to have one vendor for all their MRO items. So they'll also like to see what all do their vendors carry what all kind of products. And if they can have one vendor providing all the solution, they would like to stick to that vendor because they're already registered and in panel with them. So these are some of the factors which help them take the decision.

Understood. And last year, you had hired a consulting company. So I just wanted to understand what were the key learnings from it? And how are we going to implement the learnings? So if you could just talk about it a little bit more, that would be helpful.

Yes. So the company that we had hired was not just giving us the, let's say, the solution, they were part of the implementation also. So whatever was to be done was already implemented last year. They had come largely for increasing our operational efficiencies in our factories. So setting up processes, creating more -- being able to do more from the same resources, how to channel it properly, how to deliver faster, how to be more sure of the lead times. So it was essentially to solidify our supply chain of our products from our vendors to our customers and how can we do it faster, better, more efficiently. And that is what they were able to deliver, which gave us some positive results and which -- the results are already reflected in the financials as well as going-to-market strategy that we are having.