Orient Bell Limited ($530365)

Ladies and gentlemen, good day, and welcome to the Orient Bell Limited Q4 and FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suyash Samant from Stellar IR Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thanks for joining us today. We have with us today the senior management of Orient Bell Limited, Mr. Aditya Gupta, Chief Executive Officer; and Mr. Anuj Arora, Chief Financial Officer, who will represent Orient Bell Limited on the call. The management will be sharing the key operating and financial highlights for the quarter and full year ended 31st March 2026, followed by a question-and-answer session. Please note, this call may contain some of the forward-looking statements, which are completely based upon the company's beliefs, opinions and expectations as of today. These statements are not a guarantee of the company's future performance and involve unforeseen risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect developments that occur after the statement is made. I now hand over the conference to Mr. Aditya Gupta. Thank you, and over to you, sir.

Thank you. Good evening, ladies and gentlemen, and welcome to our Q4 and FY '26 earnings call. All of you are aware of the current industry situation, especially in Morbi. So I will focus more on OBL. Over the last few quarters, we have remained focused on demand generation, premiumization and strengthening brand visibility while simultaneously digitizing our internal processes to deliver on the vision of simplifying buying and selling. Technology and digital initiatives continue to remain a key differentiator for -- the company has consistently strengthened its digital capabilities through technology-led customer engagement, dealer enablement and back-end integration initiatives. Investments in our digital platforms, online catalog visibility, visualization tools and lead management systems are helping improve conversion ratios, customer experience and distribution efficiency across markets. These initiatives are now getting huge traction from consumers, both dealers and individual end consumers. For example, dealers are adding 50,000 new designs every month of our using our AI-enabled visualization tools. Our website continues to be amongst the most popular and our online lead generation initiative is now contributing to sales for 350-plus dealers every month. These unique are helping us deliver our sellout proposition to dealers as opposed to the industry norm of ad sale. On the business performance front, the momentum witnessed since Q2 continues to get stronger. Q4 volumes grew by 7%, while revenues increased by 7.5% year-on-year. For FY '26, volumes grew by 4.4% and revenues increased by 3.1% over FY '25. From an industry perspective, the current U.S. Iran war is driving structural changes which are advantageous for organized and multi play -- as a pure-play branded company with manufacturing facilities spread across India and comparatively low dependence on Morbi, OBL is well positioned to benefit. While the immediate future is filled with uncertainty and volatility, especially around gas pricing and the impact -- long-term impact it would have on demand, we feel that in India, long-term industry tailwinds are favorable, supported by sustained housing demand, government infrastructure spending and renovation demand. Our strong balance sheet and success in cost management enables us to manage any volatility which might be seen in the short term. To summarize, we believe the strategic initiatives undertaken over the last few years across the value chain have started delivering meaningful differentiation and operational efficiencies, thus creating a strong foundation for sustainable and profitable growth going forward. Thank you.

This is Anuj and thanks for joining us today. As Aditya highlighted, the company delivered sequential revenue growth during the quarter, supported by improved product mix, continued premiumization and focused execution across markets. Profitability continued to outpace revenue growth driven by operating lever [indiscernible] and disciplined cost management initiatives undertaken over the last few quarters. On a consolidated basis, Q4 FY '26 EBITDA increased by a robust 6% year-on-year to INR 6.4 crores with EBITDA margin expansion of 270 basis points while PBT rose meaning INR 8.4 crores compared to INR 3.6 crores in the corresponding quarter last year. For the full year, EBITDA stood at INR 42.5 crores, reflecting a 38% year-on-year increase with EBITDA expansion of 160 basis points. PBT also improved significantly to INR 6.4 crores from INR 3.8 crores in FY -- this is after absorbing onetime cost of INR 1.3 crores towards complying with the new labor pool. As utilization levels continue to improve, the benefit of operating leverages are becoming increasingly visible in the business. Nearly 60% of the incremental revenue in FY '26 flow through the bottom line. Importantly, as we operate at 60%, 65% of the capacity utilization, we continue to have adequate available capacity to support future growth without any significant incremental CapEx. The company also maintained a strong focus on cash flow and working capital discipline during the quarter. Tight controls over receivables helped us reduce DSO by 9 days to 48 days. Cash cycle improved to 20 days from 26 days last year. From a balance sheet perspective, the company remains net free, supported by its strong cash position and liquid investments. This provides significant flexibility to support future growth opportunities. Overall, the continued improvement in revenue, margins, cash flow and balance sheet gives us confidence that the business is well positioned for a sustainable and profitable growth going forward. With this, I'll request moderator to open the floor for Q&A.

[Operator Instructions] Your first question comes from the line of from Ashvath of Arihant Capital Markets Limited.

Congratulations for the good set of numbers. My first question is on margin front, do we see margins to sustain at around Q4 levels in coming quarters given the issue with gas price in the country? That's my first question. And on the volume growth front, what kind of volumes are we seeing ahead? And have we taken any price hikes? And what kind of price hikes are we expecting? That is...

So on the margin front, you must be basically from qu-on-quarter, witnessing increase in margins. So the trajectory is likely to continue is what we feel. Quarter-on-quarter basis, I think last quarter was somewhere around 6%. This is 7.7%. And we feel that this trajectory will continue. As price...

Sir, were sounding a little bit distinct and there was a bit of an sound which was disturbing.

So, I'll repeat on price increases. We were, I think, the first company to start taking price increases around 10th of March. We have taken increases in multiple stages. So on a cumulative basis, almost 20% price increase has been taken in March and April put together.

Okay. I couldn't -- I probably not sure what kind of price hikes are we expecting a...

So it all depends on what the gas price is going to be. And we will wait and see how gas prices go up. Also [indiscernible] is impact of raw materials. So we see a gradual push up over the next few months and watching it very closely. As I said in my opening remarks, due to energy pricing are a bit volatile. So keeping our ensure momentum on volume and kind of safe...

My next question is what kind of gas prices are we looking at right now? Could you help us with the breakdown...

[indiscernible] that formula keeps on changing every few days. So it started with [indiscernible] volatile. But in general, approximately 30% increase is what we have seen overall in the...

Could you help us with the INR for Q4 blended?

Q4 INR will be somewhere around INR 45 average.

Okay. Sir, another question, if I may. I just wanted to understand since we have paid off our debt and we are sitting at some level of cash at this point. Are we looking at some form of CapEx going ahead? Or what is our next move forward?

So, as of now, we have sufficient capacity, like I mentioned in my opening remarks as well. So there will be CapEx basically for maintenance. But as of now during the current year, we don't need any additional CapEx in FY '27 for...

And one last question on the marketing spend, are we -- what kind of percentage basis are we looking at to allocate towards marketing?

So I think last year, FY '26, we did about 3.5 3.6. And this is an area that we will continue to invest. And I think 3.6% will kind of creep upwards maybe closer to 4%. We have not -- we have not decided yet. But directionally, we are very clear like FY '26 was more in FY '25, we are very clear that this is an area to invest. So it would keep moving up.

Your next question comes from the line of Apurva Sharma from Capital.

Congratulations, sir, for such an encouraging set of results. It seems like operating leverage has started to kick in, in a big way. I have a few questions, sir, starting with you mentioned about capacity utilization to the tune of 60%, 65%. Is that right?

Correct.

Sir, in last 1 year, our marketing spend has been upwards of 3%, 3.5%. We have increased our sales mix from the ceramic to GBT. And with the launch of your [indiscernible] tile as well and your adhesives, when do we see a collective capacity going upwards of 80%? The real estate side also seems to be in our favor.

We have consistently stayed away from giving future guides and all. So I would request if we can focus more on FY '26. But I think this year, even more than the previous years, there is a lot of [indiscernible] to pan out because of gas pricing and gas availability. There was a time just 10 weeks back where we were actually sitting and thinking of which lines should be shut up, should be shut down lines because the gas allocation has been reduced to 50% and all. So I think talking of capacity utilization for FY '27 is not something which is in our control now. I think let me tell you this, quarter 4 capacity utilization was better than what quarter 3 was. And if status quo continues, then we expect this number to get better in terms of gas availability.

So sir, my another question was since because of this energy crisis, a lot of unorganized players have shut down their capacities, that is maybe across Morbi and many other places in India. Now when we see this transition of the organized market share increasing in next 1 to 2 years, how do we plan on capitalizing this? Does it still have to be that 40%, 45% of our revenue will still come from the OB -- or do we have a more aggressive strategy here to get the market?

So, I think you're right. We expect players like us to benefit strongly with the disturbances in Morbi because of our balance sheet, because of our cash position and our focus for the last few years on selling out from a dealer go down as opposed to selling in. I think we are better placed to capitalize on this development. In terms of OT and all, I think it would definitely -- it could go up. I haven't done those numbers segment-wise exactly where it will -- how much of it will come from [ OBTX-OBTX ]. But with stronger retail footprint, I think that number should definitely get better.

All right. Sir, the antimicrobial tile and your anesthetic tile, have you Oriental started getting a reasonable traction on these products lately because the data centers are so much in your headlines in last 6, 7 months. Have we received any good orders or any interest from these companies?

There have been some orders and all, but the contribution is still a very, very small portion of the overall. So it is a nice branding this thing. We are getting some orders, but really not enough to move the top line.

The next question comes from the line of [ Deepak ]...

Numbers. Just wanted to understand from you how is the overall demand scenario looking like for building material -- so has it kind of turn around considering pipe companies have also delivered good numbers, companies, all of them have delivered good numbers. And overall electrical buyer and all these companies have also started good numbers. So it kind of, in your view, kind of turn and the demand has been coming from household and builders?

I think I've been saying that with the rapid pace of biz and a lot of support a lot of CapEx by the government also for the building and construction industry overall are positive. We have had some issues largely related to oversupply in the Morbi cluster. But I think this particular crisis has cut down that oversupply to a level which we can easily manage. So I think the long-term thing looks positive. But I also foresee that in the short term, there could be some ups and downs. For example, bond rates are going up internally. interest rates in India could also go up. The Prime Minister has already spoken about the need for austerity and how it plays out on the consumption side, we will know over the next 1 month or so. So I think there might be some short-term blips for a quarter or so up and down. But the long-term story in terms of building and construction demand, I think it stays strong. And coming to tiles specifically because of the adverse impact on Morbi, I think the supply-demand overhang for tiles would also get corrected, which is a big positive for the industry.

Just a ballpark figure in terms of how much would have the industry grown in terms of tonnage organized and unorganized put together? So the organized sector grown on the back of unorganized sector not getting enough raw material supplies or the entire industry has grown?

See, I think the unorganized sector has not done too well in FY '26 because exports have been flat. Exports in FY '26 would be slightly lower than FY '25 and I think -- I say not lower, same size in FY '25 and lower than FY '24. So organized sector has not done too well. For the first 11 months of the year, there has been a steady price -- selling price erosion also. So while volumes were still better, but the revenue piece took a bigger hit. Your next question was in terms of the organized players, I think different players have behaved differently. See the figures of, say, March could be -- fourth quarter could be an aberration. Some companies might have done better than the normal run rate, some could have done worse, depending on how big their dependence on Morbi. But generally, I see that I think at least I can speak for myself speak the January and February were great months for us. So it was not that we started growing in the month of March. And if I shared the information with you, say, in the first week of March, we would have been equally positive about our quarter 4 outcome because a good March came on the back of a nice January and February.

Understood. Sir, one last question. So in terms of segments, what would be the contribution coming from institutional vis-a-vis retail segment? And which segment has grown the most in the last quarter?

For FY '22.

Okay. And what would be the contribution coming from vis-a-vis institution overall?

Somewhere around 8% in this...

The next question comes from the line of [indiscernible] an individual investor.

So my first question is, actually, I was seeing that our power and fuel cost, which has gone up by 34% year-on-year and then our input cost is also up around 24% wherein our revenue growth is only 7%. So how do you see if the same pressure persists, are you going to manage our margins in the next coming quarters?

Are talking basically as a percent as a percent of sales as a percent of production. In the last quarter, our production has gone up by 20%, 25%, if I remember correctly. So on an overall basis, like I mentioned in power and fuel cost, the fuel cost, which was somewhere around 43, 44 in the quarter 3, it was at -- it was at 4.5 in quarter 4. So as such, the increase that you see is mainly on account of production increase.

Okay. So you are saying that the pressure from the Iran war, which is still -- I'm thinking that it will actually be shown in the Q1 results. So you are saying that has already been absorbed in this quarter also if this cost increase is what you are saying is linked to the production increase?

Increase started from 9th of March. So there was a part of that, which was basically in quarter 3, quarter 4 and the balance will come up in Q1 because we have already taken price increases during March as well as in April.

Okay. So based on the current input cost and the increase, we don't need any further price increase if that persists?

Yes. If the gas prices where they are, if they move up, then yes, we'll have to take another...

Okay. So how is our inventory level right now? So are we -- I mean, are we seeing if something comes up again to gas we are not getting properly and you have to hold our production, how long we can serve our customers?

There is no problem in terms of availability as such. It's just that the pricing will change the allocation change, the pricing will change. But as such, because we being a [indiscernible] player, we haven't faced any problems...

We consume more than what the [indiscernible] I think all we have sufficient stocks for the near term. And we continue somebody April better than what it...

Okay. So that's fine. So one last question. So from May 5, there are supposed to be some units supposed to be opened in Morbi. Any quantifiable number which we can see like how much has been reopened and how the production is going in Morbi?

So they are open from 1st of May onwards, I think 500-plus units have opened in Morbi. Most of the units have opened. The percentage of units are doing ceramics is lesser. They have -- most of the units are struggling because -- not because of gas availability, but they're struggling because of labor availability and labor has been a big challenge. packing a lot of manual is taking a hit people are not able to actually sell in the market to that extent.

So in that case, sir, if demand continues the same, any price increase can be absorbed by the end customer, right, if that's true?

That's what we expect. The deal is the customer is trying to check whether they are getting something cheaper from [indiscernible] more than half of March production, April production. So at the design level in [indiscernible] sales outside [indiscernible] answer your question?

Sorry to interrupt, sir. The line for [indiscernible] sir has been dropped from the queue. Our next question comes from the line of [indiscernible] from [ Arihant Capital Markets Limited ]

. So my question is on the dealer inventory. I just wanted to understand, sir, what kind of traction are we looking at there? And are we getting new ordering activity from the deal?

As dealers have been -- have turned cautious. They don't want to get stuck with the high inventory because many of them are hoping that prices might come down. So they are kind of reducing their stocks. That is where our focus sense, there is a working squeze squeeze there. And he also wants to wait and watch in terms of projects for large project they are in a wait and watch mode. [indiscernible] there really is no alternative to -- if prices go down, they will go down for everybody, not just for me, but for the whole industry. So everybody will take their prices down. And they can't substitute with some other surface.

And another question is on the impact that we could see in Q1 because of gas. My question is to what extent can we pass on this impact -- and will this pan beyond Q1 to Q2 in any front because of the inflation in gas...

Is your question what percentage of the cost increase we will be able to pass on to the consumer? Is that the question? So as of now, we have passed on all the cost increase to the I think so. See, recently, there have been some talks since yesterday that Morbi cluster, [indiscernible] is increasing June pricing has indicated that June price will be about INR 5 per cubic meter more than May. I think there was a small diesel price increase today. There was a diesel price increase a few days back. So all of these things I think are adding up. So downward movement in the next few months, definitely not in...

[indiscernible]

[indiscernible] piece is much higher than the question -- so we have started this year I think we have a learning curve. So this step, we have not given that much attention to adhesives in the last 2 months that you would have given [indiscernible] up to more and more of our dealers and setting up multi-up we get some decent volumes from there... Question was not clear.

My question is it available on the open market for purchase at this stage...

Graph. all the 3 months back. So all that is happening. So that is kind of moving out. But [indiscernible] something which we will keep on expanding.

Okay. Just one more question for modeling purposes. You did mention some maintenance CapEx that would be '27.

Again, your voice is not...

My question was on the maintenance CapEx. If you could help us quantify what kind of number we're looking at for modeling purposes only?

So basically, I think this year, we have done some INR 6 crores, INR 7 crores of CapEx. Next year also, it should be in the range of INR 10 crores plus/minus INR 5 crores.

The next question comes from the line of Apurva Sharma from [ RA ] Capital.

Sir, just last 2 questions, if you can indulge me. Number one, we have taken a price hike of -- the first person asked about the price hike. It was not really audible. Can you just again guide me as to what the price hike has been so far?

So we have taken a price hike of 20% over March and April put together.

Okay. Sir, in meanwhile, for the month of April itself, the gas prices in North have again risen by more than 12% from [indiscernible] so does that indicate that there is also going to be another very small price hike going forward?

So I mentioned that we have taken both in March as well as April. So the price increase -- the cost increase in March in April in terms of gas prices is already covered in our price increase.

Okay. And sir, going forward, whenever the situation -- the energy prices situation now down for the sake of my understanding, these realizations that we are seeing right now post hike, these prices remain in the market for at least 6 to 9 months?

No, not at all. I think they will start readjusting in a period of, say, 3 months, 4 months, they will readjust.

So this is basically a one-off event where because of this extreme situation, we have gotten this real...

Yes, you can think of it this way. But I think it will not change very soon. And secondly, it's a bit of a blow to players who don't have a strong balance sheet because now they have to get a lot of working capital in place to buy gas while they were earlier relying on some other fuel and all of that. So I think net-net, it will -- things can change, but it will leave us better off than what we were before this crisis happened.

Okay. That's great. This leads to my last question, sir. We have seen our peer they have shifted already to 30% of their power to biofuel do we have any -- going forward, do we have any plans in respect to the same phasing out to biofuels? Because in that case, our FCM then suddenly drops down to 2025, which is a significant savings.

Apurva, I don't even know when we shifted. I think it must have been 6, 7, 8 years back that we shifted to biofuels in our plant. It's quite some time back. So it is not something new for us. We -- in our spray, we have been using biofuels in [indiscernible] for at least 7, 8 years that I've been around.

Our next question comes from the line of [ Rakesh Kumar ], an individual investor.

So firstly, congratulations on a good set of numbers. I just wanted to get a quick sense on -- means, can you give an elaboration on the price has taken recently? And how do you see this playing out over the long term? So are these sustainable? How do you see the demand shaping up given the price hikes?

You're talking about sustainability of price hikes. Correct, correct. So how do you see this playing out over the long term?

So Rakesh, as I said earlier, there's no substitute for tiles for flooring also internationally, that's number one. Secondly, over the last 3 years, the pricing of tiles has dropped. So to that extent, there is a bit of a shock when prices go up by 20%, 25%, 30%. But if you look at it over a 3-year period, the price would have gone up in line with the inflation. So I don't really see an issue there. The question is how will fuel prices behave in the future? I think if fuel prices were to change, either go down or go up accordingly, the pricing will move up or down that whatever [indiscernible]. And on top of that, there is a diesel price and then there a INR 5, INR 6 gas going up, which is again -- so I don't know near future if things are going to come down. But whenever pricing of gas -- cost of gas comes down, then these will also follow suit and will get adjusted downwards.

Got it. So sir, similarly, as we're seeing this Morbi operational slowdown, so we saw a good strong volume growth in Q4. So how can we see the trajectory going forward in the next few quarters? So do you see the Morbi production coming back strongly? What's your view on that?

So like we mentioned earlier that we don't give future guidance. So we would like to stick to FY '26 only. What will happen in the future, nobody knows. How gas prices will behave, how the demand will turn up, nobody knows. So I think let's stick to FY '26.

The next question comes from the line of an investor.

Actually had a broader question. Like I've been tracking the sector for quite some time now. And for the last 10 years also, if you see for our company also and for many other companies, the sales growth hasn't been like 10%, 15% CAGR also for many companies. So now for this quarter, particularly, we have seen a significant increase in the prices, right? And you also mentioned like for the last 3 years, the prices have been falling. Now in the industry where you were not able to keep the prices to protect the margin or improve over the period, suddenly we have taken this kind of price increases. So what is the ongoing reaction of people like offtake of the product? Or is there any like demand slowdown because other players in the industry talking that still there is a significant demand increase, so how do we see for our...

If you are a consumer and you are renovating your house, comes in at the end of your renovation project. And you can't leave home project unfinished because tiles have become more expensive than what they were a month back. And secondly, what substitute do you have of [indiscernible] downgrade. You could use cheaper you could use a different kind of ceramic tile or no this thing. Those choices are available to you as a consumer to downgrade. But you have a choice to say, look, I've got an unfinished house and all and for 3 months, 6 months, I'm going to wait till the price down and months will negotiate to the best possible figure. But existing projects have to be completed. You can't leave a project just because the pricing has gone up. On an overall basis, tie is not more than 1% to 2% of the overall project cost. And holding construction will cost more than the cost increase in terms of cost production will increase in terms of interest and all. So it doesn't make sense basically to hold construct just to wait and watch when prices will go down.

Right, sir. So one more question I had, sir. starting, so you commented that in last quarter, we have seen an improvement in the margins and you told that the trajectory will be maintained in the future quarters. So what I want to ask was that you want to say that the current quarter margins will sustain or will still improve the margins going forward also? So fourth quarter -- sorry, first quarter player.

[indiscernible] we have compensated for that in our March and April price increases. So we have not taken any hit on because of that.

Sir, I was asking about next quarter or for next financial year also. So we are seeing this quarter overall margin maintaining for...

This financial year, we are optimistic compared to last financial year, we expect to do better.

Any sales kind of guidance, if you have any -- what kind of growth we're expecting this year?

No, we don't -- as mentioned earlier, we don't give any guidance...

Currently around 65% in quarter 4.

The next question comes from [indiscernible] an individual investor.

First of all, congratulations on a good set of numbers. So I just wanted to understand what is the exceptional item that we have in this quarter, somewhere around INR 1.2 crores...

So that is on account of the new labor code which has come up. So you have to basically provide for the...

Okay. And second thing on our other expenses. see [indiscernible] dip of 5. So what line items were does it include like where did we see a drop in absolute numbers?

You're talking about which?

So other expenses, if we see current quarter, it is around INR 31.8 crores Y-o-Y for quarter ended on 31st March, it was INR 3.6 crores. So there's a drop of 5.4% drop -- so if we can have like which line item does that include talking. And do we see the current trend going forward as well? Like are we expecting some further drop in other expenses?

On an overall basis, if you see you're looking at only the current quarter. But if you look at the overall year, we are at a similar level as compared to last year.

Ladies and gentlemen, as there are no further questions, I now hand the conference over to Mr. Aditya Gupta for closing remarks.

Thank you, everybody. Thank you for your interest in forward to meeting you next quarter.

Thank you so much.

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