Orient Bell Limited (530365) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Orientbell Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suyash Samant. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us today. We have with us today the senior management team of Orientbell Limited; Mr. Aditya Gupta, Chief Executive Officer; and Mr. Anuj Arora, Chief Financial Officer, who will represent Orientbell Limited on the call. The management will be sharing the key operating and financial highlights for the quarter ended 30th June 2026, followed by a question-and-answer session. Please note this call may contain some of the forward-looking statement 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 risk and uncertainty. The company also undertakes no obligation to update any forward-looking statement to reflect developments that occur after the statement is made. I now hand over the conference to Mr. Aditya Gupta sir. Thank you, and over to you.

Thank you. Good evening, ladies and gentlemen, and welcome to our quarter 1 FY '27 earnings call. Over the years, OBL has focused on three key priorities: driving demand generation, strengthening our brand and simplifying tiles selling with our cutting digital and AI tools. We have built a tech-driven ecosystem comprising platforms such as TMT for project tracking, Lakshya for market working, OBL Connect app for dealers, OBL Executive app for sales team and Darpan which is a graphical MIS tool available across functions and levels and also our unique AI-powered visualization tool Instalook. These tech-driven initiatives have gained traction in the sales system. For instance, dealers showcase 50,000 new tiles designs every month using Instalook. They are using this tool also to send out quotations to customers. Two thousand plus new projects are added every month to TMT which is our project management tool. Visits to 6,000 mapped influencers is tracked every day through Lakshya, and there are many, many more such examples. Some of these tools were launched over seven years ago and some are recent. All of them have accumulated valuable data across multiple areas of our business. This structured data enabled us to take the next step with the launch of our AI chatbot Drishti. Drishti leverages our extensive data repository to provide sales team with granular actionable insights. In July alone, Drishti has answered almost 10,000 questions for our sales team and this always-on analytic tool is helping identify and address new opportunities. All our efforts including 24/7 advertising on TV are designed to generate inquiries and preference for OBL. Our demand generation initiative has ensured a sell-out of approximately 40% of the primary sales volume in quarter 1 versus 26% sell out last year. The sellout support is helping us command a better price and collect faster. Our DSO has improved by has improved by five days in quarter 1. Operating environment for the industry has been volatile, as you all know. And the geopolitical development in middle east continue to create global uncertainty. Q1 saw a big gap in supplies as Morbi operations were shut down during April and most of May. The gap was bridged by organized players like OBL and our drawdown of dealer inventory levels. The current operating environment favors branded players like OBL and especially those with a lower dependence on Morbi as a production center. While near-term volatility persists we are positive on the long-term outlook. Housing infrastructure and renovation demand are strong structural growth drivers. If exports open up, it would lead to a big boom for the industry. To summarize, our initiatives over the last few years are now translating into outcomes with revenue growth and margin included quarter on quarter. We will continue to focus on what is in our control with execution to drive revenue growth and profitability. Thank you. I will now hand over to Anuj, our CFO, who will take you through the detailed financial performance.

Thank you, Aditya, and good afternoon, everyone. As Aditya highlighted, our continued focus on range of growth initiatives is beginning to deliver results with the benefits becoming increasingly visible in the momentum building quarter on quarter. Let me take you through the financial performance now. Overall, volume grew by 22.9%, while revenue increased by 42.8% year-on-year to INR 203 crores, supported by an ASP increase of around 15.9%. We were able to effectively pass through the increase in input cost while the higher contribution from our own manufacturing business provided an additional benefit to gross margins. As a result, we achieved our highest ever gross margin of 39.7% during this quarter. At the operating level, EBITDA increased to INR 17.6 crores from INR 5.6 crores in corresponding period last year with EBITDA margin of 8.7%. The EBITDA margin expanded by 480 bps as compared to same period last year. Profit before tax also improved significantly to INR 11.2 crores compared to a loss of INR 0.6 crores last year. Importantly, profitability continues to grow ahead of revenue, driven by improvement in realization, operating leverage and enhanced manufacturing efficiencies. We also remained focused on strong cash flow generation and disciplined working capital management during the quarter. Our working capital cycle further improved to 18 days from 20 days sequentially, reflecting our continued efforts to enhance operating efficiency, optimize inventory and receivables and maintain a lean balance sheet. From a balance sheet perspective, the company remains debt-free supported by a strong cash position and liquid investment of over INR 47.7 crores net of debt. This robust financial position provides significant flexibility to pursue further growth opportunities while maintaining a disciplined and prudent approach to capital allocation. On the manufacturing front, capacity utilization improved to 73% compared to 64% in Q4. We plan to invest around INR 10 crores to convert 1 million meters of existing ceramic capacity to GVT. This is in line with our disciplined approach to capital allocation where we prioritize maximizing the utilization of our existing assets before investing into incremental capacity. The conversion will also enable us to improve our asset utilization, enhance our product mix and capitalize on the growing demand of premium products. Overall, the continued improvement in profitability, cash generation, manufacturing efficiency and balance sheet strength give us confidence that the business is well positioned to deliver 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 Gunit Singh with Counter Cyclical PMS.

Congratulations on a good set of numbers. So how much of a price hike did we take in Q1 as compared to, say, Q4 or Q1 last year?

So in totality, we have taken a price increase of around 18% to 19% vis-à-vis pre-war situation. And we were able to basically get almost all of that.

Got it. So now that the gas prices have fallen because of, I mean, the Middle East situation getting better. So will we still -- are we still able to sustain these higher prices? Or I mean, have we taken any cuts in Q2? Or do we plan to take any price cuts?

So as of now, the situation is very volatile. The gas prices continues to remain volatile. Availability of propane is still not -- people are not very sure of that the continuity on availability of propane. So as of now, there are no price cuts that we have taken. We'll continue to watch the market and decide basis the gas prices going ahead.

So what were the gas prices in Q1 for us on average?

On an average, it was around INR 60.

And how are they currently?

So currently also, there is not much drop there, INR 1 or INR 2 here and there. But currently, those prices are currently sustainable.

Got it. And I mean, if tomorrow, the gas prices go down, then we would have to take price cuts? Or do you think that we will be able to sustain these higher prices? What's your take on that given the current demand and supply dynamics? And…

It all depends on how the industry works, how the prices moves within different geographies, price cuts happens only in Morbi, happens all across. It all depends on that. So too early to tell that what will happen in future.

Got it. And in Morbi, did we see any plant shutdowns in Q1? And I mean, how is the situation there?

So plant shutdowns were there from, I think, end of March till mid of May, the plants were shut down then. But post that, the supply situations have resumed and there is no problem in terms of availability of gas or propane. So currently, the plants are running at capacity in Morbi. Initially, there were some problems initially on account of gas, then on account of labor. But post 15th of May, I think the supply situations have improved.

Got it. And currently, I mean, with the higher prices, I'm sure Morbi players would also have hiked their prices. So what kind of a premium do we -- I mean, how much higher are our prices as compared to the Morbi players?

It depends on product to product, but -- so the gap between our prices and Morbi prices have come down. So if it was say -- the gap between us and them, say, for example, INR 100, the gap has come down to INR 50, INR 50, INR 55. So which is a positive for organized players like us. And one more thing which is playing out, which is good for the organized player is that other than -- so one advantage that the organized players have is the advantage on account of this gap being reduced between Morbi as well as organized players. The other thing that is increasingly visible is that the dealers are basically are looking at diversifying their sourcing by adding additional supplier to their city. And they don't want to be dependent on say one geography like Morbi because of what has happened recently. They want supply security and that's the reason they are adding more – geographically more sourcing locations.

Got it. And in terms of demand, I mean, what were the main drivers of 23% higher volumes? And if we look at, I mean, project completions and end user demand for us, so do you think that, I mean, we such growth is…

So see, there are basically two broad buckets or two broad reasons because of which we have seen increase in demand. One of it is what has happened in the market. We all know that Morbi was shut down for half of quarter 1. And that did create supply vacuum, supply gap in the industry, which is something which we with our lower than most companies' dependence on Morbi. We benefited from that. There was one part of -- one part wherein the 23% growth. The second part would be unique to OBL that would be because of our sustained efforts on demand generation. See, what happened is when prices were going up with a lot of uncertainty, the dealers were not very sure about stocking up. They always thought that pricing would come down 15 days later or next month and so on and so forth. But with all the work that we have doing on demand generation, our teams were able to go to the dealers and tell them that look whatever you are buying from me, I'm ready to ensure that 35%, 40% of that I'm selling out in your name through projects, through our online tile e-commerce initiative, tile card. So that has also helped us. Dealers felt very secure knowing that almost 40% of what they were buying from us would be sold out by the company's team itself. So their inventory levels were not getting blocked, their capital was not getting blocked. So this plus whatever we are doing on the brand side, we have been on TV 24/7 for more than a year now. So all these factors put together helped us get to this 20% volume growth figure.

Got it, sir. Now with the Morbi supply coming in, I mean, the growth in volumes might not be that much. But with your initiatives that you've taken, I mean, is there some kind of a volume growth that you are looking at for the current financial year?

So we have consistently stayed away from providing any future guidance. And more so at this point of time when things are so volatile. The news from Middle East changes almost every few days. So we will stay away from that. But I think what I would like to tell you is that we are very sharply focused on these input KPIs, which we are driving, which is in terms of, as I said, our own initiatives, internal initiatives to generate secondary sales of how our dealers are stocking up, how our dealers are using our tools for reaching out to more customers. And we continue to see a good growth rate in those input KPIs. So from these indicators, the early indicators we are kind of optimistic and confident that we will continue to grow strongly.

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

My first question is on the Dora plant. I just wanted to understand what kind of numbers utilization and some specifics on the same, if you could help us share some detail or share some color on the same.

Ashvath, we have -- we very often produce in a particular plant and move it to another plant of ours to sell from there for that market. So that's why a plant level capacity utilization is actually misleading because it might go down dramatically in a quarter for the simple reason that we decided not to produce that product in that plant. But I think if you are -- Dora expansion for the last three years the logic with which we had done that was to focus on the South and the West markets. So maybe I think you will get your answer if I tell you how South and West markets have been performing for us. That would help you more and give you a better handle on this rather than the utilization number at Dora, which is not okay. So I'm talking about the retail business. I've left the enterprise business out of this. So our South business grew by about 37% in volume in quarter 1. Our West business grew by about 60% in volume. So our growth has been faster, growth has been stronger in these two territories where historically OBL has been underrepresented. This is a good sign for us, always well for the future.

Just to further on the Dora plant only. I just wanted to understand like what percentage of our GVT today is supplied from the Dora Plant, one? And if you could quantify on its EBITDA levels, that would be really helpful or its contribution to the EBITDA?

So I think -- so we have about 47% by value of our sales in quarter 1 was GVT. So I think about 15% to 20% of that would be coming from Dora and balance -- bulk of the rest would be coming from SKD. And there will be a very small percentage, maybe 4%, 5%, low single-digit percentage which we would be sourcing out of Morbi.

And could you also help us with our blended utilization levels? What it was for financial year '26 and what it is for Q1?

So capacity utilizations last year was 60% blended which is 73% in this quarter.

So we have headroom to grow, Ashvath. So I think that's one positive that there is headroom to grow. And one of the lines which we were using sporadically, we have decided to convert that -- that is a ceramic line. We have decided to convert that into GVT, which would further help drive our capacity utilization in quarter 3, quarter 4.

Just a question on our project and retail split. There was some outlook on the industry of an uptick in the retail -- on the project part of the entire dynamics. So just wanted to understand Orientbell's outlook on the same and what kind of percentage split are we looking at on the project end going forward?

See we have historically been strong on projects. And we do projects both through our direct team which is our key account management team, the enterprise team and also through our dealers. So we have historically in all calls kind of taken a split of, I think, 3,000 meters and above as a project – with a lot of smaller projects get done through retail. So even if you were to do the split, I think for quarter 1, our project revenue was 18%.

Project was 18% and...

18%, which includes projects which we have done through retail, greater than 3,000 meters billed volume and also the project which has been -- projects which have been done by key account management. To your second question about what is our lookout, I think we have grown faster for the last few quarters, not just quarter 1 but actually last financial year also our growth has been faster in the retail segment than in the enterprise segment. This is something which we are focusing on now and we plan to build up some extra volumes from the enterprise which is a large builder segment. But we don't have a target percentage, so to speak, that this will be 80%, that will be 20% or whatever.

And one last question I have on the inflation of gas --have we absorbed the entire brunt in quarter 1? Or do we see a drag in the next quarter as well?

I didn't understand the question Ashvath so [indiscernible]

The gas cost, the inflation in gas cost, do we foresee this to pertain in Q2 as well? Or do we see a larger chunk of it settled in Q1?

I think it looks like that the bulk of the price increases on gas seems to have happened in quarter 1. Now it is kind of more or less stable as Anuj was saying that maybe INR 1 or INR 2 in there fall -- a few percentage points here and there. So as of now, we see stability. But as mentioned before, if anybody's guess what happens -- in the larger world, what happens in Iran and we are now seeing for last few weeks how refineries in Russia are being destroyed and I believe they have lost 1/3 of the refining capacity and what impact it will have going forward is anybody's guess. But given situation so far, I think July, I would say that the gas prices have been close to what we had in quarter 1.

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