Stove Kraft Limited (STOVEKRAFT.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Stove Kraft Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Parth Patel from MUFG Intime. Thank you, and over to you, Mr. Patel.

Thank you, and good afternoon. On behalf of MUFG Intime, I welcome you all to Stove Kraft Limited Q1 FY '26 Earnings Conference Call. Today on the call, we have Mr. Rajendra Gandhi, Managing Director; Mr. Ramakrishna Pendyala, Chief Financial Officer; and Mr. Hemant Kothari, Vice President, Investor Relations. Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our belief, opinion, expectations as of today. These statements are not a guarantee of our future performance and involve unforeseeable risks and uncertainties. And with this, I would like to hand over the call to Mr. Gandhi. Over to you, sir.

Thank you. Very good afternoon, ladies and gentlemen, and thank you very much for attending our Q1 FY '26 earnings call. A detailed presentation and the press release of our quarterly performance has been uploaded on our website and I hope everybody had an opportunity to go through them. Despite recent disruptions due to tariff developments between the United States and India, the geopolitical situation with neighboring country, our exports and domestic market has broadly remained stable for us. We are pleased to report a robust performance in quarter 1 FY '26, reflecting our operational leverage and reflects resilience of manufacturing capabilities, which we have strengthened over the last 4 years. Looking ahead, our multichannel outlook is robust. Quick commerce, which we entered recently is gaining meaningful traction, while e-commerce, traditional retail outlets and modern trade continue to deliver steady growth. We believe these dynamics will position us for an accelerated growth trajectory in the quarters ahead. Channel mix in Q1 was 32% from e-commerce, 26% from BT, 12% from modern trade, 3% from corporate/institutional sales, 20% from our OEM exports and 7% from our own retail. All the major channels reported growth over the year-on-year basis, indicating strong widespread demand and successful brand traction. This robust broad-based growth across channels implies consumer acceptance of our products. Moving towards development, which took place in Q1, we are in continuation from Q4. We have begun manufacturing and selling chimneys, kitchen chimneys from our own plant. With chimney presentation in India still in single digits and only a handful of serious domestic players, this market offers a substantial wide space opportunity. Our in-house production capability backed by Stove Kraft's distribution and retail strength uniquely positions us to capture this underserved segment and meet the rising demand for quality ventilation solutions. We expect chimney to become a significant growth driver in the coming quarters. Our cast iron cookware started showing traction in revenue in quarter 1. Quarter 1, we were able to generate a revenue of INR 177 million, which is improving quarter-on-quarter. In export, we are working with a few U.S. and U.K.-based players and on a few new product categories, which we will be able to communicate when we are able to reach at some maturity stage. However, export markets also look promising with respect to demand from India manufactured products is concerned. In the current quarter, increased production volumes of our new range of kettles and cast iron cookware, both of which are fully backward integrated and manufactured in-house have contributed to margin improvement through enhanced operational leverage. We expect this positive trend to continue and further strengthen our performance in the subsequent quarters. We also rolled out our balancing gender roles at home campaign under the Pigeon Appliances banner, made for every hand at home. This initiative spotlights how our electric pressure cookers, air fryers, OTG and vacuum cleaners enable partners to share cooking and cleaning from quick weeknight means to routine chores effortlessly and fairly. We have received early traction for the campaign on social and in-store platforms, underscoring its resilience, strengthening our brand's emotional connect and commitment to modern equitable homes. With the upcoming festival season and revival of rural demand due to healthy monsoon this year, we are optimistic about delivering stronger performance in coming quarters. We are witnessing positive momentum in our margins compared to the previous year, accompanied by an improvement in PAT resulting in improvement on ROC, ROE. Now I will discuss the Q1 FY '26 financial and operational performance. Revenue for quarter was INR 340.1 crores, registering a growth of 8.2% Y-o-Y and 8.7% Q-o-Q, growing at 7.3% CAGR for the last 4 years. Growth for the quarter is mainly from e-com, retail, modern retail and export channels. Gross margins have improved by 13 basis points compared to the same period last year. Gross margin also registered a growth of 8.5% Y-o-Y and 7.9% Q-o-Q, reflecting strength of our manufacturing capability. In last 4 years, our gross margin has significantly improved by 12.9% CAGR. EBITDA has improved by 40 basis points compared to the same period last year and 106 basis points compared to the last quarter. EBITDA stands at 10.5% in quarter 1 FY '26, registering a growth of 12.5% Y-o-Y and 20.9% Q-o-Q. PAT has improved by 46 basis points compared to the same period last year and 260 basis points compared to the last quarter. PAT stands at 3.1% in quarter 1 FY '26, registering a growth of 27.2% Y-o-Y and 620.5% Q-o-Q, withstanding our self-sufficiency strategy to overcome supply disruption due to global disruption will help us to improve returns. In the current quarter, we saw strong positive momentum driven by export growth of 14% compared to Q1 FY '25, our exports now reaching 20% of the total revenue for the quarter. In quarter 1 FY '26, we have opened 19 new stores in 18 new cities. Currently, we are operating in 19 states and 110 cities, which has helped us drive diversification, ensure sustainable growth and enhance brand presence across key markets. We are actively working to reduce this concentration by opening most of the new stores in North and West India. Now I would request the moderator to open the floor for question and answers. Thank you.

[Operator Instructions] The first question is from the line of [ Shreyans Jain ] from [ Svan Investment ].

Congratulations for a good set. Sir, I'm just trying to understand the kind of traction that we've seen in Q1. Do we intend to increase our growth guidance? And how is the market looking for you, say, pre-festive for Q2 and Q3, sir?

So generally, as you'll all be aware that our business -- as you are aware, the first quarter for us and the last quarter are softer quarters compared to the second and third quarter. The second and third quarter involves a lot of festivals and various season sales. Obviously, these 2 quarters are the major quarters that contribute to our revenues. And to answer your question, yes, we are seeing improved growth in the beginning of this quarter. So we hope that we'll be able to deliver higher growth.

Okay. And sir, second question is when we are moving up the value chain, say from -- we are moving to cast iron cookware and dry fry cookware. So what kind of gross margin improvement is there in the product category, say, when you move from a PTFE coated cookware to a ceramic or a dry fry or a cast iron, sir?

Definitely, they are positive to our margins compared to the existing cookware. Definitely, the cast iron offers a better opportunity because we are fully integrated plant manufacturing based on automated line. Definitely, we stand to gain on that capability and the product definitely can command a better price in the market. So with this, definitely, there is -- that's where it gives us our confidence on improving on our gross margins for the company as a whole. Some of the confidence is also coming from these categories.

Okay. So if we can quantify, say, over the next 2 years because of this product mix change, what kind of gross margin improvement can we anticipate?

So in the last 4 years, we have moved from going down to 32.5% to -- we are now at around 38%. We believe that at a steady state, we'll be able to get to 40%.

Okay. Okay. And sir, if I look at your presentation, there is one line on Slide #9, depreciation is rationalized due to change in estimates. Can you explain this? What does this mean? And will the current depreciation for this quarter now continue for the whole year? Or can you explain this, please?

Yes. I'm Ramakrishna, I explain. We have retail stores channel where we enter into lease arrangements with the landlords. So that life of the lease term is re-estimated as per Ind AS 116. And then currently, it was 9 years. So we have brought down to 3 years based on the estimate. And yes, the second question is whether this will continue? Yes, this will continue for the -- throughout the year.

And sir, any reason for this change in estimates from bringing it down to 3 years from 9 years?

Yes. Our tie-up with the landlords is actually we have a 3-year auto renewal agreement with the landlords. And based on the guidance of our auditors because we don't have a lock-in period with our landlords, we are -- we can actually -- it's a lock-in for the landlord, but no lock-in for the company. We are free to vacate any store within 3 months' notice. So with that guidance and with the requirement of the Ind AS, we have now re-estimated that. And going forward, as Ramakrishna said, both the interest and depreciation that accounts for the lease accounting of the stores will remain at the level that we have.

Okay. And sir, just wanted to understand where our retail stores we have opened -- we have opened in the last 3 years, how has the performance been for our channel in a similar market? What is the kind of degrowth that they would have seen and any cannibalization that we would have seen because most of these stores operate in a similar market, right? So if we are opening our own retail stores, we will tend to actually cannibalize the GT. And obviously, the channel would face some degrowth there, right? So what is -- can you give us some sense there?

I don't think it does really impact like that. In fact, the presence of our stores gives an opportunity for us to actually show our customers the entire range of products that we offer. Generally, whether it is the modern trade or the general trade GT channel, none of the stores will be able to display all these products. Wherever we have seen the maturity stage of these stores, we have seen that our business when you sum up both the general trade and the retail stores has almost doubled. So it's not that it has cannibalized anywhere. Definitely, we are seeing not high growth in general trade. This is -- I think this is an industry phenomena, because also we are present in all the channels. We have eventually been everywhere from the GT. Initially, before the advent of all these channels, there is only one channel called a GT for us. So to answer your question, it is not cannibalizing. It is helping us. But definitely, there is not high growth in the GT channel.

Okay. Sir, one question on exports. So now from 7th August, this 25% tariff gets implemented for exports to the U.S., right? So what's our understanding with our customers now, who bears that additional tariff? And what is the understanding with our clients, sir?

All our exports are on FOB basis, including freight or tariff is borne by our customers. But I want to tell you, one of our largest customers, they are very committed to import, build their imports from India from a current base up to 3x of the current number. So that commitment continues. That's what we have had discussions with them post this news on the tariff. They are committed to build the business from India. And definitely, of course, that continues the same for Stove Kraft. So this is from one of our largest customers. But to answer your question, all tariffs or any custom duties are paid by the customer and not by us. We are not a brand. These are OEM goods. We manufacture it. These are white label for us. It is based on the price that is agreed upon and all our exports are FOB.

Okay. Okay. All right. So the kind of guidance that we've given on exports in the previous 2 quarters is maintained, right? We believe exports can grow at 20%, 25%?

No. We believe our exports will grow higher of that percentage. Last year, we were approximately around INR 160 crores. We -- for the whole year, we believe we'll be still able to grow at 50%.

Okay. That's great. Sir, just last question on...

Sorry to interrupt. The next question is from the line of [ Varun ] from Equitree Capital.

A couple of questions from my side. Sir, could you give us -- like there hasn't been any volume growth in some of your products, especially the small appliance, which has been one of the fastest-growing category. So where is the company lacking? Is this because of the competition or any other reason? And how do you see the overall volume growth for the full year? And in addition to that, also Reliance is also getting into the small appliance by acquiring Kelvinator. So how do you see that as a competitive environment?

So some of the low-value products that we classify as appliances versus what we are able to grow in our large-value appliances is what is giving you that number degrowth in volume. But in actual terms, in value, we are continuing to grow highest on our appliances category.

And that is because of any price hike or just addition of new products?

Some new products also, not majority from hike. It is a product category which is high-speed, which is growing faster. And there are one of the category where we classify as appliances chopper, which is a low-value product in the range of INR 100, INR 150. There we are seeing a little degrowth over the more, what you call electric choppers and such things. So that's why that number looks a little skewed on the volume. Otherwise, value growth continues to be there. And we are seeing good growth on our appliances.

And what kind of volume growth do we envisage for the full year and the revenue? [indiscernible].

So if you go by the categories that we are growing, in our opinion, we are in the range of 12% to 13% growth on the volume. So this does not give you the right picture for 1 or 2 items that are of low value. And our focus is to build higher ASP products. That is why -- because the way we account it by number of units and that's where I think it is giving you a little skewed picture.

And for the full year, you maintain your EBITDA margin guidance of 11% or this can further...

Yes. In the appliances, we believe we'll be able to grow between that 11%-12%.

No, on the margin front, EBITDA margins, full year guidance?

Oh, sorry. Yes, we'll improve by 1% at least over the last year for the whole year.

Okay. And can you repeat the breakup of the revenue channel-wise? I missed all that.

Yes. Just be -- I think it was part of my revenue growth. GT is 26%, e-com, 32%, modern retail is 12%, corporate sales is 3%, retail is 7% and OEM exports is 20%.

The next question is from the line of Naitik from NV Alpha.

Sir, my first question is when I look at our numbers for the last 2 years, we have seen a growth rate of only 6% and we have seen similar or lesser growth of the competition also. So I just wanted to understand what exactly has been playing out in the last 2 years. I mean, is this because of increasing competition? Is the demand slowed down? Or what exactly is sort of going on in the past 2 years? What has gone wrong in the past 2 years?

In the case of Stove Kraft, it could be multiple things. Of course, it's also including some challenges that we had with other brands. We were importing the complete range of BLACK+DECKER products. We were also in the LED lighting business. These 2 have taken a little -- we have offset the revenues growth from there. LED continues to -- on the ASP value is continuing to go down. So even our volume growth, our revenues are not growing. So we have capped the growth on our LED business. On BLACK+DECKER, we are importing 100% of this. There has been a disruption in the overall completely built units import. BIS has brought that restriction, but it has given advantage to the overall company's strategy of building manufacturing in the -- within our facilities. Having said that, there was a high growth during the COVID times. And I think the base -- I mean, we are comparing it with a larger base. And I think that period of correcting is over, you will probably see -- start seeing higher growth going forward. The last 2 years have taken care of all -- I mean, setting the base right, I can say. Going forward, you'll see similar growth that we have experienced in the past. Particularly during COVID in the business that we have, the cooking took center stage and there was very high growth. So I can say that now you will see -- if you rationalize the growth for the last 5 years, we'll get back to that 12%, 15% growth.

Right. 13% growth. Got it, sir. Sir, my second question is GT as a channel, we have seen a decline consistently. And now we are standing at 26%, which used to be 30%-plus a couple of years ago. So just wanted to understand where does this GT as a channel settle and -- or do we expect it to continuously decline more?

No. As a channel, we will continue to be at the same level or improve a little, but our growth in the other channels are relatively very high. Example, we are seeing very high growth in the 3 major channels for us, e-commerce, our own retail and exports. The growth is far higher than the company's growth rate. So obviously, because of the contribution from these 3 channels being very high, you are seeing the contribution from -- because it is muted there in GT, you see that it is very low. Otherwise, it is actually that the other channels are growing very fast. We believe, of course, this will continue to be in the near term, grow faster than the company's growth rate, all these 3 channels. Our own retail is growing upwards of 50%. We believe export also will grow at that rate for the near term and then e-commerce is growing at a much faster rate than the other channels.

Right. Sir, my next question is on exports. Now do we expect exports to keep on growing even on a quarter-on-quarter basis? Because last 2 years, what we have seen is 1Q and 2Q usually do better and then the exports sort of do not hold up to the 1Q number. So is there any seasonality in that? Or -- and do we expect 2Q, 3Q...

Yes. No, with our addition of new products and new customers, I think going forward, that's what is getting corrected. Apart from the first 2 quarters, even the third and fourth quarter, you will -- this year, you will see that export will more or less be at the same level quarter-on-quarter.

Right. Sir, last question is if you could give the number of pre-Ind AS EBITDA that we did during the quarter?

Can you please repeat?

Pre-Ind AS EBITDA for the quarter.

Can you repeat once again, please?

Yes. Pre-Ind AS EBITDA number. So EBITDA post [indiscernible].

Pre-Ind AS EBITDA number. Ind AS effect is about INR 1 crore, so...

Additional impact of the Ind AS effect is INR 1 crore.

But that is also will not have any effect in EBITDA, that is below EBITDA.

Yes. That is below EBITDA, not above.

What is the rental cost? If I can rephrase the question, rental cost for the quarter, the actual rent?

Okay. We'll give you this number exactly. Before this call, we'll give you the number, rental cost.

The next question is from the line of Anand from Soar Wealth.

Congratulations on good results. Sir, the growth guidance for export is 40% to 50%, if I understand it correctly. We have grown by 20% in the first quarter. Which quarter you think the growth will catch up, second quarter or later second half...

Actually, that is what I was trying to explain. This -- generally, our first and second quarter will be larger and then followed by third quarter being a little softer. You will continue to see similar kind of numbers for all the 4 quarters. And to give you a guidance on our export, the last quarter we will give you the run rate for the future quarters. So currently, we are at about INR 60 crores per quarter. It is because of mix of additional products and new customers both put together. So this -- over the year, you will see a continuous contribution coming from exports every quarter.

Okay. Just to clarify, last year, we did INR 160 crores, sir?

Yes, around that INR 160 crores, sir. You're right.

Okay. And first quarter, we have done INR 60 crores?

You're right, sir.

And now we will do INR 60 crores per quarter is the run rate which we are doing and...

Yes, in the range of INR 60 crores, in the range of INR 60 crores every quarter.

Okay. And the first quarter export growth is 20%?

Yes, the first quarter export growth is around 20%, yes. We had a good base for the same quarter last year.

Okay. And so base would be lower in either second, third or fourth quarter as the case may be?

Relatively, yes.

Sir, second question was your IKEA order was supposed to crystallize from December of this year, October. So logically the fourth quarter export numbers should...

Yes, we are in -- yes, in line with that, sir. The plant is getting ready, up and ready. And all those process and procedures that IKEA would want to do, we are in line with the plan that we set out with. And with that, we should be able to start dispatching goods from December, yes.

So in that case, sir, the INR 60 crore number can be higher for the fourth quarter or it would be INR 60 crores?

Sir, I can say that this year, we will grow by 50%. And then we are in that range. We are very confident. Of course, all the growth is also coming because of addition of new customers and new products. That, of course, includes IKEA. And it's a beginning of that business with them. IKEA once established, then grows at a very fiery pace. It will not be the normal...

So the benefit of -- okay. So sir, the benefit of IKEA will come largely in FY '27?

Yes, more or less. '26 -- '27-'28 is where you'll see a very big jump from -- because we have set up a large facility, it is in anticipation and understanding of a large business.

Sir, '26-'27?

We are now in FY '26 already.

So FY '27 you are saying...

The beginning will be the next year, FY '27 and '28 is where you'll see the full-blown business of IKEA.

Okay. And sir, one last -- one question related to IKEA, sir. What can be the estimated number for FY '27?

Oh, Anand ji. I will tell you that there is a very good opportunity with IKEA. This is a global retail network and it is not impacted by any one country's geopolitical situation and that is the advantage. And how IKEA works is they take a lot of time in establishing the relationship process, compliance and quality requirement. But once they are set, then the relationship lasts for very long. And for them, it is in their interest that they build the business with their -- this relationship that build because they also invest a lot of time and effort and money to build this relationship to make the business multifold of what they begin with. I can give you that much of guidance. The opportunity is huge. We -- let us travel that period to get there.

Sure, sir. Sir, another question is our export -- our CapEx guidance is not big for this year. And...

We have almost completed all the CapEx requirement. All the concluding CapEx is happening, but it's not very large. With this, we have completed all the planned CapEx for the last 4 years. There could be maintenance CapEx going forward. But otherwise, we don't have any new CapEx plans at the moment. There are concluding things that are happening now.

Okay. So sir, the cash flow generation for this financial year would be upwards of INR 120 crores, INR 130 crores. So do you think we'll be able to do -- become debt-free by the end of this year, sir?

If not debt-free, all this cash flow will be plowed back to our working capital. And obviously, that will bring our debt levels to that much less. It will be very close to that. It may not be absolutely debt-free. It could also be if we are able to do better than what we anticipate to do. At the moment, things -- I mean, business seems to be very robust and is promising for higher growth.

Okay. And what is the net debt, sir, currently on the balance sheet, sir, as on June?

Ramakrishna, can you give that number, exactly? Give us a moment, Anand ji, I'll give you that number.

Sir, one last question. As you guided that long term, in next 1 or 2 years, you would be aspiring for 40% gross margin. Is that assessment correct, sir?

You are right. In the next 2 years, that's where we want to get there. We are definitely going to inch over the last year's 38% in this year. We believe we'll be able to improve it by at least 1%. The net debt is around INR 220 crores, sir.

Okay. It was INR 140 crores, no, sir, in the month of March quarter?

No, not Q4, INR 195 crores.

It was INR 195 crores. It has gone up to INR 226 crores -- INR 220 crores.

In the first quarter you will see an improvement in the...

So INR 195 crores, INR 25 crores has gone up. That could also be because we don't borrow for any of our CapEx.

Understood. The maintenance CapEx has already been...