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

Ladies and gentlemen, good day, and welcome to Stove Kraft Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vidhi Vasa from MUFG Intime. Thank you, and over to you, Ms. Vidhi.

Thank you, and good afternoon. On behalf of MUFG Intime, I welcome you all to Stove Kraft Limited Q2 and H1 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 beliefs, opinion, expectations as of today. The 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 Q2 and H1 FY '26 earnings call. A detailed presentation and a press release of our quarterly performance have been uploaded on our website. I hope everybody had an opportunity to go through them. We delivered a robust performance across categories driven by improvement in consumer demand and pickup for ongoing festival season, as well as operating and financial leverage kicking in and mentioning during the past interactions. Company posted a double-digit revenue growth of 13.4% year-on-year with a stable gross margin of 38.5% and stronger EBITDA margin of 12%. This has improved our PAT by 27.8% year-on-year, which indeed sequentially improved ROE to 10.1%. The Indian economy is rapidly growing, powered by rising domestic consumption, digital penetration, and a strong manufacturing push. The key trend shaping the industry is the increasing adoption of modern kitchens, which offers seamless functionality and aesthetic appeal. This has led to growing demand for appliances that are energy-efficient, smart and visually appealing, aligning with kitchen design ethos. Among the key beneficiaries of this momentum is the home and small kitchen appliances sector, which has emerged as a vital pillar of modern Indian households, supported by favorable government incentives and the rapid expansion of e-commerce and organized retail. The home and small kitchen appliance industry is poised for sustained and transformative growth in the years ahead. Also, I would like to highlight the structural and long-term positive impact from the GST rate rationalization, which also aligned with the festive season, driving positive impact in our business as approximately 35% of our business currently falls under the -- used to fall under the 12% GST bracket, which is now reduced to 5%. This change presents a significant improvement and opportunity for us to enhance our volume growth. The key product categories that will benefit from the reduction includes pressure cooker and cookware category. We have also seen sluggishness in demand between GST announcement and implementation, which resulted in some delay in sales in quarter 2. We feel GST reduction will bring long-term improvement in demand across categories, mainly the cookware category and the pressure cookers in the quarters to come. Our foray into direct retail to company-owned stores marked a significant step forward in our journey, and it gives me immense satisfaction to share that our company's consistent performance and sustained growth have led us to an important milestone. We successfully added 300 stand-alone Pigeon exclusive outlets in our portfolio, driven by our flagship brand, Pigeon, in the month of October 2025. For the quarter, we added 16 new stores across different geographies. Currently, we are available in 120 cities and 21 states. This achievement highlights Stove Kraft's strong momentum, reinforces our deep connection with households across India. Those stores not only strengthen our brand presence, but also enhance profitability and growth for the company. Moving to the exports. Globally, the kitchen and the home appliances sector continues to benefit from demand for lifestyle upgrades, urbanization, increased digital adoption, robust supply chain, and the shift towards energy-efficient space-saving solutions that help us to move to new categories for U.S., U.K. clients. The IKEA partnership starting FY '26 replaces PTFE nonstick with ceramic cookware, meeting global standards. We have also seen changes in consumer behavior, which will reflect in Indian context in coming years. Company is completely aligned with the changes, which will be defining movement for the industry. Stove Kraft's outlook for the channel perspective is quite good. I believe that we are moving into a phase of good growth. Channel mix in Q2 was 41% from e-commerce, 26% from GT, 14% from modern trade, 3% from corporate/institutional sales, and 11% from OEM exports. 6% was the contribution from our own retail. Our company's retail expansion has been carefully designed to cater to the evolving needs of consumers across India's diverse market, and our aim is to expand to 500 stand-alone Pigeon stores -- exclusive Pigeon stores outlets by 2027, supported by our franchise model, which will not only enable us to expand efficiently, but also create employment opportunities across regions, further intensifying its focus on North and West India for the next year. Now, I will discuss Q2 FY '26 financial performance. The consolidated revenue stood at INR 474.4 crores for the quarter versus INR 418.3 crores in the previous quarter last year, hence, registering a growth of 13.4% year-on-year basis. Gross profit for the quarter stood at INR 182.8 crores versus INR 159.8 crores in Q2 FY '25, a growth of 14.4% year-on-year. Gross margins for the current quarter stood at 38.5%, improving by 33 basis points as compared to Q2 FY '25. EBITDA for Q2 FY '26 stood at INR 56.8 crores versus INR 49 crores in Q2 FY '25, showing a growth of 15.8% year-on-year. The EBITDA margin for the current quarter stood at 12% versus 11.7% in Q2 FY '25, improving by 25 basis points year-on-year. Profit before tax for Q2 FY '25 stood at INR 21.4 crores versus INR 16.7 crores in Q2 FY '25. The PAT margin for the current quarter stood at 4.5% versus 4% in Q2 FY '25, improving by 51 basis points year-on-year. ROCE is sequentially improving to 15.5% in quarter 2 and ROE sequentially improved to 10.1%, which will improve further. Borrowing has reduced significantly in quarter 2 due to improvement in working capital. We are continuously working on the same to further improve it. Cash from operations is about INR 177 crores in HY -- in the first half and investment in CapEx reflects the concluding CapEx. The major payments were for previous year's investments, which were funded by LC and the CapEx for the current period. Now I will discuss the H1 FY '26 financial performance. The consolidated revenue stood at INR 814.5 crores for H1 FY '26 versus INR 732.8 crores in H1 FY '25, hence registering a growth of 11.2% year-on-year. Gross profit for H1 FY '26 stood at INR 313.1 crores versus INR 279.9 crores last year same time, registering a growth of 11.9% year-on-year. Gross profit margins stood at 38.4%, an increase of 24 basis points year-on-year. EBITDA for H1 FY '26 stood at INR 92.4 crores versus INR 80.7 crores in H1 FY '25, showing a growth of 14.5% year-on-year. EBITDA margin for H1 FY '26 stood at 11.3% versus 11% in H1 FY '25, improving by 33 basis points. Profit after tax for H1 FY '26 stood at INR 31.8 crores versus INR 24.9 crores in H1 FY '25, showing a growth of 27.6% year-on-year. PAT margin for the period improved 3.9% with substantial efforts underway to improve the same even further. 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 Khush Gosrani from InCred Asset Management.

Good set of results. Congratulations. Just wanted to understand how has the export piece grown and from when we can see ramp-up of the IKEA order? That would be my first question.

Yes. The first quarter -- the quarter gone by, we have grown by 25%. And for the first half, we have grown by about 19%. Our existing business of exports, particularly with the American market, remains as it is. For the new product development, we have lined up a few more categories apart from the cookware, which product development is underway, but there is a pause until there is some stability on the tariff. So, once the stability is there, there is, of course, possibility of very high growth in our export business. Apart from the American market, we are also working with U.K. Our existing customers want to expand their category -- expand their business with us. So, for the coming year, they have added more SKUs to their buying plan. So, we believe that will also help. And the fortunate thing with IKEA business is, while actual revenue recognition will start from first -- the last quarter of this year, but meaningful revenue will start next year, but that is a global business and not limited only to the U.S. So overall, we are very positive about the export business, but we were guiding you all to a 50% growth with a very robust demand from our customers. We believe that the delay in the stabilization of the tariffs could dampen the high growth rate. But still, we are -- we continue to grow from the base of the last year. We hope that this tariff gets rationalized soon. And once that happens, we'll be again on the high growth. So export, we are very, very confident of that growth.

Sure sir, thank you. And secondly, on the domestic front, given that all the festive season has just gone by and the government incentives are in place, do you feel the momentum could sustain going ahead as well for next 1 year in terms of [indiscernible]?

Yes. See, relative momentum post Diwali is very strong. When I say relative -- see, for the quarter that we are currently in, we don't have a Diwali versus what we had at Diwali last year. But then -- I mean, it was early Diwali. But the momentum post Diwali slows down on sales, but we are seeing that very strong momentum on sales post Diwali. So, we believe that even the growth -- I mean, the sales demand is reasonably high compared to the previous year.

The next question is from the line of Rehan Syed from Trinetra Asset Management.

Sir, my first question is on the nonstick cookware volume side. Like, can you please help me understand that nonstick cookware volumes have declined Y-o-Y despite value growth. So like, could you share the reasons behind this volume drawback that you [ see ]? Like what was the reason behind that and what are your [indiscernible] plans to revive growth in this segment through pricing or the value addition, like [indiscernible]?

Sorry to interrupt, sir, but your voice is coming muffled.

Okay. I'll repeat my question.

Anyway, I think I understood the question. So, see, actually, sometimes the numbers are a little -- not reflecting the true picture. Our ASPs on the range of cookware, though we have classified as nonstick cookware, I would want to stand correct that this is a cookware category. We have a full stack of cookware. We are adding new cookware varieties. So, these are little higher. See, if you will reflect on the value growth, majority of that growth is coming from volume growth only. There is definitely input cost increase in the cost of products, or the realization increase that is adding to the value growth. Otherwise, the 13% growth that is coming -- I mean, actually, majority of that is coming from volume growth only. Maybe because these are -- some of the new categories of our cookware are higher ASP, so by absolute numbers when you calculate this, it looks like that there is a degrowth on the number. But these are higher ASP products. Just there is a movement from lower ASP to higher ASP.

Okay. Okay. Fair enough. And my second question is on the new product launch that you have launched. So, like what –-

You're very -- can you be a little more louder, sir?

Yes, yes, sure, sure. Like, am I audible now? Yes?

Yes, yes.

Yes. So, like, my second question is on your new product launches side. So, the company launched appliances like [indiscernible] electric kettle [indiscernible]. So, how has the [ early ] response been to this launches? And what proportion of quarter 2 revenue came from this new -- newly introduced [indiscernible]?

You're talking about the performance of the new appliances that we have launched?

Yes, yes. Yes, yes.

Yes, we continue to grow on the appliances. Even on value -- see, again, the volume growth for the quarter looks like 7% -- 6.7%. It could be because higher ASP products are selling -- we are able to sell more higher ASP products, particularly if you will compare it with kettle versus OTG, the value of an OTG will be much higher, or air fryer will be much higher. So, because we total all the appliances in -- under one line item, the volume growth may look subdued. But otherwise, I can tell you, of the 21.2% growth, majority of this growth is coming from volume, and there is small value growth, very, very small value growth, could be around 3%. So, if you will -- want to understand the actual volume growth, it is around 18%.

The next question is from the line of Resha Mehta from GreenEdge Wealth.

Compliments for good growth and good numbers. Sir, so, one, wanted to understand that had it not been for the GST-related channel disruption, which probably the industry has seen, what would our growth would have looked like? So, we've done, let's say, around INR 474 crores of revenues. How much revenues would we have lost due to the disruption in the last couple of days?

So this is only our assumption, about 10 days of INR 2 crores -- between INR 15 crores to INR 20 crores is a shortfall from what we would have otherwise anticipated to do or were likely to do. But I think, of course, for any consumer, if we -- I mean, it is not that only 35% of our products are actually going into that reduction. But for the consumer sentiment, it was like there is a reduction in GST and my cost comes down. So, customers either have postponed or deferred. So, it's not that all of the sales will come back immediately. But in the long-term, of course, many of the products that have gone through this GST reduction will definitely become more affordable for our consumers. So, to answer your question, in my opinion, our assumption is INR 15 crores to INR 20 crores is what we believe we would have otherwise lost.

Got it. And sir, so GST rates have reduced on cookers and cookware, which is close to 40% of our revenues. But the press release says that only 35% of our portfolio revenues will positively benefit from the GST cut. So, is there any portion of cookers and cookware which does not benefit from the GST cut? I mean, what is the –

No. The cookware category, when you sum it up, also includes some export, which does not -- the GST does not impact on that overall. But in our opinion, the total revenue that GST has impacted is around 35%. This also includes some portion of LED bulbs.

Okay. Okay. Understood. And -- so aluminum prices have been rising. So, do we see this as a threat to our margins going forward? Or are we adjusting that in terms of maybe taking calibrated price hikes or perhaps with the superior product mix with the premiumization that we are doing?

So, we are a cost-plus company. Generally, we pass on. And our buying -- the way it is designed, we always have a quarter minus 1 pricing for our supplies. So, we will definitely pass on the price increase on aluminum. But currently, for the current quarter, we enjoy a quarter minus 1 pricing. So definitely, if the current trend continues going forward, we'll have to pass on the price increase to the consumer.

Got it. And with our EBOs, see, we are expanding very rapidly, right? And it's 300 stores in 120 cities and 21 states. So, normally in retail, typically, people tend to expand in -- more of in a cluster fashion so that you get more economies of scale, stores achieve breakeven faster. I mean, are we like spreading ourselves too thin geographically?

Of course, we are stronger in the South, even the contribution is stronger in the South. But we are today there across the country. Our larger expansion in the future will be in the North. We have already got into the West and of course, in the central parts of the country. Today, as we stand, in the east, we have only 3 stores; north, we have 67; south is heavy, 205; and in the west, we have 26. So, of course, even today, the majority of the revenue, almost say, 75% of the revenues are coming from the south, but we have the other regions. So, our more focus will be to expand to north and west first and then move to the east.

Got it. And how many stores would have achieved breakeven out of the 296 stores?

The way we work is, if we see any store not getting to profitability in the first 6 months of its operation, then we relocate the stores. So far, we have relocated about 14 stores. We don't believe that any of our stores -- but for those that would have started in the last 6 months, if they're not achieving breakeven, we will not continue those stores. So, we do not have any stores that actually bleed at the store level. For us, the breakeven is quite low. For us, the revenue -- retail revenue of INR 2.5 lakhs [ did ] breakeven. So -- and our current average is INR 3.81 lakhs.

Got it. And on the exports business, you did touch upon it, but -- so we were doing a run rate of close to INR 60 crores per quarter on this business. How much of that -- so let's say, in H1, for example, if we've done around INR 120 crores of revenues from exports, how much of that comes from the U.S. specifically?

More than 75%.

More than 75%. And going forward, do we expect this kind of slowness to continue? Or do we still expect at least for this year, the INR 60 crore quarterly run rate is doable, excluding IKEA [indiscernible]?

The third quarter is not big for exports for us. The first, second, and last quarter, that is the fourth quarter, are almost the same. So, apart from the third quarter, I don't see any challenge in our exports. But we were anticipating very, very high growth on our exports with all the new product additions from our consumers. But particularly to the U.S. market, the new products that are being developed are at pause until this -- there is some stability on the tariffs. So, there could be [ deferral ]. So the third quarter will not be -- even otherwise, historically, the third quarter is not very large for our exports. The first, second and fourth quarter are what actually contributes to export. We continue to have our exports for our existing products. It's not that it is getting to 0, but the third quarter is definitely small.

But annually, we can still do like INR 240 crore number?

No. If the tariff things stabilizes, definitely, there is a possibility. Otherwise, there will be -- I know we had guided for a 40%, 50% growth on our exports. If the tariff takes longer time to stabilize, then maybe there'll be a little shortfall on that high growth expectation.

Sure. And just last 2 data questions, if I may. So what is our new product contribution to our revenues over the last -- say, for the products that have been launched over -- in the last 2 years, how much do they contribute to our revenues now? And also, you articulated the channel mix in Q2 at the start of the call, I missed it. If you could probably just restate it?

I will. See, on the new product [indiscernible] -- on the new product contribution, [indiscernible] some time, I don't have this data off hand. We will prepare this and send it to you. On each of these channels, in the Q2, GT contributed 26.3% and for the first half it was 26.1%. E-commerce in Q2 was 40.5%.; in the first half it was 37.2%.

Sorry, that was 40.5% or 48%, Q2?

[ 40 ], 40.5%.

Okay.

Modern trade contributed 13.6% versus first half was 13%. Our institutional sales, which also included some rural sales, is now only at 2.8%, both for the quarter -- second quarter and for the first half. Our retail is at 6%, both for Q2 and for the first half. Our OEM export, the export business for Q2 is 11.1% and for the first half it's 14.9%.

And CSD is a part of institution?

It's a very, very, very small business for us. Of course, part of institution.

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

Congratulations on good set of numbers. Sir, what is your guidance of -- for gross margin for this financial year given the increase in cost of raw material? That was my first question.

We have -- we are able to do 38.5% for Q2, but we believe our gross margins will improve both in the third and fourth quarter because we have taken some initiatives and there was some lag in some channels -- implementation in some channels. So, we are very positive to improve from there. We hope that for the remaining half of the year, we are able to achieve 39%. And for the whole year, it will be a little below 39%, but we'll be closer to that.

Okay. Noted, sir. Sir, also, can you please give the details of INR 3 crore forex loss that we have incurred in this quarter?

So, I can give you detail. Of course, it's all -- see, we have a hedging policy, and we have a very strong agency guiding us through it. But there has been a continuous rise in the dollar. So, for dollars that we would have hedged, and if the dollar has actually gone up and our realization is at the hedge price, that's where it is. So, if you want a little more detail, I'll tell Ramakrishna. Ramakrishna, can you -- Like, if you have any -- So, approximately, we had INR 2.8 crores of forex loss and mark-to-market was about [ 1.9% ].

And balance INR 1 crore is from the realized gain or loss, both from...

So, I'll tell you the net transaction to translation, what we call, was INR 2.8 crores and mark-to-market is for what we would have hedged and at the end of the quarter what it is there, so that is INR 1.1 crores.

Okay. Actually, sir, what I was trying to understand is, is this captured as a part of gross margin improvement because we have incurred foreign exchange loss because we run a full hedge policy?

So, the sales revenue is at the point of sale. And -- so the margin is also captured at the point of sale, whatever is the current rate of the forex. And at the point of realization, the difference is then charged to forex gain or loss.

Understood, sir. Now I understood. Sir, another question which I wanted to ask about exports. So you have given guidance for export for this financial year. This excludes the IKEA business which may start from January of next calendar year [indiscernible]?

Correct. But the IKEA business, while, of course, is a very, very important, strategic association and in the coming times large, the relative contribution today in this year will be very small. It's just the beginning. And some meaningful contribution from that revenue definitely will be in the coming year, that is FY '27. Going forward, that size will definitely grow. We have made very strong investments. They are also looking Stove Kraft in a very strategic -- as a strategic supplier and also adding more -- within the cookware category, they are adding more SKUs to their order pipeline. But to answer your question on contribution from IKEA for this year, to the size of our exports, it is going to be very, very small.

Understood. And for next year, it will be on a run rate basis, or it may gradually improve from FY '27 onwards?

So from the first quarter, of course, because we have already started supplies in this year. From the next year, definitely, you will see -- it is a consistent supply year-round. And because we are adding some more SKUs, maybe that will start in the third quarter of next year. With those 2, there will be some meaningful contribution and full scope you can see from FY '28. Now, don't ask me the exact numbers, that will be very, very sensitive to say.

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

Congrats on good set of numbers. Sir, I missed your comments on exports which you made earlier during the start of the call, like the impact of tariff, how will it be passed on and how we see exports growing. So if you could just throw some light on the same?

Sir, you are talking about tariffs being passed on [indiscernible]?

Yes, both [indiscernible]