“Nilkamal Limited Q3-FY11 Earnings Conference Call … Call/123385_2011020… · · 2016-06-23Nilkamal Ltd Q3FY11 Concall Transcript Page 2 of 14 Moderator: Ladies and gentlemen

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“Nilkamal Limited Q3-FY11 Earnings Conference Call Transcript”

Conference Call held on February 4th, 2011.

SPEAKERS : Mr. Paresh Mehta – Nilkamal Limited

Ms. Bhavika Shah – Sushil Financial Services Pvt. Ltd.

Conference call Transcript

Nilkamal Ltd.February 24, 2011

Sushil Financial Services Private Limited Member : BSEL, SEBI Regn.No. INB/F010982338 | NSEIL, SEBI Regn.No.INB/F230607435. Office : 12, Homji Street, Fort, Mumbai 400 001. Phone: +91 22 40936000 Fax: +91 22 22665758 Email : [email protected]

Nilkamal Ltd Q3FY11 Concall Transcript

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Moderator: Ladies and gentlemen good day and welcome to the Nilkamal Limited Q3 FY'11 Post

Results conference call hosted by Sushil Financial Services Private Limited. As a

reminder all participants' lines will be in the listen-only mode and there will be an

opportunity for you to ask questions at the end of today's presentation. If you should

need assistance during this conference call, please signal an operator by pressing "*"

and then "0" on your touchtone telephone. Please note that this conference is being

recorded. I would now like to hand the conference over to Ms. Bhavika Shah. Thank

you, and over to you, Madam.

Bhavika Shah: Thank you. Good afternoon to all of you. This is Bhavika here. On behalf of Sushil

Finance I welcome you all for the Q3 FY’11 Post Results conference call of Nilkamal

Limited. Today we have with us Mr. Paresh Mehta, the Financial Controller of

Nilkamal Limited. Now I hand over the call to Mr. Mehta to discuss the December

quarter performance of the company followed by Q&A session. Over to you, Sir.

Paresh Mehta: Thank you Bhavika. Good afternoon ladies and gentlemen. On behalf of Nilkamal I

myself Paresh Mehta, and my colleague Mr. Hitesh Desai and Himesh Bagadia,

welcome you all and thank you for the participation in this conference call for

discussion on Q3 performance.

Just to begin with in Q3 for the plastic business, the company has achieved a turnover

of 262.55 Crores vis-à-vis 218 Crores of last year’s Q3 showing the growth of 20%.

While for the period of nine months, we achieved a value growth of 22% that is 784

Crores against 641 Crores of the last year’s first nine months.

In terms of volume in Q3 20422 metric tonne= has been sold representing 8% growth

over quarter-on-quarter, which was last year close to 18900 MT. For a period of nine

months we have done volume sales of around 61800 metric tonnes vis-à-vis 55000

metric tonnes of last year’s first nine months.

Our retail venture “@Home” business has shown a growth of 38% i.e., we have

achieved sales of Rs.41.55 Crores vis-à-vis Rs.30 Crores of last year same quarter

while for a period of nine months sales is Rs.122 Crores representing 48% growth

against Rs.82.65 Crores of last year.

For the last financial year we had achieved turnover of approximately Rs.120 Crores,

which has been surpassed in the first nine months with the same number of stores.

As far as EBITDA margin is concerned plastic business has achieved EBITDA of

approx. Rs.30 Crores vis-à-vis last year Rs.38 Crores so the EBITDA margin was down


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from 17.7% to 11.43% while “@Home” We have achieved half a percent of EBITDA

that is 22 lakhs against last year loss of 2.20 Crores. If you recollect in our last

conference call we have discussed in details about last years first nine months

exceptional performance due to raw material price southward movement and recovery

in economy which has resulted into EBIDTA margin of 16.45%.

We anticipate our plastic business to give on a consistent basis 13% to 14% of

EBITDA, which we were not able to achieve so far in the current financial year, which

has been worked out to around 12.33%. The drop in the EBITDA margin we believe is

a temporary phenomena.

As far as the “@Home” is concerned, yes, for the period of nine months we have

achieved a positive EBITDA of Rs.1.90 Crores vis-à-vis loss of Rs.7.96 Crores of last

year and looking at overall trend we believe that “@home” division will achieve

breakeven in the current financial year.

As far as other development are concerned, the company so far in the current financial

year has spent approximately Rs.83 Crores on CapEx of which roughly Rs.55 Crores

asset has been put into utilization. The capex mainly of approx. Rs.37 Crores on plant

and machinery, land and building Rs.10 Crores and balance towards miscellaneous

assets in terms of furniture fixtures, vehicles and factory equipment etc., which is

approx. Rs.7 Crores. Further Rs.30 Crores has been paid by way of advances. For the

current financial year we expect our total CapEx in the region of around Rs.100 Crores.

For the quarter our average utilization of borrowed fund was approx.. Rs.270 Crores

while average cost of borrowing has moved upwards and it was around 9.93%. This

quarter result also include one of charges on account of employee’s increments and

payment of arrears and incentives.

Last year we have foreign exchange gain of approx. Rs.2.32 Crores while for the

current financial year for a period of nine months we have a loss of around Rs.76 lakhs.

Last year there was an exceptional income in terms of maturity of a key man insurance

of some of the directors for approx. Rs.1.86 Crores.

As far as subsidiary performance is concerned there is a remarkable turnaround in

Nilkamal BITO Storage System. For a quarter ended December 2010, we have

achieved turnover of approx. Rs.8.77 Crores with a loss of Rs.11 lakhs vis-à-vis last

year Rs.9 Crores turnover and a loss of Rs.2.12 Crores for the period of nine months we


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have achieved approximately Rs.28 Crores of a turnover with loss of Rs.76 lakhs vis-à-

vis last year’s nine months turnover of Rs.25 Crores and Rs.5 Crores of loss.

Our Sri Lanka operation has done far better vis-à-vis last year we have achieved

turnover of approx. 25 Crores Sri-Lankan rupees against Rs.19 Crores. For Q3 while

for a period of nine months Rs.73 Crores Sri-Lankan rupees turnover vis-à-vis Rs.44

Crores previous year.

Subsidiary at Ajman, which is a free-trade zone where in Q3 we have achieved

turnover of Rs.2.40 crores and for a period of nine months Rs.8.61 Crores with a profit

of approx. Rs.31 lakhs. In summary for a period of nine months there is a profit of

approx/ Rs.3 Crores against last year of Rs.24 lakhs.

“@Home” yes, in this quarter has made a small loss and it is primarily on account of

increase in sales was not sufficient to cover up the entire cost. Also one of the major

cost is advertisement expenditures which is approx. 8.5% of our net turnover.

This year we have a 16 stores vis-à-vis last year also having same number of stores in

operation. Our sales per square foot per month, for the quarters is Rs.522 vis-à-vis

corresponding quarter of last years of Rs.395. There is a delay in opening of first store

at Cochin. Also Company is under action for opening it’s third store in Pune, third store

in Bangalore and second store in Hyderabad. Cochin store is going to come up before

the end of current financial year while another three stores will come up by the

beginning of April and mid of May. This delay was mainly on account of late delivery

of the premises for the purpose of fit outs. Probably we will open another three to four

stores by the end of the next financial year depending on the growth in the business.

There is no change in terms of number of stores we want to open over a period of next

three to four years i.e., 50 number of such large sized stores, averaging 15000 square

feet carpet area, yet we have not worked out as far as small size store is concerned and

we will take appropriate decisions and obviously we will come back to you, meanwhile

we have also initiated small step in terms of opening of home idea, plastic stores which

will housed all molded furniture range available with the company and the first such

store has been opened opposite Inorbit Mall, Malad in Mumbai and over a period of

time, we would like this kind of store to be opened by our dealers and distributors.

These will be very small stores having area of approx. 1000 to 1500 Square feet.

Essentially putting all plastic moulded furniture, small accessories and knick-neck kind

of furniture.


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We also entered into a joint venture agreement with CAMBRO, USA for serving the

material handling requirement of hospitality industry. The Joint Venture Company has

been formed and it will be operational by end of March with equity investment of Rs.2

Crores each by both the partners. I think I have missed one issue that there is always a

concern and which was right so about Company’s ability to sustain or maintain the

EBITDA margin. We believe sustainable EBITDA margin shall be in the range of 13%

to 14%. We are under process of taking necessary actions to make it further better.

I think that is broadly the numbers of Q3. Since the results are available with every one

of us, so I am not talking much in details about the absolute numbers.

Moderator: Thank you Sir. Ladies and gentlemen we will begin with the question and answer

session. The first question is from the line of Krudent Chheda from Value Quest

Research. Please go ahead.

Krudent Cheddha: Good afternoon Sir. Sir what was the volume growth in plastic business in this quarter?

Paresh Mehta: Volume growth in the plastic business in this quarter you are talking about, right?

Krudent Cheddha: December quarter?

Paresh Mehta: December quarter in terms of volume it is 8% while in terms of value it is 20%.

Krudent Cheddha: So we had increased our prices by around 12% in December quarter?

Paresh Mehta: Yes, there is correspondingly increase in raw material price also.

Krudent Cheddha: Sir, you said the raw material price has increased by 10% in the quarter, right?

Paresh Mehta: Right.

Krudent Cheddha: Sir, how come our margins took a big hit around almost 5%?

Paresh Mehta: This is due to increase in raw material prices and which has been discussed in detail in

the beginning. When we said value growth of 22% in material-handling business apart

from our tonnage business there is other verticals where we do not convert value into

tonnage which is essentially material-handling equipments, hospitality products etc. We

have achieved Rs.18 Crores of sales which is not being converted when we talk about

volume growth.

Krudent Cheddha: Rs.18 Crores?


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Paresh Mehta: Yes, Rs.18 Crores for the Q3 while for a period of nine months it is around Rs.58

Crores vis-à-vis last year’s first nine months of approx. Rs.37 Crores.

Krudent Cheddha: This Rs.18 Crores is a high margin business or again it would be…?

Paresh Mehta: Rs.18 Crores is a high margin business where normally your gross margin ranges

between 20% to 30%. In plastics we have essentially two-line of activity, one is molded

furniture and another is material handling and molded furniture which has been there

was a severe increase in raw material prices.

Krudent Cheddha: How have the prices moved in January?

Paresh Mehta: January, so far there is no increase in raw material prices. Yesterday late evening hike

of Rs.2 per kg has been made we expect there may be firming up of a raw material

price.

Krudent Cheddha: If the raw material price increase again would we be able to pass on the increase?

Paresh Mehta: Yes, we will always be able to pass on till date, but there is always a time lag of at least

two to three months as far as molded furniture business is concerned, but in term if

there is a continuous increase in raw material prices then at the end of the day, if you

look at it over a period of three to six months, you will find that we were not able to

pass on the prices, but it is not the case. In the sense, that there is an inventory at the

distributor’s level, dealers levels, and inventory at the company level. So by the time

you finish one round of increase in price level and if there is again further increase in

raw material price, then obviously there is a pressure on trade also, so they also try to

rebalance their inventories, so if they probably keep an inventory of 15 days or 30 days

they will try to make it 10 days, 15 days like that. So then in that circumstance it affects

your volume sales also to an extent. But this is more for the molded furniture, of course

material handling business there are two kind of business, one is a volume-lead

business which is like fruits and vegetables, agricultures, fisheries, bottle crates

business, where passing of increase in raw material prices is not immediate business

from rest of the industries, general industry is always a small businesses, in terms of the

customer always buys in a small quantity, where you are able to pass on increase in raw

material prices immediately.

Krudent Cheddha: But Sir, in molded furniture our competitors in this quarter have done very well. Their

margins were not affected as much as our margins are affected?


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Paresh Mehta: I do not know. I believe when you are talking about competitors in a listing arena,

effectively there are two players, one is obviously a Supreme Industries and another is

Wim Plast. As far as Supreme Industry is concerned, yes, they have done far better than

in terms of percentage points and sales and all that better than Nilkamal, but then they

do not have only two businesses, which is a molded furniture’s and material-handling

crates, it is very small in terms of their total sales value. Obviously, I do not have

access to their numbers division wise, but then I can say that like if you go into the

market then whether it is molded furniture or a material handling crates the Nilkamal

price is always higher than the price of Supreme Industries or for that sake for any

other players in the market.

Krudent Cheddha: We are able to come the premium?

Paresh Mehta: Yes.

Krudent Cheddha: What kind of volume growth we are expecting going forward? Because, last year I

think our volume over growth was around 20% and this year in this quarter it was only

8%, so going forward what kind of growth do you think will be sustainable in plastics

business?

Paresh Mehta: Plastics business it shall be anything between 12% to 15%.

Krudent Cheddha: 12% to 15%?

Paresh Mehta: Certainly. This year approx. 82,000 MT against 75000 MT of last year so growth of a

12% to 13% more or less same growth will continue for the next financial year, in the

next financial year we anticipate it should touch 1,00,000 MT.

Krudent Cheddha: Roughly 12% to 15%?

Paresh Mehta: It is more than that and looking at the material-handling business growth we are quite

confident, we will achieve the same.

Krudent Cheddha: Sir, what would be our market share in material handling?

Paresh Mehta: There is no precise data available in the market, because in organized sector mainly

ourselves and Supreme are there, but you can say we are enjoying a leadership

positions and it is a small industry at present which is growing. In terms of material

handling business there is a growth of almost 30% in terms of volume.

Krudent Cheddha: 30%?


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Paresh Mehta: Yes.

Krudent Cheddha: Sir, how is your JV with the German Company doing, last year we had a loss?

Paresh Mehta: As we said this year there will be no cash loss, we have made loss of Rs.76 lakhs and

we do not think by the end of the year this loss shall cross Rs.1.25 crores .

Krudent Cheddha: Sir, what is the Capex per retail store?

Paresh Mehta: Retail it is around Rs.3 Crores to Rs.3.5 Crores, which consists of six months deposits

then stationary inventories in the sense the inventory at the store levels and fit outs of

the stores, which ranges anything between Rs.700 to Rs.1000 per Square Feet. It again

depends on our arrangement with the mall owner, because now most of the time we try

to get a deal whereby all the basic fit outs is being done by the mall owner, so in that

case it goes up to Rs.600 a square feet.

Krudent Cheddha: Rs.600 a square feet and all the stores are currently owned by Nilkamal?

Paresh Mehta: It is on a long-term lease.

Krudent Cheddha: I mean to say we do not give any franchise?

Paresh Mehta: No, we do not give any franchises.

Krudent Cheddha: Do we plan to give it in the future?

Paresh Mehta: No.

Krudent Cheddha: Thank you.

Paresh Mehta: Thank you, very much.

Moderator: Thank you. The next question is from the line of Ankush Kedia from Avendus Assets

Management. Please go ahead.

Ankush Kedia: Hello Mr. Mehta.

Paresh Mehta: Good afternoon, Mr. Ankush.

Ankush Kedia: Good afternoon, Mr. Mehta. The payment of incentives etc. it should be an annual

thing and it should have been paid last year as well? Am I right or is it only for this

year we paid out incentives to the employees?


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Paresh Mehta: It is only for this year’s arrears and incentives. As far as the quarter is concerned, there

is an increase in number of employees plus there is an increase in payout of arrears and

incentives.

Ankush Kedia: If you look at the other expenditure also that has also gone up by around 35%. Which

are the major items which have increased, what is the value in that?

Paresh Mehta: The major expenditure if you are asking for the purpose of quarter then there is only

one expenditure, which is the labour charges. Now labour charges consist of two parts.

One is payments which we made to the contractors, a labour on a contract basis and

another is when we get the things produced on job work basis so there is an increase as

far as labour cost is concerned, while obviously there is a increase in the store spare and

power and fuels and sundry expenses, but sequential quarter basis apart from employee

cost there is no much increase in terms of the percentage.

Ankush Kedia: Thanks.

Moderator: Thank you. The next question is a followup question from the line of Krudent Cheddha

from Value Quest Research. Please go ahead.

Krudent Cheddha: Can you throw some more light on your JV with CAMBRO USA?

Paresh Mehta: It is a 50:50 joint venture. CAMBRO USA is the largest manufacturers in material-

handling, solutions for the hospitality industries, which normally serves to high-end

hotels and restaurants. It is a $250 million company and they have presence across US

and Europe and what we intent to do is we will import the moulds on a lease basis and

we will get it manufactured from third party, which include Nilkamal Limited also and

then sell it in the market and we will charge approximately between 5% and 6% of the

sales value as royalty to Nilkamal, Nilkamal marketing network being used by the joint

venture company.

Krudent Cheddha: 5% to 6% of the total sales?

Paresh Mehta: Yes. The turnover in the initial year can be around Rs.10 Crores plus and it will take

time to build up a turnover up to Rs.70-75 Crores which will take at least four to five

years.

Krudent Cheddha: What kind of potential or maximum turnover you are expecting, it can be around 100 or

so or it can go much beyond that?


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Paresh Mehta: It can go beyond that. The products, which are being supplied by CAMBRO, it is of

very high quality. Today the problem is higher import duty and non-availability of the

product on the basis of the off the self. Now both these things are because this product

is being imported from USA they have a manufacturing set up in California, so you can

understand the cost of product is also very high. Now both these things we are

addressing by having a JV over here and getting it manufactured in the initial stage, the

product which is high in demand, because at the end of the day our hospitality

industries also cover more than 250 to 300 varieties. Our investment is not much, since

it is more of getting it produced on an outsourcing basis so there is no investment in

factory buildings, and plant and machineries, except some cost on moulds.

Krudent Cheddha: How much would that be, 5, 6, 7 Crores?

Paresh Mehta: At the end of the day the initial phase we both partners are going to put 2:2 Crores

each, over a period of time Rs.7 Crores each.

Krudent Cheddha: Okay not much.

Paresh Mehta: Not much.

Krudent Cheddha: What is our current debt on books?

Paresh Mehta: Current debt is around Rs.270 Crores including working capital and term loans.

Krudent Cheddha: Rs.270 Crores?

Paresh Mehta: Yes.

Krudent Cheddha: The cost of debt?

Paresh Mehta: Cost of debt is less than 10%, but fourth quarter it is going to be high.

Krudent Cheddha: What will be our tax rate for this year and next year?

Paresh Mehta: Tax rate approximately 30% for the current financial year as well as for next financial

year also.

Krudent Cheddha: Thanks a lot, Sir.

Moderator: Thank you.


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Bhavika Shah: Sir, I have one question, you said the debt is Rs.270 Crores what is the cash bank as on

December 31, 2010?

Paresh Mehta: It is not more than 10-12 Crores.

Bhavika Shah: You said the CapEx for FY'11 is Rs.100 Crores around?

Paresh Mehta: Roughly, yes, of which already Rs.85 Crores have been spent.

Bhavika Shah: Sir, what will be for the next year?

Paresh Mehta: Next year shall be in the region of around 50 Crores.

Bhavika Shah: Rs.50 Crores?

Paresh Mehta: Yes.

Bhavika Shah: Sir, this one time item related to the Q3 FY'11 you have as staff cost, sir what is the

quantum of the same? What is the figure?

Paresh Mehta: It is roughly Rs.1.4 Crores in Q3.

Bhavika Shah: Sir, the Joint Venture which we have with Bito which are the products?

Paresh Mehta: The product is a metal storage system.

Bhavika Shah: What is the growth in that segment?

Paresh Mehta: As far as we are concerned, again this market is highly segmented and unorganized so

it will be difficult to judge because the entire development is based on how the logistic

industries, the retails and other industries perform, if we look at it, more or less there is

a flat growth there is no increase. Precise reason is that we opted for higher realizations

to curtail our losses. So it is like growth can be in excess of 10%-12% and then there

will be a sudden jump. That is what our expectation is.

Bhavika Shah: Sudden jump that will be the growth?

Paresh Mehta: That will be after the period of may be it will take two years, three years, very difficult

to say right now. It is like a seed marketing stage and again we distribute this market in

two bases. One is a very large size of a business where somebody wants to install

systems of 50 tonnes in excess of that. While the growth is going to come from smaller

orders because again in a large size base the China import is available, so the real


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growth will come from small and medium sector. It does not mean there is no market

for a large sized business, the large sized business is always in terms of margin and all

that is a concern and you can understand doing the Joint Ventures with the German

Company obviously there is a quality cost beyond which point we would not like to sell

sales at a loss. So it is like a German Mercedes and Fiat or Ambassador or a local any

other brand. So we cannot just give the solution at the same price and that is where we

are struggling, that is where the joint venture is struggling.

Bhavika Shah: Sir, one more thing, any reduction in further raw material prices from like $90 to $70 to

$75 if it goes down, so what will be the impact on the margins and volumes?

Paresh Mehta: Obviously, if there is a sudden drop in the raw material price there will be one of the

big advantages in terms of profitability because the way it take lot of time to pass on

the increase in raw material price it also happens vice versa.

Bhavika Shah: So the time lag is around?

Paresh Mehta: Time lag is around two months plus.

Bhavika Shah: Two months plus?

Paresh Mehta: Yes.

Bhavika Shah: Sir, what will be the impact on volumes?

Paresh Mehta: Always obvious whenever there is a fall in a raw material price it helps in increasing

volumes at the end of the day.

Bhavika Shah: Thank you. Sir in that case the raw material prices in particular right now has gone up,

that is one of the major concerns that the volumes have come down?

Paresh Mehta: Yes, that is as far as molded furniture is concerned yes.

Bhavika Shah: Thank you.

Moderator: Thank you. As there are no further questions I would now like to hand the floor back to

Ms. Bhavika Shah. Thank you and over to you, Madam.

Bhavika Shah: Thank you. On behalf of Sushil Finance, I would like to thank the management for

giving us the opportunity to host the concall and wish them good luck for the future. I

would like to thank the participants. Thank you, so much.


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Paresh Mehta: Thank you, very much.

Moderator: Thank you very much Sir. Thank you members of the management. On behalf of Sushil

Financial Services Private Limited that concludes this conference call. Thank you for

joining us. You may now disconnect your lines. Thank you.


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“Nilkamal Limited Q3-FY11 Earnings Conference Call … Call/123385_2011020… · · 2016-06-23Nilkamal Ltd Q3FY11 Concall Transcript Page 2 of 14 Moderator: Ladies and gentlemen