Control Print Limited (522295) Earnings Call Transcript

Ladies and gentlemen, good afternoon, and welcome all to the Control Print Limited Q1 FY '21 Earnings Conference Call hosted by Asian Market Securities Limited. From the management side, we have with us Mr. Shiva Kabra, Joint Managing Director; Mr. Rahul Khettry, CFO. I now hand the conference over to Mr. Rahul Khettry for his opening remarks, and then we will open the floor for the question-and-answer. Over to you, Rahul.

Thank you, Karan. Welcome, everyone, to the First Quarter FY '21 Earnings Conference Call of Control Print. We appreciate you all taking out time from your busy schedule to attend the call. Hope you and your loved ones are safe and healthy. Mr. Shiva Kabra, Joint Managing Director, joins me on this call. So let me start with a brief on Control Print, followed by specific analysis on the financials of the current quarter and end with the Q&A session. For those who are probably reviewing the company for the first time, the detailed presentation has already been put up on our website as well as in the Investor Presentation notification put up on the exchanges for this call. Control Print is in the niche coding and marking segment, which is an oligopolistic market with 4 major players, 3 of whom are MNCs, and Control Print is the only Make In India manufacturer. It gives us an advantage to sell our products locally and compete strongly with the other multinational players. We are the only integrated player with capability to manufacture printers as well as consumables in India, giving us an advantage to share the benefits with our customers. This also gives confidence to customers for long-term partnership with Control Print. We have our manufacturing facilities in Nalagarh, in the state of Himachal Pradesh, for the manufacturing of printers; and in Guwahati, in the state of Assam, for the manufacturing of consumables. Both the manufacturing locations are state-of-the-art facilities to produce good quality product. All our consumables are manufactured in the Guwahati plant. And in addition, we have also started manufacturing some printers in that location. We have a strong sales and service team of 350-plus engineers across our 12 branches, which gives us the advantage to service our customers efficiently because predominantly the after-sales service is very critical to maintain the customer satisfaction. The 12 branch offices across North, South, East, West and Central India gives us the advantage to be in direct contact with all our customers in a timely manner since our products are critical to their production process. Post-sales of printers, there is a continuous demand for consumables over the life of the printer, which typically lasts for 5 to 7 years, depending on the operating efficiency. We have our complete attention on the customers' requirements to ensure their production is never affected and service requests are attended immediately, thereby gaining our customers' confidence. We have an end-to-end SAP ERP system setup, which ensures maximum transparency in accounting, sales and after service -- after-sales service as well as total control from raw material planning and ordering to receivables collection and is integrated with our CRM system, which gives the confidence to the team, the customers as well as our auditors and investors. We have a widespread customer base catering to multiple industries like pipes and cables, metals, automotive, food and beverages, FMCG, pharma, et cetera, and we continuously endeavor to customize our products to reach out to other industries to increase our installed base. We have the entire range of products in our portfolio to meet the coding and marking requirements of the industry, the details of which are elaborated in our company presentation. As of today, the company has an installed base of 12,000-plus printers across industries, which enables the sale of consumables during the life cycle of the printer. We are very confident that we have the best-in-class product to meet the requirements of most of the substrates, which gives additional advantage to the customer to do business with Control Print. With a strong foundation and 5 pillars that is man, machine, material, technology and finance, well established to augment our business plan, we are confident we are continuously striving for greater heights. Let me give a brief analysis of the financials of Q1 for the financial year 2021. These are challenging times for the Indian and the global economy, and the human race has not experienced this kind of disruptions. Complete lockdown of the country is unparalleled to any disruption experienced in the past several decades. These are extraordinary situations when the strength of the company is tested, and we can assure you Control Print is geared up for any challenge. We are financially stable and robust in spite of slowdown in business environment beyond our control, and confident to regain the lost ground at the earliest opportunity. This stability of Control Print has been reaffirmed by credit rating agency, CRISIL, returned A rating after considering the short- and medium-term impact of COVID pandemic. Our investors can maintain calm and belief on the company's management for a quick recovery and then optimistic future. This quarter was affected due to national lockdown for the COVID pandemic, and the month of April 2020 was a complete shutdown. The customers started opening up their operations as per the government guidelines in the month of May 2020, but in a staggered manner and with caution. The ramp-up of production was slow due to uncertainty on the way ahead and the implementation of the unlock guidelines. In effect, we scrambled only 45 working days in this quarter. However, in spite of only 45 working days available in Q1, our EBITDA impact, excluding exceptional items, was at par with Q4 FY '20, in spite of low revenues versus Q4. The EBITDA, the PBT and the PAT all remained positive in spite of impact of COVID-19. Revenue in this quarter is lower as we had limited working days due to national lockdown. However, we had a quick recovery, achieving 70% of the key lockdown revenues. Gross profit for the quarter has improved because of better product mix, skewed more towards consumables. This validates the management's conviction that profitability will be achieved as the revenues increase, driven by consumables due to increased installed base. The margins are healthy with gross margins at the rate of 67.6%, operational profits at 17.3% and EBITDA at 24.3% in spite of challenging quarter affected by national lockdown. The main drivers for the margin are better product mix and stringent cost control. I will now brief you a bit on the performance of various divisions, products and business segments. Printers and consumables continued to show a positive demand in spite of challenging environment and is a strong signal for increase in momentum of industrial production. The increased installed base will drive the business in the coming quarters. The flagship division of CIJ, which had a strong recovery on reopening of the lockdown, and the momentum is picking up. We are confident to continue our dominance in some of the industries where we have a stronghold, like pipes, cables, steel, food, beverages, healthcare, et cetera. Our product launches of TIJ printer, High-Resolution Printer and TTO printer continue to have a strong traction due to acceptance of the printer by the market, and we are confident of their potential in the coming quarters and years. With dedicated national level managers driving these verticals with focus on specific sectors, like dairy, beverages, bakery, food and frozen food, ready to eat, pharma, packaging, plywood, lubricants, carton coding, et cetera, we hope to cement our leadership position in these applications. We have realigned our sales team to specialize in these segments, which will give these new products the desired impetus. We have also assigned separate managers to focus on the OEM sales and key account -- key customer accounts, and the strategy is showing encouraging results and should yield good quantum of business. LCP business though reported a decline, but we are changing our focus to non-LCP business, and the team is confident of generating business in the coming quarter in sugar and metal. The High-Res business has shown good potential and will continue to grow in the coming quarters. Laser business is expected to climb back as product technology is being improved, and the team has been changed. This has yield good dividends, with positive discounts from the customers and new opportunities expected in the coming quarters. The face mask production has started and the company has declared commercial production with effect from 24th July 2020. This will contribute to the company's revenue and profitability in the coming quarters, but we are not making any early predictions due to the volatile market conditions. The company has strong cash flows, and the trend is expected to continue. While COVID-19 has impacted the economy as a whole, we are well placed to capitalize on any revival of demand led by complete range of products, strong presence across industry and a well-established service network. Fundamentally, the company remains strong, and we are continuing to work on our planned strategy as we are confident of the growth potential to deliver positive results. I would like to end my opening remarks on a positive note that Control Print is part of the top 1,000 companies on the stock exchange by market capitalization. It has improved its position by 114 places and is ranked 808 as on March 31, 2020. The floor is now open for questions.

[Operator Instructions] The first question is from the line of Dhavan Shah from ICICI Securities.

So I have a question on the gross margin improvement. So would it be possible to share the revenue contribution based on the industries you catered. So the -- on the 6 number slide, you mentioned some 9, 10 industries, like the agrochemical, automotive and all this FMCG. Would it be possible if you can share the revenue percentage numbers based on top 5 or 6 industries? And which industry has contributed the most to the overall top line number for the last quarter?

So to be honest, there's not a direct link between the industry that we cater and the gross margin. But to give a understand -- better understanding on the gross margin, as we have said previously, and I did mention in the opening remarks that the management believes that the gross margin is definitely going to be driven by the increased sales of consumables, which we've been seeing in the previous quarters also. And in this quarter, since the consumables product mix has been more positive, so the gross margin is showing an improvement, which is what we believe in. And going forward also, as the installed base keeps on increasing of the company, the consumables will drive the gross margin. And management believes that this is a positive sign. Coming to the second part of your question, which is relating to the industry. This was mentioned in the previous call also that we don't give a detailed breakup of industries, that it is not available on public domain for even our competitors. But we do say that we are more skewed towards industrial sector. And we have about 60% on the industrial side and 40% on the packaging side.

Okay. So can you share the revenue numbers for the printer and the consumables for the first quarter FY '21 and the corresponding quarter for the last year and in the Q1 FY '20?

So current year, as you all know, has been affected by the lockdown. So -- and things were opening up more in the month of May, towards the end. So companies were more focused on starting up their operations and ramping up their current capacities rather than installing new capacity. So printer sales has been slightly low, though we have not seen much of them being canceled. I would say they are more deferred, which we will see coming into Q2 and Q3. Reason being people want their current capacities to be utilized before they spend on new capacity. So some industries have been ordering new printers. But the mix that in this quarter, on printers, we've done about 10% to 11%. On the consumables, which has been more positive, is about 65%, 66%. And the balance, about 24%, 25% is on spares and services. Previous quarter, FY '19/'20, was 19% on printers, about 62% on consumables and the balance on spares and services.

Okay. Okay. And one last question is, on the strategy part, so I mean is there any strategy? I mean we started manufacturing face mask production. So how is it correlated with the -- with our business line?

Dhavan, Mr. Shiva can take that question.

Well, I think it's very clear about it in the last thing, that this is something that we are doing for a temporary situation only, only to sort of support our country through the corona crisis, I think that we just felt that all large companies, which have engineering capability should be doing something because we know what the quality of a lot of -- not being negative, but a lot of other companies may not have the same quality and capabilities as our company, or -- so we just felt it was the best thing to do, and we saw that other countries -- I mean whether we look at the U.S. or China or something, even whether it's GE or BYD or something one that other thing they're doing it temporary to help support their country. So we just felt we could do something and not lose any money in the whole process. Then it's something that's good, if we can help, then we should.

And just to add to what Mr. Shiva said that we have the engineering capability. It has been successfully installed in our plant in Nalagarh. The commercial production has already been declared, and we are getting good demand. The best part about this whole process is that our existing customers who are having multiple factories across the country are in touch with our engineers and are placing orders for these face masks for their in-house utilization. So our existing printer and consumable customers are automatically, because of the brand image of Control Print, placing orders for face mask on us. So the -- it's very encouraging to see that our customers continue to believe on even a different product that we have launched. And even without a very high marketing budget, we are able to sell our products to our existing customers. So that itself speaks a lot about Control Print.

[Operator Instructions] The next question is from the line of Deepan Shankar from Trustline PMS.

I just wanted to understand, have you seen any improvement in market share for newer technology printers? So what is the current contribution of them? And where do we see for the same over next 3 to 5 years?

So yes, I think the new printers which have been launched have really got a good acceptance in the market. We really don't know about the market share as of now. But as far as Control Print is concerned, the demand has been quite bullish. The customers continue to place orders for all the 3 types of printers, that is the TIJ, the High-Res and the TTO. And we are able to meet different substrates, which we were probably not able to do earlier with our CIJ printer, but it is still very encouraging, and we believe that the next couple of years this product line is -- these product lines are continuing to grow.

Okay. Okay. What's our current contribution in this newer printer?

So we don't have the breakup as such right away, but maybe, I'll try to keep it...

Okay, okay. Okay, okay. So how much of this cost cut in this other expense...

It's improving. Compared to previously, the contribution of these products is definitely improving, that much I can assure you.

Okay. Okay. Okay, okay. And so how much of the cost cut in this other expenses is sustainable? We have seen some INR 8 crores to INR 5 crores kind of movement in quarterly run rate. So how much of that is sustainable? Are we seeing -- foreseeing any more cost reduction in our numbers?

So see, with -- cost reduction, to be honest, we continuously -- it's a continuous activity in the company. You can see even in this quarter, the other expenses has been quite regulated and the manufacturing costs are definitely low -- in line with the previous quarters, even slightly lower by a few decimal points. But yes, this is something which is an ongoing activity. I don't think apart from a few -- that there is maybe some scope, which we keep working on.

Okay, okay. And lastly, how has been July performance as compared with June and May? Any particular sectors you want to mention which are not doing well for -- currently for us?

So July also has been in line to Q1. It is definitely improving. We are getting more accessibility to our customers. The interaction between the sales team and the customers has definitely improved more and more. So even during lockdown, our team was well able to reach all our customers. In certain situations, I would say that sometimes even the -- though the customers were not available, our team was able to reach and this has given a lot of goodwill for Control Print. We have been able to get a good goodwill from the customers because we did not allow their production to get affected even in spite of logistic challenges. So I think, yes, July has been good and Q2 will definitely see an improvement to Q1 if things keep on opening up. We hope Unlock 3.0 will be better than -- I mean, more feasible than the first 2 lockdowns.

Okay. Okay. Also Rahul, most of your customers generally keep inventory for consumables and spares with them. So are we seeing that Q3 is slightly increasing because of logistic issues we are talking. And they also want to make sure of our inventory available with them to ensure continuous production. So are we seeing that kind of trend?

So to be honest, from our side also -- what you're saying is absolutely correct. From our side also, we have informed our customers. As you know, these are things which are probably not in anyone's control. So it is prudent to keep some extra inventory so that any unforeseen situation can be managed at low level. We have also, to support our customers, built up some inventory at our branch levels so that even if the dispatches from the factory are affected, at least the branch can locally support the customers. So things have been organized, as I mentioned earlier. We have not had any complaints from any of our customers that their production has been affected because of Control Print supply. Each one decides on their own. Someone -- some customers could keep some additional inventory. But we -- since they are giving us repeat orders, we do believe that -- I don't think anybody is like holding 6 months plus inventory. Maybe they're just keeping 1 extra month or something.

[Operator Instructions] The next question is from the line of [ Deepak Mehta ], individual investor.

So my question is that for new agriculture reform, what positive impact will be on our company?

That's a good question. I would think that the agricultural reforms will lead to more demand for the pipe industry, the PVC pipe for the irrigation purpose. And it's positive because Control Print is a dominant player in that sector on a pan India basis. Most of the customers we are their leading supplier. So that sector, even that Har Ghar Nal Ka Jal, which the Prime Minister had announced in the previous budget, all that is going to drive this pipe market for the next couple of years, I would believe.

Okay. One more question I have. So what kind of disruption or any challenges you are seeing in supply chain from farm to factory or this kind of -- or any impact on direct farmers due to corona? What's your ground check?

So I'll be honest. There are definitely some logistic challenges are there, both to reach the product to our customers as well as sourcing materials within the country and from -- also for imports. But in spite of the delay, since we do keep some safety stocks, we have been able to manage the situation. It's definitely well within control. We have, maybe in certain cases which we thought required some extra inventory, maybe we pumped it up. But overall, I think things are more in control. As I mentioned, there could be delays, but it is not extremely disruptive. I don't know about all industries, but at least we are able to reach to our customers. And I would hope that the worst is over and things will only improve from here.

[Operator Instructions] The next question is from the line of Karan Bhatelia from Asian Markets Securities Limited.

Rahul, how many printers did we sell in this quarter, number of printers?

So, yes, the number of printers was a little lower than the previous quarter that we've seen. So in this quarter, we did manage close to 250 printers.

250 printers, right. And how -- so it's already 27 days to July. So how much improvement you've seen on a day-to-day basis compared to the previous quarters? And how is the response from...

So definitely now the customers are more aggressive in asking for faster deliveries for the printers. So earlier, there was probably -- they would place an order and give us more time. But now I guess they have reached utilization of their capacity, definitely in some industry. And they are now pushing to deliver new printers at a faster rate. So we are also gearing up for that. So as I said, Q2 will definitely see number of printers increase.

Okay. And how are things shaping up on the overseas side, because the lockdown there was not as stringent as witnessed in the domestic market? So what is the sense there?

So I think everybody was affected, including our Sri Lanka branch. Maybe Nepal and Bangladesh were a little less. But I would say that people were affected. But to what extent? I don't have the exact answer to that.

Right. So for exports, we are about 5% to 10% of top 9 or slightly more?

No, no, no, ours is around 3% -- 3.5%.

Right, right, right. We were earlier getting aggressive in a few of the other markets. What is the update that side?

So we are still good. The market is good for us. But our focus is on India, and export market will increase as the country -- but they've opened up more than India. That's the point that I think you're trying to make.

The next question is from the line of Madhuchanda Dey from MC Research.

I have 2 questions. First is of the industries that you cater to, where have you seen the fastest revival so to speak off? And which all industries are a little more sluggish at this point in time?

So I feel that even during lockdown, since we are supplying to certain essential industries, like the FMCG sector, the pharma sector, the biscuits, the dairy, they were still continuing to be quite aggressive and probably better off than any other industry. So they have continued to do their productions and deliver their digits. Some which have been aggressive after opening up, like I mentioned, is the pipe segment, and I think that will continue to grow.

And the ones which are still pretty sluggish...

Steel has been pretty nice -- sorry, yes, ma'am.

Sorry to interrupt. Which are the sluggish ones even now?

So I think we would try to see more on the steel and the cement side, which are the bigger industries. And maybe on the cables, because cables is not the fastest growing for us as of now. So these are industries which we would like to see more revenues coming in.

Right. Right. These are lower than your normal pre-COVID level?

Anything related to construction materials and industrial is a bit off than expected. Not overall -- not every single company, but overall. But the whole FMCG packaging sectors are trending quite normal, in fact, it's growing.

Okay. And my second question is on an average, what is -- like you said that you have 12,000-plus installed base of printer. On an average, what is the value of consumable -- yearly consumable consumption of a printer?

On a steadier manner, it can be INR 1.5 lakhs. Again, it depends on each customer on whether they're using single shift or multiple shifts. But ballpark, I think INR 1.5 lakhs to 2 lakhs per printer can be the cost per printer.

And are all the new printers having this RFID tags and all, so that they don't use other spurious materials and all?

Yes, ma'am. For the last 3-plus years, all the new printers are having the RFID, especially, the TIJ and some other printers.

Has it made any change to the consumable consumption of your printer population?

Definitely, we've been able to hold our installed base, and we're not losing customers, which at one point in time was probably faster when compared to others. So I mean, we do lose customers, but definitely now it's not for spurious cause customers bypassing our RFID. The rate of misuse is much low, if not negligible.

[Operator Instructions] The next question is from the line of Dinesh Kotecha from KRIC.

I just wanted to know what are the exports to China and what is the position now?

No, we don't have exports to China.

Okay. And sir, what is the R&D update, I mean -- any commercialization of new products? Can you give something about it?

We are having some new generation printers being developed and we are in constant touch with our R&D facilities. So hopefully, over the next year or so, we might launch some new products. That will be an upgradation of our existing printers.

And sir, I'm very happy about...

The line is fresh, though. So it's not -- there's nothing -- I mean, there is a work going on, but I'll not say like -- I'd say like our line is quite state-of-the-art. So I think the targets are more for the next 2 years. We were supposed to launch a new CIJ printer. But because there's a disruption in the travel, our team can't go to Germany. So we'll see how that works out, maybe some time later at the end of the year.

Okay. Sir, our gross margin has come up by nearly 67.60%, due to the other expenses being controlled. I mean -- I just want to know one more thing, that you have expressed some time earlier that about the solar panel roof being -- that we've put up at Nalagarh plant. I mean what is the cost savings or energy cost savings expected there?