Jyoti Resins and Adhesives Limited (514448) Earnings Call Transcript

Ladies and gentlemen, I welcome you all to the Q4 and FY '25 Post Earnings Conference Call of Jyoti Resins and Adhesives Limited. Today, on the call, from the management team, we have with us Mr. Utkarsh Patel, Managing Director. We also have the Chief Marketing Officer, Mr. Samit, on the call. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. I would now request the management to detail us about the business and performance highlights for the period ended 31st March 2025, the growth plan and vision for the coming years, post which we will open the floor for Q&A. Over to you, sir.

Ladies and gentlemen, I welcome you all to the Quarter 4 FY '25 Post Earnings Conference Call of Jyoti Resins and Adhesives Limited. As you would have gone through the investor presentations uploaded to the exchanges, we have delivered nearly 15% volume growth on Y-o-Y basis quarter 4 FY '25 versus quarter 4 FY '24, while on a quarter-on-quarter basis, quarter 4 FY '25 versus quarter 3 FY '25, our volume growth is 24%. For the full year '25, the volume growth stood at approximate 12%. This was mainly due to a flat quarter 2, as was explained also in our quarter 3 con call. Revenue on an adjusted basis grew 14% Y-o-Y, driven by this volume growth. Further, I'm happy to share that we have signed Mr. Pankaj Tripathi as our brand ambassador, which will help to grow our business, create visibility and support in the marketing efforts for national visibility for the brand in consumers and also in dealers, retailers and carpenters. We have continued to put in strong efforts in our ground level work with carpenters and dealers with several meets conducted during quarter 4 to showcase our product portfolio and improve our penetration in existing markets and create visibility in the new markets also. This activity is also expected to continue aggressively in quarter 1 FY '26 as well. While we gained market share in this quarter in some of our strong cities and states, we have witnessed good response in our new states as well as our mature markets. The higher margins of more than 30% was lead higher volumes and thereby offering us better spread and operating leverage. We have further increased the number of branches to 42 during quarter 3 to 48 in quarter 4, while we had increased our sales and marketing teams as well. In terms of our capacity expansion and CapEx plans, we are looking to add another 1,500 tonnes per month over end of this financial year at our existing plant. That will take us to capacity of 3,500 tonnes per month. That can generate INR 650 crores of revenue in existing plant. In next 2 years, we will start to plan for greenfield expansion for future growth. Now I'm opening the floor for questions and answers.

[Operator Instructions] We'll take the first question from Manan Shah.

I'm relatively new to the company. So please pardon if you have already answered these questions in the earlier call. Can you please talk about which are the top 3 states for us? And I believe you hinted that we have around 35% market share in Gujarat. How has this market share improved over the past 2 or 3 years?

So we are doing good business in 5 states, the Central and Western part. And these are the Gujarat, Rajasthan, MP, Maharashtra and Karnataka. For Gujarat, we have 35% market share, and that grew by 10% in last 2 years.

By 10%, you mean that 30-something has become 35% now?

25% to 35%, so 10%, yes.

Okay. And the growth in the current year that we have achieved, is this from these 5 states, or this growth is driven from the newer states where we have entered?

So majority growth comes from the existing 5 states. The reason is the volume is higher in these 5 mature states. And we have also taken the growth from the newer markets also.

Okay. Understood. We've recently hired Pankaj Tripathi as a brand ambassador. So going forward, what will be our average marketing and branding spend that we are targeting for the coming year?

So we are targeting 7% to 8% of revenue, and that will be led by -- half is trade marketing and half for the brand communications.

Okay. And which are the newer states that we are targeting?

So right now we are targeting into UP, Delhi. We are also focusing more into West Bengal and to Chhattisgarh also and Telangana, Andhra also.

Okay. And these new geographies where we are targeting, have we built a warehouse or a depot or something to quickly service these markets? Or what is the strategy? How do we go about that?

So we appoint consignee and sales agents. So basically, they are out stockist. So we have 48 stockists right now across these 14 states.

We will take the next question from Sameer Barot. Sameer, you can unmute and ask.

Sir, new to the company. So slightly basic, but sir, what is the hindrance this company has in growing much faster from a base of -- because you have a low base of around INR 250 crores. Is it sacrifice some margins and grow faster, and if you are not ready to compromise on your higher margins, then you grow at a more measured base. Is that the way the market is? If u can just explain that dynamic?

See, actually the distribution market is always -- I believe that is always 15-20 years of investment of entire team to make this type of network. So we have invested 18 years into this journey. So now, in that scenario, we have experienced so many things and now the speed has become more faster compared to as earlier. So right now as we have explained that 14 states network we have established, the 48 branches we have established, the team of 430 people of sales force now working to make this Euro family much bigger than right now. So the expansion is on that mood. And right now we have associated with 350,000 carpenters. Among that, almost 200,000 carpenters we have registered into our loyalty program. And we have also increased the base of the retailers also. So that are now 12,500 retailers we are working with them. So it is the journey. So we believe that into the tertiary sales, the profit always depends on that only. So we are not only primary focused company, we always believe that tertiary pool should be there. So maybe we are taking the time for that, but the fundamentals will be strong by this journey.

Sir, so what does it take for you to move from, let's say, 12,000 retail distributors to, I don't know, 25,000 or 30,000. Is it that this process just takes time and it will take 2, 3 years for you to double your reach?

Yes, you can say that. Because see, right now, we are taking at least 2 to 3 years to make one state as a mature level. So that was earlier 4 to 5 years, 6 years, we have taken. But that time we had not a strong base and we were very new in earlier states, so no experience and no team were there. But right now, we are in that situations and that positions that we have now enough matured our team and matured enough and experienced in our business and strategies. So we took at least 2 to 3 years to take that state at that level. So yes, we can say if we want to go for the 25,000 or 30,000 retailers, it will require at least 4 to 5 years from here.

And sir, your consignee agents and your retail touch points, what are you offering them which makes them switch to Euro instead of, let's say, whatever other brand they were selling earlier? What is it that -- are you giving more commissions? Is the product quality a differentiator, rate [Foreign Language]? What all do you need to do to get penetration once you have -- or why does he move to you?

See, [Foreign Language] it's a journey of that trust, what we need to build to the retailers first. If we talk about the stockist, then stockist -- the CSA is the dispatch partner. So they maintain the stocks, delivery, dispatch and accounting mainly. And for the retailers, yes, of course, there is experience of the services and the quality should be on a regular basis that we need to do particular transactions to get that trust for that. So in retail business, always that takes time. It is not like that we do one placement of 100 kg or 200 kg and then that's it done and now the retailers move to the euro. No, that is not like that. So initial that is basic placements. Then we need to prove ourselves by giving them the best service and ease of doing policy, what as a Euro we are always as a preferable brand with the retailers. So that different policies and not only pricing or discount or credits, but mainly the commitments, the promising what we are giving to the retailers, how we fulfill that promises, how we deliver that commitment, that matters. And consistently, you prove yourself, then you can gain more market share for that.

So sir, let's say, for the like-for-like kind of product, if Pidilite is priced at INR 100, just as an example, what would be your pricing? And what would be your commission into the full channel, including consignee and retailer versus somebody like a Pidilite?

So for the consumer MRP level, we are almost same. For the dealer pricing-wise, we are almost same. But for the total landing of the price, that is more attractive in Euro as compared to the others.

Sorry, I didn't understand that. Landing for whom?

To retailers and to carpenters also. So for retailers, as an example, we are passing 8% to 12% of margin to retailers.

Right. And what would your competition be doing, at least Pidilite for that matter?

I cannot disclose in this investor call for a particular company name, but I can guide our margin to the retailer. So that is comparatively to 8% to 13% that is more attractive than what others are offering that is almost 4% to 6%.

Understood. And now do you -- sir, last question, would you feel confident that now you're getting a brand ambassador, so there will be much more sort of traction for the brand on the sort of retail end on the carpenter, and is it likely that we will now see a much faster growth over the next 2, 3 years? Not asking for the next 1 or 2 quarters, but more like a medium-term objective, can we grow at a much faster pace than we have in the past?

Yes. Yes, we can go for that, because as now we are in that position that now we have onboarded Mr. Pankaj Tripathi as a brand ambassador. So we want to create more visibility. We want to give more confidence to our retailers, to our consumers, to our carpenters. And yes, we are very optimistic with this journey. And these 3 years of associations maybe put this brand into the next level, what we are targeting for that.

We'll take the next question from the line of Shubh Shah. Shubh, you can unmute and ask.

Sir, you have any comments on realizations for this quarter? How have they changed?

Realization has not changed much into this quarter.

And from 1 year back?

One year back, it is also not much, maybe 1% to 2%. I have to look into the exact data, but it is not much that change, because the pricing and the raw material pricings are more or less same last quarter -- since 1 year.

Understood. Understood. And second question is, I see we have both distributors and branches. So how exactly these 2 play different roles in our supply chain? Do we also employ distributors in all states, or it's only a particular few states where we use distribution model, others we use only CSAs?

Yes. So our model is basically CSA stockist model. So that are the stockist. And as I mentioned that they are the partner for the dispatch and stock maintain and billings partners. So the model is the same. In distributor, when it is Tier 3, Tier 4, small villages, town, we appoint a distributor where he can take care of 70, 80 or 100 retailers. But if we talk about the metro, mega, or any major cities, then we go with these channels only. So the market can be open and we can put our entire strategies, the marketing, branding, advertising or sales strategies as a universal level. So these are the reasons. So right now, 90% of revenue is generated by these 48 stockists and 10% by the small distributors.

Understood, sir. And can you share in which geographies we added the new branches?

Sure. So in UP, we do. And in UP, we have done Agra and Gorakhpur. Then one Chhattisgarh branch is there. And in Punjab, we have added Patiala and Chandigarh.

We'll take the next question from the chat. The question is from Vishal Pandya. As I understand, VAM, a crude derivative, is our key raw material, which, as per my understanding, is majorly imported in India. With the fall in crude, what is the impact on VAM prices and any scope of margin expansion? Also, is there any impact of tariff war on VAM prices globally?

Sure. So VAM prices generally is stable since 3 years. Recently, in last quarter, little rise in the VAM around 3% to 4%. So as an industry leader has also declared the price rise of just 1.5% to 2%, and also we have declared. So in the current scenario, it will be not much different into the margins because as it is a matter of 1 month, and we can again take the price rise in the next month. So yes, VAM is totally 100% imported, and there is no manufacturing in India. And generally, VAM is very stable nowadays, just a little bit higher side that increase the things, yes, 2% to 3% only.

We'll take the next question from the line of Keshav Garg.

Sir, what was the volume growth for FY '25 year-on-year?

That was 14%.

Sir, so our revenues -- sir, this you are talking for the full year, right?

Full year.

Sir, so our revenues increased by around 10%. Sir, so that means there was a realization degrowth of 4%. Is that understanding correct?

No, no. Just one correction. The quarter 4 versus quarter 4 is a growth of 14%. The annual is around 12%.

Okay. Sir, but despite that, so that means there is a marginal 1.5%, 2% price degrowth?

It's flattish over last year.

Okay. Now sir, the concern is that the receivables have jumped from around, if we see, INR 94 crores last year to around INR 126 crores, which is like an increase of almost 34%, whereas revenues went up by 10% only. Sir, so now we are giving, it seems, 5%, 6% credit to the channel. Sir, so it's like for a retail product, mostly the cash is done on cash and carry basis. If you see majority of the companies, the distributors hold the inventory. And they -- so here, we are giving 5%, 6% of credit. So it's really a concern. So what's your thought on this?

So yes, you are very right that from INR 94 crores to INR 125 crores in this March balance sheet. The reason is we have generated a very higher volume in March month, and that was around INR 47 crores. So this is the reason that this jump at this level. But this will, again, come back within these 2 months, because, see, in B2C, in this trade business, it is generally 70 to 90 days, 100 days is expected by the retailers. So that is the scenario that is set up into the mind. So in our mature states, we are offering them 75 to 80 to max 90 days of credit cycle. And as we can see, as Jyoti Resins is always debt free, so this is the reason that we rotate that cycle in a proper timeline since long years. And we have right now 17 years invested into this business and that model I have explained about that 48 stockists, that 90% revenue is generated by this channel partners. So it means that the debtors are spread into the 14 states, into the 12,500 retailers, so it creates a lower risk by this model. So I don't think so there is much risk and that Jyoti Resins has proved by delivering that below 1% bad debt. So it is just a matter of just 1 or 2 months, then that will become again in a routine cycle for that. Because in B2C business, every dealers want to finish the deadlines of the volume growth and the schemes of yearly basis, the trips or gold, silver, et cetera. So in March month, we have taken the higher growth. So that is the reason that growth to the INR 94 crores to INR 125 crores.

Sir, now you think that next year we will be able to achieve our target of INR 450 crores to INR 500 crores revenue?

So yes, we have given the guidelines of -- we have targeted INR 500 crores in FY 2027, but we are very optimistic. Yes, we are working hard. Our team is much focused. Yes, the last quarter 2 was not at that par at that level because due to the rain and festival constraints and all over strain into the demand. And that gives us a little back of 5% of this year what we have expected to grow by 20% CAGR. But yes, we are aiming that for the 20%, 25%. And so that's why we have onboarded the celebrity to gain the major pool for our brand. So yes, so we are targeting for the INR 450 crores or INR 500 crores of revenue in 2027.

So in FY '26, what should we expect?

We are targeting, as I mentioned that 20% to 25% of revenue growth. So we can say that INR 360 crores, INR 370 crores, we are targeting for that.

We take the next question from the line of Bhavin Chadha.

Good set of numbers in quarter 4 and good recovery. And as you mentioned, March sales of INR 47 crores, so looks to be a very good exit. Just coming back to the strong guidance which you're guiding basically, also last year, quarter 2, quarter 3 was a little off and so your sales were lower. So what gives you confidence? Are you seeing recovery across industry and you are participating? Or basically, your base effect was low and something happened in last year first half? So your growth would be higher this year?

So I don't want to give that type of excuse that because of the flattish things or -- because the industry growth is 8% to 9%, as we have seen. But the opportunity is very vast in our segments as INR 7,500 crores of market, and we have achieved just INR 300 crores near number for that. So aiming INR 12,000 crores is not wrong, what I believe, because we are totally focused. And we want to stay focused till this INR 1,000 crores of journey, what I have explained. So that is the plan. And yes, we are on it. And I think the very detailed things we have now put into our organizations, and we are now into the micro management, and we are using our CRM and improving our ERP, CRM systems, data works and team building and induction training program, new hirings, onboarding of new people, new talent also. So we are on it and I think that is the reason that the journey is -- I believe the journey has started now. And now we have that experience and the strong base with this INR 70 crores of PAT. So I don't think so that there are more challenges now. We need to just become very streamlined into very well focused. So maybe we'll deliver 1 year around, maybe we can late. But I believe on the strong fundamentals business.

Sure, sir. And sir, since the raw material prices are largely stable, so do we expect to maintain over 30% EBITDA margins for next 2 years at least?

So as I mentioned that we have now target for the 7% to 8% into the brand communications and trade marketing. So I have always guided for the 22% to 25% of EBITDA in a longer term. So this year, maybe if the gross margin remains same and raw material prices remain same, so we can come to the maybe 25% to 28% of EBITDA, we can say.

25% to 28%. Okay. And sir, our 1,500-tonne expansion will be at what cost and when would it commission?

We are targeting for actually this end of the year and maybe early than this. It will cost around INR 5 crores to INR 7 crores max.

So except this, there is no other CapEx, right?

Right now, there is no other CapEx, because we are adding 1,500 tonnes per month by doing these facilities in a brownfield. So that will create a revenue of INR 650 crores into the existing plant for that.

So I think you are now 2,000 tonnes. So 1,500 will make you 3,500 tonnes, which will have a sales potential of INR 650 crores, assuming a seasonality in the business, right?

Yes. So 85% capacity utilization is what we can expect. So if we do for the 3,500 tonnes, then 3,000 tonnes we can expect. So it is INR 650 crores of revenue.

Sure. And this year, which new states -- are you adding any new states? Because I think when we last met, you said you are targeting 9 states and to replicate our successful model already there in the 5 states. So what is the progress in other 4 states? And what was the sales or market share, if you can share, in the other 4 states over and above the core 5 states?

Sure. So we have done much deep dive. As an example, I mentioned that we have opened new branches into the UP. So UP is the state what we are expecting our new journey and more penetration into UP, the Delhi is also there. So this is parallel all the states what we are looking to grow for. So the 9 states is the UP, Delhi, the Punjab, West Bengal, Telangana, Andhra. So efforts are ongoing and all the cities are very good into the real estate infrastructure [Foreign Language]. And that replica, the formula now we have got by working so many years into these 5 states. So it is in pipeline for that.

We'll take the next question from Mahesh Attal.

[Foreign Language].

[Foreign Language].

[Foreign Language].

[Foreign Language]. So right now we have a team of almost 50 people of team. [Foreign Language]. So this is a B2C business and that always takes time. [Foreign Language]. We don't want to come back for that. [Foreign Language].

[Foreign Language].

[Foreign Language] as we all know that the single dominant player since 65 years and Euro is the only brand who has generated this INR 300 crores of revenue after that. [Foreign Language]. If we talk about the Amazon or Flipkart or Domino's, [Foreign Language]. So it is always that, but [Foreign Language]. But initial period is always painful and little bit stretched for that.

We'll take the next question from the chat. It's from Vatsal Dedhia. I have a question on volume growth for upcoming 3 years. Considering our volume grew flattish or 2% to 3% in FY '24 and 12% in FY '25, as compared to the guidance of 20% for FY '25, how much volume growth do you expect for upcoming 3 years?

[Foreign Language].

We'll take the next question from the line of Rupesh Tatia.

Congratulations on good set of numbers. All my questions are number related, sir. So first question is FY '25, what was our total volume that we sold?

It was approximately 12,400 tonnes.

12,400.

12,400. Okay. Another question, sir, is this other current liability is INR 95 crores. Can you give a split between how much is the Carpenter program and the rest?

80% is the carpenter loyalty program. 20% are the dealers, yearly volume programs, trips, then this gold, silver or home appliances, kind of. So 80%, we can say.

And last year, what was this proportion?

That was INR 88 crores, I think.

Yes, yes. So INR 88 crores, out of that, what is the bifurcation between carpenter...

Same, 20% around.

Similar, sorry?

Similar, 20% around.

Okay. Okay. And then, sir, third question is this -- you said 8% we want to do spend on Pankaj Tripathi and other marketing spend. I wanted to tie that up with accounting. So in the annual profit and loss report, I see sales promotion expense INR 46 crores, and sales commission expense INR 7 crores. So INR 46 crores plus INR 7 crores is roughly INR 53 crores. So that number is very high, right? I mean, on INR 284 crores, it's roughly 17%, 18% number. So can you just help me reconcile this? And then where will this number be, this INR 55 crore number, INR 53 crore number, what would this number be for FY '26? It will be INR 60 crores, INR 70 crores?

So this is actually, sales promotions offers lies into this. [Foreign Language].

[Foreign Language].

[Foreign Language].

[Foreign Language].

That is around 2%. I need to look for that. INR 5 crores to INR 6 crores, I think.

[Foreign Language] that number will be roughly INR 25 crores next year.

Yes.

So from INR 5 crores to INR 25 crores is where that number go. [Foreign Language] Maybe Vinay, if you know where is this number captured in accounting?

Yes, yes. So it comes in the advertising and marketing expense in the annual report. So if you see over there, it will be approximately 2% of revenue. So this is expected to go up to almost 5%, 7% of them.

We take the next question from the line of Manan Shah.

So my question was again relating to this loyalty liability that we have created on this balance sheet. So I wanted to understand how can the carpenter community -- how can they encash this loyalty benefit that they want?

So we have given them the digital app and we have registered them. So it's one kind of shopping mall for them. So they can choose the different home appliances, Honda Activa, example, refrigerators or TVs or what they need. The tools also, ply cutter machines, drill machines, et cetera, the bags [Foreign Language]. And we have a separate team for this marketing and these promotions and loyalty program to handle. So we have onboarded 200 people who are looking for the dispatch and the redemptions and the things for carpenter programs.

So for purchasing these items, they can use 100% loyalty programs or they have to give some cash also to purchase these goods?

No, they don't have to give any cash. That is 100% points.

Understood. So now since we have this large liability on our balance sheet, what is the company policy to create a similar asset on the balance sheet as well to service this liability as and when it crystallizes, because there is no asset in terms of, say, debt or liquid investment that the company seems to be creating to service as and when this liability crystallizes, because as you mentioned, there is no limit on spending or redemption of these points within a year. So very high chance that this liability can crystallize within a year as well, right? So what is the company's thought process on creating an asset on the balance sheet to service this liability as and when this crystallizes?

See, INR 147 crores fixed deposit company [Foreign Language]. But it is also not going to come in a single day. [Foreign Language]. See, we want to focus more to give the best delivery and services to the carpenters. That can differentiate our brand into the market. So right now we don't think that we need kind of service partner for that. But yes, we can definitely think about in future. And so right now, for 48 depots we have created, that is also the redemption center for our carpenters. So partial delivery is done by ourselves -- our carpenter team and partial they collect from our 48 depots also. Carpenters do direct collect from this redemption center also. So right now we are focusing to give the best immediate service to our carpenters. And as the model is like that [Foreign Language]. But we have started some small shop redemption program [Foreign Language]. But that liability will remain same, around INR 90 crores to INR 95 crores.

Is there any expiry to...