Prevest Denpro Limited (PREVEST.BO) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Prevest DenPro Limited Q4 FY '24 Earnings Conference Call hosted by HEM Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prabal Maheshwari from HEM Securities. Thank you, and over to you, sir.

I thank, everyone, for joining the Prevest DenPro Limited Q4 and Year Ended Financial Year '24 Earnings Conference Call. Joining us on the call today are Mr. Atul Modi, Chairman and Managing Director; Mr. Namrata Modi, Whole Time Director and CFO; Mr. Vaibhav Munjal, Chief Marketing Officer; and Mr. Vinay Jamval, Financial Advisor; along with Dr. Sai Kalyan, Director of Research and Academics of Prevest DenPro Limited. Company is manufacturer of dental materials, serving the global market with a wide range of quality products designed for the diagnosis, prevention and treatment of dental conditions. We will commence the call with the opening thoughts from the management, post which we will open the forum for a Q&A session, where the management will be glad to respond to any of your queries that you may have. Before we go on the main call, I would like to read the standard disclaimer. There may be forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company's management as on date of this call. The company does not assume any obligation to update their forward-looking statements if those beliefs, opinions, expectations or other circumstances should change. These statements are not guarantees of future performance. It involves risk and uncertainties that are difficult to predict. Consequently, listeners should not place any undue reliance on such forward-looking statements. With this, I will hand over the call to Mr. Atul Modi, Chairman and Managing Director, Prevest DenPro Limited to take it forward. Over to you, Atul, sir.

Good afternoon, and thank you for joining us today. I am delighted to welcome our esteemed investors to this conference call to discuss the financial results for the fiscal year '23, '24. It is truly heartening to see your unwavering support and confidence in Prevest DenPro Limited. I am pleased to report that our revenue has increased by 14.27% from INR 51.89 crores in financial year '23 to INR 59.29 crores in financial year 2024. The 14.27% increase in the revenue is a commendable achievement, especially considering the challenges faced in the foreign markets due to currency exchange crisis and recessionary situation prevailing in EU countries due to the prolonged war between Russia and Ukraine. Despite this headwind, it is encouraging to see the noticeable improvement in the exports in the fourth quarter compared to the previous quarter and we are working diligently to extend our presence into new international markets that will further boost our top-line growth. Our current capacity utilization stands at 45% for the existing product line, indicating that we still have 55% unutilized capacity. This unused capacity provides us with ample room to meet increasing market demands and scale up our production as required. The establishment of Prevest Research Center in the year 2023 marks a pivotal step in our journey towards innovation and excellence. This center is dedicated to advancing our technology and methods to improve efficiency, quality and sustainability across various segments. Our key initiatives include cost-saving measures, introduction of new product lines and the reduction of the import through-import substitution. We continue to invest heavily in R&D to develop innovative products. Our collaboration with dental institutions ensures that our product development is aligned with the latest market needs and technological achievements. Prevest Research Center has received approval from the Ministry of Science and Technology. Prevest DenPro is the first dental company of India who has set up state-of-the-art research center that has been recognized by the Government of India. That places us among the select group of approved research centers, indicating the credibility of further efforts. We are excited about the possibilities since approval opens up and remains committed to advancing innovation in the dental sector. Our new segment oral care under the brand name Oradox has shown promising response since its inception. The positive response from our stakeholders reaffirms our confidence that Oradox will significantly contribute to our top line in the post-semi-period. Our disinfectant product line is ready to be launched soon. Each trial has been conducted satisfactorily and all regulatory compliance is well-placed. In reviewing the dental industry landscape, it is evident that both global and Indian markets present compelling opportunities for growth. The global oral care market shows substantial work and is anticipated to experience robust growth in the coming years. Similarly, India's oral care market is on a trajectory of significant growth, fueled by a growing awareness of oral hygiene and dental health among consumers. These market competencies are various segments, including toothpaste, mouthwashes and other oral hygiene products catering to diverse and human needs. Driving this growth is India's increasing organization and rising per capita income with a driving demand, particularly for premium oral care products. Another notable trend is the rise of the dental 3D printing market both globally and in India. The global market presents substantial work and promising growth prospects, while the Indian market is poised for significant expansion. 3D printing technology offers a range of advantages, including fast production, diversified treatment options, cost-effectiveness and customization, benefits for the patient as well as clinicians. The global disinfectant market is experiencing significant growth, presenting lucrative opportunities for business entering the segment. As such, practically entering these growing segments of the dental industry holds promise for companies seeking business growth and expansion. In conclusion, the dental industry offers fertile ground for growth and innovation, and tapping market trends can pave the way for success in the future. In short, the dental industry provides ample opportunities for both growth and innovation. By aligning with the prevailing market trends, we can set up the stage for future success. We will focus on exploring avenues of inorganic growth also, including strategic alliances, acquisitions to enhance our market presence and drive expansion and committed to fostering innovation, we will continue to introduce cutting-edge products to meet evolving customer demands. Once again, I express my gratitude to all our investors for their continued support and confidence in Prevest DenPro Limited. Together, we look forward to achieving even greater milestones in the future. Now, over to Mrs. Namrata Modi.

Thank you, Mr. Modi. Good afternoon, everyone. As the Chief Financial Officer of our company, it is a great pleasure to present to you the financial results for the year 2023, '24. It has been a challenging year, but I am happy to report that we have emerged stronger as we began dental applications for this year also. I will begin by providing a brief overview of our financial performance. Prevest DenPro Limited has experienced a notable increase in revenue, growing from INR 5,188.76 lakhs in financial year 2022, '23 to INR 5,929.05 lakhs in financial year 2023, '24. This represents a substantial growth of 14.27%. The company's EBITDA also saw a positive increase. EBITDA rose from INR 2,163.19 lakhs in the previous fiscal year to INR 2,270.85 lakhs in the current fiscal year marking a growth of 5%. This indicates an improvement in the company's operational efficiency and profitability before accounting for non-operating expense. The PAT for financial year 2023, '24 was INR 1,613.69 lakhs compared to INR 1,571.01 lakhs in the financial year 2022, '23. This slight increase of 2.72% in value terms suggests steady profitability despite potential market or operational challenges. Those are PAT margin decreased from 30.28% in the financial year 2022, '23 to 27.22% in the financial year 2023, '24. This reduction is due to an increase in depreciation and other expenses relative to revenue impacting net profitability, but depreciation is directly linked to our new R&D setup and additional line of activity. Now that the maximum capital expenditure has been incurred, we are confident that our capital expenditure will be beneficial for us in the forthcoming period and our margins may increase positively impacting our net profitability. Similarly, the EBITDA margin fell from 41.69% to 38.30%. This indicates that while revenues and absolute EBITDA have increased, the proportion EBITDA to revenue has slightly decreased potentially due to increased operational costs. This decline is mainly attributed to marketing expenses, exhibition costs, employee costs and other ancillary activities. Overall, Prevest DenPro Limited has demonstrated for financial growth with 14.27% increase in revenues and a 5% rise in EBITDA for the fiscal year 2023, '24 compared to the previous year. Despite the slight decrease in PAT and EBITDA margin, the company has maintained growth in absolute terms. This is a strong performance in a competitive market and a continued commitment to enhancing shareholder value. Over to Mr. Vaibhav Munjal.

Thank you, Mrs. Modi. It gives me great pleasure to address you today as we reflect upon our achievements for the last financial year and look forward to exciting opportunities that lie ahead of Prevest DenPro Limited. As the Chief Marketing Officer, I am thrilled to share with you some of the highlights of our performance in the last year -- last financial year and our strategies for the upcoming period. Let me begin by highlighting our domestic sales growth, which has surged by an impressive 26.47% in the current financial year compared to the preceding year. One of the notable highlights of this year has been our exceptional response to our new product line, Oral Care product line under the brand name of Oradox. The Oradox range has captivated consumers both online and offline, propelling our brand to new heights. Building on this success, we are now poised to expand the Oradox line further, catering to a broader customer base and solidifying our position in the market. Furthermore, we are strategically evaluating expansion of Oradox into the pharmacy channel. We will be testing this in one state initially with the plans to roll it out further down the line in other states. This move will help us strengthen our presence in the market and drive further growth. On the staffing front, we are continuing to grow our sales team by bringing in talented individuals and maintain our competitive edge in the market. Furthermore, we are gearing up for an increased participation in conferences and exhibitions in the coming periods. These platforms provide invaluable opportunities. These events are crucial for showcasing our products, forming partnerships and staying updated on the industry trends. Our venture into e-commerce has shown promising early results. Prevest Direct, our e-commerce platform launched in late 2023 has received positive feedback and is set for further growth. Additionally, our presence on major e-commerce platforms like Tata One MG, Flipkart, Amazon, Jiomart with the Oradox range has yielded encouraging response, highlighting the strength of our product line and quality. We are proud of our product line and quality we deliver, and it's great to see customers responding so positively. Our focus now is on reaching even more people and strengthening our marketing efforts to keep driving growth. I'm confident that our marketing strategies will keep paying off, bringing us even more success in the future. We are confident and committed to maximize shareholder value. Once again, thank you to all the investors for their unwavering support over the past year.

[Operator Instructions] We take our first question from the line of Mahesh Attal from Attal Investment Advisors.

First, congratulations on a good set of numbers. Sir, my question is more on -- so what are the efforts we are taking on our sales side? Because now I see that our CapEx is through and we are having good capacities and our presentation says that we are still at 55% capacity. What are the efforts that we are taking on the sales side? I mean, what are the efforts? I mean, are you looking at creating new channels or what is that you are doing on ground that will see -- I mean, this financial year, we'll see -- how do we see that coming to numbers? Please, if you can throw some light on that.

Yes. I'll take that. This is Vaibhav Munjal. So as I briefly mentioned in my statement also, we are looking at expanding our marketing and sales efforts across. Right now, from one division, we have also diversified into another division of Oral Care range, Oradox, which I mentioned. So we are looking at increase -- first is increasing the sales force across both the segments, right? One is our existing business line. We are keep on adding newer and newer people and expanding into newer geographies to reach more and more doctors and consumers from that point of view. Second, we have already launched our e-commerce channel, which has given us positive results, which will again boost our sales to some extent of our own products. Third, in terms of increasing on the oral care range, as I mentioned in my statement, we are also now looking at setting up a new channel for the pharmacy distribution. And that will be another foray into the oral care range and which should give us promising results. We are going to pilot it with one state and then probably expand it down to the other states depending on how the response goes.

Sir, my second query would be on -- you say that you have added some -- there's a growth of employees, which is like 78% growth from last year. So if I -- if you can make me understand the maximum number of employees were hired in which domain? Are we looking at sales as the maximum hiring? Or this is like overall across the -- I mean, industry-wide, I mean, entire company as a whole? I mean I just want to know that maximum employees, whether they are hired in the sales side or what was there in last year?

As the employees have been added in the manufacturing, in the research and in the sales and marketing because the new product line order has been started commercially. So we have to hire people to run the plant. So we have employed technical people and staff to run that -- to operate this new facility. And we have hired people to manage the administration and also new hiring has been done for the R&D department. Other than that we are hiring more people for the sales and marketing across India.

[Operator Instructions] The next question is from the line of Santosh from Investment Handle.

Congratulations to the previous team for achieving the highest ever revenue quarter for this quarter. My question is around exports. Earlier, your team commented that there was a financial global currency exchange crisis is something, and that's why export market is down. So can you tell what would be your vision for the next 6 to 12 months for this export market because I see that's where most of the margins will pick up, number one. And number two is our revenue is in like double digits annually right now. How soon we can go to three digits? And do we have a scope to go to like four digits of revenue in the next 5 years or so?

The present export scenario is not very good because the result from major countries where we were exporting are flat. We have seen small growth in our export business from Europe and from South America -- from USA. But we are making efforts to expand our business in the U.S. market where we see very high potential for growth. And also we want to add some more countries, developed countries. We are trying our best to grow in the developed countries like Australia and Canada, Brazil. So we have already started our business operations there. We have identified new buyers in these countries. We are doing our best to expand our business in the U.S. market, which is a very high potential market for our business. Already, our business has grown from 2.8% last year to 3.6%. So like that, we are very positive for the business growth in the U.S. market and other developed countries. But we expect that the situation in Africa will definitely increase as well as South America, which was a very big market for our products. And as the situation improves financial crises in these countries, we expect growth in these countries also. So overall situation is that Africa, because of the financial situation, the financial crisis is still going on. But we expect that this will be over very soon and we get more business from these countries. So that will add to overall growth. So we are looking forward to better growth in the next financial year.

And regarding increasing the revenue, let's say, in three digits or four digits, what is your guidance on that or vision on that?

Definitely, the U.S. market will give us good revenue generation. So that will increase our business and revenue will grow in the U.S. market and from other developed countries. The U.K. is also emerging as a big market for our product. So all the countries will definitely increase the business and our revenue will increase from the countries.

Sir, does that answer your question?

Yes, that answers my question. One last question, ma'am, if you can allow me. Regarding the U.S. market, I know the dental awareness in U.S. is pretty high compared to our country. So from a marketing perspective, does your company focus, like have any special focus or strategies to increase the market share there?

We are already, doing private labeling work for some companies in the U.S. That's a potential market, private labeling. And also, we are doing our own brand promotional activities. We are taking part in U.S. exhibitions to make our brand more popular in the U.S. market. So these are the two activities we are doing. We have already hired marketing consultants in the U.S. who are helping us to get more customers from the U.S. market. So this is how we are planning to grow in the U.S. market.

[Operator Instructions] The next question is from the line of Nitya from KamayaKya Wealth Management.

Yes. So how many colleges have you tied up with till now? And how many more do you plan to tie up with in the coming 1 to 2 years?

So I will request our Director for Research and Academics, Dr. Sai Kalyan, who will give you the appropriate answer to your query. Over to Dr. Sai Kalyan.

At present, we have around 17 institutions, academic institutions tied up. We are also looking at signing MOUs or technology, joint development programs with IIT Jammu. We have people coming and interning with us from IIT Jammu and Central University Jammu. The basic idea of having all this is to create an environment where innovation can take place, and we can make better products, which can make a bigger impact.

Right. And how has been the response of products such as Oradox, which you all have launched? How has been the response so far?

The user side of it is very promising because when we launched it, we took a usability study at different colleges and academic institutions. We have around 10 to 12 research studies happening as we speak right now. So it is very promising. Yes, we have a plan in place. And I think the sales and marketing team are gearing up to put the plan in place. I think it will show great results in the coming couple of months.

So what is the pricing differential between your recently launched products and the competitors' products?

Competitors as in -- okay. Let me put it in this perspective. We are not competing with the already existing mouthwash and other oral hygiene care brands like Colgate who have mouthwashes just for the OTC, over-the-counter kind of things. They don't have specialty mouthwashes, and that is the area we are aiming to be in. So we have mouthwashes, which look at applications after dental surgery. Second, for caries prevention. Third, for whitening or sustenance of whitening over a period of time, for antioxidant kind of after surgical treatments. So these are very specialized devices. So the costing is also going to be on the slightly higher side, but we are doing a good amount of work in this area. And surely, I think the price is justified. At present, I cannot pitch the Oradox brand with the competitors because the competitors have a different kind of product, and we have a very different kind of a product.

Okay. And then which products are being sold on websites such as Amazon, Tata, Click and so on and so forth?

Yes. Tata, Click -- there are some -- Viber...

I think Viber will launch this. See, all our Oradox range of products are being listed on the four major online platforms which are Amazon, Flipkart, Tata One, MG and Jiomart which comprises the entire Oradox range. And all these products are consumer range and hence are listed on all the products which are there. Now, these products include some specialty mouthwashes as Dr. Sai Kalyan was pointing out. Then they include some oral serums. Then they include some tablets, effervescent rinsing tablets. Then they include some denture and aligner cleaning tablets. Again, very specialized products, one of its kind in India. And mostly, typically, we have picked up the product range which the global market accepts very well. And in India, there were not too many players present in that and we have consciously entered into a market and not compete with the regular mouthwashes and the other products. And we keep on adding products. In the next three, four months, we will see another few products also coming up in that entire range. So, the entire Oradox is listed on all the major platforms.

Okay. Understood. And sir, for FY '25, what is the top line and bottom line you're looking at as a target?

So financial year '24, '25, we are looking at a minimum of 30% growth, sir, to drive that number.

30%?

Yes. So that is what we are looking at a minimum number to drive that, and we will hopefully drive much higher than that. It all depends if a couple of countries' exports pick up, it will definitely be much higher than that.

So which country are you seeing the biggest issues in when it comes to exports?

I will reply to this question. See the major challenges which we are facing in some of the African countries and South America.

Voice is not very clear. I'm unable to understand.

Okay. See, the major challenges we are facing for the exports are in some African countries and South American countries. So these are the two continents where we have not been able to grow. But we have been able to maintain the same level of exports, but we have not been able to grow in these countries because of the currency constraints. These countries are deprived of the foreign exchange. So the buyers are not able to remit the payment. So we are not accepting their orders because they have payment issues. But the buyers are very good. The demands are very good, but because the countries do not have the foreign exchange, we are not able to execute the orders. So these are the countries where we are facing challenges. Other that in some of the European countries also there is a recession going on because of the prolonged Ukraine and Russia war. But definitely, U.K. is a very promising market. We are getting good business from U.K. Our business in Russia is also growing. But in some of the European countries, we have not been able to grow, but we have been able to maintain the same level. So we are expecting that the situation will definitely improve and we will start getting better orders and we will definitely grow in this financial year.

Currently, India is what percentage of your business?

India is our top priority at present. And we are focusing on the Indian market. That is our top priority.

So what is the percentage of revenue which comes from India currently? And what do you see this going forward being in India?

Vaibhav, you have the figure?

Yes. Currently, it is -- around 42% to 44% or so. It hovers somewhere between that in the current -- last financial year in terms of the Indian market percentage contribution. And since the market -- since we are having some exports, we look at it increasing the contribution going forward.

And could you please throw some light on how you plan to increase the distribution? What is the strategy? Are you looking at hiring more sales staff? Or how is it going to be going forward?

Yes. We are hiring more sales staff as we speak. As I pointed out in my speech, we are looking at hiring more and more people into our sales staff. We are actually looking -- so what we have done now is that we have looked at geographies where we are strong, where we are not and where we -- and our products can sell very well in those geographies also. We have specifically identified those states and those geographies, and we are actually appointing new distribution channel and new people to market our products in that. So that is one part of it. Second, in our existing strong geographies also where we are, we are hiring more people so that we can cover more doctors, more consumers from that point of view so that we can cover more gamut of people and increase our market share in those markets. Third, in terms of the Oradox range, which we said, we are looking at the pharmacy distribution also. That is the third part. Fourth, we are also looking at strengthening our online presence and getting through that consumer -- reaching out to consumers through that. So we are looking at doing an entire bit of influencer marketing everything, so whatever, performance marketing bit to increase our consumer presence from that point of view. So these are the four channels which we are going to focus for the next 6 months going forward.

We take the next question from the line of Yagnam from Asian Market Securities.

My question is pretty much about the inflated other expenses. So you did throw some color that it was mainly the advertisement expenses or the exhibitions. So can you quantify it? And was there any one-off during the year?

Regarding the other expenses, you want the information what type of expenses have been incurred in this financial year?

Yes, correct. Is nearly 40% up year-on-year. So going forward, can we take it as a...

Mr. Vinay Jamwal will give you the answer to your queries.

Thank you, sir. So other financial year compared '22, '23 it was INR 9.45 crores as compared to the just concluded financial year '23, '24. In the year '23, '24, there was INR 13.14 crores. That was the other expenditure. The competition is mainly on the point of [indiscernible] what are the main components which comprises of your custom duty. It is almost stable as compared to last year. Our trade was almost stable as compared to last year. The competition has increased by 90% due to increase in [indiscernible] in the form of expansion of the existing unit and the new R&D department. So our expenditure in R&D department was around INR 8 crores for the financial year '23, '24. In addition to these expenditures, we do have expenditures in terms of exhibition and marketing which is around, say, INR 2.19 crores. The expenditure tour and traveling mainly in [indiscernible] traveling and conveyance is there which includes [indiscernible] number of exhibitions and the conferences that the company proposes to participate in. In addition, these are the main expenditures of R&D which is [indiscernible] expenditures as per the other expenditures are concerned, which are [indiscernible].

The next question is from the line of [ Devesh Sagarb ], an individual investor.

Congratulations sir on a great quarter. My question is regarding -- I've seen some products listed on eBay U.K. and other websites in the U.S. market as well. So I just want to ask that this eBay listing on U.K., is this sale-driven by some agent of the company or a stock is there? Or is it from a subsidiary of the company?

See he eBay as well as Amazon listing is unauthorized and illegal. The sellers are not officially allowed to sell the product on the platform. We have raised this concern with the U.S. FDA because these products cannot be sold on the e-commerce platform in the U.S. because these are regulatory products. These are USFDA approved products. These products cannot be sold on e-markets and marketplaces because these are not consumer products. We have not authorized anyone to sell our products on eBay and Amazon. So this is gray market business. So we have taken up very strongly with Amazon. We have taken up very strongly with USFDA that these e-commerce platforms should not be allowed to sell our products on their platform. And we hope that very soon, they will disallow the listing of the product on Amazon as well as the eBay e-marketplace. We do not allow anyone to sell. This is illegal and unauthorized.

And so, my second question is regarding we are trying to grow in India and we would take a significant market share in India as well. So what kind of marketing and advertising and marketing expenses we are planning as a percentage of sales for next year? Can you guide something on that?

Definitely, the expenditure will grow because we are employing more people. We are going to take part in more dental conferences and we are going to conduct some educational programs, taking part in the university's educational programs. So all these efforts are going to cause, are going to increase our cost. So definitely our cost will go up but we expect that the cost will be taken care by the growth in the revenue that will be generated with our efforts, in our sales and marketing efforts.

We take the next question from the line of Dharmil Shah from Dalmus Capital.

First of all, congratulations for the performance. Just wanted to know one thing. When we are exporting our products, how is the EBITDA margin or gross margin different in the export market versus the domestic market?

Margins are definitely higher in the export because we are selling the products in the international market at higher prices compared to the domestic sale prices.

Sir, any rough idea. I mean what is the differential between the domestic market? And what are the margin on the domestic sale...

Yes, yes. So approximately about 10% to 12% difference.

Got it, sir. And again, if you look at FY '24 numbers, we have INR 28 crores of cash lying with us, or INR 48 crores. So how do we intend to utilize this cash that we have?

We are looking at different opportunities, options to invest cash reserves. So we are looking at opportunity to invest or acquire some companies so that we can have some inorganic growth. So we are working on various options, various proposals are under consideration. So we'll be deciding very soon how we are going to utilize this cash reserves. So that can help us in the growth of the business.

Okay. And just one more thing. I mean we see the number of employee count has increased almost by 70%, 80%. So is it purely based on the increased bandwidth in the marketing and the sales or there are additions in other things as well?

See, the more employees have been -- we have employed more people in the sales and marketing. We have employed people to run our new manufacturing facility for oral drugs and disinfectants. And we have employed more people in the administration. More people have joined us in the research department. So overall, there is increase in the employment in all the departments in anticipation of the higher growth. You know, when we employ people in the sales and marketing, we employ people to run the plant. So we expect that our business will grow. So for that purpose there is an increase in employment and that will definitely pay back when our business grows in this financial year.

Got it. Got it, sir. And just very broadly, I mean, you must have answered this in previous conference, but what is it that stops or prevents any other company in India to start manufacturing these products and market those products to dentist in general?

The products which we manufacture are very technical products. The formulations have been developed in-house with our own internal research and development efforts. So these are formulations which are not common formulation, not easily available. And unlike pharmaceutical industry, the formulations are very trade secret. So that's the reason because every company does not have the research facility. You know, they cannot do any product development without proper research facility. So they are not -- we don't see much competition coming. And because we have a very strong research facility, so we are able to increase our product range. We are able to stay ahead of our competitors. And that's the reason we are doing pretty well and other companies are not able to match our product line.

The next question is from the line of Ketan Chheda, an individual investor.