The National Detergent Company SAOG (NDTI) Earnings Call Transcript

Good morning, everyone. This is Murali Sundar. I'm the CEO for the National Detergents Company. Thank you for all the participants who have joined. We sincerely appreciate the time and interest you've taken. And we'd like to just quickly get into a short presentation to update you on the year-ending 31st December 2024. And at this time, we'd like to thank all our Board members and all our customers for their continued support and guidance for us to reach the figures what we have reached. Without much ado, so we will get into the presentation. So we'll briefly touch upon the company's history. Then we look at the verticals that the National Detergents Company has, and then we'll give you an overview of the financial results of the company. And then the new division or a new vertical under the NDC, which is the AquaPetro Chemicals. We'll just touch upon an update on that as well. And then we'll also talk about the awards and accolades that we won in 2024 and a short prelude to the future plans of NDC. As you all know, National Detergents Company is an SAOG company. It is one of the leading FMCG companies in the sultanate of Oman. We manufacture and distribute a wide range of products covering detergents, liquid detergents, soaps, shampoos, laundry aids, household cleaners and specialty chemicals for the oil and gas and water treatment industry. We're also into commodity chemical. NDC began manufacturing and marketing detergents in the year 1981, and it currently exports to all GCC countries and a few North African countries as well. But the base is largely the GCC countries. NDC believes in best value with money to the consumers and customers we operate in that segment, we operate in that segment. This philosophy has helped and build trust and a strong brand equity over the 43 years of its existence. The company has a well-equipped and full-fledged research and development division, which is based at Sahar, and we constantly monitor all existing new products, and we keep track of new technologies, which helps us launch new products and new categories as we move along. NDC was also the first ISO 9001 certified soap and detergent company in the region. We were recertified with ISO 9001 in 2008 and 2005. If you look at the verticals that we operate in, we have a Consumer Products division. We had a Sulphonation division, which was largely an integration project for us. And then we also have an AquaPetro Chemicals division, which is newly formed. In the Consumer Products division, we are engaged in manufacturing, marketing and distribution of detergent powders, liquid detergents, hand wash, liquids, toilet soaps, fabric care, personal care products, hygiene and industrial and household cleaning products. The company distributes the products directly and also through distributors. In Oman, we have a direct distribution and rest of Oman in GCC, we have distributor networks, which distribute these products. We had a Sulphonation division, which was manufacturing sulfonic acid a surface active agent used for detergents and oil and gas industry. Due to internal reasons, we decided to cease operations of Sulphonation division after the first quarter of 2024, and it no longer fits into our strategy in terms of raw materials. AquaPetro Chemicals is a new division, which we have kind of brought in for in 2024, which largely focuses on manufacturing and trading specialty chemicals and commodity chemicals for the oil and gas, construction and water treatment industries. Moving on to the comprehensive income statement, the performance for 2023 and 2024 over 2023. We registered quite a high double-digit growth of 16% over the previous year. We ended up the year at OMR 24.5 million as against OMR 21.1 million the previous year, a gain of about OMR 3.3 million. The direct cost has been at about 65% as against 67% of last year. The gross margins increased by 2 percentage points to about OMR 8.6 million as against OMR 6.9 million in the previous period. And other income was about OMR 37,000 against OMR 21.1 million. The total income for the year was about OMR 8.66 million. The general and administrative expenses remained flat. The team exhibited extraordinary control in kind of bringing cost under control and check, and it was 7% of the top line. So it ended at about OMR 1.6 million. Selling and distribution expense, despite the sales increase, the team were able to manage the cost and keep it at about 21% of the revenue, so at about OMR 5 million spend. The finance charges were also maintained quite well with the kind of top lines we reached at about 1%. So the profit before tax moved up by 3 percentage points from 4% in 2023 to 7% in 2024 at about OMR 1.64 million. The tax charges, we budgeted as per the guidelines will be about 1% of the sales. And then the net profit will be 3 percentage points over the previous period, will be at about OMR 1.393 million or about OMR 1.4 million. So there has been a very good performance across board by all functions in the organization and controlling costs and taking care of expenses and driving the top line revenues. So a quick look at the noncurrent assets. The noncurrent assets slightly moved up from OMR 17 million to OMR 17.5 million. This was largely due to new addition of CapEx of about OMR 1 million and disposals of about OMR 69,000 and a depreciation charge for the year was about OMR 616,000. The lease amount is basically the movement of all lease assets that we currently have. In terms of current assets, the inventory went up from OMR 3.5 million to OMR 5.6 million, which is roughly about OMR 2 million, which largely owed to the preparedness for the increased sales and to reduce the shortages of material on the finished goods to cater to the market just in time. However, we improved the receivables quite significantly from OMR 7.3 million in 2023 to OMR 6.5 million at a higher sales of about OMR 24.5 million, which was a very good job the team had done. And then the bank balance and cash was about OMR 900,000 as against OMR 1.3 million in the previous period. So the total assets stay at about OMR 32.7 million as against OMR 30.35 million over the previous period. In terms of current liabilities, we got OMR 2.25 million as against OMR 1 million in '23. The employee end of service is about OMR 770. It's almost flat and deferred tax liability is about OMR 1.9 million. In terms of current liabilities, the lease liabilities at about OMR 112,000. The trade and other payables at about OMR 6.2 million. Bank borrowings slightly increased due to higher inventory management and increase in expenses. So it remained at about OMR 3.5 million and taxation we've been about OMR 310,000. So the liabilities were at about OMR 15.15 million as against OMR 13.64 million. The lease liabilities are largely higher due to the future payments also to be accounted for as per the guidelines, and therefore, it looks higher. So just a quick click about AquaPetro Chemicals, a new division, which we are quite happy to give you an update. So in 2024, they did more than the planned sales for the first year of operations. In 2024, we also inaugurated a state-of-the-art laboratory in Oman in Rusayl, the factory, equipped with advanced technology for research and development and quality control, reinforcing the company's commitment to innovation and excellence. AquaPetro Chemicals received ISO 45001 2018 certification for occupational health and safety, underscoring its dedication for maintaining a safe workplace. We also participated in a lot of industry activities, including Oman Petroleum Energy Show, OPES in 2024 and 18 GPCA forum, strengthening its position to become a leader in sustainable chemical solutions. While these have been the operational ones, NDC also won a lot of awards in 2024. Our flagship brand, Bahar was honored with the most trusted brand in FMCG sector in Oman. NDC was honored with the prestigious award from Times Business Leadership Summit, recognizing the outstanding growth revenue, profits and market shares over the previous year. NDC was also named as the best performing company in the small-cap category and the "Best FMCG Brand of the Year" by Oman Economic Review of Corporate Excellence Award in 2024. Bahar won the "Best Influencer Marketing Award" from TOMI Awards. AquaPetro Chemicals for the first year, very first itself, won an award with Opel Awards for best practices in 2024 in research and development category for Quadra Guard Pro. So these are some of the achievements which the company had in 2024. Future plans, despite challenges with all around the region and globally in terms of trade and tariffs, the Consumer Products division recorded higher value sales compared to previous year and has been able to grow both volume and value market shares despite intense price competition and local brands mushrooming everywhere apart from the international brands. NDC will be focusing on revenue growth, increasing efficiency and better margins. So this will be something which we will be working on moving forward. NDC has plans to introduce new products. Further efforts are being made to ensure cost-effective sourcing, one of the areas where we see the likely challenges because prices have already started going up. We'll also be looking at filling category gaps by bringing innovative and sustainable products in line with the Vision 2030, strengthening human resources within the organization to be able to manage the future demand in terms of work and options that we will be having. Given the volatile global trade environment, the company remains focused on optimizing costs and enhancing operational efficiencies. The company is working towards growth momentum and cost control for the coming year as well. Developing geopolitical situations could impact, which has already started impacting material costs, but the organization is quite prepared and planned to meet all these adversities which we anticipate coming in, in the next 2 to 3 quarters. So all in all, it looks like a challenging year ahead for us, and we are, by and large, prepared to meet these challenges. Thank you very much, and I appreciate your patience in listening to the presentation. Any questions?

So basically, I have a couple of questions. One, when it comes to the inventory, a huge increase. I mean it's around more than -- you said 50% increase in inventories. May I know the reason for that?

Yes. So basically, the sales growth was about 16% sales growth we had. And we had to kind of increase both the raw material -- so this is both raw and packing material inventories and owing to the MOQs that we need to order and the new products which are planned in the pipeline. And then we had issues with the Red Sea issue and therefore, the perfumes, we had to buy in advance for the full year quantity and then hold it. And these were the reasons why the inventory is up. And we are already getting back to OMR 4 million, OMR 4.5 million, which should be the ideal range this year.

Right. So there is nothing abnormal with this huge increase?

No. The abnormality was only due to the perfumes, but we had to procure them because the Red Sea was threatening us and we wanted to safeguard the fragrances. And it's a high-value item.

Okay. The second question is about your export. How much is it as a percentage of your total sales?

Outside Oman, it's about 46% to 47%.

And that's a growth when compared to last year?

Yes, we grew across -- Oman grew by about 21% and the rest of the markets grew by about 12% roughly.

Right. And how do you expect this year 2025, I mean...

2025, we will be having a bit of a challenging year in Oman because last year was definitely we had the advantage of the situations, which also helped us to increase sales because we were planning about 8% to 9%. And we gained another 6%, 7% due to the opportunity we had in that year. So this year, it doesn't look like it will. So it could be a challenging year, but we are still looking at growing by about 8% to 10% this year.

Okay. So there is growth expected, yes, this year as well?

Yes, the first quarter will also end with a good growth.

Great. Okay. The next question is the AquaPetro division, the new one, the chemicals. So what is -- how much is it making out of your full portfolio?

It's a start-up. So it's just a start-up. So last year, we just started the operations. So we started onboarding clients because this business is largely led by tenders. Yes. So we are now in the process of getting listed everywhere, and then we've started pitching in with all the tenders. So we did a little bit of chemical trading business last year, about OMR 180,000. So this year, we have an ambitious plan of about OMR 1.5 million coming in from them.

Okay. So it's going to be quite a sizable part of your business?

We are betting the future there with the IBC and we being an Omani company and things like that, we are hoping that the opportunity is here. The advantage is we are also into product development, unlike other companies which are largely blending services. We are also into product development. So we are in some advanced discussions with some of the top names in Oman for long-term technical cooperation and tie-up. We will let you know as and when we progress.

So these chemicals are actually competing with international products or [indiscernible]

Yes.

Okay. My last question is regarding -- last year, there was a topic of the land sale, the one at [indiscernible]. Any development on that land?

No developments on that.

So what's the plan next? I mean, I remember last time when we had the discussion, there was supposed to be discussion between main shareholders about the deal.

I hope the new Board has just been constituted today or yesterday rather than in the AGM. So we will wait for the new Board to look into this matter, and then we will update.

So now it's totally -- your Ghubra operation that is totally phased out, isn't it, yes?

No, no. We are -- I'm currently based in Ghubra. I'm presenting to you from the Ghubra office. It's not completely phased out. We still have the warehouse here. We have the employee quarters for our Rusayl factory, Ghala factory here in Ghubra premises. And we also have manager's quarters and all those things in the Ghubra facility. So it is still occupied and up and running.

Right. But in terms of blending and chemical production, whatever [indiscernible]

That happens in Rusayl.

Rusayl, right, and Sohar. And what about Sohar?

Sohar is where we have the detergent manufacturing and the liquid detergent manufacturing in Sohar. And the soap, we manufacture in Brazil, oil and gas and water treatment plant in Rusayl and then the sulphonation unit is in Ghala.

Am I audible?

Yes, you are audible.

I had a couple of questions. First one is regarding the market share in Oman. What would you say that your market share is in the Consumer Products division?

See, it goes by category. So if you look at -- see, these are not audited figures because we do not file by AC Nielsen, who is the audit data provider. We don't buy. So these are purely internal estimates. So we could be plus or minus here and there. So our estimates in terms of market shares in detergent powders will be close to about 33% to 34%.

Great. And what capacity are you currently operating at?

We're operating at about 75% to 76% capacity.

Okay. And do you have any plans towards increasing this capacity? Do you expect to increase this utilization this year?

Yes, we are expecting to increase the capacity in the next coming year rather.

So currently, you already are operating at a 70% to 75% capacity. So 25% capacity is already idle, why would you be increasing -- is the management planning to enter into a new market or something?

Okay. 75%, it will reach a threshold at about 85% because we operate many product SKUs and lines. So 75% is just the capacity. If I start using about 100 SKUs changeover and things like that, 80%, the capacity is almost at 100%. So 75% is just the capacity. If I start using about 100 SKUs changeover and things like that, at 80%, 85% the capacity is almost at 100%. And if we have to grow by about 8% to 10% for the next 5 years, then we would need a capacity of at least about, say, 80,000 to 90,000 tonnes capacity. [Technical Difficulty] year-on-year 48,000 tonnes. So we have to factor the future demand, and we need to definitely look at increasing the capacity.

Right. And are your primary targets towards this expansion local markets? Or are you targeting global exports?

Oman will continue to be the center of focus, and then we will also be developing all the [Technical Difficulty] The key focus will happen in Kuwait, UAE, and Saudi.

And how are your margins in local market compared to the international market, the GCC?

It's higher. The local margins are higher compared to the -- our margins because here we have a direct operation and we operate through distributors and [Technical Difficulty]

Right. And do you expect the current level of gross margins and operating margins to continue? I mean -- and should improve, obviously, because of the operating leverage in that region [indiscernible] is increased.

It will be challenging because currently, we are anticipating an increase in bulk raw materials, which go into [Technical Difficulty] so we are not optimistic. We are quite realistic in looking at maintaining margins at similar levels.

So you think that margins will be maintained at similar levels, but obviously, we expect an increase in sales, right? So this should...

Yes, we're looking at top line, and we will work on operational efficiencies to see how the margin levels to deliver [Technical Difficulty]

Would you be kind enough to tell us what are your primary raw materials, what are some of the indexes that we can get there [indiscernible]

Just a second, I think there is some noise in the background. I'm not able to hear you properly.

[Technical Difficulty] Is it good now?

Yes, it's better now.

I was asking if you could help us gain some insights about some of the raw materials that you use, the internationally priced raw materials. I'm expecting it to be soap noodles.

No, soap noodles is not our main material. Our main materials are LABSA, soda ash, SLES and these kind of materials. So soap doesn't contribute a big business for us. It's less than percentage.

AquaPetro business. Do we expect the margins -- what margins are in this business? Are they similar to the Consumer Products division? Or are they higher or lower...

They will be lower compared to the Consumer Products division will have relatively a higher margin structure than AquaPetro Chemical. The only thing is the cost structure could be different between these 2. And therefore, at a net profit level over a period of time, AquaPetro Chemical should be a better contributor than the Consumer Products division.