Ladies and gentlemen, good day and welcome to the Cello World Q2 FY 2024 results conference call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions when the presentation concludes. If you need assistance during the conference call, please signal an operator by pressing star then zero on your telephone. Please note that the conference is recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you. Over to you, sir.
Yeah, thanks, Sagar. On behalf of ICICI Securities, we welcome you all to Q2 FY 2024 results conference call of Cello World Limited. We have with us today senior management represented by Mr. Pradeep Rathod, Chairman and Managing Director. Mr. Pankaj Rathod, Joint Managing Director. Mr. Gaurav Rathod, Joint Managing Director, and Mr. Atul Parolia, CFO. Now I hand over the call to the management for the initial comments on quarterly performance, then we will open the floor for question- and- answer session. Thanks, and over to you, Pradeep ji.
Thank you. Good morning, everybody. A very warm welcome and thanks all for joining our first earnings call post-listing. On this call, we are joined by our Joint MD, Pankaj Rathod and Gaurav Rathod, along with our CFO, Mr. Atul Parolia. The results and presentation are uploaded on the stock exchange and the company website. I hope everybody has a chance to look at it. We are happy to witness a healthy response to our IPO. We want to express our gratitude to all our shareholders for entrusting their confidence in us.
We would like to congratulate everyone associated with our company, including employees, customers, business partners, and vendors. During the H1 FY 2024, our company has achieved a revenue of INR 961 crores, EBITDA of INR 244 crores, and PAT of INR 169 crores. EBITDA margin stood at a healthy 35.4%. This performance is backed by volume growth and improvement in product mix. With this brief, I would like to hand over Pankaj Rathod to take this further.
Thank you, and good morning, everyone. I will give a quick synopsis of our journey so far. Cello World was incorporated in 2018. However, the roots of the promoter family in this line of business go back to the 1960s. Over the first six decades horizon, the promoter family diversified product range and brand portfolio. All the consumer-facing owned by the promoter group have been consolidated under Cello World Limited prior to the IPO. The wealth of the experience has given us a very deep understanding on the Indian consumer preference and needs. We have curated an extensive product portfolio that caters to a diverse range of consumer requirements and offer a broad range of contemporary products across different ranges, size, material, and price points.
Our key brands, including Cello, Unomax, and their respective logos, are registered in the name of Cello Plastic Industrial Works, a Member of the Promoter Group , CPIW. It has granted our company an exclusive worldwide sub-licensable licensee to use these brand names. This license is valid for 20 years and auto-renewable after this term. Further, there is no royalty or brand payment done by Cello World for usage of the brand name. With this, I will hand over Gaurav Rathod to talk about business and growth strategy.
Thank you and good morning, everyone. Just to talk about the business, I'll give you a synopsis of the business and the strategies for further growth. Our product portfolio can broadly be categorized in three verticals. All our businesses are consumer-facing, but we operate our businesses as three key verticals. Namely, consumerware, writing instruments, and molded furniture. Within these verticals, we manufacture varied products such as insulated bottles, dinnerware, pens and stationery, storage containers, glassware, and other products. We manufacture our products at our 13 state-of-the-art manufacturing facilities, which are located in Daman, Baddi, Haridwar, Kolkata, and Chennai. Further, we are adding another location in Rajasthan, which will take care of our future expansion across product lines for the next five to six years. 80% of our revenues come from these manufacturing units.
In terms of channel-wise revenue distribution, general trade is the backbone of our distribution network, and it is well complemented by modern trade, online, and exports. Leveraging our strong brand recall, manufacturing capabilities, vast distribution network, over the years, we have grown our revenues and PAT at a healthy CAGR. The resilience of our business model is evident in the growth that we saw even during the pandemic. Going forward, we are committed to take this brand to new heights. We continue to churn out new and innovative products every year. We have launched various products in the first half of 2024. We have given a snapshot of these in our presentation. The company is also setting up a greenfield soda-lime glass unit in Rajasthan, which will be operational by March of 2024.
This will be one of a kind facility manufacturing various products like tumblers and storage containers to name a few, further enhancing the diverse range of products that the company offers. For this plant, we have earmarked a CapEx of INR 200 crores. On the writing instrument side of the business, our base is currently small and as we cover only 55% of India's geography, there is ample room for growth. Also, currently our portfolio consists mainly of ball and gel pens.
Going forward, we will be adding other related stationery items. In the molded furniture vertical, there is a lot of unorganized competition, so our strategy has been to add more value-added products to our product mix. We have already started this process, and today 13% of our business comes from these products. Going forward, we aim to enhance this number even further. Thank you, and I would like to hand it over again to our CMD, Mr. Pradeep Rathod.
Before I give you the synopsis of our financial performance, I would like to highlight that this entity is a combination of all our consumer wear business of the promoter group. The group restructuring was undertaken through a series of business combinations under control to consolidate the business under our company. However, all the financials for historical years have been restated and are fully comparable. Due to paucity of time, we have taken an exemption of present Q2 FY 2023 numbers. We have already started work in this front and will be able to give all the comparable figures in the future. Talking about our Q2 performance, we recorded a top line of INR 489 crores. Gross profits stood at INR 261 crores with a 53.4% gross profit margin on a consolidated basis. EBITDA came in at INR 120 crores with a 24.6% EBITDA margin.
During the quarter, PAT was at INR 87 crores with a 17.7% PAT margin. Coming to our H1 FY 2024 performance, we have registered a top line of INR 961 crores, of which 66% came from our consumer wear, 17% from our writing instruments, and the remaining 17% from molded furniture and allied products. Gross profit stood at INR 509 crores with a 53% margin. Consumer garnered GP of 53%, writing instruments GP margin was at 58.5%. Molded furniture and allied products has a GP of 45%. EBITDA came in at INR 244 crores with a 25.4% margin. EBITDA margin profile across verticals is also very healthy. PAT margin of INR 169 crores with a margin of 17.6%. On the consolidated basis, the company grew at 9% for H1 and H2.
Though volume growth stands at 13%, the value growth was lower due to the softening of raw material and energy prices, which are the key raw materials for two of our major verticals. Even because of the plastic raw material going down substantially, there was a correction in price in some of our verticals. Also, numbers seems lower as the Diwali festival season shifted from October to November, and the key sales month became October. Q3 will be much more healthier when we see in the coming quarters.
In the first half of FY 2024, the consumer demand was not at the robust level, and it was a little muted, but we are seeing a strong demand coming up. For September, we saw a very good month and I think the second half of the year will be much more robust. The profit margin has stood at around 20% growth in the first half. In terms of the balance sheet and key metrics, I would like Mr. Atul Parolia, CFO, to highlight on this.
Yeah. With permission, see, with regard to key balance sheet and cash flow related metrics, working capital days as on 30th September 2023 stood at 159 days as compared to 154 days as on 31st March 2023. Cash flow from operations for H1 FY 2024 stood at healthy INR 105 crore. OCF EBITDA stood at 23%. Cash and cash equivalent stood at INR 53 crore as on 30th September 2023. CapEx during H1 FY 2024 was INR 107 crore. This year, we expect to do a total CapEx of INR 225 crore. We have a track record of very healthy OCF EBITDA conversion of past three financial years, and this H1 period was no different. In fact, we saw that effect more and going forward will continue to be healthy.
The growth opportunity ahead of us is vast and with such a strong cash flow and healthy balance sheet, we are very well placed to capture upcoming opportunities. Please note that in our presentation, slide 20, sales figure of consumer glassware and writing instruments should be read as rupees in million instead of rupee in crore. With this, we conclude our presentation and open the floor for question and answers.
Thank you very much. We will now begin the question- and- answer session. The first question is from the line of Percy from IIFL. Please go ahead.
Hi, sir. My first question is on the appliances business. Coolers business that you have recently launched. Can you give some idea on that? What are your plans here? Do you plan to enter any other types of appliances also? Why do you think that you can win in this market? Because there are so many other players in the household appliances market. Apart from the plastic being used, what is the commonality with the rest of your business? That is it from me. First question.
Right. We are only into the niche areas, and we are only into kitchen appliances. We are trying to take mixers, induction cooker, kettles, cookware which are restricted to the kitchen. Though it is a crowded place, Cello as a brand and what the consumer. Our key. See, radiator is the same, and even our target audience who purchases this are mostly women, and they have been buying Cello products for various years on other casseroles to lunch carriers and everything because she is the decision-maker. We are getting a good response, and we will only restrict and we will be in the niche area of this. We do not want to enter completely in the crowded area. We are just creating a niche market of a small portfolio, not very large portfolio. It will be a medium portfolio, what we want to create.
Sir, regarding this air coolers that you have recently entered, any comments on that?
Air coolers we have launched much earlier. It was in fact five years before COVID, five to six years back. The air cooler, we did not get a very good response because I think so, this year we are scaling it up again in Wim Plast, because that's a vertical which is in Wim Plast Limited, one of our subsidiaries now. We did not have much deep pockets over there to put in full strength. So this year we are launching it in a full way, and I think that's a very aligned product because wherever our furniture sells, the cooler are sell because mostly rural area and there are only six states of operating: Rajasthan, Delhi, Punjab, Haryana, some part of Odisha and Andhra and Telangana.
Okay. So there is no plan to get into any other household appliances like fridge or AC or anything like that.
At present, we are not looking because we have a quite a big basket for the next two years. All the verticals and all the product lines where we are thinking we have a good scope of growth. Post two years, we would definitely think on some lines which are adjacent to our product which fits in our company's portfolio.
Right, sir. My second question is on household appliances. Can you give some idea on what will be your growth driver here? Because my understanding is that the market growth is, of course, decent, but it will be like a low double digit kind of growth here. Is it market share gain from unorganized, or do you see any other organized players which are weak from which you want to gain market share? Or is it a distribution expansion story? What is the driver of the growth here?
Hi, this is Gaurav here. I think on the appliances front, we have a very small base till now. I think so comparing and taking market share is still a little far away. As you mentioned that we are in niche category, and we want to operate in that category. We look at the appliances and cookware as one complete vertical, and we wish to grow this in the niches that we have spoken about. We play on our strength, which is our plastic capabilities as well. We have enough molds that we are able to work with. That differentiates us from the market a little bit. I think here again, niche is our mantra, not the mass market.
Just from my understanding, Gaurav, in household products, you have the bottles and the casseroles and all that. You already have a pretty sort of well-diversified product portfolio, and these products have been there in your portfolio since many, many years. Do you think that product portfolio sort of expansion is the sort of route to growth? Because that doesn't seem to be the case looking at your product portfolio. Most of the segment that you would want to be there are already players since many, many years.
I think we have always grown our segment or vertically. If you look, we entered into glassware as well. Again, these are all consumer-facing businesses. Glassware was a recent venture, which is only about five years ago. I think that is how we have been increasing all the time.
I mean, glassware, I understand it's a new venture and there is definitely a ramp-up there which is happening. Next, glassware is a homeware division. I was asking about that.
Glassware is also a part of homeware only. It is basically one vertical put together because they go to the same household and the buyers are the same. Also, the retail outlets are very similar. I think when we compare as a basket, the whole consumer wear needs to be looked at one vertical rather than looking at it separately. There will be of course product lines which will have saturation at point of time, but then we have always expanded horizontally into different verticals or different product lines. I think within the consumer wear is a very vast product array that we offer, and that is why we keep on continually growing horizontally.
Sure. That's all from me.
If that answers your question.
Yeah. Thank you very much, Gaurav.
Thank you. The next question is from the line of Ankur Sharma from HDFC Life. Please go ahead.
Yeah. Hi, sir. Good morning. Thanks for your time. While you said there was a 9% growth overall in the first half, possible to also share numbers for Q2, how would each of these segments, glassware, houseware, pens, and the molded foam, how would each of those have done for Q2? I understand obviously they would have been a same shape because of festive. Yeah.
Our consumer wear in Q2 had done around 67% of the revenue. Writing instruments 17%, and furniture and allied around 16% of this 19%.
Sorry. I meant on a YoY basis, sir. On a year-on-year basis. I have the-
This year, because we did not have the Q2 figures consolidated, because the writing instruments and Wim Plast came into the company and got consolidated post-October in the third quarter. So the numbers are not similar on that line. Because of the time constraint, which I had put in my first message itself, we could not go back into the index, because all the new figures I am giving are index return, and we did not follow index that time. That is why it is not 100% comparable, and that is why I said it is on the level of 9% growth.
Okay. Fair. Understand.
Going forward, definitely we will give quarter- on- quarter because it got listed on 6th, and then going back to the index. When we go index, we have to go with the auditors, and it takes a long time. That is why we took an exemption, and next quarter will definitely give quarter-on-quarter.
Okay. If I remember your remarks, Q3 seems to be doing reasonably better given sales shift into October.
If you see our profit growth, which what we have compared within ourself on segment is around 20% growth. Going forward, October, because it was the main month for our festive season of sales, it shifted from September last year to October this year.
Yeah.
This quarter seems, and the last quarter because of the summer season and is very robust always, mostly, historically also.
We think it will be much better than what it is. I think so it should be more than 20% growth over in the second half.
Well done. Okay. Well done. Second, sir, on this new soda-lime glass factory, which is coming up from Q4 in Rajasthan, if you could help us understand how much sales can be generated from here, what kind of products that will come from here, will margins be similar to the existing glassware businesses? Is there some more color there on the new plant?
Hi. Actually, yeah. So basically, this facility that is coming is about a 25,000 ton capacity, and we would have capacities of up to INR 230 crore. That would be the revenue that can be expected from this plant. Overall, yes, margins will be similar lines to our current glassware units.
Okay. And this would be mostly import substitution of existing imports of such glassware, is that right?
Yes. Majority of it will be import substitution because this is like one of a kind facility in India. So it would be the first of its kind. So mostly import substitution.
Okay. The market is there. We just need to see the. Lastly, sir, on the pens business, I obviously understand we have had a very long history of running pens and doing it very well. If you would just help us understand how do you see this business growing. I know we have scaled it up very well in last two, three years. But how is the growth trajectory? What are the new products you are looking to introduce, geographical expansion? If you could just give us a few pointers on how you see this segment going. Yeah. Thanks.
Sure. I think I can give you a brief. In fact, we started this writing instrument with a new brand, Unomax, in 2019-2020.
Yeah.
There was a COVID just after two months after our launch.
Yeah.
Even out of that, in the last three years, we have scaled this business from, till last year we had done over INR 285 crores. So from zero to INR 285 crores in three years. This year in the first six months have been good months comparatively. Now we are expanding our range, as we have already said, that we are mainly concentrating on the gel pen and ball pens.
And of course, there are other products with it. We are going to now get into more stationery product also, and also increasing our range within the gel pen and the ball pen, which I feel, and even our reach in the market today is much lower because we wanted first to grow, because we were growing at a very fast pace, so the capacities and everything were a little constrained. Now we have already put up a second plant, which is already started last year, which has a lot of capacity, which will be consumed in this couple of years. We are increasing our distribution network. So we are getting now more into two and three tiers cities also where we were not before.
Our retail network is still very small compared to the size of the market, which we are bringing up. So I think it helps the overall distribution network. Growing the distribution network and the new product, we are very confident that this business for us from this base to grow at a healthy rate pace for the next two to three years should seem very good. Yeah.
Okay. Okay, sir. Great. Thanks for your time and all the best.
Thank you. The next question is from the line of Pallavi Deshpande from Sameeksha Capital . Please go ahead.
Yes, sir. Just wanted to understand, earlier you mentioned about the 20% growth, so that would be for the second half year-on-year or you are looking at half on half?
No. This half, second half.
Second half. Okay. First half was approximately 9% and second half, 20%.
Right.
Right. Secondly, we would be missing the guidance we had of 20%-25% for the year?
No. As I mentioned, because of softening of the price, our price correction was in the range of around 5%-6%.
Right.
The raw materials, our major raw material, which is plastic, has gone down by 22% from February of 2023 till April, May, and now further it is softening. The price reduction definitely will have to pass on to an extent. That’s why if you see our gross profit margins have increased in all the sectors.
Right.
That’s why it looks muted. Volume growth, if you see, we will be achieving around 22%-24%. Mostly first quarter, first half, even the consumer sentiments were not that very high.
Right. And so going ahead, if you maintain the 525 onwards at the same 22%?
Yeah. So we are very sure on our profitability figures and everything what we have given. I think so we will definitely achieve that.
Right. Thank you, sir. I will come back again.
Thank you. The next question is from the line of Mr. Achal Lohade from JM Financial. Please go ahead.
Good morning. Thank you for the opportunity. Sir, just a clarification. You said 9% growth YoY for the first half. Is that for the company as a whole or just for the consumerware business?
For the company as a whole.
Would you be able to give a sense with respect to how much would be for consumerware and how much would be for the writing instruments and on the molded furniture?
No, molded furniture did not grow in value because there when the raw material goes down by 22%, I think they have to pass again 16%-17%. So in fact it is a little minus on the value side, though the volume growth is very good over there.
Okay. What about the consumerware?
Consumer wear grew at around 7%-8%.
Okay. And what--
Again, here there is a correction of around 5%-6% and one month shift of our Diwali month being major in October. Last year, September was the peak month.
Right.
This year it is in October. Writing instruments grew at a healthy 24%, 25% top line.
Consumer wear, 7%-8% is the value growth for quarter first half?
Volume growth would be around 13%-14%. That too, again, is because of the month-
Correct
...change to October. Otherwise, it would have been in the range of 17%-18%.
Okay. Like you said, 20% growth YoY for the second half. Have I understood right?
Yeah.
This is second half to second half YoY, right? Not quarter to first. Okay.
Second half to second half YoY.
Sure. Sir, one more question I had, in terms of the margins, and obviously we have been taking note in terms of across segments margin performance. How do you see it from here on? Do you see these shining margins or we will keep margin probably stable and push harder on the growth? How do we look at margins for each of these three verticals?
Margins would be stable. Definitely, we are at a very good level of margin, and I do not really want to comment where we will grow from here. We would like to maintain. If we compromise also in future, 1% or 2% , definitely that will only push the growth much higher.
Right. In terms of the new categories, you mentioned about the appliances part of it, more so kitchen appliances, if I heard you right.
Right.
Would it come at a substantially lower margin, given it is far more competitive, a lot of existing players being already there for decades. Is that what you are hinting at when you say 100-200 basis point margin compression only for these new categories? Have I understood right?
This is a very small vertical at present.
Right.
If we do at any margin, it would not affect too much at a consolidated level.
Right.
For the growth, it is a very small basket. We want to grow that. It is at a healthy margin only we want to go. That is why we said we want to go into this area. Because the expenditures on sales and all are much higher, interest, I think for the time being, we are seeing a little muted percentage of profit. But going forward, I think so we will take to a very healthy level, and we would like to operate on that healthy level margin only.
Right. Understood. With respect to the glassware business, can you help us understand what is the total industry capacity at the moment? And I would presume that your capacity has to be 90%, 100% in order to run it. It has to be run continuously for a couple of years or three years. Do you see a risk of price correction, price reduction, given if there is a risk of overcapacity in the short term?
Right. This is Gaurav here. Basically, I think in the glassware side, we operate in two verticals. One is the Opalware and the new vertical that is the soda-lime glass which is coming up in Rajasthan. On the Opalware side, I think the number of players are few in the market, and there is a very huge deterrent to entry. All the three players that are in the market are good size, more experienced and mature players. I do not see any problem on that side.
When it comes to the soda-lime glass, basically it is more of import substitution. We would be the first ones in India to put up a facility of this kind. It is still at a very small revenue. Today the market is quite substantial when it comes to imports. We just want a small pie is what we are eyeing for in that particular market. I do not see any problems reaching those revenues in a very short period of time.
Profitability
When it comes to the profitability also, we don't see any compromises. There has been expansion of capacities everywhere, even when it comes to Opalware. But even after that, the margin seems to be healthy.
Got it. You mentioned about 13% mix from the value-added product. A, how we have defined this value-added product, and B, this 13%, what is the outlook over next three to five years? Could it be 25%, 30% or could it be more towards the 18%, 20%?
This is on the molded furniture side what we said, 13%. It is from our lifestyle products what we have started last two years back where the product is more value. When you see there is a difference, you will definitely see. It can go into households more than being only for outdoors like small eateries and this place, where we get a good price when the product is good. It's a little difficult to manufacture even out of raw material, which is recycled and all, because the strength has to be much better, the looks are different, the colors are different.
This value addition is giving us a better margin. If you see in Wim Plast also in the last two years, we have scaled our profitability up in percentage terms compared to any of the peers in this. We aim to take it to 25%-30% over the next two, three years, the mix of the product, where our lifestyle and better products would be a mix of sale of around 25%-30%.
Understood. In terms of the capital expenditure for FY 2024, I think Atul Parolia mentioned about INR 225. How do you see FY 2025, 2026? What kind of annual CapEx would we look at for next two, three years?
If you see, except our glassware which is a high CapEx vertical, our writing instruments, consumer wear, non-glass, doesn't have a very high CapEx. So that we have been expanding over the years because the ratio from CapEx to turnover is around 7x . So whatever we want to scale over the next three years, if you can see, for the company of this size, it will be a negligible CapEx, around INR 40 crores- INR 60 crores a year.
Right. So the question that was in mind next was, how do you deploy the cash flows given the kind of significant cash flows we're looking at annually? How do you see it in terms of dividend or the payout?
For next one or two years, the company, we want to use all our money to grow. So the glasses plant, when we start, it even needs a lot of working capital. And even there, we are aiming to grow at 20%+ CAGR over the next three years. One is the CapEx side, the other is the working capital side. And we would be looking, if you see historically also one of our listed company, Wim Plast, we have been regularly giving dividend at a good level, and we have maintained that for last 20 years. So scaling up is too early. We just got out of the issue, and definitely we have a policy in place for a really good dividend policy.
Got it. Just one small clarification since you raised a topic about working capital. Our receivables are probably one of the highest in the peers. How do you look at this? Do you see utilizing the likes of channel financing, bill discounting to reduce this? Are also cutting the credit to the trade partners.
A little bit we will cut it. There are some places where we are really giving it high because they are old associates with us, and where we were a little comfortable. Channel financing, yes, we have cut it a little bit. But we do not want to go fully aggressive on that, because I think for this kind of business and what you see the profitability is because my good products which are slow-moving, which do not move very fast, are always, they maintain that stock.
The turnaround for that product in their warehouse, also the distributor's warehouse, is a little slow. That's why the payment is late. Otherwise, it is not. If I do not want to sell that kind of product, and I want to sell only me-too products like everybody sells, the margins get disturbed. That's why a little bit, from last 25 years, we have been giving a better credit period into the distribution, and that will help the company. We would not like to really disturb it to a larger extent. Yes, definitely, we will discipline it to a better level.
Got it. Thank you so much, Pradeep ji, for the answers. I will come back with you for further questions. Thank you.
Thank you. The next question is from the line of Yash from Stallion Asset. Please go ahead.
All my questions are answered. Thank you.
Thank you. The next question is from the line of Keyur from ICICI Prudential Life Insurance Company. Please go ahead.
Thank you for the opportunity. The question is on the growth that you mentioned for the second half, 20% growth. That is what you are guiding for the revenue growth, if I am not wrong. Right?
Right.
So, by the way, in H1, we have seen that margins are higher because of the lower RM prices. Now, should we assume that the profit and growth would be higher than the revenue growth in the second half? Would it be fair to say?
Sure. For at least this six months, I am very sure.
In the second half. Right.
Because of the raw material pricing softening up and a little demand being opened up in the market, but better than what it was in H1. And now we have the raw material, which is fully down almost. We are at a stage where we are now saturated in going down further, and we have raw materials which is already booked. So for the next six months, definitely we feel that whatever we grow, the margins will be above that in percentage of things.
Okay. Also if you can share as to how the festive was per Diwali. If you can share what it contributed, that could be helpful. That is second question.
Sorry, I couldn't get your question.
So, post the Q2, in Q3, that is October and November, how was the festive season, if you can share, if you can give idea about how good or bad the festive season was.
Yes. The festive season, that's what October was a very good month, definitely. And November seems good.
Okay. Just last question. As you start your glassware facility in Q4, that being a higher margin product, and since we are doing import substitution, on manufacturing also, we will save some margin, save some cost. Should we assume higher gross or operating margins in FY 2025 versus FY 2024?
Sir, once it starts operating in the first year, the entire furnace, which can give us a turnover of around INR 275 crores per annum will not be achieved because there are a lot of SKUs, and by the time we launch the locally produced material in the market, it would be around a quarter later. The depreciation EBITDA levels, yes, definitely will be much healthier from this year to next year. But the EBIT level would get over the next one or two years. Because of that particular thing, we will be operating on a higher field. That is definitely there. But because of the glassware, for the time being, I think we will get a little muted also next year.
In terms of-
EBITDA would increase. Our depreciation would be very high next year once we start this furnace.
Sure. I understood. Okay. Thanks a lot and all the best.
Thank you. The next question is from the line of Praveen Sahay from Emkay Capital. Please go ahead.
Thank you for taking my question. First question is, sir, related to your CapEx that is related to the glassware capacity expansion. Just a clarification, total CapEx is of what, INR 250 odd crore and capacity would be around 25,000 tons?
The total CapEx would be around INR 200 crores. INR 250 is the total layout what we have made over there in Rajasthan. There would be another product line of the company also being started later on over there. The CapEx for glassware particularly is INR 200 crores.
The potential revenue is INR 50 crore.
INR 275 crore. INR 250-INR 275, it depends upon the product mix.
Okay. My second question related to the capacity is only, you have 79% of your revenue in the first half were in-house manufacturing. If I look at capacity utilizations for each of your verticals, consumer is more than 80%, writing 68%, and molding is 17%. How to read this? Every year you are going for a capacity expansion in each and every vertical, and what level of utilization is the maximum you can grow in each vertical?
See, first of all, in writing instruments, the capacity utilization was 50%-70%, whereby we are growing very fast, so we just have to add some machines because the mold capacities are already there. With some of the molds, we do add new products into that. Even in our consumerware, it is just by adding machines, we do not have to create a facility. Unlike the glass, the way it is, you have to put a furnace which is 25,000 tons or a 20,000 tons. You cannot just get in by expansion of 10% more, 10% more. You have to grow, either it is 50 and then 100 or maybe it is 150. This is the way the expansion goes in. The utilization also changes a lot because of the raw material pricing.
So we normally, when we were given this utilization level, it was always based on volume. Volume is not the parameter what we look normally into our business sense. We look as a value. If this is my unit should make approximately, this is the value of material it should make in a month. Because we would not give value. The right specification is the value what we can produce. So every plant, we have a value-based plant, and in glassware, we do on a tonnage basis, how much ton of material we have made in this month and what is our capacity. Except that actually the capacity utilization is only on a base historical thought. It is not exactly because the value might change a lot.
If I change the raw material from one to another, if you're making from a PET to a Tritan, the raw material price will double. If I make the similar bottle into that, the machine is same. My value will go double than 2.5x of what I was selling the bottle which was made out of another material.
These are very low CapEx on this. This was never a constraint for the company, and it would not be in future also, except the glassware where we have a higher CapEx every time. At one go, we have to do a higher CapEx to put the plant. In our writing instruments, in our consumer wear other than glass or in molded furniture, the CapEx is not very high, so the ratios really do not matter a lot.
Okay. Also similar to your molded furniture business in which 13% is value-added contribution, can you give for the other segments as well?
Sir, no. Molded furniture per se was lower side. Others, we operate at a very decent margin only if you've seen historically. Even in our writing instruments, if you compare last year, our EBIT was around 23%, which was best in the industry, and still we are not in the top three.
Okay.
Molded furniture per se, where we really want to go into value-added products because we were basically, and we have a competition which is unethical because of raw material which is used from recycled material. And that competition we cannot face because it's not apple to apple, right? And that's why we want to shift our portfolio to a category where it cannot be produced from any recycled raw material or where the brand definitely comes into picture, where the price point is very high for a buyer.
Mm-hmm. Okay. Sir, next question is, how much is the plastic product contribution in your top line? Ex of glass or appliances?
Sir, the reason we have already given, but we have not kept in that way because we have got it in three verticals. Only consumer wear space maybe have this, and we have given the gross margins definitely on the consumer wear business.
I think it is when we compare plastic, we are actually across materials. We have product lines where we have a plastic bottle, but we have a steel inside it also. I think comparing exactly, we are no longer a plastic company. It is very difficult to define the amount of plastic that goes into because there are glass products with plastic lids. I think plastic per se, is very difficult to define anymore.
Okay. Or if you can give how much the appliances contribute to your business.
Appliances today is a very small vertical for us. It is only about INR 75 crore of the turnover this year will come from that. It is a very small niche line for us at this point of time.
Okay. INR 75 crore in FY 2023.
2024.
Okay. That is the expectation you are saying?
That is the overall expectation what we have achieved almost in the first quarter of this current year.
Okay, great. If you can give some color on the seasonality of each of the products. Like as you mentioned, overall second half is expected to deliver a very high growth compared to the Q1. You had highlighted that October is the heavy month which shifted because of festival. So each verticals if you can give some, like how is the seasonality throughout in a year?
I will start with the writing instruments which we addressed. Back to school time is a little higher scaling up in the demand. So our January, February, and March quarter will be a little higher. April, May, June also. No, sorry. June, July also. No, April, May, June, right? April, May, June.
April is low.
April is low. May, June are very high months, so that quarter is good. Going into our consumerware business, definitely festive season gives a spike of around 4%-6%. So in the 12 months, if I divide 8.33, I think our Diwali two-month period would give us 1%-22%. Other than that, it's not very strong seasonality. Summer, we have a spike because of our bottles and water jars, because it's a longer season. It's almost two and a half, three months. And back to school also falls into the same.
Okay. Great.
We don't have a very high seasonality where sales come to 5% and then go to 15% in the second half.
Okay. A question on the distribution, as you also mentioned in your presentation, general trade contributes on the higher side, 75%, 76%. Way forward, we are going to maintain such kind of numbers, or we are expecting modern trade and et c to contribute more?
Modern trade, again, now getting established. If you see, there were very few retail companies in India. One of the biggest, which could not sustain and got closed. Now, again, it is getting up. Earlier, modern trade had a problem of pricing always, and now they have understood the game also. Even we need some brands. Without pricing, with only pricing will not be able to be a good store. The metrics will definitely change.
Our general trade over the next two, three years would be around 70%. Our online sales will go from 9% to 10%, what it is today, to around 12%, 13%, and similar, from 5% of our modern trade will go to 7%, 8%. Our export will be from 8%, 9% to around 10%, 11%. That's what is the target, what we are looking at over the next three years.
Okay. Just lastly, sir, one clarification on the license for 20 years. Can you elaborate further, like how much the amount is and how this structure is actually?
The brand is registered in one of our partners' company, where the promoters are 100% partners over there. We have licensed this from Cello Plastic Industrial Works to our company for 20 years, was the first thing, and conceptually it can be automatic renewable. It is an exclusive license with Cello World Limited, and none of the consumer items can be even manufactured by the promoters who own the brand as a separate company outside the company.
That's good.
There is no royalty, and it is on auto-renewal, so you can assume that it is a perpetual license which we have got for consumer spaces across.
How much amount paid for this?
No, we have not paid anything.
Okay. So there is no outflow of money that we are having for 20 years, and that will auto-renew.
Yeah.
Thank you, and all the best, sir.
Thank you.
Thank you. The next question is from the line of Jagreet Singh from Shade Capital. Please go ahead.
Jagreet, thanks for the opportunity. My first question is related to the writing instruments. We have done an amazing work from INR 0 to around INR 300 crores in four, five years when we launched Unomax. How much we are doing from exports and how much is the domestic, and how big is the export opportunity for Indian players?
We are now almost four years after launching the new brand, Unomax, 2020. Last year, we had a turnover of INR 25 crores. Out of that, 40% was export and 60% was domestic. I feel even in this year, I think 35% would be export and 65% will be domestic. Going forward, we feel that maybe we will have a 30:70 ratio going forward.
But sir, how big is the export opportunity? Is there any like China plus one in the writing instrument?
What? I didn't get you. Hello?
Hello.
Yeah, I didn't get you with the last. What you said?
Sir, how big is this export opportunity? Is there anything like China plus one in this writing instrument?
You mean to say the number, what we did last year or this year? What is the size of the market?
Yeah. How big is the opportunity for Indian players for the export?
The size of the market is huge because if you see the world market, it can be like an INR 40,000 crore, INR 50,000 crore market all over the world in writing instrument. We are just a very small part of this. It is about INR 150 crore export maybe this year for two. It is very negligible. There is a lot of potential of growing in this market, yeah.
Okay, sir. There is this company in the writing instrument area around INR 100 crores of revenues.
Sir, you have to use the handset mode because there is an echo coming from your side.
Yeah, sure. Hello.
Yeah, much better.
Now it is clear, sir?
Yeah.
Sir, in the writing instruments, Flair is a tech company doing around INR 1,000 crores of revenue. Even then, our margins are higher than the player. What is the main reason? Is this because we have more exposure to lower advertising cost or what is the reason for this?
No. We basically operate in a category which is above 10%. We do not do below 10%. This is one of the reasons, and also our product mix and our pricings are better than the competitors. Because we add more value products instead of getting into those lower-end volume products.
And sir, in the Opalware side, largest and the oldest player have a very high EBITDA margin around more than 20%. So our Opalware business also can do at some point these kind of margins or we have as present of these kind of margins Opalware revenue?
I think we already do similar margins to our competitors. So I think we are not far away from that anyways.
Okay. Is there any thought on the merger of this B class because now we are holistic companies. So any thought on this merger?
Over the time we will definitely take it into consideration.
Okay, sir. Last question, sir. We had good news in the last five, five years, and one is the writing instrument. We have done a zero to around INR 300 crore, and second is the Opalware. All two years we have did very good. Any other product lines where we can do this kind of new category, where we can do this kind of scale?
First of all, our new plant for glassware is coming up. Though it is a glass, opal glass and glass, but it's completely different at end use. That has a huge potential, and I think for the next verticals what we have at present has huge potentials. For the next two years, the glass plant and opal expansion and writing expansion, we would like to concentrate much more on that to become into top-level plant. Porcelain is one project which is coming up, which is almost due to be launched in January, where we will have more of hot drink wares and dinnerware.
Okay.
The company has a lot of verticals which we have already started in the last three to five years, and this needs to be scaled up. We have a lot in our basket already to perform and consolidate that on a higher level and maintain our profitability or grow from there.
Okay. Thanks a lot, sir.
Thank you. The next question is from the line of Karan Bhatelia from Asian Markets Securities. Please go ahead.
Hi, thanks for the opportunity and congrats for a good set of numbers. Am I audible?
Yeah. Sure.
Yeah. Sir, how is the capacity ramp-up going with respect to our expanded capacities on the Opalware as of now?
Opalware, we have already expanded our capacity. It was done recently in August of 2024. It is now in full capacity mode.
Right. Do we think benefits already on volume and on profitability side or we need to see the full benefits?
We have seen already, but I think it needs to be even. It will be better in the next coming H2.
Right. Thanks for that. Then also with respect to our Rajasthan facility, we will be having 50,000 MT. Do we have sufficient land parcel if we have to further expand that if the demand for glassware increases all of a sudden? Do we have enough land parcel at Rajasthan for glassware and for Opalware at Daman?
I think we have. Yes, we have a pretty big land parcel. All our expansion, whether it be glassware, plasticware, anything, for the next five to six years, we have enough land parcel to grow all our verticals.
Right. You did mention of a 20% kind of value growth from second half. Any color on how, with respect to first half and second half growth, like a second half growth on the picture of first half, what is the outlook over there? We do not have second half numbers of last year.
If you see the first half of this year, we have done around INR 9.8 crores.
Right.
Full year last year was INR 1,796.
Right.
I think so it would be clear from the historical and what we have achieved over here, how would the second half look if we are assuming to grow at 20%.
Right. Okay. Just to remind. Thanks.
The next question is from the line of Deepesh Sancheti from Mania Finance. Please go ahead.
Hi. Am I audible?
Yes, sir. You are audible.
Okay. Congratulations on the IPO and the strong listing. Just one question about going ahead, what will be our growth drivers? Will the expansion coming from glassware and Rajasthan will be the only growth driver, or there will be an enhanced capacity utilization as well as CapEx in other consumer wear, writing instruments and molded furniture?
Definitely we want to scale up in all. As we already mentioned, writing instrument is a small vertical business started three and a half years back, right? That has a lot of expansion. And we have already created new capacities within writing instruments. Our consumer wear, glassware, and Opalware, plus the other products which are the main line of the company, insulated wares and all. We would definitely grow at a healthy pace in that also. Glassware could be a major driver. Writing instruments also can be a major driver to that. But our other consumer products also could grow at a very healthy pace. So when we are assuming a 20%, it won't be much different in growth rate.
Going ahead in FY 2025, we will be growing at a faster rate because of the glassware also coming into the sales.
Yes, definitely. It will help further grow the numbers.
Just one question. Cello World, we are getting at a price to earnings at around 60, whereas our subsidiary, Wim Plast, is getting a price to earnings at 15.5. A merger will actually enhance the value for the company as well as the shareholders. Has the management thought of that prospect? Because this will also help you reduce your shareholding to 0.75%.
No, definitely. Earlier also, I answered this question. We will at the right time definitely would like to do that. But I think so it would be unfair to comment or I don't think so directly I can give you the details on this call particularly. But once we have the approval of the shareholders and all, then we will definitely look into that.
Okay, sir. Thank you so much, and congratulations again. Take care.
Thank you.
Thank you. The next question is from the line of Manav Vijay from Deep Financial Consultants Private Limited. Please go ahead.
Yes. Thank you very much for the opportunity. My first question is regarding the writing instruments division that you have. Could you please mention what is the capacity that you have and what is the utilization that you are doing right now over there?
Yeah. Last year we did around about INR 285 crore in writing instruments. We have a capacity which we put over last year with the second plant, in terms of volume, we can do INR 550 crore. I think that will be good enough for the next couple of years. Yes.
Okay.
We have already started the second one, so the capacity is not a problem even as we grow at a healthy pace.
Okay. On the current plant capacity that you have, you can do around INR 550 crore of sales, and there is no further CapEx yet.
We have to just add some more machines, that is all. The land and everything, building and all the other products all are in line. Just some more new machine will be added as the growth is every year.
Okay. Sir, second question is regarding this segment only. In response to one of the earlier question where the difference between the gross margin and the EBITDA margin was asked by one of the earlier participants, it was mentioned that we do not operate under actually INR 10 price, and the reason why we have the margin actually slightly better. For us, what is our average selling price that we realize at the company level?
Our minimum MRP of the product is INR 10, and it goes to, say, a metal pen, which are almost INR 200. Also, it's a difference is that we always choose a product, even in the category, to be commanding a better price because of our quality and because of our product demand. It's not just the MRP, but also our net realization through the competitor is higher. We operate in a more innovative way in terms of the distribution, which gives a better margin. Second is also, we don't operate into lot of categories. Like, say, there can be a very example. There can be a sketch pen which can be sold at INR 12 for 10 pens, but we are selling our coloring pen at about INR 150 for the same product. It all depends on the product model is there.
We are growing with a more profitable business than just putting numbers. After that also, we have a strong market to grow in this category. Like in the last three years, you can understand that we have scaled up this business from INR 0 to, say, INR 285 and this month also we have grown very healthy. I don't see that we want to grow at a more value-added product rather than being on just a mass market where we don't see any value.
Okay. Is it possible to share the average selling price which is realized at the company level?
Yeah. It's almost like every INR 6.5-INR 7 . Maybe less.
Yeah. INR 6.5.
Yeah. Because maximum is INR 10 and then above. So it will be like somewhere at about INR 6 or something.
INR 6 .
Yes.
Okay. My second question is regarding the Opalware capacity that you have done. So after the expansion, what is our current capacity? On that capacity, what is the sales maximum possible sales that you can do?
I think the standard capacity by about 10,000 ton and the maximum total sale that is possible now is in the range of INR 400 crore-INR 425 crore, is what we expect from this one.
Okay. At this kind of a sales, what are the gross margins and the EBITDA margins that are possible?
We have already given the segment. The EBITDA margin would be in the range of around 27%-28%, 27%-28%.
Okay. The gross margins of around 53%-54%.
The gross margin, particularly in Opalware, is different. We have given at the consumer level or at a consolidated level of 53%.
Okay. Sir, maybe just one question that I have regarding your consumer division. Over there you have Opalware, you have appliances, and you have other kitchen instruments.
Including the glass and vacuum glass.
Vacuum glass. Yeah.
Glass is there?
No. Vacuum glass, steel vacuum glass, normal vacuum glass, lunch carriers, buckets to storage containers. There are many vertical end user, I think more than anything you can have. There is a lot of products in that.
That is our resilient business.
Hello?
Okay.
I hope you wanted this. Was it on the same line what you asked?
What I am asking you is that in your current consumerware segment, you have Opalware and you have appliances, what you do not have is the glass.
Glass, to an extent of import, is already built in in the Opalware business. Because we started importing a little bit glass to have the feel of the market before we were putting the plant.
Sure.
What are the products? That is what we started importing, just to have the feel to what are the products we could manufacture when we start this plant. Because mold, plant is one and then what type of product, every product has to have a different mold, and the design and all. We have to make the molds. We wanted to have the feel, so we started importing to explore market, what we did over the last 2 years. Then we will convert that into our production locally.
Okay. My last question is regarding, sir, in glass, where you mentioned that you are putting up this capacity, and this capacity can do around INR 250 to actually INR 275 crores of sales. What do you think is possible in terms of in how much timeline you can reach this desired sales number?
These numbers, it is a continuous plant, and I think we have thought it in that aspect. So maximum in one to two years, 2- 2.5 years, we should achieve that number.
Okay. Gaurav , I think, sir, this will be a continuous process. So you will run the plant actually at full capacity, and you will continue to build the inventory till the time you will have the desired market. Is that the right assumption to make?
Yeah, that is correct.
Okay. At that full capacity, what kind of margins are possible?
We are looking at similar margins as we have in Opalware.
Okay, perfect. Wishing all the best. Thank you.
Thank you. The next question is from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.
Just wanted to understand something. What would be the glass revenues in H1 for us within consumerware? INR 633, it was there. Second would be, what would be Milton's capacity on the soda-lime glass side?
Milton is not manufacturing any soda-lime glass.
Okay.
It is 100% on import base. I do not know what are the figures accordingly.
The lunch boxes, they use the soda-lime glass, right, sir?
Sorry?
The lunch boxes, they use the soda-lime glass. Is that right?
No. Soda-lime isn't a vertical. Soda-lime is basically, you can say, a name. Normally it is drinkware, containers, and everything what comes out of it as the end product.
Right. Yes.
Soda-lime is a material name.
Right. Got it. And sir, what would be our revenues in the first half from glass region?
It is there in the consumerware completely because from a little competitive edge, we are only giving at the gross margin levels. Because we see all our businesses are consumer-based business as we earlier strategized in that way. Some of the figures, definitely, I can discuss with you on this, but we do not want to report into segment reporting. It gives a lot of insight of the company to the competitors.
Right. Got it. Thank you, sir.
Yeah.
Thank you. The next question is from the line of CA Arun Maroti from Subh Labh Researc h. Please go ahead.
Yeah. Am I audible?
Yeah.
Yeah. Congratulations for the good listing, and thanks for the opportunity, sir. My question is with regard to the borrowing which you showed in the balance sheet. You have a good amount of loan from the related party. So some color on that going forward will be very helpful.
Oh, sure. Related party was when we consolidated all our companies into Cello World, the promoter sold their partnership companies into Cello World. And so the money required by the company, as which I've explained, again, it is a loan which is created by the transfer of asset, which will be paid back to the promoters in next three to five years as the cash flow of the company happens.
Okay. On the Opalware capacity side, if you can share the current capacity utilization on that.
Current, we have just expanded our capacity in August of 2024. Basically, currently are at 60% of that capacity utilization.
Okay. What is the expected timeline for the utilization of the 100%?
About one and a half year, we should be completely utilizing the entire capacity.
Okay. That is good, sir. On the marketing spend side, as we have the brand ambassador, Mr. Amitabh ji . What is the duration of this contract and what are our standard marketing spend percentage of revenue and going ahead?
Yeah. Amitabh contract is like we review every couple of years because he has this thing that he reviews agreement every year. Almost all the production and all the advertising, TVC is all being made, and whenever we require, we will use him again. But our contract is like automatic renewal every year.
What is the sustainable percentage of marketing spend of the revenue?
2%. With this kind of volume, 2%, 2.5% would be a good sign of-
Going ahead also it will remain same?
Yeah.
Okay. On the online sale, if you can share the number, what percent of sale we are getting from the e-commerce?
Currently we are doing 8% of our revenues from our online business which we are trying to scale it up to about 10%-12%.
Okay. Thank you, sir. That's it from us.
Thank you.
Thank you. The last question is from the line of Karan Bhatelia from Asian Markets Securities. Please go ahead.
Sir, you did mention of getting more aggressive with the stationery ware side of the business. Sir, if our realization on pens is INR 10.5, what would be the average realization for stationery ware and how it can change the blended margin profile going forward?
Stationery will be a little, depend on what kind of stationery. Since stationery is a category, the price points are little higher. Maybe the average realization, but that still compared to our business, we still feel that our writing instrument will be 70% of our business in future and 30% would be stationery. Even if the stationery product prices are higher, maybe in terms of the changes in terms of per product realization will improve every year because we are also adding more value products. We are adding more above INR 10, like INR 20, INR 30, INR 50, INR 60, all these ranges. Maybe the price point will move up in future. That's the whole idea of getting into higher end product. Major volume will come from the mass product, but around INR 10 product. Definitely we are moving towards higher price point.
Right. With respect to margins, are they substantially better compared to the writing division or it's almost at par?
We are almost at par, yes.
No, sir. Going ahead, I am saying-
Yeah. We are already at a very healthy margin, so maybe we will continue this thing.
Right. With respect to domestic export, it will be again 70:30 or it will be more on the domestic side?
30% will be exports and 70% will be domestic.
Okay.
For the next two, three years, this is what we are looking at, yeah.
Okay. Thank you. Thank you for this clarification.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you everyone for joining today's call. I hope that we were able to answer your questions satisfactorily. If you have any further queries, please contact SJR Investor Advisor, the relation advisor. Thank you, and thank you to all.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.