Responsive Industries Ltd

Before we begin, I would like to point out that this conference call may contain forward looking statements about the company, which are based on the beliefs, opinions and expectaƟons of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainƟes that are difficult to predict.

I would now like to hand the conference over to Tushar from Ventura SecuriƟes Limited. Thank you, and over to you, Tushar.

Tushar Pendharkar

Thank you. Good evening, ladies and gentlemen. On behalf of Ventura SecuriƟes Limited, I welcome you all to Responsive Industries Limited Q4 FY '24 earnings conference call. The company is today represented by Mr. Rishabh Agarwal, Chairman; Mr. Bhavneet Singh Chadha, Chief Financial Officer; and Mohini PurshoƩam Sharma, Company Secretary.

I would now like to hand over the call to the Chairman of the company, Mr. Rishabh Agarwal, for his opening remarks. Thank you, and over to you, sir.

Good day, everybody, and welcome. Thank you for taking your Ɵme out and joining us for the Responsive Industries Q4 FY '24 earnings call. It gives me immense pleasure to welcome everybody, interact with you guys over the con-call and we are excited to share our latest financial results and discuss the progress that we've made over the past fiscal year.

We are Responsive. We are a pioneering force in the flooring industry and we are renowned for our unwavering commitment to innovaƟon, sustainability and customer saƟsfacƟon. Our diverse porƞolio exemplifies our dedicaƟon to delivering the high quality soluƟons that meet the need of our global clientele.

In FY '24, not only have we achieved our financial milestones, but we made significant strides in expanding our market presence, enhancing operaƟonal efficiency and forƟfying our strategic partnerships. Our performance is a testament to our team's relentless effort and our customers' trust and loyalty that they place with us. As we navigate the ever changing landscape of our industry, we remain focused on harnessing the latest technologies adopƟng the latest sustainable pracƟces and driving growth through real innovaƟon. Our vision for the future is clear to conƟnue leading with purpose, create value for our stakeholders and make a posiƟve impact to the communiƟes we serve.

Today, we delve into the specifics of our financial achievements, provide insights into our strategic iniƟaƟves and discuss the outlook for the upcoming quarters. We are confident that a comprehensive approach and direcƟon will propel us to more heights ensuring sustained growth and profitability.

Thank you for being a part of this call. Let's dive into the details of our performance and future plans.

Revenue from operaƟons stood at INR 1,886 crores in FY '24 against INR 973 crores, up 11.64%. We had an EBITDA expansion standing at INR 261 crores in FY '24 against INR 126 crores, which is an increase of 107.36%. The EBITDA margin is at 24.03% in FY '24 against 12.94% percent in FY '23. The PAT stands at INR 161 crores in FY '24 against INR 24.39 crores in FY '23. The PAT margin that we have the baseline in FY '24 is 14.84% versus the 2.5% in FY '23.

Yeah, any, so I would like to open up the call for any quesƟons to go ahead with the Q&A session.

QuesƟons & Answers

Thank you, sir. Ladies and gentlemen, we will now begin the quesƟon and answer. If you have any quesƟon please * and 1 on your telephone keypad and please wait for your turn to ask a quesƟon. If you would like withdraw your request you may do so by pressing * and 1 again. We will wait for a moment while the quesƟon queue assembles.

Our first quesƟon comes from Hiren Trivedi an Individual Investor. Please go ahead.

Yes. Can you hear me?

Yes, sir.

Yes. Thanks for the opportunity. Just two small quesƟons. One is on the CapEx done by your company in the last 2 years and the CapEx plan ahead. And also second is the current level of debt on your books and any plans to reduce the debt going forward?

Could you repeat the second part of the quesƟon, if you don't mind? The first one was the CapEx plan. What is the second part?

Yes. What is the current debt levels on your books?

Understood. So in terms of the CapEx numbers in FY '23-'24, we've incurred a total CapEx of around INR 180 odd crores. This parƟcular CapEx is gone towards the upgradaƟon of the current machineries to be able to deliver some of the technological upgrades on the flooring side that we've acquired. So

between the sustainability, the automaƟon and between the high performance materials, this parƟcular CapEx has allowed us to decongest the capacity and to be able to gain operaƟonal efficiencies.

In terms of the debt, we are a zero debt company, so we have zero long term debt. And we are -- our plan is to conƟnue along the same debt free cycle for the foreseeable future. Indeed, in terms of the future debt or future CapEx, we are right now going to conƟnue the course. And as the growth conƟnues, we will evaluate plans down the road.

Yes. So any CapEx number you have in mind internally future of the company in the next 2 to 3 years?

So in terms of the CapEx right now for the next 2 or 3 years, we are in a preƩy good place. We are not going to increase. The next CapEx can only happen once the uƟlizaƟon hits about 100%, which we anƟcipate to hit aŌer the next 2 or 3 years. In that Ɵme, we will be in a new CapEx cycle. But for now, for the next 2, 3 years, we are at a good level.

Thank you, sir. Ladies and gentleman, if you have any quesƟon please * and 1 on your telephone keypad. I repeat ladies and gentleman, if you have any quesƟon please * and 1 on your telephone keypad. We will wait for a moment while the quesƟon queue assembles.

Our next quesƟon comes from Vinod from MOSL. Please go ahead.

Vinod

Yes. Just want to ask what is the break off of the domesƟc and internaƟonal business?

Yes. Anything else?

Vinod

And what is the current uƟlizaƟon rate?

Pardon me?

Vinod

Current uƟlizaƟon rate?

Yeah. So the breakup between the internaƟonal and the domesƟc business is about 40% domesƟc and 60% export. In terms of the overall uƟlizaƟon, we are between 55% to 60% odd in the uƟlizaƟon depending on what the order book looks like. And the uƟlizaƟon will conƟnue to improve in the years to come.

Vinod

Okay. And this 40-60 raƟo will be maintained in future also or there will be more of exports?

The 40-60 as we see it today, in the order book today, we expect it to conƟnue in the same vein, but there is lot of interesƟng conversaƟons. 40 to 60 is today is the right mix to take forward. And we conƟnue to grow, the mix can change towards export a liƩle bit more.

Thank you, sir. Our next quesƟon comes from the line of Yogesh BhaƟa from Sequent Investments. Please go ahead.

Actually, I am new to the company. I had 2 quesƟons. 1, when we say we have 60% exports, what is the network of exports? How is it done? Is it done B2C, B2B? Do we do it under our brand? Do we have a dealer network outside India? And what geographies do we really export to? And similarly, what is the fashion in which the series is done in India? This is my first quesƟon.

And my second quesƟon is what is our strategy? How do we plan to increase the sales? Is it through more dealer network or using the same network trying to get more sales?

Okay. Thanks for the quesƟon. Very insighƞul quesƟon. Let me answer your strategy quesƟon.

Responsive sits at the intersecƟon of 4 different events happening at the same Ɵme. Number 1 is the China plus 1 diversificaƟon required from global supply chain especially with a focus to the U.S.

Number 2, the growing operaƟonal efficiency of India from an overall infrastructure logisƟcs and just becoming a keen place for export driven manufacturing.

Number 3, Responsive has also been the resilient flooring manufacturer for more than 30 years.

We're a leader in the space. And number 4, we have the kind of scale and ability and capacity to service the large markets including the U.S, especially the U.S. Now in terms of the export strategy in terms of the export sales you discussed, export has been a major focus in the U.S in the last few years to drive up the sales especially from a B2C segment perspecƟve.

The way the supply chain is organized is Responsive as the manufacturer we sell to our distributors, the distributors take it down to thousands of retailers with where the touch point goes to the final consumer. Where we've made significant strides is that the Responsive brand is visible to the final consumer. So the merchandising and this scale available in the retail stores as a Responsive brand.

Now this parƟcular flooring we're talking about is 100% waterproof rigid flex system flooring which has been a big innovaƟon from our side.

So where the value proposiƟon is, is that we are a very strong brand with the right kind of values that we take to the customer, but combined with the product innovaƟon and the aestheƟcs. So it's been a powerful kind of export message for us and export strategy for us. So in terms of the growth on export, we conƟnue to increase the distributors, the retailers and the retail touch points to the customers. And what happens is with the scale and as Ɵme is going on more and more, we are geƫng a natural growth in this business. So it's that's the whole idea on this side.

Okay. And in the just do -- and in the what is the strategy in the domesƟc market? I understand there's a lot of growth, but do we have to appoint dealers and we have to select all dealers already who are doing flooring business to this whole [ph].

Yes. There are 2 kinds of customers. There's an insƟtuƟonal customers like the railways and the OEMs who has been a part of our porƞolio for a number of years. These customers are demanding performance driven products which requires a high degree of ethnicity where we have a great advantage compared to anybody else who can be in this field. So this kind of business is driven by confluence of demand factors.

For example, railways is driven by Vande Bharat and a lot of the investments paid by the Indian Government. On the other side, the insƟtuƟonal bus business is driven by the orders that a lot of the bus bodies and OEs will take. So for example, in terms of the OEs, there's a big push for the e-buses.

So the e-buses order books for people like Tata Marcopolo all these guys are preƩy full and we are the big service vendor for them in terms of flooring. So that's been a big kind of growth story on the domesƟc side. In terms of the distributor dealer network, we conƟnue to grow it. But, the insƟtuƟonal engagement in India has been a big driver for us.

And one other piece is the consumer side in India. So in terms of the B2C engagement in India, we are planning a ton of customer experience centers, about 100 plus experience centers over the next 3 years. So this is a combinaƟon of what we are looking to do between the COCO model, which is a Company Owned Company Operated sort of experience centers to spawn the franchisee opƟon in India where you get a vast dealer and distributor presence.

Now this is all to do with the residenƟal business and it's a big push to get the product into the residenƟal ethos of India and to start to compete with the category of Ɵle. So if you talk about the big Ɵle brands like Kajaria or Somany, we start to compete with them for this parƟcular marketplace in India. So that's another piece that is domesƟcally going to drive this.

Yes. And I also believe that there is some sort of anƟdumping duty for vinyl flooring that comes from, I think, China and Taiwan, right? So can you explain me the compeƟƟve landscape in India? Is it very compeƟƟve? Or there is a lot of brand recogniƟon or recall and people go for branded products? How does that work?

So the compeƟƟve landscape on this parƟcular product segment, which is vinyl flooring or resilient sheet vinyl, we've been the leaders in India for more than 30 years. We established this as more of an export driven business in the late '80s, early '90s and since then we've grown the technology and processes.

So in terms of the way we look at compeƟƟon, it is more to do with the global landscape, right. So there are global European players, American players, players from Korea and so on where we look at it from a global pie. So if you look at this business, it's about a $45 billion global business and every -- and there's a number of large companies compeƟng for this pie.

In terms of the anƟdumping to India, it's a protecƟon against the low cost, low value Chinese suppliers, by extension Taiwanese suppliers who dump product, they creates a bad name in the market. There are a lot of failures, it's not right up to spec. And where we are able to do very well is with the brand, with the quality and the service, right. So that's the main value proposiƟon.

Okay. So our price points are way ahead of what is geƫng imported. Is it? Is that true?

Our price points are definitely at a premium vis-a-vis imports.

And if I may ask one more quesƟon. Our receivable days -- our receivables are quite high. So is it a funcƟon, because we do a lot of B2B business and it's export, so it takes a lot of Ɵme for the transacƟons to get completed or what is the reason and how do you see this number changing going forward?

So a good quesƟon. So the collecƟon days have in the current year have gone up a liƩle bit because our business has improved dramaƟcally over the year. So with the improvement of the margin and the business, the quality of the customers that we are selling product to has been constantly improving. So it's a maƩer of a cycle. So this is a cycle this year that has set up the collecƟons where it's looking longer.

As Ɵme goes on, the collecƟon cycle will come down and we will end up with the collecƟon cycle looking more robust. So this was in a way, the collecƟon cycle is more to do with the insƟtuƟonal customers to do with the sort of the large buyers. And a lot of these POs have now been executed and the collecƟon cycle will start to sort of normalize as Ɵme goes on.

Okay. So like right now, I see as on 31st March, it is INR 500 crores of receivable on a 1,000 crore revenue, so which is quite large for our consumer product. So any ballpark that we go to 150 days, 100 days going forward? Any thoughts on that?

Yes. So the receivables that you're talking about, first of all, it will come down dramaƟcally as each day goes on. So there's a lot of collecƟons coming into the system. Secondly, the receivables that are due are from marquee A-plus data type customers. So there is no issue about delinquencies or things like this.

So the receivables are in a really good place. And as the revenue and top line conƟnues to grow up, the receivable numbers will remain consistent to about where they are. So we expect the receivable number as a percentage to come down as the Ɵme goes on and also the number of days for a receivable to come down as the Ɵme goes on. So this whole situaƟon will look even more robust as in the next coming quarters, as the quarters increase.

Okay. Operator, can I ask one more quesƟon? Is there no one? Is it okay?

Sure, sir. You can.

Yes. So, and one more thing. I was looking at your financials. Over the last 2 years, there has been a significant shiŌ in our margins. So can you explain me what is the reason for the change in our operaƟng margin? Is it only because of gross margins? And is it, if it is because of the raw materials, then what has changed in the last 2 years 3 years?

So the raw material has not been a huge impact on the margin, right? So the main reason, the margins have expanded and changed is to do with the quality of the product that is being produced in the plant and the quality of the customer who is purchasing the product. So it's everything to do with our higher value items, it's to do with to give you an example, You know Vande Bharat Indian Railway, they have upgraded the specificaƟon in a meaningful way. So those specificaƟons have meant that you have more of a more performing type products into the marketplace. As a consequence of that, we are able to expand our margins.

It's just an example in the way that we have other customers who follow the same suit. So we've been able to drive the more value centric high quality stuff through the market. So the focus has been on the margin accreditaƟon for us. Therefore, we are able to make this change in the margins in the last year.

Okay. So this is the LVP mainly because of you are saying higher quality product or value added product, the margins have gone up, realizaƟons have gone up ideally?

Okay. Very good to hear. If there is anything, I'll get back in the queue. Thanks for your answer.

Thank you, sir. Our next quesƟon comes from Nishanth Sharma from Nuvama PCG. Please go ahead.

The first quesƟon from my side is about the what is the current order book has on hand? And in terms of exports and domesƟc business, what is the difference in terms of margins and the working capital requirement in each of these segments?

So the order book that we have on hand right now is for the next 3 to 6 months. So we are preƩy good in terms of the next couple of quarters in terms of what to run through the plant. To answer your quesƟon on margins, the domesƟc market and even the export business is now delivering relaƟvely similar margins because the focus has been on the value added items in both the segment.

So in the case of exports for the U.S. market with the SPC flick and the rigid LVT products, there's been a big B2C kind of focus and push through the distributors. So that has yielded in good margins for the business. And in terms of the domesƟc business, the insƟtuƟonal customers like your railways and OEs have also yielded good margins for us. So one of the key focus for the company has been to drive good margin, good sort of products through the business and through the manufacturing. And this year's result is a testament of that effort.

Okay. And second quesƟon would be a bit from a vision point of view. Let's say, 3 years or 5 years down the line, what is our vision in terms of top line?

Could you repeat that? I think top line and could you repeat the quesƟon? I didn't understand fully.

Yes. I'm saying from a 3 years or 5 years down the line, what is our vision in terms of top line that we can achieve? And which are the points that out of which segment will be driving the growth going forward?

Okay. And will the current capacity be good enough for at least INR 2,500 crores in next 3 years Ɵme frame. Will that be good enough or will you conƟnue capacity addiƟon over there?

Absolutely. So right now we are in a uƟlizaƟon state where the year-on-year growth allows us to hit these numbers in the next 3 years without adding any CapEx or capacity is good enough up to these numbers. Once we get here, then we will revise for the next growth target what to do next.

And I guess order books, we have about INR 251 odd crore of borrowings. So will that be repaid off?

That will be more like a conƟnuaƟon of a working capital kind of a loan?

That is a working capital kind of a loan. So the working capital is to just finance the operaƟonal mismatch between cash flows. That's all.

Okay. And broadly, previous parƟcipant asked this quesƟon, but I unable to listen properly. In terms of working capital, most of the capital is on the data side, which parƟally compensated from inventory [Technical Difficulty] and part of the week, is improving or increasing.

Hello. I'm so sorry to interrupt you. Could you please place your phone a bit far away and talk?

Sure.

Yeah.

Is it okay?

Yes. Much beƩer, sir. Please go ahead.

Yeah. Hello?

Yes, go ahead.

Sorry. So I was repeaƟng that in terms of working capital gain, we have seeing that the credit debtors is a bit high which was compensated from reducƟon in inventory days and also increase in payable days. So going forward is the if you have seen that there would be beƩer beƩer or the increase in sales inventory, can it go up? And in that scenario, the working capital days as a whole will be somewhere in the 160, 170 days as it was in FY '24 or it is likely to come down?

So the answer to working capital that it is very likely to come down in the next fiscal for us. There was in this year, in the past year, there was a sudden jump in interest rates that happened across the board. So the sudden jump in interest rates raised everybody's cost of holding products, holding goods and holding stock. So we our working capital draw increased to support the U.S side of the business to help our distributors to conƟnue to grow and conƟnue to sell the business.

So this was the support from our side. So now this cycle is more or less over and we don't expect interest rates to conƟnue to go up. So we think the working capital cycle next year will definitely come down by a number of days.

Just last quesƟon from my side. Could you help us understand who would be our largest customer or top 5 customers both from the export as well as from the domesƟc side?

So on the domesƟc side, we have the Indian database. We have a number of bus body builders like Tata, Marcopolo, Ashok Leyland, these guys. In terms of the exports, we regularly export to the U.S so we have some distributors like Harry Gan, Lifewell, All South Flooring who make up our top customers.

Thank you, sir. I'll call back in queue and all the very best.

Thank you sir. Ladies and gentlemen, if you have any quesƟon please * and 1 on your telephone keypad.

Our next quesƟon comes from Vivek, an Individual Investor. Please go ahead.

Vivek

Yes. Thank you. See, there's a liƩle bit of confusion between the results that you published and what this website screener is reflecƟng as your annual numbers. Am I right in saying? Yes, sorry. Just to clarify, there's an external website. But is your number for the year INR 671 crores and boƩom line of INR 31 crores for the full year?

I'm sorry. What is your quesƟon? I've not understood your quesƟon. The top line is

Vivek

My quesƟon is, what is your correct annual turnover top line?

The top line the annual top line is 1800 -- INR 1086 crores.

Vivek

1,086 and INR 161 core in your net profit, right?

Vivek

Okay. So you posted some stellar results. I'd like to understand the jump in profits like 6x. If you can kindly throw light on how this came about and what is a sustainable growth going forward, both top and boƩom line? Thank you.

Yes. So the growth in the margin and the growth in the business has emerged from the cemenƟng of our high value flooring products in both our insƟtuƟonal customers domesƟcally and our export customers mostly focused on the U.S. So in terms of the net profit, EBITDA and the revenue numbers that we see here, it is a baseline that we have established where we've done through our sales and markeƟng acƟviƟes driving the high value items to the plant.

In terms of the growth in the following years, we expect to maintain the margins and the margin driven products and conƟnue to grow the top line based on the current margins that we established in FY '24.

Vivek

11.5%. You expect the same trajectory to conƟnue?

Yes, absolutely. So we expect the same trajectory to conƟnue in terms of the top line and we expect the same net margins to conƟnue, similar net margins to conƟnue through the year.

Vivek

Okay. Which is around 16% of your net margin or net profit. So that will conƟnue, that's trajectory will conƟnue.

Thank you, sir. There are no further quesƟons. Now I hand over the floor to the management for closing comments.

Yes. I would like to thank again all the parƟcipants for taking our Ɵme and aƩending our call. We will endeavor to hold a con-call every quarter to keep you updated about the latest developments of the company. In case you have any queries, feel free to reach out to us at cs@responsiveindustries.com, and we'll be swiŌ in responding back to you. Thank you everybody for your Ɵme this aŌernoon.

Thank you, members of the management. Ladies and gentlemen, on behalf of Ventura SecuriƟes, that concludes this conference. Thank you for joining us and you may all disconnect your lines now.

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