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Control Print Ltd
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Ladies and gentlemen, good day, and welcome to Control Print Limited Q2 FY '23 Results Conference Call hosted by Asian Market Securities Limited.
This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call.
These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ from such expectations, projections, et cetera, whether expressed or implied. Participants are requested to exercise caution while referring to such statements and remarks. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Karan Bhatelia from Asian Market Securities Limited. Thank you, and over to you, Mr. Bhatelia.
Thank you, Tanvi. Ladies and gentlemen, good afternoon, and welcome all to the Control Print Limited Second quarter and first half FY '23 earnings conference call hosted by Asian Market Securities Limited.
From the management side, we have with us Mr. Shiva Kabra, Joint Managing Director; and Mr. Jaideep Barve, the CFO. I will hand over the call to Jaideep for his opening remarks, post which we shall open the call for Q&A. Thank you. Over to you, Jaideep.
Yes. Thanks, Karan. Welcome, everybody, to the earnings conference call of the second quarter of financial year '22, '23 of Control Print Limited. We appreciate that you've taken the time off of your busy schedule to attend this call.
Both you and your loved ones are safe and healthy, wish all of you a happy in advance. Mr. Shiva Kabra, the Joint Managing Director of our company, also joins me on this call. The detailed presentation has already been put up on our website as well as exhibited to the stock exchanges. I assume all of you would have the basic information about the company.
So I'm going ahead and giving a brief analysis of the financial statements of the quarter 2 for FY '22/'23. The manufacturing activities in the second quarter continued with the rising momentum as most of the industries continue the production to meet the higher demand. The increased production was clearly visible in the higher requirement for consumables, which is beneficial to the coding and marking industry, which Control Print operates in.
The revenue for this quarter has witnessed a year-on-year growth of 10%.
The primary reason for the growth in revenue was because of good traction in the consumables, which has got a year-on-year growth of 29% in real value terms as the industrial production increased. We still believe that it is still not at the optimum level and there exists a continuous scope of improvement.
So the sales of printers were slightly on the lower side, and we had a drop of about 14% of the machines sold as compared to the previous quarter, primarily as a result of raw material shortages. We believe that going forward, we have the right strategy in place to have -- to mitigate all the risks in supply chain, and there is still a lot of growth in the overall production volume for the printers.
The gross margin for Q2 has dropped marginally as compared to the previous quarter, as I explained to you because of the raw material purchases, which are at a slightly higher rates, but still, it shows a very good picture as compared to the Q2 of the previous year.
On a year-on-year performance, the EBITDA, PBT, PAT and the profit before exceptional items have grown by almost 11%, 23.5%, 14%, 14%, respectively. The company maintained healthy margins with EBITDA at almost 26% in this quarter. We believe that we still can grow to considerable [ high ] levels because of the economies of scale, what we'll have in the future.
Let me brief you on the performance of various divisions, products and business segments. Consumables had a good traction and increased installed base, which is greater than 15,500, will definitely drive the business in the coming quarters.
We continue to penetrate customer -- competitive accounts in key sectors like pipes, food, dairy, FMCG, sugar, pharma and dairy and our market share has been strengthened now. We have already incorporated a company in Netherlands, which has acquired 75% stake in Markprint B.V. through it.
We have got a sufficient amount of business growth in the dairy segment as well as in the cement segment. Dairy as a vertical in fact has grown by 20%, and we expect this trend to continue for the next few years. Pricing still continues to be the leading segment for outside of industry.
We have got us a robust back office system. We have a good amount of in-house savings, which emphasize to improve the performance of each team member, we have got a good [ ERP ] in sales related teams which backs up our sales, production and our inventory numbers.
Recently, we've launched a new CIJ product, which is called [indiscernible] and that has basically made a positive move in the market. We expect that we'll get a good mileage on this account.
As regards to the fiber industry, we are expecting good volumes in the Q3 as well as in the sugar industry. The company has got a good cash flow, and we continue the part sales in the next few quarters as well.
We are strong in our production segment as well. And our -- we focus on plans and strategy, and we are confident of the growth potential to deliver positive results in the future as well.
With this, I open the floor for the questions that they would ask us.
[Operator Instructions] First question is from the line of Saket Kapoor from Kapoor Company.
Sir, I missed the opening remarks, so pardon me for repetition, but we have seen the -- for the margins being lower on Q-on-Q basis, whether the gross margin or the EBITDA margin. So what explains the sequential dip in margin? And also what constituted this INR 1 crore other income component? That's the first set of questions.
The margins have -- see, for supply chain where like there is still paucity of the raw material components for our kind of [ legacy ]. So we have to continuously revise our strategies and do the purchasing, I think in a spot market, as well as you know, meeting the give new alternative producers.
We believe that conditions might continue till February, March and so the margins may reduce further down, I hope, which is also if we get the strategy in place right. So raw material shortages and it basically that has really cramped our marketing power as well. So that's the reason why our gross margins are almost slightly lower side. If I may ask Shiva to add further. Shiva, can you add on this?
Yes. As Jaideep said earlier, of course, which you didn't connect, Mr. Saket. But basically, we had a drop in printer sales. So the primary reason was not demand. It's just that we've not been able to -- I think in the previous calls, we have a lot of supply chain issues.
We've seen now for the did affect some of our sales in the previous few months. And there were some things that we couldn't build -- between that half, so there was some backlog and hopefully, we'll be able to obviously make up completely for it in the second half.
So the printers were -- sales specifically were affected even some of the [ fluids ] the billing was slightly lower than -- also there was some backlog out there also because we didn't have certain materials. So we seem to be having sometimes in this given situation, some surprises either on quality or in terms of delivery every so often which is giving us some supply chain-related troubles -- which the first time we've experienced this in the last 2 years.
Hello.
Yes. And because of that, also, like I said, because of the global situation, of course, there has been a big increase in cost and prices of some things, especially electronic components. And we we've also purchased a lot of materials from the spot market, and that's higher than what our contracted rates are.
So it's going to take some time for that to work entirely through the system because we've taken a conscious decision that we have to keep supplying even if it's at a higher cost. So some of the materials we have, some of the inventory we have are at a higher cost to us because it's been bought -- purchased from the spot market.
And as and when that in works through the supply chain of ours, then hopefully, we should get back to a slightly better margin profile. But yes, it's not a big concern for us either way too much right now. Because we're speaking that as long as the growth is there, we get a strong -- an overall growth of the profitability and margins that we're targeting.
So if we take the breakup of the component from revenue from operating sales, the gross margin addition or the incremental gross margin is from the consumable segment.
So even though, sir, we -- as articulated by you, this will create problems with selling more printers. How are the consumable spares, and what is the breakup from -- of the revenue part into this number -- from printers, consumable and spare business.
I don't know. Of course, Jaideep will provide you on whatever basis we provide, we don't give a very detailed breakup on that because of competitive reasons, you understand. But I will say that as far as those things go, we cannot look at it as a totality as an individual component or not because we faced price increases across the board or cost increases in some cases, where the price might not have increased that much, we still have to buy things for a much higher price from the market.
So like I said, that's affected the overall cost and -- at the end of the day, we cannot separate the printer business from the consumers or everything else because we'll end up losing some of our customers as a result if we are not able to supply them printers.
So the thing is -- because of the situation, this is a given thing. We are actually undertaking an exercise of going forward to have a price increase to compensate for some of these issues and -- that's actually one of the things that the company is now working towards in this given quarter. You can see some results in Q4. So which is like [ Q1 ] next year, we'll give our customers like a 3- to 4-month notice before we actually increase the prices and that's something which we started.
But yes, this is the given market right now. And we already went through 2 or 3 software rewrites, some other stuff in our formulae. So you can't keep doing this all the time, we just have to work at one point of time, just some components are not there you got to pay more money, you just buy them, that's it.
Sir, on the other income part, can you provide further detail and whether it is a recurring item or one-off items. And lastly, sir, as mentioned that these margins are going to be -- can we expect more pressure on margins as Jaideep sir was explaining earlier going ahead also or steps have been taken?
So I'll let Jaideep explain the other income. But as far as margin growth we expecting this to be positive, it might take a few months for this high-cost inventory to run through our system. But of course, that would result to some benefits, either that or the price increase will compensate so. So I don't think that -- we obviously -- we're looking at permanent margin decreases. There's no doubt about that. We're not doing that. Over the course of the year, we should be okay.
Of course, on a quarter-to-quarter basis, depending on the systems in the supply chain, sometimes like you said, you can sell more printers, the gross margin would slower even though it's not from an individual component perspective. So these things can change.
But overall, I think our growth is going to be profitable and cash accretive. That's what I can say, but Jaideep, if you want to just conclude on it. But also it's just possible, [ Karan ] if you can just keep one question to one thing because if it -- what happens like if there's 4 questions in 1 question, and it really confuses sometimes, handling this out. That's all.
So that's all I'm requesting everyone. It's fine answer ask as many questions that you want, but 1 question, just 1 point. We cover that for then the next question, if that's fine with everyone. There was 1 question on other income.
So yes, Mr. Saket, you mentioned about the other income. The most significant portion happens to be the dividend in that.
Correct. Correct, sir. And 1 more question. That is about -- in the presentation, we have mentioned about large order of more than 70 CIJ printers from [indiscernible] sector and large export order for laser center in the FMCG sector. So this 70 CIJ printer is what's there in the pipeline? And what are we trying to explain from these lines? What is the opportunity that we have in our hand.
Jaideep, that order was not on the quarter had gone by. Are you sure about this?
Yes, it's an order that we got, which is expected.
[indiscernible] that's six month period, I believe.
Yes.
So there might be a mistake from our side on this slide. I think that this is not an order that pertains to the half year that has gone by guys. I apologize.
[indiscernible]
Already been only a very partial execution of that order. So if we can avoid that discussion until we can do this order and exclude it, that will be better.
Come again, sir? Are we having this order in hand of 70 CIJ printers that is...
We got it in the last quarter, but we've not executed it completely. It's also held up because of some shortage of parts that we had, we're in the thoughts of executing it. So I just said that my apologies, we would prefer discussing this once we finish executing this order.
But can you give us some color on the size of this order, sir? What is the total quantum because here, it is not maintained that this has been executed because only been mentioned that we have an order in hand.
Yes, Mr. Saket, we are just talking about or a large order which we have bagged. So we are not talking about execution.
Yes, sir. Yes, sir. You're right on that front. I only wanted to know the value of the order.
Yes. So for I not see anything because we not disclose this type of -- this is directly competitive information, if you will. So competitors know exactly which order we are talking because they were also competing for it. And so it will be a bit tricky. That's all I can say. I hope you all understand the different [indiscernible].
No issues with that. Sir, can you give me, sir, the utilization levels for our Nalagarh unit in terms of consumables currently for the quarter and first half as a whole.
Utilization in Nalagarh.
We don't make any [ tools ] in Nalagarh.
Consumable is at Guwahati, sir, so what is the utilization level for the consumable segment?
Roughly like 50% from -- will we have capacity to increase you said a significant amount more. So there's no CapEx required there right now, nothing major from what I remember.
We had some supply chain issues on some of the specialty chemicals that we use in our ink manufacturing out there also. It was a bit up and down, the production there also. But I think there's no capacity utilization issue on an overall basis, assuming our supplies are slow.
Right. And on the...
About 40% to 50% of capacity available, maybe we're using 50% to 60% capacity.
Sir, our employee cost has also gone up sequentially and also year-on-year. So any one-off items in the employee cost, that has gone up to INR 3 crores precisely or what should be the annual number? This time we have done INR 13.81 crores.
So first on that, Mr. Saket, as you understand that because of this new wage code, which has been launched, so we've complied with that. So as I that, we've done some salary restructuring. And that's why you find the costs of the employee benefits.
So this will be now the order of the day, INR 14 crores a quarter.
Sorry, I'm not able to get you Mr. Saket. This will be the number going ahead now on a ballpark number will be INR 14 crore what have been for this quarter.
Correct. Sir, sir, a last point and I'll come in the queue. Sir, when you speak about this way forward, the slide which you have put, if you could delve slightly more on the business environment currently, sir, I think, so you have spoken about the headwinds that we are facing in terms of the nonavailability of spares and chips and also the increase in prices because of the spot -- being purchased at spot prices.
So if you could give us some more color how the H2 is likely to shape up in terms of our execution of selling of more printers and also the consumable sales going up. So some more color on how H2 shape up when we look at last year to the current year depending upon the business environment. That's the point.
Yes, Mr. Saket to answer your question, see, we are very bullish about way going forward. We believe that like there will be a higher consumable sales, obviously, because the industry is also in a growth phase. So that's going to be one of the positive looking aspects for us.
We recently launched the [indiscernible] pinch product. So we believe that will create the right positive moves going ahead. In case of like we are also focusing on the OEM and the key accounts. So we've got a dedicated team for the key accounts at our company. So with that case, we would imagine that we continue to attract newer customers. Our marketing team is focusing on how to capture the last mile user and we also have got inside sales team, we generate the new leads, which can be capitalized on and converted into customers that would [indiscernible].
And of course, I mean, we would like to like increase our market share by individual installed base of our printers. So yes, we are constantly looking into the global market or like better technologies. So that's the overall strategy, what we feel would be for the way forward for our company.
Right, Sir, and for the 2 acquisitions that Innovative, how is Innovative and the [ legal land ] acquisition jelling with the overall pie? And how are they going to likely contribute going ahead?
So right now, to be genuinely honest, Saket, that we're not -- as far as ICIPL goes, obviously, they also have been affected by our supply chain issues. So absolutely honest, we've been very unfair because of our own issues. We're also not able to supply them much printers at all in the 6-month period, and they were affected much more than us.
So that has been slightly negative for them. But hopefully, you should see a better rebound in the second half. And obviously, overall, that might have affected their growth. But it's still definitely better numbers than last year, still on a better path.
As far as market goes, obviously, they run their own business in Europe, and we're still working on by November, December, we should has some of the products available in India and start exploring that at in the Indian market. So again, we are not overly interfering in what work they are doing in their market, but our focus is more on how we can use their technology to develop products which are better for or most to our markets and can co-print and grow that business.
At the same time, we are continuing to grow. So that's also a positive factor. And obviously, we have been encouraging them to see how they can accelerate their growth even faster in their home markets. And they obviously have more financial and technical and operational backing from us for whatever opportunities come to them.
So right now, like, it's a stand-alone story as of right now, but these are both things that will helps us in a longer period of time without a doubt. This is Markprint acquisition, of course, should be as you see for how contribute to our profitability just being -- based on the same cost base that the sort of manufacturing side is what we already have.
But definitely ICIPL has been affected like I said, by our supply chain issues and Markprint is something that we've taken some training on, we had some exchange and now we should start seeing some -- from November, December, you see an idea of what products we need to do, get more tweaks on what we have to do.
But I think that we'll start getting more results in the next financial year because we only get this, we have to adjust them. And I think the better results from -- maybe from Q1 next year of selling those products in the Indian market. And like I said, there's a good opportunity in that in India.
Yes. Jaideep sir, on the goodwill front, if you could give some color, what led to this increase in goodwill account from March numbers of INR 48 lakhs to INR 10 crore for the first half of September.
Yes. Saket, this is primary reason because of acquisition of Markprint, the company in Netherlands.
Okay, sir. So we will be looking forward for the next quarter and it will come up with a couple of more points. I think so there should be queue behind me. So I'll just join the queue again.
The next question is from the line of from [indiscernible].
So I just wanted to know this raw material issue which the organization is facing. Is because of the import which we are catering or it's more a domestic side also?
No. It's mainly an imported area. It's more especially around the electronics it was, but even some of the priority chemicals or some of the things that we utilize, we use some very specialized pumps and certain dyes -- certain [indiscernible] dyes and often [indiscernible] . So we've been having an issue on multiple fronts.
So definitely some highly sophisticated electromechanical component for the fluidic components we've had some issues is in our specialty chemicals, which we use for our inks, and we've having an issue that would be most definitely on the electronic components that we use in manufacturing the electronic boards, which is on our printers.
So those are the issues, but it's definitely improving whatever it is, we've somehow managed to get in our stock together. And I think this quarter, we should at least get back to like a normal delivery time with our customers.
Okay. And sir, just looking at your presentation, it shows that from FY '18 till now, your margins has been decreasing. So is that a gross margin or EBITDA margin [indiscernible] or three of them are decreasing.
So can we expect that because like as you are saying is there would be upward move for this month, for the increment in this raw material issue, so can you expect my FY '23, we will at least reach to FY '21 or FY '20 levels?
I'll just take this question. I can't say what -- I don't remember what our margin was in '18 or the preceding years. Obviously, I will say that the last 2, 3 years have been affected or even this year to that extent, not because of COVID, but because of the overhang of the supply chain issues that we faced.
So this is a very difficult period to compare directly. And I will say that maybe we've been slightly slow in rolling out that pricing. We rolled out 1 price increase, cost increase now we're going to put on another 1 during the [indiscernible], so maybe that will get things back on track.
But overall, our focus has been more on the revenue growth because the business is essentially reasonably high margin. So we don't really look at 0.5% or 1% year-over-year. It's more about focusing on making sure that our competitive position in our technology [indiscernible] our customer satisfaction is high, and that will pay dividends over a medium- to long-term situation of buying -- we can grow margins by having faster growth and we can increase margins by trying to cut costs and roll out more price increases.
And obviously, both things are important. But overall, our focus is more that we really believe that we grew faster than some part of that cost base is going to be fixed or more our cost base is fixed, and that means that we will automatically get a better margin profile.
Okay. Okay. That was very helpful. And 1 last thing, sir, is it possible to share with us the segment-wise revenues like in the dairy, tech, and industrial, health care, building products, and for FMCG?
I'm afraid that, that's not possible because we don't -- again, our main competitors are actually none of them are listed in India, but even abroad, the all subsidiaries are foreign. So there's no competitive data coming out.
I'm sure that they have some idea of what we do anyways, but we don't like to give out that sort of detailed information because there's no benefit to us, and it could obviously help our competitors target as much in a much more systematic manner.
The next question is from the line of Devanshu Sampat from Yes Securities.
Just a few questions. So just a follow-up with the previous participant, right? So are aware that you don't share particular sector-wise information. But earlier we used to talk about packaging versus industrial, right, which used to be around 60-40.
So can you just help get with getting us an understanding of how the situation is changing incrementally, right? So there will be our installed base, which will be say, having a certain ratio. And incrementally, as you sell more sales, is it more towards the packaging side, food and pharma specifically? Or is the mix largely similar to your existing installed base?
So Jaideep, I'll take this question. Like you said, overall, it was about 70-30 for us previously and it's come closer to 60-40. So there are 2 things that happened. Industrials grow faster and they crash more depending on whether the economy is booming or busting. So in the COVID time, we went north of 40% for packaging and almost 50-50 is what I'd say. .
And then again, when the economy is a bit hot because the construction materials, the building materials, the pipes, the cables and all those things pick up sort of faster where the packaging sector is a bit more even you don't increase your consumption of shampoo just because the economy is booming, if you will, or Surf Excel powder or so on, for that matter.
So like you said, most of the sectors have their own -- both sectors are growing, the organized packaging market is definitely growing at the cost of the unorganized sector and the volumes still continue to grow. So -- what I say is overall, we are moving more towards the 50-50. But of course, it depends slowly over a period of time, and we are comfortable with that.
But obviously, the industrials the economy is a bit hotter than you've seen that they tend to grow faster. And obviously, we don't against -- we're not trying to push to a certain ratio by not growing on 1 side. We want to grow in both areas.
But of course, we believe that because we had a -- we were not getting the market share that we should have got in the packaging side. We are able to grow a bit faster there overall in terms of that. So we're seeing -- if you look at a long-term shift, yes, on more towards 50-50. But on a quarter-to-quarter, even year-to-year basis, it will depend on the cycle of the economy.
So what we feel is like in general, when the depending on the agricultural economy and depending on the overall economy, especially the construction material sector, the industrials can grow faster. And then if the market is slightly more subdued if the loan growth, then you see that the industrials grow so that's the second element. So if you -- I hope you understood what I meant.
I mean, transitionally, we will be moving more towards packaging from a machine sales perspective, but the usage of the industrials -- the purchases are more up and down and therefore, this percentage shifts a little bit all the time. Although in the long-term direction, it is more towards packaging increasing as a percentage of our overall sales.
Sure, sure. I understand. Okay. Okay. And the second question is just about this chip shortage and the raw material issue, right, and the high cost inventory that we spoke about -- so is this something that is only for us? Or is this something that the entire industry is facing.
So basically, what I'm trying to get at is does this affect our market share only because the business is such where the customer like you have to have installed base and then you get business from that from the consumer later. So are we losing market share over here? Or is it something that this issue everybody is facing over here.
So in all honesty, we did lose a little bit of sale for sure, some customers we might have lost. So we had to take a tough call and we have to sort of service our A or the A plus, and the B customer and maybe some the C and D which orders we couldn't fulfill or we told them straight off the lead times are very long because we had limited availability and then -- but we don't think we lost that many sales overall because we did do our best to manage in the situation.
And different people have different issues. So we view [indiscernible]. Some of our competitors had more issues maybe on the supply side, some of we know, and in some printer categories. So everyone has had the 1 all depends on the new supplier of your components is how your share stock planning was and various factors like that. But yes, some niggling issues are faced by different people or issue. But I will say that they seem to have gotten, we had issues earlier than us.
And they seem to be not having big problems in this financial year, whereas we had a fair amount of stocks of the past, which is why we're going to keep high. And because of that, we could tie over the situation for a long time, even though we're not getting new supplies, but then at 1 point of time, the party ran out, and we didn't have the parts in stock to keep the sales going even though we expected fresh supplies in the meantime.
So that's sort of a situation that actually happened at that point of time. But I don't think we're losing any market share. I think what we're doing is we are seeing a time shift in sales of printers it's what I'd say. So before a long time, a customer, they order printers, and they are going to have a line or they're going to commission a line, but by the time we put into operation sometime goes.
So obviously, we are now monitoring it. So we actually deliver the printers quite close to when they actually want to start utilizing the or there's normally people order printers and flying on formants before, frankly, it's utilized.
Okay. Okay. And to avoid such situation, what are the changes we're making and so this doesn't happen again in the future.
So it's not possible to make changes. One, two components, we had hard issues and there'll be times along -- so we worked with our partners. In some cases, we work internally and we have to be write some firmware and other things for our printer. But it's too much work because we have to do it, you have to test it.
We have to validate everything and there's a lot of things that go in and it's easier for us to just pay more money and buy from the spot market. So hopefully, it's not easy because we don't see the design of everything. So the option to -- this is to -- I mean, a, I wouldn't think our supply chain planning was bad. I mean, Jaideep can answer that question better. But yes, it's a tricky situation. And the things we not such a big customer for most of these guys, not a big customer that they're going to prioritize overall Volkswagen or I don't know, someone like that Maruti, or whoever you like, so.
Just the last question. You spoke about price increases. So is this something that everybody has done in the industry? Or is this -- is there only something that we are doing right now? And if so, you can talk about how the pricing situation is within the industry over the last, say, 1 year or so?
So some price increases have been done by us about some 1.5 years ago. And now just because of, again, some cost increases and some other stuff, we don't like to just increase the price on the customers all the time. We don't do that in all honesty.
There's not that much inflation in our industry or our business. But yes, because there has been inflation, which is, like I said, it has happened, frankly, in the last 2, 3 years. and not only directly on the under components and everything, but you probably associated costs like freight and logistics costs and all sorts of things. So yes, we are -- so that's why we feel that we justify for that price increase.
And yes, our competitors have done it a bit earlier than us. So they have increased prices reasonably over this last 2.5, 3-year period. I can't say off who did what, when. But overall, they don't have increased their costs. And with this price we'll be approximately at par with them in terms of how much we increase our prices overall.
Jaideep, you want to add anything.
You're clear. Sure.
[Operator Instructions] The next question is from the line of Individual Investor.
Am I audible?
Yes, you are.
My first question is regarding the revenue shown by you every quarter, it's very commendable. How do you see second half behaving versus H1? And how will the revenue mix behave as per what you are seeing in the market?
Shiva, should I answer or you would like to take this question?
Sure. No, I can take it. But like I think Jaideep has answered this earlier. I mean, we are still feeling that we could have a good second half as of right now. We don't see any problems in the market. We don't see any issues -- I mean, of course, like I said we had some supply conditions, but we seem to have now come to a pretty good situation in the last few -- last couple of months, I'd say, where we are now sort of actually clearing out some of the backlog.
So I'm hopeful that we do okay. And of course, there are other positive figures like which we might not see this year, but with IT IPL, they were not able to get supply really not at all from us. [indiscernible] has them. And with MARKPRINT, we will start some of like the long initiatives, which we want to develop some new applications with them. So of course, it might not contribute for sales in this financial year, but we have hope to set up a platform that will help us next year. So I think it's looking fine so far overall.
Okay. And second question is, sir, can you enumerate a bit more about your export order, I believe...
I know somebody will be thinking, but yes, normally, we don't give specific guidance. So just an idea.
I can understand. Sir, the second question was regarding the export order for laser printer in the FMCG sector. Can you elaborate on that? I believe this is the first export order.
For lasers, probably.
Yes, sir, for the laser.
First, it's just for the lasers. Jaideep can definitely elaborate on that.
See, what we've done is that we have supply to a large corporation. We don't divest the gains because of confidentially in it, but it's a large corporation, which is based over there, and it is one of the packers, copackers of the consumer industry. And what we believe is that, this is just the first of orders. We've now established our base like customer base in Indonesia. And we feel that going forward, once this is a successor to our model, the other regions also open out for us for the laser center.
The next question is a follow-up question from Saket Kapoor from Kapoor and Company.
Sir, you did mention in one of the release about our credential for a due diligence of our operations that for the -- for the country Sri Lanka. So now how well are we -- what is our game plan going there and what are we exactly trying to do after the gap there.
See, Mr. Saket, since we had operations earlier in Sri Lanka as well, we have an installed base at Sri Lanka. So for the current customers, there is still some demand for the consumables. Also, we need to service our printers over there. And what is the philosophy of like thinking of revival of operations for complement is that.
Maybe in the next 2 years, the economy like make a detour and everything will be rosy then. And then we don't want to just start to shop now and then we started after 2 years, so till that time, as you would understand, we are just an oligopoly of 4 players. We don't want our existing customer base to go to the other parties.
So -- and slowly we feel that we know that economy is slowly picking up. So maybe it's a twofold angle. One is to service our existing customer base. And secondly, the tax more opportunities going ahead. So that was the timely the main reason for us to resume our position in Sri Lanka.
What kind of investment sir are you concentrating just to resume the services and the recurring cost that we have to incur debt to keep our foot there?
So just answer that question, Saket. So first as you heard from Jaideep -- and I just wanted to say that answering your question, Saket, that what's happened is that we lost a lot of money in the past, that was because of the rupee depreciation. And so whatever money, I don't know went from 100 to 300 or something. So we lost that thing and the inventory and all those new things, the AR, the whole book depreciated. So that's sort of done at 1 point of time. Obviously, we've readjusted all our prices now to U.S. dollar terms and in between levels of consumption.
So we believe that with the amount of sales that we can generate and of the consumers of the service, even at a reduced rate that at least covers all our operating costs in Sri Lanka.
So without really increasing our inventory without really spending money. It's more of a holding operation right now, and we are hoping for a detour in the economy. And at that time we'll be more objective. So it was just sort of a strategic decision that we've worked hard to create a base. Obviously, the Sri Lankan economy is not booming right now.
[indiscernible] but even if we just use part of the existing days that covers our cost of operation, as long as we don't lose our inventory exposure there, we don't have to be worried about further depreciation in opportunities.
So it's -- I mean I'm not saying that we're expecting any great results from Sri Lanka like where we said [indiscernible] 2 years, but we don't expect to put more money in there for the next 2 years. So that's a lot of the thought that we have. So we feel -- but yes, in case after 2 years, there is a rebound in the economy, then if we cut down now, we'll not be able to capture that rebound of the Sri Lankan economy.
Just to sum it up, currently, we will be trying to service the printers that are the installed base there and to service the consumer segment. So there won't be any further capital -- further investment that is going to be there, only we are going to service out there. That is what you are trying to export currently.
Yes. So right now, we didn't invest any additional money in the last thing. We had already invested some money. But I think that money was depreciated in Sri Lankan rupee. So we were still making a profit. It's just that suppose I invested a $1 million, or whatever, if I invested INR 5 crores, whatever it was, we invested INR 100, INR 100 itself became or INR 40. So we lost INR 60 in the currency fluctuations and whatever other things happened. And then on top of that, the sales in the economy is pretty tough for the year, frankly, even the consumers -- everything Sri Lankan -- because in between of people are saying that they don't have diesel or whatever petrol to go for the customer or go to office. So I don't know what is going on out there 100%, but obviously situation was quite dire.
So that is where we were getting more worried of. But then things have improved, they're not normal, but they've improved. And we've taken a fresh look. So Jaideep was calculating, he said that, okay, we can continue without investing new money. So of course, that loss that we had invested INR 100 and that's become worth now INR 30 crores, INR 40. That loss of INR 60, INR 70 remains. The question we don't have to invest more on like that.
Right. Sir, if I could just sum it up your commentary on the point you are trying to make is that we are taking headway in terms of the spare parts for our printers. And due to the nonavailability and the spike in the spot prices, we have to cater to meet our customer demand, the higher prices we have paid that has taken a hit on our margin. And...
And it's only insignificant, right? It's not a substantial, Mr. Saket.
Okay. Okay. So sir, just to get the margin picture clear, this 60%, 62% gross margin bracket. Are we going to be in this band going ahead also? Back into Q1, we did 63% gross margin. So at this time, it's a 200 basis point reduction that we have seen in the gross margin. So in the likelihood, what is the band that we are eying for H2?
Just to ask you a question. Are you looking at a stand-alone or a consolidated basis?
Sir, I'm looking at a stand-alone basis only.
So yes, I mean, like I said, honestly, I don't pay that much attention. I want to be very straightforward to whether I'm making a 63% margin or 65% or 61% or 62%, it's more of a -- especially on a quarter-to-quarter basis, we really wouldn't -- on a month-to-month basis, we won't pay any attention.
We've been -- I mean, we have this issue with the supply chain for some time now, and it's obviously cost us money. And I will not say 100%, but I think like most of the issues in terms of the gross margin decrease will be related to certain supply chain issues that we have like I said, we used to specialize everything we always quite specialized so in long term making like I mean it may be their own comparison, but if you're making one-way Bharat train or like a [indiscernible] then every component is specified. You change any component, any electronics, anything is not easy and our printers are built the same way like it's done.
We don't -- it's not like steel. I can change your steel from Tata Steel to JSW to -- I don't know...
Got your point.
All of them are like really technically specified and it's a lot of testing and other work to change from anyone to anyone. So a lot of times, it's not like we also feel that this other thing is available, and we got to use that. But we have to design the product with that chip in mind or that component in mind. And to -- you can't just keep changing. So that's the issue that's there.
And of course, there's been a little bit of rupee depreciation versus the dollar almost not affect us that much because some good chunk of imports in Euros and Japanese Yen and all those things, some part is dollars and so on. So obviously, these various little factors are there. Like I said, so sometimes, yes, maybe we should -- we could also have been like our competitors and be more aggressive with the price increase. But honestly, because we were having supply chain issues, we will not -- our customers are anyways unhappy because they were waiting for printer deliveries and other things.
We do not want to take a price increase at that same time when some of our supplies were delayed both on the consumer side on the printer side, especially. And then also at the same time, talk of a price increase, we feel first if you just sort out everything, get everything back to normal then we'll talk about price increase.
So current situation, sir, have we completely overcome the issue or there are something more that will percolate for the H2 also?
No, no. I mean, obviously, some of the inventory that we've approved to purchase is at a high cost, so it will be there. But hopefully, the cost increase would take care of most of that. I mean the price increase. So we'll see.
I mean, I don't know and like I said, we might see more of an impact on the Q4 because we've given a notice out to our customers. So I think the price of these will not really be rolling into maybe a little bit later this quarter, towards the end of the quarter.
And of course, on the inventories also they're at a higher cost and hopefully sorry, I'm not also hoping because of some of the cost increases that we faced, we are also hoping that they're not permanent in nature [indiscernible] have to work through this whole thing.
So any price increase that we are expecting could happen for quarter 4 only because you have given an upfront date to your customers.
It should start towards the end of this quarter the basic [indiscernible].
Got it. Got your point. So when we look at the inventory part, which we have been speaking for the non that now the inventory has gone up to INR 70 crores. So what should be the percentage breakup between the value for printers and consumables in the INR 70 crores inventory figure. Only a percentage. Yes.
Yes. Saket, it depends on the strategy of the management, right? I mean, sometimes, we might get a better rate, and we might purchase at certain volumes. So there is no fixed percentage or in one of the inventory turnover that we can have. It also depends on our new supportable MRP, which are calculated for each SKU. So that would depend. I mean there is something like a standard, which we have to...
No, sir. I'm asking about the breakup of INR 70 crores. Out of the INR 70 crore, how much would attribute towards the value for printer and how much would be the consumable and the spare part.
Saket, I think this is probably some confidential information. You have the financial setup at the within websites as well as on the [indiscernible] So if you can take it there.
I didn't get you, sir? Come again, sir?
No. The breakup would be slightly of a confidential nature.
Okay. Okay. Not an issue. And lastly, to Shiva sir, so we have always seen that the management, the Board has always been has been stakeholder-friendly and in terms of in distributing cash to its investors. And as has been the case historically, historically, we are getting 2 dividends.
Firstly, once the 9 months numbers are there and then the final account. So in the very likelihood that should be the nature this year also, taking into account the cash generation that has happened. So that understanding for investor base is correct because this time also we have come up with an acquisition in Netherlands or do you revise the payout dividend sales going here? So what's the thought process in sharing of the cash or the cash allocation strategy which you have already added, I think the last call also. So if you could throw some more light on that here.
I think that honestly, this was discussed in a lot of debt last quarter because I think -- in fact you have only raised it up, I'm not 100% sure...
Yes. I just wanted the reiteration on that sir.
The Board has decided that INR 50 crores is what we'll keep as cash on books, including whatever investments, cash, bank management, whatever form of liquid investment how you want to term it. And we have our limits for any acquisition or other opportunities that come -- and obviously, we are looking also at other opportunities. We've been clear about that, like how MARKPRINT, there was an opportunity and so on.
So obviously, we invest in our growth and we get the right type of growth opportunities and acquisitions, we will do that. And whatever more than INR 50 crores of the Board has set the deal largely performed back to the shareholders. What format it will take, whether it would be a 9-month dividend or it will be a buyback or some other form, we might not say that offhand in should be the decision definitely you will -- everyone will know. But that's the -- so that nothing has changed on that front. I mean any specific questions that are there on that, I can address them, but I...
No, sir. Not at all. For this year, it's...
Yes. Just -- Saket just to clarify your query. On a stand-alone basis, the inventory has increased from INR 65 crores to INR 66 crores. So I think INR 70 crores, the number that you got for the -- it might be from the consolidation number.
And we're looking at the consolidated number...
Yes. And obviously, because we've told you that we've included markets numbers. Yes, as well as [ IP ] numbers. So those numbers are also counted. Contribution from them also was there.
For the Mask Division, is it done and dusted now? Or are we doing good work. I think the last time you did mention about the Mask Division, also some prototype being developed especially for your customers. So what's the take on the Mask Division?
We are still selling masks. We actually are still doing a reasonable amount of business. We will close in the [indiscernible] for the reason that even it has not happened. But yes, it's continuing. I'm not -- it's not a big business, it's not declining as much as what I would have thought, it's okay. We don't -- I'm think I'm not sure what you're talking about. So...
As I can remember correctly, you spoke about a particular type of mask being done for your customers -- the customized mask going there for a particular -- for your customers only. If I'm wrong, then I stand corrected there. That was my question that are we developing any different variety of masks for them? Or how is this segment going to contribute? Earlier you have mentioned that this is only for the purpose of the CSR activity and taking benefit of the appreciation.
So it will continue to that extent because there are still many large customers we supply to. And I guess they continue to order on us. So we continue supplying it. But it's not anything major in terms of revenue or profit or something so...
Is it in this 5% to 8% Mask only sir, for the revenue? 5% to 8% revenue has been contributed from the Mask segment for the quarter?
So as of now it is 3%.
3%?
3%. Yes. Which was similar to the last quarter as well.
And sir, no update on the Liberty Chemical or Videojet, sir. The status quo for the two.
Absolutely status quo.
So that's all from my side. I was just trying to make sense that the -- there is a continuity of the business volume and the sentiment improvement for H2. As we have always seen that H2, the second half for us and for the industry, has always been better than what H1 is. So in the very likelihood keeping in mind the factors that this resulted into some higher cost and some nonavailability of spare parts, we could look for achieving growth on top of what H2 we did last year. So that this basic premise is correction.
I mean these are all hypothetical, so I cannot say anything. But yes, we did have some order that we could not fulfill. We had some orders, like I said, in the C and D grade customers where we actually might have lost some or not able to meet their timelines.
So -- but we are executing those things and clearing out these backlogs now. So I cannot say what we would have done or what would have happened because that's all hypothetical now.
Sorry, to interrupt, Saket. I would request you to please e-mail your questions. The next question is from the line of Rupen Masaria from RN Associates.
My question is to Mr. Shiva Kabra. Sir, in the medium term, that is, say, over the next 3 to 5 years, where do you see the current industry? I mean coding and marking industry because currently, the current size is around INR 1,500-odd. So over next 3 to 5 years, and you are enjoying 18.5% market share currently. So in the medium term where do you see that growing? And secondly, how do you see to increase the opportunity landscape for Control Print as a company maybe by venturing into adjacencies like say, for tracking and tracing or maybe some software-related stuff. So if you can throw some light on that?
So I'll try my best. Thank you for I will say that as far as the coding and marking business goes, it was about between INR 1,600, INR 1,700 crores last year, including the unorganized segment and the organized segment was somewhere between INR 1,250 crores and INR 1,300 crores, that is us and our 3 biggest competitors, about INR 1,200 crores to INR 1,250 crores.
And so in that, obviously, Mr. Kabra is someone that we annually report. So the Board of Directors has set out a target of INR 400 crores in -- by March 2025 for Control Print. So this is the stand-alone business we're talking about. With our target obviously with our subsidiaries or associates or any other investments we do in the meantime will hopefully cause, contribute more to growth.
And as we have intimated in the past, you don't have a major CapEx plan between now and INR 400 crores. Of course, there is some. There's a few crores we spend every year and we keep improving our facilities, but nothing major, not really more than what the depreciation rates would be, so we expect that most of the profits we generate would be of free cash flow and depending on the type of acquisition opportunities we have, we look at those as the board has given us an indication of how much cash, which we already have that much, if not more, and to look at that. So I think that's the broad strategy that's there. And like you said, as far as adjacencies and other things going, obviously, MARKPRINT was an opportunity that was there.
And because essentially, we are in the coding and marking space, which is the simplest form of printing. We are the lowest thing because it's a date code and a batch code. Of course, it's difficult to print on the line. And then you have like a big printing presses made by Domino [indiscernible] together or HP Indigo, Kodak, those types of people. And there's a big space in between in the packaging sector. And of course, there's a lot of specialized printing presses for ceramic tiles or textile, we're not focusing so much on that. But in the packaging sector, there's a big space between the huge presses and the coding and marking business. And that's an area where we are trying to look at -- and which is where we focus on the [ marketing and tax issue ] to see if we can develop a market, like you said, on the adjacency in that area.
And definitely in track and trace, we are already working on it. And we actually are having more partner-driven solutions in that, but it's something that we're also looking at now or looking at our solution, which will also may be partly powered by some of our partners, but we will be focusing on selling the entire solution from Control Print, and that will hopefully give greater sales and success in that area.
So far, it is more pharmaceutical driven. But of course, I do believe that the [ feasibility ] solutions will increase across the board. And yes, of course, in a lot of cases, we do contribute software also along with our printer [ on integration ] that happens. So yes, these are all areas that obviously we are working on. And -- and as far as the coding and marking business overall, like I said, our own task is to hit 400.
And we do believe that the coding and marking business will grow at about 1.5x GDP of industrial production in India for manufacturing growth -- manufacturing growth will be the best proxy, but if it does approximately, that's not the case, we assume that manufacturing growth and GDP growth will be the same.
So that's all where the overall coding and marking business goes and our OEMs. And of course, what will happen besides the adjacency that we've already discussed. It would depend on what sort of opportunities come our way between now and in the future because in some cases, it's not practically possible for us to build in-house, although we have the capabilities, it will take us a long time, and it will make more sense to purchase.
Okay. So basically, sir, you highlighted that industry is growing at probably 1.5x GDP. So within that, I think around INR 1,200 crores to INR 1,250 crores, that's the pie enjoyed by unorganized player. So maybe a migration from unorganized to organized because as you alluded earlier, like packaging or across the board within the economy, there is a clear-cut migration of market from small unorganized player to a corporate organized player.
So maybe how do you see the pie, I mean, so INR 1,600 crores, INR 1,700 crores, that's organized market. So around INR 2,800 crores, if I add unorganized. So within the shift within the industry from unorganized to organized, that is 1 part.
And secondly, sir, of late, regulatory requirements has gone up, like, say, on the pharmaceutical authority or top 300 formulations now there has to be a certain type of coding and marking. Yesterday, FSSAI came out with certain labeling norms for brand manufacturers. So in the light of all these positive tailwinds -- what is your view, I mean, on the industry going forward, like one, migration of share from unorganized to organized and second, the regulatory requirement. So the way in which industry grew in the past, maybe 1.5x GDP.
Going forward, can one expect a player, organized player like Control Print to grow at a higher than industry rate within the organized pipe. If you can throw some light.
Yes. So just I think the first -- maybe there was some misunderstanding, but I said the organized market is INR 1,200 crores to INR 1,250 crores. Including the unorganized market, it is about INR 1,600 crores to INR 1,700 crores.
Okay.
About INR 400 crores to INR 450 crores in coding and marking industry. And also I said in that, obviously, the coding and marking INR 1,600 crore or INR 1,600, INR 1,700 crores business overall is growing at the rate of about 1.5x real GDP, not normal GDP, but real GDP. Within that, we are targeting to hit INR 400 crores by March 2025. And of course, we intend to do it without any real capital investment. We don't need to do that, we believe, we intend to maintain our overall, of course, and I think there's been a lot of debate on this conference so far regarding margins and that 63% and 61% and whether our EBITDA is 23% and 25%.
But we are roughly being in the same zone, if not higher. Overall on a longer-term basis, obviously, we expect to improve -- so I think that's -- like I said, that's what Control Print's aim is. Besides that, we are already working on exploring these adjacencies. These are new initiatives. Obviously, we are ready to invest money and we spent, I don't know, some amount of money in the MARKPRINT acquisition. And we're spending -- going to spend fair amount of money developing our solutions for that for the Indian market also and for MARKPRINT to try and grow in their areas and look out for other opportunities in this space, like I said, between the coding and marking business and huge presses, which are like multimillion dollar solutions competing with conventional presses like Heidelberg or [indiscernible] in those types of people.
So that's where the thing is as of right now. Secondly, coming to the track and trace. I don't want to say for the pharmaceutical thing, I mean, just being in this business, I mean, I know that the sound is a bit -- I should be very excited, but the pharmaceutical track and trace requirement came out like 10 or 15 years ago.
And everyone knows that the pharmaceutical lobby for the industry association is very strong. So in the past, government has come out with many proposals, even they came out of the regulation and they set deadlines. And honestly, the industry, not only pharmaceutical and in some of the other industry associations, they have a tendency to make things voluntary is that the way like we do more [indiscernible].
Of course, I'm not saying anything against it. It's totally -- it is just not our area to -- because the government is looking into it actively and they are interfacing directly with the Industry Association. But I'm just saying in the past, even deadlines have come and they have been -- either the deadlines have continuously shifted or they have even being removed, the regulation.
So it's difficult to make a strategy based on something that might happen, which in experience has not happened continuously. So this is not a new thing. So I think that we are more focused on what sort of innovations we can deliver to the customer, what sort of values we can deliver to the customer and not we will be relying on that the government is going to take out a big stick and hit everyone with it, and that will force everyone into buying our solutions.
I now hand the conference over to Mr. Karan Bhatelia.
Shiva, closing demand that you will make?
I just wanted to wish everyone happy Diwali. I know that this is a very busy time for everyone because we will have other results coming where we are evaluating coming on more and within the time. And of course, this is a time for celebration, so really all the best for everyone.
And like I said, we've had a not very eventful Q2, but we hope to continue this going forward in Q3 and Q4 hopefully, [indiscernible] resolves the lingering issues that are there regarding supply chain stuff and just focus on our performance and our customer satisfaction going in the next 2 quarters. And of course, we'll catch up with all of you again sometime in the third week of January and thank you to Karan and the AMSEC for hosting this, and thanks to each and every participant for taking their valuable time and Happy Diwali.
Jaideep, do you want to add anything?
No, just wanted to wish everybody a Happy Diwali, safe Happy Diwali and wish you all the best. We will see you in the next Q3 quarters earnings.
Thank you very much. On behalf of Asian Market Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.