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Control Print Ltd
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Ladies and gentlemen, good day, and welcome to Control Print Limited Q2 FY '25 Results Conference Call hosted by Asian Markets Securities Limited.
This conference 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 Markets Securities Limited. Thank you, and over to you, sir.
Thanks, Anaya. A very warm afternoon to all. We welcome to the Control Print Limited 2Q FY '25 Earnings Conference Call hosted by Asian Markets Securities.
From the management side, we have Mr. Shiva Kabra, Joint Managing Director; and Jaideep Barve, CFO.
Now I hand over this call to Jaideep for his opening remarks. Post that, we shall open the floor for Q&A. Thanks, and over to you.
Yes. Good evening, everybody. My name is Jaideep Barve, and I am the Chief Financial Officer of Control Print remitted. Welcome, everybody, to the earnings conference call for the first half of the financial year to '24/'25 of Control Print Limited. We appreciate that you have taken out time from your busy schedule to attend this call. With the festivities around, I take this opportunity to wish you and your families a happy Diwali.
Mr. Shiva Kabra, the Joint Managing Director of Control Print, also joins me on this call.
For the first timers who are joining us on this call, more information about the company can be obtained by visiting our website. For information, the detailed presentation has already been put up on the website as well as in the investor presentation notification on both the exchanges for this call.
Let me now provide you some highlights of the performance of CPL for the first half of financial year '24/'25 on a stand-alone basis.
The revenues from operations. On a stand-alone basis, the total income for H1 is approximately INR 185 crores. This is a good growth from approximately INR 165 crores in the first half of the previous financial year. Just for information for financial year '23/'24 and financial year 2023, the total income was INR 347 crores and INR 295 crores, respectively. Pipes, food, cable and wire, dairy, steel and metal and wood remain our top [Technical Difficulty].
Sorry to interrupt. The line to the management has been dropped. Please stay connected. We have now the management line with us.
Sorry for this technological glitch, but I'll continue with my speech. Regarding the expenses and profitability levels, the cost of goods sold has remained steady at around 40% of sales in the H1. Management remains committed to optimize the procurement costs and also look closely to the economy efficiency and effectiveness of operations. This, we feel, can definitely lead to reduction in the operating costs going forward.
Employee costs have marginally increased due to a proposed employee incentive program. Depreciation, manufacturing costs and other expenses are incurred in line with the business needs.
The EBITDA, PBT, PAT and EPS excluding exceptional items, grew by 7.3%, 11.6%, 15.5% and 75.3% on a Y-o-Y basis. The way forward is for coding and marking, we change sales strategy to focus on bigger and key accounts should result in both the jump as well as having a good quality of revenue. We would have a better penetration into the track and trace segments. We have some good strong orders in pipeline. Global footprint will be increased by focused management of overseas subsidies and installed base will increase focusing on increasing our larger market share.
The floor is now open for questions.
[Operator Instructions] The first question is from the line of Karan Bhatelia from Asian Market Securities Limited.
[indiscernible] others for this quarter.
Sir, please, can you repeat your question?
Yes. Am I audible now?
Yes, sir.
Jaideep, with respect to the number of printers sold in this quarter?
So you want the number of printers which are sold in the quarter?
Yes, yes.
Well we sold 681 printers in this quarter, 681.
Right. And also, can you share the revenue mix between printers, consumables, spares and others?
Well, for this quarter, the breakup between printers, consumables, spares and service income is approximately 13%, 64%, 7% and 15%, respectively.
13% is for printers, consumer is 64%.
7% is for by spares and 15% is towards the service income.
The next question is from the line of Aman, who is an individual investor.
Am I audible?
Yes.
Yes, you are.
I just wanted -- basically, I'm new to the business. And I just wanted to know that, what are our internal growth projections for all the acquired companies like Markprint, Codeology, CP Italian and a JV with V Shapes? Like it is in line with the overall Control Print growth of, as you mentioned in previous call of 10% to 12% or a higher side. Do we acquire for higher inorganic growth of the company? And the second question is, I just wanted to know the average pricing of our single printer?
Yes, Shiva, you want to take this question?
Yes, definitely. Thank you, Aman. So in general, our industry growth is anywhere between 10%, 12%. And that's more for the stand-alone coding and marking, whatever acquisitions we made, that's obviously to increase the longer term organic growth of the company.
So one acquisition was quite strategic in nature, which is our own subsidiary, CP Itlay, in which we bought V Shapes. So that's [indiscernible] business, which is in the packaging sector. Then one thing which we developed also through sort of [indiscernible], but more of where a team sort of came over and the whole thing to happen was for our track and trace business, which is under the QRiousCodes brand. So I think you can see more information on our website about that.
And what we're doing in the Control Print is coding and marking and the digital printing business. So that's under the Control Print brand. So I think if you see it, we have basically -- essentially been focusing on expanding our organic sales growth capability by looking at some acquisitions to improve the, a, technology coverage; and b, to improve some geographical coverage. So if you look at like is it track and trace and of course, investments in digital printing and getting to the packaging machinery business is more on the technology side and then certain other things where we made certain investments that is for fillings and poles in our product range, which is the Codeology market and also for the geographical expansion. So it's to increase our organic growth rate for the -- at least the medium term.
Okay. Okay. And one more question, sir, exactly, 64%, as you mentioned, the consumable. So may I know what is the exactly consumables? What is actually the consumable part?
Yes. So normally inks, like printer will use ink -- like how you have an inkjet printers and you use ink. So even our printers and industrial inkjet printers, the main consumer is ink. Of course, in some in printers the -- inside in the form of cartridges, there are also some solvents associated with the inks, there are ribbons in some cases in certain cases. So that will be the consumers. And there's also service and spares and filters business, which is another type of repeat, but it's not a consumable proceed, it's more of a [indiscernible] on the spares business, it's on the spare and service business. So that will be a recurring revenue part of our business, [indiscernible].
So major part is basically the consumable, which printers use?
Yes. The consumer is the largest sector of our revenue, then the second bigger sector or about equal, I don't know exactly JV [indiscernible] numbers would be the service and filter and parts business. [indiscernible] business would be about the same size as the service parts and filters business.
So for this quarter, it is 13%, 64%, 7% and 15% within printers, consumables, spares and service. Okay. And you -- sir, you didn't mention the pricing of our one thing -- the average sizing of the printers?
So we got a range of printers. So there's no single printer that we sell. So unless you tell me which printer exact model [indiscernible] talking about, it's impossible to know. But printers go from about INR 95,000 all the way to like close to INR 40 lakh or even [indiscernible]. So it depends on which printer, [indiscernible] because there are so many different printers that we have, depending on the need of the customer.
The next question is from the line of Naysar Parikh from Naysar Capital.
Am I audible?
Yes, you are.
Just 2 questions. One is that, this [indiscernible] seem to be low [indiscernible].
Naysar, you are cutting out. If you could just repeat yourself again [indiscernible].
Sorry. Is it better? .
Yes.
Yes. My question was the new printer [indiscernible] in terms of Y-o-Y [indiscernible] volume and even percentage sold. So if you were [indiscernible]? And secondly, [indiscernible] over the OpEx cost employee [indiscernible] that's [indiscernible].
Sorry to interrupt, sir. Can you please speak a little clearer and louder. Your voice is not clear.
Sorry, is it is better?
Yes.
Could you get my first question, Jaideep?
So I got both your questions. I think in the first question you raised was the number of printers sold and that it's lower than the past trajectory and whether that's [indiscernible] slowdown in the business has become correct? Or is there a pickup that is expected? Is this correct?
Yes, correct.
Approximately something or so. So like I said, we've changed our sales strategy quite significantly. And we've got out a lot of the smaller customers because we -- in the end [indiscernible] the biggest and best customers. [indiscernible] want to be in the 4-star range. You wouldn't want to be in the 5 stars [indiscernible] category.
So in the beginning, it had some [indiscernible] on the sales numbers. But if you look at our consumable number, the overall [indiscernible] grow. So the quality of the sale is [indiscernible]. So the amount of aftermarket business we're getting for printer and the life of the printer in terms of operation has increased because in general [indiscernible] Just to take a [indiscernible], would -- if they buy a printer, they are going to use it for the next 8, 10, 12 years.
[indiscernible] as a small company, it might be successful. They might not be successful. They might shut it down, anything might happen. So maybe the life of those printers is less, it may be 3, 4, 5 years.
And obviously, [indiscernible] would reduce more [indiscernible] line, as an example, I'm not talking about a specific customer, again. But there is a smaller company who also produce less bottles of coconut oil through that line. So as a result of [indiscernible] the business will get from [indiscernible], for example, would be to the average 2 to 3x [indiscernible] small customers, and it would also be 2 to 3x longer in terms of duration that the printer would be used.
So when you look at it from that angle, obviously, that's sort of where we shifted our focus. It has created a more of a -- rather than affecting our sales number, it's slightly affecting it, but more than anything, [indiscernible] sort of amount of lumpiness in the sale. So I think the sales pipeline is still strong. And I still expect that we would sell the same amount of printers of what we did in the past, and there will be a better quality, but not right now, I cannot say that it's going to be the same levels of quality.
[indiscernible] I think that we're going to sell as many printers as before with a significantly high level of quality, but I'm quite sure what we will don't do is reduce aftermarket business [indiscernible] selling of higher quality than [indiscernible] on average.
Okay. But shouldn't that reflect in some way because we've been talking about this for like over a year now. So shouldn't that reflect in someway in terms of higher consumable sales or higher average selling price per printer? Volume could be low, but there should be -- we are selling better quality printers, shouldn't that reflect in revenue or in consumables, if we are selling to [indiscernible]
Look at our average consumables business for printers [indiscernible], and that's driving the sales forward. So I don't know if you -- that number during the presentation [indiscernible], but the average business for printer, the average [indiscernible] of business for printer has increased, and that is what is driving our sales. And of course, if you look at the strategy that [indiscernible] affect for [indiscernible] years. So it's still taking place. There are like 100 sales guys we have, there's like 300 so people. So it takes time to -- if you want to believe in what the management says sometimes and get it implemented down the line.
But from what we see is that the quality of steel is improved, and that's why the business for printer has improved. And that's obviously because the marginal sales in the last year to 1.5 years have been better, and that's what's driving the business -- consumables business [indiscernible].
The second part was about the operating expenses. So I think that's the second question that you wanted to put through, if I'm correct, and you also mentioned something maybe for employee costs. So I think what's happening is that we've got in 3 business that we've invested in like the track and trace, the packaging machinery business and other things, even in India, -- and we've not really done the numbers from that [indiscernible] in some parts of our digital print. So it's not really contributing to the revenue right now, but I expect that it will significantly in the very near future because we have some projects even as we talk [indiscernible] which we are to implement or other execute completely because we don't sign off on it, we don't start a [indiscernible].
So I think there is some revenue from the track and trace [indiscernible] revenue from the packaging. And so what part of the operating expenses that are there, are there from the non-coding and marking businesses? Because in the coding and marking we're very conscious about how much money we are spending.
And if I give a pure breakup and I broke out each -- to track and trace into it a separate division and I do packaging in a separate division. And I do coding and marking as a separate division, and I took out investments in the digital printing R&D and stuff like that. And then if I break it up in 4 separate businesses, one is coding and marking, one is on the digital printing part and the [indiscernible] that we're doing there. One is track and trace business and a separate P&L for that in the last 2 years [indiscernible] business. You see the 3 businesses will be running into a loss or we [indiscernible] resources and one business would have the coding and marking business [indiscernible] further increase.
But obviously, we'll be giving the consolidated statement. I'm not making an excuse [indiscernible] because [indiscernible] it is my decision and the company's decision that we want to pursue these opportunities, but there is an investment period before sometimes in these cases before we can see it all.
Sir, what would be the investment or what would be the loss from the track and trace and packaging business in this quarter or half year, if you can give that number?
So I don't have those numbers off-hand because we ourselves have not separated out completely. But I would say like it will be in the order of few crores.
But -- okay. If you give some of that number that would help.
But obviously, we have a sort of number of sales people, employees cost, and it will be at least a few cores a quarter towards that. So some of the OpEx that you're seeing, both in terms of other expenses and in terms of employee cost is related to these other businesses. It's -- I would say, like the coding and marking cost has not increased that significantly or lesser than what the revenue increase has been. So if you look at the delta on that business to me, from what I know is more profitable.
But I mean -- the thing is that I have not put it out in the investor presentation, so now I'm a little bit reluctant to talk about it exactly. So that's something I'll have to discuss it with Jaideep because we can pull it out next quarter or do something like that maybe at the end of the year.
Some of these businesses are also more lumpy in the packaging side and the track and trace because you get -- you can get projects which are significantly higher in terms of billing. But till you don't ship out and you don't build some [indiscernible] not considered that as revenue til the day the project is signed off, the customer has accepted it, and accepted to payers. So there's some lumpiness to those revenues, I want to be straightforward with you. [indiscernible] increase the size of that business to the extent that the lumpiest reduces.
Okay. So if we look at it, right, we're growing at a gross profit level or somewhere around 20% plus, but EBITDA is down to flat, right? So just going forward, do we think that from a loss perspective of the other business and investment that is not going to go beyond it and we'll start seeing some revenue push? Or do we think that there is still some time or some more loss that needs to be incurred there? How should we just think about it because revenue was up 17% and then EBITDA is down. So how should we think about the next [indiscernible]?
So what I was talking about was on a stand-alone part [indiscernible] a few crores [indiscernible]. If you look on the consolidated side, you see that there's a significant negative as compared to the stand-alone. So again, the stand-alone profit has increased but even in the stand-alone, which is Control Print in India, there is a substantial set of other expenses that we have incurred in these other businesses within our own the areas directly being looked at by the mothership company.
And if you look at the subsidiaries and you add that up because obviously, we're investing. So right now, I can only say that we are in the investment phase. I had said in the previous call that -- like I'm looking at 2 full years before the strategy is executed, and we're working on all sites because in the end, we are not here to -- I mean -- I'm not gonna [indiscernible] in the end, like my objective was very straightforward because we have said that to increase the long-term growth rate of the company -- and we have the types of products -- of solutions and the technology with patents and everything else that's protecting us to do that in the medium to long term.
So if that means that we have to be -- obviously, in the meantime we still want to optimize our business in the current thing. But I'm not -- of course, I don't really make predictions in any of the [indiscernible] from the past, obviously, you would know. But again, like I said, it's take a 2-year period. It's very difficult for me to look in the future, but I'm not -- like if someone has asked me overall, I would say like the first 6 months of this year has not been bad at all. It's not out of line from what I was expecting.
And what would be the revenue for track and trace now? Is it getting meaningful? Are we seeing a good pipeline? And same for packaging, if you can give some flavor in terms of...
[indiscernible] there some projects also they need to be executed till then we cannot book the revenues but it's definitely looking better than what it was last year. I think our solution is more mature also. And as a result, how it is to get that first customer to -- is more difficult. Once you do that, then it's easy to get the next set of customers and so on and so forth. So it's looking better and the pipeline is also better.
So I think, again, because these are smaller businesses, I would look at it on a year-on-year basis. And where is coding and marking is many, many small printers, you can have a comparison on a quarter-to-quarter basis and it's there for a long time. Some of these other projects like whatever revenue we do, I would look at it over a yearly period and compared to the previous year or the trailing 12-month basis, so the previous trailing 12 months because there's a lot of lumpiness to these things. [indiscernible] packaging in the [indiscernible] like INR 12 crores, INR 14 crores.
But that doesn't mean I did it today because if I get an order today, it's going to take me 6 months to execute it because customer would come, [indiscernible] do all this sampling and other types of things for them. Everything is to be approved piece by piece by piece because I don't want to send the product which doesn't work properly. I do want sort of customer [indiscernible] if you get like a [indiscernible] and then you had some problem because the [indiscernible] to something else was not exactly what he was looking for, for example. So there are some more different [indiscernible]. And it's a bit more project like tighter execution.
Our next question is from the line of Rishi Modi from Marsalis Investment Managers.
[indiscernible] update on the new employee incentive program, which you referred to in your opening remarks, what is this about? .
I didn't get it exactly. Jaideep, did you understand?
Yes. He just asked about some employee costs, which has gone up. I think you mentioned the same thing, right, about the employee costs?
Yes, yes. Sir, the employee incentive program you referred to in your opening remarks.
This is an internal management decision what we've taken to make sure that we hire -- we retain the best talent and make sure that the rewards and recognition go hand-in-hand. So that's the internal management decision what we've done. So that's why the costs have gone up.
Okay. Got it. And about this new sales strategy that you implemented last year. So when do you expect it to, let's say, start paying off in terms of printer volumes that we sell? So like [indiscernible] been saying since 2, 3 quarters that the pipeline is good and you're hoping to convert, but it isn't happening. So any reflections on the change that we made last year?
So I think that, like I said, [indiscernible] I think our own expectation is that even if you sell the same number of printers as what [indiscernible] were before that we will get a significantly higher business for printer and now that's what our focus is. Right now, we are a bit lower on printer sales [indiscernible] what we should be. Again, like I said, because the pipeline is good, I cannot predict.
But I would expect that we would do, on average, the same number of printers and what we've been doing in the last couple of years besides this -- before this. But because quality of the printers is better, I think in the long term, it will help us give a stronger long-term revenue growth. So [indiscernible] expecting to do well on that front. We're still expecting that the first half can be improved [indiscernible] if you get what I'm saying. And we would still be at that 2,700 to 2,800 printer mark at the end of the year, which is normally what [indiscernible].
But of a better quality. So.
Right. Right. And finally, so if I look at the end [indiscernible] balance sheet, the inventory has gone up significantly by around INR 10-odd crores. So like what's the reason for that?
Yes. So the main thing is these are some forward level commitments that we had from the past. And we just executed as per [indiscernible]. So we should see some benefits on that side as it comes down. One, 2 things are slightly increase out there because of [indiscernible] products that we put all the digital printing [indiscernible] doing some more R&D, we are also selling those products. So that's caused some minor increases [indiscernible] some part of it is a commitment that we made in the past. So I think by March, we should see some reduction on that, maybe not to the level in March '24, but definitely less than what it is in September. Jaideep, please give your own...
Yes. So Shiva, rightly said like some of the critical components of -- the electronic components we have made like orders with our suppliers. And that's a result why the supplies have happened now. But we got a stronger pipeline in hand. So the consumption will happen soon. And as you would be aware about our business, like we do tend to keep a certain amount of inventory for the spare parts because we got some generations of printers going on at our customers' premises. So we need to like make sure that -- you like -- they need to be serviced, they need to be replaced as a result of that. But yes, we are quite -- we are monitoring the situation very closely. And as of Q1, it was about 88, and now it is about 97 but will definitely bring down to that Q1 level of 88 or 85 as well. So we are monitoring the situation very closely.
Okay. And by commitment, you mean like you had committed to buy some minimum quantity?
So we have some economies of scale achieved [indiscernible] like the buying costs obviously get reduced by a certain amount of committed quantities.
So if I look at the difference between your consol PAT and stand-alone PAT, so that's around close to INR 3 crores. In Q1, that was around INR 4.6 crores. So it hasn't reduced sequentially. So do you like expect it to remain at this INR 3-odd crores level? Or how should we think about this?
[indiscernible] obviously, in the investment fees. So it's going to take us about 2 years to get a very clear picture of whether we are successful or not. Like I said, from my own perspective, I think I'm happy with the way the 6 months have gone of this year. So I don't think we are out of strategy. But in [indiscernible] to give predictions about the future is not real what we do. And like I said, there's also a lot of lumpiness of revenue. So even whether we do well in 1 quarter, we [indiscernible] 1 quarter very difficult to make out because primarily what's there a broad -- a huge part of the packaging business. So that is by inherently lumpy than even what marking does is digital printing. .
So again, in both cases, it will only [indiscernible] the revenue when we actually ship the equipment and we get the money in. So even if I have some projects -- with these projects are more complex, sometimes we can take months to execute. So very difficult to make out whether it's a plus or a minus. So what I do believe is that -- I agree, we've not given the exact breakup of our coding and marking business versus the digital printing, the track and trace and packaging in India in the stand-alone.
And if you look at coding and marking, it is still growing and still driving the profitability for everything. And that's why the stand-alone business has increased even though the [indiscernible] in the other 3 businesses, which accordingly would be negative as of right now. But [indiscernible] on the future. But I think we'll get a very clear picture because we've got like a sort of 2-year road map and how we're implementing this entire strategy and going to like a long-term path of profitability in this business because we believe that all 3 businesses have a fairly big opportunity size as compared to the coding and marking business.
So this could be an opportunity for Control Print to really go to something which -- where we can be in a much bigger addressable market, and therefore, we can sustain that type of strong organic growth for years to come. So like I said, there's no -- I'm not going to try and look at quarterly or short-term results out here [indiscernible] for me, the focus is to really focus on where the strategy is going over the next 2, 3 years. And we believe that this will be the best for -- normally the company or our share of the customers, for our own team and also for our shareholders in the longer term. And that's sort of where we are thinking.
But again, like I can't give any predictions. So I think that the 2 important things to look at the sales growth overall and the stand-alone profitability. And maybe in the end of the year in the results, we give at March, we'll give a breakup of the different businesses, coding and marking and then the other businesses combined, [indiscernible].
So I think those would be like the key factors, what is the profit in the coding and marking business because that's what the company [indiscernible] and then whether the sales growth is happening in the other businesses because we're not able to try to cost an early profitability. We want to want to scale of these businesses. So in the end, what we would look at now that is the sales growth happening? And is that on target?
Our next question is from the line of Saket Kapoor from Kapoor Company.
[Foreign Language] Sir, as you very well articulated and mentioned that we are in this basin stage of growing these verticals where we have invested in the overseas entity. So only my suggestion point as an investor and as a long-term investor are, number one, so when we are mentioning our current structure under the slide # -- under the slide which is being uploaded, we should also provide the numerical that is the value of our investment along the subsidiaries.
We have mentioned about Markprint acquisition and the stake being increased twice. So the -- there also, if we could mention how much we have invested so investors will get an understanding what has been the breakup of the investment from the slide itself.
Point number two, Shiva, sir, as you very well mentioned that you are not here with the job of predicting what -- what's going to be or gets worked. But sir, you are working with a business plan. And so on a half-yearly basis, at least provide us with an input of what you have thought and how things are shaping up. And also for H2, in terms of these investments, what are the steps that are in the annual that may or may not result in a probability? But we must see and investors must be knowing exactly what your line of action being since you very well mentioned the first point that you are yourself satisfied with the with the progress which we have made and the way things are going up.
But investing communities -- people in the investing community -- I'm not getting that same color or things in the numbers, and that will take time. So my first humble suggestions is that we investors must be also in the same look where your thought process is. And we are there to support you on the bases of that. So kindly look into or deliberate on what I've spoken. Sir, now coming to the second point, sir, am I audible clearly to you?
Yes, you're audible.
Yes, because there was total silence.
Sir, now coming to the numbers which we have reported, and I'm now concentrating on the first half itself. I am not going for the Q-on-Q numbers. So Jaideep Ji, you were mentioning about the employee cost being higher because of some onetime incentives? Or if you could just give any color on this INR 31 crore to INR 44.4 crore increase, that is down INR 13 crore increase in the employee benefits, what is an exceptional part of it? And what should be the ballpark number for H2 going in?
Okay. So part of -- question number one, what you said is that to give the investment -- invested amount in the subsidiary?
Yes.
So going forward, like from Q3 onwards, like this year, we would definitely like give you information about the amounts, what CPL has invested in the quarter [indiscernible] in the industry [indiscernible].
And I think Siva has already committed on like how he actually sees the business going ahead and like what kind of like investments we want to do and make sure we support them. So at the moment, it is very early. We just paid these investments early this year. I think in March 2024, we made an investment in the Italian company, where we bought out the assets of the [indiscernible] and February 24, we made the investment in the U.K. company, which is Codeology [indiscernible].
So at the moment, they are still in the investment stage. But one thing is there like Markprint, which we had acquired like way back in '22, now we are working on the business plan for them, and we are supporting them with every initiative that they're taking. And in the current quarter, they are turn positive, in fact, they have shown a good debt profit. So actually, things are looking well for Markprint. And Codeology and V Shapes [indiscernible] they are still in the national stage. So we would be [indiscernible] them and make sure that they will become a [indiscernible] in the near future and produce results.
So I'll just give my things, Saket, what happens is out here, the amount we're investing in relationship to Control Print size and profitability is not very high, in all honesty. It seems higher. And of course, everyone wants that when the results are not looking that good in the short term. And I can understand -- even I might not like it as an investor. But at the end of the day, we need to grow this business.
Now every business can go through a different phase and every person can have a different view. Like today, it could be -- that's full year India [indiscernible] talk for any other company or something. [indiscernible] , some people might view that they have to maximize their profitability and they're paying customers or something. Some person might say that you know what the opportunities to become big like Alibaba and we should be reinvesting the money in fact, raising more money from the market, even if it means some minor equity dilution at a high rate and growing the business because this is the time to create a huge company. So there can be multiple views of a different strategy.
For us, we are [indiscernible] in 3 markets, to be honest, that we are -- we have a very good idea about, but we need to understand the exact business model and specifics because we know that the opportunity is very large in all these businesses. As you go to specific projects, what we do is we are fine-tuning our business model and where exactly we want to operate, what is going to give us the short-term results, where do you want to work in the medium term and the long term. So the coding and marking business is a mature business model for us because we have an idea of what we want to do. We know the market quite well. And we've been working in this business for 35 years or something like that.
In the other spaces, we are adjacent to those markets. So we know the markets where from a technical angle or certain parts of it. But when you're actually in that business and you're going through the dynamics of the business and especially, like I said, whether we look at the packaging machinery or marking, these are products especially in digital printing and definitely more on the packaging machine, but we're still working a lot on developing certain products and investing on that side and even investing on the digital printer on our own side.
So as a result -- like I said, I'm not here to -- I don't want to give some sort of a guidance which is incorrect -- or leading an investor on, I don't want to say that this is going to be INR 1,000 crores, or this is going to be a INR 10 crores or something because I myself, I'm still optimizing my own idea of how we need to react and work in each of these businesses.
Definitely, we have a business plan, but right now, these things are still more fluid. There's still more change than what happens in the coding and marking business because when you made a change like that even in the coding and marking business is a big change, which is -- this is the focus. This is a customer that now we're going to work. We have a very definite idea of that business. We knew what we were doing. So even the market view [indiscernible] a big market, which is all the CMD customers and so on, we feel that that's sort of a high risk because we know what we're doing out here.
I want to be clear that we have a good idea of what we want to do in the short to medium term, but we still need to keep optimizing and keep understanding where we need to invest in, what we need to expand and building out our own teams and our strategies for certain things.
What we know that if the products are appealing to the customer and resolving the customers' needs then -- and we have obviously a protective moat around whatever we are selling, it's a very simple thing in the end that we need customers. We need products specific to resolving specific customer issues. And at the end of the day whatever product we sell, there should be some sort of a ring around it so that it's not easy for someone else to deliver the same type of solution that Control Print can deliver. And that's what our focus is.
And we know that we are working well towards that, if there was a problem, I will definitely flag it out, but it's very difficult for me to give a prediction of what exactly we expect the business to be and what's happening. Right now, our focus on maximizing the long-term growth. And we feel that the opportunity in all the 3 businesses, definitely the packaging, machinery, materials, but also the track and trace. And the digital printing is quite a big scope.
And even what Control Print address itself is a big scope and maybe more than the coding and marking business. So like I said, for this, this is a project for us to get something that Control Print can grow at a high double-digit type of or maybe in -- where we said our own coding and marking businesses going 10, 2% [indiscernible] in the short to medium term. In the end, we are constrained by the 10%, 12% growth.
So we need to do -- we will do some other things too so that we could say, hey, can you do 20%, 15% or 25% over the long period over the next 10 years. And this is more of a thought to go in that direction. And I think as a long-term shareholder, you will appreciate that doing that type of business with strong margins and an operating leverage will also be better for our own long-term shareholders, even though -- of course, in the short term, it might not reflect that way.
But like I said, I will try and speak to Jaideep and we try to give some sort of breakup on the stand-alone basis of the coding and marking business versus the other businesses, so people have an idea of what the core business is doing and then how much we invest in the other businesses on both an investment basis and an ongoing basis.
And like I said, obviously, in the end it all comes down to a certain level of trust in the management because we also don't want to waste our own money. But if you're doing it, obviously, we are convinced that it's something we can do successfully. And of course, like I said, only time will tell [indiscernible] successfully can be decided in many ways, but how to define it in terms of numbers is something different.
Like I said, for me, the success is that if I'm growing at like say, 12%, 10%, 12%, whatever it was, in the long term, if you could grow at a higher percentage in the short term, then -- are these measures taking out [indiscernible] maybe 15% to 30% in that range over a 10-year period. And if that's something that's sustainable, then that's [indiscernible] equation profitability in the margins then I think that is a successful business. So it's going to take some time because it's -- even the Control Print business took a long time before we created that base. We had that thing and then we went to a more where -- focus more on profitability rather than just growing.
I agree with whatever you have spoken in length now. On the 2 small points, sir. Firstly, if you could -- as you mentioned, right now, with the discussions with the CFO and the board, during the next results or maybe the annual result, as you show a well-documented negative from your side or from [indiscernible] in the encrypted way that is just merited out in proper documented -- what would give us better understanding of what you are trying to explain to us, which is very well understood.
And sir, firstly, I missed your point about our core business sentiment part. We are also witnessing a lot of consumer companies who are our customers are, filling the pain in terms of the volume growth. However, inflation has aided, to some extent, across the board, taking into account the [indiscernible] the seasonal [indiscernible]. But what is your understanding? What is the feedback from your customers from our other business in terms -- the consumer demand and the consumer sentiment? And how -- what -- I think the 400 was our Board guideline to achieve in terms of top line in 2 years, that is March '24. So we are, I think so, on path of achieving that. But if you could give some more -- spend some time on giving your thought process on how the business sentiments are?
So it's difficult to give the sentiment. What we've seen is that our own business is going stably in the coding and marking business, I'm talking about specifically, I just want to emphasize. What has happened is that, for some reason, the pipeline is good in terms of new printer sales, but they're taking a bit more time to close. So I don't know if it's because the market is slowing, the customers are not saying that any project has dropped or factories are there. So it just seems to be a little bit slower, which I think somebody has asked this question earlier about the [indiscernible] sales being a bit down.
So, again, it could be partly for a change in strategy. We're not changing our strategy. We're still expecting to sell the same amount as what we did in previous years, which means we have a stronger second half in the coding and marking business. But again, we did expect maybe that we would sell about at least 150, 200 printers more in the first half than what we have. We were expecting to make up in the second half, but I don't know if it's because of the market -- I don't -- more like big slowdown being set by [indiscernible] customer or anything.
But yes, it's not -- it's just a little bit slow in terms of [indiscernible]. That's what I would say. But other than that, the people who have the printers are using the printers, that seems to be fine. It's just a slight slowdown in new printers [indiscernible] projects getting concluded and going live. And obviously, [indiscernible] part of the project. So obviously, this is when [indiscernible] new factories, brownfield expansion, [indiscernible] some of the existing factories or lines -- first they order the line [indiscernible] last people to go. So it could be some slight slowdown there, but I don't know. I really wouldn't know.
Sir, I'm sorry to take much of your time. But our consumable demand is dependent is directly proposed to the utilization levels. So as you have already many times mentioned that it is on the lines on which the printers are being installed and at what pace the production goes, that depends -- that is directly related to the consumable getting replenished at a considerable pace. So taking that into account, what is the thought or what is the understanding in terms of the consumable with an investment from the customers whom we are servicing.
Yes. I think I mentioned earlier that the consumer business has been the sales growth driver for us so far this first half of the year. Now again, I don't know if it's because the quality of sale has been better over the last 1.5 years, and that's why the printer consumables has increased, which means [indiscernible] more from each printer which could also be in our specific case, not related to the market, but related to the fact that our overall quality of installation has improved a bit. So it could be that.
But again, like I don't know off-hand. But people who have the printers definitely seem to be using them. For some reason, the new printer pipelines seem to be nobody dropping it. It's not like you're losing that any cases or anything. It just seems to be that the pipeline is taking a little bit more time to move ahead. So it could be -- we think -- I think it's probably because you're moving more towards larger customers. And therefore, the pipeline is being a bit past a bit slower to move through and conclude because larger customers have a higher degree of sign-offs. So I would again not know, but yes, the people who have the printers seem to definitely using them. But the new printer sales as -- The pipeline seems to be a bit slower. So like I guess said, I don't know what that's supposed to mean. [indiscernible] we still expecting to make up in the second half of the year. Like I said, we are still about 17% odd market share in the overall market and about 21% amounts to big 4. So we can still make up even through market share gains even if the printer sales or the overall market is slightly slower.
Right. And Jaideep sir, your last comment on the employee benefit part, what is one-off there or for a quarterly basis, what should be the stand-alone number we should work on -- this quarter, it was INR 23 crores?
So what happens is that we have -- we normally have about 17% or 18% of the revenue as a rental cost. So this particular quarter, we made a provision because we are -- internal management has taken a decision like to make sure that critical employees are the high performers or senior person contributed to the company's growth and who have stayed loyal to us, we need to recognize them. So it's still an internal management decision. Overall, by the end of the year, it should just streamline because with the increase in the revenue [indiscernible] would definitely be on the same line. So we would like look up to probably about 18% or 19% or 17%, 18% of our sales as the employee costs for year-end figures.
And for the other expenses, I think you did [indiscernible].
What we do is it's more or less like as per the [indiscernible] the business. So there might be like some quarters where it might be higher as compared to the sales, but we are normally -- like our normal ratio is about 13% of the total sales. They would lift to the same levels for the year-end ended 30 of March [indiscernible].
And sir, can you give me the -- our annual profit number for the last 3 years and the total investment that has gone into these subsidiaries? Do you have them handy, Shiva sir?
So Saket, what I can do is that we can maybe connect later and then I would hand you [indiscernible] to you.
No, the total investment number you have, sir, how much still date we have invested in these subsidiaries, Markprint, the Codelofy and V Shapes?
The total investment is about INR 75 crores.
Okay. So here, Shiva sir, I beg to disagree, INR 75 crore is the -- is our last year net profit PBT numbers. So that's a substantial amount investment that has gone through. You were mentioning that...
So this is investment in equity as well as [indiscernible] of loans.
[indiscernible]
I mean, I put on the last call, like I said, my view is that even if we lose INR 28 crores in our packaging machinery business that was a budget for them. [indiscernible] lost about INR 8 crores in the first half. So we've been doing better than what we expected. So what I'm saying is India an investment phase. And I do believe that for the size of Control Print and for our long-term thing, these are initiatives, I don't like I said, look at INR 75 crores as I took it in 1 year. I look at this as these are things that we're investing over for 5 years, along with the operating costs, along the operating expense, you're calculating everything and you're also calculating other profitability growth.
And honestly, the numbers will look even worse because even if you look at our stand-alone business, even in there, we must have lost crores because we are investing in a stand-alone business because the track and trace comes under the stand-alone business. The digital printing a lot of the expenses and the investments and the R&D is coming in our stand-alone business.
And even the packaging business, there are a lot of people in India, like not a lot of people -- there are a few people in India also besides [indiscernible] who are also involved in that business and they are expensive people. So what I'm saying is that even if I take that out, then like I said the coding and marking business profit might increase, but the stand-alone came down as a result. And when I add the consolidated [indiscernible] down.
But again, like I said, I'm looking at what is our long-term story [indiscernible] over the next decade. So that's why -- obviously taking my responsibility. And I'm well aware -- not well aware, but I think obviously, I've got a mandate from the Board that within this amount of risk or investment -- what are the things I can or cannot do. And obviously, we've got some internal objective that we shared with the Board and they are convinced that the plan is viable and should be executed and will create value for our customers, for our employees and also for our shareholders. And in general, for our society.
So we're doing innovative things like I said, and all the projects we have are not only for generating significant margins, but also that they have some areas where we have some technologies ethologies and some variations, which means that it's a protectable niche. And it's something that not only -- like it's a big sales market, but we also have some competitive advantages. And some areas of differentiation, which makes it very difficult. In some cases, we will sell outright patents. We have a whole bunch of patents of course [indiscernible] the packaging machine business, where people will find it difficult to get into the same things -- give the same types of solutions as us.
So like I said, again, I think that we've asked for some patience. And like I said, I think what we'll do, we'll give some more definition on what's there in terms of the division-wise numbers. But in the end, for me, this was part of the plan. And I'm comfortable. I know that we have to invest sometimes to -- and definitely, this is all those cases where I feel that so far, we're okay. We're on track.
Sir, I also second your views as an investor. The only point was that your thought process and your endeavor should be well articulated to your investors also so that they are also on the same path and the same thought process where you are. And also, there should be a clear narrative to the new set of investors who would be looking our company as an investable line item. So these are my reasons that why I have dwelled on them throughout the call that there should be that visibility and the endeavor should be there in the mindset of our investors also.
Other than that, I second your view said that these are investments and in no way can be fitted as losses or otherwise, we will never be changing our profile and we will never go into that gross look which you are trying to take the company forward.
But on the sake of repetition also, that could be well articulated and well -- to the few investor community also. Otherwise, we will be losing our moto [indiscernible] confidence which we have developed over a period of time. And I'm really thankful to you for spending the time, and you are very patiently hearing to me to me and answering all the questions. Best of luck to the team sir and [indiscernible] to everybody.
Our next question is from the line of Saket, who is an individual investor.
Am I audible?
Yes.
Yes, you are.
So my first question would be like in certain industries like diagnostics, companies or equipment providers, they give their equipment on rent and then they get a revenue on consumers. So what is our revenue model? Do we [indiscernible] say, is it an [indiscernible] sale model of printers and then consumers follow? Or we also give something on that annuity or say, rental kind of a model for our printers?
So we've got to different revenue models you rightly picked up 2. So depending on the customer needs and like depending upon how the negotiations happen, so either we sell it in outright basis or we have a lease model or [indiscernible] on rentals. So it varies upon customer-to-customer basis.
And what would be the, say, mix between, say, lease versus outright sales? .
Saket, this is like a bit of confidential information [indiscernible].
Yes, coming to the -- I think something that has been discussed in the last couple of quarters, like we are repurposing or relooking at how we are focusing on the key accounts. Now based on how key accounts are approached that requires a very different kind of orientation, right? You look at -- it's more like solutions selling, technical selling, you look at portfolio, it's also portfolio selling. So vis-a-vis somebody who is just looking -- vis-a-vis sales profile of feet on the street guide. Now when we repurposed or relooked at our strategy wherein we are focusing on those key accounts, and trying to land and then expand. So did we hire new people or we repurpose our existing sales force only to achieve the same objective of expanding or focusing on the key account?
So a large part of it is our existing base because they're already capable of doing it. What happens is because of servicing smaller customers also like they get distracted. So they're already capable of handling along the larger customers. But now the focus is 100% on that. And more importantly, when we are taking new people in, and obviously, we have a attrition level and there is a turnover that happens, then we're also getting more people with this [indiscernible] which is, like you said, more in the solution selling space, more in representing the company to a different level. So I think that's also -- so it's a transition that's happening.
But again, what happens with a company like ours, which has an existing base, which has an installation, these changes -- we don't want them to be disruptive. We want them to be revolutionary, but over a long term. So because -- I mean, we don't report a disruption in the short to medium term because that will affect our business negatively because [indiscernible] customers' production levels and other types of situations are also very conscious of that.
So these are things that when you're taking it up, it's going to take 1, 2, 3, 4 years to optimize it to the 100% max. So I don't think we've optimized this strategy to that level, Saket Ji. But we are working on it and we're improving on it and definitely, as and when attrition happens, as when people are there, [indiscernible] we are moving more and more towards this new [indiscernible] of thinking.
Okay. Okay. Now given that [indiscernible] some similar industries in the past. So that requires a very strong human resource division. So has investment we made because training or upgrading their skills. And again, as you also talked about the solution selling part. And also [indiscernible], we have to they engaged with more senior folks, right? And not just retrospective, but they also maybe need to have a view on how the industry is evolving, something like happens in IT, right? You need to engage constantly with the [indiscernible] to understand how are they looking at future investments so that you're not a [indiscernible] is that something that you're focused on and strengthening your human resource department or something if you can share something on that?
No, no, absolutely. So we've got a strong human resource department [indiscernible]. We also have a very strong training program. Although what we do is we focus more on internal training within the company, which is more technical in nature, with sales in nature. And then for a lot of the sales and negotiation skills, other types of things, probably, we tend to use outside consultants, where we've got a few good ones. And we tend to use some combination of outside consultants for maybe more of the softer skills, but we've got an extremely strong hard scale in terms of technical trading on all our products for all the [indiscernible] join. And you can see that within 6 months, [indiscernible] printers independently and also understand all the different aspects of our printer, the technical differences versus competitors, [indiscernible] technologies, the operational costs and so on and so forth and [indiscernible] answer those questions.
But yes -- so we need to continuously upgrade that scale. We also have a performance management systems. We're doing some changes in that because of some integration issues with our SAP. But we are -- that's something that we also working on quite intensively -- taking some more time to upgrade that. But yes, definitely, I mean I totally understand what you're saying, we need to do that.
And as far as the C-suite, the other stuff goes, I will say that in our business, unfortunately, at least at the coding and marking space, -- so -- and there's also one different in the track and trace and the digital printing, but especially with the packaging machinery where it happens at a higher level along the track and trace, a lot of our business [indiscernible] sort of thing. It's not like the CEO is concerned about [indiscernible] what he's using, right, [indiscernible] if I'm the CEO [indiscernible], for example, I'm not really going to be [indiscernible] about how I'm printing [indiscernible].
So there are some people that are there, but it's not normally a very extremely senior level to look at this. They are aware of what's happening. And again, there not that involved in the [indiscernible] decision making. But guess what happens is, definitely, there are many factories, many key production people or packaging development people and technical people sometimes in [indiscernible] people, and we need to make sure that everyone is [indiscernible] when they go for the solution of ours so that it's effective.
Now one another question that I had is when we are looking at the emerging trends, now even pharma now is extensively now focusing on getting these barcodes [indiscernible]. So now that is where I was coming from. It is also not becoming an important, say, problem area for top leaders. Now I understand that everybody may not get engaged at some level. But given that you see news around [indiscernible] and all those things and other traded food. So that's where I was coming from. It is now catching the attention of senior folks as well. So maybe the seniority profile goes up, but I agree that it may not necessarily require a [indiscernible] say, CEO to intervene in that. So that's where I was coming from that. The profile definitely goes up if you bunch up or look at, say, a more bigger size of the pie.
So you're correct. But what I would say, specifically, when you're talking about pharmaceuticals, you're talking about drugs and other things, those are [indiscernible] then you have some high -- high-strength [indiscernible] solutions integrated in that. So when a track and trace, packaging machinery again, then we have to interact with senior teams. But when I'm talking about just simple [indiscernible] type of applications, MRP printing and so on, they -- it's not necessarily at that level. So when it becomes more for higher-end solution, not just a piece of production improvement then obviously, the [indiscernible].
And just one request -- because -- I understand that we have already discussed this. But we are not really looking at guidance, but if you can outline some of the metrics where -- like a lot of initiatives are taking place, and I think you are patiently responded to them as well as the investment going on. So for example, if we just outlined a number of large accounts, how we are defining a tier of accounts, how has been the movement. Now we are [indiscernible] can share in the presentation going forward. And it also helps us tag along with you on that journey. I understand that these are [indiscernible]. I mean some of the new initiatives that you are talking about, these are cutting edge. So even the industry will take time before they absorb it properly. .
And I understand because I had a discussion with senior folks in pharma space. They are looking at the solutions, but even they are not sure how to go ahead with that. So that's what I was telling from that if you can articulate or share some [indiscernible] also as how we are trending on them, not necessary guidances. I understand guidances have a very different [indiscernible] in our investing world. So then -- I think that would [indiscernible].
So definitely, maybe what we can do, we can check with a few customers [indiscernible] can utilize their names, normally, although we don't sign an NDA for each and everything, it is understood that all customers are confidential, especially when [indiscernible] different solutions from the industry standard.
Maybe something we can talk about [indiscernible] projects get completed. We also do track [indiscernible] closely as like how many people and what sort of revenue bucket, how many are INR 50 lakhs plus in terms of [indiscernible] revenue for a year or how many between 20 and 50, how -- and what level? So you are definitely seeing an upgrade of levels in terms of the big accounts are increasing. But something is not disclosed. I don't know if it's confidential -- something we have to discuss internally. I can't promise anything. Jaideep, you note this point down, something we can look [indiscernible].
Yes, we can. We will try to [indiscernible] something. [indiscernible]
[indiscernible] very broad in nature.
[indiscernible] we're not looking at specific here. Just to get -- the trend [indiscernible] IT companies does all the time, right? These are our million dollar accounts. These are 500 to 1. This is the number. This is the contribution [indiscernible] this how it has trended or something on the [indiscernible]. I understand that confidentialities of utmost importance, and we want you to maintain that. That's a business hygiene. So I mean -- thanks and best with us to the team.
The next question is from the line of Rohan Patel from Total Capital.
Am I audible?
Yes, you are.
I just wanted to understand what, say, your capacity utilization factor for Q2 as well as H1?
Yes, we are about 65% of the capacity utilization.
This stands for H1?
Yes, for the coding and marking, H1. We are on the same [indiscernible] about 63% to 65% is what we look out for.
Okay. And what I have seen in your presentation is that your overall capacity that you mentioned is more than 19,500 printers. And what you have guided is that you wanted to end the year with 2,700 to 2,800 printers. So that comes out to the very low capacity utilization. So [indiscernible] help me understand .
Yes, Shiva, would you like to take this?
No, [indiscernible]. When we see [indiscernible] 18,500.
We say the installed base is about [indiscernible].
Installed base in customers, which are working, and that was defined as the installed base. And then what we sell annually 2,800. Out of the 18,500, I think that should be the working installed base, if I'm correct.
[indiscernible] net to that base. So we sell 8,200. [indiscernible] we don't count upgrade printers in that. So [indiscernible] but -- so it will be the 18,500 plus to 20,000 [indiscernible] like 21,300 out of which maybe 500, 700 will also go into a nonworking days, something like that.
So there is a retirement plan as well. So some of the printers get retired as well.
Okay. And I just wanted to -- like if you can give us a ballpark figure from normal -- understanding -- how -- at what rate we can grow over the next 3 to 5 years, like consolidated [indiscernible] that you have made certain efforts in subsidiaries as well as we are going to do that in standard alone entities. So like where would it be Control Print be like, say, 3 years or 4 years down the line from current INR 360 crores top line to somewhere around INR 800 crores, INR 900 corers. Like if you can give us just a broad understanding of direction? If you can quantify, sir.
So I think what we've said is that on the stand-alone coding and marking business, our core business, the market growth rate is about 1.5x GDP, that's about 10% to 12%. And we said that we are confident that we can get the market rate or better and that's the only guidance we've given, unfortunately [indiscernible]. So you have to make your own calculations beyond that about every other thing. .
Okay. And like we can expect the current margins to be base? And can we see the margin improvement from here on?
So then -- like I said, there have been some margin improvements in my own calculations -- it's partly that there have been some investments in some of [indiscernible]. I don't know if you in the earlier part of the call or not, we've invested in some of our growth initiatives, both on a stand-alone basis and [indiscernible] on a consolidated basis also. So I think it -- as a result, some of the expenses of the employees and other expenses and some margins also look lower as a result. .
So I think if I look [indiscernible] business, it's going better. But yes, it's also being used to pull along certain other businesses, which are not at that independent business profitability maturity [indiscernible]. And right now, that's what the situations. So on a consolidated basis, it's very difficult to understand or to predict anything. Because the other 3 businesses are still relatively young.
And like I said, we are expecting -- I think -- we believe things are going relatively well. And in -- sometime, which was -- my thing was like in 6 months of that 2-year period that we said that we need 2 years to get back to investors with some sort of clear picture ahead. So I know that -- that's not the answer that anyone wants, but that situation is there right now. But obviously, we're [indiscernible] toward something better.
Our next question is from the line of Raj Kroger from Archstone Capital.
Regarding the packaging machine market and your expectations for that, again, I know that this is just the original or the initial foray into the area. But are you thinking -- well, when you're thinking about the packaging market, in the addressable market, I have a few questions. One is you have patent protections on both machines and the sachets? And the first question is, are you comfortable with the degree of protection that you have from possible competition with those 2 production patent areas? That's the first one. Second thing is...
[indiscernible] I'll forget the first question. Is that okay? Can we do this way?
Yes.
Looking at the patents you asked a very specific question, we have about 4 patents around the technology of the packaging machinery [indiscernible] you cannot patent material theoretically, [indiscernible] patent structure [indiscernible] patents rules work. What we have is that a patent on the machinery and the way the machinery is used. So -- what we've done is we put an RFI -- like we locked our [indiscernible] after we purchase this [indiscernible] like what we [indiscernible] purchasing intellectual property in [indiscernible]. The first thing we've done is we've implemented a sort of protection, similar to what we do in our in business. I don't know if you're aware that we [indiscernible] terms of our cartages. So there is a lot [indiscernible] that because it's a [indiscernible] the structure of the material, obviously, there are some very specifics that [indiscernible] the machine. So I want to be very clear, there's also a technical bar out here.
But what's happening is that we have some 4 key patents around the machine and we're very clear to customers that we have [indiscernible], so to say, lock the machine with our -- how should we put it -- like our RFID. So if they purchase the midstream, they will also purchase a packaging [indiscernible] at a predefined cost from us. So that's the model [indiscernible]. It is a [indiscernible] model or the patents, I can tell you -- I mean primarily around the machine because certain types of packaging structures are not allowed to be patented in terms of just a structure.
As an investor if you buy the machine, you can buy the materials from us. There's no way to get [indiscernible]
Right. Okay. Good, which is very similar to your coding and marking machines as well.
We [indiscernible] some of the same technology out there, similar RFID implementation is there. So every time you buy a role it comes with an RFID tag, which is in [indiscernible].
Okay. All right. So now that, I mean, you've decided to purchase these shapes. I assume that the margins on the machines and the margins on the packaging material are going to be somewhat higher than your core business.
No, the gross margins in packaging materials definitely lower. The gross margins on the machines are similar to our existing overall gross margins. But the net margins in that business is pretty good because the cost -- so each person ends up -- each -- the amount of revenue a new drive, in terms of the SG&A, is significantly lower as a percentage of sales. So on a overall operating basis, assuming the business scales up, then it would -- yes, both at a similar level of coding and marking. And coding and marking is actually higher than what it seems. But yes -- so the gross margins will be lower, the net margins will be same or higher.
Okay. So just let me repeat what you said to see if I get it. So you're saying that the machine profitability, the margins on the machines will be higher. However, the packaging material will be somewhat lower, possibly. And net-net, you're going to have the same or possibly a little higher margins for the entire packaging business.
Yes, as compared to the existing coding and marking business, yes. So on an overall basis, we would expect the net margins to be similar or at least we would expect the gross margin for the machines to be the same or higher. We would expect the gross margins for the materials to be lower, and that's because, obviously, everyone is very conscious of the cost of the packaging material because in the end -- a particular decision-making aspects, we don't want to price ourselves out of the market.
Of course, [indiscernible] the margins might be quite high in those types of places because they have shorten structures [indiscernible] require more complex [indiscernible] can charge more. [indiscernible] the volume markets like food and cosmetics [indiscernible] margins will definitely not be that high. So, yes, I think your understanding is correct right.
Okay. right. So to further this thought, the coding machine is at the end of the assembly line and an amount to a very small percentage of the cost of going through the entire assembly line for the product or whatever you're quoting at the end of the production. However, when you're doing the packaging, that is a much higher relative cost. So -- and to your point, you have to be careful how you price it so you don't price yourself out of the market because it's a much larger piece of the production than you're used to in the coding and marketing correct?
That's absolutely correct.
Okay. All right. So -- all right. So now the V Shapes...
So when we're talking about the market, of course, what we are doing is we're competing against other single-use technologies. So it could be significantly more expensive technologies like single-use glass jars or containers or cubes it could be things which are more expensive than what our packaging is, which could be something like a thermoform, -- so something -- because thermoform would be technically more expensive on a per piece basis. Depending on the type of barges, depending on the combination of materials we're using. [indiscernible] material is going to be significantly more expensive. And then if you go to [indiscernible] compared to our [indiscernible] solution then the sachet will be cheaper on a per packet basis. And of course, these are some of the [indiscernible] others. But just to give you an idea. So what's happening is it depends obviously, on each -- but I'm saying if you're making [indiscernible], we want to be very conscious of the cost. And if you're making some kind of expensive serum in cosmetics or some sort of pharmaceutical products. [indiscernible]. But you [indiscernible] high volume [indiscernible] will be more [indiscernible].
Okay. So last question is, so when I'm thinking about V Shapes, the first one I had was, it's a natural product for the lower-income countries because people buy much smaller quantities, single usage at the very low end of the quantity than higher-income countries. However, the second thought I had was that, if you're using a very expensive product, maybe an expensive cosmetic, the V Shapes might be marketed in a higher income country similarly as it would be in a lower income country for a basic soap or per cell and [indiscernible]. Is that correct thinking? Or am I off?
So right now, the restriction on us, to be honest, [indiscernible] that our sales and marketing effort is quite pathetic, to be honest, which is obviously one of the things that I'm building out. So the main limitation is that we've not reached 99.73% of the market, frankly, or whatever something like that. So the awareness of the solution the comparison with the existing single-use solutions is not in place. And of course, there are many things which could work out. So even if you have something like honey or something, you've got in the glass bottle, [indiscernible] I don't know how many you [indiscernible]. But every time you open it, there's like half the honey or half the [indiscernible] down the side or if you use something like [indiscernible].
So you can even convert something like that into a single use or [indiscernible] because some people will not cook the entire 200 grams and maybe need 15 grams for a single portion. And there's no point [indiscernible] buying a huge bottle or something if I don't need it. So there are, of course, many combinations here, the many people who are interested for a [indiscernible] sort of things like serum because you might have a 30 ml glass bottle of serum. The first thing is when I opened the bottle, the barriers, the which exposed to the air. So even if it's [indiscernible] in glass, which is a beautiful container [indiscernible]. The moment I opened it, it's exposed to be [indiscernible] lost its barrier properties, which means the [indiscernible] a lot of efficiency very fast because of the oxidization -- and that means you have to add a whole bunch more chemicals some of which customers don't like a protected against that.
So -- but then there's no easy way to have a 1 mL dispensing. [indiscernible] INR 2,000 [indiscernible] it might make more sense that packing individual use packs for -- from our side and charge INR 70 per pack and that might be better and more practical for the customer rather than one INR 2,000 bottle. So even those types of situations can happen.
But what we're seeing is there's -- so far, we've been focusing more on the pharmaceutical market and the OTC because we're still getting all of materials from Italy. They're quite expensive. And as a result, we were then focusing on the high-margin customers who pay us quite a lot of money. Now we're also working on some -- and the second problem we are having is that the pharmaceutical customers have no restriction on what material they use. So they can [indiscernible] for nonrecyclable packages.
In the food and cosmetics industry, the feedback has been quite clear that unless there's no choice, they will not go for [indiscernible] recyclable package going forward. So we have [indiscernible] to recycle the package, and [indiscernible] the process of scaling it up. It's also going to be significantly cheaper with a high barrier. And that's something we're also looking at making ourselves locally in India. And that's something which we feel will get the cost down by almost like 40% to 50% from where it is right now and really help us get into that of cosmetic and especially the food sector, where the volumes could be significantly higher.
So right now, the 2 bottlenecks are the cost per piece and the second is the non-recyclability. [indiscernible] going to be quite transparent about. And pharmaceutical -- in those types of customers don't have any restrictions. In fact, they don't really care what happens. They want an aluminum barrier in the [indiscernible].
But the food and the cosmetic sector is very sensitized as of right now. And they definitely [indiscernible] new packaging, I mean I don't know how true it is, but they definitely seem like recyclability fully recyclable options [indiscernible] so we have developed a solution. There was a lot of fine tuning involved, it's ready now and it's been tested and that's something we are working on scaling up in a big way.
Okay. Sorry. One last question is...
[indiscernible], sorry to interrupt. But due to time constraint, we will have to take that as the last question.
I'll just take this last question. Please, go ahead Mr. [indiscernible].
Okay. So -- are you anticipating -- well, no, sorry, let me ask one last question. when -- at what point would you be disappointed if you -- at what time frame would you be disappointed if you didn't sell one machine?
No, no, I think it will be very disappointing if I didn't sell one machine. So I mean I can't comment right now on the existing pipeline. We have an existing pipeline. We might have sold machines or we might have some existing prospects. I can't disclose this to you, maybe towards the end of the year. But like I said, each machine -- if we sell a machine, it's going to take 6 months before we can execute it because I need to do a whole bunch of packaging tests to validate the material, to validate the aging test. And in the pharmaceutical environment, there's a 6-month aging that takes place. So in the food and the cosmetic sector, we can do an accelerated aging accept it.
But for the pharmaceutical, they required to create that information. And for that, we need to give a -- they need to store the materials for 6 months and test them again and test them again so that they have it for their dossier and then only can they use it in their packaging.
So even on the OTC product, if it's sold under doctor's prescription, the same rules apply.
I now hand the conference over to the management for closing comments.
Thank you, everybody, for joining the call and wish you and your families a happy Diwali.
And absolutely the same, Happy Diwali to everyone. Thanks for taking the time out. It's really appreciated from our side. I think a lot of great questions. I understand that there's some short-term concerns. But like I said, we're still comfortable mentally, and we feel the opportunities are large. And we will definitely keep people posted during this journey if we feel anything adverse happens. And hopefully, we'll try to give some good great pointers also pointed by -- I don't know, there's Mr. Saket [indiscernible]
Other people, we will definitely try to incorporate some of those suggestions internally. We don't like to sometimes disclose too much, but we will get back to everyone and see to the maximum level if we can improve the amount we disclose. Thank you, everyone.
Thank you very much. On behalf of Asian Markets Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. Bye-bye.
Thank you, sir.
Thank you. Thanks, Karan. Thank you, everyone. Bye.