Snapshot from AGM in Mumbai On Sep 25 2015.
The company got award from Business Today in SME less than 100 Cr category. It share enclosed article which provide information about industry size, growth and other players.
http://www.businesstoday.in/exclusive/best-smes-in-india-2015/india-best-smes-winners-2015-control-print-basant-kabra/story/223923.html
(Unfortunately, I lost my pad which has all points and the enclosed note are based on memory and has substanstial scope of errors on Figures. Please note that while reading the notes).
The following were other discussion points:
1) The company has increased market share from 7-8% in 4-5 years back to 17% in FY15. The growth in industry is linked to industrial production. Typically, industry growth 2-2.25X GDP/IIP growth. The company has advantage against other competitor as it being able to indigenous the production. However, other players have manufacturing facility in China which has very large scale advantage. Control Print aim sales growth around 15-20%.
2) The company make profit from selling consumable (mainly ink). The raw material for ink are mainly petrochemicals. Like in normal toner, it is difficult for the user to switch from printing machine supplier to other players, same applies to this industry as well. A typical printinng machine currently price at around Rs 2-2.5 with life of 15 years (some well maintained machine are running even after 20 years of operations). During the year, consumable used by a machine are around 30-40,000; so over life of machine, the company make revenue from AMC/Spare/Ink of around 3.5-4 Lakhs over period of 10 years. In industry like Cement and Chemical, life of printing machine is around 6-7 years while in other sectors life is longer.
3) The key factor driving demand in industry is Identity (or tracability), regulatory requirement and industrial growth. Tata Steel and HLL are the largest client to the company. Top 10 client contribute around 25% sale of the company. The company serves Lafarge/ACC in Cement, HLL/P&G/Emami/Godrej Consumer in FMCG (ITC and Nestle are serviced by other competitor Markem and Domino respectively), Finolex/Astral in Pipe sector. Current population of machine serviced by Control print is around 5,000 units with every year sales of around 1,400.
4) Realisation per printing machine is a hybrid figure and not much can be infered from same. Like in case of Maruti, average car Realisation without product mix does not make sense, same applies to the company.
5) Current market size is around Rs 650-700 Cr. The company intends to increase market share and also plans to move in exports market like Bangla desh, Pakistan, Myanmar and Some African countries. The German partner is more concerned about developed market. Further, the customer decision to purchase has more to do with service company provides.In Export market, the company market product through dealer expect in Sri Lanka where it has own subsidiary. It spent around Rs 2 Cr and expect Rs 5 Cr (not sure on these numbers) sales in first year of operation (FY16). However, due to teething problem, the sales may be lower than Rs 5 Cr. Current exports is around Rs 5 Cr which also company is attempting to increase.
In India company has 100+ Engineers and 70+ Sales manager. The engineer training in initial years took great efforts. However, with experience the engineer resolve problem with very limited support from central office. In particular region/segment, a good Engineer support may be a key decision for buyer.
6) The company currently have three plants. With Guwahati plant operational, it has closed production in Vasai Plant. Vasai plant would remain back up for printing consumable (ink/spare) manufacturing in case some issue with Guwahati plant. Guwahari plant capacity is sufficient to meet next 3-4 years requirement for inks. Guwahati plant would have 10 years of exemption from IT till 2015.
In HP plant, the company manufacture printing machine. Current capacity in single shift is around 2,000 machine. So with marginal capex and double shift the company can easily meet requirement for 3-4 years. HP plant tax exemption is expiring in 2017. In HP, there are restriction on storing inflammable chemical quantity (which are used from ink) and hence company decided to manufacture ink at Guwahati
The company does not envisage major capex in next 3-4 years. In Guwahati plant, it spent Rs 19 Crore as capex. Guwahati facility is capable to manufacture printing machine but company intend to keep same at HP as of now.
7) The company has no long term debt. all the debt are working capital debt
8) The legal and professional increased due to usage of service of a reputed solicitor for Arbitration with Videojet. That was one time and expected to resume to normal level.
9) The CFO cum CS resignation was due to going beyond board delegated authority. Also, the adverse Secretarial Audit report was a consideration in discussion. The company is presently looking for professional independent CFO and CS. There was no financial issue with CS/CFO.
10) The working capital for company is streched as it need to service at various location of client’s plant as well sales depot sufficient spare of all products. That result in increase inventory and would continue to remain so. However, the product categories were increased from 3 to 9 during last 3-4 years. At initial stage, the company has to maintain sufficient inventory to meet customer requirement. As business grow, the inventory holding period may decline marginally. In any case, no increase in inventory holding shall be expected. FY15 being the largest level. On obsolesce, the company had asked Haribhakti to independently assess fixed assets and inventory valuation in FY15. Haribhakti conducted audit with 100% location for value of 90% of inventory and found inventories valuation being proper.
11) On receivable write off, there were couple of old customer whose due company written off. Although company has taken legal step, as a prudent accounting, it decided to provide for same during FY15. We shall expect normal bad debt going forward.
12) There were question about promoter issuing share at lower price and shareholder did not given opportunity to participate. While company management did not commented much on same, it did said that pricing was in line with SEBI formula.
13) The company fulfill criteria to be listed in NSE. They already have given reply to NSE queries. But for some minor issues, the company expect NSE listing in FY16.
14) The margin in printing machine are relatively lower. However, margin are better in consumable. As company’s share of consumable increased, that has driven margin in last 3-4 years. The company expect Machine to contribute around 30% of sales and Consumable at around 70% of sales and see no major change in margin (expect for scale and efficiency in manufacturing)
15) There was demand for bonus/spilt in silver jubilee year. Management said would consider and revert.
16) Three to four member asked about why warrant were given the management when already sufficient amount was with the company. Management did got the message and hopefully would not see further dilution in future. There was also enquiry about Cairn India share held by company and mark to market loss.
17) While generally shareholder appreciated Rs 4 dividend payment, sought higher amount in context of EPS of Rs 20 per share.
18) All finance related question were answered by Mr. Jangid, while operational question were answered by Shiva Kabra. Shiva is a young competent/confident Director. I got confidence after talking to him. In fact post meeting, he spent almost more than 60 minutes with interested shareholder explaining their question on business.
19) Company did not address issue about Real estate development although there was question about same,
Personally got comfort from discussion in AGM and more after discussion with Mr. Shiva.
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