Mallcom India – Safety Equipment manufacturer

My notes of Q1FY24 concall,

Financial Performance

• Revenue Growth: Consolidated revenue from operations reached INR 95 crores, reflecting an 8% increase compared to the same quarter the previous year.
• EBITDA Increase: EBITDA for the quarter reached INR 14 crores, indicating a significant increase of approximately 19% YoY.
• EBITDA Margin: EBITDA margin stood at approximately 14.92%, marking an increase of 135 basis points on a YoY basis.
• Net Profit Growth: Net profit after tax (PAT) for the quarter amounted to INR 9 crores, demonstrating robust growth of 23% YoY.
• PAT Margin: PAT margin for the quarter stood at around 8.99%.

Operational Updates

• Initiated land development and construction activities at Sanand II unit in Gujarat.
• Targeting completion of civil work within the current financial year.
• Introduced certified synthetic thermal gloves for the export market.
• Established Mallcom (India) Limited as a pioneering Indian firm in this category.
• Collaborated with KJN Housing LLP for a joint development agreement in Kolkata.
• Company to receive a 30% share of net revenue from the project sale.

Export Market Performance

• Export market faces challenges in Europe: High interest rates, inflation, unemployment, energy price struggles.
• North American market also somewhat affected; efforts to gain market share.
• Australia and South America markets relatively stable.

New Export Relationships

• Continual addition of new export customers.
• Exploring potential long-term partnerships.

Domestic Market Outlook

• Bullish on domestic market; strong economy, increasing spending power, compliant workforce.
• Anticipating sustained growth.

Domestic Market Growth Trajectory

• Aiming for sustainable 20%-25% growth, not expecting sharp spikes.

Real Estate Joint Development Agreement (JDA)

• Agreement signed; ongoing production at current location.
• Move expected by December/first quarter of next year.
• Construction at new site may begin by end of current financial year.
• Revenue depends on market prices.

Margin Guidance

• EBITDA margin guidance for the full year is estimated to be around 15%.

Margin Improvement

• Any price movements in our business are typically passed on to customers, so no significant advantage or disadvantage.
• Savings in manufacturing costs due to consolidation of manufacturing facilities contributed to profit margin improvement in the current quarter.
• Expect similar margin range going forward.

Turnover Growth

• Q1 had 8% growth; full-year target is around 15%.
• Q1 is typically lower in volume; optimism for growth in the third and fourth quarters.
• Targeting 15% growth for the year.

Capability Expansion

• New plant (Sanand one project) construction has begun.
• Targeting completion by March 2024, with production starting in April 2024.
• Manufacturing, including synthetic gloves and helmets, will begin at the Sanand facility after its completion.
• Additional turnover is expected from this facility in the next fiscal year.
• Ghatakpur garment unit plant is fully functional and expanding further.
• Ghatakpur facility will eventually double capacity, targeting 200 crores in turnover.
• Incremental addition of machines will contribute to capacity expansion.

Utilization Improvement at Ahmedabad Facility

• Capacity utilization at Ahmedabad facility is around 50-55%.
• No phase two planned for Ahmedabad; focus is on improving garmenting efficiency.
• Objective is to reach maximum efficiency, especially in workwear, which may max out at 60-65% due to product variety.

Ghatakpur Facility

• Ghatakpur facility is gradually being moved and stabilized.
• Difficult to quantify capacity utilization at the moment due to ongoing movement.
• Expect to provide more stable capacity utilization figures by Q3.

Export Market Growth Strategy

• Targeting North America as a market for growth.
• Expanding product mix, including head protection.
• Exploring products historically not sourced from India but now in demand.
• Focusing on geographical diversification, product extensions, and higher-value-added items.
• Facility in Sanand may also cater to export markets, depending on demand and inquiries.

Head Protection and Export Market

• The company is open to serving the export market from Sanand if inquiries and demand arise.
• Expanding head protection product range for both domestic and export markets to fill product portfolio gaps.

Competition in the Industry

• Limited industry data; estimates based on older data.
• Global market estimated at $60 billion; Indian market 12-15,000 crores.
• Half of the Indian market is unorganized; organized sector around 6-7,000 crores.
• Wide product range, from uniforms to harnesses and lanyards.

Addressable Market

• Estimated addressable market: 6,000 crores; total domestic market: 12,000 crores.

Competition

• Highly competitive and fragmented domestic market.
• Rivals range from street tailors to established brands like Honeywell and 3M.
• Focus on selling certified products, brand-building, offering a complete product range, and local manufacturing to reduce reliance on external suppliers.

Middle East Market Update

• Middle East market performance is decent.
• The Free Trade Agreement (FTA) and Saudi expansion contribute to market growth.
• Additional dealers have been added to the Middle East market.
• Business growth is expected, primarily through government tenders.
• Participation in exhibitions is planned to yield more benefits.
• Significant business growth from the Middle East is expected in Q2 and Q3.

Key Markets

• Europe is a significant market.
• Asia, primarily driven by India, constitutes around 40% of the market share.
• South American market is around 10-15%.
• North America contributes around 7%.

Overall Utilization

• Overall utilization is approximately 70-80%.
• Specific utilization varies by product.
• Safety shoes and leather gloves have high utilization (around 90%).
• Nitrile gloves and garments have room for increased utilization.
• Manufacturing capacity is flexible, allowing adjustments to meet demand.

Land Parcel Agreement Details

• The land parcel is approximately 100 khatta in size.
• The construction area is expected to be around two lakh square feet based on current permissions.
• The revenue generation from the project is anticipated to start after about 12 months once construction begins.
• The revenue amount will depend on the selling price achieved.
• Mallcom (India) Limited will not make any investments in construction; it’s a development agreement.
• Mallcom (India) Limited will receive 30% of the overall revenue for their land parcel.

Pricing Strategy

• In the domestic market, Mallcom (India) Limited positions itself as an economy-premium segment.
• They are not the most expensive but are above the premium segment.
• The company focuses on product improvement, innovation, presentation, and certifications.
• They cater to dealers and end-users in this segment.

Customization

• Mallcom (India) Limited offers customization for branded products.
• Customization is more common in the workwear category, especially for large orders.
• The company can create specific SKUs for customized needs.
• Long-term contracts for continuous supply are not common in the domestic market.
• Some companies have annual customization requirements fulfilled by Mallcom.
• In the export market, long-term contracts and customizations are more prevalent.
• Export customers often become long-term clients after customizations.