The company is in transition, and in the Q3 & Q4 concalls, Mr. Shiv Kabra has given a detailed account of what he is trying to do, which is worth reading. The company has limited scope to grow in its traditional market, and Mr. Kabra is tapping several adjacencies – both in India and Europe – to make the business grow. Not all of them may succeed, but not all of them will fail either, one hopes. Even within the traditional business, the model is changing from Size to Quality. The frequent capital raise of the past has ended, and in fact reversed – company did a buyback last year. The transition will take time, and until then the results may not be to the market’s liking. But doing nothing is worse, I guess.
A few highlights from the Q4 FY24 concall:
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Current operations: Pipes, food, cement, FMCG and beverages are our top five earning sectors. Target is around INR 400 crores sales by FY ’25. It may be achieved or may not. The industry growth rate is normally about 1.5x GDP growth, about 12 % a year. Gross margin range should be consistent at 60 %.
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There is a substantial increase in the coding and marking machines on a rental basis for this year. Some of the larger companies prefer leasing the machines on a per printer – per code basis and paying on a per print basis or on a per machine per year, per line basis. It is like an alternative model to the existing sales process. But because of the way it is structured, the fixed asset of those machines comes into CPL’s books and then it gets depreciated. This type of business is done with customers who are high-profile customers because normally, the company prefers to selling the machines. Margins in these are slightly better than normal margins.
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There is more and more focus on the top few hundred – top 1,000 – 2,000 customers of India. It may lead to a smaller number of printers sold but the value of the sale in terms of the amount of business it generates over the lifetime of the printer will be much higher (Comment: this strategy was described extensively in the previous concall)
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The company has gained some market share over the last 3 – 4 years. The entire coding and marking business last year in India was about INR 2,000 crores – 2,100 crores. CPL is already at about 17 % market share. The amount it charges for print is literally like INR 0.1 or something. It is quite low. So, there is a limit to how fast it can grow because it depends on how fast the volume of its customers grow. They have done 3 different types of expansions – One was digital printing of coding plus business (Markprint). The second part is entering the Track and Trace business with software division, where not only do people want to print information, but they also want to trace the entire supply chain (How this works is explained in detail in the Q3 concall). The third part is to look at some new geographies.
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CPL is expanding into newer areas as the management feels they are sort of done with coding and marketing. R & D and innovation is more where they think their core is. They want to be in a space which is more around innovation, more around IP, where you are creating new needs for customers. There is some risk, but in the end if one must do something new there is always going to be a certain amount of risk.
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Not planning any more acquisitions for another 24 months at least.
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Markprint: This is the “coding plus” area which is beyond the date code and batch code where people want to print out a larger amount of information on products. The Markprint products were quite expensive for the Indian market. But now some products have been developed off the support or the expertise from Markprint which can be leveraged in the Indian market, and we the company has a better idea where Markprint products can be sold directly.
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Codeology: That is more specialized. Here, printing happens directly on to the products. They do not use the printers which print on to label and then apply the label on to the products. Codeology has a good market in that specific business. Codeology also feels that there is a market for CPL’s products in the U.K and they are interested in expanding sale of its products in their geographies.
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V-Shapes: It is in the sort of single dose, single use or single-serve space. V-Shapes is a company that has a lot of patents around this space. They already had a JV with them. CP Italia S.r.l bought all the assets of V-Shapes including intellectual property and the trademarks and the customer base and so on. This is more in the core packaging machinery how to make single doors type product which has applications in pharmaceutical, cosmetics especially the higher end cosmetic and in certain low food condiments and certain types of sauces. So, it can be used for any type of liquid packing and there is a development for powder packing option which again is only primarily for the pharmaceutical industry.
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CPL was working with V-Shapes for about 1.5 years. And has a fair idea of the interest in this product from customers in India. They have a huge customer base in the packaging space.
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The addressable market is quite large because there is a massive area of single or low single serve. It is more expensive than cheaper areas like sachets. But it can be cheaper than certain other areas like the single serve glass bottles or the types of things. But space must be created for that. So that makes this sort of a longer-term play. Like tetra pack created its own market. They are competing with glass bottles or with HDP bottles or with pouches. So out here also, it must create its own market. The management says the scope is significant. A lot of R & D will be required for reducing the cost of the material, developing the recyclable option, getting all the certifications, and keeping that technical knowledge base live in Italy and developing sales – these all are significant expenses and investments. It is going to take two years to put everything in place.
(Disc.: Have a tracking position)
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