Creative Peripherals and Distribution Limited has informed the Exchange regarding 'Q3 & 9M FY19 Maiden Earnings Concall Transcript'.
“Creative Peripherals & Distribution Limited
Q3 & 9M FY2019 Earnings Conference Call”
January 21st, 2019
MANAGEMENT: MR. KETAN PATEL – CHAIRMAN & MANAGING DIRECTOR - CREATIVE
PERIPHERALS & DISTRIBUTION LIMITED MR. ABHIJIT KANVINDE – CHIEF FINANCIAL OFFICER - CREATIVE PERIPHERALS & DISTRIBUTION LIMITED MR. VIJAY ADVANI - WHOLE TIME DIRECTOR - CREATIVE PERIPHERALS & DISTRIBUTION LIMITED
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Creative Peripherals & Distribution Limited January 21, 2019
Moderator:
Good morning,
ladies and gentlemen. Welcome to the Creative
Peripherals & Distribution Limited Q3 and 9M FY19 Results Highlight
Conference Call. This conference call may contain forward-looking
statements about the Company, which are based on 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. As a reminder, all
participant lines will be in the listen-only mode and there will be an
opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an
operator by pressing “*” then “0” on your touchtone phone. Please note
that this conference is being recorded. I now hand the conference over
to Mr. Ketan Patel, Chairman & Managing Director, Creative Peripherals
& Distribution Limited. Thank you and over to you Mr. Sir.
Ketan Patel:
Good morning everyone. Welcome
to Creative Peripherals &
Distribution’s Limited maiden earning conference call for the Q3 and 9M
ended December 31st of the financial year 2018-2019. I would like to
begin by expressing my gratitude to all of you for taking the time to join
us today. On the call, with me today is Mr. Abhijit Kanvinde, our CFO and
Mr. Vijay Advani, the Whole Time Director of the company and Bridge IR,
our Investor Relations team.
Since this is our first conference call, I would like to introduce our
company and reflect on the progress we have made since inception. I
would like to put our performance in a strategic context and throw some
light on the foundation we have been building for our company and the
growth prospects in the near future.
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Our company started as a small proprietary trading concern, named as
‘Creative Computers’ with 10 employees back in 1992. Today with a pan
India presence with more than 25 locations and more than 3000
products and 5000 distributors we are market entry and pan distribution
specialist for global renowned brand.
Our supply chain management is flexible and agile to meet the dynamic
changes of the growing consumer electronic market in India. Over the
years, we have managed to stay ahead of the competition by being
nimble footed and quickly adapting to all the changes that the
distribution business constantly demands. It is our stated mission to
evolve as accomplished modern retail and e-commerce distribution
specialist in the Indian and the Middle Eastern markets.
We are a market entry specialist for all new brands desiring to enter
these regions and address all the three channels, online, retail, and
general trade. We have a unique value-added distribution model, which
is difficult to replicate which is an entry barrier in itself. We provide end-
to-end solutions starting from market research and competition analysis
for brands and recommend viability in specific regions across India. This
requires specialized skill sets and experience along with adequate market
intelligence. We then prepare a strategic plan for market entry for
brands and their target segments.
Our plans are updated and monitored regularly. Further, we then also
conduct presales activities and marketing activities for the success of the
brand as well as to enable our channel partners to leverage on their
expertise. We are among the very few large distributors who conduct
specialized training modules, events and promotional activities at the
ground level with our channel partners. This is possible due to the
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dedication of our people and our experienced team which constantly
track latest market developments to build a closer market connect.
Our Company has a unique and specialized process, which works very
closely across channel including large format retail, e-commerce and
specialized retailer in all regions. We conduct regular workshops, demos
for resellers with our dedicated corporate and retail sales team. Our
Company’s wide range and superior logistics capabilities help us provide
end-to-end services to customers
including warrantee and post
warrantee, high level repair services, response Centre among others.
Currently, we have a strong long-term association with more than 25
globally renowned brands, which we categorize in four divisions namely,
IT, Lifestyle, Imaging and Security products.
In IT products we offer an entire range of IT product like peripherals,
printers, supply, PC components, storage, etc. This wide spectrum of
product offered from multiple vendors has helped our company to
achieve economies of scale and provide customer a single sourcing
point. We have many exclusive distribution agreements and innovative
distribution channels.
The Lifestyle product has been changing rapidly. Products are now
moving from utility perspective to experience. We offer wide range of
products from TV, headphones, projectors, etc.
In Imaging we have an entire range of cameras, lenses, backpacks,
imaging accessories, etc. This category is growing aggressively as this is
going to revolutionize the way people take images. Our company is
setting up innovative distribution channel, training employees, helping
client developed content to give a whole package of experience to the
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end consumers. The industry in moving from innovative products to user
experience at all touch points and be closer to the customer.
In Security, we understand the growing needs and demands for security
products and are expanding in that direction rapidly. We are evolving
into major players in security category with exclusive arrangements with
global giants in this segment.
Our focus is on higher operational efficiencies and adding higher margins
and value-added products to our existing product portfolio and this
association is a concrete step towards that direction. We are confident
that we will be able to grow stronger from here and continue to scale
new heights.
I would like now to take you all through key developments during the 9M
FY2019 period.
The world-renowned brand Honeywell has entered into an agreement
with us where we can design, packet and do contract manufacturing of
SKU products under the Honeywell brand name. The design IDs of this
manufactured product is owned by Creative Peripherals. This distribution
agreement is for India, SAARC and now for Middle Eastern countries.
Under this agreement, we have launched two variants of Zest Wireless
Chargers, which is need of the hour and we expect huge demand for
such products in India and abroad. These Zest Wireless Chargers are Qi
certified, importable and elegant design and are compatible with all Qi
enabled smartphone. Our Company has guaranteed protection with
built-in over current, over voltage and over temperature.
Honeywell has also extended the trademark
licensing agreement
whereby expanding our product offering to six countries including India,
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SAARC and countries in Middle East like Saudi Arabia, UAE, Bahrain,
Oman, Qatar and Kuwait.
Our Company also has an exclusive agreement with GoPro Inc., to
distribute their products in India since 2016, which gives our Company
and edge in the growing market of camera. GoPro is a market leader in
Flat Length Camera in the world. GoPro officially launched their most
awaited camera HERO 7 in three variants, HERO 7 - Black, Silver and
White. This camera was launched in India in October 2018, three days
ahead of any other country outside APAC region and received significant
traction across e-commerce platforms and the modern trade and photo
specialist stores. The top most selling model HERO7 Black received an
overwhelming response with selling more than 1000 units in the first
week itself on the ecommerce giant platform.
I would like to further add that our company is sole and exclusive
distributor for InVue security products across India through its national
wide network. InVue has brand partnership with Apple, Samsung, Google
and Huawei in US with 75% market share. The demand in the market is
growing for such retail security products and our company expects to
ride the growth wave by entering this fast-growing product segment. We
have bagged and successfully executed an order of InVue products of
over USD 345,000 in the month of December 2018.
Our Company has also entered into an agreement of selling and
marketing of Phillips Digital signage products and DAEWOO, MEPL LED
TVs in India. Our Company continues to focus on market penetration and
distribution of experiential lifestyle products.
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I am also happy to share that the Board of Directors have approved the
company’s migration from NSE SME exchange to the NSE main board
exchange. This is in line with the vision of the company to evolve as an
accomplished modern retail and ecommerce distribution specialist in
India and the Middle East markets.
So, from an overall business prospective this is all from my side. I will
now hand over to Mr. Abhijit Kanvinde, our CFO who will take you
through financial performance of the company for the Q3 and 9M ended
December 31st, 2018. Thank you.
Abhijit Kanvinde:
Thank you Sir. Good day to all the participants. I will share the highlights
of our financial performance following which we will be happy to
respond to your queries.
Our company has achieved net revenues of Rs. 99.97 Crores for Q3 FY19,
which is a significant year-on-year growth of 63% from Rs. 61.18 Crores
in the same quarter last year. This is mainly on account of strong growth
driven by key business divisions of imaging and IT specialty and niche
brands like GoPro, Honeywell and ViewSonic.
The EBITDA stood at Rs. 3.65 Crores in Q3 FY2019, an increase of 58% as
compared to Rs. 2.3 Crores in Q3 FY2018 on the back of higher revenues
and improving operational efficiencies. The profit after tax for Q3 FY2019
is at Rs. 1.42 Crores as compared to Rs. 0.84 Crores in Q3 FY2018, this
represents a growth of 70% year-on-year. Our EPS in Q3 FY2019 stood at
Rs. 2.44 registered a growth of 69% as compared to Rs. 1.44 in Q3
FY2018.
Now I will turn to nine months ended December 31st, 2018. The net
revenues stood at Rs. 256.51 Crores, it is a significant year-on-year
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growth of 48% from Rs. 172.79 Crores in the same period last year. This
is mainly on account of strong growth driven by key business of imaging
and IT specialty, especially niche brands of GoPro, Honeywell, Olympus
and ViewSonic. The EBITDA stood at Rs. 9.14 Crores in 9M FY19 an
increase of 73% as compared to Rs. 5.3 Crores in 9M of FY18. The EBITDA
margins was 3.6%, an improvement of 50 basis points year-on-year on
account of increase contribution of high margin value-added products
like imaging and IT. The profit after tax for 9M FY19 is at Rs. 3.43 Crores
as compared to it was Rs. 1.99 Crores in 9M of FY18. This represents a
growth of 72% year-on-year.
Our EPS for 9M stood at Rs.5.9 registered a growth of 71% as compared
to the Rs. 3.44 in 9M of FY18. This is all from my side. Now we can open
the floor for questions and answers.
Moderator:
Thank you. Ladies and gentlemen, we will now begin the question and
answer session. The first question is from the line of Hrudhyam Varma
from Augmen Catalyst. Please go ahead.
Hrudhyam Varma: Sir can you elaborate on the Honeywell contract that you have signed?
Ketan Patel:
With Honeywell, we signed the contract and the contract there are three
preconditions from Honeywell that - Honeywell will give us preapproved
factories where we can manufacture the products under the Honeywell
brand name. The specification of the products will come from Honeywell
and the quality control will be in the hand of Honeywell. On our side, we
can price the products as per our pricing matrix and we can design the
products IDs as per we need and Honeywell India also becomes the
distributor of the same product for the Indian markets and when we go
to the Middle East markets, besides Honeywell itself can become the
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distributor and we can also go to other channels to distribute these
products and this license is for five years renewable till perpetuity till we
keep doing the numbers what we have committed to them and they
started, so it is now almost close to 18 months, so they started first with
India with us then they asked us to move to SAARC and now they have
given us the Middle Eastern markets. That is the contract with Honeywell
right now.
Hrudhyam Varma: Sir, the margins in this business so basically it will be based on like cost-
plus sales?
Ketan Patel:
On the licensing part Honeywell charges a royalty on the sales so
whatever sales we do Honeywell will charge us an ‘X’ percentage. The
pricing is free for us and usually the margin is we call something called as
gross invoice margin or GIM. The GIM for this business is close to
between 42% and 44%.
Hrudhyam Varma: So how much would be the EBITDA here Sir? This is basically gross
margin, right?
Ketan Patel:
Yes.
Abhijit Kanvinde:
EBITDA in this business particularly will be between 10% and 12%.
Hrudhyam Varma: Going forward what percentage of revenues will come from, I mean, out
of the total revenues how much would this business contribute?
Ketan Patel:
In the 18 months what we started the Honeywell business, now we have
close to 48 SKUs for the Honeywell products and the factories were
identified, the trial work was done, then we did the marketing campaigns
so we had the videos prepared, other things prepared everything, so for
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this year, we should end up probably 350 Crores plus and Honeywell
business will be close to 14 Crores to 15 Crores into that and next year
we are planning the Honeywell business to be 50 Crores of our overall
business.
Hrudhyam Varma: The factories that you mentioned, so we have not made any investments
in the factory?
Ketan Patel:
These are all Honeywell approved and audited factories and we do third
party manufacturing contracts with them. The contract is also checked
by Honeywell in terms of customer recall, in terms of quality standards
and then we will give a contract to that company, so basically, they are
third party contract manufacturers approved by Honeywell.
Hrudhyam Varma: And the distribution that you mentioned, so Honeywell will be the
distributor in India, or you will be selling it through your channels?
Ketan Patel:
Honeywell can be one of the distributors for India plus our channel.
Today, Honeywell products are sold by Croma, Reliance, Amazon,
Flipkart, close to 1400 of our customers and Honeywell itself. So, when
Honeywell participates in smart city, or Honeywell goes to the electrical
channel it also carries the Honeywell products manufactured by us.
Hrudhyam Varma: Sir do we have tie ups with these ecommerce websites for our other
products?
Ketan Patel:
Amazon has a company called Appario. so Appario is our customer.
Before that they had Cloudtail. so Cloudtail used to buy from us and
Appario and Cloudtail and Flipkart has WS retail and PayTM has their
designated premium partners so all of them by us, not only Honeywell
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but products like GoPro, Honeywell, Olympus and a few other TV brands
which we do.
Hrudhyam Varma: That is it from my side. Thank you.
Moderator:
Thank you. The next question is from the line of Aakanksha Banerjee an
individual investor. Please go ahead.
Aakanksha Banerjee: Good morning Sir. I have a few list of questions. The first question is
which products commands with a higher margin from our overall
product portfolio and can you list like top five products with their
respective margins?
Ketan Patel:
Akanksha thank you so much. Our business we have divided into four
categories right now. One is IT, one is Lifestyle, third is Retail Security
and fourth is Imaging. All IT products fall between 3% and 5% of category
ex-Honeywell, all Lifestyle products fall between 8% and 10% of the
category, all Imaging will fall between 15% and 18% and Retail Security is
just a new business, which we have entered into. Retail Security also
would be close to 20% and currently the top five contributing SKUs for us
are GoPro, Samsung, Manfrotto, Printronix, and Honeywell.
Aakanksha Banerjee: Thank you Sir. Sir my second question would be how are we planning to
expand or increase our product offerings?
Ketan Patel:
Couple of things are there. As you know we have been in this business
for the last 25 years now and we have a robust infrastructure of 24
branches across India. We have close to 18 warehouses. We have now
one fully owned subsidiary in Hong Kong to cater to the SAARC markets.
We have the compete infrastructure ready. We are already on an ERP.
Now we have close to 5000 channel partners, so we plan to increase the
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penetration among these channel partners and enable this channel
partners to sell all the products what we sell, so we can contribute to
their topline and bottom line and as we know the Indian millennial
generation - less than 30 years of age - is close to 75%. So, two ways we
are planning to target. One is to increase the penetration of the existing
brands and every year try to get two or three brands, but not just
product centric brands, brands where there is a bit of customer
experience involved, so get these two types of products and then go all
out with our channel partners and cater to the Indian market and the
Middle Eastern markets.
Aakanksha Banerjee: What would be our further growth strategy from an overall business
perspective?
Ketan Patel:
From what it looks like from last year we would grow in terms of topline
by close to 30% to 35% and bottom line we should double our
profitability and I think for the next couple of years that is going to be the
same trend.
Aakanksha Banerjee: Okay. Sorry Sir, but coming back to your earlier questions, I wanted to
like to know what will be the market strategy in the Middle East
countries?
Ketan Patel:
Middle East we clearly know that we are not a top rated distributor
there, so we have already approached three top distributors including
Redington and one of them would agree to become our distributor for
Honeywell brand because Honeywell brand has the much stronger
market affinity in Middle East than in Indian markets so a lot of guidance
comes from Honeywell also because Honeywell is present in almost
more than 65 countries and Middle East is also one of the top markets.
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Aakanksha Banerjee: I think that would be enough from my side. Thank you, Sir.
Moderator:
Thank you. The next question is from the line of Raghvendra Kedia from
MH Capital. Please go ahead.
Raghvendra Kedia: Good morning Mr. Advani and Mr. Kanvinde. Congrats on a great set of
earning numbers. My first question is regarding the financials. In the
presentation you have mentioned the other cost going up to Rs. 9.95
Crores versus Rs. 6.5 Crores in the same term last year and also that is
with the other cost and also the interest cost has gone up to Rs. 3.3
Crores from Rs. 2.2 Crores. Can you please give some insights on these
two entries?
Abhijit Kanvinde:
Let us talk about interest first. If you refer to our balance sheet, then
there is a term loan which we have taken to purchase a property that is
around Rs. 5 Crores. So interest cost has gone up, the first reason is
because of that and the second reason is because if you can see we have
got our enhancement done in this financial year for working capital, so
we have higher working capital now from the banks, so these are the
two reasons by which the interest cost has gone up. As far as the other
expenditure goes, you know, other expenditure includes all our sales,
promotion and marketing expenditure. If you see our sales have gone up
by Rs.171 Crores to 255 Crores, so relative expenditures like sales,
promotion and marketing it has gone up. That is the reason you see an
increase in total expenditure.
Ketan Patel:
I would like to add one more point because the brand spend, they are
marketing dollars or money through us and GoPro 7 was a launch in the
period of October, November and December that is why you can see the
other expenses, because the brands would usually park their money with
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us and through us they will pay the marketing expenditure, so that is
why, because three new launches of cameras where there, that is why
the expense went up.
Vijay Advani:
It is also proportionate to the sales, when probably as there an x amount
of sales, the parked money from the brand is much more than otherwise.
So further sale has gone up approximately 35% to 40%, the parked
money is also more into the kitty.
Raghvendra Kedia: Fair enough. My next question is regarding your association with
different brands and different companies so if you can see the online
space Amazon, Flipkart and other names and even the physical
showrooms like a Croma or Vijay Sales they are pretty extensively
present in India so let us say for any brand to come to India and have its
products launched across India choice one is to go directly to Amazon,
Flipkart, Croma, Vijay Sales directly. Choice two would be doing the same
thing via Creative Peripherals, so what value addition, you would do to
them when some customer comes to you versus that company directly
goes to the names just mentioned above. How does Creative Peripherals
play a differential role when somebody approaches you versus going
directly?
Ketan Patel:
Raghvendra, I will answer this question. First, I would like to tell you
something that if you see overall for the last 10 to 15 years, products and
specification for any products has lost its value. Today if you see any TV it
has similar feature, if you see any mobile phone it has similar features, if
you see any car, if you see any bike, all have similar features. So, product
and specifications have completely lost its value. Wherever you can
share on the social, and wherever you can give a great customer
experience those products are only being bought by the customer and in
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that products only you get a cost plus say a 10x margin or cost plus say a
5x margin. So, for example, in that category you could have an iPhone or
you could have a Harley Davidson bike or for example for that you can
have a camera such as GoPro, which is a six year old company or for
example, Olympus is there, or we have one more company in our
portfolio called Manfrotto and GITZO. So these companies are there and
these companies they completely realize that if we deliver a world-class
customer experience then only our products will have demand and we
will not become a generic brand, and these all companies when they
come to India usually they take the short cut, so they would try to take a
direct route, try to go to a Croma, try to go to Amazon and then they
quickly realize in a couple of months’ time that the customer experience
bit is not being done very well in growth mode and they do not have
time to look at the brand strategy to be executed well and if the brand
strategy is not executed well and the customer experience is not
delivered, then the brands tend to fail, so that has been and we have
seen a lot of American brands entered India and went back because their
customer execution was not delivered very well. And to deliver this
customer experience you require scale and skill, you cannot be just a
Mumbai centric company selling in Mumbai, you should be able to give
the same customer experience across
India, you should have
partnerships not only in online but in online, offline, Mom & Pop stores
also you should have partnership with specialty retail stores and
currently in India we are the only company kind of who has got this scale
and skill, which has got the relationship across the channels. So, for
example I will give you a case of GoPro. Before GoPro came to India two
years back, they had a sale of half a million dollars. This year GoPro we
would do close to USD 12 million December ending and what changed
for GoPro is that when GoPro came to us we had 22 advocates who
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could write about GoPro. We had close to 18 people who could create
content for GoPro which the customers could see and then we took
GoPro to Harley Davidson and today any test drive you do on a Harley or
any hog which Harley does, GoPro is an essential part of that team.
Similarly, we did that with Ducati, similarly that we did with all
photographic too, so a brand, which is really serious of customer
experience and wants to execute if strategy rise would always prefer us
than any direct route. That is one. Second just the product is not then
who will look at service, who will look at imports, who will look after their
social strategy, so all these things we do, so whenever a brand comes to
us usually these are our criteria. We see whether the brand is number
one, number two in the world then we take up that brand, second is will
we be able to do any value addition to that brand because we do not do
a value addition to that brand, then probably the brand will move away
from us, so that is the second tick point for us. Third is whether they give
us exclusivity for a three to five-year period then only we sign up with
that brand. So usually you get 20 brands but out of that you can sign only
two or three with whom your match making will be correct. So that is
how we are doing that. Currently we have the best fulfillment partner for
Reliance for the last three years. When you say fulfillment partner is how
many times they give order, and how many times the orders were
replenished on time, because their retail sales will go down, so Reliance
or a Croma will take a lot of time to do a multilevel of this product, so we
have an advantage currently and since we are exclusive, wherever,
whichever product sells the pipe has to be us that is how we have right
now structured our business.
Vijay Advani:
To add two more points to this, one is that previously GoPro when came
to India through some other distributor who was catering to not more
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than 18 stores in all India, so we are now catering to more than about
150 stores which are camera special stores and secondly as a fulfillment
award which we got for this reason plus also one more thing that we see
that the material which we supply to them, which
is from the
Washington DC, USA from their warehouse to their stores for sales on
time. So, whenever the customer comes to the shop
it
is our
responsibility to see that the product is available on the shelf.
Raghvendra Kedia: Thanks. My last question is regarding the positive triggers in the
company, I see this Asia expansion going into new geographies as a very
good trigger in the month ahead, and also this Honeywell venture or
where you have actually kind of some association in the manufacturing?
Ketan Patel:
It is a licensee agreement where we can use the Honeywell brand for a
certain range of products.
Raghvendra Kedia: That also we have seen as a positive development, ahead in the future,
what more triggers or game changes can we expect from Creative
Peripherals considering largely if you see the legacy, it has been probably
an importer and a distributor, obviously the graduation to the next level
where you have become a regional Asia player as well as this licensee
agreement on these lines or in the future scope of business what can we
expect from Creative Peripherals?
Ketan Patel:
Raghvendra one of the things we can say is we are a late bloomer kind of
a company. We got over Mojo only correct for the last three to four
years now and there are a lot of opportunities like Honeywell. We can
talk to brands like Phillip for personal healthcare, we can talk to a brand
like Printronix to expand their guideline and we can so for Creative if you
ask me what are we going to do for the next three years, one is that first
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stabilize the Honeywell business and try to get a couple of more licenses
like Honeywell and with a named company, so either get Phillips, or get
Kodak in that line. So that is one of the business. Second is that because
these are all accessories and lifestyle product, we have seen that the per
capita income for Middle East and per capita income for Asian market is
much higher than India and people tend to spend on electronics and
accessories at a much more value than that of India so we set up a
subsidiary in Hong Kong which will help us that when you go from a state
that you are a company which is in Hong Kong and wants to access the
Asian market your acceptance is much better, so for the next couple of
years we are going to go and deeply penetrate India and for Asian
market and the Middle East market, we will penetrate with the help of
Honeywell and Hong Kong office and develop a robust structure base.
we clearly know that to build up a distribution business of the right angle
we require 15 years of kind of a time, so in this market, we will go as
brand and appoint distributors there and through them access the
market. So basically these two points are there and we think that from
the technology point of view, retail security is going to become the top
most thing, because in India also we are still at a very infant stage in
terms of retail whereas today Alibaba has a man less store in Shanghai
called the Hema Stores where they have put in artificial intelligence and
a lot of other retail security solutions, so we want to cater to that
market, learn that trade and again redeploy it in India. So, these two
places are there where we would want to look at more growth, one is
retail security and second is deeper penetration in India and exploiting
the Middle East and Asian markets with brand Honeywell.
Raghvendra Kedia: That is great. Thanks a lot. That is all from my side.
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Moderator:
Thank you. The next question is from the line of Akash Jain from Ajcon
Global Services. Please go ahead.
Akash Jain:
Congratulations Sir on a very good set of numbers. My question is when
are we expected to list on the main board of NSE and with the
partnerships like Vitec Group of Italy, Honeywell, what can be the
expected ROE for say the next five years?
Abhijit Kanvinde:
The first criteria to list is completion of two years on SME exchange, so
that is we are completing two years in mid-April. Any time after say May
we would be eligible to list in the main board. That is your answer to
your first question. What was your next question?
Akash Jain:
What can be the expected ROE if we take say next five years picture
considering partnerships with Vitech Group of
Italy, Honeywell,
Samsung? Any ballpark number that we aspire to achieve?
Abhijit Kanvinde:
ROE for FY18 is around 10.3%, and we are looking at and it is a five-year
horizon so very difficult to comprehend but we are looking at around
17% ROE ballpark.
Akash Jain:
As an investor, what best can we expect from retail security imaging,
how much they can account say within the next two or three years since
they are having higher margins?
Ketan Patel:
Currently our business is 65% in IT and 35% is Imaging and Lifestyle
which we will probably get it to 50:50 by the 2019-2020 financial year
end, so 50% will come from IT and 50% from imaging & lifestyle, so the
blended gross profit should be between 9% and 10% put together
everything.
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Akash Jain:
Great Sir. Thank you. That is all from my side.
Moderator:
Thank you. The next question is from the line of Dinesh Kotecha from
KRIC. Please go ahead.
Dinesh Kotecha:
Good afternoon. Sir, two micro financial questions which I want is one
your other income rose by 92% compared to the last quarter, so can you
give some breakup of that other income, other operating income?
Abhijit Kanvinde:
The other income has gone up because there has been a foreign
exchange gain in this quarter and the last quarter. That is the clear
reason and that is the only reason why the other income has gone up.
Dinesh Kotecha:
Sir secondly the inventory has gone up by more than 9 Crores
incrementally compared to the last quarter?
Ketan Patel:
I think I will answer that question. The sales went up by close to 40% to
42% above the last quarter, so that is why and inventory is always a point
of time in the month, so when we end the month usually our material
will move out and the material would have come in from the brand
.
Dinesh Kotecha:
Sir last question, how many new products are envisaged to be launched
in the last quarter of 2019?
Ketan Patel:
We have finalized with a brand called ThermalTech. It is the number two
gaming brand in the world and so that is one. And we are already in talks
with another two companies.
Dinesh Kotecha:
Thank you Sir. Thank you.
Moderator:
Thank you. The next question is from the line of Rahul Srivastava an
Individual Investor. Please go ahead.
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Rahul Srivastava:
Thank you for the opportunity. One clarification, what is the property
that we have bought, if you can tell me about it then I ask further?
Abhijit Kanvinde: What we have done, we had couple of offices in Mumbai. So now we
have consolidated these offices and bought one property, and everybody
has moved into that office. We have one office now, which is two floors
of one building, so that has cost us around Rs.7 Crores. Now that has had
a saving also because couple of offices we had were on rent and that
rental income, rental expense has gone down in your P&L. The second
point is that there are operational efficiencies involved when you sit
together in under one roof, so from that convenience and operational
efficiencies I think we are doing well.
Rahul Srivastava:
In fact, this is exactly what my next question was in line, if there are
efficiencies both in terms of operations and financials then how much of
it do we actually get advantage out of it?
Abhijit Kanvinde:
If you see the interest cost, additional incremental interest cost because
of borrowing for the office, would be approximately Rs.3 lakhs per
quarter, and we would have effectively saved Rs.1.5 lakhs per quarter on
the efficiencies, so effectively Rs.1.5 lakhs per quarter would be an
additional outflow.
Ketan Patel:
To answer your question in a different way, by having this new office, we
have almost doubled the space to use and I think, so if you have to
overall put a ballpark figure, I think, a quarter of percent yearly, this new
office will add to the bottom line in terms of efficiencies.
Rahul Srivastava:
That is encouraging, so we are not a property driven business that is
resulting into some kind of savings on the bottom line so we are
investing into it?
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Creative Peripherals & Distribution Limited January 21, 2019
Ketan Patel:
Yes Sir.
Rahul Srivastava:
Another clarification rather we have divided our business into four
segments and the overall margin for us happens to be about 3% to 3.5%
on the EBITDA front but when we say the top five selling brands are
probably in other IT segments?
Ketan Patel:
Top selling brands are Samsung, GoPro, Manfrotto & Honeywell. So,
Samsung and Printronix are in IT, GoPro, Manfrotto are in Imaging.
Honeywell is an IT, but Honeywell is into licensing. It will give us close to
42% gross margins. So, we can consider Honeywell differently, so right
now out of the top five brands two are IT and two are Imaging.
Ketan Patel:
Just one more point to add, our business works in a way that if you do a
monthly sale of say Rs.15 Crores, you have not done earn anything and
post Rs. 15 Crores everything starts coming to the bottom line and that is
why you are seeing change in the profit because for the last quarter we
would have done almost 30 Crores a month. So after 15 Crores even a
3% will add to the full year bottom line. That is the kind of logic we work
with.
Rahul Srivastava:
Fair enough. Thank you. Great year ahead.
Moderator:
Thank you. Ladies and gentlemen that is the last question. I now hand
the conference over to the management for his closing comments.
Ketan Patel:
I thank the entire team of ‘Creative’ for this untiring effort, hard work,
and sincerity. Also, I appreciate all of you for participating in the maiden
earnings conference call. Do get in touch with our IR team for any further
questions. Thank you so much.
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Creative Peripherals & Distribution Limited January 21, 2019
Moderator:
Thank you. Ladies and gentlemen on behalf of Creative Peripheral &
Distributions Limited that concludes today’s conference. Thank you for
joining us. You may now disconnect your lines. Thank you.
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