KDDL Ltd — Q4 FY24 earnings call

KDDL Ltd reported robust financial performance for Q4 and the full year FY24. Consolidated total income for FY24 grew 25% year-on-year to INR1,420 crores, with EBITDA increasing 53% to INR270 crores, resulting in an EBITDA margin of 19.5%. Consolidated PAT for the year was INR137 crores, marking a 79% growth. For Q4 FY24, consolidated total income rose 16% to INR357 crores, and PAT surged 64% to INR34.8 crores. Standalone financials also showed strong growth, with FY24 total income at INR360 crores (up 15% YoY) and PAT at INR220 crores, significantly boosted by the Ethos stake sale.

The Watch Components segment, encompassing Dials, Hands, Indexes, and Bracelets, achieved a 10% revenue growth to INR247 crores in FY24. However, the segment experienced a slowdown in Q4 due to market corrections in key global markets like China, Europe, and the Middle East. To counter this, KDDL inaugurated India's first steel bracelet factory in Bangalore, investing approximately INR35 crores. This plant is designed to serve international Swiss customers with a capacity of 75,000 bracelets per year, and its production will be 100% exported, aiming to offset the slowdown in other watch component exports.

The Precision Engineering segment, known as Eigen Engineering, demonstrated stellar results, with revenue growing 25% to INR95 crores in FY24, and over 70% of this revenue coming from exports. Management anticipates maintaining a strong growth trajectory of 20-25% CAGR and aims to expand this business to INR500 crores over the next few years. The focus remains on high-growth end industries such as electronics, aerospace, alternative energy, and electrical vehicles, supported by continuous capacity expansion and new construction.

KDDL's Ornamental Packaging segment experienced an 18% improvement in demand, with revenue reaching INR15 crores in FY24. To capitalize on this growth, the company is establishing a new facility near Chandigarh with a capacity of 1 million boxes, at an estimated cost of INR8 crores. This strategic expansion is projected to transform the Packaging segment into an INR80 crores to INR100 crores business over the next 5 to 7 years, by targeting high-value premium quality customers in both domestic and export markets.

Estima AG, KDDL's Swiss watch hands and dials factory, saw revenue growth and reduced losses but remains unprofitable, with profitability now expected to be delayed by about a year due to the unexpected slowdown in the Swiss watch business. Silvercity Brands, a new Swiss subsidiary, increased its equity capital from CHF 2.1 million to CHF 6 million. Silvercity will be primarily engaged in the design, development, assembly, and marketing of watches, including the global relaunch of the iconic Favre Leuba Swiss-made watch brand with completely new collections scheduled for this year.

KDDL's manufacturing units incurred approximately INR39 crores in capital expenditure during FY24, excluding Ethos's capex. For the upcoming FY25, the company projects a capex of around INR45 crores for all its businesses. The company announced a final dividend of INR4 per equity share, in addition to the interim dividend of INR58 per share paid in January '24. Following the Ethos stake sale, KDDL has an investable surplus of approximately INR100 crores, which is planned for company growth and shareholder rewards.

Management emphasized that the 'China Plus One' strategy is a significant and real discussion among global brands seeking alternatives to China for manufacturing. India is emerging as a viable alternative, and KDDL is well-positioned and acclaimed as an alternative for watch components, presenting large opportunities in the medium and long term. Building on its experience with steel for the bracelet project, KDDL plans to enter the watch cases manufacturing segment, likely in FY26, recognizing the significant potential in this area due to the absence of specialized steel watch case factories in India for global brands.