MCON Rasayan India Ltd — Q4 FY25 earnings call

It was more like yes; we are planning to do 80 crores. It was yes, that is our target so that's what we- but that guidance we never thought that you know, that guidance though we could grow by 20% still that guidance will show that yes, we are failing by 40% so that that is where the gap was, first of all, created and then the second part is that, what you rightly pointed out that during the year there are multiple occasions where whatever we had planned was we could have got it but, first of all, the elections in the center then rains and then the elections in the state because almost 50% of our business we are doing in Maharashtra state, okay? And, the Maharashtra state, initially because of the elections, the builders were underground that they don't have to pay the extra money to the politicians and post that the budgets were not released for the government projects, okay? In both ways, overall, the Maharashtra sales slowed down so that was the major setback for us.

Management provided a detailed explanation for the significant miss on the FY25 revenue guidance, attributing it to external market and political factors.

Asked by Rakesh Arora

Okay, so first of all, yes, the working capital has increased because the increase in the inventory and the inventory has increased because, three major reasons. Number one, of course, the projections so when we told you all that. Yes, we are planning so we were really planning the intention was surely there, that's why we also, stock the raw material needed or the packing material needed and because we are having almost 100 SKUs with us so the packing material needed or the inventory of the packing material is quite huge because each product is having a different bag, a different bucket, a different barrel or a different drum, so we need to stock that. Secondly, when we enter franchising model then there, the stocks of the franchisee are our stocks they come in so there also, our inventory increased because that is something that we needed to invest in and because instead- apart from our mother unit the stock is lying in another five units finished good stock, raw material stock, and packing material stock all three of them so all that put together there- there was a huge inventory and third, of course, that in the credit segment, I can say like the distributors because we open new pockets, new regions and also the project division that is the government division, so the credit lines we had to extend on slightly on the higher side because the payment from the client to the distributor was a bit slow so they had certain special request which we acknowledged because they are our extended partners or extended hands so we had to acknowledge that so these three all put together increased our cost of working capital. Now, of course, we are working number one, with the franchises to ensure that the inventory control at their end has to be their headache and major items we have developed vendors around them, so they can purchase directly from their vendors and it doesn't come in our books so that is one part that we have already started. So slowly, you will see reduction in the inventory levels or the cost of inventory. Number two, we have tied up with a channel financing NBFC or channel financing model wherein certain instrument is created for the distributors so slowly, they are coming on board with that model so that we get the payment fast and they get the credit that they deserve or want from directly from our channel financing partner so there, again, we will reduce the overall outstanding that is there with us in the market.

Management provided a comprehensive explanation for the working capital increase and detailed their strategies to normalize it, including shifting inventory responsibility and using channel financing.

Asked by Rakesh Arora

Right, so, first of all the cash flow thing or the inventory thing let's talk of that so like I told you the last year the inventory at the franchisee because the franchises were also, relatively new to us and they had invested on the plant and machinery so that told that the was the stock inventory will remain with you the moment, we bill it out back to back billing or we'll move that way so that's why the inventory was on us but this year we are already two of the franchise have already agreed that the inventory is on them so till the inventory doesn't turn into finished goods we are not carrying the cost of inventory on us, so that is one big- plus for us so the working capital requirement slightly gets controlled in that situation. Now coming to what are the margins or how much margins are the franchise is eating into so almost in 85% of the products the margins are directly balanced out by the transportation cost that we save?

Management clarified the economics of the franchisee model, including investment, ROI, and how margins are maintained without loss to the company due to transportation cost savings.

Asked by Rakesh Arora

Sir, for that see, traditionally what is happening I will tell you that in most of the cases like if you talk of Asian Paints, Dr. fixit or other brands what they doing is that do they are doing the outsourcing model so there is already a plant like there, there are multiple plants in Bangalore where I have to just send my bags they will fill in my bags and give me the product whatever is manufactured in their premises based on their formulation, so what happens is that over a period what you are saying is right that he creates his own brand also parallelly starts selling it in the same market saying that boss, Dr fixit is manufactured at my plant so buy Ten times cheaper from me directly. In my franchise model number one, I'm not telling him what is the formulation. He is more of investor rather than a manufacturer and a marketer so his thought process is that till I'm getting good ROI, I'm happy that my capital is invested and I'm getting returns on it I'm more than happy you are running the show you better run the show and give me my turnover that's it. So, I have selected that kind of model and that kind of people who don't want to go into the market and really sell the product.

Management addressed a key concern about the franchisee model, explaining how their approach mitigates the risk of franchisees becoming competitors.

Asked by Rakesh Arora

Okay, yeah so, the Puna plant is operational and we are progressing really well in that. The Sholapur plant- there, again the powders have started, liquid is yet to start because the requirements have not yet come. The Prime Minister Awas Yojna project had slowed down like I told you last year so due to that the requirements were not there that's why we did not you know, speed up the manufacturing of liquid progress but during monsoons we are sure that that plant will also the liquid plant will also become operational because post monsoon that work is also going to start in a big way.

Clarification on the status of new manufacturing facilities, indicating the Puna plant is operational and Sholapur liquid production is expected post-monsoon.

Asked by Radhika

Yeah, so see the R&D centers are there are you rightly pointed out both the things, okay? So one is the customization of the product based on the changing needs of the customer and the second is, introducing new products or new technologies so what happens is the capability wise you have got doctors in polymer chemistry who are two doctors who are heading the R&D centers and then below them we have got MSC in chemistry or chemical technology and also civil engineers part of the R&D center because construction chemical is a combination of chemistry and civil engineering so we need to have experts from both the fields to understand and test the product and give the right product to the customer. Secondly, we also visit international fairs to see what is the prevailing technology outside and try to you know, either do reverse engineering of the products that are available outside or create a similar product based on the needs of the atmosphere in India because India is a combination of 10 to 12 countries I would say like every 150 kilometers the temperature is changing the way people behave is changing the weather is changing, the education levels are changing and the need of the customer also changes. So with all that into picture it's very important that you know you formulate a product based on the feedback that you get and for the similar thing we also have internship with students from good institutes like NICMAR etc., who come with us who learn our products go to the consultants and architects do survey reports from them and share their findings with my R&D team so that we can develop further more products, okay? So that kind of combination keeps on operating.

Detailed insight into the company's R&D structure, expertise, and focus on customization, new product development, and adaptation to Indian conditions.

Asked by Rakesh Arora