Responsive Industries Limited — Q4 FY24 earnings call

Call held 3 Jun 2024

Management summary

Responsive Industries reported stellar full-year FY24 results, driven by a significant expansion in EBITDA and PAT margins due to a focus on high-value flooring products and operational efficiencies. Revenue grew 11.61% to INR 1,086 crores, while PAT surged over 560% to INR 161 crores. Management expressed confidence in maintaining these enhanced margins and achieving a top line of INR 2,500 crores within 3-5 years, leveraging existing capacity and a debt-free balance sheet.

Highlights

  • FY24 Revenue from operations stood at INR 1,086 crores, up 11.61% YoY from INR 973 crores in FY23.

  • FY24 EBITDA expanded to INR 261 crores, a 107.14% increase from INR 126 crores in FY23.

  • EBITDA margin for FY24 was 24.03%, significantly up from 12.94% in FY23.

  • FY24 PAT reached INR 161 crores, a 560.9% increase from INR 24.39 crores in FY23.

  • PAT margin for FY24 was 14.84%, compared to 2.5% in FY23.

  • The company targets a top line of INR 2,500 crores in the next 3-5 years without additional CapEx.

  • Current domestic to export business mix is 40:60, with utilization at 55-60%.

  • The company is a zero-long-term-debt company and expects working capital cycle to improve.

Concerns

  • Initial numerical discrepancy in prepared remarks

Key financials

  1. Revenue ₹1,086 Cr +11.6%YoY
  2. EBITDA ₹261 Cr +107.1%YoY
  3. EBITDA Margin 24%
  4. PAT ₹161 Cr +560.9%YoY
  5. PAT Margin 14.8%

What they filed

Q1 FY27: revenue down 43.1%, net profit down 94.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue350 368 381 339 314 −10%311 −15%430 +13%193 −43%
EBITDA73 72 79 73 77 +6%46 −36%46 −41%23 −68%
Net profit49 47 54 50 53 +8%22 −52%23 −58%3 −95%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Capex

  • Total CapEx incurred Capex · FY23-FY24 · High confidence INR 180 crores
    So in terms of the CapEx numbers in FY '23-'24, we've incurred a total CapEx of around INR 180 odd crores.

    — Rishabh Agarwal, Chairman

  • Future CapEx Capex · next 2-3 years · High confidence No increase
    So in terms of the CapEx right now for the next 2 or 3 years, we are in a pretty good place. We are not going to increase.

    — Rishabh Agarwal, Chairman

Debt

  • Long-term debt Debt · foreseeable future · High confidence Zero debt
    In terms of the debt, we are a zero debt company, so we have zero long term debt. And we are our plan is to continue along the same debt free cycle for the foreseeable future.

    — Rishabh Agarwal, Chairman

Revenue

  • Domestic vs. Export business ratio Revenue · future · Medium confidence 40% domestic, 60% export (can change towards more export)
    So the breakup between the international and the domestic business is about 40% domestic and 60% export... The 40-60 as we see it today, in the order book today, we expect it to continue in the same vein, but there is lot of interesting conversations. 40 to 60 is today is the right mix to take forward. And we continue to grow, the mix can change towards export a little bit more.

    — Rishabh Agarwal, Chairman

  • Top line revenue Revenue · next 3-5 years · High confidence INR 2,500 crores
    So in terms of the top line in the next 3 to 5 years or so, we can hit about INR 2,500 crores in terms of top line.

    — Rishabh Agarwal, Chairman

Capacity

  • Overall utilization Capacity · years to come · Medium confidence Improve from 55-60%
    In terms of the overall utilization, we are between 55% to 60% odd in the utilization depending on what the order book looks like. And the utilization will continue to improve in the years to come.

    — Rishabh Agarwal, Chairman

Margin

  • EBITDA margin Margin · year-on-year · High confidence Maintain similar level
    Now in terms of the margins, we will be able to maintain the similar EBITDA margin going forward year-on-year, because now the baseline on customers both in export and domestic are pretty set.

    — Rishabh Agarwal, Chairman

Profitability

  • Net margins Profitability · through the year · High confidence Continue similar level (around 16%)
    Yes, absolutely. So we expect the same trajectory to continue in terms of the top line and we expect the same net margins to continue, similar net margins to continue through the year.

    — Rishabh Agarwal, Chairman

Working Capital

  • Working capital cycle days Working Capital · next fiscal year · High confidence Come down
    So we think the working capital cycle next year will definitely come down by a number of days.

    — Rishabh Agarwal, Chairman

  • Receivable numbers (as percentage and days) Working Capital · next coming quarters · High confidence Come down
    So we expect the receivable number as a percentage to come down as the time goes on and also the number of days for a receivable to come down as the time goes on.

    — Rishabh Agarwal, Chairman

Risks & concerns

  • Initial numerical discrepancy in prepared remarks

    high

    Management initially stated FY24 revenue as INR 1,886 crores, but later corrected it to INR 1,086 crores, which aligns with other reported growth percentages and margins.

    Management acknowledged

  • High receivable days impacting working capital

    medium

    Receivables were noted as high (around INR 500 crores on INR 1,000 crore revenue), attributed to institutional customers and increased business, but expected to come down in the next fiscal year.

    Analyst acknowledged

Q&A highlights

3 direct
CapEx plans and current debt levels Direct
So in terms of the CapEx numbers in FY '23-'24, we've incurred a total CapEx of around INR 180 odd crores... In terms of the debt, we are a zero debt company, so we have zero long term debt.

Clarifies capital allocation strategy and financial leverage, indicating a debt-free approach and moderate CapEx.

Asked by Hiren Trivedi

Discrepancy in reported FY24 revenue figures Direct
The top line the annual top line is 1800 -- INR 1086 crores.

Corrects a major numerical error in the prepared remarks, crucial for accurate financial understanding and analysis.

Asked by Vivek

High receivable days and plans for reduction Direct
So the collection days have in the current year have gone up a little bit because our business has improved dramatically over the year... As time goes on, the collection cycle will come down and we will end up with the collection cycle looking more robust.

Addresses a potential working capital concern and outlines management's strategy to improve collection efficiency.

Asked by Yogesh Bhatia

2 min read 6 chapters

Detailed narrative

Strong Financial Performance in FY24

Responsive Industries delivered robust financial results for FY24, with revenue from operations reaching INR 1,086 crores, marking an 11.61% year-on-year growth from INR 973 crores in FY23. This growth was accompanied by a significant expansion in profitability, as EBITDA surged 107.14% to INR 261 crores, up from INR 126 crores in the previous fiscal year. The EBITDA margin improved substantially to 24.03% in FY24 from 12.94% in FY23, while PAT increased by 560.9% to INR 161 crores, resulting in a PAT margin of 14.84% compared to 2.5% in FY23.

Strategic Focus on High-Value Products and Operational Efficiency

The remarkable margin expansion was primarily attributed to the company's strategic shift towards higher-value flooring products and improved operational efficiencies. Management highlighted the success of their 100% waterproof rigid flex system flooring and the focus on value-added items for both institutional customers (like railways and OEMs) and export markets, particularly the U.S. Upgrades to existing machinery, costing INR 180 crores over FY23-FY24, contributed to decongesting capacity and enhancing operational efficiency.

Future Growth Outlook and Capacity Utilization

Management expressed confidence in achieving a top line of INR 2,500 crores within the next 3 to 5 years, leveraging existing capacity. The current overall utilization rate stands at 55-60%, which is expected to improve over the coming years. No further significant capital expenditure is planned for the next 2-3 years, with new CapEx only anticipated once utilization reaches 100%.

Debt-Free Status and Working Capital Management

Responsive Industries maintains a strong balance sheet with zero long-term debt, a strategy management intends to continue for the foreseeable future. While the company reported a working capital loan of INR 251 crores and noted high receivable days (around INR 500 crores on INR 1,000 crore revenue), management clarified this was due to dramatic business improvement and institutional customers. They anticipate the working capital cycle and receivable days to normalize and come down in the next fiscal year and coming quarters.

Domestic and Export Market Strategy

The business currently maintains a 40% domestic and 60% export mix, which is expected to continue, with a potential shift towards more exports. The export strategy focuses on the U.S. B2C segment through distributors and retailers, emphasizing brand visibility and quality. Domestically, growth is driven by institutional clients (e.g., Vande Bharat Indian Railway, bus body builders like Tata Marcopolo) and a planned expansion into the B2C residential market with over 100 customer experience centers in the next three years to compete with tile brands.

Margin Sustainability and Competitive Landscape

Management expects to maintain similar EBITDA and net margins year-on-year, with net margins around 16%, as the baseline for high-value customers is now established. The company operates in a $45 billion global vinyl flooring market, competing with European, American, and Korean players. Anti-dumping duties against low-cost Chinese and Taiwanese suppliers provide a protective environment, allowing Responsive to command a premium based on brand, quality, and service.

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