Stove Kraft Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Stove Kraft Ltd (STOVEKRAFT) Q4 FY23 Earnings Concall

Management Update:

• [00:04:16] STOVEKRAFT said it has added 54 stores in Southern markets and plans to open seven to eight stores every month in FY24.

Q&A Highlights:

• [00:07:34] Devansh Nigotia of SiMPL asked which line item in the P&L has caused the growth in other expenditures from the long-term average of 12-13% to 17% in 4Q23. Balaji A.S. CFO replied that the INR2 crores increase in expenses from 3Q to 4Q was due to business promotion spend. The proportion of expenses to sales was wider in 4Q because sales were smaller than in 3Q, not because expenses increased significantly.

• [00:11:22] Devansh Nigotia of SiMPL enquired about capex being higher than guided number. Rajendra Gandhi MD replied that the capex is INR75 crores and an additional INR20 crores has been given as an advance for future cash outflow.

• [00:12:39] Devansh Nigotia of SiMPL asked about the channel mix for FY22 vs. FY23. Rajendra Gandhi MD replied that general trade was at 42%, modern retail is at 10%, e-commerce at 30%, corporate sales were 5%, and exports were 10%.

• [00:13:42] Lokesh Maru with Nippon India asked has there been any change in strategy to absorb the increasing fixed costs during the growth phase of expanding capacities, distribution, and reach. Rajendra Gandhi MD answered that 3Q and 4Q revenues were below budget, causing a shortfall in planned revenue. With new strategies, plants, and products, the company believes it will reach the threshold to cover all fixed costs in the current year.

• [00:14:58] Lokesh Maru with Nippon India asked how has the demand momentum been for the months of April and May, given that 1Q is seasonally weaker. Rajendra Gandhi MD clarified that demand is not very strong but the company is ready to grow over previous year’s quarters due to its strong distribution network and brand. In a normalized demand scenario, the company would grow at a higher double-digit rate, but currently it is growing at a lower double-digit rate.

• [00:19:45] Pritesh Chheda at Lucky Investment enquired if the company is willing to flex its brand and market-share to take a price increase due to high cost increases from capex in the last two years. Rajendra Gandhi MD said that there is still room for growth in market share and the company will continue to focus on it while remaining confident about its position in the market.

• [00:27:32] Khush Gosrani of InCred asked if it is justifiable for industry players to have higher advertisement spends given the weak demand environment. Rajendra Gandhi MD answered that the company’s advertisement spend is not more than 3.5% and believes that it should continue to invest in marketing to communicate with consumers about new products. STOVEKRAFT is confident that demand will come back and that it is important to invest in the brand during temporary times of weak demand.

• [00:28:35] Khush Gosrani of InCred enquired about the company’s capacity utilization. Rajendra Gandhi MD said that the company’s business varies by quarter, with the second and third quarters being larger and having a peak in 2Q. Due to seasonality, the company cannot have 100% utilization of its capacity, but it does not have too much spare capacity during the peak.

• [00:32:45] Khush Gosrani of InCred asked why have GMs remained the same despite investment in backward integration in the last two years. Rajendra Gandhi MD answered that during COVID, the company had a higher GM due to its backward integration, which helped it to be more competitive in the market and maintain its GM.

• [00:35:19] Harshil Shethia at AUM Fund Advisors asked why isn’t STOVEKRAFT able to pass on the price hike in terms of RM despite having a 30% market share. Rajendra Gandhi MD said that there was no price hike in the last quarter and the company’s ability to pass on input costs is not linked to market demand and sentiment. If there had been a price hike in input costs, STOVEKRAFT would have passed it on to the market.

• [00:36:55]Achal Lohade of JM Financial enquired about the mismatch in the March quarter when the company couldn’t absorb the cost and had a margin impact, and how will the company deal with it if it repeats. Rajendra Gandhi MD replied that if the company had achieved its planned revenue of INR350 crores, it would have had an additional INR22 crores of EBITDA. STOVEKRAFT’s system, team capacity, brand, and distribution network are built for growth and even a INR10 crore increase in revenue would result in a INR2.5-3 crore growth in EBITDA.

• [00:41:29] Achal Lohade of JM Financial asked about the revenue growth and margin guidance for FY24 and how STOVEKRAFT will ensure double-digit growth if there are supply issues. Rajendra Gandhi MD said that the company is confident of delivering growth this year and believes that with the onset of the festival season, demand will return.

• [00:42:55] Anand Mundra from Soar Wealth queried about capex guidance for FY24 and FY25. Rajendra Gandhi MD replied that the company plans to spend no more than 25% of its PAT on capex and may defer its capex plan to the last quarter and between the last and first quarter of next year.

• [00:47:52] Paras Bothra with Ashika India asked what is causing the slowdown in the industry and for STOVEKRAFT, particularly in the e-commerce space, and why STOVEKRAFT is confident of a pick up. Rajendra Gandhi MD said the company continues to lead in both e-commerce platforms and expects the e-commerce channels to perform and grow at earlier levels. STOVEKRAFT believes that the e-commerce business is on the same trajectory of growth as before.

• [00:54:04] Rusmik Oza at Nine Rays asked about the company’s internal benchmark for ROE and ROCE for FY24 to FY26. Rajendra Gandhi MD said the company will get back to its past ROCE of 18-20% and aims to reach 20%.