Flair Writing Industries Limited (FLAIR) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Flair Lighting Industries Limited Q1FI 27 earnings conference call. 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 star, then zero on your touch-tone phone. Please note that this call is being recorded. I now hand the conference over to Ms. Mamta and Hera from MUFG in time. Thank you and over to you, ma'am.

Thank you. Good afternoon, everyone. Welcome to the Fair IT Industries Limited 21FI 27 earnings conference call. Today on the call, we have Mr. Vimalchan Rathod, the Managing Director, Mr. Mohit Rathod, the Whole Time Director, Mr. Sumit Rathod, Whole Time Director, and Mr. Alpesh Porwas, the Chief Financial Officer. A short disclaimer before we start this call, this call will contain some cover-looking statements which may be based upon our beliefs, opinions, and expectations of the company. As of today, these statements are not a guarantee of future performance and will involve unforeseen risk and uncertainty. With that, I would now like to hand over the conference call to Mr. Vimbalchand Rathod, the Managing Director, for his opening remarks. Thank you and over to you, sir.

Good afternoon, and welcome to everyone. Thank you for joining Q1 FY27 earning call. I hope everyone had the opportunity to go through our investor in your presentation and press release that has been uploaded on the exchange. We are pleased to present our Q1 FY27 performance with 11% year-on-year revenue growth and a 23% year-on-year increase in EBITDA. We are seeing increase in demand of our products in the domestic market with growth across key categories despite challenging arises from the prevailing geopolitical situation which impacted our Q1Q gross profit margin and affected our certain market and supply chains. Our overall business remains in resilience and continues to deliver growth. Coming to our segment performance, Our core pan segment delivered 9% year-on-year growth, with demand remaining positive during the back-to-school season. Our creative products and steel bottles and houseware business also acquired a double-digit growth. Together, those categories now contribute approximately 31% of our overall revenue, reflecting the growth, the progress we are making towards diversifying our product portfolio. Flair Carousel Industries Private Limited, a subsidiary of Flair, currently operates three stainless steel bottle manufacturing lines. The order for the fourth next generation manufacturing line has recently been placed and its commissioning is expected by Q4 27. The new line is expected to increase our manufacturing capacity by approximately 35 percent, enabling us to cater the growing demand Thank you. Domestic and international demand. Looking ahead, our focus remains on maintaining our leadership in writing instruments while increasing our market share in our creative products and steel bottles and houseware business. At the same time, we are continuing to improve capacity utilization, better thought food in our distribution network and drive products. Capacity utilization, battery output, innovative and strength of our presence in our own brands and international markets. I now hand over the first semester Alpes 4-1, our CFO to discuss in detail about our Q1 FY27 financial performance interest. Thank you.

Thank you, MD, sir. A warm welcome to everyone. Let me take you through our financial performance for Q1 F527. Revenue from operations stood at INR 319.2 crores, registering a 10.6% year-on-year growth. Gross profits stood at INR 158.6 crores, up 10% year-on-year, with gross margin at 50%, broadly in line with historical levels. with a modest 31 basis point, year-on-year decline, which is driven by geopolitical uncertainties and an elevated cost environment across the industry. We have also taken proactive measures to protect margins, including rationalizing schemes Implementing selective price increases across Three segments of businesses, writing instrument, creatives, and steel bottle and houseware business. EBITDA stood at INR 53.3 crores, growing 7.7% year-on-year, while EBITDA margin stood at 16.7%, a 46 BIPs decline year-on-year. The moderation in margins reflects elevated and volatile raw material costs. Your particular uncertainties. The company expects operating leverage benefits to support margin expansion and remains confident of progressively moving towards its EBITDA margin target of 17.5 to 18%. The S&R 29.1 crores, increasing 0.5% year-on-year, with PAT margin at 9.1%. The relatively slower PAT growth was primarily due to lower other income and increased raw material costs during the quarter. Despite the prevailing geopolitical uncertainty and the challenges arising from West Asia situation, We remain confident in the underlying demand environment and re-trade our FY27 revenue growth guidance of 15%. The revenue shows a decline of 1.1% with gross profit margin declining by 151 BIS and EBITDA declined by 116 BIS and PAT margin declining by 220 BIS. Coming to our segment, performance. The pen business grew 9% year on year, reaching INR 220 crores compared to INR 202 crore in the previous year. The segment continues to be a consistent growth driver, supported by healthy demand in the domestic market and ongoing product innovation. Importantly, growth during the quarter was largely volume driven. We launched 18 new pens across different price segments. We are expanding our product offering and catering to a wider range of consumer needs. The creative segment witnessed a growth of 23% YOY to INR 80 crores as compared to INR 65 crores in Q4. 65 crores in Q1, FY26. However, growth could have been higher, but the impact of sharp increases in raw material costs amid geopolitical uncertainties in certain categories, where we consciously prioritize a balance between volume-led growth and production of margins. This growth was supported by the existing portfolio as well as new product launches. During the quarter, we introduced 10 new products in the creative range. Going forward, we will continue to expand the portfolio through new product development while progressively building our in-house manufacturing capabilities. We will maintain prudent balance of volume-led growth and margin protection to achieve our previous guidance. Thank you. The segment continues to see increasing traction as we expand our presence in these newer categories. It currently contributes around 6% of our overall revenue, and our focus will be on broadening the product portfolio and expanding distribution. We expect the revenue mix to progressively shift towards creative products and steel bottles and houseware, with these businesses contributing a larger share of our overall portfolio. We introduced 32 new products across categories, further expanding our portfolio. July 27th, we have a pipeline of launches across pens, three-area products, and steel bottles and houseware. We will continue to deepen our pencil portfolio. And expand our steel bottles and houseware portfolio across channels. To support the growth of our steel bottle and houseware business, Flair Kairosil Industries Limited has placed an order for a fourth state-of-the-art next-generation manufacturing line for stainless steel bottles. The new line is expected to be commissioned by Q4FY27. Manufacturing capacity by approximately 30 to 35 percentage. These businesses contributed approximately 31% of the company's total revenue in FY26, and both continue to witness strong momentum. With the planned capacity expansion in steel bottles, Expect their combined contribution to increase to approximately 35-38% of overall company revenue in FY27. Domestic sales grew 13% YOY to 277 crores, compared to 245 crores in Q1 FY26, reflecting continued demand for our brands in the domestic market. Exports stood at 43 crores and remained broadly flat year on year, primarily due to disruptions in the West Asia, resulting in longer transit times. While the near-term environment in the vegetation region remains challenging, we have started focusing on increasing sales in other geographies and expanding our brand presence across international markets. During Q1, the company incurred a total capital expenditure of 43.42 crores. This investment is aligned with a long-term strategy of strengthening manufacturing infrastructure. This also includes a capex of 38.7 lakhs recorded at Surat facility comprising

investments and more.

All the internal accruals are for future expansion and for the shareholders. on building a stronger and more diversified flair. We continue to drive premiumization across our product portfolio, strengthen our integrated manufacturing capabilities, expand our distribution and market presence. We are confident in delivering consistent Thank you very much.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sneha from Novama. Please proceed with your question.

Hi, good afternoon, team, and congratulations on good margins, Sir Tan and Sear. The first question is related to margins itself. We have seen your gross margins falling just about $1.50 to QQ and, you know, remaining actually slattish wire-wise. While you said on the opening remarks that, you know, you've reduced schemes and, you know, discounts there, Is that a sustainable level of margin? I understand polymer prices are, you know, moving too swiftly. But can we actually look at these kind of gross margins continuing over the next two to three quarters?

Thank you, Nishnia. Let me just give you a background of the entire calculation and the margins which you are posing, which I see. So Q4 FY26 margins remain largely protected due to lower cost inventory procured earlier. However, the impact of elevated raw material costs started flowing through from Q1 to F527, resulting in margin compression. To mitigate this impact, the company has already implemented targeted price increases across key steel bottles and houseware categories, rationalized trade schemes and discounts, and intensified its focus on premiumization and product mix enhancement. As a result, despite the inflationary environment, Due to geoportical uncertainties, the sequential gross margin decline has been limited to 150 WIBs, which basically demonstrates the effectiveness of these corrective actions, which we undertook during the quarter. EBITDA margin declined to 16.7% from 17.9% in Q4 F526 and 17.2% in Q1 F526. While gross margin softened to 49.7% from 51.2% and 50% in corresponding period last year. See, the raw material prices of gross key inputs have increased. Significant near term cost pressure. Management had previously also indicated a potential 100 to 200 pips impact on margins that was during the last protocol. And the Q1 performance reflects approximately, reflects about 1.5% impact due to these higher input costs. To answer your question, looking ahead, how do we see it is that as a geocortical situation stabilizes, The management expects the cost pressures to gradually ease over the next three quarters. As a full benefit of pricing interventions, Rationalization of schemes and discount shall float. We will target an EBITDA margin of 17% to 18% for us.

Understood. That was quite helpful, sir. The second question was more on your segmental revenues. In our last quarter, we, you know, gave the guidance that, you know, pens will actually, you know, we are looking at around 5% TAG for growth, but this quarter, we actually saw 9%. On the other hand, creatives, which we were very positive about about 50% guidance out of the numbers, we were at 23%, while steel bottle was largely in line with our estimate, in fact, higher. Could you actually tell us what is happening in pens and what went wrong in creatives on the other hand?

So, that's Nina. Hi. Just to answer about the creative, nothing went wrong as of in creative. You know, we witnessed a growth of 23% Y on Y, primarily impacted by, you know, these orbital prices due to West Asia crisis. You know, there were certain categories wherein we took a conscious decision of going for balancing of volume-led growth and protection of margins. This impact was on categories such as geometry boxes, pencils, and certain subcategories within coloring portfolio. So, you know, it was a very conscious call that we took to protect the margin. Overall, if you look at the pen category as a whole, we have seen a decent growth of 9% in Q1. Which always we used to consider, like, you know, whenever we had a call earlier, we would always say that it will be higher single digits. So, it's mainly due to our strong brand pull for writing instruments of pens under Flair and Hauser brand in domestic market.

Thank you, Mohit. Any change in guidance with the overall revenue numbers?

No, I think, you know, looking at Q1 and the way things are progressing in Q2, Q3, we are positive that we'll be, you know, sticking to our original guidance of 15% year on year.

I understood. And team, thirdly, you know, great that you announced steel bottle business expansion here. Just wanted to understand a few numbers. What will be the key utilization currently that we are operating at? Potential revenues from the current line, and when is the new line expected, and what sort of offerings are we bringing in in potential revenue there?

Thank you. Yeah, so if you look at steel bottles, currently the capacity utilization is about 65%. And, you know, going forward, as you know, historically also, whenever we cross 65-75%, we tend to invest in the new expansion. And given the, you know, the positivity and the, you know, the signs from our buyers. Mainly in general trade and e-commerce and quick-com, we have taken a call to increase the capacity by 35%, where we will be investing in one more state-of-the-art automatic line of steel bottles, where we would be investing about 15 crores. And the expected revenue generation would be around 30 to 35 crores, because it all depends on the product mix, what we make on that line. And to answer one more question about the existing line revenue, the existing line, looking at the product mix, what we have been giving in the last two, three quarters to our customers, it looks like we would be doing about 100-odd crores with the current capacity.

Thanks, Moody. That was helpful. One last one, if at all, I can ask a bookkeeping question here. What would be the split of OEM business this quarter, both domestic and domestic?

So when we talk about, you know, OEM business, you know, overall OEM business witnessed a subdued demand during the period. As highlighted earlier, also our domestic OEM business has been fully phased out, you know, with our legacy OEM relationship reduced to zero. When we talk about export OEM Of course, because of the West Asia crisis, you know, there was a demand issue and also because of the logistics issue, it impacted the demand and the consumer operations. So I would say overall, if you look at the OEM business, it is hardly contributing to about 5% of our overall business. So, you know, it's a good look at. Yeah, it will be looked as a regular business. It's nothing to be, we are not focusing on OEM. We are rather, for last two years, we have been focusing on our own brand sales.

Understood, Moit. Thanks a lot, team, and all the very best.

Thank you.

Thank you. The next question is from the line of Aradna Jain from 361 Captain. Please proceed.

Hi, thank you for the opportunity. A couple of questions. First, I wanted a little more understanding on Penn's business. So, one is we've seen a good growth, 9% growth this quarter. Wanted a little more understanding of how are you looking at this growth? What led to it? Was there any one-off sort of demand that we saw in this quarter? And can we expect this kind of growth to sustain over the next few quarters? Because like the previous participant also said, for the full year, we were expecting, you know, low to mid single digit kind of growth in pens. But given we've already done 9% this quarter, can we expect the run rate to continue in the rest of the year as well? That's my first question.

Yeah, so when we look at the overall pen business, I think we have grown by 9% year on year, and it was mainly driven by the volume growth. So if you look at the overall volumes, we are increasing our market share in the domestic market as well as the export market. So going forward in Q2, Q3, Q4 also, we are, you know, hoping to continue with the same guidance of high single digit growth. And it was also led by the new product launches, what we have done in back-to-school fields.

Okay, and any sense if you could give us as to what could be our market share today in pens? And the reason I'm wanting to understand that is that recently, one of your competitors has also, you know, taken over Renault as a brand. So wanted to get your sense also on how you're looking at the competitive intensity to change your hence course. And what is our strategy going to be? Are we changing any strategy there with respect to pens?

So, you know, to answer that, you know, Reynolds was always there in the market earlier too, you know, and as the leaders in writing instrument industry, we have a strong brand portfolio with Flair and Hauser, and we will continue with our high growth strategy in this segment. So, I don't see any impact at all due to this.

Any sense on what would be our market share today in the print segment?

Currently, the market share, as per the last Crystal report, in writing instruments, we have a market share of 18%.

18%? Understood. And is it fair to assume that going forward also, the growth will be driven by our own brand rather than the OEM business for us?

Understood. Yeah, it will be our own brand.

Understood. And what would be the mix of mass, mid-premium, and premium? Any change in that mix for this quarter? You said it was volume-led, but still wanting to understand, was there any change in the mix, or it's mostly 50-50 for us, 50% coming from mass and 50%?

No, I would say mass and mid has increased, because, of course, because of the volumes, the mass and mid has increased.

Understood.

And in the pen segment, would you take any price? May we request you to join the question queue for a follow-up question? Sure, sure.

I'll do that.

Thank you. Thank you. The next question is from the line of Shibi Gupta from Preenetra Asset Managers. Please proceed.

Good afternoon, sir. Thank you for the opportunity. My first question is that the new unit that we are putting in Gujarat for writing instruments, sir, how much is the total revenue potential for the maximum utilization? And my second question is on working capital. So, sir, inventory, if you could just share some thoughts like how we are doing inventory-wise. Yeah, that would be good.

So, the new unit at Balchad which we are putting is basically, it will suffice our for the next one and a half year. It is not only for writing instrument, it is for writing instrument and creative board. So, we have historically also, you would have seen that our capex to revenue ratio has been around 3x, and we have projected about a calculation also says that it is going to be 3x this time also.

Sure, and on your working capital?

I would say the working capital here. Working capital has, in fact, year on year, if you see, my working capital has gone down by six days. It has improved by six days, year on year, if I were to say, quarter one to quarter one. It has broadly remained stable during the quarter, this quarter, compared to the previous quarter, that's Q4, FY26, with inventory, receivers, and pavers remaining largely in line with the previous quarter. So we got the advantage of keeping, you would have seen in our numbers, we got the advantage of keeping higher raw material stocks, especially in the time of the uncertain... Going forward, we expect to streamline inventory levels. One thing which I said majorly because of the crisis where the uncertainty of supply of raw material and the pricing issues which we face, but we also have new product launches across creative and steel bottles, which require somewhat higher inventory, particularly as these categories are still establishing distribution relationships. This is expected to normalize as these businesses gain traction. Given our experience in the We will see a gradual optimization as demand visibility improves.

Thank you so much. It was very helpful. Thank you. Thank you.

The next question is on the line of Atul Mehra from Motilal Oshan. Please proceed.

Hi, sir. Good afternoon, and thanks for the opportunity. So, my question is on the revenue guidance. So, basically, sir, if we have to meet our 15% guidance, we have to do 18% growth for the rest of the year. So, in the current environment, you know, what gives us the confidence of 18% growth for the rest of the year, if you can maybe break it up in business or segment-wise, what will drive the growth? And are you already seeing acceleration in top-line growth now that Sehab Report has already passed by?

We look at the numbers and going forward in next three quarters, we would like to stick to our guidance, looking at the kind of demand that we are generating in domestic market as well as export marketers from our customers. So based on that, we would like to stick to our guidance. As far as category-wise is concerned, as we had always mentioned, it's going to be high single digit in writing instruments for us. Creative and steel bottles with, of course, a higher number of digits.

Got it. And then, other than maybe the near-term license, maybe if you were to think about it from a three-year perspective, would we be confident of similar 15% of the stock market over the next three years as well?

All the predictions which we are sharing with you, this is for the current year, about 3 years, 15%? I would not like to kind of, you know, give you a higher number at this point of time, but we are sure about it and confident about the plans which we have in place.

Got it. One final question, Alpej, is on operating leverage you spoke about in opening comments. So, given obviously the current environment where, you know, cost pressures on the raw material side are on the higher side, if you can highlight a little bit more like what is the potential for operating leverage? Which can unlock some of the margin loss from cross margin. If you can maybe specify, yeah.

Yeah, so currently, if I'd like to share, we have taken few measures here, mitigating measures, to kind of counter the increase in the raw material prices. And there are certain products in one or two of these segments where we have also taken a conscious decision to kind of market them in a different way to maintain a balance between margins and that. So a combination of volume-led growth and targeted price increases is what has worked in our favor. So Q3, Q4 are always better. If you were to see Q1 and Q2, Q1 obviously just mahal or whatever is influenced a little by the ongoing crisis in the raw material price.

Thank you very much, sir.

Thank you. The next question is from the line of Nilesh Doshi from Prospero 3 AMC. Please proceed.

Thank you. Thank you. Congratulations for encouraging result in the light of the sharp increase in raw material price, sir. Thank you. Congratulations. Sir, my question is regarding the creative segment. Sir, creative segment is our one of the fastest growing segment, and you have given the guidance of 15% on overall revenue basis. But our presentation indicates that we have a 75% production capacity now. So, is the company thinking to expand the capacity for the creative segment in the near future?

We are expanding our production base for creative, and whatever infrastructure we build on... It's always fungible where we will make.

Will that capacity cater to the future demand also because the creative is the fastest growing and we are something anticipate that there will be a much more growth than the segment. So our capacity must be ready for the future demand also. Is it like that? So when that capacity will be ready, sir?

By end of next quarter is when we have the entire capacity in place. The building has been capitalized so far. It is built, but the machineries and mold, etc. are yet to kind of be installed. And It's not a switch on switch off, so we will order the next two. The capacity being the optimum utilization of the capacity there.

Thank you. to kind of, you know, Sir, my next question is, to the earlier participant, you mentioned that the Renault was already in the market, so not too much worry to us, but now it is on by some strong competitor. We must be ready with our strategy to maintain and increase our market share. Say you mentioned that the 18% market share in the PEN segment, and now the RENOL is acquired by the DOM. So are we ready, or what is our future plan to maintain our growth? Because PEN is already a single-digit growth trajectory, so we should not lose the market share and maintain at least our growth trajectory.

Yeah, so, Nilej sir, if you see in Q1 as well, they have seen a growth of 9%. So, when I talk about domestic market alone, we have seen a growth of almost, you know, in terms of revenue, it's almost about, you know, 13%. But in domestic, domestic payments. So, I would say, and it is all volume driven. So, there is no way we are losing market share to anybody, and of course, we have to be over-aggressive. We have been always aggressive in writing instruments to protect our leadership, and we will be aggressive in the future as well.

In short, we are ready to fight any competition.

We are. You know, in fact, all the new product pipelines are already ready for next two years.

Thank you. Thank you, Mohitkar, and all the best. You are maintaining the good trajectory, sir. Thank you. Thank you.

Thank you. The next question is on the line of Nirmam from Unix PMS. Please proceed.

Thank you for the opportunity. Great work on the margins. So, my first question is, so we were implementing an inventory management system, right? So, one, is that complete? And secondly, how does that impact our working capital, especially inventory days going forward?

So, while we speak... The implementation is underway, and within two, three, or three months, we'll see proper optimization of the new ERP, and all the benefits shall start flowing in. To answer your specific question regarding the inventory management, the software has a very robust integrated platform for handling the... What happens, or there is the timing. For machine utilization, all these calculations will come into play. This will bring about economies in a much larger way. Production cycle shall also be calculated within the software. So, we will procure inventory at the right time. The pricing will be another factor which will show up on the software. And hence, it will have a positive impact on maintaining the inventory.

Okay. So, secondly, on the steel bottles, so, can you comment on the profitability now that we're operating on a very good utilization level, what kind of margins do we make in this segment and how do you see these going forward?

When we talk about seed bottles, the profitability is going to improve further. Currently, we are still working on the product mix, and as the product mix changes, as per the season, the profitability also varies, but more or less, we are in line with our original target of having an EBITDA of 17-18% in that segment as well.

And last question on the creative. So, you mentioned we had some raw material challenges. So, now that we are increasing prices in some categories, do you think we'll be able to pass on the price increases and grow as well? Because we'll also have to improve our growth rate sequentially, right?

Yeah. So, you know, as I mentioned earlier also, I'll reiterate the same thing that, you know, we took a conscious decision of going, of balancing a volume led growth and protecting the margins as well. So there are few categories, as I mentioned earlier, like geoboxes, fences, and some categories of coloring where we had. You know, the issue of pricing, passing it on to the consumer, but most of the, most of the categories we have reduced the schemes and increased the prices.

What kind of price hikes would we have taken across the board if a ballpark number?

See, a total of the price hike has been, price increase in the raw materials have been to the tune of 10 to 50 percent, but our price hike here we are talking of 10 percent plus minus is where we have done.

Okay, yeah. Thank you and all the best. That is from my side.

Thank you. The next question is from the line of Manpreet Singh Arora from Arora Belt Advisors. Please proceed.

Yes, thank you. So, my first question is from the Kairosel subsidiary. Now, we did 86 crores of revenue in the last financial year. On steel bottles. Now, does it all get booked under the Kairosil subsidiary? The reason I'm asking is, you know, the annual report shows Kairosil going 41 crores last year, but we have reported 86 crores of steel bottles. So, we

look at steel bottle and houseware as one division. So, the steel-related ones are manufactured in Kyosir.

And there is also, you know, a big quantity of models which we are also, you know, trading. We are buying from a vendor and selling it, which we are not manufacturing. So that is also a part of it. Okay, so just to understand this. Which we will be, you know, manufacturing the current line, what we are setting it up, we will be doing that.

Okay, so just to understand this, then, you know, 86 crores that we did last year, 41 crores was done in-house, and the rest was done using trading.

So, no, no, no, so that was, the balance was a combination of in-house plus trading.

Okay. And that revenue doesn't get booked under the Kairosil subsidiary. It gets booked under the payroll.

It's booked under another legal entity. Kairosil subsidiary has only the in-house manufacturing which we do. So the trading etc. is...

I see. Okay. So the 100 crore potential of, you know, revenue that you're talking about is out of the chirofill subsidiary or including chirofill, manufacturing, plus, trading?

No, it is about the chirofill subsidiary.

Okay. Just to follow up on this because, you know, I want there's some discrepant. So you said we have reached 65% capacity utilization here. So, does that mean that Kairosfield is probably doing

65% in the next quarter, next couple of quarters. So, if we plan to expand our capacity now, in the next three quarters, we will be able to commission the fourth line, and then we will start producing it after a subsequent quarter. Yeah, so the expansion takes time, so we have to plan before.

Okay, thank you. The other question was on the distribution reach. Now, we had limited our creative distribution to 68,000 outlets last year. Do we intend to, you know, increase that in the current year or still limit to 68,000?

No, I think currently here also we are focusing mainly to have a... You know, to cater to those 68,000 only and to increase the throughput and, you know, increase the sales in the existing outage only.

The reason I'm asking, sir, is, you know, so I'm from, I mean, I've done a bit of going around the modern trade stores here in South India and some of East India just to look at our product. And while I see that our pens are present everywhere, we have a very good present in the pen segment. The creative segment, especially here in Bangalore and Chennai, you know, it has been a mixed bag. Some of the products are present, but are not there. The steel bottles are still seen in some of the tier two towns as well. So just want to understand, you know, which regions are you targeting? Are the metros covered? Because the creatives, you know, while I see that some of these products are very innovative, your Disney branded pencils, etc. But, you know, the availability has not, I'm not seeing the availability.

So, that's what we mentioned earlier also, that we are focusing... 68,000 outlets are those which are the main stationary counters in India. And when we look at our field access report, when we analyze the reports and we break shopwise, we feel that there is a huge scope to cater to these existing outlets rather than increasing the number of outlets because the increase in the number of outlets can be done once we achieve a reasonable per store value. What your target is. And also to answer that, as you said, you visited a few modern trade stores and there were a few products in our creative category. So, you know, from last year, Until last year, we were, you know, seen as a writing instrument player in modern trade, but since last year, they have accepted our creative categories as well, be it mechanical pencils or wooden pencils. So now, slowly, slowly, we are making enroads in these stores as well.

The next question is on the employee expenses. Now, you know, between 25 and 26, our employee expenses almost increased by 25%. Now, you know, where has this employee expense increase mostly gone to? Is it on the sales force side or on the manufacturing employee, manufacturing side employees? Just trying to understand. You know, what has caused drastic increases and then also what is a sustainable balance rate?

Navan, I don't know where are you seeing these numbers of increase of 25-30% over here. If I were to kind of share with you my employee expenses which would include the job work and other charges which are shown in other expenses. This has historically been plus minus point. If I were to talk only to your employee, which...

So what I meant was that between FY25 and we had 171 crores in employee expenses, and then in FY26 we had 214 crores in employee benefit expenses. Right.

When you see the percentage, the percentage to the employee expenses, the percentage to the revenue, you will get a stable number which is going on. Yeah, but, you know, sir, we have...

Yes, what I was saying was if we have to see operating leverage play out, so at some point of time, some of these expenses have to remain constant or not increase in proportion to our revenue, right? And that's where...

You're right, but also if you say that over the last two years, we have forayed into major expansion, and the new categories which we have got into, the new segments, which is creative and steel bottles, also require a lot of focus there.

Yeah, so the question is, was it more on the sales side that we had to increase the headcount or is it on the manufacturing side?

So it is both. Manufacturing also, since we have increased our manufacturing capacities, we have increased the headcounts in factories, and as well as sales side also, we have increased around 250 people.

And so this current run rate of 55 crores, is that going to stabilize now, or we are expecting more?

No, it's more or less stabilized now, so we bring about, we are always working towards having economies of scale. This is all said and done, that this is what we feel today, but tomorrow if we go for another expansion or another segment which we get into. Thank you.

And sir, on the Valsar operationalization, has there been some delays? Because, you know, we've been, in the last two quarters, we've been saying it will operationalize. But now, I think you mentioned that only the building has been capitalized and we'll probably start operationalization.

No, sir, this quarter, we will have it completely, by end of this quarter, it will be completely operationalized. So, when we say it's going to be commissioned, 100% commissioning is what we are talking about. But as we discussed earlier also, there was a little delay, but not so much that.

Thank you, sir. Thank you and all of us.

Thank you. The next question is from the line of Saloni from ValueQ Investments and Advisors. Please proceed.

Sir, I only have one question, and that is, how is the current creative and the steel bottle revenue that they are generating, what would be the ratio of outsourced slash traded revenue and the in-house one?

So, you mean to say the revenue mix of trading and in-house capacity?

Right.

So, you know, it remains broadly similar. It's about 75-80% is our in-house capacity and balance 20% is what we outsource.

Thank you. Due to time constraints, that was the last question, and I hand the conference over to the management for the closing comments. Over to you, sir.

Thank you all for taking time out for this conference call today. If you have any queries, please feel free to contact our IR team, MUFG InTime India Private Institute. Thank you all and have a good day.

Thank you. On behalf of MUFG InTime, that concludes this conference. Thank you for joining us and you may now disconnect here.