Avro India Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Revenue up ~47% YoY, but management is openly dissatisfied: The Chairman called the growth "not acceptable" and is challenging his team, believing the company's potential is far higher than what Q2 delivered.
• Recycling is the margin story: Commenced up-cycling operations using plastic waste, with recycled pellets ~20% cheaper than virgin material; management targets 50% self-sufficiency by FY23 end and 100% by FY24 end.
• Geographic expansion is underway, but early: After two decades as a UP-focused company, Avro now has feet on the ground in Southern India (Bangalore, Chennai) and is appointing distributors across multiple new states.
• Working capital stretched: The cycle moved from 30–45 days to 60–70 days due to credit support to dealers during the downturn and acquiring high-value customers; management aims to normalize by Q4.
• What to watch next quarter: Whether the promised Q3/Q4 seasonal uplift materializes after a muted October 2022, the pace of recycling ramp-up toward 300 tonnes/month, and any sign of trade receivables normalization.

Demand & Seasonality

• Q2 is structurally subdued: Rains, no marriages, and no major functions make Q2 a slow quarter; Q3 and Q4 are expected to be much healthier, driven by the marriage season starting post-Sankranti (mid-January) and running through mid-July.
• October 2022 lacked the post-COVID euphoria: October 2021 saw one of the company's largest sales ever after reopening; management does not see that same explosive traction in October-November 2022 and does not expect a December windfall either, citing only four or five marriage dates in the period.
• Marriages, not festivals, are the core demand engine: The Chairman identified marriages as the biggest growth driver, noting that for BPL and lower-middle-class families, plastic furniture is the dowry item given to daughters.
• Continuous demand, not explosive: Management sees steady ongoing demand rather than a sudden surge, but refuses to settle for 10–15% growth, aiming to cannibalize competitors and drive organic expansion across the country.

Aggarwal: "When we opened up, we had one of the biggest largest sales that we ever had in October, October '21. But in October '22 or November '22 whenever you see, we don't see that euphoria happening."

Recycling & Backward Integration

• Up-cycling operations commenced: Avro is now recycling plastic waste into pellets that are ~20% cheaper than virgin material, which will add to the bottom line and provide a competitive advantage.
• Ramp-up timeline: By Q3 end, recycling should exceed 300 tonnes per month; by Q4, approximately 400 tonnes; full utilization of the facility is expected within two quarters, after which "tremendous results" should accrue.
• Self-sufficiency roadmap: Management targets meeting 50% of its own plastic consumption through recycling by FY23, nearly 100% by FY24, and more than 100% of additional needs by FY25.
• Compounded polymer sales to third parties: For the first time in two decades, Avro is positioning to sell compounded polymer products to the white goods and cooler industries, not just for in-house consumption; management says this will bring margin and valuation advantages with minimal resource allocation.

Aggarwal: "By FY '23, almost 50% of our consumption, we should be able to do with the up-cycling or recycling. And by '24, we should be almost 100% of our needs and requirement."

Margins & Expenses

• Q2 margin pressure was expense-led: Other expenses rose by ~₹17 lakhs, driven by a bad debt provision, increased selling expenses, and higher admin costs; management expects these to streamline over time as sales volumes grow.
• Profit margin should rise YoY: The Chairman cited the sunrise nature of the industry, ever-rising consumption, and Avro's ability to develop modern designs that command a better mark-up than peers.
• Credit support stretched the balance sheet: The company extended credit to dealers during COVID and the subsequent downturn; management acknowledged it is "not a social enterprise" but felt it needed to support the market, pushing the working capital cycle from 30–45 days to 60–70 days.
• Trade receivables jumped on new high-value customers: Management was initially "aghast" at the increase but found it was concentrated in a couple of buyers where investment is higher; rotation is happening month on month and "pretty fast."

Geographic & Distribution Expansion

• Breaking out of Uttar Pradesh: After two decades focused on its home state, Avro is now present in Odisha, Assam, West Bengal, Bihar, Jharkhand, Karnataka, Tamil Nadu, and Kerala, with Andhra and Telangana being added next.
• Southern India push: Two full-time resources are based in Bangalore and Chennai covering Karnataka, Kerala, and Tamil Nadu; another resource is being hired for Andhra and Telangana; response has been "overwhelming."
• Deep distribution ambition: Management aims to onboard and touch the 50,000+ dealers in its database and bring them into the fold, expanding toward deep distribution with secondary support and a pull strategy.
• Online channel shift: Earlier sold through Cloudtail; now selling via Easy Retail on Amazon, while Flipkart is handled directly.

Product Portfolio & Innovation

• Diwali launches: New products included a 21-inch plastic furnace stool, new baby chairs, and a new 4 kg chair, with more in the pipeline based on dipstick studies of consumer expectations.
• Continuous refresh cycle: Management likened the product strategy to mobile phones, where fresh ranges must keep coming because certain products become obsolete; about three more products are expected by December-end, with a couple in the design stage and a couple being developed in China.
• Peer advantage claimed: The Chairman stated most peers have not introduced any new product in the last 1–1.5 years because they believed the market was doomed due to COVID; Avro stayed ahead by continuing to invest in new products.

Aggarwal: "It's not the question of you continue to give more products. It's just because there are certain products which become obsolete over a period of time. So we need to bring in that fresh... touch."

Management Tone & Internal Posture

• Open dissatisfaction from the top: The Chairman said he is "feeling a little upset" and has been challenging his team, calling the current growth "not acceptable"; the internal posture is to promise less and deliver better.
• Growth ambition is aggressive: Management does not want to settle for 10–15% growth; the goal is a higher growth ratio by cannibalizing other brands while driving organic expansion, with the Chairman saying it is "absolutely at our wit, our wisdom, our will and our courage."
• Capacity is fully utilized: Avro is running at full capacity and is also outsourcing furniture from an associate company to deliver the complete SKU range.
• No court cases against the company: Avro has filed cases against wilful defaulters; National Insurance owes money due to litigation they have created.

Aggarwal: "I'm feeling a little upset... I've been challenging my own team and people, this is not acceptable because we do not want to promise something and deliver less. We want to actually promise less and deliver better."

Guidance & Commitments

Key Metrics