Avro India Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Muted quarter, investment footing: Total income was INR 23.34 crores with EBITDA margin at ~10%, reflecting a period of market latency and heavy upfront investment in backward integration and geographic expansion.
• Integrated recycling is the structural bet: The company is now the only integrated process manufacturer from post-consumer plastic waste to B2B/B2C in India, a position management believes will significantly reduce costs over time as in-house recycled material displaces market purchases.
• Geographic expansion is working: New states, particularly Karnataka, delivered a "multibagger" performance with over INR 35 lakhs in a single month, validating the thesis that regional players cannot match Avro's range, quality or pricing.
• Scale is the missing piece: Management was candid that 10% EBITDA is "reasonably low" and that everything depends on reaching critical mass; the path runs through debottlenecking recycling and deploying fresh capex for volume doubling.
• What to watch next quarter: Whether the debottlenecking of the recycling facility shows measurable progress, any quantification of the greenfield capex plan, and whether the festive-season demand buoyancy materializes to support volume growth.

Integrated Recycling: The Core Structural Advantage

• Unique position: The company claims to be the only integrated process manufacturer in India spanning post-consumer plastic waste through to B2B and B2C finished goods, a complete value chain that no competitor replicates.
• Current input mix: 70% of raw material is recycled; of that, only 30% is produced in-house while 40% is bought from outside as post-industrial material. The stated goal is to bring that 40% to zero through in-house capacity expansion.
• Cost advantage mechanics: Post-consumer plastic waste prices barely move even when virgin polymer prices rise, because there are few takers for the waste. A INR 1 increase in virgin polymer may push recycled material up only 10-20 paisa, or not at all.
• Debottlenecking bottleneck: The recycling facility faces capacity constraints that cannot be resolved quickly because the equipment and processes for handling post-consumer waste (cement bags, fertilizer bags, milk pouches) are not standard in the country, and the local manufacturing ecosystem for such equipment is absent.
• Scale-up target: Current recycling capacity of 6,000-7,000 tons is targeted to reach 12,000-15,000 tons over the next couple of years, at which point 70% of consumption would come from in-house production and surplus material could be sold to others.

Sushil Aggarwal: "We are the only company in the entire country today to become an integrated process manufacturer from post-consumer plastic waste to B2B and B2C having a complete value chain."

Geographic Expansion & Demand

• Core market silent, new markets receptive: In the existing northern India base, demand is flat — neither declining nor growing. But in the newer states being entered, reception is very strong because regional players cannot deliver the range, quality or pricing.
• Karnataka breakout: The state delivered over INR 35 lakhs in a single month, becoming one of the highest-grossing territories and validating the expansion thesis. Other new states showing promise include Bihar, Jharkhand, Assam and West Bengal.
• Logistics made viable: For far-off states, freight cost runs at 14% of product cost versus a median 7%, but the economics work because larger containers now carry INR 9-10 lakhs of material versus INR 6-7 lakhs earlier, offsetting the extra freight.
• Sales force build-out: The company previously had no presence in South and West India; it now has people in Mumbai, Nagpur, Kerala, Tamil Nadu, Karnataka, Assam and Bengal, with more resources being deployed in both front-end and back-end roles.
• Festive-season bet: Management is waiting for market buoyancy from the upcoming festive season (Ganesh Chaturthi, Dussehra, Diwali, marriages) before considering any price increases, and is currently focused purely on building scale and volume aggressively.

Sushil Aggarwal: "Incidentally, Abhishek, thank you very much for asking this question. Number one, when it comes to new state, we never expected that Karnataka would be a, let's say, multibagger for us. Last month we sold more than INR 35 lakhs in that particular state in one month alone and probably one of the highest-grossing earners."

Margin Reality & the Scale Imperative

• 10% EBITDA is acknowledged as low: Management was direct that in a manufacturing setup, a 10% EBITDA margin is "reasonably low" and should be higher, but that everything depends on reaching critical mass scale.
• Raw material tailwind: Polymer prices have been "absolutely muted," with virgin material in the INR 90-100 range and only a slight INR 4-6 uptick in recent weeks. The company is not passing through any increases yet, prioritizing volume over margin.
• Marketing spend still minimal: Current marketing spend covers only resources (salary, travel) and BTL activities like in-shop promotions and catalogues. No ATL spending (TV, hoardings, print) is happening because it requires deep pockets, though some increase is possible from Q3 or Q4 onward.
• Investment phase drag: The company is in an investment phase with equal focus on production and marketing reach, deploying new manpower across front-end and back-end, plus spending on social and digital media. These costs weigh on current margins but are positioned as enablers of future scale.

Sushil Aggarwal: "I believe that in a manufacturing setup, this kind of EBITDA is reasonably low. It's actually low. It should have been better and higher. But what happens is everything matters in the critical mass scale."

Capex & Capacity Expansion

• Furniture manufacturing capex: Approximately INR 10 crores is planned for machines and molds, which management expects will deliver almost double the current volume from existing levels.
• Volume doubling target: The company aims to take output from 25 lakh pieces to 50 lakh pieces over the next three years, with FY26 as the target to double turnover, possibly earlier depending on capex deployment speed.
• New molds ordered: A couple of new molds were ordered from China last week (prior to mid-August 2023) and will be set up in India, part of a continuous product refresh strategy to discard obsolete low-volume models and stay fresh.
• Recycling facility expansion: An additional 25,000 square feet has been added to the existing 30,000 square feet, bringing the total to 55,000 square feet.
• Greenfield ambition: Management is contemplating a bulk deployment of capex for a greenfield infrastructure that would be a "beautiful, different, scalable and sustainable model," and is scouting for it while remaining open to suggestions. No timeline or quantum was provided.

Sushil Aggarwal: "That we need to know from you, Alok. Because we as a company, whatever small IPO that we did long back, was very, very small. But in any case, I think the right time is now, where the company actually needs to really go big."

Raw Material Dynamics

• Virgin polymer prices muted: Virgin material has been stable in the INR 90-100 range, with only a slight INR 4-6 increase in the last couple of weeks. Management characterized the overall polymer price environment as "absolutely muted."
• Recycled material price stickiness: Post-consumer plastic waste has few takers, so its price barely moves even when virgin prices rise. A INR 1 increase in virgin may push recycled up only 10-20 paisa, or sometimes not at all, creating a structural cost advantage for an integrated player.
• In-house vs. purchased recycled material: Currently 70% of raw material is recycled, but only 30% of total input is produced in-house while 40% is bought from outside as post-industrial material. The goal is to eventually bring that 40% purchased portion to zero.
• No recycled polymer price disclosed: When asked for the specific current price of recycled polymer, management said "there isn't any" clear price, reflecting the fragmented and informal nature of the post-consumer waste market.

Sushil Aggarwal: "But this is where beauty lies Abhishek. The beauty is, let's say, Reliance has the tenacity or the gut to change prices overnight. But markets don't change. But interestingly, when it comes to recycling, because it's a post-consumer plastic, so let's say if there is an increase of INR 1 on the Reliance price, then the post-consumer plastic waste might go up by 10 paisa, 15 paisa, or 20 paisa. Even if sometimes it may not go up also because there are no takers."

Unanswered Questions & Data Gaps

• Revenue breakup by channel not provided: When asked for bifurcation of online and offline sales for plastic furniture, management said the breakup was not available right now and would try to provide it later.
• Volume data not provided: When asked for volumes processed in the quarter, management said they did not have the quantity in front of them and would figure it out and send details later.
• Recycling scale timeline absent: Multiple analysts asked when the recycling vertical would show scale or results; management gave lengthy explanations about debottlenecking challenges and ecosystem gaps but provided no specific timeline for reaching full capacity or meaningful financial impact.
• Capex quantification missing: When asked to quantify the capex for the recycling facility, management discussed two approaches (step-by-step vs. bulk greenfield) but did not provide a specific number.
• Marketing budget not quantified: When asked for the marketing and branding budget, management explained the distinction between ATL and BTL spending but gave no specific budget figure.
• Debottlenecking timeline absent: When asked when the current 260 tons/month recycling capacity could reach 600 tons through debottlenecking, management cited ecosystem challenges and the need to teach local manufacturers, and said no timeline could be given.

Guidance & Commitments

Key Metrics