Kokuyo Camlin Ltd Management Discussions

GLOBAL ECONOMIC OVERVIEW

In its April 2024 edition of the ‘World Economic Outlook, the International Monetary Fund (IMF) highlights the resilience of the global economy, marked by sustained growth amid receding inflationary pressures. The report indicates that the global Real Gross Domestic Product (GDP) expanded by an estimated 3.2% in CY 2023, with projections indicating continuation at the same trajectory for CY 2024 and CY 2025. The IMF attributes this growth with low pace of expansion to factors such as elevated borrowing costs, phased withdrawal of fiscal stimuli, enduring post-pandemic effects, adverse climate-related disasters, weakened activity in China, geopolitical disruptions such as Russian invasion of Ukraine, the Red Sea crisis, the recessionary trend in Europe, sluggish productivity growth, and escalating geoeconomic fragmentation.

The IMF anticipates that, as compared to 2023, global headline inflation is expected to decline to 5.9% in 2024 and 4.5% in 2025, with advanced economies converging to their inflation targets sooner than emerging markets and developing economies. Although there are predictions of regional differences, emerging market and developing economies, on the other hand, are expected to experience stable growth during FY 2024-25.

OUTLOOK

According to the IMF, risks to the global economic outlook for 2024 are expected to be balanced, stemming from potential price surges triggered by geopolitical tensions, regional conflicts, slower-than-expected deceleration in core inflation, and higher-than-anticipated interest rates. The upside factors include the potential for short-term fiscal stimulus due to elections, numerous countries holding elections in 2024, expedited monetary policy accommodation, and productivity enhancements facilitated by advancements in technologies such as artificial intelligence.

Note: AE = advanced economy; EMDE = emerging market and developing economy; LAC = Latin America and the Caribbean; ME&CA = Middle East and Central Asia; SSA = sub-Saharan Africa; WEO = World Economic Outlook.

Source: IMF staff calculations.

INDIAN ECONOMIC OVERVIEW

India is the worlds fifth-largest economy by nominal GDP and third largest by purchasing power parity (PPP). The GDP growth rate for fiscal year 2023-24 is estimated at 7.6%, showing improvement from the previous years growth rate of 7.0%. Consumption, which constitutes 56% of GDP, experienced a modest growth of 3.0% in FY 2023-24. Exports saw marginal growth at 1.5%, while imports surged by 10.9%, with government initiatives focusing on capital expenditure (capex) facilitated private investment. This led to a robust Gross Fixed Capital Formation (GFCF) growth rate of 10.2% in FY 2023-24, which accounted for 31.3% of GDP.

On the supply side, agriculture expanded by 0.7%, manufacturing by 8.5%, construction by 10.7%, and services by 7.5% in FY 2023-24. Within the services sector, trade, hotels, transport, communication, and broadcasting-related services, representing approximately one-third of overall services, grew by 6.5%.

Indian economy has been resilient through factors such as inflationary pressures, exchange rate volatility, and geopolitical flareups, with INR exhibiting the lowest volatility and being the most stable amongst major currencies in FY 2023-24. Rural demand is catching up with consumption expected to support to economic growth in FY 2024-25; urban consumption has remained buoyant.

OUTLOOK

India will continue to remain the fastest-growing economy, with the RBI projecting the FY 2024-25 real Gross Domestic Product (GDP) growth at 7 percent. The Indian Rupees stability reflects sound macroeconomic fundamentals, financial stability, and various improvements in external position as its economy surges forward with advantageous demography, a domestic consumer-oriented market, and rising disposable expenditure, amongst other factors. Certain headwinds, however, pose risks to this outlook, including ongoing geopolitical tensions and increased trade route disruptions.

Indias strategic investments include establishing a scalable, digitised public infrastructure with identity verification platforms, digital payment interfaces, and an open e-commerce network, positioning the country to channel growth through its dynamic small and medium-sized enterprises and start-up ecosystem. The forecast for FY 2024-25 remains optimistic as agricultural activities stand to benefit from an anticipated normal southwest monsoon, strengthening private consumption, increased rural activity, and a rise in discretionary spending among urban households owing to improving income levels, according to the RBI Consumer Survey.

STATIONERY INDUSTRY OVERVIEW

The global stationery industry is estimated to be valued at US$ 160.9 billion in 2024 and is projected to progress at a CAGR of 5.3% during the forecast period of 2024-2034 and will reach US$ 271.0 billion by 2034. The industry serves both paper and non-paper markets and witnessed a surge in product demand owing to an increased number of educational centres and rising adoption of innovative stationery items.

Indian Stationery Industry

The Indian stationery industry is showcasing a significant upward trend fuelled by an increasing number of students and the expansion of offices that is driving higher demand for stationery products such as wooden pencils, notebooks, and colours. The market comprises two major categories: paper stationery products and non-paper stationery products.

Paper stationery products	Non-paper stationery products
can be further categorised into those intended for office use and those for non-office use.	include a diverse range, such as writing instruments, office supplies, colouring materials, adhesives, and technical instruments.

Indian Paper Stationery Market

The Indian paper stationery market can be divided into notebooks, copier papers, and printing papers, with notebooks forming the majority share within the market space contributing 42% to the larger Indian stationery industry. The domestic paper stationery market is estimated to grow at a CAGR of 12% till FY 2028.

Indian Non-paper Stationery Market

The Indian non-paper stationery market can be divided into four major segments namely, writing instruments, office supplies, art and craft, and other instruments and items, contributing approximately 58% to the larger Indian stationery industry. The domestic non-paper stationery market is estimated to grow at a CAGR of 14% during FY 2023-28.

Outlook

In the colour segment, double-digit growth is seen in the Y-o-Y retail sales value and CAGR, with colour pencils having the highest growth since pre-COVID times. Crayons continue to remain the top contributor within the colour segment, with a 5-year CAGR at 16% with high y-o-y growth, even as volume growth declined in the last quarter of 2023. The oil pastel segment saw an 11% in its average selling price (ASP) compared to plastic crayons (4%) during 2023. Wax crayons recorded the highest ASP change at 13%. The Indian stationery industry is forecasted to grow at 8.2% CAGR over the 2023-2029 period.

With an approximate 472 million Gen Z population, the Indian stationery market is influenced by various factors like educational opportunities, rising literacy rates, growing younger consumer base, and demand for customised products.

Rising literacy rates have led to increased enrolment in educational institutions, supported by government initiatives like the Sarva Shiksha Abhiyan (SSA) and Rashtriya Madhyamik Shiksha Abhiyan (RMSA) driving demand for stationery goods. The startup ecosystem along with government policies like Make in India, Atmanirbhar Bharat Abhiyan, and Startup India are attracting new businesses to the stationery market.

Consumer preferences for eco-friendly has also created a niche market space for recycled and environmentally friendly materials. The popularity of e-commerce platforms offers convenience and a wide range of products. Personalised stationery products are gaining popularity, especially among the younger consumers as means for self-expression and gifting.

Emerging Industry Trends Young Demography

A growing younger demography presents opportunities for stationery manufacturers to expand their product offerings and venture into newer product verticals that would appeal to the young consumer base.

Growing Literacy

Indias literacy rate stands at 77.7%, as per available data. Improving literacy rates and quality educational opportunities have given rise to a demand for traditional stationery instruments such as notebooks, pencils, pens, geometry and arithmetic kits, etc. among other products to cater effectively to an expanding industry.

Brand Partnerships

Many stationery Companies have started to collaborate and work together, driven by increasing complexity, changing customer expectations, and globalisation. The competitor ecosystem reflects a broader shift, creating greater value for customers and stakeholders.

Eco-friendly Materials

The growing demand for sustainable and eco-friendly stationery products have prompted established manufacturers to use recycled materials, biodegradable packaging, and sustainable production practices to reduce their environmental footprint. Consumers are also becoming more inclined towards environment-friendly and ethically sourced stationery items.

Customisation

There is a rising preference for customised stationery products amongst the Gen Z consumer base in recent years reflecting unique individual sensibilities. This has also given rise to a niche market space of stationery customisation and personalised gifting and keepsakes.

Vintage Revival

Established manufacturers are also bringing back various hard-to-find or rarely-used vintage stationery products such as wax seals, fountain pens and inks, blotters, etc. creating an evolving base for retro-inspired products and items for the Younger consumers.

BUSINESS OVERVIEW

Kokuyo Camlin Limited

At Kokuyo Camlin, we specialise in manufacturing, production, and marketing of stationery instruments and art supplies. We cater to local as well as international markets.

Our success and recall value are built on our flagship brands ‘Camel and ‘Camlin, that has captivated the loyalty and preference of households through generations. Our recent brand campaigns emphasised on making them distinctive yet retaining each brands core essence - Camel for ‘All things art and Camlin for ‘All things stationery.

We have three manufacturing facilities: two in Maharashtra (Patalganga and Tarapur) and one in Jammu.

We have focused its attention on reassessing business opportunities, resource allocation to accelerate our development capabilities, expand our social media engagement, enhance customer experiences through newer offerings, and optimise our existing distribution management. These have resulted in increased efficiency and deepened consumer insight - propelling our progress towards sustainability and profitability.

Leading player

in 16 shades Crayons offering

41%

Average category growth registered in colour pencils

CAMLINS STRATEGIC PRIORITIES

Strategic Pillars
Revitalising the Brand, Augmenting User Experience	Strengthening Distribution and Reach	Embracing Innovation	Operating with Excellence

• Revitalising the Brand, Augmenting User Experience

- During the year under review, the Company focused on building its portfolio of products introducing new products as well as revitalising existing categories. Using user centered design, the Company managed to improve its product portfolio and its appeal to its users. There was also a focus on building a community of artists through digital reach. The Company has leveraged its

• brand and social presence to build a large community of art enthusiasts.

• Strengthening Distribution and Reach - The Company has Implemented SFA (Sales Force automation) at Fine Art, Stationery and Notebook divisions to collect the secondary orders (Orders from Retailers) electronically. The Company has developed DMS (Distribution management system) for its Distributors and Super stockiest for the convenience of invoicing. There was an implementation of stock upload software at some of the stationery distributors to understand the stock closing at the distributor level.

Embracing Innovation - The Company is committed towards developing new products to fulfil consumer demands and at the same time focusing on improving the existing products for improved customer satisfaction.

Operating with excellence - The Company has an increased focus on cost optimisation across Procurement, Manufacturing and Logistics over the last one year with curated targeted solutions to bring sustainable cost savings and efficiency. Projects have been implemented to get the best pricing and terms for business purchases, category specific procurement models and streamlined processes. In the manufacturing front there has been an increased focus on asset utilisation, productivity improvement & processing cost optimisation.

FINANCIAL PERFORMANCE

( in Lakhs)

Particulars	2023-24	2022-23	y-o-y change %
Revenue from Operations	81,589.33	77,494.32	5.28
Other Income	567.59	207.93	172.97
Cost of Material	32270.68	31,959.17	0.97
Employee Benefit Expenses	9448.10	8895.71	6.21
Other Expenses	15127.99	14338.52	5.51
EBITDA	6671.45	4,574.99	45.82
Finance Cost	422.03	444.97	(5.16)
Depreciation and Amortisation Expenses	1866.22	1,685.29	10.74
Tax Expense
(a) Current Tax	1491.11	846.62	76.13
(b) Deferred Tax	54.43	223.13	(75.60)
(c) Prior Years-Income Tax	9.49	-	-
PAT	4383.20	2,444.73	79.29

 

Particulars	2023-24	2022-23
Debtors Turnover Ratio	10.42	11.63
Inventory Turnover Ratio	2.82	3.41
Current Ratio	1.77	1.58
Debt to Equity Ratio	0.22	0.21
Operating Profit Margin (%)	8.18	5.90
Revenue Growth (%)	5.28	52.41
Return on Net Worth	15.68	9.74

SCOT ANALYSIS

Strengths	• Strong financials
	• Exceptional user experience
	• Robust distribution model enabling retail market reach
	• Strong brand equity
	• Quality products and design
	• Innovative offerings and packaging
Challenges	• People more dependent on technology
	• Price sensitivity - consumers look for best deals, discounts, competitive pricing
	• Price competition due to e-commerce convenience
	• Increase raw materials cost
Opportunities	• Growing quality educational opportunities in India
	• Prominence of e-commerce channels
	• New market expansion in South-East Asia and Africa with demand for quality stationery and art materials
Threats	• Emerging digital technology like mobile phones, laptops, tabs, digital pads, etc.
	• Increasing popularity of online learning - reducing dependence on traditional stationery products

RISK MANAGEMENT

Key Risk	Risk Description	Mitigation measures	Severity of Risk
Market Risk	Digitisation has changed the way businesses operate, but it has also introduced new risks such as market risk. As consumers become more comfortable with digital channels, demand for traditional channels could decline.	• We are expanding our presence across digital platforms to revitalise our brand and make it future-ready. We have revamped our website, with enhanced user experience for our customers.	Medium
		• We have offered personalised services online while continuing to serve customers offline.
Raw Material Risk	The impact of global economic problems, such as inflation, and geopolitical tensions have caused a surge in raw material prices, leading to supply chain disruptions and a shortage of raw materials. Consequently, the cost of essential goods has increased, which may result in higher expenses for companies and a rise in production costs of finished products.	• We are keeping a close eye on price changes and managing our inventory carefully to respond to market changes and potential risks.	High
		• We have an efficient inventory management system, helping us keep our production optimised.
		• Our Research and Development (R&D) division undertakes import substitution projects to minimise imported raw materials reliance.
Business Volatility	The Company is a part of the industry which generally observes volatile sales patterns and temporary surges in demand. For the rest of the year, the market demand remains mostly in a low-to-moderate range, which affects the Companys production and sales volume.	• We have expanded our product range, engaging with hobbyists, artists, and professionals.	Medium
		• We have increased our consumer base, with improved ways to meet industry demands.

INTERNAL CONTROL SYSTEM & ADEQUACY

The Company has implemented a comprehensive system to ensure that all operations are conducted with utmost accuracy and potential risks are managed effectively. This includes robust monitoring of the Companys financial assets and ensuring their safety from any unauthorised access. A designated team conducts regular inspections to guarantee compliance and a computerised system is employed to accurately track expenses. Such an efficient system is crucial for the Companys success and reinforces the confidence of all stakeholders in adhering to regulatory and legal requirements.

HUMAN RESOURCES

The year has been about developing capabilities amongst our workforce and recognising talent contributing to the companys success. With an aim of developing capabilities and helping employees realise their full potential, the Companys training programmes focus on developing functional and behavioral capabilities across all employees, including young talent, mid-level executives, and top management. In addition to this, training programmes like "Prevention of sexual harassment at workplace" and "Code of Conduct" are conducted to create a safe and respectful workplace.

Rewards and Recognition is a critical cornerstone of the people strategy, focusing on recognising talent across the Company. The Company organises various engagement activities to boost employee morale and increase interdepartmental bonding, creating a sense of belongingness among employees. The Company spread awareness of health and safety among employees to drive ‘Focus on Safety Leadership for ESG Excellence". The Company celebrates diversity, equity, and inclusion by conducting sessions, as it considers it crucial in promoting fairness and inclusion for all employees, irrespective of their background, identity, or circumstances.

CAUTIONARY STATEMENT

Statement made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the government regulations, tax laws, other statutes, and other incidental factors.