ORIENTBELL - Orient Bell Limited Share Price

Management provided an outlook indicating a cautiously optimistic stance while acknowledging subdued demand in the current market environment, which continues to be impacted by heightened competition, gas costs, and geopolitical factors. Key points from the management include:

1. Financial Performance: Orient Bell Limited (OBL) reported a net sales of INR 142.5 crores for Q1 FY26, a decline of 3% compared to INR 147.3 crores in Q1 FY25. Gross margins improved to 36.5%, up by 50 basis points, while EBITDA for the quarter stood at INR 5.6 crores with EBITDA margins improving by 60 basis points year-on-year.

2. Export Trends: Although there was a reduction in international freight costs leading to improved exports in May and June, the three-month moving average remains below FY25 levels. Total tile exports from India indicate a sluggish recovery, with many manufacturers in Morbi facing shutdowns due to oversupply.

3. Market Conditions: Demand is predicted to remain constrained in the near term, with competition and pricing pressures leading to increased trade discounting and lower Average Selling Prices (ASP). Management highlighted that approximately 39 units in Morbi shut down over the last three months, which could lead to a self-correcting supply dynamic in the future.

4. Strategic Initiatives: OBL has launched initiatives, including an AI-based visualization tool for dealers and a restructured tile boutiques operation, aimed at enhancing customer experience and driving up sales conversion.

5. Future Projections: The company expects to see better margins as capacity utilization improves. With the ongoing focus on brand building and marketing, OBL aims to enhance its market positioning when the industry turns upward.

Overall, the management remains focused on optimizing operations while navigating a competitive landscape, with a clear emphasis on maintaining financial health and seeking opportunities for growth in both domestic and export markets.

Q&A Summary from Orient Bell Limited's Q1 FY26 Earnings Call

1. Question: "Have you seen any improvement in terms of our volumes? And can you provide utilization levels for this quarter?"

Answer: We have maintained volume levels year-on-year, achieving around 60% capacity utilization for Q1 FY26. While the demand remained subdued overall, we continue to focus on efficiency and enhancing our offerings to drive volumes upward.

2. Question: "What has impacted domestic demand, and when do you expect it to pick up?"

Answer: Domestic demand has been weaker than anticipated, despite a robust real estate cycle. Factors like fuel tariff wars and market uncertainties are affecting confidence. However, optimistic trends in cement are emerging, which may bode well for tile demand in the upcoming quarters.

3. Question: "Can you evaluate Orient Bell's entry into the engineered stone segment? What are your plans for the gulf market?"

Answer: Currently, we do not venture into engineered stone. Instead, we focus on large slabs, witnessing growth in that segment. As for the Gulf market, we primarily engage in price-driven exports, facing stiff competition from established ceramic players in that region.

4. Question: "What is the reason for our margins being lower compared to industry leaders?"

Answer: Our EBITDA margins are indeed lower due to scale advantages the market leaders possess. However, our gross margins are robust, having improved this quarter due to effective cost management. Our focus remains on volume growth to enhance overall profitability.

5. Question: "What are your plans for marketing spends for the upcoming months?"

Answer: Our marketing spend is currently at 3.7%. While I can't provide exact figures, we remain committed to investing in branding across mediums. The goal is to sustain this level but will adapt according to market conditions, focusing on building brand recognition.

6. Question: "What are your thoughts on the industry scenario following Morbi's shutdowns?"

Answer: Morbi's tightening supply due to the shutdown of smaller units could lead to an eventual stabilization in the market. As competition diminishes, we expect stronger pricing power and demand recovery, but it is uncertain when exactly these changes will peak.

7. Question: "What is your current strategy for Tier 2 and Tier 3 markets?"

Answer: We are aggressively focusing on specific ceramic sizes, enhancing distribution, and pricing. Our strategy has led to improved volumes, especially in Tier 2 and 3 markets where we see better demand than initially expected.

8. Question: "What's your outlook on overall market conditions and Orient Bell's position moving forward?"

Answer: While current demand is sluggish, we're positioned to leverage potential recovery due to our cost controls and brand investments. We expect gradual improvements as capacity additions in Morbi slow down and the industry adjusts to changing market dynamics.