EFC Limited: Eyes Rs 300 Crore Topline For Furniture's By FY26
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00:00We're joined by Mr. Nikhil Bhuta, the director of EFC Limited, who joins us now.
00:04Welcome to the show, Nikhil.
00:07You know, my first question to you, lots happening with the company, but my first question to
00:11you that your subsidiary, EIC Design, has commenced, you know, commercial operation
00:14of furniture, and this marks, you know, a backward integration through furniture manufacturing.
00:21So give us a brief about how this will shape up entirely for the company, what is the capacity
00:26like, and what are the kind of revenues will you be expecting from this particular factory?
00:31Yes, hi, Mahima, thank you so much, and yes, I mean, specifically coming to your question,
00:40you know, yes, this is a very big moment for all of us at EFC Limited, because this backward
00:47integration will really kind of help us improve the overall margins, because, you know, as
00:52you can appreciate in the managed office business, one of the major CAPEX that goes
00:56into is into the developing the entire space, furnishing the entire space and get them ready
01:02to occupy the offices for the large clientele that we offer them on some of these basis.
01:09So having our in-house furniture manufacturing division will not just help us to, you know,
01:15control the quality, control the delivery timelines, and also improves the overall margin
01:20at a group level.
01:21So this is definitely a significant step for us, and it's really going to make a lot of
01:25difference in the overall performance of the company.
01:28With regards to the capacity, in terms of revenue, the present capacity that we have
01:34installed, we would be able to achieve anything around 300 crore plus at an optimal capacity
01:41with, you know, on a single shift basis.
01:46This year, I think we are looking at from the furniture manufacturing division only,
01:52we are looking at, you know, achieving a turnover of upwards of 75 crore, because, you know,
01:58this will be the only – this division will only see about six months of operation, because
02:03it has just began operation this month.
02:06So there'll be six months that it will be able to register this, you know, turnover.
02:11So we are expecting anything between 75 crore upwards as the target for this year from the
02:16furniture division only.
02:18Right.
02:19So, Mr. Bhutta, 75 crores, of course, in FY25, but your longer term aspiration is to get
02:24to that 300 crore, right?
02:26So first of all, I want to understand that what are the kind of margins currently in
02:33the furniture business, and like you said that, you know, this will improve your overall
02:36margin.
02:37So then, going forward, let's say from a longer term perspective, where will the blended
02:42margins be at?
02:44So specifically, if we talk about the furniture market, generally, I mean, broadly, this industry
02:51is set to be a 40% EBITDA margin, and, you know, we also believe that very – we should
02:58be able to achieve that margin very well.
03:00Obviously, in the first year of operation or so, we might not achieve the full – the
03:04optimal efficiency, and that's why probably our margin may remain around 30, 35%.
03:11But going forward, when we are really achieving the, you know, the best top line in terms
03:16of, let's say, 300 crore, at that time, certainly, we'll be in a position to achieve a margin
03:20of about 40%.
03:22On a blended basis, because we have three divisions in our company, one is in the managed
03:26office business, another is into the design and build, you know, the total furnishing
03:31business on a turnkey contract basis, and the third division now we have is this furniture
03:36manufacturing business.
03:37So all put together, our blended EBITDA margin would remain around 30% odd, and, you know,
03:45that will be the kind of total top line that – whatever that top line will be achieving,
03:52our blended margin would be in the around 30% plus.
03:55Right.
03:56And, Mr. Bhutha, so, like you mentioned, now your business has three segments.
04:01The rental segment was approximately 63%.
04:04The design and turnkey contracting was roughly 36%, and now you also have furniture manufacturing.
04:10So going forward, what will the mix be like in terms of revenue?
04:16So going forward, if I talk about down the line three years or something, our aim is
04:20to achieve equilibrium for all the three divisions, where all of all three divisions would be
04:26contributing almost equally, let's say one-third each, considering that, you know, the rental
04:33business is pretty much like a linear business, that, you know, we – if we keep increasing
04:38the capacity, the rental flow increases, but there is no inorganic or there is no kind
04:43of situations where suddenly there is a sharp increase in the pricing, depending upon the
04:47number of contracts and the number of clientele that you are able to run.
04:51So there is such definite potential available both in the furniture manufacturing divisions
04:56and the design and build division.
04:59So we are certainly looking at a situation where if we are able to achieve 33, 33, 33%
05:05for each division, that will be an ideal situation for us, and that's what we are aiming for.
05:09Right.
05:10And by when will this happen?
05:11I mean, we believe that this should happen in next two years' time, by end of two years,
05:18yes.
05:19And then still the blended margins will be at an upwards of 30% or do you expect a further
05:26upside there?
05:27No, blended margin would be an upward of 30% because, you know, in the DNB division, the
05:33margins are relatively low while the volumes are large.
05:37So, you know, on a blended level, the margins would remain between 30 to 35%.
05:43All right.
05:44Okay.
05:45And, you know, you've recently also done a strategic acquisition of big box ventures
05:50where you have acquired 51% stake.
05:52So I wanted to understand the rationale behind this acquisition and how much does this add
05:57in terms of capacity and what kind of revenue addition will this particular venture do?
06:04So in terms of acquisition of big box, you know, number one, you know, when we do acquisitions,
06:10our philosophy is very clear that first we try to see whether that acquisition is making
06:15cultural fit to our organization because, you know, the way we have positioned ourselves
06:20in the market, we don't want to get into a situations where we do any inorganic growth
06:25in a manner where there is a cultural misfit which is happening.
06:28So particularly in case of big box, that cultural fit was, number one, was there.
06:34Number two, we were also able to negotiate a good deal with them.
06:37We had done a primary investment into the company and we are able to acquire a substantial
06:43and controlling stake in the company by doing that.
06:46The company, when we did an acquisition, had about 3,000 billing seats.
06:52Now, I mean, after just within this quarter, because we did this acquisition in this quarter itself,
06:57and during this quarter only, already the company has added more than 2,000 seats.
07:03So what, how we are positioning ourselves is that if we are able to get such brands
07:09who are culturally fit with us and we are able to, you know, invest at a, you know,
07:13a good, reasonable margin, then this is going to, you know, help us inorganically grow
07:21in the managed office business.
07:22And this consolidation has to happen over a period of time.
07:25So we are always look out for such kind of an acquisition deals where we are able to enter
07:30into a company, acquire a controlling stake, where they are culturally fit to us,
07:35their, you know, the business mindsets, philosophy matches to what, how we work as an organization
07:42and how we have positioned ourselves in the market.
07:45And if the similar fit is available, we will certainly look for such acquisitions
07:49if they are making sense commercially to us.
07:52Right.
07:52And so then, you know, Nikhil, I want to understand that March, financial year ending March 24,
08:00you roughly did a revenue of 400 odd crores, right?
08:03And you expect this top line to double in FY25.
08:07So what are going to be the, you know, levers for, you know, particularly doubling your revenue?
08:13Number one, of course, will be furniture and the other acquisition that you've made.
08:16What else will be contributing to this doubling of revenue?
08:20So significant contributors apart from how the managed office business is really growing
08:25because of the way the industry is right now positioned.
08:28And if you see all the three industry, whether the managed office business,
08:32D&P division or the furniture manufacturing business, all the three industries at present is growing
08:39and they're growing at the best possible rate for that, those industries.
08:43And in terms of the overall contribution, if you look at from each of these divisions,
08:48yes, there is an organic growth which keeps happening because we keep adding about 30,000 seats
08:54on a year-on-year basis and that's the target for this year as well.
08:58So there'll be definite contribution from the managed office business.
09:01There'll be significant contribution more than the double that we have achieved last year
09:05for the D&P division.
09:07And as you rightly said, there'll be substantial contribution coming
09:10in from the furniture manufacturing division as well.
09:13So I think with the, you know, the contributions equally coming in from all the three segments
09:19and furniture manufacturing getting added as a new division for us, you know,
09:23our aim to achieve the, to double rather the target as it was there for the last year
09:30is pretty much looks achievable and we are almost in sight to do that.
09:34And in terms of expansion, in terms of geography, I want to understand your views there.
09:41What kind of geographies are you planning to expand into?
09:44What are the inventory trends like?
09:47So in terms of managed office business, you know, it's very clear that as of now,
09:51for the next couple of years, we're going to focus on the, you know,
09:54major nine cities that we talk about for our market.
09:58You pick up any reports and those are the cities which are really doing great in terms of the,
10:03you know, business requirements, et cetera.
10:04So let's say when I say, you know, cities like Pune, Mumbai, Hyderabad, Chennai, Bangalore,
10:11NCR region, Kolkata, and Ahmedabad on the Gujarat side.
10:16These are obviously the significant cities and there are other two cities which is coming up.
10:20Although we are not really focused on those two tier cities right now,
10:24but obviously if our clients takes us and clients leads us to those cities,
10:28we will definitely expand in those cities.
10:30But otherwise our focus will remain into this major nine cities because there's still
10:34substantial growth potential available in those cities and for the managed office business.
10:39And we are certainly focusing on those cities at the moment,
10:44except for the client requirements leads us to going to the other two tier cities
10:49like Chandigarh, Coimbatore, Jaipur, Indore, and such other places.
10:53All right.
10:54And, you know, you've also incorporated REIT.
10:57And this is an SM REIT and with a corpus of almost 500 crores.
11:02I want to understand that what is the purpose of this?
11:05How will this, you know, add on to your business?
11:08And what are you planning to do with this?
11:10So the SM REIT is under, so we made an application to the SEBI.
11:14The application is under process.
11:17And hopefully, you know, we should get the registration in place in, you know,
11:23between, let's say, before 15th of October.
11:27Once the registration is placed, the entire business model that is planned under this
11:31structure is that we will be in a position to acquire some of the assets where we are
11:38right now sitting in as a leasehold terms.
11:41So we can acquire those assets from our existing landlords.
11:45And since they are pre-lease property where we are already managing those properties,
11:50that will add up to, you know, kind of already a rental yield generation happening there.
11:55And if you look at the rental yield generation model, you know, typically if you consider
12:00it on a standard lease basis from a landlord point of view, standard lease basis today,
12:05the market is anywhere between, let's say, 6% to 7% at the max that you can earn in a
12:10commercial property where you just simply lease out a property as a landlord.
12:15But when we lease out this property along with the services as we do under the managed
12:19office model, our ability to generate the better yield becomes much more increasing
12:26and much more better.
12:28And that helps us become a win-win situation from an investor perspective.
12:32From our perspective, what it gives us is that we are only differentiate a situation
12:37that we are replacing our landlord with the REIT.
12:40So now what is happening is REIT is becoming my landlord and I am becoming the manager
12:45of that REIT.
12:46And hence I'm becoming the manager of that property.
12:49So we are primarily getting into the asset management side of the business.
12:53And that would help us to have a kind of a perpetual right as long as we are able to
12:58perform well for the REIT, as long as we are able to perform and give result to the REIT,
13:03we become a perpetual operator.
13:05We become perpetual manager of that assets that we are managing, which may or may not
13:10be the case if we had just simply taken it that property on a lease or REITs.
13:14So that would kind of ensure a longevity in my business that would ensure more control
13:19in my business.
13:21And going forward, the revenues, the asset under management, everything would increase
13:27and it will help overall to the company from their performance point of view.
13:32All right.
13:33And any particular CAPEX plans for FY25?
13:39Nothing major in terms of, except for the lease or REITs that we keep acquiring
13:44for our managed office business.
13:46No, no, any major CAPEX from the furniture division, because all those CAPEX have been
13:51done at this point of time.
13:54And nothing major, any which was the D&B division doesn't require any that large CAPEX,
14:01except for the working capital requirements.
14:02So no specific CAPEX plan as of now for this financial year.
14:06All right.
14:07Well, thank you so much for taking our time and speaking with us at NET Profit.
14:11And thank you so much for giving us those insights on EFC Limited.
14:17So much.