Creative Newtech Ltd
NSE:CREATIVE
Creative Newtech Ltd
NSE:CREATIVE
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Ladies and gentlemen, good day, and welcome to the Creative Newtech Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ketan Patel, Chairman and Managing Director. Thank you, and over to you, sir.
Good morning, everyone. Welcome to Creative Newtech Limited Earnings Conference Call for the second quarter ended September 30, 2022. I want to start by thanking all of you for taking the time to join. On the call with me today are Mr. Abhijit Kanvinde, our CFO; and Mr. Vijay Advani, our Whole Time Director.
Starting with some key developments over the quarter. Before we get into the business and financial performance of the quarter, I would like to take the -- to share brief insights and recent developments regarding the company. Our second quarter results were stronger than expected, with consolidated sales and adjusted EPS ahead of our outlook. The sales comparison is our weakest quarterly compare of the year and given the present strong growth over our pre-COVID days of FY '22, reflecting the strength of our brand, ongoing consumer loyalty and solid execution.
Consistent with our track record of adapting quickly to changing consumer preferences and highly dynamic operating environment, we are planning several new initiatives designed to reduce the total cost structure of the company and unlock [Technical Difficulty]. We are expected to be in position with FY '23 to use the strength of our results and balance sheet to make long-term investments needed to catch up with our FX growth over the past several years and to invest in the building blocks and capabilities we believe will create incremental revenue and earning growth during the rest of the Phase 2 that is half year, H2 FY '23. We like our [ chosen ] initiatives remain focused on deleveraging our diversified portfolio and expect to continue developing additional opportunities to supplement future earnings growth as we head into FY '24.
We have robust plans to mitigate the market pressure, including revenue management initiatives, ongoing cost management and supply chain optimization. On top of that, a streamlined operating model will progress [Technical Difficulty] We're also working with our partners to help them grow their categories in innovation, while emphasizing our strong value proposition to give some [indiscernible].
Looking ahead, we are focused on improving our B2C services to brands as we launch new B2C platform with [indiscernible] and we are closely working with brands to scale up that B2C website. Also, we are evaluating more [ tons square ] to our portfolio in the year, which will help us achieve higher growth through higher margin products and keep working capital cycle. Furthermore, we are back with our annual roadshow Creative Finance this year in which we have gone to visit 8 new locations...
Sorry to interrupt you, sir. The audio is slightly breaking from your line, sir.
Okay. Is this clear now?
Now, this is better.
Furthermore, we are back with our annual roadshow Creative Connect this year, in which we have planned to visit 8 new locations, Bhopal, Bhubaneswar, Dehradun, Lucknow, Kolkata, Patna, Varanasi and Vadodara in November and December 2022, to showcase our product basket to the partners present at those cities and nearby areas.
Our business and [indiscernible] distribution today is well established. We are well established as brand licenses with long-term agreement with Honeywell and our building future on the line of business. This also got now the attention of our global brands looking at brand licensing as a beneficial approach.
We recently rearranged our segmental structure on the distribution front to better align with our business design and staffing. Our brands are now categorized in the following 4 segments: FMSG fast moving social media gadgets, this comprises new and niche products related to the younger demographic and [indiscernible] The brands are given by social media penetration and wind adoption. This is one of the fastest growing and higher-margin segment. FMCT, fast moving consumer technology. This segment includes established consumer products that cater to personnel and organization demand such as Samsung, iBall and ViewSonic.
EB, enterprise business, this comprises products supplied to enterprises and of high volumes. Some brands in this category include MSI, Philips, AOC, et cetera. FMEG fast moving electronic goods. This segment covers our alliance with Reliance through which we offer home appliance, bulb, lights from brands such as BPL and Kelvinator. This segment better represents our brand portfolio and give better clarity on high-margin and high-volume [Technical Difficulty].
We periodically expand and refresh our portfolio with new niche brands and products relevant to our -- some of our most recent brand addition include Samsung flash memory, Lexar, Fujifilm Instax and Hyperice. A U.S.-based company specializing in technology based muscle recovery and massage products well known in wellness and fitness category.
Our license agreement with Honeywell continue to grow stronger. We are pleased to announce that we have expanded the geographic outreach to 38 countries for Honeywell. We are constantly working to increase our footprint in this region. This allows us to further increase our scope in terms of geographies and our license business overall. We will also work towards scaling up this line of business in this fiscal year. Given that we are at present across multiple channels, it gives us substantial leverage to reach a broad market base. The synergy from Honeywell business will continue to grow this fiscal year.
Coming to CKart, CKart is our online, digital B2B commerce digital platform that will aid in the growth of our business while catering to existing customers and new customers with nominal additional cost. It hosts our customers in the supply chain and enables them to transact and share the product with their buyers. This allows the user to share their inventory and transact with each other.
Sorry to interrupt you, sir. Again the audio is getting muffled.
Okay, is this clear?
Yes, sir. This is.
This allows the user to share their inventory and transact with each other. We take higher volume and expand the product portfolio offered to Creative Newtech. CKart will continue to be our one-stop solution for customers and improve the working capital cycle and profitability.
I now hand it over to Mr. Abhijit Kanvinde, who will take you through the financial highlights of quarter 2 and FY '23.
Thank you, and good afternoon to you all. I will share the highlights of our consolidated financial performance, after which we will be glad to respond to your queries. Our financials are reported as per Ind AS guidelines. Looking at Q2 results. In the quarter ended 30th September 2022, company reported total income of INR 326.27 crores, growing [ 35.6% ] year-on-year. This was partly -- since last year's corresponding period was impacted by COVID-induced slowdown, growth was also supported by enterprise business and fast-moving computer technology segment, the demand for products like Samsung, Honeywell, Cooler Master, ViewSonic, amongst others.
The EBITDA stood at INR 13.47 crores as against INR 8.67 crores in the previous corresponding period, an increase of 53.1% year-on-year. Benefits from better gross margins of Honeywell products has offset the higher -- other expenses leading to better EBITDA margins in -- EBITDA margins. The net profit for the quarter is INR 9.10 crores as compared to INR 5.84 crores in Q2 FY '22, an year-on-year growth of 55.79%.
Now I come to first half year results. In the first half year ended 30th September 2022, we reported a total income of INR 570.31 crores, growing 51.24% year-on-year. Growth was also supported by enterprise business and fast-moving computer technology segment and the demand for products like Samsung, Cooler Master, ViewSonic, amongst others. The EBITDA stood at INR 20.94 crores as against INR 12.78 crores in the previous corresponding period, an increase of 63.7% as compared to previous period. The EBITDA margin stood at 3.67% as compared to 3.39% in the previous corresponding period. The better EBITDA margin is mainly [ into of ] the better gross margins of Honeywell products. The net profit for the half year ended 30th September 2022 in INR 13.13 crores as compared to INR 7.07 crores in the corresponding previous period, a growth of 85.77%.
This is all from our side. We can now open the floor for questions.
[Operator Instructions] The first question is from the line of Suraj Nawandhar from Sampada Investments.
Sir, my first question is, we have done very good on P&L side, but our CFO, cash flow from operations is still negative. When can we expect that to become positive on a consistent basis, sir?
So first of, also, Mr. Nawandhar, yes, we are cognizant of the fact that the negative working capital cycle, we will have to improve. We already -- we were focusing last quarter also. But usually, we have to carry a bit of high inventory because of the season times and the supply chain is still not getting into place. But I think that by the end of this fiscal year, we should be at least in a better position than today on the working capital side.
Okay. And sir, last con call, you highlighted that you are looking out for some business head for Honeywell business. Is there any update on it?
I didn't get the question. We were looking at what?
A new business head for Honeywell.
Sorry to interrupt. Mr. Nawandhar, please use the handset mode.
Mr. Nawandhar, we were actually looking at business heads not in India for the Honeywell business, where we're looking at finding good people to take Honeywell abroad. So currently, we have Mr. Habilash Hamza as our Director, Middle East sales for Honeywell. Also, we have already in the process of interviewing sales director, Southeast Asia, and he should also be finalized this quarter. Also, we have signed up our distributor for Singapore and Malaysia. So we should start our operations for Singapore this quarter. And hence, we are looking at business for that.
We are quite qualified in terms of doing the Honeywell business in India. But this new tariff is we require somebody who has a local language skill set and also has local connects. So that's what we were looking at.
Yes. So these new hirings, which you're doing, so will it put pressure on our margins in the short run?
No, it would not because we are kind of our support center and our product development center is back in Gurgaon, New Delhi, and we are just looking at 2 or 3 people in each country and it will be easily offset by the new orders we get and the new sales we get from these countries.
Yes. And we are expecting higher gross margins from this country. This is Abhijit. For example, in Middle East, you get at least 5% higher margin than India, okay? So these expenses are well budgeted and I don't think that will put pressure on us on the gross margin front. Also, on the overhead expense, when you are opening new countries, we are cognizant that we will not be increasing many -- high overheads there. So we'll be taking a small office, in which we will have only seating capacities in [ the work sites ] in the beginning till the time we settled down properly.
Right. And sir, what was the Honeywell business in this quarter?
Okay. So totally, we are now with the Honeywell business of INR 50 crores plus in the both this half year. So we were at INR 21 crores in the first quarter, and now we are INR 30 crores in the second quarter.
Okay. And sir, we had guided -- if you can remind me INR 200 crores, if I'm not wrong for Honeywell business probably?
Yes, initially, when the initial guidance was that -- last quarter, we said that we would be between INR 120 crores to INR 130 crores, and that's where we would be in the Honeywell business this year.
Okay. Okay. Great. Great. And sir, in your opening remarks, you highlighted some new initiatives that you are taking for better cost efficiency. Can you please elaborate more on it because your voice was a bit picking that time. So...
Yes. So a couple of things we are trying. CKart is scaling up very well. So -- and plus, we are -- a lot of new NBFCs have come, which do a buy now pay later for our customers without any cost to us and without any effect to our balance sheet. So we have tied up with 3 to 4 NBFCs so that the working capital cycle for us improves very, very much.
Second, we have taken the process optimization process, mapping from the last 4 months, we have a special focus group, which is in each processes and looking at how we can kind of optimize our work flow, which can, in turn, reduce the cost. Lastly, during the COVID times, we went up and opened up 7 distribution centers across India. So that will also start now helping us in reducing the logistics cost overall.
[Operator Instructions] The next question is a follow-up question from the line of Suraj Nawandhar from Sampada Investments.
And sir, just last one suggestion that can we give separate numbers for Honeywell business every quarter in our presentation or in our press release so that will be easier to keep a track of it?
Sir, actually, it's very difficult to do that because we are not allowed to give any futuristic statements in the presentation. So for the past, if you're saying, then it has been...
For the past.
We can. In future -- for the future, we cannot.
Not for the future. I mean, for the quarter gone by, how much Honeywell business we have done and what are the margins and what is your outlook?
Yes, yes, yes. That we can...
If you can give -- get that numbers...
It's a valid suggestion from -- going forward, we will do it.
[Operator Instructions] The next question is from the line of Mihir Dhami from Lucky Investment Managers.
Sir, after the quarter, what would be the revenue target for the year. Previously, we had INR 1,200 crores for FY '23. So how does that shape up now?
I think we are on course to do between INR 1,150 crores to INR 1,200 crores. So that was your question.
Your question was not audible, sir. Can you repeat it?
No, no, it was answered by Ketan bhai. Okay. And after that, how much growth are you looking at year after year?
Okay. So I think the next year should be close to [ INR 1,500 ] crores. That's what we are projecting if we hit INR 1,150 crores to INR 1,200 crores. But from the next year, the whole focus is not to increase the other businesses, but just to concentrate on Honeywell business because the economics of scale required to sustain the Honeywell business at INR 1,200 crores, we will start having that. So then all incremental efforts we want to just put on the Honeywell business.
Sure. Okay. As you know, the -- if we are not top line driven, and if we are focused on Honeywell, then possibility -- possibly, we will end up higher EBITDA margins and higher PAT margins. So that's going to be the strategy -- but there is going to be organic growth from other brands of businesses more than 25 brands. [Technical Difficulty]
Sorry to interrupt you, sir. The audio is not clear from your line.
So that is that. Other than that, in the Honeywell business, are you all facing any challenges to scale up because of the macro situation?
Are we audible?
Sir, you are not audible, actually.
Hello?
Yes, sir. Sir, you are not audible. You sound distant.
Yes, yes, sorry. We are there. I'm sorry today the landline is not working, that's the problem.
My question was, are you all facing any challenges in the Honeywell business because of the global macro situation?
Currently, this is the season for the Honeywell air purifiers and [ Insta. ] So I don't think this quarter should be a challenge. But looking at overall, the international market and the influential figures in other that, we think January, February, March quarter, abroad could be a problem. India still is a consumerism story about mid- to high-end consumer product is still there. So we don't see a challenge this quarter, next quarter also in India, we don't see a challenge. But we'll have to see how abroad it pans up.
[Operator Instructions] The next question is from the line of [ Sathish ], an individual investor.
Sir, regarding the brand licensing model. So currently, we have Honeywell in this brand licensing. Are we looking at -- I mean are we in an early state of talks with any other international brand in this model of business, sir?
Yes. So actually, we were approached service by a couple of brands for the brand licensing space. The guidance from the Board is until you don't take INR 250 crores of Honeywell business. Don't take any other licenses because they don't want us to be focused on that. And we have 2 obvious routes in the future. Either to take a licensee of another brand or if there is an opportunity to buy a brand and own the brand completely. So probably in another next 3 to 6 months, we would decide about that.
Okay. Sir, and also recently, we launched home audio for Honeywell. So all the products being received, sir?
Okay. So I have been very plain with you. Their response has been lukewarm because there were certain changes on the Amazon buying side. So Amazon had its alpha sellers, which is slowly disintegrating. And our strategy was to go online first and then offline. So Honeywell, while the response has been lukewarm here, at least in Dubai because Amazon there has a very different model, it's doing very well. In the -- all the SKUs what we have launched, the Bluetooth speakers and the soundbar are getting a very good feedback from the market. We will have to work out on our quality of the TWS or the Airpods. There, we had some challenges that we have worked out, and we are launching new Airpods in that category. So hopefully, we would start getting good traction in that also by the start of the next quarter.
Okay. And regarding Hyperice, what is the business in Q2, sir? What is the number?
So Hyperice currently, we have reached around INR 75 lakh of sale month, and it's a 12% to 15% gross margin business. This business, we think, once the seating happens very well, then this business has a terms to at least double every year. So that's what we are projecting on the Hyperice and they launched a couple of new products, which will be now available from the first quarter in India. And these products have been really reached well in U.S. and Southeast Asian markets. So Hyperice business, we are quite bullish about that from the next fiscal year because by that time, the seating for this product because it's more of an experiential product people have to kind of use the product and feel the product and then they buy. So that's where we are.
[Operator Instructions] The next question is from the line of Mitul Mehta from Lucky Investment Managers.
I'm sorry, I have actually logged in a little late, so forgive me if I repeat a question. Sir, I just wanted to get some sense on how our brand licensee business is shaping up? Because we've done several alteration in terms of product portfolios. We initially launched Airpods, didn't do very well now. We are sort of remodeling it and relaunching it. Similarly, for other products also, we are doing the same. Now we have several licensee in terms of Honeywell products. Some are doing well. Some are not doing well. So in the hierarchy, if you just help us to understand which are the products which are doing well and which are the products which are not doing well? And what is the road map towards improving the product quality and scaling up the business. So if you can say on the domestic side as well as on the international side?
A very good question, Mitul bhai. So there are 3 categories in the Honeywell product portfolio. First category is the Honeywell electronic essential series, where we develop products around the 3 screens, which we use every day and that's your mobile phone screen, your laptop screen and the TV screen. So we build products that your experience around these screens becomes better. And that business was the first licensee, which we bought and we started with that business. That product business is doing extremely well, and we are almost #2, #3 in every category of this products what we have launched.
The build quality of this product and the acceptability of these products have been very good, and we have not faced any problems in that, both in India and abroad, the acceptability. In abroad, we have found that now once we started going abroad, our structured cabling products are very well received there because the market is very less better there, plus only in the structured cabling space, there are premium brands only available there. So that is the first category. So to summarize for the first category in India and abroad, we don't have any -- we don't see any challenges into that.
The second category, what we launched was air purifier category. Air purifier category, the quality of the air purifier is really, really good and well perceived. This is the first year where in the air purifier category space, we have actually released media ads in the Times of India, Gurgaon and Delhi Time, and these ads have been well received. The benchmark to see whether the ads have been well received the day when the ad is released, what are the glance views, series on Amazon. And every day, the ad was released, the glance views were almost double. So if 2 lakh people were viewing our products on Amazon that they -- the views went from 2 lakhs to 4 lakhs.
The season from air purifier starts from 14th of November and it lasts till February. And currently, we are seeing a lot of traction on that space. The air purifier space, again, in the Middle East has a very good response because Middle East also has a lot of internal air problem because -- air pollution problem because of spend being there. And as we go to Southeast Asia, we will have to have air purifier with humidifier built in inside, so that also product has been developed. And that also the build quality and the products, both the places have been varied.
Coming to audio, that's where we face certain challenges. One of the key factor was that we launched the whole of audio products during the COVID time, and the whole development of the product was done out of India without visiting the factories in China. In that also, we launched distinctly 4 categories: one was Airpods, second was headphones, third was Bluetooth speakers and fourth was connected soundbars.
In the category of sound bars and Bluetooth speakers, the quality is well received and the product is finding good traction abroad. In India, this category has primarily moved online and the competition is fierce on online. So here keeps taking a little time to get popular, but abroad, that is kind of done there.
On the Airpod quality side, people found the sound a bit low here, while all the testing and everything for the product was done beforehand, but sound kind of is a perception from our user feel that. So that inputs have been taken and the new range of Airpods will have a larger upbeat sound and also it would have a larger output sound. So on the Airpod side, and we didn't launch Airpod abroad because we had launched it in India, and we found that we wanted to go with a perfect product abroad. So the new range of Airpods will start hitting from this January.
We are also launching a connected sound bar also in January, which is a physical wired soundbar for the market. So audio, I think, would take a little bit of time, but audio is the category which will get us maximum growth. And I hope I have answered your question, Mitul.
Okay. Ketan bhai, this space is a pretty much crowded space where we have -- the competitive landscape is far more aggressive. We've seen companies like Boat and all who have been able to master the art of building a cult in the audio-related category. We seem to be sort of struggling for almost 1.5 years, and we are not able to get the product right. So is there some sort of a [Technical Difficulty] or a know-how that we are facing, we are not able to get the formula right for the product. I mean are there some opportunities where we could sort of tie up with some other companies and fix this whole process?
So Mitul bhai, a couple of things are there. And yes, all credit to both for building a great brand and kind of setting the benchmark everywhere and which is a very higher benchmark. Just the difference between for us and both strategy is that we have to be a lot of bottom line oriented also, and we cannot spend a lot of money on marketing because that expense goes and hits the bottom line. So I think our only constraint is that we are taking a cautious approach in terms of marketing.
When the balance sheet will be able to kind of afford that expense, we would go slightly aggressive -- and I think as Honeywell business crosses the INR 120 crores, INR 130 crore mark, we will have enough cash flow to booking marketing. Having said that, abroad, so for example, $1,200 product, INR 1,200 product here is a kind of a premium product for the customer, for the middle-income level customer. At the same product when it is close to $15 abroad, it is a cheaper product for them. So I think we would get a better advantage from abroad in terms of effort to yield ratio in the audio category. That's one.
Second, we have not thought about partnering with any other company on that. Good suggestions from you, we'll have to think over it, whether we could take somebody's expertise or help or kind of partner with somebody on that.
What is the current revenue size for our licensee business?
Okay. So the half year, we are at INR 51 crores currently on the licensee side. Last quarter, we started with the UAE orders coming in. This quarter with UAE and Singapore will start coming in. So this quarter, we think between INR 39 crores, INR 40 crores should be over this quarter for Honeywell.
So we are running at a run rate of about INR 35 crores per quarter?
Yes, kind of coming forward. Currently, it is INR 25 crores, INR 26 crores per quarter.
And how much we ended...
Last year, we had done INR 60 crores in Honeywell.
So we've already crossed INR 60 crores in first?
No, we have crossed INR 51 crores in first half.
Last year's full year turnover, we have already crossed in first half.
Yes. We are short of INR 9 crores in that, but this quarter we will cross that.
By now we would have crossed.
Yes, by now, we would have crossed including our number.
Sir, in your overall pie of Honeywell business, would it be possible for you to give us some gross margin picture across products? I mean, let's say, your air purifier, so I'm saying in terms of the packing order, structured cables and air purifier would be the maximum growth driver for our business.
In the terms of the packing order, structured cabling will be the maximum growth driver. We have to remember that air purifier is more of a seasonal business. The season starts in November and sets in February. And still Indians only believe in pollution, which is outdoor and not in door, right? So today, the paint, today, the cleaning agents, what you use [indiscernible] everything adds to the pollution. But people are more tuned when the air outside is polluted, that's when people buy the air purifier. So air purifier has kind of a 40%, 45% margin, but it's a seasonal business.
So if you get grossed off that season, then we have to wait till the next season, which comes in June. The only saving grace for air purifiers second is that Dubai all the year round the air quality is bad, so people would buy the air quality is usually bad in Bombay, but people don't think that they require a purifier. People who are as thematic and all, they usually take air purifier. So air purifier though in absolute -- in margin percentage, it is higher. In absolute terms, currently, the structural heading and the electronic essentials then the air purifier and then the audio, that's how it is, because the sale of audio is left. I'm talking about the absolute margin, as well as the percentage in India is growing our gross margin between 35% to 40% and abroad, it is between 45% to 50%.
We'll take the next question from the line of [ Sathish ], an individual investor.
Yes. Sir actually for Honeywell business, we had to undergo a lot of certification, right, sir. So tomorrow if you are adding new company or new brand to this business, so do you need to undergo the certification again recertification because what I came to know is in the process of getting certified is a very long process, right? It takes just a couple of years to get this certification. So obviously, is this certification valid across in case if we are adding new business from your...
Sathish, right, 2 things are there. If we add products in the Honeywell category in the countries where we are, then the certification will not require. But for -- consider, for example, the same product because we own the design IDs and we own the IP for that product. If we were to have in another brand, then we will have to recertify because that's what every country looks at a different product. Also, we found that CE certification, UL certification is a standard certification, which almost all factory have, and that's the certification you required to go to Southeast Asia. But BIS, ESMA, SASO are very regional country-based certification, where you have to spend a lot of money. So for Honeywell, the certification of, for all the countries where we want to be is done for all the products. But we're taking it to new brand, then we will have to get the certification.
And this homework was done Sathish, for a couple of -- 1, 1.5 years between the schedule that we had done all the homework we knew that we want to launch. So today, while when we want to launch, everything is in place for Honeywell brands.
The next question is from the line of [ Gopal Agarwal from Aagman Advisory ].
I'd just like to know whether this festive season, does it affect our business? And to what extent? And how has this festive season been for us? And to add to it, how is this independent sell the Big Billion sales for Flipkart and Amazon for us? How do you pan out?
Okay. So you rightly said, so if you have to consider the quarter, half year and the second half year, the second half year is always bigger than the first part of the half year. That's one. Second, in the festive season, people tend to buy a lot of products. And since our products are peripheral to once the sale of that product happens, our product really sells. Coming to Amazon and Flipkart, besides we have -- we do also 6 to 7 other brands, which are bought both by Amazon and Flipkart.
As a company, we have a standard practice that we will sell, we will do an outright sale, and we will not have a sales or return of any products because when you go into a market, it's one of the conditions from Amazon and Flipkart both is, we will take the product back, which we don't accept. So we have to go through alpha sellers for this product. Amazon because of CCI and other stuff, the dismantled one of their largest alpha seller, Cloudtail from last year. And their second alpha seller is Appario, which also we will start dismantling this year. This I only came to know from the papers this time. So Amazon business is kind of -- so in that place, there is [indiscernible] which has come up. But still, they have not learned the trade of this.
So for us, overall sales was good for the last quarter. Overall sales in October also was very good between Amazon and Flipkart, Amazon was the largest contributor. But during the Big Billion sale and the Great Indian Festival time, mobile phones and TVs, which is the largest selling category for the brand. And since ours are peripherals the Big Billion sale does not really drive our sales a lot.
Got that. Also, given the curves, et cetera, in China, so what is the status in over there as we believe that we import a lot of products and parts from there?
So Gopal ji one of the biggest constraint has been that only that we have not been able to travel to China and Hong Kong because of the quarantine factor. And that's why the product development has been a bit less. Second, the supply chain constraint is still there because China is going into lockdown. So the predictability of the containers have not been there. Having said that, the situation is not new, and it is now almost, say, 18 months, 19 months, the situation has been there. So all companies and our company also have [indiscernible]. So currently, we are ordering inventory for at least 2 to 3 months and keeping them, and that's what is actually affecting the cash flow cycle. Once China opens up a bit and the supply constraint starts getting eased, it will really start affecting the cash flow in a better way.
Second, the product launch where we have to do a lot of inflow currently could slightly hasten up if we get to travel back to China. Hopefully, that also we think that by -- after the Chinese New Year, they should start opening that up also.
Got it. And just a last question from my side. Did we rope in any brands this quarter to our portfolio?
We are actually in talking with a couple of gaming brands to do that because gaming is the fastest-growing category. We are in a very advanced stage, but we have not finalized that. Only one band was there, Lexar which we launched last quarter. And the response to Lexar memory cards and stuff is a good response we have. We have started eating INR 1 crore of sales per month.
The next question is from the line of [ Sarangan Ajwala ], an individual investor.
Congratulations Ketan bhai and team for excellent results. I wanted to check. I'm not sure if this has been discussed, I got in a bit late. But how much is the run rate from Honeywell business this quarter? And I mean from a revenue point of view also and also from the margins and net profit point of view.
So Honeywell for the first quarter we did INR 21 crores. The next quarter we did INR 30 crores. The coming quarter looks like we will do because that's the biggest quarter for Honeywell, because the air purifier season sets in from November. So we'll look at -- we will do between INR 39 crore to INR 40 crores plus our Southeast Asia is also happening so that this number looks quite doable. So Honeywell, we should add for the whole year, we should add -- we should close between INR 120 crores to INR 130 crores. Honeywell business typical margin is between 40% to 45% between India and abroad. And with the investment in the manpower and all once it gets stabilized, then Honeywell business will start giving a PAT of between 17% to 18%.
In Hong Kong, there is no taxation. So for sure, we will get the PAT margin in the range of 15% to 16%. EBITDA margins would be in the range of 18% to 20% for sure.
Okay. One related question, I mean, this Honeywell business, we have started in Middle East and Southeast Asia in all the countries. I know earlier, you mentioned we were still working on some paperwork and setting up team and all those things in other geographies, especially Middle East. So I just wanted to understand from that point of view...
Currently also in Middle East, we have distributor in Dubai. We have a distributor in Qatar and we have a distributor in Bahrain. We are now signing up the distributor for Saudi Arabia, which we feel that we will ship the first consignment to them this quarter. In Southeast Asia, initially, we have gone only to Singapore and Malaysia, and we have signed up a distributor for Singapore and Malaysia, and we will also be shipping their first order this quarter.
Now in Middle East, we want to go to Egypt because that also has a larger population. And in Southeast Asia, we want to go to Thailand and Indonesia. For Thailand and Indonesia, we have -- because the language is very different and Thailand and Indonesia require people with language skills and local expertise, so we are trying to find a leader for that market first and then go there.
In the SAARC countries, we will start [ manual based ] also from this month. So out of the 38 countries, sir, we have still not gone more than 6, 7 countries -- 6 countries to be precise. We have not gone more than that.
The next question is from the line of Mitul Mehta from Lucky Investment Managers.
Sir, what is the current mix between India and rest of the region?
Okay. So the current mix might be still 90-10 between India and the next of the retail.
India is how much?
80-20.
80-20, I'm sorry. It is 80-20. So Mitul bhai what happens is the moment when you go abroad, at least you require 3 to 4 months to set up the business because unlike India, the business abroad is 90% is power retail or modern retail or organized retail as we call it, and they take at least 3 to 4 months to visit their products there. So currently, we are listed on Amazon.ae, we are listed on Sharaf DG. We became the most wished for air purifier on Amazon in Middle East. So I think that mix would start changing from the next quarter, but currently, it is at 80-20.
And currently, at the current revenue scale, are we able to absorb the cost below EBITDA? I mean, sorry, above EBITDA?
Yes, sir. Of course, we are profitable in our subsidiaries. So that is the reason our consol...
At the EBITDA level, are we making money on the INR 60 crores sales that we reported in first half?
Yes. At consol level, okay. In the...
Not at the consol level, I'm saying only for the brand licensee business.
Sir, the Hong Kong subsidiary sells entire Honeywell. Correct?
Correct.
So when you consult and if you are profitable, then Hong Kong subsidiary and the Honeywell business is making profit.
So how much -- the profit would you have any sense? I mean would you help us to understand or...
Yes, of course. In Hong Kong, last financial year, okay, we had a PAT of INR 6.86 crores, yes. And this -- in this consol, there is clearly -- just hang on for a second. In the first half, there has been an additional PAT of INR 4.26 crores. So that means Honeywell business has contributed INR 4.26 crores of PAT, okay, to my consolidation, which is higher [ tied to ] INR 4.26 crores.
Yes. So last year, at the EBITDA level, we did INR 6 crores. And this year, first half at the EBITDA level have...
No, no, no. Last year, PAT level, we did INR 6.86 crores.
Okay. So INR 6.86 crores and for the first half, we have done INR 4.2 crores.
Yes. Exactly.
Are you able -- are you currently getting 45% to 50% gross margin?
Yes, yes, yes.
On your existing SKUs?
Yes, yes.
But most of -- a lot of money has gone into the certification and also into developing new design IDs. That is also almost done now, except for the Airpods, whatever certification we will require. So now we will see the gross margin really converting into PAT. And in terms of the sales and marketing expenses, do we need to invest further on to scale the licensing business or...
In the terms of marketing, if you want to take leadership position say in audio or air purifier, you would have to do that. This year, we had our first doing that. So we've bought 12 whole pages in Gurgaon Times and the Delhi Times during this season. And we also depend a lot on social to do that. So this year, we have started kind of having besides social also print ads to kind of get the mind sharing people in the Honeywell air purifier space. So yes, we need to kind of spend some money on marketing, but that would not exceed 3% to 4% of the overall sales.
3% to 4% of the overall sales?
Yes.
And we have onboarded Kareena Kapoor for our air purifier business. So what has been the response...
Actually, we did not onboard Kareena Kapoor for that thing. [indiscernible] when Honeywell used to do the air purifier business, they had Kareena Kapoor as their brand ambassador. And we have not put that what you see on YouTube and others are what Honeywell had done before. This is for 2017.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ketan Patel for closing comments.
I thank the entire team of Creative for their hard work and dedication, which is the company forward. Also, I appreciate all of you for participating in our conference call. Thank you so much.
Thank you. Ladies and gentlemen, on behalf of Creative Newtech Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.
Thank you.
Thank you, sir.