Apex Frozen Foods Limited (APEX) Earnings Call Transcript

Understood, sir. Sir, lastly, there was news that inventories are starting to dwell in the U.S. and arrival of holiday season could spike up prices. And you could see sharp upsurges in shrimp prices within the U.S. because of the demand requirement, which normally is far more in the holidays than the normal period. Anything you are hearing because, of course, this is not data which comes out. There's no way to focus on it. It's only industry talk. So any -- are you guys also getting the same information that, that is the way it is happening? And are retail chains, which sell this product increasing their prices?

Yes. I would answer your last question first. Retail segment has been increasing their prices more to do with, of course, tariffs, which definitely play a major role in the U.S. at the selling point level to the end consumer. But also at the same time, overall, the demand has been increasing even from the -- basically, it had remained very stable. The pricing was remaining very stable and firm even during Q1. Part of the realization growth during Q1 is also the overall raise or rather stable environment of the selling prices for us to the U.S. and thereby, the U.S. market in general was also maintaining very stable and firm pricing there. Of course, part of our realization growth also is attributed to the depreciating currency, but that was marginal. That is also there. That also plays a key role. But the major part was that the prices were also remaining stable without including the tariffs. Tariffs play a separate role on our realization part, but overall market also was quite stable and firm. And yes, definitely one of the reasons, which we also -- I think we stated to the earlier participant is that the customers are also looking towards -- even some of them are willing to pay even 50% tariff for getting the products immediately or especially because they need for the holiday sales like you mentioned. So they are willing to take the products. Some of them who also already have programs are not really looking at for replacements immediately before the end of this year. So they are willing to absorb 50% tariffs. So the demand is there. But by the time the holidays kick in, the shelf level pricing, what that pricing would eventually do at the consumer level, it is -- for us, it is too premature to comment at this point. We do not know. So because if you look at it, the tariffs are not just on shrimp or India, tariffs are on multiple products. So obviously, we'll have to see how the effects of these tariffs over the next 2 months will be there. And eventually, for the holidays, like you rightly said, the biggest period of consumption, especially during the holidays will -- whether how it will be -- how these tariffs will impact for them to consume. On the volumes, it's too premature to comment at this point. We'll have to see how it will be. But our customers are willing to absorb these tariffs and which means they will be charging the consumers also. But not all of them, as we stated earlier. There are customers who also have canceled orders. There are customers who are asking to not ship or rather they are looking at other origins, which we stated. But there are also certain customers who are willing to absorb. Those people -- those customers who are willing to absorb and eventually other origins also are increasing the pricing because of the demand scenario, which you mentioned. How this will translate to consumption in volumes at the end consumer level is something, which we have to keenly observe. So we'll know better during the holiday period and aftermath how the situation has eventually evolved towards the end of this year for the holiday period.

We take the next question from the line of Purushottam from Wiseold Bird.

Congratulations on the good set of numbers. I had a question regarding our Canada. So can some things be absorbed to Canada market? So as U.S., we have a very low base in the Canada, but we have been doing business in Canada for quite some time. So -- and EU is a very good thing that happened at the right time now. And U.K. also because of this, will we be able to scale up on the U.K. side?

Yes, with regard to U.K., we have been growing the volumes there. In fact, out of the 6% of our Q1 -- sorry, 7% of other market sales, almost 6% was towards U.K. so out of the total sales of Q1. And as far as Canada is concerned, we have been growing there, too, but it's been growing -- the inquiries also are flowing in. But it's -- please understand there will be no market, which is there right now to immediately replace or take a significant part of the largest market in the world for sure. It will take time. So it's not something which is going to happen overnight or short term or like it will take quite some time. It will more than a year also to diversify to many other markets. And also the product portfolio also matters. The U.S. market, obviously, is not only the largest consumer of shrimp -- consuming nation, but also that market also has the most diversified product portfolio and the highest amount of value addition possible also is in that market. So -- which is where our country as a whole, Asian countries as a whole, also our company also has been focusing more in the value addition front, mainly. So it will take time for us to diversify and move between markets. But definitely, we are working in that direction. And as we stated earlier, without the effect of the free trade agreement with U.K. currently, where we -- our product is still subject to tariff, because the free trade agreement with the U.K. is likely to be completed by the end of this year, subject to the -- I mean, the passage of the agreement bill in the Parliament of United Kingdom. Once that is done, hopefully, from early next year, calendar year 2026, we should see overall growth in the volumes to U.K. also. But at the same time, the market of U.K. is comparatively lower when you compare it to the European Union and definitely far lower and far lesser actually when you compare to U.S.A. or China and those markets. So definitely, we are working, and we are confident that we'll be able to pursue these markets in a much bigger manner to answer your question.

Okay. One more question I had was on the supply side economics sir. So this tariff situation, there is a lot of chaos in the market. So how does you see for the next 6 months, how the supply dynamics can impact or I just wanted to know how it can...

Yes. First and foremost thing is at the supply situation, there are 2 issues. One is global uncertainties, which we mentioned in our opening remarks. There is also another point, which we also mentioned in our opening remarks is about the -- on the disease front. So this year, there have been quite some issues on the disease front. And of course, there are -- both central government and the state government authorities are working on disease management aspects. But end of the day, that is also a long drawn process. So on the supply side, overall, we believe there's going to be a reduction in supply for -- I mean, we already have -- we are already observing it over the past 1 month, 1.5 months. And we believe most likely till the end of this year, the supply may be a little bit slower compared to what it was in the past years. Also because of the conservative approach of the farmers also and the primary producers also because of these global uncertainties and the tariffs impact. So we believe it may create a pause and kind of a little bit slow with regard to supply. But as more concrete steps are taken by our government as well as more positive announcements are made by the U.S. government, definitely, we look forward to farmers also going for good stockings. We did see that they have been quite well as far as stocking was concerned in the months of July and August. But at the same time, we have to see the disease part, which also could -- would be playing a major role of how the supply will eventually pave out to be. So we also noticed some distress harvest happening as we speak. So because of the weather conditions, which are there with the cyclonic weather, which is there. So there are multiple factors, which are affecting the supply side, not just the global uncertainties because of tariff announcements from one country. So there are also some inherent issues, like I mentioned, within the -- at the -- I mean, at the farm level, whether it is disease, climate problem -- I mean, weather problems and all that. So we are a little bit carefully observing. Of course, we continue to source our product even in a limited supply conditions currently. But we expect this to be continuing like this, maybe some improvement in supply should be there sometime in October or November, but we'll have to see eventually how it will be for the rest of the year. We believe there will be -- there should -- once the proper announcements are made from U.S.A. or when the uncertainties ease out, we believe there will be more active stocking by the farmers. And if they are supported by a good climate pattern, then -- weather pattern, there should be success also in the crop. Most likely, that will be more for the early part of 2026. That's what we believe.

We take the next question from the line of Abhishek Singh from S&S Capital.

Okay. Sir, I have 3 questions. The first one being, what gives us the leverage with the current set of customers in U.S. that they are ready to absorb as high as 25% to 50% tariffs for us?

Well, because they need a replacement product, most important point is that. Not all of them, again, as we stated time and again in the past -- to the past earlier participants also. But for those customers who are not really looking at a ready replacement and an alternative source, they are willing to absorb these tariffs. Obviously, they are definitely going to charge. Whether they're going to charge the entire 50% or whether they are going to charge part of it to the consumer level, we are not aware, which is their metrics. We don't know how their metrics work. But end of the day, as stated, some of the customers who are looking forward for their product supply because they cannot really afford to have lack of supply. They cannot afford to have a shortage of supply and empty shelf space. So based on their needs and requirements, they are willing to absorb. And it could be for a limited volume or it could only be to the extent of the holiday sales requirements as we stated to an earlier participant. And it may eventually change towards the end of the year or the needs for early next year, it may change. So for now, this is more of a -- we believe it will be more of a short-term scenario. But please understand the tariffs also will take time if the government -- U.S. government changes its orders or they eventually change their decisions in due course because we are not yet charged with 50% tariffs, which will be more towards next -- sorry, October 5 onwards arrival, most likely. So we would have an idea based on that. So we are only -- the customers will only absorb such tariffs only -- if and only they are charged. They are not going to pay 25% or 50% just because there has been an announcement. They definitely would be willing to pay only if such a cost -- actually, if such a tariff is charged by the U.S. government. So that is still -- it's still taking time. most likely it will be towards the end of September and early October. So meanwhile, if there are decision changes, it could change also.

Okay. Got it. So you're saying that the implementation is yet to happen, just that because of the talks, the scenario is not as of now favorable to us, but there's a possibility that the U.S. might just go back on what they were saying earlier?

Well, that's what we have been observing on many other fronts. Yes. So we are not having any exclusive information, but that's what we see. Everybody is noticing the same.

Got it. Got it. Okay. Sir, the second one is more like a follow-up on the previous question. How long does it normally take for us to complete one cycle, which means starting from the hatchery till the export, which is completely like delivered to the U.S. market? How long does this cycle take? Is it like 6 months or so?

6 months.

Okay. Got it. Moving to my second question is something similar to what earlier participants have asked. So I'm trying to consider the worst-case scenario where U.S. doesn't budge down on the tariffs. What are we as a company thinking of U.S. because U.S. is still around 40% of the revenue, 40% plus, if I say. Because some other companies where I have been seeing what they're doing is, they are importing it through a market, which has favorable tariff to U.S. Like, for example, Vietnam, I think you said, has a little bit competitive, more favorable tariff compared to us. So are we thinking of such scenario? Or we are planning to diversify in such a way that U.S. share will go down and we'll start focusing on Europe because we recently got the approval?

We will be diversifying to all other markets. And Europe will be one of the major market for sure, among the rest of the markets. And that is how we will be doing. So I specifically did not understand your first part of your question where you said about Vietnam, they having lower tariff. I just did not get what you said. Sorry. can you repeat?

Yes, please. So what I was saying is that some other companies who have such kind of global supply chain, what they're doing is they have identified those markets, which have comparatively better tariffs compared to us, and they are opening a unit over there. For example, in our case, I think it is Vietnam, but you can correct me. And then from Vietnam, they have started supplying it out to U.S. So that way, the market stays with us, and we also get a better favorable rate compared to India.

I do not -- sorry, we are not aware about any such entity who is doing that, the reason behind India being a preferred choice, let us say, in the U.S. market and being one of the largest exporting -- shrimp-exporting nation to the U.S. is not just got to do with a factory or a facility. It's also got to do with competitive supply being available, workmanship, also -- so in all -- it's multiple factors. It is not like one company would place a factory or a facility in another country and they can do in the same manner. Anyway, we are not aware. As far as setting up a facility in some other country and trying to deal with the scenario, the industry scenario there, is altogether a different proposal, which our company has not considered any such or such proposal. And we would rather be focusing on diversifying as much as possible so that not only for now, as we stated earlier, even going into the near future, we would -- if we can bring down our -- I mean, rather increase our non-U.S. sales to more than 50% non-U.S. sales, which could be any market inclusive, of course, dominated by the European Union, especially. In many other markets, we would want to increase it to more than 50% and grow it even further. If things, like you rightly said, in a worst-case scenario, if it continues to be like this, definitely, we will have to look out for many other avenues. But definitely, one such avenue is not what you stated, of setting up a facility in another country and trying to export from there. The market -- our -- it's not customers alone. It's also the acceptability of the product. Please understand whether it is Vietnam or Indonesia, those products are still there. They are already there. It's not like there is a dread of facilities or shortage of any processing plants in those countries. It's -- but there are also supply constraints also in those countries, similar to how we have our own disease issues, they have their own problems. And for example, why Ecuador is still predominantly doing head-on shell-on whole product and not that are high volumes in the value addition or ready-to-eat products, which Asian countries do because there are -- they have their own problems with regard to labor pool -- access to labor pool and workmanship and all that. So that is how -- that is why they are predominantly doing their business with China or European Union, which are their 2 major markets in head-on shell-on category, whole shrimp, which means there wouldn't be any value addition. So similar way, I just gave you an example of how we would not be -- just because we set up a facility in another country, it doesn't mean that we'll still be able to retain our market. That has -- this is not -- in our products, that doesn't work. I don't -- we are not aware anyway. If some other company is proposing to do like that, that could be their, in fact, individual company's plan or strategy.

Actually, the company which I was -- I mean, the company which I was referring to, it's not in the same sector as us. It's more like a separate sector altogether, but that's the approach what they were taking out. Just last question. I was reading somewhere that the government, the Andhra government is planning to start some marketing campaign where they are trying to do a seafood consumption boost within India like any CC, which we've done for the eggs, I believe. Are we seeing any such initiative going on ground because online, we'll see a lot of things, but on ground is something happening?

Yes. On ground, the proposals are there by the government of Andhra Pradesh, but the sector -- the processing sector has not really shown much interest into that because that's not an immediate solution and definitely, it will take more than a decade for any such plan really come up -- such project to take off. And as far as our facilities are concerned, they are all geared up for export markets and the capacities what they are, the capabilities what are there. So on ground, the proposals have been muted by -- that has not -- that's more to do with the government department and the primary producer level at the farmer level. We do not know how they will eventually be taking up that task. That's more of trying to grow the consumption domestically, which we are not aware much about. But as we said, we are focused more on the export side. And we'll continue to focus on the export side because that is where the volumes and quality products from our facility are having a better demand, let us say. That's how I'll put it. I'll not go into much details into that.

[Operator Instructions] We'll take the next question from the line of Dinesh, an individual investor.

So my question is with respect to the margins, so -- and the transportation costs, can you comment on that going forward, if we are focusing on shifting our shipments to outside U.S., then how would the transportation or other costs, which may impact our margins going forward? Any comments on that, please?

Yes. Definitely, the transportation costs would be lesser compared to U.S.A. Of course, depending on our volume to Canada, there could be some here and there, there could be a little -- that is to those shipments only. But overall, when we grow our non-U.S. sales, and more to European Union, our transportation -- our freight costs, like you rightly mentioned, they will be much lesser for sure comparatively. U.S. definitely has the most highest freight cost. So maybe 1 or 2 destinations of Canada are having similar freight cost, but for us, where we are mostly focused on European Union, the freight costs are far lesser compared to U.S.A.

Got it. Sir, one more question, which was earlier asked by another participant. So in adjacent to that. So government support, I mean, what kind of government support, which the shrimp industry as a whole is expecting? And I mean like do we have any positive confirmation that this will be definitely be brought in by government and which will improve our sales or margins or...

Yes. As we -- I have stated earlier, various proposals have been given to the Ministry of Commerce. And that is whether it is related to freight assistance or whether it is related to increase in the indirect taxes being reimbursed because as of today, all the indirect taxes are not fully reimbursed to the industry. So on different fronts. So those proposals have been submitted. And that is being currently being deliberated between the Ministry of Commerce and Ministry of Finance. As and when we get to know, we will have that information. We will keep everybody informed for sure. And we are confident that when we know you will also know because it's all in the public domain. So there is support mechanisms have been -- I mean, support plans have been proposed to them, both on the freight part, freight component, for example, for U.S. market or also reimbursement of other input -- indirect taxes, also some on the financing part. But again, as we stated, there are different proposals given and such proposals eventually have to be confirmed by the respective ministries in the central government.

Sir, what is our margin expectation for upcoming quarters, sir? I mean if you can throw us a picture. So are we expecting in the same lines or to improve or...

Well, as far as margin expectations, we will -- I think we have been stating from the beginning, there are also uncertainties, which have been increasing with this tariff environment and supply situation, which has also changed, especially over the past few months with all these happening. But considering that our customers are willing to absorb part, some of the customers are willing to absorb the tariffs, but at the same time, here, the supply situation also, we'll need to see how it goes. But if the scenario is similar to how it was during Q1, obviously, the margin could maintain. But at the same time, you also have to keep in mind our costs, which are there, how much -- to what extent we are able to bring down our costs, especially during this time when the supply is low, is also very vital and it is very important. So we will be working in that direction also to minimize our cost to the best possible, and to maintain our margin -- current margins as it is. So we'll have to see because it's too much of uncertainties. I believe you should be able to understand in our various comments, which we have made -- we have been making from the beginning of this call. Please understand on that.

As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you one and all for making it to our quarterly investor call of Q1 FY '25 -- sorry, FY '26, and have a good day, and we'll keep you updated as and when any news is made available. Thank you.

Thank you. On behalf of Apex Frozen Foods Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.