Chaman Lal Setia Exports Ltd. (530307) Earnings Call Transcript

Ladies and gentlemen, on behalf of Kaptify Consulting, I welcome you all to the Q1 FY '26 Post Earnings Conference Call of Chaman Lal Setia Exports Limited. Today on the call from the management team, we have with us Mr. Rajeev Setia, Joint Managing Director; and Mr. Ankit Setia, Executive Director. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. I would now request the management to brief us about the business and performance highlights for the period ended June 2025, the plans and vision for the coming year, post which we will open the floor for Q&A. Over to you, sir.

Good afternoon, everyone. I'm Rajeev Setia. It's the tough time going on, this geopolitics issues for the last quarter. So it's a tough time. I will explain everything. Ankit? Ankit, you welcome everyone. Hello, there is no voice coming going. Hello?

Hi, Ankit, would you like to add something to the opening comments? So I think there's some problem in the line. Would you like to continue? Yes, Ankit is here. Ankit?

Sorry guys, just came back online. I would like to say that this is the time when the prices of rice are going from a higher level to a lower level. So we are decreasing the speed of the business and moment the time is right, we are going to increase the speed. This is I would like to add. That's all. Thank you.

Should we move to the Q&A sir?

Yes.

Yes. Let's go for the Q&A.

Yes, yes. So all those who wish to ask a question may please use the option of raise hand. In case you're unable to raise hand, just drop a message on the chat and we'll call you to ask the question. We have the first question from Chirag Singhal.

This is Chirag from First Water. You mentioned about the price decline. So could you quantify what was the decline in Q1 on a sequential basis as well as on a year-on-year basis? And are you seeing any normalcy in the current quarter?

Ankit? Ankit, you are...

See, the prices have been stable and rather the prices have gone up. And since the new crop was going to come next month and next-to-next month, so we are seeing the prices will decline in coming months.

Right. So like what were the key reasons for the decline in revenues in Q1?

The only reason for decline in prices next month or next-to-next month?

No, no. I think for the revenue fall for this particular quarter. That's true. That's the biggest question. You see, this quarter has all along been disturbed by geopolitics. You see in the month of April, I think that happened in Pahalgam and then war from the 7th May. The Pakistan war has hardly any effect on us, but this Russia-Iran war, which started somewhere from the June, no, it started from I think, yes, June, it started. And prior to that period also something was cooking up. The business for Lebanon, business for Yemen was in jeopardy to some extent. It was back and forth kind of a business going on. That has affected. And when geopolitical situation in the world is bad, it affects every single country. Decision-making and all that takes time. That is one of the major reasons for sale fall. Otherwise, it's the business, people wait for the opportunities, new crop is about to come. Some customers deferred their orders for the new crop because they feel the prices will come down. Even what Ankit has said just the prices are likely to come down. This is a good crop. It is very good rain this time. The crop is all-time high expected for rice, total 151 million tonnes is the estimate. So let's see.

Right. So that was actually my second question that whether there was any deferment in Q2 which would lead to overall growth for the H1? Is that a fair understanding?

Ankit, sales guy, answer.

See, like I said before, the prices are expected to come down. So we have -- we are basically in this quarter, we have reduced the speed and next quarter, we expect to pick up speed when the prices are more favorable, yes. That will be better profitability for the company.

We'll take the next question from [indiscernible].

I just have one question with respect to the -- in the previous call, you mentioned that you were doing a CapEx with respect to the processing unit, which will help in increasing your revenue. So any update on that particular side of the business?

So absolutely right. In Karnal, we have installed 2 new packing units out of 3. The third one is still not ready. It's under some teething troubles. Two have already started. But like I mentioned, since we are seeing the prices of rice going down, that is why we have still not increased the full speed. Once the prices are favorable, we are going to increase the production, so that the overall profitability is better.

Yes. And sir, you said that you will pick up -- you have cautiously decreased the speed of the business and you are planning to pick up from Q2. Can we expect this INR 400 crores to INR 450 crores of quarterly revenue from Q2?

Absolutely. Absolutely. Things will be much better than where they are. Actually, when -- see, you have to understand with the model of business we are doing, when the prices are at their peak, the business becomes more risky. And let's say, we are seeing something which is going to fall. So we basically decrease the speed. That's what we do.

Okay, sir. Sir, and can you give any margin guidance? Like do you expect margins to decline in the coming quarter because of margins decline?

No. Even in this current quarter, I don't think the margins have declined. The margins remain stable. Only revenue is going to increase in the future.

Revenue has come down, whereas the margins are -- if I compare with the corresponding period, it's better in this particular quarter.

So in this quarter, if you would have pushed and increased the revenues, maybe the margins would have come down. So we didn't compromise on the margin. Revenue, yes, but next quarter, it will be -- I mean, it will go up.

And that Gandhidham unit was opened on 4th of July. So it's working full. Full contract is working. So the business from that area should also go up. And the other -- the old unit which we were running in Gandhidham, that is being moved. So we'll have 2 units in the time to come, may be after another...

We take the next question from [ Praveen Sharma ].

I have 2 questions. First is basically, in the light of this U.S. tariff imposed on India and probably how things are going to settle, we don't know, but at current situation, given the advantage to Pakistan of 19% vis-a-vis 25%, do you see any impact of business to America? And how much of our revenue comes from U.S.?

Ankit, you will add to what I say. Whatever are the shipments in transit, we have because we were expecting these things shipped a lot of cargo. And whatever will reach before 5th of October because all ETAs are in September, the cargo is reaching in September and it has to reach before 5th of October as per the commitment of USA. You never know what happens tomorrow. But the present situation, which is -- that is all the cargo which will enter prior to 5th of October, that will have no effect of this 25% duty. So whatever most of the customers, they quickly wanted the rice and now truly speaking, we are putting at hold. Even our some customers have told us, "Let us see. After all, it's food product, they have to eat." Food ultimately cannot be avoided.

But sir, given the differential between Pakistan and India, do you think there will be shift from India to U.S. 25% versus 19%?

Look, nowadays, Pakistan is favorable baby of USA.

Yes. They are looking...

Yes. So obviously, they may get from them, but the future is much better for us. Even you see NDTV Profit took my interview, I said it also, while Qamar Cheema, their ex-army, he most of the time comes in the debates. And he was backing what will happen with our rice export. India is not giving us water. They are stopping our water. And one thing I personally feel for this geopolitic, I may be wrong, but unless we don't get PoK, India is not going to share water at all. And if India doesn't share water, this joint monopoly with Pakistan will be monopoly of India and its return on the war.

And sir, any idea and estimate on crop situation in Pakistan, basmati crop, any forecast or any idea?

Okay. I would like to say about USA. As of now, the business has not affected. There is 0 impact on business, which is happening in USA. for my company. This is #1 point. The second point is basmati is not grown in USA. It is an Indian product. So the products which can be made in U.S. or a country which has lower tariff, there the competition will come. But since basmati is not grown in U.S., India is still strong to supply.

And it is about the competition from Pakistan.

Pakistan. Correct.

All right. But 75% of the market is Indian. So it's not easy to change the market overnight. A brand which is Indian, it will remain as Indian and a brand which is from Pakistan will remain as Pakistan. So till now, no impact. Third thing I would say is, see, the customers we have in USA are all ethnic customers. We don't have any mainstream buyers. So had it been mainstream buyers, we have to maintain the price. But with ethnic customers, if there's any change, we have the right to revise in the next contract. And the contract is small, maybe 2 containers, maybe 3 containers. So we are safe in that respect, all 3 aspects, I would say.

And if we go by the history, at one point of time, U.S. ocean freight had gone up to $10,000 from $2,000, $1,500, and it was absorbed. That way we feel, if I go with the history in 1991, the prices of basmati rice was $1,400, Europe, and of course, it could be close to $1,500 in USA. And now the present price of basmati good quality CIF is around $1,200 to USA. And the 20% cap will make that kind of price. So it is historically, they have bought it.

What is going to happen is let the tariff stay because earlier also, it was 10%. It's an increase of 15%.

15%. Yes.

Let the tariff stay, the Indian rice prices are going to balance out. Rice is going to go the way it was going. There is not going to be any change. And if you calculate, okay, 25% seems big, but if you calculate the price per bag, it is not big for the customer because the customer has seen extreme high prices in the past.

Okay. Okay. And my last question is in the last year, '24-'25, the prices because of the minimum export price levied by the government on basmati, there was a situation -- there was an aberration wherein prices during the crop season were higher than off-season, the prices that kept on declining. So what is the estimated scenario this year? Like, once you have a crop, you will have a lower prices and then subsequently, they will increase and what will be our strategy? We will hold on the -- build on the inventory or we will buy and sell, say, for the H2, second half of this year?

See, as per the current prices, market is going to fall with the new crop. This is going to happen. But in between some demand comes from Iran, which disturbs the market. But overall, within 1 week or within 10 days, the market settles down. So we are expecting the prices to fall. Moment the prices fall, again, we will pick up with our customers. Customers are hungry. Only thing is everybody is waiting for the prices to come down.

There are stocks also, carryforward is quite big and the crop size is big. So it makes sense the price will fall down. It looks like that.

What is the current prevailing price, sir, like in dollar ton, dollar per metric ton?

Depending upon the -- if it is parboiled, it is around $900 to $1,000 CIF to Middle East. Of course, packing matters is small packing is higher, this kind of prices. Am I right, Ankit? You are sales guy.

Absolutely right.

Okay. Okay. So what I understand is in Q2 also, the new crop will only come by September end. So in Q2 also, we will keep the business slow. Is my understanding right?

Why should we keep slow?

Well, like you said that the price keep on falling, then we don't want to build on the inventory.

That is a separate thing. Depending on the demand, of course, we are doing our best with the sales.

And secondly, some of the people, they want old rice also. This concept is also there and some people want new rice, they want to build up stock over there in the anticipation of prices going up. The business is a commodity up and down. So it goes with the wisdom and experience only.

We take the next request from the chat box. [ Akash Bhanda ], you can unmute and ask your question. Akash? We'll take the next request from [ Naman ].

Sir, I just wanted to clarify, you said the basmati rice prices are $900 to $1,000 per ton or...

Per parboiled rice I said, which goes to Middle East and India.

This is per ton or per kg?

Per ton. Per ton. Per ton.

This is with respect to purple rice?

No. Purple rice means?

No, which I...

Parboiled rice we also call [Foreign Language] in our language, but the legal name international is parboiled.

And what about basmati rice?

Basmati rice will be $100 to $150 higher than that.

Okay. And sir, my next question is with respect to the processing unit only. Sir, I just wanted to understand the unit economics of it. How much does it cost -- what's the CapEx for making -- like putting up one processing unit, one additional processing unit? And how much revenue can it do -- can we do from one processing unit?

Ankit, reply.

So investment is not big. It comes to about INR 2.5 crores, INR 3 crores. I'm talking strictly machinery, erection and everything. I'm not talking about land and building because that is already there. So the plant and machinery and erection part is only INR 3 crores, maybe less than that, maybe INR 2.5 crores. You can generate a revenue of INR 50 crores to INR 75 crores or INR 100 crores in a year, that is the revenue which can be generated easily. You can take it as INR 100 crores.

[Foreign Language]

[Foreign Language] So you can maybe take a revenue of INR 100 crores.

Okay. So basically, this was...

It will be INR 100 crores because as to how I can vouch for it, the unit which was running in Gandhidham in a rented house -- godown, that was with lower capacity plant. And we had been doing around INR 60 crores to INR 70 crores business annually from there also. So that way, INR 100 crores from one unit is achievable, [Foreign Language] it's achievable.

I'm still hearing like conservative figures. It can go higher with time. So to start with, let's say, annual INR 100 crores, maybe next year, it can even go up to INR 200 crores, INR 175 crores, INR 150 crores like that.

That's not possible. It will be INR 125 crores, INR 130 crores. How can we go beyond this capacity?

So let's keep it INR 100 crores, really.

If the packing is large, of 50 kg, what you say is right. But if the packing is 10 kg, 5 kg all kind of...

Then, of course, it will be down. Yes.

You're also right in one way and -- it's okay.

Absolutely right.

Okay. And sir, can you give the volume figures for the quarter export volume figures?

Volume figures for this quarter?

Yes, sir.

[Foreign Language] truly speaking.

So total volume are at 41,255 tonnes.

[Foreign Language] figures. Okay.

41,255 tonnes in this quarter.

Very good.

41,250 tonnes?

255.

It is domestic as well as export, both?

That's right.

Okay.

Okay. And how much will be export out of this?

Export is 33,797 tonnes.

33,797 tonnes.

I have been traveling more in this quarter.

We'll take the next request from Akash Bhanda.

I had 2 questions. First one is regarding the annual revenue target which you guys had shared earlier. So you said -- the company might touch INR 2,000 crores. So by what -- which financial year we plan to achieve it?

Ankit, you said...

See, we are trying our best to achieve INR 2,000 crores. That's the target. That's the goal, right? Like I said that we are waiting for the right timing. So maybe in next month or next-to-next month, the timing will get right and revenues will go higher.

My second question was regarding -- so I was reading online that there was some Japanese delegation visiting you guys and there is scarcity of rice in Japan. So -- and Indian companies are trying to make out of it. So what is like our company's plan?

The delegation, of course, visited us, and it was a very good meeting. But till now, they have not started buying. So this is the current status, still in talks.

Okay. But are we optimistic about something happening in future?

Yes.

If a customer is approaching, we are optimistic, yes.

I would like to share one thing. India has been importing crude from Russia and it's against Indian rupees and they have huge block of Indian rupees lying with the banks in Russia. So we are already exporting Maharani brand to one company. And the moment we send the order, they send us the payment. I mean they don't wait for the shipment. And recently, this sub bank of Russia, they had been --- their team has approached us not only for opening the account, they say we will promote your product in Russia. The company is also going to participate in Russia in the coming exhibition, the kind of relations India has with that country. Truly speaking, we are expecting good business in the time to come. Because the help of this bank, we have already opened the account with this bank or it's likely to be opened in a day or 2. All figures, formalities have been done. And their team, they said we promote the business or maybe because of the Indian rupees block, they feel like we should buy maximum from India.

We'll take the next question from [ Manish Gela ].

I have a couple of questions. So one is, how are we placed as far as inventory levels are concerned? Are we stocking more or we plan to maintain inventory at similar levels? So basically question for Q2. And second is how did the logistics cost behave in Q1 when you compare it to the previous quarters?

I'll answer. In the Q1, the ocean freights were normal. They had come down. Nothing -- maybe 1 or 2 destination, otherwise it was normal as the ocean freight is concerned. And your next question, what is your next question part? Next part?

That was on the inventory side. So what are...

Inventory side, yes. We do have inventory, but not to the levels which it was during 31st March. It is relatively quite down. And it's all sold or likely to sell kind of inventory. No problem. The company is totally debt-free, rather deposit with the cash flow.

So inventories are coming down day-by-day. We are waiting for the new crop, which is going to open at a lower price, then we are going to bulk up.

We'll take the next question from Praveen Kumar.

Sir, I wanted to understand what is the kind of year-on-year or -- and quarter-on-quarter growth in terms of volumes? I want the growth numbers. And also, I wanted to check on whether there were any inventory losses or gains this particular quarter overall?

There was absolutely no inventory loss in this quarter because it had happened last year when in the beginning, the prices were high and when they came down, we had to sell at breakeven also, but we never did any loss. We didn't much. And in this particular period, all the -- whatever is purchased, that is purchased with the regular market prices and we are selling with our reasonable profit. That's the reason despite lower -- this revenue, the profitability is reasonably good.

And volume growth quarter-on-quarter and year-on-year? This particular quarter?

This particular quarter, Mr. Vinay just told the figures because he took the figures for volume.

Yes. Sorry, which data point you're looking for?

I'm looking for year-on-year growth in terms of volumes for this quarter. Year-on-year and quarter-on-quarter.

So Q1 year-on-year volume growth is flat.

Sorry, Q1 volume growth is flat?