Foods and Inns Limited (507552) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Foods and Inns Limited Q1 FY '27 Conference Call hosted by Arihant Capital Markets Limited. [Operator Instructions] I now hand the conference over to Ms. Deepali Kumari from Arihant Capital Markets Limited. Thank you, and over to you, ma'am.

Thank you. Hello, and good afternoon to everyone. On behalf of Arihant Capital Markets Limited, I thank you all for joining the Q1 FY '27 Earnings Conference Call of Foods and Inns Limited. Today from the management, we have Mr. Milan Dalal, Managing Director; and Mr. Moloy Saha, Chief Executive Officer. So without any further delay, I would like to hand over the call to the management for their opening remarks. Over to you, sir.

Hello. Good afternoon. This side Moloy Saha. Greetings to my fellow shareholders, analysts, well-wishers and prospective shareholders. While I'll be happy to elaborate further on the performance of quarter 1 for the current financial year. With me, Mr. Milan Dalal, our MD has also joined for this call. What I would like to mention a few significant events since last call. This quarter, we have a mango production, and we saw a good encouraging trend. Quality of fruit was good as well as reasonable price. While our order book position is encouraging, the export dispatch has been slowed down due to vessel nonavailability and significant increase in ocean freight. Though there is no order cancellation, but there is a delayed call-offs continuing. Very happy moment, our top customer, Coca-Cola has completed 50 years of their brand called Maaza. In the recent event in Delhi, they have acknowledged our company's association and support as also our farmers' engagement for sustainable sourcing. Our efforts on sustainability since 2014 has now shed significant recognition for a large French customer who has associated with us 2 years ago, and this program now extended to another U.K.-based large brand is a quite happy moment for us. We'll now open the call for questions for my team and me as required to answer.

[Operator Instructions] The first question is from the line of Nalin Shah from NVS Brokerage.

To the Managing Director and the entire team of Foods and Inns. As you rightly pointed out that exports are impacted as we are hearing from other clients also because of the nonavailability or very, very extraordinary shipping freights, which makes it totally unviable for the people who import in terms of costing. Now in view of the perishable nature of our products, do you think that delays to the time when it gets delayed because of the extraneous factors there could be a big risk of the perishable products getting impacted. And because of that, some loss could arise because of that. Is that a probability? And if yes, you can just guide us on that? That is one. Secondly, in view of the very -- I would say that very, very uncertain this thing, the atmosphere in terms of logistics management, how do you guide for the current year because it is very difficult to predict that what could be the -- I mean, our -- the actual performance. So if you could guide us how do you feel that this balance part of the 9 months is going to pan out for our company?

Thank you, Mr. Nalin, for your question. As you rightly said that export commodities from India, we are all having the ongoing challenges. Now your question on the perishable nature of items. The finished products, what is packed in the drums or can, it's not a perishable in nature. It's a processed foods with having a shelf life of 2 years. So on that point, we didn't have any risk of any loss. Yes, there is likely to be a delay in the shipment but all our customers are committed and they have not canceled any orders, but we are expecting some delay. Now second point is your guidance for the financial next 9 months. Yes, you are absolutely correct. There are a lot of uncertainties across the world. And we also having a 35% to 40% on the export segment, we're also having the similar type of challenge. Good part is that we have a domestic and export. Our domestic market is almost 55%. And current year, as in our opening note, we told that Maaza celebrated 50 years -- celebrating 50 years of their brand. So we are happy to say that we got a good order from Maaza, which is higher than last year. And the indication what has been received so far from the Indian beverage industry that they are expecting that due to the El Nino effect, the climate condition may be favorable for juice consumption or drinks consumption in India. So we are expecting that though there may be some challenges in the export segment, but domestic segment may compensate that for us. As of today, we are not very much worried. There may be one quarter less -- lower next quarter that can be made up. But overall scenario as of today is not any alarm situation. It's a bullish.

Just to add what my colleague, Moloy said -- this is Milan Dalal here. About the logistics situation and call-offs and you wanted some guidance. Generally, what can be seen and we've gone through these crisis a number of times, the latest being COVID, that there would -- generally, we have seen that there would be a pent-up demand. So in fact, we should see growth -- but yes, only if we can reach our goods to their shelves is very important. So a little bit of uncertain, but we shouldn't be worried at all for this balance 9 months financial year to catch up on the pending export dispatches.

Milan, my second question is that this frozen food market, which you have entered has a huge opportunity. So in terms of, again, India, we find that distribution network, preservation of products and, I mean, the entire, I would say, distribution network preparation and everything is a challenge. So how do you see that frozen food business, which is a huge opportunity? How do you feel that you are in a position to encash over a period of this next 6 to 12 months and thereafter also. So this is a little, I would say, medium- to long-term, 1, 3, 5 years, how do you see the business expanding?

Thank you, Mr. Nalin. It's a good point you have raised. If you see our balance sheet as well as last few calls for the last couple of years, we are always highlighting that frozen food segment is very, very encouraging. Last 2 years, we have grown at 30% CAGR, in the first quarter also a 20% growth. We see huge opportunity in export market specifically in the U.S.A. and U.K. as well as Canada market. And the order position for us is quite encouraging. And that is the one segment is still today able to manage the higher freight cost, though other segment is a little conservative approach. We absorbed the higher freight cost, but this segment is still continuing with the high cost. So we are very, very bullish. And as a company also, we have considered that we should expand our capacity to encash the market demand in India as well as export market. So we are in process to expanding our capacity to cater this market.

Again, Nalin I would add what Moloy is saying, there are 3 particular segments in the frozen foods, that's frozen mango and pulp. There are vegetables and then there are our ethnic snack items, paratha, samosa, naan. We are seeing tremendous, tremendous growth potential in the frozen pulp division also with opening up of new West Asia market. They are all set and ready. Trial runs have already happened. And the kind of order booking that we are seeing will be very, very encouraging. Nothing has stopped us from expanding and looking towards the snacks. Vegetables will have its own up and down depending on the raw material cost. But the other 2 segments, pulps as well as snacks, is showing tremendous growth. Vegetables, we have its own steady pace of demand.

Milan, can you just give us some numbers that last year, what was the -- I mean, I'm talking about frozen this thing, snacks item, which you are talking about samosas and chole puri and all these things, paratha and all. So if you can just give us some numbers that last year, what you did, current quarter, what you did? And what is your thinking in terms of what is the kind of levels at which it can be expanded in terms of numbers, whether say, INR 200 crores, INR 300 crores, what is the kind of number?

Our frozen segment last year was around USD 12 million. And this first quarter, we are having around USD 3 million we are expecting that this year, it can be with a growth of 20-plus percent. As a company, we are looking that this segment can give us in 3 years' time, USD 30-plus million. That's the direction we are working on it.

Absolutely. I am with you totally. Excellent. Excellent. Congratulations.

[Operator Instructions] The next question is from [ Khushi Solanki ] as an individual investor.

Yes. So my question was like you reported 1,800 million tonnes of finished goods overdue for shipment due to the war situation. What is the projected time line for clearing this backlog? And how has this impacted your working capital cycle?

Okay. As of today, these are all overdue, but we are having challenge on the export side. So we are trying it's a slow pace. It may take 50 days, it may take 45 days, only be able to say as of today, it is not in our hands. On the working capital side, yes, this is there is a blockage. It is really paining us. And maybe for that a little bit more interest cost to be. But this is not in our control.

Okay. And my second question is considering the freight and container availability issues, have you explored alternative logistic routes or regional hub to mitigate the impact on export volume?

Alternative is air. It's almost times cost than what is ocean freight today. So that is ruled out, not workable. So we have to only work on that. But we strongly believe that -- and whatever information we are getting that in a couple of months, it should be getting normalized, not normalized, at least much, much improved position than today. So that is our expectation when you are discussing with shipping companies, they are all talking that within a couple of months -- it should be much better than today. But there's no alternative than we have. And that's having a huge cost.

Just to add up, there are minor variations of the route by choosing a port to another port and then kind of transporting, but that's very small in numbers. And it's basically -- I would hate to say these words, but the shipping companies have decided to ensure that they have a run of their time and make money. It's unfortunate that -- not unfortunate, fortunately that we don't have to bear that cost. It's the clients who have to decide, and that's where they are taking a cost that instead of the current levels of 2x or 3x cost wait for it to soften up. But as my colleague did say that alternate to shipping, there is no other alternative. On a very futuristic part, jocular part what I saw, post on LinkedIn that things like we started exporting to Russia, but a train line is expected. Now I'm sure it's 25 years down the line. But various governments will look at various things happening. We'll live with this, but optimistic that we should overcome all.

One more thing I would like to highlight as you asking this what is alternative. In India, we are trying to do. We have multiple ports, as you know. So if you have any opportunity to avail any other port like we have mainly we export from Chennai and Mumbai. So we always reshuffle and the opportunity based on the transit time. Sometimes we may bring the product from our South factory to Mumbai and from there, we ship it out. Like that, we are always trying to do maximize whatever possible.

Okay, sir. And I have one more question, with the demand growing in U.S. -- demand growing in U.S. market for frozen food, what steps have been taken to insulate these high-growth shipments from the current global shipment disruptions?

As I like to inform in the last -- when Mr. Nalin, I informed that only segment is the frozen segment who are able to absorb this significant increase of freight cost. So on the frozen segment is growing and there's ample demand, we are unable to fulfill the demand situation is like that. Moreover, I think the issue is that as our MD told that during COVID time also had a similar kind of situation, it's more on the food security in the sense that if suppose tomorrow there is a big war across the world, whether food will be available or not. So on that point, I think frozen segment is growing and likely to grow during this uncertainty. So we don't see any issue on this segment and it is likely to grow.

The next question is from Arnav Sakhuja from Ambit.

So you had mentioned that you are expecting 30% growth over the next 2, 3 years in some segments. Sorry, I didn't catch which segment that was.

Frozen segment.

Frozen segment. Okay. And how has been the growth in the pectin segment?

Pectin segment, commercial production already started as we informed. Audit also going on. And good part is that a few big brands in export big brands, they also shown a lot of interest and we have also sent samples. But this particular category is sampling approval process is very, very longer time because unless the brands do the consumer testing, they don't give the procurement order. So a couple of consumer testing is underway, and we believe very soon, we'll have the results. So we expect a good opportunity in this segment as the second half of the year. So post -- I think from October or November onwards, we see opportunity in this segment. It is taking time, but once client approves, then orders is not an issue because as you know, we are producing from our waste. So we are quite competitive on the pricing in India as well as in overseas market.

So just to add what Moloy said, there is 3 parts of it. Production, we have cracked it and everything is up to date. Luckily, our consumer base would be our sales, primary sales, which is the juice manufacturers, et cetera. Nothing stops us from doing nonclient of ours, but there is enough that they could pick up. And the third to get the real results, they need time to have their test done. So we are not foreseeing any pickup, any issues henceforth in pectin.

And I also didn't fully catch the part where someone was asking about the guidance. So if you could reiterate if we're changing the guidance or it's a bit too uncertain to meet the guidance that we had earlier mentioned of 20% volume growth?

It's not very clear, Mr. Arnav. May I request you to please repeat? can you repeat the question, please?

So my question is I didn't fully hear the question on the guidance that someone had asked before. So if you could just reiterate the guidance for FY '27?

No, the guidance was on the shipping, what's likely to happen. So that was the guidance that we gave to the first speaker, Mr. Nalin Shah that assuming that we -- not assuming actually that we haven't dispatched enough in the first quarter for our exports, we should be able to catch up with optimism over the next 3 quarters the dispatches of the order. Also I highlighted that in the domestic segment, we are expecting that good demand due to the El Nino effect, the climatic condition may be favorable for the larger consumption of juice and drinks in India. That's the noise we are hearing from many brands, and we expect that, that may help for a quicker growth in this segment.

So will we be able to meet that 20% volume guidance? Or is that looking difficult given the geopolitical climate that we're currently in?

As of today, on the domestic market, yes. But export market, it depends on how the situation moves in international market on the freight. Otherwise, domestic market, as of today, yes, we see that type of volume growth.

The next question is from Ankur Agrawal from RC Business House.

Your top line is stagnant from last 4 years like 2023, your top line is somewhere INR 1,000 crores and now it's below INR 1,000 crores. What is the reason that we will not grow in last 4 years?

In our -- I am not sure whether you are following our earlier call or not. So we, as a company being an agriculture segment, raw material price is not in our control or in our hand. As a company, we focus on the volume growth and the margin. So -- in the industry, we work on the cost-plus model. That means our raw material price will be variable. But all other costs, including margin, more or less will be within the 5% plus/minus. That's the industry norms, and that's why working for 30 years. So if you see the last -- when you talk about '23, '24, that time one particular category of mango, I'll tell you, the price -- raw material price was INR 25 average. The same raw material price today is INR 6 average. So you can see the drastic reduction in the raw material price. If there is raw material price reduction, automatically our final realizable price has reduced by 5x or 3x. And that's causing the lower sales duration, so our volume has grown. In the investor note, you are mentioning that last year also we've grown in the volume, but value has reduced. And this year also raw material price is lower than last year. So again, we can see a slightly lower realization, though there will be a volume growth but value growth may not be there.

And last 2 quarters, your top line -- not volume amount, degrew by 30%, 25%. That trend will continue from next 3, 4 quarters?

Volume is not degrowth.