ADF Foods Limited (519183) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the ADF Foods Limited Q1 FY '26 Conference Call. [Operator Instructions] I now hand the conference over to Mr. Ravi Udeshi from EY. Thank you, and over to you, sir.

Thank you, Shruti, and good afternoon, everyone. We welcome you to the Q1 FY '26 Earnings Conference Call of ADF Foods Limited. To take us through the results and to answer your questions, we have with us the top management of ADF Foods Limited, represented by Mr. Bimal Thakkar, the Promoter and also the Chairman and Managing Director; Mr. Sumer Thakkar, the General Manager, Sales and Strategy, and Mr. Shardul Doshi, the Chief Financial Officer. We will start the call with an overview of the business and the recent business updates by Mr. Sumer Thakkar, and then Mr. Shardul Doshi will give his comments on the financials. As usual, the standard safe harbor clause applies while we start the call. With that said, I will now hand over the call to Sumer. Over to you, Sumer.

Thank you, Ravi. Good evening, everyone. In Q1 FY '26, our consolidated revenue rose by around 10% year-on-year to repay INR 132.9 crores, even as we faced global economic uncertainties, tariffs and seasonal fluctuations. Consolidated EBITDA stood at INR 23.5 crores, reflecting a healthy margin of 17.7% despite ongoing brand investments and rising input costs. These challenges were effectively mitigated through disciplined cost management and enhanced operational efficiencies. The strategic reorganization of our sales team in the U.S. and the formation of a new team in Australia in previous quarters have started to yield positive outcomes in terms of new listings. We expect this to result in revenue growth in the coming quarters. We successfully completed a brand refresh for Truly Indian and showcased the updated identity at a prominent food exhibition receiving encouraging feedback from the trade as well as the consumers. With the refreshed packaging set to rollout in Q3 FY '26, we anticipate further momentum and increased brand action. The expansion of the Surat Greenfield facility is progressing as planned and is on track to commence operations in the second half of FY '26. Looking ahead, we remain cautiously optimistic of sustaining our growth trajectory in the current financial year amidst global economic uncertainties and tariffs and expect to achieve meaningful scale across all business segments. I will now hand over to Shardul, our CFO, who will comment on the financials. Thank you.

Thank you, Sumer, and good evening to everyone. I'll first share the consolidated performance. For Q1 FY '26, the company's consolidated revenues reached INR 132.9 crores, marking a 9.3% increase year-on-year and a 16.5% decrease quarter-on-quarter. Consolidated EBITDA for the quarter was INR 23.5 crores, which is a 20% increase from the previous year, and the EBITDA margin was 17.7%, which has increased by 160 bps of Y-on-Y and 220 bps Q-on-Q. The consolidated PAT for the quarter was INR 15.2 crores. This represents a 5.9% increase year-on-year and a 7.3% decrease quarter-on-quarter. The resulting PAT margin was 11.5%. In the first quarter of fiscal year 2026, stand-alone revenues were INR 100.3 crores reflecting a 3.4% Y-on-Y growth and 25.5% quarter-on-quarter decrease. The company's EBITDA for the quarter was INR 22.5 crores, which is a 1.3% decrease Y-on-Y and a 23.3% decrease from the previous quarter. The EBITDA margin was 22.4%, a decrease of 110 bps year-on-year and an increase of 60 bps quarter-on-quarter. Profit after tax for the quarter was INR 17 crores with a PAT margin of 16.9%. The company is making long-term investment in its brand and management resources, as we have been telling you in the past with an eye towards future growth. Despite these investments and the challenges of pricing input costs, the company's effective cost management in other areas has helped protect its overall profitability. The company plans to continue balancing its cost structure to maintain its profitability metrics. These strategic investments have already resulted in some significant listings for Ashoka and Truly Indian brands in major retail chains. This is a promising start with the potential for higher growth in the coming quarters. Notably, the Truly Indian brand is now available in 1,600 stores across the USA. The company's capital expenditure program is on track, with over 90% of our budget fully committed now. And we have already spent 50% of it. The new plant is also expected to be commissioned by second half of this fiscal year. The company's financial position also remains strong with a net debt-free balance sheet and a robust net cash balance of INR 95 crores. With this, I now return to Ravi Udeshi to open the floor for question and answer.

[Operator Instructions] The first question is from the line of Shalini Gupta from East India Securities.

I had a couple of questions. One is that you were saying that Ashoka has got a new listings in the U.S.A., U.K. so which are these new listings.

So Shalini, is Bimal Thakkar. The new listings, which we've got are in Australia, in U.K. and in the U.S. These are with large retail chains, club stores like Costco, that is for Australia and U.S. And we've got some additional listings in the U.K. in Tesco.

Tesco. And sir, you said the same thing about Truly Indian. So if you could just speak about that also.

So Truly India, we've got some additional listings in various supermarkets across America. And also, we've been able to get a listing in Costco in one of their divisions in the U.S. All these listings I mean, the product will be available from October -- end September, early October onwards. So...

Okay. And sir, like I just was a little curious, brand promotion expenses are like INR 15 crores, which is almost the same as freight cost. So if you could say how much was the freight cost this quarter? And how much was the brand promotion expense?

Yes. So the freight cost is around -- of my stand-alone revenue is almost around 6%, while our total marketing spend, which includes the Truly Indian and Soul brand also is almost 7.8%.

So almost 8%.

Close to 8%, correct.

Yes. And sir, if you could just -- the tariff, Mr. Trump is going all over the place. So if you could just say what is the going to be -- right now, you said that tariffs are 10% on for new people. So if you could just say -- let's say, he imposes 25% tariff, that will have to be borne by you? Or how does it work out?

Shruti, is Bimal there?

Yes, I'm there.

Bimal sir, I think sir, again, network issue has been created.

Sumer?

Yes, Shardul, I'm on the call. So Shalini, the situation still remains dynamic and we're still waiting to see what's actually going to come into fruition. As of now, it was supposed to come into effect from 1st of August, but I believe they delayed it to 7th August. But no, we will definitely not absorb the entire increase across all our various products that go to the U.S. We might strategically choose to absorb some of them for some key products that we want to grow, but it's still subject to what policies actually come into effect. But we have the flexibility of passing on that increase across the channels. So some to the retailers, some to the distributor.

Some to the retailer, so to the distributor. Yes, I mean that is what everybody is talking about, not everybody can absorb these tariffs because they are really quite, quite huge. So I mean, even in the tech sector, though its -- technology services are not being -- the tariffs have not been put on that. But even over there, people are talking about passing on. And I mean, I don't want to what Mr. Trump is saying. He's saying they can't be passed on, the corporations have to absorb it. So I don't know. I mean, I really don't want to comment on it. Sir, like I wanted to ask you about the CapEx if you could say how much has been the CapEx in the quarter? And how much are you expecting during the year?

Shardul, you want to get that CapEx question. Sorry, my connectivity is bad, so, yes.

Yes. So Shalini, for our Surat Greenfield, there is an INR 90 crores CapEx, which is planned and almost 90% of that is already committed. We have already spent 40 -- sorry, 50% of that. And we expect this plant to become operational in Q3. So by then, we should be in a position to spend the rest of the CapEx also. While other than this also, there are certain brownfield projects, which are going on in our -- both the factories at Nadiad and Nasik, which is to an extent of almost INR 50 crores. And I'll say half of that is also spent by now and balance will be spent in the current financial year.

The next question is from the line of Kumar Saurabh from Scientific Investing.

Sir, if we look at FY '25 number of Ashoka, like last 5 years looks good. But last year, we grew only at 5% in the Ashoka brand. And Q1, looking at the overall numbers also, it looks like a single-digit growth rate. And this was like one brand which was doing well and then we wanted to scale up 2 more brands. So why in Ashoka, the growth rate has not been at par? And what are the remedial measures we are taking? And how do things look like for the next 1 to 3 years?

So as we had mentioned earlier, we were doing some reorganization of some certain distributors, adding some more distributors in certain markets, taking out some existing distributors. So all that was the reason why you had seen a slight slowdown on the Ashoka side, plus also our sales team reorganization happened in the U.S. All that has happened now, and we're very confident in the coming -- I mean, we are already seeing results from this last quarter, things are getting better. And we are fairly confident about the growth in the next few -- next quarters for the Ashoka brand. Also, the first -- in this last quarter, we had to -- you were aware that we had a GPCB notice for -- which we got a stay order for. And so in the month of April, our production in the factory was also not at full capacity because of that GPCB notice. And then from May, June onwards, we've had production going on as normal. So that also impacted the first quarter sales.

Okay. And sir, on the Soul brand, what is the current monthly run rate of revenue and how it was 6 months back? And are you happy the way things are going on? Or like if you can give more updates on the Soul brand.

So on the sole brand, it has not gone as we had planned earlier. That's why we did a revision on our 3-year forecast. We are doing some changes in -- again, in the sales team in our strategy. And we remain fairly confident that this brand will do well in the Indian market. We've just started modern trade a few months ago. We've got some encouraging response. And also quick commerce, we just got listings from last month onwards in -- with a few of the big names. So we feel fairly confident that this will do well. But the INR 100 crore plan, which we had for 3 years, that has been toned down to anywhere between INR 50 crores to INR 75 crores.

And where did we go wrong? Like is it in terms of pricing? Or is it in terms of product positioning?

The next question is from the line of Param Vora from Trinetra Asset Managers.

So I have a question regarding the Surat facility, which is expected to commence in second half of financial year '26. So sir, what is the expected capacity? And what is the product mix we expect in that facility?

So in that facility, also, we are looking at certain frozen products, which are currently not being done in the Nadiad factory. So there's a new product line, which we are doing there. And some of the products which we are doing in Nadiad, we've enhanced capacity -- expanded capacity in the Surat factory. Shardul in terms of tonnage, do you want to let them know what the capacity is going to be?

So it will be around 10,000 metric tons capacity, which will -- and this is Phase 1, which we are constructing right now.

And how much time will it take to breakeven?

So we expect to get in year 2 on a breakeven situation after we've started production.

[Operator Instructions] Our next question is from the line of Bhumin Shah from Sameeksha Capital.

We want some distribution [Technical Difficulty] for the entire year and the TAM has increased about 30% for the distribution business. If I look at the distribution business [Technical Difficulty] which is around 7%. So how the...

Bhumin, sir, your voice is sounding muffled. The next question is from the line of Subhanu Bangal from [ 3 Head ] Capital.

Why you distribution margin probably increased year-on-year?

So this -- I think what happens is in distribution business, which is primarily the business, which we are doing it over there. There are certain marketing incentives which we keep getting. And once they are approved, we book it. Also now we have now got a certain portion of our some -- these incentive in built into the pricing. So our margins have slightly improved over the period of time. However, I think from estimate perspective, you should still keep around -- between 12% to 14% yearly margin from the distribution business.

This is one time?

I think there will always be some fluctuations in quarter-on-quarter, but I think steady state affair, you should -- we should be in a position to do 12% to 14%.

My second question on Truly Indian. Give me some color on Truly Indian, how this Truly Indian going forward?

Well, we've been able to get some good listings in the last quarter. And the whole brand refresh also which we have done has had a very positive response, as Sumer mentioned in his opening statement. So we feel fairly confident about the growth on the Truly Indian brand. Things are going as planned as far as Truly Indian goes.

Any tariff can impact Truly Indian? How is the margin -- Truly Indian, any tariff can impact Truly Indian going forward because margin...

Yes. No. So the tariffs, I think on the tariff, we have to wait to get some clarity on what actually is the final tariff. And yes, it's -- whatever is -- I mean, if there is an impact, we will try and pass on whatever possible to -- within the value chain. So we are not yet sure on what -- how it will impact until we have proper clarity on the tariff.

Our next question is from the line of [ Ravi Nareddy from Nareddy Investment ].

Sir, currently, at which capacity utilization we are running?

So Mr. Ravi, we have various products, various product categories. So I'm going to say at an average overall, we should be at about 75% to 80%. In some products, we are above 100% or at 100% at somewhere 50%. So on a weighted average, I would say, at about 75% to 80%.

Very nice good capacity, sir. And one more U.S. go down, inventory turnover can you tell how much stock were being maintained there? And how much turnover on we get from there?

Shardul, do you want to get that?

If you're referring, I think, see, we received the distribution rights for the West in the month of March, and we had to buy inventory from our previous distributor, hence, the inventory went up in that particular as of -- in the month of March. So if you look at the control, which includes your stand-alone for that consol, I think the inventory turnover is around 130-odd days.