Apex Frozen Foods Limited (APEX) Earnings Call Transcript & Summary

[Audio Gap] conference over to Mr. Subrahmanya Chowdary, Executive Director, Apex Frozen Foods. Thank you, and over to you, sir.

Thank you, Monica. Yes. Good morning, everyone, and thank you for joining us on our earnings call for Q4 for the full year 2021. Mr. Vijaya Kumar, our CFO; and Mr. Durga Prasad, our Senior Manager, Accounts; and Stellar IR Advisors, our Investor Relations Advisor, are on the call with us today. I hope you had a chance to go through the investor presentation that was uploaded on the website of the stock exchanges. We welcome everyone to this call. Before we start, I hope that you and your families are keeping safe and in the process of getting vaccinated or already vaccinated. While I'm sure you have had -- heard this on calls of -- for all companies and many companies who are into effect -- into manufacturing, especially. Let me reiterate that the COVID-19 has, of course, thrown up multiple challenges for the followed of which continues in some aspects or other for many industries. For our industry, the seafood industry, that is an export-oriented industry also, which primarily uses wafer containers, it has meant that key consumption events such as celebrations have gone down, restaurants have been closed and the demand from these centers are seeing a downward trend last year. However, there has been an uptick and compensatory demand that has been flowing from in-home consumption during the past year, leading to increased sales at supermarkets and shops. Perhaps the most challenging aspect of the year has been the turmoil that was causing the transportation of our products. The containers not being available and vessels being canceled. There was a high demand and availability of workers in shortage due to various -- sorry, availability of various logistics related workers due to various SOPs of different countries that released to the minimum persons of 30% of key employees, et cetera. There have been inordinate delays causing shipments with regard to our industry. If I were to explain the year on a quarterly basis, in the first quarter, we saw a sharp dip in demand, labor availability and transportation. Things improved in the second quarter on the demand and labor availability. But transportation remains an issue. In the third quarter, demand was stable. However, transportation, now more specific to global logistics pertaining to shipments, was a big issue. For the fourth quarter, which is traditionally a weak quarter for the industry, demand was strong and growing and things flipped to be getting better. Now coming to the impact of this on our financial performance. Even in this challenging period, where the strong demand has been reduced for the most part, we have achieved about 96% of our pre-COVID sales volumes. We've achieved an indication that the demand for our products and our long-standing relationships with our customers has been growing strong. The realization for our products continues to improve on the back of improving product mix. The share of higher-margin ready-to-eat products contributed over 21% in the Q4 FY '21 and about 15% in the full year. We see this as a strong driver for future growth in both top line as well as the margins. As you are aware, the government reduced and actually removed the total benefit of MEIS, Merchandise Export Initiative Scheme, from the month of September till December 2020, and discontinued it completely from Jan 1, 2021, without the replacement scheme being operationalized. In spite of this, our EBITDA margins remained almost flat on the back of the improved product mix and operational efficiencies. With the first full year of operationalization of the new plant during this year, our depreciation expense was -- it went up. And further, transportation issues resulted in increasing of our working capital requirements due to higher receivable base and inventories, which were getting stuck because of the lack of equipment for shipping the products. And this also -- also, there were additional costs related to logistics, primarily the freight costs, which had gone up by almost 250% to 300% compared to pre-COVID levels. It resulted in a PAT reducing to INR 44 crores for FY '21 from INR 60 crores in FY '20. A quick update on the progress of our other efforts. On the hatchery, as we have stated in our last call, we have discontinued the lease facility in the construction of the Phase 2 of the hatchery at Ongole is completed. We are awaiting regulatory approvals in August for the facility to commence commercial operations. With this, our entire hatchery-related requirements are sourced in-house. With regard to the farming operations of the company, we have been indicating over the last few quarters and I personally have been informing you over the quarterly con calls, that we want to focus more on the core activity of processing in export and accordingly been consolidating the extent of area and the farming for the company. In the past, fiscal, our consolidation efforts have cumulated -- sorry, culminated and we now only own about 120 acres of farmland. This will, however, be -- this is assisted by the hatchery business with regard to the seed supply, which is, of course, primarily meant for developing our relationships with the farmers, which is also going to pave way for -- ways to look at more buyback arrangements and have our network building as well as contract farming with minimal investments through the seed supply. And we make our relationships with our farmers much stronger by giving them quality seed and also we will do the buyback of raw materials from them. Now coming to the outlook for the industry. There -- all the closures, which were there during the past year, especially those which were partially closed, unfortunately, the restaurants, the foodservice segments, which were -- sector, which was closed completely, permanently has not yet been restored by replacements, but several restaurant chains have reopened and now they are working -- especially in the U.S. market, they're working at 100% occupancy, thanks to the high number of vaccinations, which are being done in that country. And so the life is getting back to normal in U.S.A., especially. And hence, our exports to our largest market, U.S.A. continues to be going steady, and we look forward to growing it further as we are able to improvise our capacities over the next 1 to 2 years subject to the logistics issues being resolved at the earliest. The EU -- the European Union, which is our second largest market, the consumption has been stable. In fact, the demand has picked up similar to the U.S.A. because of the foodservice sector opening back. Vaccinations are also happening in good numbers. We have had an increase in inquiries from the EU market of late, especially during the past 3 to 4 months. And we are looking at further growing that part of the market also. China, where the company primarily does commodity strength mainly in the form of couple of blocks, we have been still maintaining it at a lower level because the company mainly has been focused on value-added products, both in the raw format as well as -- I mean, sorry, ready-to-cook as well as in the ready-to-eat, we are looking at value-added products mainly. And hence, our exports to China will continue to be minimal, and -- however, with regard to the Chinese market, the -- there were some constraints, some restrictions on some companies, not Apex Frozen Foods, I would want to reiterate that and hear from. Just want to give a clarity on that because there were some news. We don't have any issues. It's -- generally, there are congestions at some of the Chinese ports where we are not able to ship, but we are able to ship to the other ports where there is not much of problems, and we are continuing to do our shipments to China as we get the containers. We don't -- our company doesn't have any restrictions laid out by the Chinese government as stated by some sections of the media and to be precise, social media. With that, I now request Mr. Vijaya Kumar, our CFO, to take you through the brief highlights of our financial performance. Vijaya Kumar, please.

Thank you. Good morning, everyone. I hope all of you are keeping safe. I shall brief you on the financial highlights of the quarter and full year gone by. As mentioned earlier, our product mix has been improving with higher proportion of return under value-added products which have aided the overall realizations. For the quarter ended March 31, 2021, our exports revenue grew a strong 38% year-on-year and 15% quarter-on-quarter to INR 1,732 million as against INR 1,256 million in Q4 FY '20 and INR 1,500 million in Q3 FY '21. The growth in export revenue was a result of improved volumes, which grew by 30% year-on-year and 22% quarter-on-quarter to 2,656 metric tonnes in Q4 FY '21 and higher average realizations of our $9 per kg of shrimp sold. Despite a challenging year and lower volume for full year FY 2021, the exports revenue grew 3% year-on-year to INR 7,705 million. The sales volume degrew by 4% year-on-year to 11,701 metric tonnes. As far as the profitability is concerned, EBITDA margin were not materially impacted considering the challenging environment, comprising vessel dispatches, higher fixed cost due to lower utilization of our newly expanded capacity, lower exported -- export incentives and such others. This is an outcome of our improved product mix and operating efficiencies. The EBITDA for Q4 FY '21 grew 14% year-on-year to INR 212 million and accounted for 11.5% EBITDA margin. For the full year FY 2021 EBITDA came in at INR 985 million as against INR 1,060 million in FY 2020. On the margin front, FY 2021 crossed 11.9% EBITDA margin, as against 12.5% in FY 2020. A margin point on 60 bps year-on-year. Further, higher depreciation is due to commissioning of the new plant, coupled with increased finance cost, due to raw material working capital as both inventory and were stressed due to transportation issues resulted in decline PAT level. The PAT for Q4 FY 2021 came in at INR 84 million versus INR 92 million in Q4 FY 2020. And for the full year FY 2021 at INR 443 million as against INR 606 million in FY 2020. The geographical breakup of sales in FY '21 is as follows: 81.6% came from U.S., about 14.3% from the EU, while the balance 4.1% came from China. With that, I conclude our opening remarks. And now I request the moderator to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Ashwini Agarwal from Ashmore Investment Management.

Good numbers even in the reasonably tough environment. I just wanted an update from you on the U.S. regulatory side. So for some types of products, I think one of your facilities was listed on an import alert in December and 1 line was reported to have been turned back sometime in March. And just yesterday, there was a U.S. FDA alert on Salmonella infection in Avanti Feeds ready-to-eat product line and the product recall. I think here your focus has been to increase the ready-to-eat and be prepared shrimps especially in the U.S. market. I mean how are you seeing this risk evolve? And how are you addressing this problem?

Yes. So Ashwini, first of all, thanks for coming on to the call. There are -- I need to first -- sorry, discount your question about Avanti Feeds as I'm not the person to be answering about them. But since you're asking about the general system or the risk perception with regard to the U.S. market as such. Regarding the alert, which you are referring to about Apex Frozen Foods, it's about antibiotic-related issues for which -- in fact, since January consignments have been tested and they have been released. This particular -- we have been put on the alert because of 1 specific consignment, which was having an issue that to 1 line item, as you rightly mentioned, even though there are multiple line items in the consignment. So of course, this was all the products which were primarily handled and shipped during last year when the COVID issues were there. And otherwise, we don't normally have issues related to antibiotics as the testing is done preharvest and also prior to processing at the factory. So we don't really have issues. In fact, we know when there's a positive, and we do maintain stocks of antibiotics product set because there are -- that's how we test, we know that, that products have such contaminancy thing. So now in this case, as I had mentioned, there was a specific issue and that has been dealt with. However, the consignment subsequent to that have been held and tested and released. And even that 1 particular consignment which the FDA has had an issue with, it was actually retested and there were no problems pertaining to that. That is with regard to specific antibiotic alert. That is -- and in fact, we are in the process of getting our specific facility being removed out of that alert. So it's not an issue. We don't really see it as an issue because we take care of -- we mitigate the risk by prior testing, #1. And in general, I have been stating this for the past few years since we got listed that any market which we want to do business with expects -- has its own set of rules and norms. It is at their discretion to test for in the specific product or the specific parameter what they want. So definitely, if we are to do business with a specific market, we have to implement the rules. But however, when it is a laboratory testing, we all have to have an understanding, and I'm pretty sure, nowadays, everybody has a clue about that with regard to COVID. Like how there are possibilities of having false negatives, there are also possibilities of having false positives. That particular phrase of false positives actually advise to quite a number of companies which have their own systems and protocols in place -- the required systems and protocols in place, sorry? And that, of course, indirectly, I would also answer on behalf of anybody else whom you want to refer to, but that is how it is. There are -- with the amount of systems in place and the protocols because these are required by the importing countries, whether it is U.S.A. or European Union. So when 20% to 25% of our -- approximately around 20% of our business goes to EU, we have every alternate container -- every second container being tested in EU also for antibiotics. But whereas we ensure that these products go to -- do not go to those markets, and we ensure that we don't handle them. So in fact, after this particular issue, we have also intensified our own segregation and basically refusing the lots at -- in any such specific source level so that we don't have to deal with any repercussion subsequently. So that is the general point about the alert. But it is not a risk. It is, of course, it would -- we just need to implement it at our entry level, to be precise, so that we don't need to deal with any headaches or problems at the finish line, I hope you understand.

Sir, and on Salmonella specifically, I know you may not want to comment on what's happened to another company. But is that a risk only for pre -- ready-to-eat, or is that something that happens even for ready-to-cook? And have you faced that problem in the past ever?

No, we have not faced that for our own, but as I'm saying, that issue will be there for all products from fresh, in general, for seafood, any raw products, raw means even chicken. So when they would be testing -- they intend to test, they will test. If they want to intensify their testing, they would -- like EU does it for the past, I think, 6 years or 7 years since we have been testing every second container for antibiotics, for example, like that U.S. FDA has its own set of norms like how Indian rules of import departments like animal husbandry or phytosanitary conditions which they implement. So that is there for all the products. It's not about only cooked or ready-to-eat or ready-to-cook. It will be there for all the products, they can test. It is, as I said, it is in the -- we have to implement the system, whether it is testing or whether implementing the right process. And that is how we ensure that we avoid any complications at the finish line. However, it does not mean that if there has been a test positive or if there is an alert, it doesn't mean that there is a system failure because as I had tried to mention earlier, like how you are noticing quite a number of false positives in -- I mean because it's a laboratory test. It is all -- it depends on what equipment is used and the time of the person who has handled the testing, et cetera. And errors are there with regard to machine reading also. So that is how it is. So -- but Salmonella is there for all products, not just shrimp or not just ready-to-eat, it will be there for all, the intact for any.

Okay. And sir on the -- the second question I had was relating to the working capital inventory increase. Obviously, because shipping times have increased and the duration that it takes for resources show off in the U.S. are increased. That would be, I'm assuming, the principal cause of the increase in receivables. Is that the only reason? Or is there something else also which is causing your receivables to spike up from roughly about INR 70 crores, INR 80 crores levels to INR 100 crores level?

No, no. There are 2 things. One is primarily the container-related issue, which is going around -- we get payments of around 40, 45 days, 50 days sometimes. It's increased depending on the ports. But then there has also been certain amounts of testing at that point of time, which, of course, post shifting we got the remittance realization from customers also. So we -- that's how the containers have got cleared and we got the payments, that's how there have been a delay, there has been a stretch in the receivable period. But in the working capital, even the inventory period also got stretched, the pre-shipment timing also got stretched because of the delays in shipments, even though the product was back, we just could not ship -- every day we speak for the past 2.5 quarters, even in the current quarter. And I -- we do not know when this issue is going to get resolved immediately. But at this point, we -- at any given point of time, our company continues to have around 40 to 50 containers worth shipments -- for 40 to 50 shipments, sorry, worth an average value of INR 1 crore and above. So now especially when the unit value is also increasing. So that is always blocked. This is over and above our regular inventory and resource inventory. So this -- hopefully, the issues with regard to the logistics and container shortages will get cleared at the earliest and we can have a shorter working capital cycle both in the post-shipment as well as pre-shipment.

[Operator Instructions] The next question is from the line of Ajay Thakur from Equities Wealth.

Just wanted to check on 1 thing. Have we heard from the government in terms of the other scheme -- export promotion scheme, when is it going to be implemented? And what would be the incentive rate which would government will be providing for the same? Any idea or any clarification which is coming from the government on that side?

Unfortunately, I mean, it remains now for the past 4 months because in the last con call also -- the third quarter con call also we have been asked the same question. As of now, we did not hear anything about the rates or the scheme process and procedure. So we look forward to it. But of course, we are in the news, seem like when everybody else hears that it's likely to be announced soon, hopefully this month or early next month. That's what the same -- we are hearing it from you, we do not have any official position informed by the government, even formally or informally, we didn't get anything so far. So we are waiting for the details.

Okay. And will it be -- as in whenever the news will be implemented? Will it be implemented retrospectively? Or will it be from the time itself when it's announced?

The idea of what we had was it was to be implemented from April 1, that is starting of this financial year FY '22. This was what it was told then. Now we will definitely get a clarity when once they announce and they inform us all the details. But it was told that it will be implemented from the current financial year from the beginning. So I don't know it could be a change of plan or I don't know if they would even take it to last financial year. And at this point, it's too fluid, and we are not able to have a concrete idea about it at this time.

Okay. And lastly, in terms of demand, just wanted to check on how the things are looking from your perspective? Because you mentioned about EU you are seeing improved demand or inquiries. So because of a lot of restaurants opening up, do you see a dual benefit with both the home consumption also sustaining to that level and also improved sales in the out-of-home consumption as well? Or will we have 1 going down, the other 1 like remaining or going up kind of stuff. So what's...

Yes. Overall the demand has picked up very well. But of course, it's definitely at this current stage, it is higher -- going higher than what it was pre-COVID. But of course, this also would create some inventory build-up in inventories overseas, and it should be stabilizing. But your question specifically just because the foodservice or restaurant chain demand has picked up, does it mean that there will be a fall in the retail? As of now, we have not seen any such indication. The retail demand continues to be strong, in general, because the protein requirement has gone up significantly now with the added restaurant chains and everything opening up. But also the other important point is shrimp -- there are other proteins which are even in seafood, which are currently -- a few other items which are more expensive than shrimps. So the demand for shrimps has been quite steady at this point because it is still definitely a good choice, and it is the #1 preferred seafood items -- in United States, especially it is the #1 consumed seafood item. So that way -- and we are pretty confident that this will remain, both in the retail and the foodservice sector, and we need to see it continues to maintain. And right now, we are in the holidays and things should be good for the summer over the next 2 months, especially because in the U.S.A it is -- July, August is -- all these are the summer months as we go through them. So the demand should be good. So there's no problem with regard to -- there's no fall in demand with from the retail side. It's better there.

The next question is from the line of Depesh from Equirus.

Congrats for good numbers in challenging times. Sir, in the presentation, you have mentioned that shrimp prices are firming up globally. So I just wanted to get a sense that how do you see these prices going up in for FY '22. And given the strong exports that India has seen from March onwards, I think it's better than even FY '19 -- FY '20 levels, right, FY '19 levels. So will you be able to be at the 60%, 65% utilization levels this year?

We should be able to do it on the production side. With regard to utilization, we should be able to utilize it. Of course, subject to the farmers going for -- because right now, the first half has been good, everything was good so far. We are looking forward for farmers to go for seeding again, which they are doing in some areas. There is also some changes and some species and people are going to Black Tiger. But overall, as long as the supply is continuing to be there with the current year's demand, like we said, which is at a higher level, we are confident that it will remain for the rest of the year, especially for -- because there's a shortage of product overseas, and that has been -- so currently, the news what we have is that overseas, the product is being absorbed as and when it is reaching the destination. So there is no -- at this point, there is no inventory pile up. So the demand is continuing for sure, at least, until summer and post summer till Thanksgiving that is sometime in October, November. And so for the rest of the -- we believe it should be good, stable for the rest of the financial year -- current financial year. Supply, as long as it is good, yes, definitely, we should be looking at completing -- utilizing that 50% of the capacity for sure because it is more -- the capacity utilization is more to do with the supply. And I hope -- strongly hope that there is no third wave or anything like that for India, which we hear every day. And we just hope that -- because we have had some issues regarding employees also during this recent -- I mean, 2 months ago or a few months ago so. So we just hope we don't have issues. Definitely, we are confident that we'll be utilizing it, subject to the supplies, but regarding capacity utilization, we'll definitely do it. We are not in...

Sorry, sir, you are saying 50% or 60% because I think you're already at 40% right now. So you're saying 50% for the next year?

No. I mean currently -- I thought whatever -- I looked at -- current year, we said 50%. Current year, I think we have said the complete capacity of 29,000 metric tonnes. I said 50% is minimum is what we were looking to achieve. That is approximately 14,000 or 15,000 metric tonnes, let us say. So that is what we are looking forward to achieve in this current financial year. Next year is, of course, as we also add up another line we'll give more details as we take firmer decisions and once the things are in place, we'll achieve them later on that.

Sure, sir. And sir, how are the prices doing, sir? Because I heard that international prices are going up, right?

Sorry, can you repeat that?

Sir, how are the international shrimp prices doing? Because the demand has picked up very sharply, but the supply is still limited, right? So shrimp prices are going up right now or they area still stable?

The shrimp prices are going up. They have gone up for the past 2 months, almost. It's been going on in phase-wise -- almost 3 months, sorry. For the past 3 months, it's been going up, and they have pretty much been stabilizing at a 3-year-old higher pricing. And supply-wise, it is there. There is no -- there are no -- not much issues with regard to supply as of now. We believe that it will continue to be there over the past -- or sorry, over the next 2 to 3 months. And as I said, subsequent to that, it will depend on how the seeding is happening and also any sort of issues at the farm level with regard to any disease or anything. But currently, the supply is good and the demand is also good. So both ways, in your words, we have tailwinds on both sides.

Yes, yes. Sir, finally coming together, right. Sir, secondly, sir, the government recently announced the PLI scheme for the marine sector, right? So anything you are planning? Because I think only 2, 3 companies qualify for that PLI scheme. So anything you are looking forward to?

No. The company as such does qualify, but the point is with regard to the capital investment which they have sought after and also the -- it is basically on the incremental growth subsequent to -- from now. So we haven't really gone ahead with it. We did discuss internally, but we didn't really go ahead about that because of the capital requirements as such. With regard to revenue and -- because we are more focused on utilizing our current capacity utilization, which is -- like you just asked the previous question. So this year, we look forward to utilize 50% minimum of the total capacity of 29,000-odd metric tonnes and next year, we look at 70%, 75%. So while this is going on for the capital requirement of what they have asked the marine sector of around INR 75 crores didn't really make sense for us immediately so -- at this point. So anyway, as had last time -- yes, it was an added benefit if it could have been a way, but however, we are more focused on earning our own better realizations on margins with regard to the products which we are focusing on, which we have been pretty successful over the past few months. Yes.

Understood, sir. Right. And sir, given the higher freight costs that you have seen for the last 6 months, your manufacturing and other expenses have not gone up, right? So on a per kg basis, if I see they've actually come down quarter-on-quarter. So just wanted to understand how was it possible? And do you think the freight costs will return in the subsequent quarters?

The freight costs are -- actually have gone up more -- I mean, we have a significant higher cost from the current quarter, which -- what is the Q1 because all the rate contracts, service contracts have been signed up at higher levels, especially from this financial year. So with regard to going up, we do not see at this point. But however, it is premature for me to comment for us to comment at this time because we have also heard people from some exporters, some shippers from China are paying quite a huge freight amounts shipping to European Union and all that. So there is -- until this logistics problems globally kind of settle down and -- we do not believe there's going to be an immediate solution for this and to get back to lower freight costs immediately. But we definitely hope things will get better soon. I don't -- we don't really expect higher freight cost from here from now at least from the current level. But whatever increase we have seen over the past 3 to 4 months, that has all been signed up in the month of April and May of the current year. We have signed the service contracts I mean that's when streamlined signed the new contracts.

Great. Sir, lastly, if you can just help me with the incentives booked in the quarter and what was the hatchery sales and the value-added product sales in this quarter, please?

Yes, please. Vijaya Kumar, can you take that?

Yes, yes. Hello, this quarter, we looked in for MEIS. From MEIS point of view, we did not book any because government has not announced anything. Drawback we booked INR 4,85,00,000 lakhs this quarter.

INR 4,85,00,000 lakhs? Okay.

Yes, yes.

Okay. And sir, what was the hatchery sales and the value-added product sales in this quarter?

Hatchery sales this year INR 7 crores -- this quarter, INR 7 crores and this year came to around INR 24 crores, entire year, financial year.

Understood, sir. And the value-added portion?

Hello? Sorry?

Yes. Value-added portion of -- and the sales in the fourth quarter, sir? Value-added products that you generally give that number, how much you have sold as a percentage of overall?

Okay. That we will give you later. Actually, we are not bifurcating values like that. We are...

[Operator Instructions] The next question is from the line of Vincent Andrews from Geojit Financial Services.

Hello? Am I audible?

Yes, sir.

Yes, please.

Congratulations for the good set of numbers in these conditions. Most of the questions have been answered in the previous answers. And 1 -- only 1 question I have that is related to the capacity utilizing you have already mentioned that you are expecting around 50% during the current FY. But I remember during last con calls, it had mentioned like out of this total capacity, 5,000 capacity related to the value-added and you have already arrangement with the clients for these capacities. And since you have mentioned in the previous remarks, like the HoReCa segment is opening up now in the U.S. So what is your expectation for the value-added capacity? And how much increment margins you'll get out of this? Yes, that is third question.

So first thing regarding the capacity utilization, I was mentioning to the previous caller about the total capacity utilization of 50% on the overall capacity. Now with regard to the value-added -- or sorry, the ready-to-eat products specifically, we are, of course, looking anywhere between 60% to 70% in the current year. But that is also, of course, subject to our workers and the subject to the employees being continuously being available. But we are focusing -- we are focused on doing -- utilizing 60% on the ready-to-eat primarily. Now with regard to margins of ready-to-eat and ready to -- sorry, sorry, again on the capacity utilization, we did mention in the previous call that we would be looking at optimum utilization of ready-to-eat, in fact, completely. We, in fact, do have the order book with our customers. The issue is more about with regard to operational efficiencies with regard to ready-to-eat. So we are trying to gain them in the current period. So as we do that, we will be looking at optimally utilizing to 75%, 80%, but we foresee that we'll be having a minimum production of 60% of the 5,000 metric tonnes this year, for sure, minimum. So regarding margins, I think we have informed prior it is approximately around $1.5 to $2 per kilo over and above the ready-to-cook items, that is with regard to the ready-to-eat items. But then of late, we have also been developing value-added products in the ready-to-cook also. So which are also providing us similar margins or in fact, same as ready-to-eat. So we are focused on building up more production of those products and thereby both on volume scale as well as -- which also makes a higher profitability -- sorry, higher margin to the company. So that's what we are focusing on.

Yes. And 1 more question is like export incentive can you delay you are seeing from the government to -- even announced the new structure. So is it manageable from your end? Is it possible to pass on to the farmers? Or is it possible to increase the price for the sales level without affecting the commission there. How do you manage that?

Sorry, can you repeat your question once again?

How you manage the export incentive, till the time the new structure is coming, how you manage? It possibly to pass on to the farmers, is it possible that?

See, first thing is the incentive is not something which is given by the government as of -- that -- it is not something which is given by the government on a farmer basis. It is basically a part of the income of the company, and it is part of the income of the industry. So when the farmers are having their farm gate price it calculate -- basically involves -- includes everything, things like not just the incentive but also the costs, the overseas selling price and also the supply they are getting. So it is all a multiple -- multifactor point with regard to the farm gate pricing. So yes, the incentives, if given -- once given by the Government of India, it will also be passed on, to a certain extent, to the farmers dependent on the situation again. That is the market dynamics. So it's not something like where we are awarding separately something to the farmers, okay? It is an indirect benefit which the farmers get through the market pricing.

The next question is from the line of Nitesh Jain from Birla Mutual Fund.

Sir, basically, considering the dynamics of your order book, mainly from the U.S. customers and also the labor availability of your subsidiaries, both the subsidiaries, and also maybe shipping or the logistic problem which you explained in detail, considering all these three and the trade-off between all 3 or 4 of them, what kind of volumes can you do in FY '22 in current fiscal year on your capacity of nearly 29,000 metric tonnes? Of course, there is fourth element also which is this -- which is the most important one, which is basically the culture itself in the farming activity. So given -- I know this is quite dynamic at this point, but would you believe that you can do upward of 20,000 tonnes? What is your internal estimate for this financial year?

Sorry to interrupt Mr. Jain, sir, there is a disturbance coming from your line. We request you to mute your line while the management answers your question.

Sure. Sure. Sure.

Yes. So can you -- you said how much are we going to utilize capacity? Is that what you asked?

Yes. Yes. Yes.

Okay. So yes, which I did mention -- respond to one of the previous callers is that we are pretty confident that we will be utilizing at least 50% of our total capacity of 29,000-odd metric tonnes in the current financial year. This is not just to do with order book or -- of course, after -- like you said, after considering the supply situation also. But mainly the thing is our -- we are improvising our efficiencies in the new facility. So most of our volume of the 50% of the total capacity utilization will be from the new facility. So we are actually improvising it. As we grow it further, we will be able to -- so that we are looking at anything over 15,000 metric tonnes of that 29,000-odd we are looking at, anywhere between 14,000 to 15,000 metric tonnes, that's what we are looking between all the markets and others.

Yes. Yes. Yes. Sir, basically, here, -- there is a follow-up question here. I mean in a robust demand scenario, which is prevalent currently in, particularly in the U.S. market, where 85% of your products you sell to U.S. geographies. I'm still quite surprised or perplexed to understand why we are guiding only, say, 50% given the fact that we have a 20,000 tonnes brand-new most efficient plant in the country. And we have a good demand from the U.S. markets. So why only 50%, why not 70%, 80% type of utilization? What is the problem here? That's point number one. Point number two, if you still guide for, say, 50%, when do you see Apex Frozen Foods as a company can do nearly 22,000, 24,000 tonnes of sales, say, in any 1 particular year? When that can happen?

I think -- okay. Why we are doing -- we are only looking at around the -- 50%, 60% in the first year is, of course, considering all factors of efficiencies, even in the value-added products, which is not ready to meet, but even for doing -- utilizing the new facility of Apex, we also need to support it with a lot of field product. We are not doing commodity shrimp, which can be done in mass volume. So naturally, when you want to do more to the markets like U.S.A. and European Union, where most of the value-added products go even in ready-to-cook, even in the raw, so for that, the capacity expansion is happening, the more and more -- we already have on preprocessing facility which has been utilized currently, which is mostly supporting the old facility. We are also adding -- there are plans to add additional -- another preprocessing facility by the end of this year, which will be available for next year. That is why in the current setup of infrastructure, we believe that with the amount of value-added -- sorry, when I'm saying value-added, it's not ready-to-eat. What I'm saying is with the amount of peeled product, what we can cater to the processing facilities, which have a 29,000 metric tonnes in total, we have to support those 2 facilities which -- with that much amount of peeled product, which are required for these -- for the markets like U.S.A., where -- what -- where you rightly said, which has 80%, 85% -- 80% of our total business. So we need to provide more and more peeled products, which will -- we are confident that we'll be able to do more next year once we also finish up the other support facility. So that is the scenario. That is the main reason. Only for doing commodity-based shrimp, headless, shell-on, head on, shell-on whole shrimp, the raw commodity shrimp which we do to China well, if we do only such product, we can do 75% of the total 29,000 metric tonnes in the current financial year itself. Actually, the problem was that our company is not focused on doing commodity shrimp or commodity product, sorry, to commodity markets. Rather, our focus is in more of value-enhanced products, even in the raw stage. So for that, the facilities, which are, of course, the new facility, which is 20,000 metric tonnes, but however, it has limitations on the amount of preprocessed product, which can be catered to under its current floor space. So we are also going to add that further, and we are, of course, also getting some support from our existing preprocessing facility. So thereby, further improvement will be there as we come to the end of this financial year. So from next year, we believe it's going to be much higher aided -- supported by these preprocess -- sorry, peeled products. That is on that front. I'm sorry, your second question, I didn't get you. Can repeat that, please, I'm sorry?

No. I was just asking like on a -- practically, given the portfolio of the products which you focus on as a company, in 1 particular financial year, how much the maximum sales that you can do on this 29,000 capacity? Is it 20,000 tonnes of finished products, is it 22,000, 24,000?

We could do around 21,000 to 22,000, 75%. That's what we are saying...

For the finished volume.

Yes. Finished product. Finished product. Yes, yes, that is...

And sir, lastly, this U.S. shrimp prices has been going up in the last couple of months, particularly in the U.S. market. So can you confirm how much they have gone up in percentage terms?

Pricing has gone up by -- sorry? Have gone up by between 15% to 20% minimum.

15% to 20%. And whereas in India, farm gate prices are stable or have they also gone up or they are stable?

The farm gate prices have been stable. They have not gone up.

Okay. So to that extent we...

I hope you understand where the demand is high overseas, so the supply is high domestically. So that answers the tailwinds on both means which I mentioned to the previous caller.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

Sir, just going into some figures. Last year, you did 11,700 tonnes. Out of this, how much tonnage was ready-to-eat and value-add versus commodity? Would you have those tonneage numbers available?

The 11,000 metric tonnes did not have any ready-to-eat. Remember, the first financial year -- sorry, you mean last year, means FY '21, sorry, sorry, I'm just...

Yes. Yes. FY '21. Correct.

One minute, please. That was total for the last quarter was 21%, but one minute, ready-to-eat was...

Hello?

Yes.

It will be around total 500 metric tonnes.

No, no. Percentage-wise step on that. Value added.

Okay.

So how much 4,500 tonnes or 2,500 tonnes?

2,500 tonnes.

2,000 was ready-to-eat.

Yes.

Okay. And how much would be the value-added on the ready-to-cook segment in terms of tonnes?

Sorry? In ready-to-cook value-added would be almost in the -- approximately around 7,500 tonnes, I think, 8,000 final product, finished product, which is exported because we do not have more than 10% to 15% of our total ready-to-cook as commodity or the baseline products. We have a majority of our production, what we have been doing so far in the -- is value-added or sorry, financially value-added peeled product in the ready-to-cook also. So -- yes. So it's only around 10% to 15%. So it's around maximum on the high side, it will be around 800 to 900 tonnes, very high side. So after -- that's the maximum which we do in the form of headless shell-on whatever we do and then a little bit more.

Okay. Okay. And sir, you're adding another 5,000 tonnes of ready-to-cook, right, at the end of fiscal '22, which is the current financial year, you expect to have totally around 34...

5,000 tonnes of -- 5,000 metric tonnes of ready-to-eat, sorry.

Ready-to-eat. Ready-to-eat, sorry.

Another 5,000 -- yes, yes, yes.

So what's your remaining CapEx for this year, sir?

I mean, this -- we expect it to be completed before the end of this current financial year. So it's not significant, but it will be -- it will not be more than INR 1 million -- sorry, that's around INR 7 crores, INR 7.5 crores max, maximum INR 8 crores will be the current year. We plan for around INR 5 crores to INR 5.5 crores, but then we are planning some additional components. So it's going to be maximum INR 7.5 crores to INR 8 crores that's all. Yes.

Okay. Okay. And when you spoke earlier in the conversation about 17,000 tonnes or 18,000 tonnes for the next financial year, which is '22-'23, are you taking the ready-to-cook and the expanded capacity of 34,000 or that would be not utilized over the next year?

No. I have not mentioned the number of tonnes of capacity utilization for next financial year. What I have mentioned was the current financial year we are looking at a minimum of 50% of the total utilization, which we are anywhere between 14,000 to 15,000 metric tonnes. And for the next year, we are looking at 70%. So in this, we have not factored in the new additional 5,000 metric tonnes of ready-to-eat. But when the additional line comes of ready-to-eat, our focus will be to utilize the ready-to-eat lines with the full efficiency even if it is at a little bit of compromise on one of the ready-to-cook line. So I hope you understand what I'm saying, where we try to utilize -- we utilize more of the ready-to-eat lines or ready-to-eat capacity so that we have better realization as well as better margins.

Okay. Okay. And coming back to the shipping costs. I understand that in the industry, it's typically costs including freight. So freight whatever is in credit cost has to be absorbed by you. So does that mean that because you've signed new contracts with pretty much all the shipping lines on April and May that there will be a headwind to the margins on account of shipping costs? Or are we reflecting in the higher prices of shrimp that are prevailing? I'm just wanting to figure out how the -- who ends the pain for the shipping cost at the end of the day, the consumer or is it you?

No. One of the most important point is, the reason why the shrimp pricing is also going up is also the freight costs, which get added to the cost of the shippers. So it will be passed on to the customers, which thereby gets passed on to the consumers, eventually, naturally, because of the freight cost is to deliver -- to be delivered to them. So the freight cost has increased across the board, whether it is China -- Asia, sorry, European Union or U.S.A. or Canada, everywhere the freights have increased and thereby the prices also, there have been some effects of the freight cost also to a certain extent on the increased pricing, not just the demand. So that's where I had mentioned 15% earlier in the increase of pricing. But of course, we will be looking at the increased pricing more into the future, as you know, because of these logistics issues, the shipment, there's a lag of -- delay in the shipments by almost 3 to 4 weeks even after the production is completed -- after the product is completed because of lack of equipment for shipments.

Yes. Yes. So hopefully, on the margins front, you have the tailwind of good supply, you have the sort of more value-added product mix in the revenue mix more ready-to-eat, and hopefully, the shipping costs are being paid for via the higher shrimp prices. So on the margin side, you have...

Shrimp it is taking care. We should be looking at a better margins for sure as long as the situation prevails. Like you said, there are some aspects of freight and some aspects of some increased costs, which are being factored into the higher prices, but also there is an increase in -- because of the demand, there's also an increase in pricing. So overall, the increased pricing is also taking care of these enhanced costs. That's the -- yes, that is true.

The next question is from the line of Nitin Awasthi from East India Securities.

Sir, just wanted to understand on the balance sheet, capital work in progress so it's INR 15 crores, so where is this -- what is the asset being created? Is this an hatchery expansion?

That is -- one minute.

Yes, it is hatchery expansion only. Hello? Hello?

Okay, sir. Okay. Got it, sir. Now coming to a follow up question on that, have we reached the optimal size that we are looking to be in the hatchery business? Or are we looking to scale it up further?

Sorry, can you repeat your question, please?

So have we reached the size that we wanted to reach in the hatcheries business or we intend to scale up even further, even faster?

No, no. We definitely have reached the size. It is -- in fact, we have not yet been able to utilize this capacity even as on date because we are awaiting for the approval from the Government of India, Coastal Aquaculture Authority, primarily, and some audits to be done. So we -- but for sure, with this added capacity, we definitely -- it is very much sufficient for us to take help with regard to growing our partnerships -- or sorry, the network with the primary producers, the farmers. Definitely it is -- the capacity is very much sufficient for us, for our company. We are not looking at any further scaling with regard to hatcheries as on date. We may be looking at alternative species simultaneously, maybe -- but at this time, it is to too premature out of these hatcheries to support to our farmers, thereby we buy the products from them once they harvest. So...

Okay, sir. Noted. On the other front, sir, we're seeing a lot of these farmers going for Black Tiger this time around. And I just wanted to understand from the processor side of it because we have been servicing our customers with Vannamei all this while. Once Black Tiger comes into the picture, how does it change? So do we start getting a premium for -- can we do the same product in the same manner and get a premium for that product because Black Tiger or will it be shrimp, doesn't matter which shrimp at the end of the day. Could you please comment on that?

Yes. In fact, one of the reasons why I had mentioned just a few second ago about we're looking at alternate species is also about this particular topic is Black Tiger. Now your question regarding getting a premium for Black Tiger is nearly impossible. It will definitely have a higher price, but significantly high pricing is going to demotivate the consumer to look at that specie. We are going to look at it as shrimp. Yes, for the appearance, the flavor profile, the consumer is willing to pay extra, but it is little extra. It's not that they're going to pay a huge price difference between Vannamei and Black Tiger between white shrimp or the Black Tiger. But yes, there are customers even today who are looking for the supply of Black Tiger from across the globe. It has been limited because the world has been dominated with Vannamei and it has been proven a very steady and consistent supply chain with regard to Vannamei supply. Now as Black Tiger gets -- becomes more and more successful over the next few months and years, if it remains steady and consistent in supply, for sure, it will have its own -- it will create its own shelf space across the globe. But it will not have a significantly high premium. There will be a price difference for sure. Black Tiger will fetch better pricing because of its, as I said, flavor and all that. But it is not going to be too expensive. If it is too expensive, it will be a turnoff the consumers will be turned off from that. So that is also a key part. So it is going to be very important for us to maintain a reasonably stable pricing of Black Tiger products overseas in comparison to the Vannamei. So that is how it is. Limited supply can get consumed at a little higher prices. But once we want mass supply to be placed in the market, we need to be reasonably priced when compared to Vannamei that is how the market has taken it so far. That's how -- when it became too expensive, Black Tiger ended up being kind of a turn off by many of the consumers -- end consumers.

The next question is from the line of Srinivas Reddy, an Individual Investor.

Yes. Is it audible?

Yes, sir. You may proceed.

Yes. I'm Srinivas. I have a question for you about that MEIS license. So sir, you have booked earlier quarter MEIS license, whether you have received a total amount? Or is there any pending amount in that?

No. We have not booked any MEIS for the quarter. As I have informed earlier -- sorry? The MEIS was only booked till August end pretty much because in September, it was hardly. So it was only booked till the second quarter. It was not booked subsequent to that once the government made it clear we're still booking time.

So what are the book days, you have received everything?

Sorry?

Whatever MEIS license we have booked in the books and we have received it?

No, no, no. It is still receivable. It is still receivable.

Okay. So when can I expect the new stream, sir? So I heard that first question is there, but just for my marking is there any...

I'm sorry, even we are even -- we are also waiting from the Government of India to announce soon. So we are awaiting for the announcement. And once they give a clarity, we will keep you informed in our next -- I mean, sorry, future con calls. We'll definitely keep you informed. And I'm sure you will also be aware from the media. Yes. Thank you. Thank you.

As there are no further questions, I would now like to hand the conference over to Mr. Subrahmanya Chowdary for closing comments.

Yes. Thank you, everybody, for coming to this con call of Q4 and the full year FY '21. We hope you continue to remain safe, I mean, you and your families and hope you have a good day. Take care. Bye-bye.

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.