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

Ladies and gentlemen, good day, and welcome to the Apex Frozen Foods Limited Q3 and 9 Months FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chowdary Karuturi, Executive Director, Apex Frozen Foods. Thank you, and over to you, sir.

Thank you, Mike. Good evening, everyone, and welcome to the earnings call for the quarter 9 months ended December 31, 2021, our CFO; and Stellar IR Advisors, our Investor Relations Advisors are on the call with us today. We have uploaded the investor presentation on the website of the stock exchanges, and we hope you have had go through it. We will quickly take you through the update for the quarter. We can move on to the Q&A session after that. On the operations front, operating water facilities continue to operate with little to no disruption. However, the ongoing shortage of containers from the shipping lines continued to hamper our ability to grow our exports or sales. The situation continues to improve gradually. But the freight costs are still at elevated levels when compared to pre-COVID times. In fact, currently, it's among the highest points compared to the past. However, the positive news is that the global demand for shrimp continues to remain healthy with the large parts of the developed countries returning to normalcy. We are seeing a robust demand, both from food service sector as well as the retail sector. As such, the current demand-supply equation and higher transportation costs, the average realization of the shrimp pricing globally is remaining from – with some softening a little -- noted a little bit post-holiday season in the Western countries. Additionally, for us, better product mix with higher share of value-added Ready-to-Eat and Ready-to-Cook as well as Ready-to-Eat products is further aiding the average realization. Also, our business with European Union, which is a higher realization market when compared to markets like China has witnessed improvement this year for almost -- from almost 14% in 9 months of FY '21 to 18% in 9 months of FY '22. With regard to the U.S. market, specifically, both the food service sector and the retail sector have opened up and the demand has been strong. In fact, most of our customers are looking forward for the deliveries to be made to them so that their requirements for the holiday sales have been taken care of at that time. However, the persistent logistical crisis still continues to hamper their plans to a certain extent, as several shipments are held up in transit and some of them are held up at the port. So as such, the demand is strong for now. And we are having products which are completed and we are still waiting for certain equipment support from the shipping lines for specific destinations, which are not being served as they were regularly served in the pre-pandemic times. The European Union market also shares a similar status as U.S. Our product mix review has also been improving. Of course, we have not started the Ready-to-Eat products to European Union because of the pending regulatory approval for Ready-to-Eat, which has not yet been made available to us, which is a delayed trigger between the government authorities of the EU as well as the government of India. With regard to China, our shipments for the past 2 quarters were nil. As mentioned on the previous call, this is on account of various trade barriers related to issues as well as our focus to utilize the current capacity mostly for the U.S. and the other Western markets in the present demand supply situation. We would, of course, continue to look at Chinese market and the market is in a favorable condition to the company during the peak arrival mostly in the current year 2022 during the first quarter and the second quarter. For now, our focus continues to remain mainly on the U.S. and the EU market. Now coming to our business performance and 9 months gone by. As we have been communicating the issues relating to sea food -- sea transportation has had a direct impact on our shipments or on revenue and cascading impact on overall financial performance. We have had to limit our production in line with the container availability and also and the lack of it. Capacity utilization was at around 45% in the 9 months of FY '21 as against 41% in the full year of FY '21. We hope to increase the production and shipments further -- I'm sorry, the 9 months pertaining to FY '22 -- I'm sorry. We hope to increase the production and shipments further going forward as logistical issues continue to improve. Another key point, as most of you would be aware, has been reduced export incentives as the MEIS scheme, which garnered us almost 5% of FOB value has now been replaced by RoDTEP, as per which the incentive forms close to 2% to 2.5% of FOB value. However, despite these challenges, we are pleased to note that the net revenue reported growth of 11% year-on-year in 9 months -- in the first 9 months of the FY '22. Please note that we have not accounted for the RoDTEP linked incentives scheme -- in the new scheme in the reported financials of the Q3 and 9 months of FY '22. The growth in revenue has been on the back of the growth in both volumes as well as realization. The volumes sold in the 9 months of the current fiscal grew by almost 7% year-on-year to 9,637 metric tons, and shrimp realization grew by almost 8% year-on-year. The growth in realization is a combination of stable prices globally and our improved product mix. We have been able to grow sales of higher value-added products, which are of, of course, also got a higher margin to the company, the Ready-to-Eat products from almost 15% in FY '21 to around 20% in the first 9 months of FY '22. Coming to the profitability. While the overall availability of containers is improving slightly, as we move -- we are in the current fourth quarter. We are still having to pay very high premium rates for free trades for reserving -- booking our containers for shipping our finished products. Like we mentioned in the previous call of the previous quarterly con call. This is slightly offset by increased realizations as well as the support which we received from our customers to the best extent possible where they supported us with additional pricing as well as reinvestment of additional freight costs during Q2, especially in Q3 to a certain extent. Another less, higher operating and other expenses led to lowering of EBITDA margin from 12% last year to 10.2% in the 9 months -- first 9 months of FY '22. Although please note that export incentives in 9 months of the FY '22 have been at a very subdued level due to reasons explained earlier. Going forward, we believe that with the improved utilization and sales, the profitability should return to normalcy. With our plant -- new plant and new product profile, we are well geared to capitalize on the growth opportunity in the sector. So with that, I now request Mr. Vijaya Kumar, our CFO, to take you through the financial highlights of the third quarter and 9 months of the current fiscal. Thank you.

Thank you. Good evening, everyone. I hope all of you are keeping safe. I shall brief you on the financial highlights of the quarter gone by. Our overall capacity utilization stood at almost 45% in 9 months FY '22 as against 41% in FY '21, which is lower than the 54% reported in H1 FY '22 as we limited our production and rather due to some of our potential group's inventory, amidst the challenging sea transport situation, shrimp sales volumes in Q3 FY '22 grew by 30% year-on-year to 2,833 metric tons, please note that it feasibility factors, sales are not comparable quarter-on-quarter. In 9 months FY '22, the shrimp sales stood at 9,637 metric tons higher by 7% year-on-year. Most importantly, for us, the share of high value Ready-To-Eat products increased to 20% in 9 months of FY 2022 versus almost 15% in 2021. As a result of improving product mix and stable prices, our total income increased by 40% on year-on-year to INR 2,203 million in Q3 FY '22, and by 12% year-on-year to INR 7,177 million in 9 months FY 2022. As far as the profitability is concerned, EBITDA margins improved year-on-year however, stood below the expected range on the back of higher export expenses and lower export incentives. The resultant EBITDA for Q3 FY '22 came in at INR 201 million, up 69% year-on-year and accounted for 9.1% EBITDA margin as against 7.6% margin in Q3 FY 2021. For 9 months of FY '22, EBITDA came in at INR 733 million and margin stood at 10.2% as against 12% last year. Depreciation and interest costs remained at the reasonable level when compared as percentage of income. The PAT for Q3 FY 2022 stood at INR 85 million, higher 275% year-on-year. The PAT for 9 months FY 2022 stood at INR 388 million versus INR 359 million in 9 months FY 2021. The geographic backup of sales in Q3 FY '22 is as follows: 81.5% coming from U.S. and 18.5% coming from EU. With this, I conclude our opening remarks. And now I request the director to open the floor for questions. Thank you.

[Operator Instructions] We have the first question from the line of Depesh from Equirus. I believe we cannot hear Mr. Depesh. We'll move on to the next speaker. I now invite Mr. Ritesh Gandhi from Discovery Capital.

Sir, you have indicated that the demand supply actually mismatch in the industry continues to be reasonably strong. If you could highlight to us the demand drivers on the shrimp side? And also any sort of supply chain disruption which you are seeing to give us an indication of how sustainable this is as opposed to just being in the near term, driven by the entire supply chain actually issues which are going on.

Yes. Basically, what I was -- we were specifically mentioning is that the demand continued to remain stable as far as from the overseas markets was concerned. However, supply-related issues have been increasing, and hopefully, they are likely to ease up in the near future, mostly by end of this month or early next month. As such because the supply -- on the supply side, there were quite a significant amount of smaller sized harvest, which have predominantly happened in the months of December, January, even part of November, which basically has seen to it that some of our medium and as well as large-sized products, our shrimp supply during which was supposed to be originally available during the current quarter, basically in the last quarter. That has also kind of got affected because of premature distress harvest, which have happened earlier. So we are looking forward for a better improvement in the supply side, which mostly, as I mentioned just now, most likely more towards the end of this month, and that is into the -- towards the end of Q4. So we do expect that the supply would be improving as this is the time, as you know, traditionally for the climatic conditions, most of the producers, primary producers focus on seeding or stocking seed into their farms across the country during this period, starting from December, January onwards till April, May, June. And so now we look for -- and as you also know, historically, our sector has a much better performance on -- I mean when you look at quarter-wise, it's usually financial year-wise, it is the Q1 and Q2, which have a much robust supply and as well as the demand also is -- remains stable during that period.

Yes, yes. So overall, you feel like if we look at like actually the gross aggregate demand, we will be reading a few reports how China is leading to an overall increase in demand of shrimp as an alternative protein. So are you seeing overall global demand also increasing? Or how should we be overall looking at the demand supply situation and overall Indian positioning in this entire shrimp export industry?

Overall, demand has been quite stable. Of course, there was more demand, which was observed during the middle of last year, especially because of the aftermath of the various phases of COVID disruptions in supply chain overall, so the demand was quite high. Now that has kind of stabilized and it is very consistent. And as far as countries like China is concerned, the market is there for China. It's just that the products which are required by the Chinese customers are not worthwhile for us to be produced by our company at this -- during this period. That's why even in my opening remarks, if you remember, we have clearly stated that we would be looking at China more towards the later part of this year as the supply comes during the peak take time. So the demand from China is also -- has been there. But however, there have been certain non-tariff barriers, which have been placed in the last 2 years, which are slowly easing out with regard to China. So there are still requirements coming in from China, and they need as they are net importers, which you would be aware for the past 3 years almost, they have been importing more product. At the same time, with regard to exports, yes, India has been competing with countries like Ecuador in the recent past primarily -- Ecuador as well as Indonesia. And based on that, our supply definitely has to be improving and as more area is getting added and more -- better yielding is expected productivity wise at the farm level output wise as it improves. We are -- we would be continuing to looking at good -- steady exports from the country as such. And our company also will continue to play this role.

[Operator Instructions] We will now move on to the next question. I now invite Mr. Nitin Awasthi from InCred Equities.

Hello, sir. My first question would be, we had quite a high inventory position reported last quarter. So we had close to about almost the sales that we did this quarter as inventory show, of course, the sales is at the markup. But what I'm trying to get to is that when we had such a high inventory position with us, shouldn't the sales have been much higher and the gross profit margins much better. And the reason why this could not be delivered is because -- could it be because the previous quarter's stock was actually sold during this quarter and the inventory which you have accumulated will actually get sold in Q4?

It has been. So actually, if you also look at our -- with regard to the consumption of the inventories which were prevailing towards the end of Q2. In fact, they have been partially consumed quite well. In fact, that's one of the reasons why our purchases were also lower, and we have used quite a good part of our inventories, which were already prevailing into the -- for doing our -- I mean doing our shipments as the logistical constraints were easing out a little bit gradually. So we did use quite good part of our inventories of Q2 too even with reduced purchases during Q3. And apart from that, there were furthermore shipments which couldn't happen because of the lack of equipment for certain destinations and it was proving costly otherwise to divert them to other destinations. So those products are being -- actually -- have actually been shipped out in Q4, those which got stranded from Q2 also. So it is -- like you rightly said, there have been -- there's been a mix of products between the inventories quite part of the Q2 inventories as well as the purchases during Q3, which made up for that sales -- increased sales compared to -- of course, that is compared to Q3 of last year. But we still have some of the inventories which couldn't get shipped because of the lack of equipment. And we have as of now, as on date, we have done very well with those products too. They have been shipped out. But in the current quarter, it is more of the regular supply issues have been there. So that has been as the supply constraint reads out. I'm pretty sure everything will be reflecting more in the Q4 as supply also improves.

Got it, sir. So how much inventory would be there in the books on December ending quarter? And how much of this will be finished product?

Actually, all the product is finished product.

Is the question answered, sir?

No.

One more question you want to...

Finished goods quantity is 2,931 metric tons.

Come again, sir, I couldn't hear you.

As on December 31 finished goods quantity is 2,931 metric tons.

Okay. I think that's inaudible on my side, probably. We can catch up and understand that later on.

Okay.

Okay. The next question, sir, I had was due to the shipping costs increasing, our competitive country, which is Ecuador is going to have a hard time shipping all the way to China. And we are going to have an advantage in that sense to shipping to China. And the pricing in China seems quite favorable. So would we see more of Indian produce getting diverted to China? And if that happens, the produce from India has to actually increase. So how much production increase are you seeing happening this calendar year?

Well, first thing is we would have -- we have -- we do have an advantage by being closer to China for sure, as a country. India definitely has an advantage. But however, you would be aware about the kind of products which are exported predominantly into China are commodity-based number one. And number two is they are all low value, smaller-sized products. So in both – in both these cases, typically, the basic headless shell-on are commodity shrimp along with the small sizes. They are -- only those products that could be shipped mainly to China. While at the same time, the pricing of such products is not really favorable or lucrative during the whole year, except during the peak season time for making it -- for making it worthwhile to be shipping or selling to the Chinese market for those products. While in the case of Ecuador, you were mentioning that they are affected because of the distance to China. But at the same time, parallelly as you also note, they are much closer to the United States. So if we consider the advantage selling to China, but there are also -- at the same time, they are also having their own advantages in selling to the U.S. So it's not really a -- the Chinese market is not really the way to look forward to our -- for the entirety of -- or the majority part of our business, and it will always continue to be a minor and part of our business for sure. And it is only feasible and suitable to be done during the peak time arrivals when the supply is very much abundant and especially when small sizes only are being harvested, especially during the coming summer period of Indian climate period.

Understood, sir. And how much are you seeing the production rising in this calendar year by?

Well, we do have a good demand, of course, seed has been -- a lot of seed has been stocked and it's being added. However, we should see how the success rate at the farm level -- at the farms will be. So at this point, we would expect a minimum at least maintenance of last year supply for sure. We -- as far as growth is concerned, we have not really seen a significant addition of newer areas. But whatever we have understood from the market is more of the existing areas have very well planned out and we are stocking up their seed. So we look forward to any area increase as such. We don't have that information as on date with regard to additional area being added because currently, it is only the addition of area in our country is basically giving out more -- I mean, better supply or rather increased quantity. So I -- personally -- we don't have the exact information regarding the addition of area as of now. But we do know well that the area under culture has definitely been geared up well for the summer crop of 2022.

Noted, sir. Understood. That's all from my side.

We have the next question from the line of Mayur Gathani from OHM Group.

So what I understood on the supply -- logistics issues, the container prices, et cetera, are worse off than quarter 2?

Actually, yes.

Yes, if there was some improvement. So we didn't see any improvement in the container price. In fact, it was [indiscernible] production, et cetera.

We have seen improvement in availability of containers to certain extent to certain destinations. In fact, which was there. But as far as freight costs are concerned, they are definitely at the highest levels, and we hope to see them also easing out as things get better. So for now, of course, the freight costs are definitely at higher -- at among the highest levels of the recent past. Our Q3's freight costs were significantly higher than Q2. So for the volume, which was done, for the volume, which was shipped out.

Okay. And how is it now? I mean, is there a gradual improvement on the availability plus the pricing? .

Availability is there, but only we are restricted to specific destinations? -- there has been very big trouble with regard to getting equipment for the U.S. West Coast, especially for the past 1.5 months almost 2 months.

When you say equipment, you mean container, right?

Yes, yes. Correct. Correct.

Okay. Fine. And this is more of a seasonal business, so H1 is generally better than H2?

Yes, traditionally as well as historically because the product is -- it is very much conducive to grow the product at the farm level also during the summer period because during the winter period, especially in northern parts of India, it is difficult for where it gets colder much more and the duration of the colder climate is also for a longer period. So usually it gets difficult stay in the states of Gujarat, for example, they cannot go for stocking during the winter period, winter climate time. So most of the whole country is gearing up as well as has always geared up for great crop or successful crop during the summer period of the country. That is typically the harvest start usually around March, April, and it lasts all the way till August -- July, August increase in abundance, basically.

Two more questions. What is the utilization of the new plant? How is that coming up? Overall utilization was only 44%. So how is the new plant shaping up?

The new plant -- just a minute, please. The new plant for the quarter, we have -- that has -- we have produced around 1,063 metric tons in Ready-to-Cook and Ready-to-Eat, both of them put together, it is around 1,600 metric tons for the new plant compared to the old plant at 900 metric tons during the quarter. So of course, the utilization, of course, for RTE specifically, it is for the quarter, it has been at 20% with regard to the utilization. But the new plant's capacity now focus is on, of course, utilizing the newer plant which has better product efficiencies -- productivity efficiencies, which are more because the methods as well as the technology. The focus is also on increasing or basically utilizing it to the maximum. And then if any, reduction because of supply constraints, for example, then the priority is basically given to the newer plant, the new plant rather than the old plant. So as for the quarter, it has been Q3 FY '22, it has -- the production was around 1,500 metric tons, 1,550 approximately.

From the new plant and the old plan was 900?

Yes. Correct.

Okay. So when do we see this -- is it next year that -- can we expect a 60%, 70% inflation levels on the new plant?

Yes. We hope -- as we hope that the supply is going to start from next -- from hopefully, by the -- in the current quarter as we close the financial year, we definitely seriously hope that we are going to utilize it in a much better manner to taking it to 60%, 70% and also added with our additional line later in this year, late sorry, later next in the next financial year. We definitely are positive of utilizing it in a better way. So yes, we look forward for that.

You were adding a new value addition plant, you have a 5,000 capacity, right? In this new plant, you want to add another 5,000?

Yes, yes, another 5,000. Correct. Yes, correct.

Okay. So eventually in the last 2, 3 quarters, either you were not seeing so much of demand, but you still want to add up another 5,000 on the value addition or Ready-to-Eat. Is that you predict that this demand will come back to normal?

The Ready-to-Eat demand was always there -- The Ready-to-Eat demand was always there; however, we are handicapped with the amount of capacity utilization, which we could do. I mean because of only 1 single line. So now when we add both to the second line, the priority of the company will be to utilize the Ready-to-Eat capacity to the highest level even if it means to be compromising some of the utilization of the Ready-To-Cook naturally because in such a scenario, if at all, anything basically when if there is any sort of supply-related issues, our focus as well as priority will be more towards utilizing the entire capacity of Ready-to-Eat at that point of time, which would be most likely by the middle of the next financial year by around, say, July, August, almost. It will be 10,000 metric tons of Ready-to-Eat alone in that facility.

Okay. And sir, the European issues, what is it? I mean the India and India government and the European government have to sit across and...

Yes, they have not yet approved any of the facilities in the last 2 years. So that's been a pending subject between the government of India and the EU health authorities [ Brussels ] basically. So it's been -- that has been kept pending for the past 2 years, they have not approved any new facilities for...

And on the 5,000 additional value addition Ready-to-Eat, what is the CapEx that you intend to spend?

It will be approximately around USD 700,000 to USD 800,000, but all put together, it is less than USD 1 million.

Less than USD 1 million. Okay. And sir, you did mention about some supply side issues in this quarter, assuming that things get back to normal and the breeding season is there in quarter 4 end of first quarter, things should be -- things should come back to routine, right? I mean, you would not have a supply side issue in the forthcoming quarters?

We shouldn't -- see, I have also explained with regard to that in the opening remarks also is that there were premature distress harvests, which were happening and which have happened during the Q3 period. Typically, in a livestock activity, where the size is of importance as they grow, they take longer time for growing to larger sizes in the case of shrimp. When you have premature and distress harvest happening in the earlier period, which naturally means the wipe out of larger sizes of the subsequent period. So that is exactly what has happened, especially in the year 2021. So otherwise, we would still be continuing to have a good amount of supply in Q4 also. So that supply change which I discussed supply issues, which I have also mentioned to one of the previous caller has been there more towards the end of Q3, and it is there partially in Q4 too. But as I also mentioned to you just a few minutes ago that typically, the summer crop harvest would also be starting in smaller sizes, more towards in the later part of the last quarter of the financial year, that is Q4. So the supply also is looking forward to be improving. And stocking of seed also is happening in a good way, we definitely expect a good amount of supply starting from April onwards with the current available area of aquaculture in the country.

Okay. Sir, last question, with the Ready-to-Eat contribution increasing in the first half from our newer plant that is already active. And in the second half, we would see the additional new plant coming in. So margins being at 10%, 11%, shouldn't we see an incremental improvement in the margins for the next -- this coming year and next year?

Yes. Definitely, that is the whole objective of enhancing the margin levels by looking at higher value products and naturally Ready-to-Eat capacity increases automatically or whatever sales happen, they will be at a much higher level compared to the Ready-to-Cook -- sorry, realizations or margins which are prevailing for Ready-to-Cook. So that is the whole objective of adding the second line. It's not a new second plant. Please understand it's a second line. We have an existing line of sorry, 5,000 metric tons. It is a second line of another 5,000 metric tons, which we want to add up so that we can double our Ready-to-Eat product capacity as and when the supply also improves. And we would rather be realizing a higher unit -- sorry, higher realization per unit. The unit value realization will be higher definitely on more quantity and also thereby the margins also accordingly also increase because of they being a higher value as such. So that's the whole -- that was the main reason we have decided last year -- I mean in the last calendar year in 2021...

Fair point. So can you quantify what kind of an improvement can we see in the margins, assuming that things -- supply side is fine. So can you see a 200 basis point incremental increase?

See, like currently, there is a difference of almost like $2 per -- average price realization is almost $2 to $2.5, Of course, we increased market scenario between Ready-to-Cook and Ready-to-Eat. But usually, it is around, say, $1.5 to $2 per kilo, additional realization as such per kilo. While -- and on the margin front, it would be ranging anywhere from $0.50 to $1 -- sorry, $1 per kilo dependent on the products which are produced. So I mean, an example is last year, Q3, we have had $8.85 per kilo in the Ready-to-Cook and Ready-to-Eat was $11.13. And of course, this year, the Ready-to-Cook is $9.46 approximately and Ready-to-Eat this $11.70. So I mean, of course, when the prices went up, even they went up for both Ready-to-Cook as well as Ready-to-Eat. And I was just giving you the price difference between the 2 items for Ready-to- Cook and Ready-to-Eat.

We have the next question from the line of Yogansh from Mittal Analytics.

My question on the capacity utilization side. Sir, you see our capacity utilization is around 40%, 45% and going forward, you expect to ramp it up. So sir, if I look at overall industry, there are several other players who also have some bit of unutilized capacity. And then there are other players like, say, coastal who is putting up a fairly big capacity and will be almost coming up with 10,000, 20,000 tons capacity. So going forward, do you expect some pressure in terms of ramping of this capacity -- or are you confident that the industry will see growth of such level that there won't be any problems for filling up the capacity launches for the overall industry. Any thoughts on view of how the demand could shape up?

Well, as far as increasing capacity by various companies in the industry, including our own company, has been on the go for quite a number of years, and it continues to be there in different states, in different parts of the country. And with regard to utilization of the capacities, it is more related to the supply side. The key part for our company as well as for our sector in the country, we would -- we feel that it is more as the supply improves. And as the supply grows, that will be the answer to better utilization of capacities, of course, subject to their respective individual marketing or sales agreements and arrangements which they have for themselves. So it will be mainly dependent on the supply. And as there are few -- I mean not in state of Andhra, but there are some other areas where are also slowly they are getting added. And as more areas are added for aquaculture and more stocking happens and it's successful crop and a good harvest. Definitely, the supply is bound to be there and it is expected in this year because now currently, for the past 3 to 4 months, the pricing also has been very attractive to the primary producers to look forward for stocking of shrimp seed at the farms because of the better farm gate prices, which have been prevailing especially in -- as I said, the last 2 to 3 months, almost 4 months. So definitely, we look forward for a trade supply in 2022. And the reasons itself are, as I said, are very good lucrative farm gate prices, which are available to the final producer. So with that supply available, and we are gearing up with other matters and some of the arrangements which we are making, with these of course -- apart from addition of infrastructure and addition of capacities, which I was just discussing. We are very much positive of utilizing it to the optimum. And also in a great way for FY '23, especially for the full year, we have geared up very well. And now we are leaving behind whatever COVID hiccups were there. And we have also been making some arrangements with also on the logistics side in general. So with certain shipping lines so that we don't get caught next year for sure in this manner. And we are looking forward definitely for a better utilization of capacity. Thankfully, hopefully, with supply improvement and as well as other things taken care like logistics, we definitely believe we will be able to utilize our capacity as well as to a great amount of shipments whereby the sales happening.

Right, right. So sir, on the supply side, that was really helpful. So also on the demand side, do you anticipate that industry will be able to grow at 5%, 20% to take care of this increased processing capacity? And also, is there any visibility from any of your customers or a contract sort of thing wherein your capacity is getting booked, if you could share some light in terms of how you are seeing or filling up your capacity and also the industry demand?

Yes. I wouldn't -- now when this comes to the demand, how industry moves because there are, like you said, quite a number of players and some of them are adding capacity. Some have building new projects, et cetera. But as such, our company with the arrangements we have with our customers and we definitely put the talks so far we have had with all these issues as they are easing out all these problems with regard to logistics, destination constraints, et cetera, et cetera, over the next few months. We definitely are looking forward, and we have been given assurances as well as because fortunately for us, some of our customers who have been added over the past 2 to 3 years are also adding up more outlets for them -- for their business, which indirectly helps us in growing our volumes also. So that way, we are quite confident, not just betting on the supply side, but also the demand also being created automatically not just by going to some newer clients, which is always there approaching newer clients in newer markets that is a separate -- that is a path which is always there, but even our existing clients as they are adding more outlets of their chains, primarily retail outlets. Definitely, we are looking forward for our capacity to be booked well in advance. And this also includes a good part on the e-commerce front. So that has also been addressed and it has been worked out by some of our clients. And we are -- that is what is assuring -- reassuring us about how we could be planning our capacity utilization for the next year or basically at the 2022. Yes.

That's really helpful, sir. Also on the demand side, just a follow-up, sir, you see Ecuador is catching up in terms of supply to U.S. and as we growing the market share at a rapid pace. So do we see them as a big threat? Or do we see that we'll be able to maintain our market share in U.S. despite what Ecuador has been doing for the last few months good part of last year actually?

Yes. Definitely, Ecuador has become the topic for everybody over the past few months and especially the year 2021, like you rightly said. Yes, they are -- have been growing their supply, but at the same time, they have moved more towards the U.S. market, mainly because of the nontariff barriers, which were hit by the Chinese market also because Ecuador was #1 export country until 2020 was -- sorry, China, actually, China was the largest importer for Ecuadorian region. And of course, because of those nontariff barriers, they have also been looking at other markets and the closest market for the export market was U.S.A. Yes, we are definitely watching them. But at the same time, what our cost of production and the size availability, if we can grow to more of medium and larger sizes, especially out of India, we do not feel -- I mean at least our company doesn't feel that Ecuador will be a high threat like you just mentioned. But yes, it is always producing a supply nation to watch upon at any given point of time. And meanwhile, as things would be developing in India with regard to supply and farm level and infrastructure wise definitely, we also can keep up with that.

Right. Sir, secondly, on the margin front, so if we see the couple of developments that have happened for our industry, for example, reduction in the export incentives, like you mentioned in the beginning of the call, then there were some higher anti-dumping duties by U.S. implemented. Secondly, the cost pressure that we see in terms of for the farmers with higher seed prices and so on and so forth. So do we see that given these change industry dynamics, there is a sort of margin pressure do you see yourself getting squeezed on the margin side? Or you expect the margins could be back to the 11%, 12% given the strong demand that you just spoke about. So how do you basically see the margin side playing out in the next couple of quarters?

Well, you were even like you said, there have been issues with regard to -- on the margins affecting the margins, of course, like you rightly said with regard to pricing and also the cost, the supply side. But just to correct you, there has not been any increase of antidumping duty on Indians from in general. I mean it's -- it has been there for certain country -- certain companies. But for Apex Frozen Foods, the antidumping duty continues to remain as of now at 1.35%. That doesn't change now. So and if there is any change, definitely, we would inform to you and everybody else. But for us, we continue to have 1.35%. There has not been an increase of duty to a large part of the industry out of India. So that is on that front. And with regard to the maintenance of margins like you rightly pointed out, with these increased costs and all that, the whole objective of -- for us, for our company, especially to look at having additional lines towards Ready-to-Eat is that part is so that we can mitigate all these additional higher costs by basically earning higher realization thereby assuring our minimum margins of those 11%, 12% which you are asking about so that it doesn't contract. So we -- the objective is that we produce more volume by adding, of course, more infrastructure accordingly in that scope the Ready-to-Eat products. So that is one way which we'll be addressing this issue, if regarding margin count, if any. And we are positive with all the steps which we are taking, we are positive that we would be maintaining that margin levels and with also aided by the supply, of course. So we are definitely positive on that.

Understood. Sir, one last question from my...

Sorry to interrupt Mr. Yogansh, but I would request kindly join the queue as we have other participants also waiting. We have the next question from the line of Depesh from Equirus.

Sir, you've talked about the supply demand issues to various participants. But if I look at the 9-month volume, right, the fact is that Indian exports have grown by 35%, while your volumes have grown by only 6% to 7% in the same period. So if you can please help me understand why this gap? And do you think you're losing the market share? And how and by when you will be able to close this gap?

We have not really lost any market share. Of course, our volumes, which I think we have also mentioned in the previous calls, too, there were times where we had restricted our -- also our production levels as there were constraints with regard to our shipments specifically, which we have been discussing over the past 2 calls and it did not make sense for the company to continue its production on an ongoing basis even though when the outlets were capped up because of the constraints. So for us, from the ports which we were doing and the -- then existing contracts with the shipping lines, which were prevailing at that -- as of that -- at that point of time. So definitely, the lack of equipment definitely had affected us -- had affected our company specifically with the ring range we had at that time. So that is one of the main reasons we are -- have been looking at making a much better and concrete arrangements for FY'22 so that we are not affected or impacted by any of these logistical constraints anymore, at least on equipment support. Now yes, the overall exports when you say have grown, that is all in comparison to, of course, 2020 I think comparing it to the previous fiscal year. Yes. So definitely, the previous fiscal year was like a one-off for the industry globally with all the issues which we were prevailing. So naturally, that growth has been...

So if I look at 2020 numbers also, like the industry has grown by 10%, but you have actually still lower than the FY '20 levels for the first 9 months at least. So that's why -- so you talked about the East Coast and the West Coast, disparity, right? But I just want to understand, sir, if a client basically gives you an order of 500 tons, right, for example, if you're not able to deliver on time. So does it take from anybody else who is able to deliver that?

Well, they would be taking on intermediary requirements, they would be taking some other countries as well as some other markets or other people also they would be taking it. But the point is we would -- we did not have any issues with regard to delays in -- we did not have any issues with regard to delayed shipments as such. We still have the contracts pending. And yes, we got affected initially with regard to the logistics and of course, subsequently in Q3, especially when we got hit with the supply constraints also. So that is one of the reasons you can also see our utilization has dropped in the Q3, also had our utilization being there. We have constrained our utilization overall because of the lack of ability to do more number of shipments than what we were envisaged to do with all the orders which were there pending. So for the past 3 quarters, we have been stuck with higher level of inventories, and we hope to normalize that and get rid of these higher level inventories -- volume of inventories at least by the end of Q4 or by the end of the current financial year.

Understood, sir. Sir, you also gave the number of inventory right at the end of the summer, I think 2,931 tons. So do you think you will be able to ship them out fully this quarter? Or do you think you'll have to wait because the demand season is already over now?

No, no. Actually, most of these inventories have been sold actually. They have all been made to order. But of course, because of the lack of ability to ship them out in time, they got stuck. But -- most of the inventories, we will be also able to clear them out. We are going to -- looking forward to clear out most of them, in fact, by the end of this quarter. We are quite positive about it.

So great. Does that mean the 4Q volumes can we have in the 3Q volume is for the first time in your history, right? So that way we be looking at.

That's what we are expecting. But as I have mentioned, because of the challenges with regard to the West Coast, which was category told us -- sorry, it was told to us even in the month of December onwards, the challenges with regard to shipping to the U.S. West Coast had significantly hit us. So we are looking forward for every outlet or any every basically shipping line who are able to support us with regard to that because it is not an Apex specific problem with regard to shipments to U.S. West Coast, it is actually a [ global ] problem, because of the congestion there. They don't want to give us new -- additional newer equipment to ship there because they are worried that their equipment is getting stuck there and it cannot be exported back from there. So that is the reason which we definitely are hopeful that we can push out most of the shipments. We are working with our customers.

Got it, sir. Sir, last question is the U.S. imports grew very strongly in 2021. So I just wanted to understand how the entry levels are currently there. And given all the overall inflationary pressures that the U.S. is seeing and shrimp being an expensive food item, do you think that the shrimp demand can be negatively impacted this year?

First thing is on inventories side, they are having a good set of inventories for sure, post holidays. Also, the inventories are there. And because of -- now the reopening because of the COVID and all that, but there were still restrictions placed recently because of the new variant, which was existing there and where cases were increasing. There was certain subdued amount of consumption, especially during the holidays. And there are a good set of inventories there, and there has been a little bit of softening of pricing also in the U.S. to be precise. Yes, that has been there, and it is a fact. But we are now looking forward now February and March. Now as the Chinese New Year also is there and the lent period where the consumption of seafood is on a higher side, because of 40-day are not banned, but a 40-day zero consumption of red meat. So we look forward for some good things to happen now as we speak in the month of February and March. Typically, that's what the lent period supports seafood sector more. And so -- but there are good set of inventories for sure. So we should see how things go by over the next 1 to 2 months with how -- where the pricing will be taken based on the inventories out there.

We have the next question from the line of [ Mayur Liman ] from Profitmart Securities.

I just want to ask what are the key factors you will see in the coming quarter progress? And how do you see quarter 4?

I think both your questions were related to Q4. Am I correct? Can you repeat your question?

Yes, yes, a future perspective and the quarter 4.

Yes. I mean the quarter 4, of course, as I had just mentioned, we are looking forward to ship out most of our inventories with the reduced supply situation subject to availability of equipment for shipping out the containers. But other than that, there has been supply constraints too, which we have mentioned to several callers in just a little while ago. There have been supply constraints too. And as they improve more towards the end of this quarter Q4, we should look for a good productivity at the capacity utilization wise, factory level as well as good sales to happening with shipments being done in a better manner for the next year for sure. But this year, later this quarter, right now, the current situation is we have a crisis on the supply side as well as logistical front, too. So we continue to have issues. So we will look forward for improvement in those -- on those fronts in this quarter.

Okay. And my next question is, do we have some CapEx plan for the next year?

Yes, which was explained earlier, there is a CapEx plan for adding an additional line cooking line, Ready-to-Eat line, which is being done, that is approximately would require approximately around USD 1 million.

We have the next question from the line of Nitin Awasthi from InCred Equities.

Sir, just one question, one last question from my side. If I heard you correctly, and I got the figure right, you were sitting on INR 2,900 metric tons of inventory, cooked products?

No, no, not cooked products. Sorry, Vijaya Kumar, I'll leave it to Vijaya Kumar. Vijaya Kumar?

No, a mixture of cooked and raw and the total inventory size of this product.

Just a minute. Vijaya Kumar? I guess inventory position characteristics, total closing stock as of...

Total closing stock as of 31st December, 2,931 tons out of that cooked is 204 tons.

Yes, Chowdary sir. Could you repeat the figure that CFO sir has just mentioned?

Yes, it's INR 2,931 metric tons in total. In that, how much is cooked product?

204 metric tons.

204 metric tons.

2,400 metric tons?

204 metric tons.

204 metric tons, not 2,004, 204.

Okay. Okay. So basically, you're sitting on a very, very large inventory, larger than the sales you probably have done ever -- and this would have been done at a lower cost also. So if you are able to shift this out, can we expect at least a record gross profit margin, because net EBITDA margins are obviously subject to shipping costs, which are not out of your control. But gross profit margins, I'm talking about?

Yes, true. But again, at the same time, this inventories also are not just pertaining to lower cost, but also the higher cost products, which have been procured for especially during the past 4, 5 months as the price is, as you remember, even in the last quarter by when the raw material prices also have firmed up quite well by then. And now, of course, it is at the highest levels in the recent -- of the recent past. So of course, it's a mix. So definitely, we should be looking at if we are able to get these out, hopefully, we are -- so far, we have had issues, constraints to regarding one side of our on-site of the -- our export market that is, as I said, the West Coast, we are really having issues. So hopefully, we will be able to move them out, and we should be looking at on the margin side. But as I said, it's not entirely low-cost product. It's a mix of the product, which has also been procured over the past 3 to 4 months almost. So where the prices also are even now in the current -- for the past 1 month, also the prices are also at a very high level, raw material prices.

That was the last question. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you, Mike. Yes, thank you, everybody, for making it to this call of our Q3 9 months FY '22 quarterly con call. And we do hope that you all keep safe. And for any further queries, you can always reach out to [email protected]. And thank you very much, and have a nice day.

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.