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

Ladies and gentlemen, good day, and welcome to Apex Frozen Foods Limited Q4 and FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chowdary Karuturi, Managing Director and Interim CFO of Apex Frozen Foods. Thank you. And over to you, sir.

Thank you, Yashashri. Good afternoon, everyone, and thank you for joining us on the investor call for the fourth quarter and full year of FY '23. With us on the call today is Mr. Durga Prasad from our finance team; and Stellar IR Advisors, our Investor Relations advising team. We have uploaded the investor presentation on the website of the stock exchanges, and we hope you have had a chance to go through it. The financial year 2023 started on a challenging note due to the geopolitical tensions, especially for export-oriented companies that had just recovered from the after effects of the COVID pandemic. This, in turn, of course, elevated the risk mitigation measures by the major economies in the world, leading to inflationary pressures as well as recessionary sentiments. This led to a lower-than-expected growth in some of our key markets, which were affected due to these inflationary pressures primarily. However, we are cautiously optimistic that things will return to a level of normalcy and that will allow us to scale up our operations in the forthcoming quarters. Let me round up some of the key highlights of the fiscal gone by. Although lower than our initial expectation, we clocked a volume growth of 8% year-on-year to 13,044 metric tons of shrimp sales. More importantly, the share of the ready-to-eat sales increased to 22% in FY '23 from 20% in FY '22 and 15% in FY '21. Keeping in line with our focus to increase value-added or RTE share -- ready-to-eat product share in revenue mix, we have expanded the ready-to-eat capacity from 5,000 metric tons to 10,000 metric tons by adding another line at the existing facility in Ragampeta near Kakinada. I'm very happy to share that incremental capacity has been commissioned in the end of May 2023, just a few days ago. And we just started -- we have started the commercial production on that. However, during the process of expanding our current facility, the utilization of our existing lines was slightly impacted during the -- for the Q3 and Q4 FY '23, as the installation had to -- had forced shutdown of the existing facility for some period. This temporary impact led to a slightly lower share of RTE sales in these quarters. From this quarter onward, the facility is running at normal levels, of course, from end of May. A more favorable product mix has aided average realization to remain stable or rather grow in FY '23 by 5% year-on-year, even as global shrimp prices witnessed correction on account of subdued demand from key markets like the U.S. and EU. Profitability was impacted due to higher raw material costs as there was a shortage of raw material or raw shrimp supply in India. This, as you all know, we have been explaining time and again that there has been consolidation among the farmers too and changing strategies of they -- which they are continuing to do with changing of their strategies or going for higher stocking densities. So thereby, they are now looking at lower stocking density so that they could also get a consistent product output. But the main reason -- of course, the shortage, of course, was also mainly because of the conservative approach at the primary producer level along with some disease -- incidents of disease in some areas along with the climatic situations, problems during last -- towards the end of last year. In the last quarter, that is Q4 FY '23, we also had a write-off to the extent of INR 74.6 million, which relates to receivables from farmers. Primarily, it has got to do with the seed sales, where some of the farmers could not repay. And of course, these were pertaining to prior periods and the company had taken the view to write them off completely as these were not in a recoverable situation with the plight of those primary producers from the past. Our balance sheet, of course, is leaner than before, as there have been some improvements. Our gross debt has been lowered by INR 76 crores in FY '23 to INR 91 crores as on 31st March 2023. The debt equity continues to remain at a comfortable level, currently around 0.18x. Inventory and debtors, which had increased due to the after effect of COVID-led disruptions, have been coming down, and our working capital days stood at 94 days as on March 2023, as against 123 days in the fiscal before that is in FY '22. Consequently, cash flow from operations have been improving too. For the full year, our net revenue is INR 10,703 million, which is INR 1,070 crores, was up by 16% year-on-year. EBITDA at INR 848 million versus INR 921 million in FY '22 primarily due to the write-off and increases in raw material costs to a certain extent. Consequently, our PAT, profit after tax, came in at INR 359 million versus INR 411 million in FY '22. We are happy to report that the Board has recommended to a dividend of 25% that is INR 2.5 per share for the FY '23. Coming to Q4, FY '23, we saw volume growth of 17% year-on-year, that is to the extent of 2,851 metric tons. However, realization lowered by 13% year-on-year on the back of tapering global shrimp prices due to subdued demand and also a higher share of China -- exports to China in Q4, FY '23 sales mix and a lower share of RTE due to the reasons explained earlier. Consequently, net revenue at INR 2,119 million grew marginally year-on-year. This, along with higher raw shrimp costs and write-off in Q4, FY '23 impacted the profitability, definitely. Coming to the shrimp market highlights. The U.S. market, our largest demand center continues to see growth in demand of shrimp. It is quite stable. Of course, there were issues related to consumption of invent -- consumption of inventories, which are aligned there in the market. And as you know, in the U.S., they do consider the shrimp, as a healthy alternative of meat compared to red meat and other products. We see the demand from the U.S. to continue to remain stable. We are currently negotiating our orders with our large retail chains, who have already placed for the summer arrivals, and now they are starting to look at their holiday sales based on the summer consumption, which is happening right now in these months of June, July, August, up and till the Labor Day weekend. So there, we are also focusing mainly on our business related to RTE products, especially, and we should see some positive results going forward. That of course, primarily dependent on how the summer sales happened both in the U.S. market. And coming to the EU market, that is another lucrative market that we are focused on. Like we had updated during our previous investor call, EU health authorities have visited EU, and we are hoping that now they are going to decide about approving new facilities out of India, which will enable us to export even the ready-to-eat products to the EU market. However, under the ready-to-cook products, we have been increasing our market share to the EU, and we are confident we will continue to grow it further and further, as we are clocking newer contracts with certain retail chains, which we have not dealt with in the past. Our facilities are ready to handle any incremental value-added demand that comes from the EU. That said, as I mentioned, the demand from retail continues to be strong, and we are seeing stronger growth from our existing product offering in the EU market, as I mentioned, in ready-to-cook products. We expect the share of EU as well as the U.K. markets in our total sales to be improving further in the current fiscal, that is FY '24, and we are very positive about that with regard to the growth of the market share with EU. For FY '23, our exports to China were around 5%. However, a large part of this came in the last quarter. This demand was driven by, of course, the relaxation of COVID restrictions and based on anecdotal evidence. The Chinese demand is also starting to gear towards convenience, especially among the younger urban generation. But as explained in all the previous calls, typically, the Chinese shipments would be at -- are mostly of commodity products until now, and we hope that things are changing, and we're always would be among the low-priced products, one of the reasons why our realization per kilo also was a little bit affected during the Q4 FY '23. The global supply side has seen the emergence of Ecuador, as a key supplier, which we have been reiterating in all our previous calls to some of our markets. We have recently ramped up, of course, their production and have been going up in terms of their output as well as reach. However, the key part here for India is that we continue to have the advantage of having lower operating costs as well as an established ecosystem for value-added products, where we are definitely steps ahead of that country. On the supply side, for us, as we had mentioned in our last call, we had challenges in procuring specific sizes of our shrimp to meet our orders. Based on our recent interactions with farmers, they did reduce stocking densities and some of them have done and others are also looking forward to. They are reducing the stocking densities of shrimp in the ponds in which they are rearing the shrimp for aquaculture. This is mainly to try and reduce the incidents of diseases and also rationale their operating or variable costs, which has become the need of the day is to limit the costs of the farmers. As a result, we believe that overall production in India, of course, will be a little bit lower, so we are looking forward to see how things are going. But currently, we do see our seed sales happening continuously, as the farmers are also enthusiastic with regard to lower costs. And of course, also the success rate in some of the areas with regard to farming for shrimp. Lastly, going forward, we are hopeful of getting a decent order flow for our expanded value-added capacity and our strong financial position will help us pursue that growth. With that, I conclude our opening remarks, and now I request the moderator to open the floor for the questions. Thank you.

[Operator Instructions] We have a first question from the line of Yogansh Jeswani from Mittal Analytics.

Am I audible?

Yes, please. Yes, Mr. Yogansh.

Sir, like you were mentioning in your opening remarks that we have been working on newer markets and of late in last 2 years, 3 years, we have seen how this depending on the U.S. has been a bit worrisome for the industry overall. So going forward, other than European market, are there any other markets also that you and the team is working hard to crack into? And any of those [indiscernible] on that?

Yes. We are working, one is Saudi Arabia and also South Korea. There are some issues with regard to regulatory challenges in Saudi Arabia. And we are actually coordinating very strongly with Government of India, not just us, but the industry, so that the whole of industry can tap the potential in other importing markets also, mostly the Middle East as well as the Far East nations, including South Korea. And South Africa is one country, where we have stopped for a while, our company specifically, where we are also looking forward to again reengage with them, and we have -- receiving quite a strong few retail outlets, which have connections to the West also. So we got -- we are exploring that market also. Again, we are going to restart again. And this overall should improve our diversification of market share across markets. But however, we all have to keep in mind definitely that the United States is the largest consumer of shrimp products in the world. But to have a balancing act, definitely our company is focused, and that is one of the primary reasons why we are pushing in for more orders with the countries of EU, and this year, we have also started U.K. more aggressively, and we are pursuing the other markets too, as explained just now.

Got it. So sir, if at all, we should expect to see some new markets coming in as a business. So is a fair time line, say, 1 years or 2 years down the line? Or it can happen earlier?

We can actually look at the starting of the business with those markets. except the ready-to-eat, which I -- I mean it's still subject to regulatory challenges, which we are aware, which we have also been discussing with the government authorities, and we hope it gets knocked out with regard to our new facility approval for EU, that is for ready-to-eat. But apart from that, the all other markets, which I just mentioned, we would definitely be starting our business with those markets in the current year itself, some of them even before September, and some more towards the end of this year, this fiscal year. And from there on, we hope, we are confident that we could have a regular business being conducted with such markets even going forward from next year onwards. But some of those markets, we will be also -- we are already having some transformations happening, and we expect the shipments to start for September end of this year itself.

Okay. And sir, like we understand that U.S. and European markets are better markets in terms of their demand for higher value-added products and the margin profiles are much better compared to China, which is more of a commoditized market. So how are the South -- Saudi Arabia and South Korea and Japan as a market. Are these also markets, which have requirement for value-added products and higher margins? Or these are also a bit of commodities, if you could give more color?

We are not as commoditized as China, to be precise. We do have value-added products going to South Korea as well as the Middle East. But it's just that the combination of sizes are much varying. So some of them are very big sizes, which they would be looking at as the consumption markets like Middle East is not very huge, but still it is decent. While South Korea, and of course, even Japan, the value-added products, the scope is quite high, and we are looking forward to -- especially in Japan, we are looking forward to partner with one of the importing companies there, where not just the regular headless shell on shrimp, but also products like Nobashi shrimp is being explored with. And once we get our lines set and our team trained up for that, we could start that production, hopefully before the end of this year. That's what -- that's with regard to Japan, we look at towards the end of the year. But South Korea, that's also value-added, not as commoditized, as China, but it will be mostly a RTC, ready-to-cook, of course, like some of -- most of like ready-to-cook products, which we do to the U.S. and Europe, similar like those products also -- to South Korea also.

Okay. Understood. And sir, my second question is on the write-off that you have taken of INR 7.5 crores during the year. So firstly, it looks like a bit -- this is a big enough amount given the fact that most of our clients are very old clients and some which we have been working for many, many years. So a write-off in this kind of arrangement based on this pricing of this quantum, sir, if you could share a little more details on what exactly happened there? And is this one-off? Or is there any more amount that's still to come?

Okay. As I mentioned in the earlier -- in the opening remarks, most of the write-off was related to shrimp seed sales, which was done to farmers, primary producers, and it was not just for 1 year, it was there for, it was like accumulated number for over a period. And in fact, it was also disclosed very much in the annual reports over the past 2 years to 3 years. But this year, we, the industry scenario, and as I mentioned being -- of it being primarily about farmers and their seed buying, which they did from the company's hatcheries, since the past 3 years to 4 years -- 3 years to 5 years almost. So we have -- the Board have decided to provision for that and write it once for all, and it is a one-off. We don't have any such receivables or debt -- any outstanding debtors like that pending, and it is not any write-off related to any customers. All customers have been very prompt in their payments, and like you said, established customers, there's no issue at all with them. We don't have any problems with any of our customers across the globe except maybe here and there, there are some delay of 1 or 2 days based on releases, but there's no issue with any of the customers. So this write-off was primarily pertaining to the shrimp seed sales mainly and some few advances given to some farmers. And this is a one-off, as you asked, I'm just confirming that.

We request you to come back in the queue for follow-up question. We have a next question from the line of [ Bala Murali Krishna from Oman Investment Advisors ].

So regarding this ready-to-eat, how much volume, so we are expecting in this financial year?

We expect volume this financial year, we expect at least anywhere between 3,000 metric tons to 5,000 metric tons. We are positive of that. We are looking forward. And the total production, we look between 3,000 metric tons, 5,000 metric tons. We have already done -- last year, we did around 2,500 metric tons but -- in production. But this year, we are looking forward. And it's all subject to how the market conditions -- we are hoping for the summer sales to be good, but subject to the economic conditions in those markets. As most of our ready-to-eat products go to retail outlets in the United States for now, so retail -- ready-to-eat finds our utilization is mostly dependent on the U.S. market for sure, currently, currently as of today. So yes, that is the situation.

Yes. Just a follow up on that. Even if you do 5,000 metric tons then, we still have more headroom for -- I mean, we'll end up with the 50% utilization.

We have -- we will have -- we will have additional -- we will have capacity, as the capacity is 10,000 metric tons, as of today as we speak. Of course, our optimum capacity, which is -- which can be done in a positive manner is 80% of our total installed capacity. So that is based on that. If you see, we are looking at it. So even if we look around optimum utilization, we should be between 50% of our minimum of that 8,000 metric tons, for sure. So that is -- that's why I said between 3,000 metric tons to 5,000 metric tons will be definitely be looked at this year.

Yes. And one more thing regarding this U.S. market, so I think we have some suppliers, which are supplying at a very low price to the U.S. market, that is also one of the factor to have some low demand. So even from a retail point of view, even if the demand consumption has increased, but we could not maybe even the industry could not be able to complete those competitors, who are supplying at a very low rate from the Mexico or South America retail. So this problem will sustain even if there is an improvement in demand from the users also. So what could be the outlook over there? I think it's a big -- I feel it's a -- that's a big threat [ to us ]?

For -- yes -- see, mainly today, it is less to do with the offers or low-cost offers or sorry, low-priced offers or lower-priced sales from various countries across the globe, including some companies like you mentioned, even in India or any other country in the world, where it is today the main problem is, of course, the product, which is there in the form of inventories in the U.S. market is also the main reason why currently, there is -- that inventory did not get consumed, as planned, as envisaged by our importing customers, mainly because of the recessionary impacts and the overall inflationary pressures, which have been there for the past 6 months to 9 months for sure. So that is one of the reason why the inventories were not consumed, as they would have been normally being done. So keeping aside the supply part or low-priced offers it is -- as these inventories are being consumed, and we are quite positive on the summer sales right now, as the summer season is starting and the summer holidays and the school breaks and colleague breaks are going to happen now, from now to -- till the labor week, which is in September, we do expect those to be consumed. And based on that, of course, our customers are also planning subsequently for the holiday sales from this month and next month, they're going to start placing the orders accordingly. Now it is -- the challenge will always be there with regard to lower-priced offers from companies, who are in there, that will always be there. But the sustenance of such companies in medium term also is going to be a challenge. And end of the day, it is just not price, the customers are also focused on the quality. So one of the reasons why we have a order book impact and we have our customers still working with us is also about the deliverables and also consistency in the quality. That -- in that way, our customers are buying regularly from us, and we have not stopped sales with any of our customers, it's just a slowdown primarily because of their problems on their consumer end, so which we believe will slowly get eased out, and we are getting back to normal. Added to that, we are also focusing mainly on doing more value-added products there also, so that we could increase our share in such products. And such low-priced offers typically are not there by companies, which do value-added products. It will be mostly the -- by those companies, which are dependent on the commodity markets, and because of pause in Chinese market to some extent towards the end of last year, there was a rush for everybody to move towards the U.S. market. But as the other markets like China also open up, such companies will also be focusing back again with such markets. So we are placed well currently with our customers. And apart from where -- one of the main points regarding marketing is we are -- our company is exploring a tie-up with one of the importing company in the U.S., especially to take care of food service and retail additional, so that we tap the potential. If there is no customer base, create new customer base and which we are working with the company -- with the company on the marketing tie-up, which will be informed later -- in the later part of this year to the public, as and when such decisions are firmed up and computed.

And lastly, on the raw material prices, our gross margins, our environmental cost is increasing quarter-on-quarter now. I think last quarter, we have 76% of the raw material cost there and the realization is getting dropped every quarter-on-quarter. So what could be the outlook for this raw material price, a, this will continue at this level or back to few quarters like 70 percentage.

See the raw material costs are varying based on the supply and the demand. It is a demand-supply situation. And if you ask us about Q4, FY '23, the raw material costs were high. Q1, FY '24 as we speak right now, the raw material costs are low because the supply is good, and it is -- everybody has stopped. I mean, it's good for the period in this quarter. I'm not saying it's for the whole year, but it is good. And right now, the raw material prices are low. We hope the situation will be there, where we -- where we can take advantages of such tailwinds at least in the first 2 quarters of the current financial year. And as the farmers are also rationalizing their cost and consolidating their operations and hopefully, for their better success and as they limit their costs and have a successful crop, we believe we should be able to have a good supply and -- with not a significant increase in raw material costs. That's what we believe. But currently. to tell you the truth, the raw material costs are down by around INR 30 per kilo to INR 50 per kilo dependent on the sizes from the peak time to now, as we speak at this -- as on date. So this will be there. It is most of a demand-supply situation. And with regard to our sales price naturally, when the demand picks up again, and as the consumption happens, where the inventories get consumed there, naturally, we look at our increase in sales price, too. But on the sales price, considering the global supply, which is there from all over, we don't believe a significant rise will be there with regard to sales price increases. It will be there, but it will be marginal. And the -- most of the corrections, whatever have to happen on the raw material side, that is the reason why the industry is coordinating with the farmers also to look at better successful crop with cost rationalization or rather cutting their cost down by reducing stocking densities and having a better output. So that is what is happening. So we should see how the results will be there with the farmers going forward.

And lastly, on EBITDA margin, can you guide for this FY '24 what could be the margins we are targeting?

We can't -- today, I can't specifically say about, like if this raw material costs continue like this, which are there today, which is not going to be the case. We know it will be changing another few months or a few weeks, rather, sorry. And it will be -- like a seasonal -- it has become seasonal unlike it was 2 years, 3 years ago, where it was there throughout the year, now it has become seasonal. So at this point, it is too premature. Maybe we will be able to give a better forecast or better outlook more towards the end of first quarter. I apologize.

[Operator Instructions] We have a next question from the line of Nitin Awasthi from InCred Equities.

So the industry talk as much as what we can understand and hear, is that things should be hunky dory or at least back to normal from August, September in the U.S. market. The question I had was supposedly this happens, of course, we don't know whether it happened or not, you are a better judge than I am and the audiences as of this point. But if it happens, would we have enough supply in the country?

Supply, of course, is a challenge this year. We are looking to that. Now if there is -- supply is not enough, of course, it does not limit the option of sourcing the product from other areas, even if it is outside India, which we don't rule out totally, but of course, entirely dependent on how the pricing is, of course. But given the current atmosphere, the serious players around the farming community are definitely strategizing in a much better manner and they are, of course, conservative compared to earlier time, but they are also focusing on having a successful crop rather than just going for high stocking density. Getting volume even in lower stocking density also is helpful because we would get more of medium to larger sizes, which are mainly required for USA and Europe markets, which is where the dominant sizes are mostly large and medium sizes. So we are seeing farmers that have been made to understand that the very small sizes of, for example, very small, I mean, 100 count -- 100 pieces per kilo is not the standard barometers. I mean it's not the size of the 100 piece or the benchmark size for them to focus upon rather they should reduce their stocking densities. And naturally, when the -- we are looking forward for any positives which can come when we go for lower stocking densities and growth -- better growth is there. Overall, the output could be stable. But yes, we would definitely notice some drop in the supply on an annual production basis unless all areas make those changes and a good success is noted among all the areas. Because not necessarily all farmers and all areas are actually changing the methodologies. So we should see how things go by as we move into the -- this second crop. Our seed sales definitely for now is good. It is good for now. It's going good. The seed sales has been going well too and we as a company with regard to supply, we can look at that as a basis. And also, as we interact with our farmers, we see how they are planning and they are comfortable with prices. It's more about the yielding out of their farms, which they are now more concentrating rather than just growing in mass and growing in a high stocking densities. So we should see how things will evolve over the next few months. But for currently, it is -- the farmers have been -- I mean, the farmers whom we deal with not only in the state of Andhra Pradesh, but also, it’s because we are also sourcing from other states. So they are actually taking our crops for now in a good way. So I don't know how the second crop will be there, whether there will be any major climatic condition effects or any major disease issues, we don't know. This year, of course, the rains are a little late compared to when the warmer temperatures are still there. That is another reason why there is also a good period, of course, it is also a bad thing. Warmer temperature, it creates a conducive environment for the shrimp to grow. So we are looking -- we are keeping our fingers crossed for the year’s overall supply, to answer your question.

Understood, sir. Secondly, you have mentioned and, of course, the market rates are there for people to see that they are currently at the lower end, I'm talking about the farm gate prices of shrimp. And given that our balance sheet position is healthier than it has been in the couple of years -- past couple of years, are we actually taking advantage of the situation and trying to stock on raw material?

I wouldn't be able to comment entirely on that. It depends on which sizes are based on our communications with our customers and that such sizes, which are we foreseeing to be less available or something like that. But end of the day, before that, you also should understand, we have not really -- the prices of raw materials have not lowered to that lowest of the low of, say, example, INR 180 of 100 counts. We are still at INR 220, INR 210, it's a reduction of INR 30, INR 40. Basically, the higher price, which was there has got reduced, that's all. So at least it's a comparable price, raw material price, which we are buying, of course, based on the supply. But it is not -- it has not gone to a very low price. And yes, our strategy of any sort of, I mean, taking advantage, it's not -- it's less of advantage and more to ensure a proper supply for our customers’ need of certain sizes, which are envisaged to be unavailable going into the future at least in the near term next 1 to 2 months, something like such kind of things which I unfortunately wouldn’t get into.

Sir, the last question from my side, could you provide the breakup or the major components of the inventory? I believe we have around INR 180 crores of inventory on books as of the financial year closing. So how much of it is raw material, how much of it is finished goods, if there's any stock in transit within that?

One minute, please. I'll say, I believe only finished product. There are other inventories, of course, include everything, not just the finished product, but also the packed materials and other chemicals.

Yes. True, sir. [ 90% of the value is ] finished goods only.

Yes. Only the finished goods.

Mr. Awasthi?

Yes. Sir, actually, the figure -- I didn't get the figure, finished good figure, you said.

[indiscernible]

No, no, how many crores was it here inventory, only the finished product inventory.

[ 165 ] of course, is the finished good [Technical Difficulty].

[ 165 ].

[ 165 ]

Yes. Hello, sir. Yes, sir, so [ 165 ] right.

[ 165 ].

[Operator Instructions] We have a next question from the line of [ Vibhu Kapur ], an individual investor.

Yes. Sir, my question was also linked to the previous participant. Do you think, based on your commentary, is it safe to assume that your working capital would strengthen further this year? Do you just give some take on that?

Yes. We are -- yes, definitely, we are looking forward for the working capital cycles to be strengthening further this year. Our total working capital days, our working days, it has come down to 94 days. We are still looking for an improvement this year also, especially with our realizations from our customers as well as utilization of products from the inventories also being done simultaneously -- and sorry, better -- better realization cycle from our customers and better utilization of the inventories also is definitely going to improvise the working capital cycle days, sure, in this year also.

[Operator Instructions] We have a next question from the line of Lokesh Maru from Nippon India Mutual Fund.

Sir, so from the conversations or your comments, it is quite evident that margin profile going forward could improve given the drop in inventory -- or sorry, RM costs during the quarter and second half could be a positive year, sorry -- second half of the year could be quite positive from many angles right, inventory could go down in the U.S. So just a bit a sense on the current situation of, let's say, Q1 and Q2, which would be first half of this fiscal. Any color or any guidance that you can on the volume front, sales front. Our run rate for last few half years could be 7,000 metric tons. Do we expect for that to continue or that to improve or could it be the other way around?

And given the supply situation, that should be the -- and also the focus on utilizing the more volumes, which we are trying to plan on ready-to-eat also. Between that, definitely, we should be looking at 7,000 metric tons in the first half, we are positive, but at the same time, of course, subject to supply, but we will also be utilizing most of the inventories, too. And we are looking forward for that even though there was a little bit of issue in the -- and capacity issue in the beginning of the year and months of April and part of May, mainly with regard to the installation and all that the second line installation. But yes, we are -- we should be at least doing that minimum, even though our original target was much higher for this year in the first half, we were looking at 9,000 tons, 10,000 tons, but unfortunately with the -- where the situation has been for the first 1.5 months, we should definitely be looking at 7,000 metric tons of sales.

So despite lower stocking, is it possible to procure what we have already done like 7,000 tons?

See, the -- when -- lower stocking densities happen at the farm level, it is going to basically help in better growth of the shrimp which will be more for -- which I explained to one of the participants. It will be basically giving a better output in the medium and larger sizes, which are the need for companies like us, which depend on the markets like U.S.A. and European Union or U.K., which are mostly focused on the large and the medium sizes. So lower stocking densities means that actually lower volume, but actually, it is a better growth, whereby the farmers instead of harvesting smaller sizes and curtailing their crops in the first 60 days or 70 days, they could actually have better growth, thereby better output also even in lower stocking densities, but subject to, of course, disease and any other conditions, any unfortunate and unforeseen conditions. But it would definitely give a good success rate with regard to medium and large sizes and more volume of such. It may not be coming up to the same volume, I mean, higher volume, rather. I wouldn't say, we will have a higher volume this year like as I mentioned to a earlier participant also. It is a challenge for sure. But with more medium and large sizes, we will be able to -- and we can focus on such sales volumes, especially mainly because of the markets, which the company deals with or is focused on or where we always look forward to, that is U.S.A. and European Union.

Sure, sir. Understood. Sir, lastly, on our -- the other line that we have started working on the 5,000 metric tons, the line of ready-to-eat [ loss ]. So we have 2 lines now. So is the first line EU approved? The second line, just came up, so we may take time.

The new facility -- the new facility has still not been approved by the EU. And any facilities after 2019 have not been approved for the EU, any new facility, which was opened after 2019. Unfortunately, for us, we are really getting it, and we have been pursuing with the government authorities, as it is more of a government-to-government negotiations or deals, which is rather delaying certain companies like us with regard to the business, and we are taking it up seriously. We already -- we have also discussed with the team and EU, and we know what they have communicated to us, what is the current situation of the problem, and we are taking up that problem with Indian authorities also. We just hope it resolve soon because they already finished their visit. We just hope they resolve soon and the sooner they do it, we will be able to capitalize the EU market -- I mean, take advantage of the EU market to -- by selling our -- using our ready-to-eat capacity for that market also, so which is going to help us much faster in growing our volumes with regard to the ready-to-eat, as and when that market opens up for us.

Sir, so our entire ready-to-eat line is yet to benefit from the EU...

Currently is entirely focused on the U.S. market -- is currently is entirely focused on the U.S. market. And when the EU market opens, yes, the entire ready-to-eat will be shared between both the markets. But still then also a major player will be the U.S. market for sure on those 2 lines on the 10,000 metric tons.

We have a next question from the line of [ Bala Murali Krishna from Oman Investment Advisors ].

I think we have some export benefits from the government sector, could you please quantify the percentage or what would be the amount of normal revenue to receive every year?

It varies, but the current full year, it was 5.2%, as of [indiscernible].

0.2%.

[ 5.2% ].

[ 5.2% ].

We have a next question from the line of Lokesh Maru from Nippon India Mutual Fund.

Sir, given the tough situation on supply side, I mean generally in the U.S. and now that we have our ready-to-eat line ready in the subsequent quarters like Q1, Q2, are we looking to maximize our sales more towards these lines to maximize our realizations? So is it possible to sell more of those products?

That is the plan -- that is the plan. And we definitely are planning to maximize more of those product sales and produce more of those products definitely in the current situation. And that is the way to go for the company also in the current market conditions, definitely. That's the idea.

Sir any big number? Any like 30% or 40% of incremental sales, anything like that?

We should be looking at 30% at least minimum we should be looking at. We are trying to push more. And the more contracts, which I had explained to the earlier participants to the more contracts, which we signed with retail customers, we would be -- because most of the ready-to-eat products go to the retail customers. So we will be able to do more of that -- of those products. So we are currently waiting for them to give us a new set of requirements, as such, they are also looking towards their summer sales and summer promotions. So there we understand they're just not sitting on shrimp inventory, they're also sitting with high inventories of other like crab and all that. So we are working with them. We are coordinating with them. And as and when, they come to the conclusion of their next buys, each one of them, we are positive that we will be able to get a chunk, a good share of ready-to-eat product requirements.

We have a next question from the line of [ Vivek Chaturvedi ], an individual investor.

I think you just guided for 7,000 metric tons in the first half of the financial year, I joined the call a little late. I'm not sure if you've given any guidance for the second half in terms of volume?

See no, no, just mentioned we're looking forward of 7,000 metric tons in the first half. [Technical Difficulty]

I'm sorry, sir, you're sounding muffled again.

Can you hear me?

Yes.

So we did not give any guidance with regard to anything regard to second half of the current financial year. It was all mainly about the first half, we were saying that we are looking positively to do a 7,000 metric ton volume of sales between all the markets. That's what we have mentioned. We didn't mention anything about second half, as of today.

Okay. And sir, the pricing currently is also around INR 700 per kg mark that you had shared with us in the presentation [indiscernible]?

The average realization for the quarter was INR 707.

Correct. And sir, what would be the current realization going on for the sales that we are currently booking?

It may be a little -- I mean, down a little bit. But at the same time, it will be hovering around this, say, [indiscernible] for the products we are able to do in the high-value products that we will decide. And the more high-value products, we hope it will look anywhere between INR 720 to INR 750 also that's the situation.

Sorry, sir. I couldn't get you. Did you say that you're looking at increasing the share of value-added and that is why the realization would be between INR 720 and INR 750?

Yes. If we are able to do higher volumes of ready-to-eat products, definitely, the average realization rate should be INR 720 to INR 750, of course, subject to also the currency fluctuations also if it goes to 80.5 or 80 or 79 that may not be the situation. So remember the currency also plays a role with regard to our average realization in Indian rupees, right? So that is also there.

And sir, how much was the average realization in FY '23 the dollar-rupee rate?

INR 770. Sorry, I have the average realization will be INR 778 per kilo.

Sir, I was looking at the dollar-rupee rate, I mean, in terms of equivalent dollars, how much was our realization?

Just a minute, please. It was $9.6 per kilo. Is that what you're asking? Or you asked the dollar-rupee conversion rate?

Yes. So $9.6 per kg, it means, rupee conversion to INR get the dollar-rupee rate. And sir, just one last question. What would be our hedging policy? How much of our exposure will be normally hedge?

We basically cover our exposure with forward contracts, our receivables to a certain extent. It's not more than 20% to 25%. But in a depreciating rupee scenario or rather an appreciate -- strengthening dollar scenario, such forward contracts don't really make much of -- or rather provide much advantage. So in a depreciating rupee scenario, we are anyway having our own max. We don't have more than 20% to 25% of our total annual sales closed -- I mean, covered by forward. More than that, we don't have it covered by forward contracts. We limit to that extent only.

So this is 20% to 25% of the outstanding receivables?

Of the total sales of the company in a year, we don't have more than 20% to 25% covered by forward. More than that, we don't have it. So we only have 20% to 25% covered by forward contracts. Earlier in the past, we used to have almost 50% of our sales utilizing forward contracts, but that was a few years ago. But now with the way the rupee, the currency has been depreciating, it didn't make any sense at all.

[Operator Instructions] As there are no further questions, I would now like to hand over the call to Mr. Chowdary Karuturi, for closing comments. Over to you, sir.

Thank you very much, Yashashri, and we thank all the participants for making to this call. And for any further queries or clarifications, you may always reach out to us on the e-mail address, [email protected]. We thank Stellar IR Advisors, too. Thank you very much, and have a good day. Thank you. Thank you, sir. On behalf of Apex Frozen Foods Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.