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

Ladies and gentlemen, good day, and welcome to the Apex Frozen Foods Limited Q1 and FY '27 Earnings Conference Call. [Operator Instructions]. I now hand the conference over to [ Mr. Ritik Hatyangadi ] from Stellar IR Advisors. Thank you, and over to you, Ritik.

Thank you. Good morning, everyone, and thank you for joining us today. We have with us today the senior management team of Apex Frozen Foods Limited; Mr. Chowdary Karuturi, Managing Director and Chief Financial Officer; and Mr. Durga Prasad, Senior Manager accounts, who will represent Apex Frozen Foods on call. The management will be sharing the key operating and financial highlights for the quarter ended 30th June 2026, followed by a question-and-answer session. Please note that this call may contain some of the forward-looking statements which are completely based upon the company's beliefs, opinions and expectation as of today. These statements are not a guarantee of the company's future performance and involve unfortune risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect development that occurs after the statement is made. I now hand over the call to Mr. Chowdary Karuturi. Thank you, and over to you, sir. Thank you. .

Good morning, everyone, and thank you for joining us on this investor call for Q1 FY '27. We have uploaded the investor presentation on the website of the stock exchanges. And we do hope that you had a chance to go through it. The Q1 FY '27 was a quarter of mix of trends with improving global ship prices and higher conversion rate for USD INR a realization growth on one hand and while labor shortage mainly in the month of April and May and world led transportation disruptions across certain export markets affecting the in sales volumes on the other hand. Again, this backdrop, our average sales realization grew 15% year-on-year to almost INR 930 per kilo in the Q1 of FY '27 offsetting the impact of decline in total shrimp sales. It stood at 2,624 metric tons in Q1 FY '27 compared with 3,015 metric tons in Q1 FY '26. We are hopeful of a recovery in sales volume in the Q2 of FY '27 subject to the normalization or improvement of global transportation conditions. In terms of profitability, Q1 FY '27 benefited from improving shrimp realizations, stable farmgate prices. and continued cost-efficiency measures. While the farmgate prices are beginning to rise, we expect other factors to remain favorable for clocking a healthy profit margin in the current fiscal. Coming to our geographical mix. The U.S.A. accounted for 70% of our total shrimp sales in Q1 of FY '27 compared with 54% in Q1 of FY '26. Shrimp sales to the U.S. increased 13% year-on-year and 121% quarter-on-quarter supported by softening tariff-related uncertainties. The U.S.A. continues to remain an important market for our company and we remain well positioned to capitalize on improving market conditions. The U.K. and -- the EU and the U.K. together contributed 25% of the total shrimp sales compared with 39% in Q1 of FY '26. Sales to these markets were impacted during the quarter by the war like the transportation disruptions and certain regulatory basically the testing and certification requirements done at the outage in India. Despite the near-term impact, these markets continue to remain an important part of our diversified export portfolio. We continue to focus on expanding our presence across markets to build a more diversified and resilient business. Alongside the geographical diversification, we continue to strengthening our product mix with a higher share of value-added products, which garners higher realization and margins, of course. Now coming to our financial performance for the Q1 of FY '27. Net revenue remained flat at INR 257 crores compared with INR 258 crores in the first quarter of FY '26. EBITDA increased 79% year-on-year to INR 33 crores compared with INR 18 crores in the first quarter of FY '26 with EBITDA margin expanding to 12.7% from 7.1% in the first quarter of FY '26. Profit after tax stood at INR 22 crores compared with INR 9 crores in the first quarter of FY '26 registering a 138% year-on-year growth, while the PAT margin improved to 8.4% from 3.5%. The improvement in profitability was mainly supported by the higher shrimp realizations along with stable farmgate prices and ongoing cost efficiency measures, which more than offset the impact of lower volumes. Coming to the balance sheet, we continue to maintain a lean financial profile with debt levels for then managed and at comfortable levels. Our focus remains on disciplined working capital management and maintaining a healthy balance sheet as the business scales. With that, we would like to conclude our opening remarks and reiterate with our diversified market presence focused on value-added products, established manufacturing capabilities and the available capacity, we remain well positioned to capitalize on improving market conditions and drive sustainable growth going forward. I think we can now open the floor for a question-and-answer session. Thank you very much.

[Operator Instructions] First question comes from the line of [ Murtuza ] with Pinpoint X Capital.

Congratulations on a set of good numbers. Sir, I just had a quick question regarding the sharp increase in the price you've been seeing for the fish meal and the shrimp feed prices. So could you like please help us understand the economics, like how is it affecting the shrimp farmers? And ultimately, how is it impacting us? And also, if you could help us understand like -- to what extent are these costs really passed through? And if we were to see further increase in such prices. So can we see any impact on the farmers stocking up or overall demand scenario. And this is lastly, like, do you see this higher feed cost as a temporary thing? Or can they remain like a headwind for a while for over a few quarters? Yes, on that.

Firstly, I guess that question is not relevant to us, our company as such because we have primarily into processing and export of shrimp and not into any feed manufacturing. However, to answer that question partly as we have informed through our opening remarks that the farmgate prices have been raising and have been providing a good comfort level to the farmers, the primary producers as we speak over the past 1 month and so on. So I think that should be taking care to a great extent with regard to the costing at the primary producer level, of course, subject to their other farm level conditions. So we wouldn't be able to much comment on the input costs with regard to the feed manufacturing as we are not into that activity.

Understood. So sir, it's -- we don't really have any exposure to that segment asset .

No, no.

And sir, if you could just give a bit of guidance, how do we see our margins going forward since we have done pretty well. So just a bit coming from there on would be appreciated. .

As again, as we did state in our remarks that considering the ongoing subsequent little stable export realizations in dollar terms as well as the depreciated rupee combined and also our cost efficiency and efficiency measures. We believe the margins would be stable, but at the same time, we also have to factor in a little bit of the increase in freight costs and also to a certain extent also the increase in the farmgate prices, which we have stated. So even though the margins could be -- slightly affected because of these factors. But we expect we anticipate the volume growth, which will take care of more of efficient costing, and that should give us -- maintain a stable margins for us. Of course, as we would be hoping that this present depreciated rupee further from Q1 is also helping us to a certain extent. So we would continue. I think we will be around these levels, but there are some it up like ocean freight expenses being increased mainly because of this war led disruptions, which we stated earlier. So apart from that, I think most of it should be maintained. But there could -- as we have mentioned, there could be certain issues which are unforeseen by us considering the international trade logistical issues and issues related -- mainly related to the war.

Understood, sir. And sir, lastly, can you please just also elaborate a bit on how has the realization been for this quarter? And how was it for Q2? .

As stated believe, the realization per kilo in rupee terms has been INR 930 for the first quarter of FY '27 when comparing it to around INR 812 during the first quarter of FY '26. That, of course, there is also increase in the dollar annuities in general because also we are increasing more into the volume of the value-added products or Ready-to-Eat products and also supported by the depreciating currency. So that maybe the big difference between Q1 of FY '26 and Q1 of FY '27, that nearly INR 90 gap -- almost INR 80 INR 90 gap has come. It has happened [indiscernible] first quarter.

Understood. So are we seeing it hold in Q2 as well or roughly similar INR 900 level? .

Yes, we are seeing around a similar level as far as realization in rupee terms are concerned, yes, we are expecting on some other levels as far as realizations are concerned. Yes.

Next question comes from the line of [ Nilesh Patel ] with Share India Securities.

Congrats on margin expansion. My first question is on the volumes. You have guided that we can see good growth into Q2, particularly, which has been a conventionally strong quarter. But could you just elaborate more on the fact that we had guided that at the start of the year, that 40,000 empty will be the guided range for volumes. And even if I are on a conservative basis, take a volume of about 12,500 or something like that. So -- and this quarter, more or less, we have kind of delivered less. So what can be the -- for the rest of the 3 quarters? What can be the volume growth that we can see? And is the U.S. exposure we can say that the growth in the U.S. market is particularly due to the tariff-related concerns easing off or we can say that the Ecuador dumping is more or less reduced, which has given an edge for Indian companies. .

Okay. Firstly, we have not given any [indiscernible] we are around 12,000 metric tonnes in this year. That was what we have done in the beginning of the year. And even in the -- our -- I think during our Q4 quarterly con call also. We have stated on some other lines. However, of course, because of the summer heat in month, there were certain labor shortages and that definitely affected our production achievement, which we have been doing more. But mainly the shipments got impacted on 2 fronts. One is in and with regard to these shortages and continue equipment. But also the other part is instead of stating that our U.S. volumes have increased because of certain delays, our EU volumes have actually reduced. Our new volumes or year volume should have been higher during the Q1 in the first quarter. But because of certain delays in getting the clearances for shipments that got spilled over into the subsequent month. So it's got -- sorry, into the subsequent quarter. So the Europe's sales volumes have actually come down. So that is why the U.S. sales seems to be looking very high on the other front. You asked about whether anything about dumping from Ecuador or it's more about certainty that relate in regard to the tariffs as 1% to 50% tariffs were removed by the as government and 10% has been finalized during the beginning of the year. The buyers in the U.S. also have found more certainty in doing business rather than almost 4 or 5 months of uncertain situation during last year. So because of the certainty and the could assess the market condition in their business strategy. They have all increased their orders position with us with India engine and also our company specifically. That is one of the reasons why there was a lot of U.S. orders which were added but parallelly the other Europe orders, as I just mentioned, they could not get shipped out because of certain issues because spillover that I mentioned into the subsequent quarter. So that's why the U.S. volumes seem to look pretty high compared to last year during this quarter. So that is situation. So there is definitely better certainty among our customers to place orders and so that is from the U.S. A. and Europe is also very stable as far as the order requirement is. I mean volume requirement is concerned.

Understood. Understood. Secondly, sir, on the ready-to-eat contribution, what has been the contribution from this margin accretive segment for Q1 and how do you see kind of it scaling up into over the medium term? And just what's the margin differential between our RTE and RTC, -- if you can throw some light on it? .

With regard to the volume in Q1, it was 16% of the total volume last year, it was, of course, 15%. But really looking at medium term, I mean, in the current year, we expect to sales volumes, at least in 18% to 20%, 20% will be there, hopefully, the under RTV specifically. and we expect that because the specific inquiries coming from different parts of the world, both from the U.S. and Europe and other countries also. So the big support, which in that category, that segment would be a good volume this year. That's what we expect based on the inquiries and confirmations which we have. And the margin funds with regard to RTC roughly around $0.50 per kilo between RTC and RTE. That's the men depending on the products we do. There are certain products which could be higher also. That's what the minimum is $0.50 per kilo. Yes $0.50.

Okay. Understood. And the -- I believe now the labor issues must be behind us and the margin stability more or less will continue for the rest of the year, if I'm not wrong, sir.

Yes. They should continue. But again, at the same time, as we also stated in the beginning, there are also very firming up increasing of the farmgate prices also which are there. Of course, we are also having some increase on the realization front too. So overall, it should be but subject to the conditions mainly both on the supply. But more than that, now the war led disruption are still continuing, and we do not know our freight costs compared to Q4 of last year and now between these 3, 4 months, it has increased more than double. So that is another part which we are watching and treading carefully on that part. So we do expect kind of stabilization around not -- we don't expect to see a significant drop as far as an that question.

Next question comes from the line of [ Bala Murali Krishna ] with Oman Investment Advisors.

The farmgate prices are we think that the prices are stable because in ground, I think it's also a little bit relaxed and being price...

Really sorry to interrupt you, sir, but your voice is very low. Bala, sir?

Yes, yes, -- is it okay now?

Yes, please. .

On farmgate prices, sir, we know that prices are a little bit lower and people are also -- farmers also little bit tend to cultivate the shrimps. So how do you see sort of demand as of now?

I think we have mentioned it in our opening remarks today and also 1 of the first participant who was -- had the question regarding the farmgate pricing in a different manner. But the farmgate prices have become more firm compared to Q1 -- and in fact, the prices even during Q1 were not really bad because we do have feedback from several farmers who have been very happy with the way the prices remain very stable through the first quarter of FY '27, very stable compared to the earlier recent last few years. However, in the case of farmer, it goes down to each individual farm and farmer economics and their success of the crop, their growth in their farm level at the ponds. That also is a major factor. So overall, a significant number of farmers were quite happy with the way the prices remain -- farmgate prices remain stable during Q1 first quarter. And as far as the second quarter, I mean, currently, as we go by technically the prices have increased over the past 3 to 4 weeks. -- and they are more firm between last, we could say between then and now, I think there's almost roughly around 7% -- 6% to 7% jump in the farmgate price in average. But then as they have, I think that we [indiscernible] are good. We are happy as long as the farmgate prices are commensurating but the government has also been -- different state governments are taking the escalated measures for them to have a very -- realizing the most amount of money and bring down their cost in an efficient manner. So the respective state governments are also taking steps in that regard. And I think we understand that the state government is also advocating in producing a sustainable -- reasonable costed product as now the products are not competing against each other domestically, but internationally and then we have the largest shrimp producing nation and on the other side in South America. So the respective governments also are taking steps, but they are very comfortable as far as we understand. But there are times during the year certain times of the year where whether patterns, climate conditions could be affecting the overall scenario. So they could have certain V-related issues or distress harvests which are more of a farm specific related issue, case-by-case issue. This is not a general scenario all over the country or even in 1 particular state. So otherwise, yes, they are comfortable. That's what we understand from a good number of farmers, actually.

That's great, sir. So on the [indiscernible], I think few companies are giving some of the rebates which they have played earlier with the tariffs do you see any [indiscernible] in our case also?

Can you repeat the question? If you don't mind.

And the earlier when tariffs you get 60% so people have -- the tariff I think look some discounted rates are also -- there are some part of the tariff amount -- for now, I think because of the [indiscernible] 10% tariffs -- maximum 10% tariff. So the companies are getting some rebate from the tariffs we have already paid in that period. Do you see that is applicable to our sector also the competitive spoken about -- they bring some rebate also, that is why I am asking.

As of now we have not received any refunds of the tariffs. And these tariffs were also we all -- everybody in the sector know that these tariffs were actually compensated by the customers. But as of now, there are no refunds yet, and whether it will be sometime next year or the year after that, we do not know as there are certain regulatory issues and the government of the U.S. also is continuously following up we have taken a legal angle, they are also going through court battles and all that. So -- at this point, there is no confirmation as of when we would receive them if we receive them. However, they have given certain steps and guidances to receive the customers in which we would be implementing. But however, as stated, we do not have a clarity if there will be refunds when they would be? So as of now, there is no clarity on that. So it will be a misstatement if we say that we are going to get them as of today because there's no clarity. So there is definitely uncertainty on that part -- yes. So that is the situation .

Yes. On the growth front, sir, in this quarter, we have a good number because of higher ratio and a stable farm effect. Is it only a factor which contributed to good margins? Are there any -- and by that special factor or FDA, any advantage we through that in the past quarter.

No, one of the FTAs are coming -- I mean, except the UK - India UK FTA has come into play in -- on July 15 onwards. And we are yet to see results of that going on with our customers. Of course, inquiries have increased, but there are certain other non-tariffs which are still there and which we believe government of India is taking it up with the respective governments wherever they have had the signed but mainly the margins during the first quarter Q1 were attributed to the still -- farmgate prices and also a good set of realization in Indian rupees. And going forward, we believe once these tiers are fully implemented in all aspects, not just GTE tariff related aspects, but also removal of certain some of these non-tariff barriers like having Indian shrimp consignments being tested 50% of all the shipments arriving from India still continuing to be tested. So those, as such on tariff areas when they are addressed, I think we could see even more volume growth to these markets, especially the U.K. and the EU. of course, we use FTA maybe will maybe hopefully sometime by the end of this year or early next year, but we will see those results at that time.

Our next question comes from the line of [ Abhishek ] with SNS Capital.

Okay. Sir, I have 3 questions. One, the average realization, I heard you saying it's around INR 900-odd now. So if we have to do a look back in the history, what is the normal top which you have seen earlier? Or we have already crossed that top and now we are in process to see a new high kind of a thing? That's the first question.

This is with regard to realization, you stated around INR 913 for the first quarter. So sorry, can you [indiscernible] question.

So what I was trying to understand is like if in history after see, I think 2018 was the last time when you have done very well in terms of the OPM. So I'm trying to understand if there was a better realization which you had in history before this INR 913 -- or this is the new high which we have done in terms of company's history?

No, we also had a similar realization in -- I think during the second COVID Phase 2, I think FY '22 also around levels. At that time, it was not supported by the depreciated rupee currency at that time, but the unit value itself was very high at that time during the second phase of COVID Phase 2. Also, that's because the unit values in dollar terms were very high because there were some panic buying, which was happening, anticipating shortages in product and all that during that time. But of course, when you have such high level pricing, just for a regular commodity product, obviously, that would impact the consumption overall. The volumes will get affected. But here, in our case, we are trying to improvise and push more into the ready-to-eat and value-added segment, thereby achieving better realization on the whole on an average per kilo, not just at the commodity -- we can't -- commodity, there is a limit. On the RTC, there is a limit. Beyond certain levels, if the pricing goes up, it will definitely hit the consumption. It will definitely hit the volume intake by the customers. So there are limitations to that. So we have seen that impact even like you rightly asked during COVID Phase 2. I think mostly it was in FY '22 -- FY '22, we did see impact on that because subsequently in FY '23, the volumes were going down. So that is there. But this is -- we would want to achieve a better realization per kilo more based on the diversified product mix by having more enhanced product sales. That way, we would want to achieve better realization so that it not only just takes care of realization part, whether it is supported by the currency or not, but also we have a better margin on the margin front also, it would be -- that is our goal.

Okay. So what I'm understanding is you're saying this time we are trying to make this the new normal like for a longer time compared to what happened earlier in 2022, where the margins did not really stabilize. Is that correct?

Yes, yes. I mean we are -- I'm saying that we are looking at better realizations on the front of doing more value-added products so that not only takes care on the realization front, but also has a minimum kind of assurance on the margin front because as stated earlier in many new calls in the past, obviously, ready-to-eat products have a better margin realization and that is the more volumes we can do in those -- in that segment, that obviously takes care of the margins for the company overall also. So that is...

Got it. Okay. Okay. My second question, what is the capacity utilization right now? Because if I remember, in FY '26 beginning, it was around 30% levels. So has it increased? So I have 2 parts to the second question. Has it increased when you look at the whole FY '27? And what do you think we are going to close the FY '27 at like the beginning of FY '28? What do you think -- or what is the trajectory we are looking at going forward with the capacity utilization?

See, the volume capacity utilization was almost similar to last year of FY '26, the first quarter was similar, 38% last year, 39%. It was 38% this year. But this year, we have a different plan, and we are -- as with the different products and different markets, especially more diverse markets, which we are doing, we believe the volume -- this capacity utilization should be consistently maintained over and above 35% to 40% through the year. whether, of course, some issues related to logistics or disruptions and shipments, those are all a different part. But as far as utilization is concerned, we are planning to have a better utilization from this year on. onwards. And we have done the required changes even internally, which also are taking care of cost-efficient measures, certain cost reduction measures also.

Okay. So the U.K. FDA should supplement in this particular -- the new target, right, which we have set internally for at least to begin with.

It would to a certain extent, but as stated to in the past also, we are looking -- we are betting bigger on the FDA. And actually, U.K. FDA as such, the size of the market considerably is smaller when we compare it to the EU, and we are really betting high on the EU FDA to get implemented along with the non-tariff measures being removed, which I think we have stated to one of the earlier participants with regard to certain non-tariff barriers, which are still existing actually, like even in the case of U.K. FDA from July 15, it is effective, but still the non-tariff barrier still exists. So those things are being taken by the government of India. And hopefully, when they get removed, the buyers also have more confidence on Indian products, faster deliveries, saving of time and which equals to their money. So the customers also would be betting on higher volumes from India. That's what we understood. We got the feedback from them. That is the only point which is pending now in a very good FDA arrived by India and these countries.

So in terms of time lines, when do you think these FTAs will actually start fruiting for the company? I mean, definitely, the government can say that it's going to begin -- like, for example, U.K. FDA was supposed to start from July of '26. But on ground, will take some time for us to see the results in the P&L or other company?

Usually, the FTAs, I think by the time they are fully implemented, they are taking minimum of 1 year usually. So it's minimum 1 year. So we are -- I think as the FDA with U.K. has already been implemented. there are some minor issues. But for our trade, it becomes big. But otherwise, the new FDA we expect -- we are hoping that it would be sometime by the end of this calendar year, sometime by December or early January. That's what we have been told. We have been given the feedback so we should see.

Got it. So maybe by Q1 of FY '28, we should be able to see some benefits passing through?

Yes. I mean a full effect of these FTAs definitely, especially the EU, which we are getting -- I mean we are hoping -- having big expectations of, yes.