AWL Agri Business Limited (AWL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to AWL Agri Business Limited Q1 FY '27 Earnings Conference Call Hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashutosh Joytiraditya from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Thank you, Palak. Hello, and good evening, everyone present on the call. I, on behalf of ICICI Securities, welcome you on AWL Agri Business Limited's Q1 FY '27 Earnings Call. I would like to thank the management for giving this opportunity of hosting the call to us. From the management, we have Mr. Shrikant Kanhere, CEO and MD; Mr. Saumin Sheth, Executive Director and Chief Operating Officer; and Mr. Pankaj Goyal, the Interim CFO. I will now hand the call over to the management for any opening remarks. Thank you.

Yes. Thank you, and good evening, everyone, and thank you for joining us. On behalf of AWL, I extend a warm welcome to all of you for our Q1 FY '27 earnings conference call. Joining me today are the members of our leadership team, who will take you through the financial performance in greater detail before we open the floor for questions. We have made a strong start for FY '27, delivering another quarter of broad-based growth with a meaningful step-up in the profitability. Revenue grew by 18% year-on-year to INR 20,000-plus crores and the quality of our earnings continues to improve alongside this growth. More importantly, this performance reflects the continued execution of our long-term strategy. Over the last few years, we have consciously transformed AWL from being predominantly an edible oil company into a diversified Food & FMCG company. Today, while edible oil continues to remain our foundation, our growth is increasingly being driven by packaged food, future-ready channels and wider portfolio of value-added businesses. Let me begin with our Food & FMCG business, which remains at the heart of our transition journey. Food & FMCG segment grew by 22% year-on-year during the quarter with revenue of INR 1,726 crores. The encouraging part of this growth continues to be broad-based across the portfolio. Rice once again delivered an outstanding performance, growing by over 40% year-on-year, while categories such as wheat flour, pulses, besan, poha and other packaged food continued to witness healthy consumer demand. Our Tops range of sauces, pickles and convenience food grew by a healthy 23% year-on-year, and where we are pleased to welcome Madhur into our AWL family, strengthening our presence in the packaged sugar category alongside Fortune sugar. Together, these additions reinforce a portfolio that now span everyday staples, convenience format and healthy focused innovation. What gives us confidence is not just growth in 1 category, but increasing scale of our overall food portfolio. Multiple categories are now approaching meaningful annual revenue milestones, creating several independent growth engines. This diversification will continue to improve the resilience and the quality of our food portfolio and remain central to how we think about AWL's future. On Edible Oil, the business delivered low single-digit volume growth of 2% year-on-year. The industry witnessed temporary channel destocking following sharp volatility in global edible oil prices. However, underlying consumer demand remained resilient. Our integrated sourcing capabilities, pricing discipline and premiumization initiative enabled us to effectively navigate this environment while sustaining our market leadership. On Industry Essentials, we delivered another healthy quarter with the segment reporting 13% volume growth and 28% revenue growth. Within this portfolio, our Oleochemicals and Specialty Chemicals business, which now contributes over 40% of the segment revenue, continues to perform well. We continue to see this as an important strategic business and are expanding capacity at our Southern manufacturing facility to progressively increase the contribution of higher value-added specialty products. On channel performance, our alternate channel, modern trade, e-comm, quick commerce grew 27% year-on-year during the quarter. Quick commerce continues to be particularly exciting for us, recording a growth of 56% year-on-year. We increasingly see quick commerce not merely as another sales channel, but a structural shift in consumer buying behavior. It enables faster product discovery, higher purchase frequency and quicker scale up for innovations. We have, therefore, continued to invest in technology, digital capabilities, assortment planning and channel-specific execution to strengthen our partnership across leading quick commerce platforms. Alongside this, HoReCa and branded exports also delivered another strong quarter, reflecting the increasing diversification of our route-to-market strategy. On distribution front, our distribution strategy is also evolving. Our direct reach now is close to 970,000 outlets this quarter, while our total reach as per Nielsen remains at 2.6 million outlets. With this expansion now substantially in place, our focus is increasingly shifting towards improving throughput and distribution productivity rather than simply adding more outlets. We continue to maintain strong rural presence across more than 63,000 towns. Overall, I would say we believe the fundamentals of the business remains strong. Our integrated sourcing and manufacturing capabilities, trusted brands, extensive distribution network and growing presence across future-ready channels provide us a strong platform for a sustainable growth. As we move ahead, our priorities remain clear: strengthening our food portfolio, improving execution across channels, enhancing profitability and continuing our journey towards building one of India's most trusted and largest food FMCG company. With that, I would now request our CFO, Pankaj, to take you through the financial performance in more detail. Over to you, Pankaj.

So thank you Shrikant, and good evening, everyone. Let me take you through the financial performance for the quarter. We have started FY '27 on a strong note with broad-based growth translating into a meaningful step-up in profitability and earnings quality. Consolidated revenue grew 18% year-on-year to INR 20,048 crores, supported by 7% underlying volume growth across the portfolio. Operating EBITDA grew 34% year-on-year to INR 693 crores, while profit before tax and profit after tax grew 48% and 48%, respectively. This improvement in profitability was broad-based, reflecting better execution across businesses, a favorable and increasingly food-led product mix, disciplined pricing and continued operating efficiencies. Every business segment contributed positively this quarter, a reflection of the strength of our diversified model. Food & FMCG remains the clearest expression of that strategy. Revenue grew 22% year-on-year to INR 1,726 crores, and we continue to invest behind brands, distribution expansion and new category additions, including the recent addition of Madhur to our sugar portfolio and continued strong momentum in our Tops range of sauces and convenience food, which grew 23% year-on-year. Segment EBITDA came in at INR 104 crores with margin at 6%. We see this as the right trade-off as these categories mature, we expect the quality and durability of these earnings to keep strengthening and Food & FMCG remains our single biggest priority for capital and management attention going forward. Edible Oil delivered resilient performance in a volatile commodity environment with revenue up 15% and EBITDA per metric ton up 33% year-on-year, while Industry Essentials, supported by continued strength in Oleochemicals and Specialty Chemicals, delivered another strong quarter with revenue up 28% and EBITDA up 47% year-on-year. Looking ahead, our operating outlook across 3 segments remains unchanged. In Food & FMCG, we continue to target mid-teens revenue growth while maintaining EBITDA margin in the 3% to 4% range as we continue to invest behind brands, distribution and category expansion. In Edible Oils, we expect volume growth of around 5% to 6% with EBITDA expected to remain in the range of INR 4,000 to INR 4,500 per metric ton. For Industry Essentials, we continue to expect volume growth of around 8% to 9%, while sustaining EBITDA in the range of INR 3,000 to INR 3,500 per metric ton. We believe these operating parameters provide a balanced framework for delivering profitable and sustainable growth across our portfolio. Beginning this quarter, we have also refined how we present segment performance. For Food & FMCG, as the business scales and diversifies, we believe revenue, underlying volume growth and EBITDA margin are now the more meaningful lens than absolute volume, and our disclosures will evolve accordingly. Edible Oils and Industry Essentials will continue to be presented on a per tonne basis, given throughput remains a key driver there. We will continue to disclose segment-wise EBITDA on a consolidated basis and segment-wise return on capital employed on a stand-alone basis to give investors a clearer view of margin and capital efficiency across our diversified portfolio. Taken together, we believe this gives a more meaningful framework for evaluating an increasingly diversified Food & FMCG portfolio and reflects where we are taking the company. With that, let's open the floor for questions.

[Operator Instructions] The first question is from the line of Dhiraj Mistry from Jefferies.

Congrats on good set of numbers. Sorry if I missed out anything, but what would be the revenue? So given that your FMCG business is back to growth and you have done 6% margin, what would be the guidance going ahead? What kind of growth you are expecting and what kind of EBITDA you would like to maintain in this year?

Sir, this question is particularly for the Food segment?

Food & FMCG.

Food & FMCG, okay. I think this quarter, we delivered a revenue of INR 1,700-plus, which is again, a double-digit growth. I think the guidance which we can give for the rest of the year, I think we should continue with this double-digit growth in the food, both volume as well as revenue. And EBITDA margins, I would rather say we should not be looking at a 6% EBITDA margin for this quarter. What we should be looking at is the average of last 4 quarters, given that food for us still remains in a growth phase or investment phase, and we will still remain aggressive on the top line rather than actually looking at a bottom line. So 6% may not be the guidance, of course. The average of last 4 quarters or 5 quarters should be something which we should be consistently delivering.

So in double-digit revenue growth, when you say double digit, so 22% and 10%, what would be the guided range for that business?

Guided range in a sense for volume or revenue you are asking?

No, revenue.

Revenue guidance, I think guidance would be in and around, I think, between 18% to 20% is something we should continue to deliver.

And sir, on Madhur brand, can you throw some light what revenue this Madhur brand generates, what kind of margins and what kind of terms and agreement you have with Shree Renuka Sugars? And what are your targets going ahead for this brand?

See, the Madhur brand integration has got 1 basic fundamental objective is Madhur is one of the strongest brand or rather, I would say, the #1 brand in the country. But still Renuka on their own, we are finding it difficult to scale the brand given the -- in spite of the fact that brand is very strong. So the fundamental objective is to leverage AWL's distribution and grow this brand as much as possible. That's the objective number one. On the revenue, I think Madhur today sells close to 15,000 tonnes a month. Of course, our target is to scale it up further and make it close to 20,000 tonnes a month by end of the year. And therefore, average revenue that this brand today is generating or will continue to generate will be in the range of close to -- maybe for the full year I'm giving. Full year, it can be close to INR 700 crores, INR 800 crores kind of number.

And in terms of margins, what would be the margin profile? And is there any royalty payment which you would be doing to Shree Renuka Sugars?

Yes. So there is -- because it's a brand which has been licensed to us by Renuka. Brand remains with Renuka. So it is licensed to us, kind of marketing agreement which has been done. So we would be paying a royalty of 0.5% on the sales that we will do for this Madhur brand. And on the margin guidance, see, as I said, the primary objective is to make the brand big. And therefore, we would certainly focus more on the top line and volume. And therefore, the margin guidance would more or less remain same as what we would be delivering in our overall Food segment.

And sir, lastly, on Edible Oil business, you have done 2% volume growth. How is the scenario right now in the market, let's say, the destocking, which you have witnessed in Q1, it's largely over? And the palm oil remains volatile in a way, what, let's say, volume growth you would be -- 3% to 5% volume would be over the medium-term basis and you have done [indiscernible] this quarter. So for full year, it would be in the range of, let's say, INR 4,000 to INR 4,500 or it can be a bit higher in that terms?

See, this quarter was a little bit -- we had challenge on both. One is, of course, on one hand, you had a volatility. On the other hand, you have supply chain disruptions also. And the third, of course, because of the volatility, the sluggishness in the market, the trade was hand to mouth and the primary pipeline was more of dried up. So that everything happened in this quarter and therefore, it impacted our volume for the edible oil, and we grew only by 2%. But as we go forward, I think now we are looking like we are already done with July as the things are coming back, whatever issues that we had in Q1, I don't think we will continue to face. Volatility has now become a new normal. So I don't think that would anyway need to be discussed. But I think as we know from second quarter onwards, India gets into a festive mode and a lot of demand and after rains, particularly for edible oil demand starts coming in. So I am hopeful that the rest of the 9 months, of course, we will not -- I'm not giving a guidance of 2%. But I think rest of the 9 months, I think we should grow in a moderate single digit, which can be anywhere between 5% to 6% number on volume growth.

[Operator Instructions] The next question is from the line of Ashutosh Joytiraditya from ICICI Securities Limited.

So my first question is slightly on the longer-term vision, the 2030 vision which the company has. So just wanted to understand like what CapEx and what market share opportunity or the gain opportunity the company has budgeted in for the edible oils, and the foods and the staples business?

See, of course, our 2030 guidance we have recently given that we want to cross INR 100,000 crores of revenue, want to cross INR 4,000 crores of EBITDA and all. Of course, there would be a CapEx that will be there. I think not a specific -- I can't give you a specific CapEx that we would be doing in the next 4 years. But as and when the capacities would need to be added, I think we will do. Today, our edible oil refining capacities are running at close to 60%, 61%. I think next couple of years, it will get exhausted, and we may have to put up CapEx. Similarly, we will have to put a lot of CapEx in the Food also because still today, 50% of our food business is coming from the contractual or tolling operation, which we want to convert into our own operations. So steady state for a modeling purpose, if you really want, I think you can continue to take -- assume a CapEx of anywhere between INR 700 crores number for every year.

And my, sir, next question is that with this Wilmar ownership going up, like what kind of efficiencies the company can expect like be it the global sourcing thing or any other export opportunity or anything which you want to highlight in this regard?

See sourcing efficiency was even before also. So like sourcing is 1 of the core strength that we have. And that's also because the Wilmar is something which is to our side. And therefore, the market info that we get from Wilmar is like nobody else get in this country. So that sourcing efficiency was earlier also will continue, I think. The biggest, I think, leverage that we will try to make out of a new setup or a new structure is we will try and leverage more of R&D of Wilmar, which is there. They are quite big, and the R&D they have done in extracting value out of every chain where we are into, we will try and leverage that as much as possible. Besides that, of course, technical expertise, which they have, we will continue to take benefit of that as well.

And sir, next question, on this -- so we have seen the edible oil typically is very volatile and there has been initiative by the company and other companies also to basically improve the domestic sourcing of the oilseeds. So any ballpark number with this strategy of domestic sourcing, what could be the reduction in the overall reliance from the imports of the particular oils that is happening maybe in next 3, 4 years, 5 years? Any particular number or any sense on that?

So it's very hard to put a very particular number to be very frank with you. I think India's dependence on edible oil will continue for some time, not some time, but I think for a longer time because given the fact that still we import close to 70% of our requirement. But I think there is a good amount of work which is happening on domestic oil, particularly on the oilseed. One is the mustard and, of course, other is government is trying to push various initiatives so that we can have more and more oilseeds. So I think we are focusing more on this mustard segment, and we are growing very fast on that. So that itself will have some impact on reducing the import dependence. But of course, the import dependence will remain, and you will have to bear with the volatility which we see in this oil.

Sir, one last question, again, medium-term question. So this cross-selling opportunity so currently, we see if my assumption is correct, I think around 35%, 40% of the distribution outlets of the overall edible oil that is being used for selling food and FMCG. So any particular target which the company has to like in, say, next 1 or 2 years, how that percentage will change with that cross-selling opportunity for foods business?

Cross-selling opportunity is, of course, there. So all our oil distribution, which is there, I think we are leveraging that quite efficiently. And what we are basically offer is a basket to our trade, which includes not only edible oil, but also the food part also. So we keep leveraging between or we keep cross-selling between the food and oil. That will certainly continue. Again, that's also evident from the fact that the kind of growth that we have been able to achieve in the food only because of this cross-selling. We will continue with that. I can't give you a number to that, but only will say that this -- yes, this process will continue.