Chaman Lal Setia Exports Ltd. (530307) Earnings Call Transcript & Summary

Hello, everyone. I would like to welcome you all to Chaman Lal Setia Exports Ltd. Q3 FY '24 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers. On the call, we have with us Mr. Rajeev Setia, Joint Managing Director and CFO; and Mr. Ankit Setia, Executive Director. We shall begin with Mr. Ankit Setia, giving a brief on the company's performance and followed by a Q&A session. So without further delay, I would like to hand over the floor to Mr. Ankit Setia and then we can have the question and answer session. Ankit sir, you are unmuted. You can begin.

Okay. Good morning, everyone. My name is Ankit Setia and I'm the grandson of Mr. Chaman Lal Setia. I welcome you all to the earnings conference call of Chaman Lal Setia Exports Ltd. We will discuss the business and financial performance for quarter 3 and 9 months FY 2024. I also have with me Mr. Rajeev Setia, our Senior Joint Managing Director. I hope everyone by now has gone through the earnings presentation uploaded on the stock exchange website. Coming to the last year and quarter, it was like a roller coaster. First, there was a ban on broken rice. After that, came ban on white rice, after that, 20% duty was imposed on non-basmati parboiled rice. And if that was not enough, minimum export price on Basmati was set at $1200 and later it was reduced to $950 per ton. Now there is a saying in business, "it is supposed to be hard. If it were easy, everyone would do it." So I'm pleased to announce that we have been able to achieve our highest ever quarterly profits during this roller coaster quarter 3 of FY 2024. Our revenue increased by 13% year-on-year and 30% sequentially to reach INR 400 crores for the quarter. Our profits were at record levels during the quarter with EBITDA of INR 52 crores and profit after tax of INR 39 crores. Our EBITDA margins continue to stand in our guided range of 11% to 14%. During the 9 months, our EBITDA margins expanded by 228 bps to 13%, while our PAT margins expanded by 175 bps to 9.5%. Also note, the thing most important in the quarter 3, total revenue is INR 400 crores, out of which small packing, 1 kg and 5 kg sale is around 35%. There is also another saying in business, "they tell us, teamwork makes the dream work." The growth above is all thanks to our dedicated team for their hard work and efforts, which have played a crucial role in achieving such strong results. Our sales team was extremely aggressive last quarter in participating in various food exhibitions across the world, exhibitions like World Food Agro in Istanbul, Agro Expo in Uzbekistan, THAIFEX in Thailand and Indus Food in Noida. Also, our manufacturing, packing and logistics team worked very hard and they believe in on quality and on-time delivery. We remain confident about delivering good performance to our shareholders in the upcoming quarters as well. With our robust on-ground execution capabilities, strong customer relations and increasing distribution reach through exhibitions and a lot of traveling, we believe we are well positioned to achieve sustainable growth in the medium to the long term. So with this, I would like to open the floor to the question and answers. Thank you very much.

[Operator Instructions] We have our first question from the line of [ Mr. Harsh Beria ].

Am I audible?

Yes, Harsh you are audible.

Perfect. So congrats for a very good set of results. My first question is about the total volumes that we sold for this quarter. What was the number?

Ankit you can unmute yourselves and answer.

I've already done that. So as I told in my speech, the revenues last quarter is INR 400 crores.

Correct. My question was volume. So like how much was the volume we sold -- this in tons in this quarter?

Okay. I would tell you the approximate figure, may be around 37,000 tons.

That would imply INR 15 per kg EBITDA or INR 14 EBITDA. Is that correct? That is very...

No, no, no, wait, wait, wait. You're asking me the volume, right?

Yeah.

I need to check it.

The volume is correctly 39,444 tons.

If the volume is, let's say -- I said 37,000, the correct volume is 39,000.

39,444.

So if you divide INR 400 crores by 40,000 tons, just for the sake of calculation, it comes to around INR 100. So I don't know how you're getting INR 50 (sic) [ INR 15 ].

No, I'm just talking about EBITDA per kilo. I think earlier we were doing about INR 10 per kilo and that seems to have increased quite significantly this quarter.

No. But the margin reported is, EBITDA is 13%.

Yes, sir. But just in terms of per kg not in terms of percentage was my point.

So if the average is INR 100, the per kg should be INR 10 per kg.

So if it was INR 10 per kg wouldn't be INR 39 crores on the 39,000 ton volume.

No, no, no. The revenue is INR 400 crores. So if it is -- okay, maybe I'm telling the PAT.

Okay. And my second question is about our domestic sales. So sir, this year, we are seeing quite a bit of decline in our domestic sales when we were focusing on trying to increase it. Can you give a bit more color around the domestic branded sales?

I have told in my previous meetings also that where we make more money, where we are able to push our brands more, we are more focused on those areas. So if the change is coming, that means more money is coming from international sales. If domestic is less profitable, why would I increase my business in domestic business.

Got it. And the last question is like our diabetic rice segment, how much is it as a percentage of sales for us right now?

I don't have the exact percentage but during this year, our sales have doubled.

It's increasing day by day. It's acceptance is all around. I think in this quarter also, we did very good business.

We have our next question from the line of [ Chirag Shah ].

My first question is just a recap, last year same time, we had a very abnormal margin of 15-odd percent. So what was driving that? Why I'm asking is, when I do a Y-o-Y comparison, your raw material cost seems to have jumped. So if you can just basically help us understand what has happened because sequentially numbers are good. And related question is also, why I'm asking means, so just to give you a flavor is, when I look at LT Foods results Y-o-Y, they have not seen this kind of jump in raw material costs on Y-o-Y basis. So that is the first question I have. I'll come -- 1 more question later.

So Chirag, you are saying that the last quarter, our average rate of raw material, what Chaman Lal Setia has taken versus our peer, our price is higher than them?

Not your price. I'm looking, sir, Y-o-Y versus -- so if I look at Y-o-Y, your revenue has grown reasonably well. Okay.

For 9 months?

No, no, for the quarter. Just for this quarter.

For the last quarter, yes, that's my counter question to you that the thing you're comparing, is it the average price per kilo of the raw material.

No. Okay, let me rephrase. When I look at your revenue growth, Y-o-Y for Q3 and when I look at your EBITDA growth Y-o-Y, your EBITDA has undergrown significantly on Y-o-Y basis versus compared to the revenue growth. Your EBITDA is largely flat, while your revenue growth is a reasonably good number. Now the key difference is, your raw material cost that is the way we disclose, has grown at a much faster pace than your revenue, which has impacted your EBITDA when I look at Y-o-Y comparison versus last year same time. And when I look at your last year margins also, you had a 15% EBITDA margin last year.

Does it mean that last year buy -- purchase prices were higher?

He's talking in terms of quantity. Share quantity is bigger than last year. I mean, this is what you're saying?

Yes. So for example, your RM to sales last year, if I look at -- was 74%, it is 78% right now. Your revenue is INR 400 crore versus INR 354 crores, right, on Y-o-Y basis?

Right.

So there is reasonably good growth, which is over there.

But what you're asking is only 4%.

As a percentage to sales, sir, it is 4%. And when you look at absolute growth, it's far higher and that's why your EBITDA is flat Y-o-Y, INR 51 crores versus INR 52 crores, despite a almost 10% or 10% plus revenue growth. So what had happened last year or how do we look at this? Was any abnormality last year or can we -- or there is abnormality currently and we should aim for a better RM to sales ratio? That is my question, sir.

I would say each year is different, first of all. Like I explained that there were too many things happening last quarter. There was -- first, they put a ban on broken rise. They imposed a duty on parboiled. I mean none of them had any effect on us. But each year is different, the timing. We are buying our raw material, prices are going up and down, timings can be a little late. Sometimes our buyers are placing orders where the price of raw material is at the lower point. Sometimes they come late. And by that time, some prices have gone up, maybe that has affected.

Okay. Okay. So this is one. Sir, second is, you mentioned that small packages is 35% of your revenue, right?

Absolutely, yes.

And up to 5 kg. So now how does this impact -- first of all, what was this number sequentially or last year, however, you want to share?

I think it would be maybe 30%, is what I estimate.

So 30% in Q2 of F '24 or last year same time?

I would say maybe last quarter, Q2 or Q1, average is 28%, 30%, 32% like that.

Now if small packages is going up, in principle, does it mean your profitability goes up?

That is true. Yes. That is one of the things, which goes up. But I would like to explain you, for example, the revenue is INR 400 crores, right? There is sale happening in bigger packagings, let's say, 30 kg and there is sale happening in 1 kg and 5 kg. So 1 kg, 5 kg is the packing, which is reaching direct in the customer's house which has been picked up by the customer when he's going to the supermarket with the brand name in his mind, right? And the other bigger packing is like which is going in bulk to catering companies, to, let's say, restaurants. So over there, the consumer doesn't know what is the brand name. This is 1 part. Of course, the profitability is higher when you're doing smaller packings. #2, there is an investment when you make 1 kilo and 5 kilo. So once our distributor or customer has done that investment with us, it's very difficult for him to change us. Like I give another example, if, let's say, I have to make 30 kg bag or 50 kg bag, I can make for, let's say, I can make 1,000 bags. But when it comes to 1 kg bags, minimum order is 100,000 bags. Minimum order is like 5 containers and there is an investment.

Ankit, you have very well said and very well explained, let me little bit more add to it, for layman understanding, as well as our investors. Look, this 35% share in the current quarter and in the preceding quarters, because this is our endeavor to increase this business. Actually, 1 kg and 5 kg packing in private label of the customer is a very difficult job. It's a value-added product we make for them. And it's very difficult. And nobody -- most of the people cannot do. You have to have a very big infrastructure. You have to have very professional team to work on these packings because it's the packing and expiry dates, language of different countries have to be printed on the pouches. We have to make so many pouches for them according to the demand. It's a tough job. Nobody can do. People can do, it's very difficult and the kind of size we are doing, I think it's unparalleled in the industry. So it's a very paying product for us and we want to increase this. This is a value addition. We are serving our customers. And once the quality is going good, they don't run away from us. That's the...

Add on this, sorry chacha, I add to this that a poly pouch 1 kg, 5 kg development takes around 3 months. And the bigger packing, it is made in like 4, 5 days. So anybody who's buying a smaller packing, it's -- if he wants to shift, it's a process of 3 months plus investment. So it's very difficult to leave this business and it is always profitable, yes.

Yes. So that's the precise point I was trying to refer to that again, when I -- sorry for harping on this point but when I look at the Y-o-Y results, your revenue is of 13%, your cost of goods sold is up 19%. Okay? This is on Page 19 of your presentation, I'm referring to. Now this has a direct impact on your EBITDA because your costs of raw material -- your cost of goods sold has outgrown your revenue growth. And hence, your EBITDA seems to be flattish. So that is the reason I was trying to understand, is there -- was there any abnormality last year same time or not?

Chirag ji, like I told you, last year our buyers must have placed their orders at the time where raw material price was cheaper. Maybe now, it was a little higher. But see, I like to make here a point that our buyers are extremely strong and they have placed their orders. And based on that, we are holding the stock, we are having in site.

And Chirag, it's very simple, it remains between 11% to 14%, it's 12%, 13%, it's an excellent EBITDA. That's what.

And sir, secondly, internally, you look at absolute EBITDA margin or you look at our per kg kind of profitability for your internal evaluation or benchmarking that you do?

No, we look at both the things.

Okay. Look at both the things.

And because they are, I mean, directly proportionate to each other. So both the things are important.

And sir, last one. I'll come back in the queue again.

Chirag, I will a little bit add to it, what Ankit said, look, the true marker of any business is profitability. That is our -- one of the motto -- business motto. We check each and every container moving out of the factory, gives us something or takes anything from us. It's going at a breakeven. It's going at limited profit or it's going at a high profit, we evaluate every single container. So I mean, nothing is ignored. So our -- obviously, our always endeavor is to gain good profit.

Sir, last question. First is on this Red Sea issue. The freight rate, the Red Sea issue because of which freight rates have gone up, so does it impact our exports in any region, first? And if yes, who bears the cost? Are we required to bear -- I know it's a short-term period and we don't know how it will play out, fair point. But given the past experience that we had, so how are the terms being done today? What is the discussion that is happening today?

Ankit, let me explain it. First thing first, after the COVID the ocean freight has gone so high, so exorbitant, to some extent, our customers have become habitual. They know these kinds of shocks will come and go. Ukraine war happened, a few things happen. But now because of the Red Sea, of course, the ocean freights have gone up but not the way it had gone up in the past, first thing. So I mean the customers understand everything and very quickly absorb, very quickly absorb. They waited -- some of them, my customer waited for 7 to 10 days. Then said, go ahead and ship the rice. And yes, to protect us, we are offering all quotations at FOB price and add the actual ocean freight at the point of shipment and make CIF shipment because CIF is very important. We have to have our cargo insured till destination because entire payment is not received in advance, partial is there. If something happens, maybe the buyer won't come across. So we -- it's important for us to insure the cargo till destination and the ocean freights are -- whatever they are, they are high or low, we add on to it. And otherwise, it is taking 14 to 15 days extra. It goes via Africa now, Cape Town. So it's the just time gap, to begin with, it was little gap for the customers. Now everybody has absorbed. Now, it's the food, people are all over the world, sometime war, this, this, a very different eventualities are happening. So people protect them for their food, even the countries now they are doing that. Ankit, you want to add something?

Chirag ji, I just want to tell you the process, how it goes. So a regular buyer would, let's say, place an order on 1st of February, okay? And the contract will be signed on FOB basis because the order also is going to take 10 to 15 days to get processed and to move for the port. And in volatile times, prices of freights can go up, they can even come down. So when the container is about to arrive at the port, we inform the customer that this is the freight we are getting. And sometimes, you know the customer also because they also have contacts with their freight forwarders, they can also get lower freights. So whoever is getting the lower freight, we use that freight forwarder and we move the cargo according to that.

Okay. So the risk, the customer is bearing the fluctuations in freight rate. That is the way to understand.

If anything like this happens, our contracts they convert to FOB terms and the freight is decided when the container is reaching the port, when it's near.

And which regions are we affect -- which regions -- Middle East is affected right now?

Yemen is affected -- countries are affected. I would not say regions. Yemen is affected, Israel is affected, 2, 3 countries like that.

And it's affected also...

So in that case, the customer also understands because they also have their contacts. So they negotiate the freight and they tell us that this is the freight forwarder you can use.

Because it's a force majeure situation, they cannot push us that even if we have sold CIF in some cases, still we have been able to have [indiscernible].

And Chirag ji, it's a normal practice. It is not something new for us. I'll give you an example. Like in U.S.A., we deal with House of Spices. So House of Spices are not only importing rice, they are importing multiple products and they have a contract with Maersk Line, for example, for 1,000 containers in a year. So they get a better freight than even us. And they tell us that this is the freight forwarder and you can use. We are already in that setup.

The next question is from the line of [ Deepak Pawar ].

Congratulations on a good set of numbers. My question is that this ban of -- the non-basmati ban, going forward we still feel that the next year is going to be a low production year, not just for India but world over. So what are your views? Will this ban will continue? Or there will be upliftment post-election?

Okay. So the Government of India has put a ban on the private exports but they have formed NCEL, which is now taking the -- now they are taking care of the exports and it is happening G2G. So earlier, it was happening from private-to-private people. Now it is happening from government-to-government and NCEL is putting tenders, which any private person can bid on and can supply them rice and this is how it is happening. So it's not like a ban, only the players have changed. It's like that.

Can you give the regional bifurcation of the same?

No, no, repeat question.

Can you share the regional bifurcation of the sales for this quarter? Region wise sales.

Like international sales?

Yes, exports.

So major, of course, is GCC countries. And then we are very strong in U.S.A., Canada. And in the East, we do a lot of business with Australia, Singapore. I mean they would be -- we export to more than 80 countries. So major ones would be in GCC and in America -- American states.

Canada also.

So Ankit ji, can you name how much percentage did we export to GCC of the total since how much we have to the U.S.A, I mean the major ones, not the -- all ones, of course.

There are too many countries for me to tell you but top ones I've told you, would be GCC and towards U.S.A.

And Canada, too.

[Foreign Language], what I meant was U.S.A., Canada.

USA and Canada together. It is very good market for us.

Ankit ji, another question would be that we have seen a significant increase in a -- 29% increase in interest cost on -- as well as 25% in employee cost for Q3. On 9-month basis also, 29% increase in interest cost and 16% increase in employee cost. So what are the reasons for the increase?

You have the figure also, what is the interest cost, I mean, in terms of crores. If you can pull that. I'm sorry, I don't have them.

Sure. So say, for example, year-on-year basis, we'll see Q3 '22 -- last year in December, the finance cost was INR 1.93 crores, which is right now INR 2.56 crores, so basically year-on-year.

For a revenue of INR 400 crores, how -- I mean, INR 1 crore increase is not a big...

No, I'm not saying it's unreasonable. I am just asking why it happened so.

I absolutely, I absolutely understand. In terms of percentage, it will be -- it will look like 100%. In terms of value, it is not big. Chacha, if you can tell how the year has gone.

Yes. Actually, this year, look at the current quarter, we have very good sales and we are expecting we have -- most of the material is already sold, we have very large inventory now. And obviously, our borrowing is relatively higher as compared to the corresponding period of the year. Even I have increased my bank limits. And that's very cheaper money. We have subvention also of 3%. Bank charges 7.50%, 7.75%, sometime close to 8% also. We get 3% subvention, it is 4% to 5% interest. It's peanut, if we just ...

Also maybe the orders have increased. We have more procurement this year.

Orders have increased. That is what I've told you, our inventory is high.

Maybe more orders are yet to be processed.

We are going -- yes, 1 thing I wanted to share with all, we are participating in Gulfood and if somebody is traveling to Dubai these days, is most welcome to visit to our store. We are in the concourse, where you don't have to buy even ticket, you can straight enter. And this is the biggest food event, every year we participate because here minimum from 40, 50 countries, our existing customers come. And we are always very optimistic and we'll get good business from this and we get it, always. And the relations get renewed with so many existing customers, at least 70, 80 customers come, at least, always. And then new ones are added.

On the same -- my next question is on the same lines. We have this Gulfood between 19 February to 22 February, I saw you also have a stand there. So my question is that, generally, every year, when we participate in this kind of events, what is the general order value that -- the increased order value that we get? Any average?

You mean to say the new orders, we are -- on average we get?

New orders. Yes, new orders.

Orders are already in the hand. You're just meeting them.

And new customers also come.

And then the people who are following up for so many years, they also come and meet you.

Yes, that is what, any new orders that you have acquired?

From the past experience?

Yeah, past experience. I want -- just wanted the historical averages on those front.

Very simple. Very simple. In every exhibition, we get new customers. And Dubai, in particular, you see Ankit is going, I'm going, Sankesh is going. I don't know, even Vijay takes one day flight and comes. And of course, staff -- sales staff is also going. The reason is, many existing customers are coming. If we have to meet them, it will take us 1 year to move around and still we will not be able to meet. It's a forum where everybody comes and we meet each other. And meeting each other renews your business, it prolongs your business also. So always the new customers, some of the customers are not satisfied with their existing supplier. Some new people come in the business. It's the food item, it -- people are after the food business. So there is ample opportunity and we encash a bit, right.

For example, let's say, you are following up with somebody who's based in Africa. Okay, let's say, Congo, all right? So it's impossible to go to Congo, meet him. And it's very easy to invite him to Dubai and you can sit across, you can do your business. I'm giving you an example, it can be multiple countries, multiple customers.

We'll move to the next question from the line of [ Mr. V.P. Rajesh ].

Sir, first question, just to make sure I understand, your inventory is around INR 626 crores. So typically, you hold the inventory for 6 months or so. Is that sort of the right conclusion there?

I didn't get the first line. Can you repeat it, please?

Your inventory worth is INR 626 crores as per the presentation.

Yes, INR 626 crores. Yes.

Right. So I was just checking that your inventory is generally for 6 months, like you will hold the inventory typically for 6 months. Is that the right way to think about the business?

No. That is not true.

That is not true.

Our inventory is based on the orders we have.

If you simply compare with the just ended quarter, INR 400 crores plus is our sales. So that way to maintain INR 600 crore is not higher. And secondly, you see the crop is one. We have to have some rice for longer period also but it's simultaneous sales, around 70%. I think, Ankit, have you calculated it's 70% or 75%? This is what I have been told is sold as against these sales. How much it is? Did you check it?

I'm sorry, say again, please? I was confused.

I mean, out of this INR 600 crore plus stock, I have been told by the sales team, our contacts and they have added, it's around 70%, I've been told.

So now, we would be short. We would be short.

Means?

Means we have -- I mean we have more orders. I mean what figures you're getting is 31st December, I'm talking like we're in Feb now.

No, no, no, 31st December is gone, 31st I'm comparing we did more than INR 400 crores sales. This is the stock of INR 600 crores plus is justified. We have to have that because we do orders and it's 1 crop in a year, means some price we have to carry forward. Some varieties will be carrying.

So I don't have the exact percentage but as you know, we do our business against orders. We get orders only then we procure.

I have been told, this is 70%, 75% strictly. So this is what my team says.

Okay. So just to clarify, that was by the way very helpful to understand how to think about your inventory. So see, the question then is that your acquisition period is generally the season, right? By February, you would have acquired everything. And your orders will be coming throughout the year. So how do you manage that? Do you acquire in the open market when you get new orders?

No, that is not true. The procurement can happen throughout the year.

Okay. So you are procuring throughout the year.

We are procuring all throughout the year. It's not that I have to do it in 2 months. If I feel the prices are high and my customers aren't accepting higher prices, maybe I don't even buy, I wait.

I see. Okay. And then the -- on the debt and cash balance, what were those figures for December end?

Debt and cash balance, we don't work on much debt. I think my uncle can tell better.

Debt, I think, was around INR 150 crore borrowing of the bank.

Okay. INR 150 crores. And cash, you're still maintaining INR 250 crore plus?

Yes, yes. Because we have current assets also, debtors.

But let's say, we do a revenue of INR 1,400 crores in a year, for example, so we are doing practically INR 110 crores, INR 115 crores worth of export sales every month. So taking a debt INR 150 crores, that can be returned very quickly.

So it's already as on the date, it is around INR 100 crores, INR 110 crores. And every single year as a company track record is for 40 years, every year, we borrow and every single year, we adjust the account. And after moving from PNB to HDFC, we have borrowed and adjusted the account, even deposits also in the bank. They are very good in [indiscernible] assets for us, intangible benefits we get.

Okay. And my last question is in the GCC market, especially in Saudi, KRBL has been having issues over the last, let's say, 12 months to 18 months. So have we been able to acquire some market share because of that?

No, I don't want to comment on my competitor. But...

But let me ask you the other way then are your sales increasing much more in Saudi? And you don't have to tell me the number, I'm just trying to get a sense of the trend.

No, no, no. We are not specific about any country. We don't know which -- because we are into multiple countries, I think it's 90 countries, 92 -- we have already reached 92 countries. But 70 -- most of -- from the most of the countries the buying is going on. It's a very wondering situation, one country suddenly goes up, one comes down, one goes up...

So Rajesh Ji, we are after -- we are basically after profitable customers. It doesn't matter he is in Saudi Arabia or he is in Haiti. We will only go after them. We have all the data. We know who are the right customers and we only go after profitable ones.

Profitable ones, timely payment, everything.

I mean, there are customers in Saudi Arabia, you can do high revenues with them. Maybe you can do INR 1,000 crores turnover, INR 1,500 crores turnover, but in terms of profitability, it will be less than 2% in working with such customers. So we avoid them. We are only looking for the ones where we can get good margins. Who value quality, on-time delivery...

We very rarely to very tested customer, old customer, we give a little bit credit, otherwise, we don't sell on credit. It is only cash against them.

Next question is from the line of Mr. [ Sanjiv Damani ]. I will ask Sanjiv Ji to unmute himself and ask the question.

Sir, actually, a lot of inventory and the cash positions have been discussed, I mean, if a specific figure of inventory -- finished inventory available with the company as on 31st of December, if it is available, kindly just tell me.

That, I'm sure, is declared, sir.

Ankit, he means finished. Finished means -- there is Paddy also. We -- of course, we have separate record of Paddy and rice, but maybe we have not drawn the figure, right?

No problem sir. No problem. Absolutely no problem. Okay. Sir, last time and in last con calls, we have discussed about adding more and more products other than rice, some other edible items. So is there any progress there? And as to the marketing through the e-commerce and all. So is there any progress or through modern trade? Is there any progress on that front?

No, e-commerce business is gradually getting up, getting higher and higher. And the best part is we are getting repeat orders.

Okay. That is very nice sir.

So we are getting repeat orders and it's gradually going up. We are also started, I've just paid -- a few days back, I wrote a check of around INR 1 lakh or something, the team told we are advertising in most of the social media channels. So let's see what happens, but it's -- We have also started selling 30 kg packing, 25 kg above backing also online. And every day, something is happening.

Very nice sir. So this is directly from our own website we are selling, or we are going through Amazon or anybody -- any other -- Flipkart or any other...

We are through Amazon, Flipkart, Jio Mart, 3, 4 channels we are doing and of course from our site also.

So D-Mart is also included, sir, no?

I don't think D-Mart, not yet.

Okay. No problem, sir. Sir, now I'm coming to the overall scenario of the last year, which has been completed. So how was the crop of Basmati and overall Indian conditions of the rice arrival, quantity-wise, volume-wise, can you kindly give some light on it for my better understanding of the rice as a product in India?

Ankit you better speak.

In terms of Basmati, there is no change. It's the same what it was last year. In terms of non-Basmati, there is a decline in production. And because -- that is the reason why government has taken steps.

Okay. So sir, we are not affected because we deal only in Basmati rice, which I understood from you earlier.

You can see yourself. It was like a roller coaster like I said like in my speech, that was like a roller coaster quarter. So many things were imposed, and you can see it is the best quarter what we have achieved. There were so many -- I would say there were so many hurdles. But still, you can see for yourself.

Sanjiv Ji, I should be very, very candid with and clear with you in this industry how many people are no longer existing. Very huge bad debts have happened. And the company is -- I mean, the company's -- these principles are such that we are going through all in all.

Got it, sir. So sir, a lot of ethanol plants are being placed in Odisha, Chhattisgarh, then Telangana, et cetera. So will it create a further shortage of those kinds of rices which are going to be consumed in all these plants? And in that way, raising our procurement prices for Basmati in the days to come or our prices are stagnant since last year.

Let me answer this question. This issue was recently 3, 4 days back discussed with one of the persons who is a consultant to these things. Actually, you see what happened initially rice has been given to them, broken rice has been given to them for ethanol and sugarcane also has been given to them for ethanol manufacturing. But suddenly, the government has withdrawn because rice as a food is more important for the government. And they have to control the prices. And the people who are manufacturing ethanol, they are in trouble these days because of no raw material for manufacturing. Obviously, they have to go for other products. I mean, like horticulture, like this straw to make ethanol from different products. But as long as there is very larger supply of food items, then if it is spare, they will get otherwise, the food is more important for the government. Plants have come up.

So -- and our procurement price of raw materials over last year, is it same? Or are we paying more now for Basmati that we buy from market?

Our procurement is higher this year.

Approximately how much percentage, sir?

I think it's 30% higher, I think, 25% to 30%.

The next question is from the line of Mr. Ayush Mittal.

So Ankit Ji, it's great to hear you on the call. I've been a very old shareholder of the company for more than 10 years and have followed the company, interacted with Rajeev Ji several times, and it's great to see the journey that we have delivered. So when I look at our numbers, I think it's superb the way we have done it over a long period of time with the consistency, with the size we have come to, more than INR 100 crores of profits now. My questions to you Ankit, are 2, 3. One, given that we are in a rice industry, which is a very matured industry and you have created a niche wherein you have been dealing with small customers, which give you better profitability and you're able to control your supply chains and all those things better. What do you think you can do now on the growth front, given the cash flows you're generating? So you are at a point where strong cash flows are coming to the company, these are free cash flows. The industry is such that it has matured, it's not easy to take away big market share. So what kind of volume growth do you anticipate the company can deliver, one? Second, what do you plan to do with the cash flows going ahead?

Okay. Ayush Ji, the model we follow small customers, high-margin customers, there is still big scope in that. We're still not -- I would say still there's a lot of scope we can increase our sales based on that model. It's not saturated, this is what I wanted to say.

What kind of volume growth do you think is sustainable growth for us in terms of volume because pricing is something that is not in your hand?

Ayush Ji, you should look at the previous years, how the revenues have gone up. I don't want to comment about the future. You should draw an example from the previous years. This is what I would say. But I guarantee you, still it's not saturated. There are still a lot of -- there are still a lot of customers, there are still a lot of markets where this model can really work. And then I would say, if you look at my peers, maybe the export they are doing is not more than INR 3,000 crores out of their total revenue. This is the highest, and we are already halfway through. So I mean, our model -- we are going to get more and more customers.

Okay. Second, what about the cash flow, like the kind of cash flow we are generating. Earlier the company was small, and the cash flows were being invested for growth in terms of inventory and so many things. Today, these are very sizable cash flows. Certain points of the year, we are sitting on surplus cash. Where do you think we can deploy it better for the growth of the company or if there are any other areas that we are planning to tap...

I think the way we are growing all these cash flows are going to go in our business in coming years. This is what I think.

In terms of building inventory for growth or what...

Our customers are becoming bigger. And for them, we have to -- we will use this money in buying their raw material. This is what I think.

Even otherwise, it is not only the inventory, it is not only the CapEx. You see to run shows all around the world it needs a lot of money. You see the moment we ship. I mean the shipping bill is generated, it becomes a debt -- debtor. So it's spread debt all around the world. It's something in transit, to port, at the port, in the sea, at destination ports. So it's...

But sir, the way our receivables are it is very well managed. So we...

Still it needs quite a bigger investment.

But you're right, Ayush, the major money goes in buying the raw material, paddy or rice. And the way things are going, I think it is going to go into it.

Of course, we are open to opportunities if something really comes, it has to be in the food. I will not go for anything other than food because our expertise is in food. We can go for any food, but it matters. You never know anything open. We are open to these ideas. We keep on thinking. Vijay and me sit together and most often we think, yes, what should we do now? Safe business and we'll see it. Not right now something straight plan, but you never know it.

On the Gandhidham unit we were expanding and we were also exploring of -- evaluating other products. Any updates on that as to what we have done on that side?

Because of the cyclone, there was -- most of the roof was off. And we have fortunately, unfortunately, there is C type roof. The advantage of that kind of roof is these birds don't come in the warehouse. They have no place to sit. So that was very important that bird's excreta comes in the rice is a big problem. So to save that we made that kind of roof. But once it got broken, it became hell off the job to remove the broken part. It was too high. It was too risky. We had to find experts. Now, it is done. So let's see in the coming season will be -- that will be ready for the production, processing of rice and the opportunities are there because support area and Gujarat and area around that has a lot of food products, which has good scope of export. For example, PDAT is there, sesame seed is there, haldi is there. These so many things and other products. But we'll go in food, not in anything else. I have this in my mind, and I'll definitely go for it. I still get customers for that. But unless until I have no specialization of buying, and I mean having good quality, I do not go for that.

Okay. Sir, by, I mean, not evaluating like these days many of the companies are investing and doing very well on the ready-to-eat products, recipes. That is the real value addition beyond rice, cooked rice or recipes. Why are we not exploring something on that side?

You are right. This is for the future, but I feel what we are doing right now for -- in terms of exporting Basmati rice, there is still a lot of scope, untapped scope.

One thing is because when I travel in Europe and this part of the world, I've seen some of the restaurant, they give ready-to-eat rice -- ready-to-eat vegetable to you. They just warm it up and put on your table. And the taste is hopeless. Something which is not really very good will not sustain in business. So if somebody is making excellent, that's fine. But most of people are coming, going, this thing is happening.

Okay. Sir, last question from my side. Sir, of late, I think the prices of Basmati rice are falling. Is that right? If yes, then how will it impact us? And -- yes.

It is absolutely right, the prices are coming down. But like I told before, all our inventory is based on the orders placed by our buyers.

So margin compression can happen or that is also insulated?

I will explain to you. [indiscernible] my stock because it's something which can hit hard also. When there was this ban, MEP, the prices had come down, we procured a lot. I said it in my last call also. And then we have -- that is the reason for good profitability also of this quarter. And now a few material is purchased at the high price also according to the market price and according to the market price, it is sold with the reasonable profit which Ankit said. And again, opportunity is coming of buying. It's -- And that's the business wisdom there...

To answer to you, I don't think there's any effect, this is what I meant.

Overall, it would be good for us. No. It's an opportunity to get at low price and sell it.

Okay. Sir, Ankit, last one suggestion from my side, given that I've tracked this company for very long, and I believe we are doing lots of right things. One suggestion I have is that the dividend payout ratio, if you see this part, though we show that our dividends are rising, but that doesn't matter because our profits have also grown at a very, very fast pace. And if you see the payout ratio, it is hardly 3% to 4%. Why for a company like us, which has grown to a size where we are generating cash flow, I think it's a very good idea that we should look at our dividend policy, which should make it at least 15%, 20% of our net profits as a payout. And to put it efficiently, we should even consider a buyback. If you want, we can discuss more on this, but I think this will be something very, very beneficial for the company and also will help unlock a lot of shareholder value, which has not been happening for quite some time despite the great performance.

Very, very good suggestion. This, what you are suggesting, it has been suggested by others also -- few people. They say you're making so good money and you just -- you feel it's 50%, this is how you consider it, but it's on the number of shares. Payout from the net profit, percentage should be on the net profit. I have been suggested and taken a note of this.

Great, sir. And consider buyback because dividend [Foreign Language], company will pay 20%. It will be tax free for all the shareholders, if you do a buyback.

Buyback Is something else.

That will be -- that is a way by which companies are doing better dividend payout in a more tax-efficient manner and lower cost to the company overall.

That I have not considered as of yet, but...

But do explore sir. I'll discuss with you if needed. That's a great thing to explore.

We will move to our next question from the line of Mr. Chirag Shah.

Sir, just a follow-up. Sir, you indicated that -- sir, my question is Basmati production is flattish this year. And generally, industry-leading players are looking for a 7% to 10% kind of a growth in volumes. So does that mean there could be higher costs involved in buying paddy/rice, one? And can it have an impact on profitability of the industry? That is -- so this is one question I have, if you can help us understand.

Ankit, let me answer. Look very simple. First thing first, the size of the crop is 10% to 15% higher this year, one. Secondly, you see it's the opportunity business also or your business wisdom also plays. When the prices of -- when the MEP was imposed $1,200, suddenly, the sales have come down everywhere else. The company had cash flow, we bought rice, the cheaper rice, which helped us to earn. Thereafter, the prices have been high. I've explained earlier also, because we could sell comfortably and we sold at margins and we procured at a half market price, which was relatively higher as compared to the preceding period. Now again, the prices have come down. We are buying again. We are waiting for them to come down more. The more cheaper we buy, we have very vast market, we can sell. We know there are -- in the international market, it's not like that the prices have come down and somebody sitting remote in Canada doesn't know the price has come down. We can...

We have one question from the line of Mr. Rahul Paliwal on the web chat. I will just narrate the question for Ankit and Rajeev ji to answer. Can you put some light on innovation side? What are the key focus area and growth on those lines in the last few months? How -- on those line...

Ankit, you reply it. You discuss with your dad these things. You are B Tech also, and a ready-made scientist now.

Okay, you finished your question?

Yes. So one part of the question is asked, if you can just answer that, and then I will take the other one.

You were asking what innovative things, the company is doing?

R&D of the company.

So I will just repeat the question, kindly do put some light on the innovation side? What are the key focus area and growth on those lines in the last few months? How are we moving towards higher value chain. So this is one part of the question.

Okay. Anything else or this is the only question?

The second question is -- another would be on the -- about fragrance of Basmati rice. Are you trying to evolve old genetics of those seeds? There is a larger mind share of those fragrances in the old generation, and you can quickly catch up market shares.

Okay, the second question is more towards the government or the scientist side where new varieties are coming. Some of them have higher fragrances and some of them have lower fragrances. Of course, they have other advantages like they need less water or they are more resistant to the winds like that. So this is the answer to the second question. About the first question, in last 3 months, I don't know if you'll understand, but we've been working on our plants, our processing plants, how to automate them, how to synchronize them, how to make things more stable in them. This is what innovation we are bringing in our processing units. Like I'll give you an example. Now we are moving towards PLC based, earlier it was all manual. For example, if the drying of raw material was happening in, let's say, 20 hours. So because it was manual from 20, it would go up to 30 hours also or from 20, it will come down to 15 hours also. So now we are creating a PLC where everything will be AI. It will be done by a computer. All the parameters will be measured by the computer and let's say, a dryer would be running on AI based, what is the humidity, what is the temperature. So we are basically trying to get better controls for our processing units. This is the recent work.

So we will take that as the last question given the time constraint. On behalf of Anand Rathi Shares and Stock Brokers, I would like to thank Ankit Setia and Mr. Rajeev Setia for the call. And I would also request you if they have any other concluding remarks to make. Rajeev Ji, if you have some concluding remarks?

Concluding remarks are that you see what Ankit said in his phrase, one second. Teamwork makes the dream work. That is a very good motto which we follow. Vijay, my brother, is all the time looking at the efficiency of the plant, how to save the energy, for example, husk is used, energy is made and he's not letting it wasted at all. And the burning of the husk, it is burned to the extent the ash from black becomes white. This means the entire energy is extracted out of that. He has this kind of part and the way Ankit has just told that automation is being put in the plant, that everything is happening on its own with the major system, manual and automation has a difference. I was recently in Dubai about 2 months back. What I saw 2 people are sitting in the office on the computer, they are managing the loading, unloading of containers that was happening. The machine is picking up, machine is putting up, it's something which used to be with so many people, now with few people and automation. This kind of things when we learn and see around the world, we try to implement in our system also, one. And the second part, Ankit, teamwork is the motto. Ankit and Sankesh travel around. Right now, Sankesh is in Europe, he is going to meet 3, 4 customers, very important one. After that, he will be going straight to Gulfood. From this side, we will go. I mean sitting at home, you don't get business. You have to move around and work hard. And the last is within the staff with the harmony with the staff, systems are there, the business goes.

I would like to say something about the rice industry which I learned from my grandfather or my father or my Chacha Ji. Each quarter, you can know about yourself when you're dealing in rice industry. So let's say, the quarter ending September, this is the quarter where I feel there should be no borrowing from the bank, right? Any rice company, which has no borrowing, let's say, in the quarter ending March or June or September, it shows the strength that there is not much borrowing from the bank, they're working from their own money. December ending quarter, which just happened, it is important what is the average per kg cost you are taking in terms of evaluating your profit. It's either -- I think there's a formula to it. Your buying price or market price, whichever one is lower. So if you're taking a higher price, of course, your profitability will be shown higher because you're anticipating that you'll be able to sell it at a higher price. So March quarter after that, it is important that you don't have any bank borrowing. December quarter...

Ankit, let me correct you. Maybe people will -- it will be thought other way around, when we evaluate the stock, it has to be at the market price or cost whichever is lower.

Whichever one is lower? So if any company is taking it higher than this...

Stock taking was going on every day -- every moment, sometimes...

What I'm trying to say is if any company is taking it higher, my -- formula my Chacha Ji gave, then this profitability will go up and then it is not the right picture because he's anticipating that he can sell it at a higher price in the next quarter. Now coming back to, okay, this quarter only, it is also important to note how much loan the rice company has taken. If the loan is less and the revenue is higher, of course, again, it shows the strength. And the last thing on the 31st March, it is important to see what was the credit given by the rice company to his overseas buyer. What is the recovery which the company has to do. So let's say, if the quarter is INR 400 crores and you have to recover INR 600 crores or INR 550 crores from your buyers, that shows weakness. And if the quarter is INR 400 crores, and recovery is only what you are exporting in one month, that shows the strength. So this is what I feel is very important. And my company, Chaman Lal Setia Exports, you can check on all these parameters, I think it will be the strongest in the entire industry.

Thanks for that. We will conclude the call with these remarks. Thanks, everyone, for participating. On behalf of Anand Rathi Shares and Stock Brokers, I thank you all. Thank you.

Thank you very much.

Thank you.