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

Ladies and gentlemen, I welcome you all to the Q3 and 9 months FY '25 post earnings conference call of Chaman Lal Setia Exports Ltd. Today on the call from the management team we have with us, Mr. Rajeev Setia, Joint Managing Director; and Mr. Ankit Setia, Executive Director. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also a reminder that this call is being recorded. I would now request the management to detail us about the business and performance highlights for the quarter and 9-month ended December 2024, the plan and vision for the coming years, post which we will open the floor for Q&A. Over to the management team.

Good afternoon, everybody. I'm Rajeev Setia, and I welcome all of you on Q3 earning call of the company. The company has performed very good in revenue this time, and our quantitative business have also increased for this quarter by around 22%, and 9 month volume increases by 14%. The profitability, if we compare with the corresponding quarter of '23, of course, our profitability is relatively less, but with the preceding quarter it's higher. As regard business of the company is concerned, we are regularly exporting. Our exports are gradually growing. Volume is growing and the area -- different areas part of the world we are doing well. Over to Ankit. Ankit, little bit you speak and then we'll take.

So last quarter, something interesting has happened. In terms of volumes, we have picked up. As compared to the previous quarter, the volumes are up by 6,000 tonnes additional. So that is a positive sign. And we've added up -- we are adding 3 new plants, 3 in Karnal, 1 in Gandhidham, 2 of the plants are about to get operational as we're talking. They are under trials. So that is something positive, that the delivery will get more on time. So this is the positive thing I can say about the last quarter.

Can we open the floor for Q&A, sir?

Yes, yes. You go ahead. Yes.

All those who wish to ask a question, may please use the option of raise hand. In case you're unable to raise hand, you may please put your question in the chat box. We'll take the first question from Mihir. Mihir, you can go ahead please.

In November 2024, the government removed the ban on non-basmati rice, excluding parboiled rice. Can you update us on the current status of exports, restrictions, and MEP on basmati and non-basmati rice? And how does this impact on overall competitive dynamics and pricing?

Mr. Mihir, all kind of restrictions are removed, be it parboiled rice export with the duty, the ban of non-basmati rice, and MEP of basmati, all this obstacle I would call them, are removed. So business is as usual, which used to be in the past. Because of the election, maybe the government wanted to reduce the prices, and it's the panic that took businesses out. Otherwise everything went normal. So now, I mean, it's open field, no problem. You can do any business.

My another question is like, what is the current status on Mundra expansion? By when can we see it start contributing to revenue?

That plant is also right now in trial run. The plant is complete. Machinery is complete. Sortex, all -- everything is done. Trials are going on. And in another 15, 20 days, we'll or maximum 1 month we'll go with the commercial production.

And what's the current harvesting seasons? What's your view on overall supplies and pricing of basmati?

The basmati prices were, in the current season, they were low by 10% to 15%. If you compare with the last year, preceding year, the prices were very, very attractive. But despite very attractive prices, we -- because you get the best quality in the season only, and we went for, I mean, quite large buying and again the prices came down -- up. They were very low. But suddenly, again, there was another fall which hit our profitability also, because the valuation has to be done in the very realistic manner. But now, again, prices are going up, you know.

And can you guide us on your plans to scale up the branded business? And what are we doing to further scale up the export business, like, which markets do you think will contribute to growth from here on? And what are we doing to scale in new markets?

I will answer and Ankit will also continue with this subject. For expansion of the business, we are participating in every big exhibition, coming up is the Gulfood, where -- where the customers from all around the world come, new as well our at least 75 to 100 customer, those who are existing, but they come. So that relationship is, I mean, more gelling comes with the customers, so the business, this is the way to go ahead for the business. Ankit, you please explain. You guys are marketing guys.

So what is happening is, as you can see, we are doing quarterly about INR 375 crores, INR 400 crores of quarters. And one thing which is stopping us to increase the business is our packaging speed. So that is why we have added 3 more packing units in Karnal and one more packing unit in Gandhidham. And all these packing units are under trial right now, 2 packing units are under trial in Karnal and 1 packing unit is under trial in Gandhidham. So I think once the -- once these packing units, they come under production, full -- full production, you will see the volumes are going to scale up. Even in the last quarter, there is an increase of 6,000 tonnes. So we've done certain adjustments. We have added some manufacturing units which were earlier being used to manufacture. We converted them into packing rice. That is why this increase has come. As far as you know, about new markets, like my Chachaji said, we're participating in Gulfood. Currently, our status is even the orders we have in our hands, even those orders, we're not able to export on time. So we are, first of all, you know, covering that part. Once that is covered, then let us see what is the next step.

We'll take our next question from the line of Ishmohit Arora.

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I think INR 500 crore [Foreign Language]

The first thing is [Foreign Language]

[Foreign Language] we can basically start this run rate?

Ishmohit-ji, I think next quarter you'll see some results.

The next quarter. Great. Great.

Yes. Next quarter you'll see that tonnage started to go up.

And sir, second question [Foreign Language] operating margins, I think because of rice prices, [Foreign Language]?

Ishmohit-ji, [Foreign Language] So to start, new buyers, sometimes, you know, you have to give special prices also. So our profitability generally is between 8% to 12%, our margins. So I would say, we are trying to bulk up right now, and once those buyers will be settled, the profitability part also will go up with them.

We'll take the next question from the line of Deepak Pawar.

So my question is that these 3 new packaging units that we are coming up with in the Karnal and Gandhidham, can you give us the time line when these will be operational?

[Foreign Language] We started putting these plants 3 months back.

Right.

So current status right now is plants are ready. They are under -- I mean, they are under trials. So whenever a new plant is set, there are a lot of teething troubles. It's a set of 14, 15 machines, and there are teething troubles. So right now, the phase is of removing those teething troubles. So like my Chachaji said, it's a matter of, let's say, 15, 20 or maximum 30 days.

So currently, we have 13 packaging units, am I right?

Yes.

Including -- this 13 number is including the current which are under development or excluding?

[Foreign Language] These are fresh 3 packing units coming up in Karnal. Those 13 are different from these ones. Also I would like to add, these 3 ones which are coming up, these are much bigger than as compared to what we have. And we're coming up with fully automatic machines. So more productivity with these plants.

So if we add these 3 to the 13, what would be the total capacity that we'll have in terms of packaging? If you can give me...

Like I -- like I said, currently, we do about INR 400 crores worth of quarter. Our idea is to reach INR 500 crores as soon as possible. A packaging unit is able to give a turnover of INR 50 crores in a year easily, one packaging unit. INR 50 to INR 75 crores depending on the kind of packing.

So this quarter, we were able to clock higher volumes, but in terms of revenue, we were not able to do well. That is because of the 10% to 15% correction in the prices, if that's what I've heard, right?

Yes, true. The prices have come down. Our volumes have gone up. Like I said, we have added new customers. And in order to get those customers, we've offered good prices, lower prices. And also, it is true that market is down. I mean, overall, the prices are down.

Further correction going ahead from here or this would be -- I mean, I want your opinion. Would there be any further correction expected?

Like, I mean, about 145,000 tonnes orders have come from Iran to the companies who work with Iran. We don't do Iran business, but it's picking up the market. And once the Iran business started, then sometimes sky is the limit, how it goes up.

So when the prices are favorable, of course, the demand is going to go up. There will be new customers who would like to -- I mean, store all the raw material which is available at very low prices. The dollar is very favorable for the importer. So I think after Gulfood, things should be better.

And are we going for any debt for this expansion, to fund this expansion or it's all internal accruals?

It is all internal. We have not taken any debt for this expansion. It's almost ready, all the expansion we have done.

And company has reasonable working capital right now.

Yes, that has always been there, I guess.

Even the borrowing from HDFC Bank, which is INR 300 crores sanction, our availment is as per statement I got on 10th, yesterday, is INR 57 crores. So we have sufficient funds, no issue. The company buys, always I have told in the past also, cash discount of 2%, 2.5%.

And post this upliftment of the ban, have we seen the demand in the non-basmati segment also?

Actually, as Ankit has said, we have a big book of orders and we are a little slow in supply. And once this capacity will increase, that part will be over. And when basmati is growing, why should we go for non-basmati unnecessarily. Basmati is the better business. That is our...

We'll take the next question from the chat. This question is from [ Dipti Kumari ]. Can you please provide realization of basmati rice -- basmati price, domestic as well as export?

Ankit, you will answer or?

[Foreign Language] So as far as export is concerned, of course, the margins are higher in exports, domestic, because there is too much competition. Domestic market is accessible to, I mean, so many millers who are traveling locally and there are so many brokers, it's very difficult to make money. So strictly talking margins, of course, export margins are around about 10%, 12%, 15%, like that. And in domestic, making money is always a challenge.

We take the next question from the line of Jatin Kumar.

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[Foreign Language] You're welcome.

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Of course, if we've stocked, it's a windfall gain.

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You're most welcome, Jatin-ji.

We'll take the next question from the line of Ravi Sharma.

Sir, I have 2 questions basically. What is the average cost of the inventory which we are holding? And what is the prevailing price right now?

[Foreign Language] the average [Foreign Language]

My point of understanding was we have done some mark-to-market for the -- on the December quarter. [Foreign Language] prevailing prices are higher than that?

I could not understand what are you trying to ask? Chacha, please. [Foreign Language]

To his question, actually, you see [Foreign Language] they were very, very high. And this new season came, the quality of that -- very good this year. But maybe there was a backlog and this Iran was not responding much. Prices came down around 10% to 15% prices. When the prices are lower and the quality of the product is good, so obviously, that was the chance to procure. Good procurement, okay? And simultaneously, we sold also. Simultaneously, we sold also, because the orders are there. But recently, there was again some kind of blockages in Iran, some shipments were held there. So the prices again fall and this factored into our pricing, this -- our valuation because we will -- totally, meticulously that everything is calculated correctly. Secondly, in the business, when new customers come, you have to give more competitive prices. If he is buying from somewhere, say, $10, so we have to offer $9 or $9.50. This is how the business goes. So the prices have come down, but recently the Iran is open, and 145,000 tonne orders have been signed and shipments will soon take place. The market has gone up by INR 2, INR 3 a kg in last week time. So let's see what happens. It's a business of volatile product, commodities are volatile. [Foreign Language] market, we are in 94 countries now and new customers are coming up in each and every country. And the company's reputation is such people don't hesitate to send us advance $10,000, $20,000, whatever, or $100,000. So the business is -- I mean, it's well controlled in the system.

So if somebody procures right now, if we go to -- the prices are better than, you know, not better means higher, than what we did procurement during, say, after the season, after the crop, situation has improved?

Please understand. There are certain varieties which can be bought only during the month of September, October, November. Even if their prices is low right now, it is impossible to procure them as of now.

Products sometimes you don't get. The quality which you get in the season, it's with all agro producers. If you see vegetables, these days, the seasonal vegetables like carrots, gobies, these are coming. They are so fresh and so sweet. So good taste. And after 6 months when they will come out of the port store, it will be altogether different, that I'm giving the parallel because it's an agro produce.

So the buyers are [Foreign Language] they don't come back to us with this monthly or weekly fluctuations. We are able to sell them the quality products at the price which we wanted to sell or apart from those like Sri Lanka, where there is a promotional discount. Normally, we have to vary prices depending on the market situation or the customers are such because we sell in small quantities to a large number of customers in several, 94 countries?

Yes, that is the model because if I were to sell large quantities, I can do it in 1 hour, sell to somebody in Saudi or Iran. Iran is a bad market with the payment doesn't come. Saudi is good market, I can sell. But profitability will be nothing. Maybe 1% and if there is a volatility in the foreign exchange, I might be losing also. So our model of business is absolutely [Technical Difficulty] many places it protects us. We get good prices also with the smaller consignment in faraway destinations. So secondly, if the customer gets a good quality, then he doesn't deviate from us. This is how it is doing.

And sir, my next question is on the currency itself, like recent bout of depreciation of the rupee. So we are doing forwards. And if so, means in the last quarter, was there any M2M, mark-to-market, which is there in the other expense? And currently, how much is -- what is the situation right now? Because it has further depreciated from 31st December to now.

Your company has not even a single dollar hedged. We are open. We knew that it is going to weaken.

Very good.

So the company is gaining on that.

So whatever is the depreciation should -- we should be able to -- it should flow to the bottom line, more apart from the variation of discount which we are giving. That's excellent. And sir, my last question is the other expenses have increased. So both year-on-year as well as quarter-on-quarter. So what are the factors in that, if you can just elaborate that?

The quantitative business has gone up irrespective of selling at market price. So this 22% increase in this quarter of volume, so ocean freights and other expenses will be there.

And what is the situation on freight, sir, like it has normalized?

Ankit, can you explain? Selling and watching every day.

See, 6,000 tonnes, the volume has gone up. So of course, we have to pay for the freight and expense is going to go up. As far as freights are concerned, that is also volatile. Sometimes it goes up, sometimes it comes down. Certain ports, you are paying, let's say, $500, now you're paying $2,400.

So the freight situation, which was earlier very, very -- the prices were high, they have normalized or they remain same and they are stable?

See, I would say they have not normalized. That is what I would say. They have fluctuated. They come down, they go up, but not normalized.

And our most of the orders, they are FOB or CIF?

See, it depends from customer to customer, where we feel it is going to get extremely volatile, we prefer to do FOB business. Certain sectors, we do FOB, certain we do CIFs. Safe ones of course, we try to do CIFs, and wherever we see there is too much volatility, we do FOB deal and the buyer is charged the freight on the spot when the goods are ready.

I mean the shipment is finally CIF because we sell FOB and then tell that this is the ocean freight to give us acceptability. We add to price and ship because we've -- for our risk filled destination.

And sir, my last question is, this scenario wherein the prices, off-season prices are falling further from the crop season, is it a normal scenario? Or this is like one-off we are seeing this year something unusual has happened and hence the pricing in the off-season is lower than the crop season?

This is simply the economics show us that, because Iran didn't gain, is one of the biggest markets. When one market is not buying, the others also watch. It's like -- when the prices go down, people keep on watching, maybe they will go further down. So once they start getting -- going up, the way it has happened in last week, the prices are up because the Iran demand has come. So let's see what happens next.

We'll take the next question from the line of [ Anand Badra ].

Sir, maybe for business model [Foreign Language]

We always -- it's our endeavor to export in our own brand. Our company is already exporting in around 39, 40 countries in our own brand. And in some part of the world, we have some vision that I don't want to disclose publicly. We are doing very large business -- branded business at a high price. So -- but we are one of the largest private label packer from India. It's not an easy job. It's very difficult work. It's not everybody's stake to cut. So we are doing very hard work and making -- packing the private label of 1 kg, 5 kg, 10 kg, 20 kg for the customer. And that is again a good business because when the customer is satisfied, he doesn't run from here to there. Though he has a possibility to go -- leave us because of the private label, which in branded is not possible. And -- but once you do good, the brand, it builds its own brand and doesn't take place. I have not seen in 98% cases. It's always customers are sticky.

Sir, can I [indiscernible] brand name or private label [Foreign Language]

Profitability?

[Foreign Language] revenue split, sir?

Revenue [Foreign Language] private label [Foreign Language]

Mainly private label [Foreign Language]

Yes. Yes.

[Foreign Language]?

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[Foreign Language] It has happened also in this quarter and we've to apply market prices. Maybe we know they have gone up again once the Iran buying came, they've shot up again.

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[Foreign Language] it is not like stock market. [Foreign Language]

Correct.

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[Foreign Language] Pakistan is the only competitor because jointly with Pakistan basmati has monopoly. [Foreign Language] So they have good rice. [Foreign Language] So competition also sometimes come because their rupee is very weak. [Foreign Language]

We'll take the next question from the line of [ Prashant ].

I just have 3 questions. Relatively new to this company as an investor, 3 questions. First is [Foreign Language] in Karnal, I mean, like you were talking in the last quarter also like INR 400 crores to -- INR 400 crores revenue per quarter, INR 500 crores [Foreign Language] that will help. Just wanted to see once the plants come in, will we be functioning at full capacity or [Foreign Language] by the time it functions at full capacity? That is question #1. Question #2 is, we've been mentioning in this call also about Iran orders coming in. I think 2, 3 quarters back, we were mentioning that Iran [Foreign Language] So do we expect our receivables to go up when orders from Iran start kicking in for the company? That is question #2 from my side. Just these 2.

First, I will answer your question #2, Iran, regarding Iran. Our company is not exporting to Iran since inception. We don't do. We did a little about 20 years when it opened through UCO Bank. We did 2 shipments of INR 3 crores, INR 4 crores, INR 5 crores, INR 6 crores, and thereafter we stopped Iran business. And that is a very wise decision of the company. Anyone who is doing, what you said is absolutely right, the payment is not coming. It is delayed. But those who are doing, they have no other choice. They have not built up business in other markets. We've said it. It has happened last week, I already told 145,000 firm orders have come in the market. We don't do that.

Sir, what...

The 145,000 tonnes rice, the tender, Iran tender, on the tender, it is clearly mentioned, payment terms is after 90 days credit. And it can stretch up to 180 days, 270 days. There is nothing, I mean...

No. They have no commitment. And this is GTC government company. [Foreign Language]

I'm not sure it is GTC, but it is one of the government companies.

Government company. And what was your first question, existing units?

[Foreign Language] He was asking the new units, once all the teething troubles are out, they function at their -- I mean, they function at their full efficiency, full capacity. So Prashant-ji, the point is that whenever an order comes, it should be delivered on time. It should be packed on time. It should be dispatched on time. There should be no delay. I don't mind running a plant on 60% efficiency. But when the plant runs, it runs on full efficiency of that day.

And there is no reason for us to not run on full efficiency, I'm guessing, given we have a solid order book fact remaining?

See, the point is if you have an order, it should leave the factory on time. That's all. Let's say, if I have a machine, it is running 15 days out of 30 at its full efficiency, I would like that. I would either run my machine at 100% efficiency or I keep it closed. So that my shipments are on time. My dispatches are on time. That is what we are trying to build.

One last question, if I may. So just on a slightly longer-term perspective, [Foreign Language] sir, so like some of your other competitors, are we having any plans to enter, say, packaged foods business, ready-to-cook, ready-to-eat, ready-to-eat snacks, and some of these areas which are relatively newer in the industry, but potentially with higher margins?

Ankit [Foreign Language]

Yes, I think the management has also mentioned it in one of the earnings calls, I think 2 to 3 quarters back that it is definitely in the long-term agenda.

Yes, it is definitely there in the agenda because it is the same customer which are buying rice from us. They are the same customers which import ready-to-eat. So currently, we are focusing on expanding these 4 packing units. Once they are normalized, let us see in the future, we start with ready to eat.

[Foreign Language] What happened with that? What stage it has come?

So we've come up with a new kind of rice. We've shared samples with you. And we're aging it naturally also. I think by June or July, that rice will be available. That is not quick, I mean, that is not a quick cooking rice. It's a special kind of rice.

Excellent rice. I have checked the sample and compared and went for the test standard also. Ankit, [Foreign Language]

[Foreign Language] Planning is what is not ready. [Foreign Language] That is the current status.

[Foreign Language]

Thank you, Prashant.

We'll take the next question from the chat. This question is from [ Nachiket Kade ]. Can you please confirm if the revenue splits between the branded sales and non-branded sales is 15% and 85%?

Approx.

We'll take the next question from the line of [ Navneet ].

I want to check what was the amount of inventory loss that we had in this quarter?

Actually, truly speaking, it's a notional loss and again notional profit. Because at the point of valuation, we strictly take the market price.

I understand that, but I just wanted to understand the amount.

Realization amount, maybe of 10%, 15% of the inventory, maximum.

10%, 15% of the inventory.

Navneet-ji, [Foreign Language] The stock we are sitting on right now, that stock is available only in the month of September, October. It is not available after that. For example, I'm sitting on 15,000 tonnes of that stock. [Foreign Language]

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[Foreign Language] That price went up. [Foreign Language] So this is the current scenario of the situation.

So that amount is approximately INR 15 crores to INR 17 crores, 10% of the inventory. Do I get it correct?

I'm not sure about the exact value. My Chachaji can tell you better. I'm just giving you an idea [Foreign Language]

I understand that. I was just curious about the amount because it's been a volatile market for the paddy prices or the basmati prices.

[Foreign Language] We bought at very good prices and the prices went down. [Foreign Language]

Navneet-ji, let's say, [Foreign Language]

No, no. I understand. [Foreign Language] Most of the times, I think it will reverse in the next quarter, especially in your kind of business models [Foreign Language]

[Foreign Language] It is going to, let's say, fall a little bit. I still have to buy at the same and keep it because I don't have any choice because it is not available now.

And your selling price is mostly defined on your buying price, right? Or on the current market price? [Foreign Language] Inventory pricing risk, is what I understand.

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As a company normally falling prices is good for us or rising prices is good for us? [Foreign Language]

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[Foreign Language] At the point of procurement, if the prices are lower, that is always regarded as the best season.

So Ankit, with respect to the December quarter versus the previous year's December quarter, our margins have fallen despite the prices being on a lower trajectory. So I was just trying to make sense of lower prices is beneficial for us? However, our margins have fallen this year.

[Foreign Language]

Actually this business' volatility is there in this commodity business, sometimes windfall gains come and that was the period, that year. You never know when that part again comes.

Navneet-ji, I'll give you an example. [Foreign Language]

Currency risk, we are open for about a month, month and half, right? [Foreign Language]

Maximum.

That's our risk for currency?

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So it's a 1, 1-1/2 month risk that we are cognizant, we are...

So the thing is currency is getting only weaker and weaker and [Foreign Language] We always take INR 1 less than what the market price is.

But my experience with the foreign exchange is concerned for last around 30 years now, 8 out of 10 times the rupee goes weaker. And since the start of the business, there is colossal change. For just 2 periods, 1 or 2 periods in a year or once in a while, forward hedging [Foreign Language] that can save you also, that can hit you so badly [Foreign Language] What we do is we are totally open in this particular year, not even a single dollar hedged. Yes. As Ankit said, at the point of selling, I tell them to factor at least INR 2 lower than the INR 1, INR 1.5 depending upon your area of working per customer, price accordingly, then whatever comes is better than our calculated profit in any case. And in this 1 year it is bonanza.

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We'll take the next question from the line of Ishmohit Arora.

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Right now, [Foreign Language] whatever has been said, that is what we want to accomplish first, then we'll see what happens in the future, what kind of demands come? [Foreign Language]

Ishmohit-ji, [Foreign Language]

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Nikhil Joseph.

We'll take the next question from the line of Nikhil Joseph.

I had a larger question in terms of, say, market opportunity. What is the total market size that you see for us? And also, what is the market share that we are having today and that we aim to have? And just in context with that, you also mentioned that plant [Foreign Language]. So will that not attract competition and how or what is your view on this? That's it from my end.

Ankit, you are going to speak?

[Foreign Language] So there is still a lot of scope as far as expansion is concerned. Secondly, [Foreign Language] that can attract competition. [Foreign Language] It is coming through a lot of experience, and a lot of internal tech that I'm sharing this with you.

Since that was the last question for the day, I'll now hand over the call to Vinay sir. Vinay sir, over to you.

Thanks. So I would like to invite the management to give any closing comments before we end this call.

Ankit, go for the closing, please.

My closing comments should be only that last quarter, our sales have gone up by 6,000 tonnes. For me, that is remarkable because we've added, I think, 6 or 10 new customers. And [Foreign Language] So on-time delivery is the thing we want to improvise on. And let us see what happens. It is like a car which is driving itself with its lights on. [Foreign Language] [Technical Difficulty] Was I audible?

Yes, there was a slight interruption towards the end, but I think we could hear the end part of the comment. So that brings us to the end of today's conference call. Thank you to the management team for joining us on the call, and thank you to all the participants for giving us their time. This brings us to the end of today's conference call. Thank you so much.

Thank you very much to all. Have a good day.

Thank you.