Chatha Foods Limited (544151) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Chatha Foods Limited Half Year and Financial Year Ended 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priyanka Oberoi, Company Secretary and Compliance Officer. Thank you, and over to you, ma'am.

Thank you, Nirav. Welcome to all our participants around the world. It's a pleasure to welcome you all to the half year and the year ended 2024 financial results conference call. From the management team, we have with us Mr. Paramjit Singh Chatha, Chairman and Managing Director; Mr. Kulbeer Walia, Chief Accounts Officer; and Mr. Vishal Singh, Chief Financial Officer. We will begin the call with a brief opening remarks from the management team, and then we will open the floor for the question-and-answer session. I would now like to request Mr. Vishal Singh, CFO of the company, their perspective on the performance of the company. Thanks, and over to you, Vishal.

Thank you, Priyanka. Good afternoon, everyone. I'm pleased to present you the financial performance of the company for the year ended 31st March 2024. So our balance sheet position has improved and shows total assets reaching INR 83.51 crores, comprising of INR 52.04 crores of current assets and INR 31.46 crores of noncurrent assets and total liabilities of INR 83.51 crores comprising of shareholder funds of INR 57.76 crores and INR 25.74 crores of current and noncurrent liabilities. We have improved on our current ratio, and it is currently at 2.6x. Our debt-equity ratio has also improved to 0.4x in the current financial year against 0.49x. in the last financial year. Our ROE and ROCE has also improved to 21.02% and 14.30% simultaneously against 11.95% and 13.43% in the last financial year. In our profitability, our total revenue for the period was INR 133.83 crores with a contribution of 90% from the non-vegetarian products and remaining 10% from the vegetarian and plant-based products. So our revenue has increased by almost 12% as compared to the last financial year, and the growth was primarily driven by an increase in the value chain from the existing customer as well as addition of the new customers. The operating expenses for this period were at INR 121.6 crores, and the operating profit margin stood at INR 12.21 crores, which is 9.2% and it is an increase of 72.25% over last year's operating profit, which was INR 7.09 crores. And the contributing factors for this increase were: one, the supply chain disruption in raw material and packaging material over the last few years have settled down, and we were able to source RM and PM at better prices. Second, the introduction of new customers and products at better terms. And third was this increase in revenue has also helped us to get the benefit of economies of scale, contributing to the better profits of the company. So for this period, our net profit was INR 6.16 crores, representing an increase of almost 150% from the past financial year. And our cash flows from the operations for this period were INR 12.18 crores and the cash -- the cash generated from operating activities post working capital changes and taxes was INR 3.51 crores. Our cash flow from investing activities was INR 24.61 crores. It comprises capital expenditure of INR 1.63 crores directed towards purchase of machinery for the support of existing business and the introduction of new products. And second, bank deposits of INR 23.01 crores and interest received of INR 3.27 crores. And our cash flow from financing activities were INR 26.06 crores, which comprises of INR 33.9 crores of proceeds from the IPO and payment of INR 7.33 crores towards our borrowings and share issue expenses. So our cash and cash equivalent for this period was INR 5.05 crores. Thank you. That's all on the financial performance of the company from my side. So we can move to the question-and-answer session.

[Operator Instructions] The first question is from the line of Gaurav from Excellence Research.

So my first question is what would be the maximum annual capacity of the new veg plant? And given the land that is available, what would be the maximum possible capacity in that area if you see large demand? Also, the non-veg unit -- I mean, your veg unit is moving to the new capacity. So the non-veg unit will also have a larger capacity. So over there also, what would be the maximum capacity? So if you could just explain that.

Gaurav, thank you for the question. And the veg unit capacity, the maximum capacity as of now, what is designed on the new land we have, which is around 4 acres. So we are looking at a capacity of 14,000 to 15,000 metric tons annual at full capacity, operating on 16 hours. And we will still have -- this is -- we're looking at almost a 45,000 square feet construction for this kind of capacity. Plus we will -- for further growth once these capacities are saturated. So we will have another 25,000 square feet to further enhance the capacities on the new unit. On the existing unit, we have a capacity of around 450 metric tons per month. With the veg unit moving out, it's not a very substantial large wedge unit what we have now as of now. It's a small 6,000 square feet veg unit. So yes, we would look at an additional 70 to 75 tonnes per month of capacity coming in for the non-veg unit as well.

My second question is, what is the process of getting onboard a big QSR? I mean how much time does it take? And could you just explain me the process? What are the checks that they do?

Gaurav, when we look at -- see, we are working with two kind of customers. One is when we're working with a large QSR, we're working with the Taco Bell, Burger King or a Subway or a Domino's. The normal checklist is like we get registered with them as vendors, which is obviously we have to meet all their financial statutory compliances also. They have to see the financial strength of the company because the large companies eyeing a huge growth in the coming years. Then we have to get into a food safety audit with them. I'm talking of a new QSR when we are listing with the new QSR. So the main -- the primary focus for them to do is a food safety audit. So once the food safety is done, food safety audit is done. That's the time we get registered as vendors. We have to meet the food safety requirements as per their international food safety compliances. After that, the product development process starts. Now the product development process could last anything from 1 to 3 months and before the product is approved. So it could be a very quick approval from their side because it's -- the product is -- benchmark is both quality, taste and the pricing of the product because they already have a benchmark pricing on a product which they want to launch in the market. And so once the product approval is done, then it will take another 1 month for them to do store trials, small store trials, consumer trials. They have to train their teams on the product, how to use the product. So a process would take anything from 1 to 4 months depending on customer to customer.

Just final question. So when you expand, what are the major machines that gets added? In one of the previous con calls, you had mentioned that refrigeration is one of the bottlenecks. So just could you just explain for veg and non-veg how is the machine procured? Or what are the types of machines that we use.

So in the previous con call, I would have been talking of spiral freezers, Gaurav, because our unit is small, so we don't have spiral freezes. But in the new veg unit, we are mainly -- our 60% capacity is going to come from flatbread lines. We're talking of products like naan, tortillas, malabar paratha. And then we're coming out with a very innovative product, which I won't disclose now, which is a flatbread. It has been rated as one of the most popular flatbread in the world. So that's going to comprise of almost 60% of the capacity. Then we are going to come up with ready-to-eat products, which will both be in retort and frozen format. So when we say retort, we're talking of something like what Tasty Bite does for exports with rice. So that's what we are targeting. And then we will have the frozen to fried line, which we are already doing in the existing unit, but -- so we're talking of products like veg patties, veg savory snacks, whatever. So that's -- but in the new plant, it's going to be a much larger line. And when we talk of refrigeration, so we are -- for all these lines, we are coming up with spiral freezers. So when we talk of spiral freezers, so everything, the product gets frozen online. The product comes out of cooking, goes through the spiral freezer and comes out at minus 18 and we pack it. So that's the kind of setup.

[Operator Instructions] Next question is from the line of Vinayak Pawar, individual investor.

My first question is what is the revenue and profitability guideline for the financial year '24-'25?

Sorry, Vinayak, I really -- your voice is echoing a little. Can you please repeat your question?

Yes, revenue and profitability guidelines for the financial year '24-'25.

So on revenue, we are looking at a 15% to 20% growth in revenue for '24-'25. And profitability also should be an improvement of around 10% on the PAT.

Okay. My another question is what is the capacity of new plant for the veg segment?

The capacity will be around 14,000 to 15,000 metric tons annually for the new plant.

Okay. My another question is, any plan for retail business penetration?

We are -- we will not -- we are not planning to do it in the chicken -- in our existing non-veg business, Vinayak. But yes, we are coming up with some very innovative products in the new unit, and we are definitely -- I won't say for sure, but we are definitely working on -- we are coming largely into the flatbread business in the new plant. Flatbread [Foreign Language] we're looking at products like naan, tortillas. And we -- over a period of time, we see a demand growing for these products with the newer generation coming in, with people not cooking at home, people looking at these ready-to-eat options with a younger generation coming in. So we are definitely looking at the idea to go B2C in a very small way to begin with and then slowly expand our footprint in the B2C business with the bread line -- with the bread products.

My another question is, what is the status of export plant of Middle East countries, namely Saudi Arabia and UAE?

For the new plant, we are definitely looking at exports, Vinayak Ji. So that's one of the major areas we will focus on -- so even in our financials, what we are planning for the next 3 years ahead, we are looking at budgets to participate in the Gulf food fairs and other fairs, the trade fairs to -- it's going to be a very big focus for us on the exports. This new plant with such a high capacity is meant -- is designed and meant to have a very strong focus on exports as well. And not only to Middle East, we would be targeting U.S. and the European markets also.

My another question is, what is the margin bifurcation for non-veg segment and veg segment as on date? And what is going to be in the coming future?

The margin segment of veg and non-veg is almost the same as of now. But within the new plant, we see a substantial growth in the margin. We've done a research and we've started doing trials. We've done a research on the flatbread margin perspective, what our competitors are doing. We've done surveys and analysis on that. So there's a substantial growth in margin when we're looking at the flatbread business.

My last question sir, what is the projected revenue for the projected revenue and net profit combined both the existing facilities. And the upcoming plan, say, next 3 years once the new plant operates for next year.

Vinayak Ji, we are -- by '27, we are projecting to double our revenue, more than double our revenue, and we're looking at a healthy 25% to 30% growth in the net profit as well in terms of percentage. Yes.

Next question is from the line of [ Neil Gil ] from Engine Capital.

So I'd just like to ask you, the new plant for which we are beginning our work should be operational by what time line in your estimate?

Neil, we are very, very sure that it should be -- I mean, the plant should be commissioned by March.

So this projection that you gave of about 20% of revenue growth is coming from the existing facility?

It's totally from the existing facility. So the new plant should be up and going in March. We should give it another 3, 4 months for the trials and the trials on the machines and get the lines in place, maybe another couple of months to start presenting the -- calling the customers to the plant, develop products for them. So we're taking a 6 months gap after the plant is commissioned. And so we're looking at a 6-month revenue coming in from that plant.

Yes. So next year, basically, you're getting 16 months for...

16 months, yes. yes, 16 months.

And if your capacity is going up meaningfully, how much would your capacity go up by exactly from current capacity to when the new plant is operational?

Neil, sorry, I didn't understand. Are you talking about the new unit?

Yes. I mean your capacity will go up by how much once your new facility comes up?

FY '27, we plan to touch almost 50% of the installed capacity in the new plant.

No, I meant to say right now, you are in your existing capacity, you are at about 7,000 metric tons. Am I right?

Yes.

So with this new capacity that you put on board, you're getting up to 15,000 metric tons, approximately?

15,000 metric tons, yes.

Right. And all of this will be ready by March, right?

By March, yes.

Right. And in the first -- you said it will take about a quarter or so to do the testing trials, all those things, and you'll get 16 months. What kind of a utilization will happen of your new capacity?

The first year, that's what I'm saying. The first year should be around 30%, 35%. Second year, we're targeting around 65%. So '25 is around 30%, 35% because it will take a little bit of time for us to get the customers on board, start delivering the product. So we're not looking at a very large capacity utilization. So it will be 30%, 35% utilization. And then next year, yes, we're targeting almost 60%, 65% capacity utilization.

And this new expansion is largely in vegetarian products and...

Totally vegetarian.

And you said in the call earlier that the margins are significantly higher. So what is the kind of a margin differential that you're seeing in the new plant versus your existing plant on non-veg?

We see a good -- when we talk of operating margin, we see a good difference of around 13% to 14% on the operating profit in the new plant.

13 to 14 percentage points.

13% to 14% increase from the existing operating gross profit.

So in terms of a PAT profile, I mean I think our current PAT profile is -- PAT margin is like 5% to 6%. So this would end up being what kind of a PAT margin?

Neil, by -- if I'm not wrong, by '28, '29, we should double the PAT.

In terms of margin?

In terms of margin, yes.

So like a 10% to 11% PAT margin?

Yes, exactly. Exactly. Yes.

Okay. So basically significantly higher margin than our current...

Significantly. So it's two, one, what we see is the margins are significantly higher in this the -- if I say, the grain and the bread tray, the margins are significantly higher. And then we're looking at the export market as well where the margins are definitely much better than doing it in -- selling it in the Indian QSR where you always hard pressed for margins. So exports has a much better margin.

So sir, if we are counting this existing plant and the new plant, it is 15,000 metric tons basically, what would be the peak revenue capacity of both these plants whenever you achieve maximum utilization levels, at that maximum number, what could be the revenue number that we can achieve as a company?

It will be 3x. 3x plus of the -- of our '24 revenue.

The '24 revenue, if memory serves right, about INR 140 crores, INR 150 crores?

'24 was INR 133 crores.

INR 133 crores. 3x of INR 133 crores. So something INR 400 crores approximately is...

Yes, yes, yes.

With like a 10%, 11% kind of a PAT number is what we can achieve.

Yes. Yes, yes.

And sir, then if that's the case and if this happens in the next 3 years, when can we go for the next round of capacity expansion? At what point do you think it will be right for the company to do that?

Well, Neil, I think for chicken, the way things are moving now, we might have to look at a capacity expansion in '26.

Next year?

Next to next year, '24, '25, '25, '26, we will need the capacity expansion in chicken with the way the trend is going on now.

And for the bakery and vegetarian kind of items, when would you like to go for the capacity expansion there?

I think in the year '28. '28, '29. And capacity expansions could come in earlier because we're going in with a lot of varied products. We have developed some very -- I won't -- because the product is still to be launched, so I will not talk about the product or the customer we are supplying it to a very large customer. And we have developed a very, very innovative product, which is as a bakery product, as a dessert bakery product. It's going to be launched on the 22nd of this month, July. So if these kind of products we are able to develop, we might have to go into for some additional expansion even earlier if these products -- these kind of products take off in the veg section.

Exactly. Exactly. So I'm pretty sure you must be having a sense of how the industry is shaping up. Where do you think we have the maximum as a sector? Would you like to grow further more or less in the vegetable segment around the bakery side itself? Or do you think some other areas where we will grow beyond? So this is the first level of expansion I understood, which you just mentioned. What do you think the company can achieve over time? Keep on expanding in the bakery segment, do you think?

We'll keep on expanding in the bakery and the chicken section. Bakery is huge. I still feel -- I still feel we have a long way to go in bakery in India. We have a long way to go in bakery in India at an industrial level. Bakery at a small level, at a store level is okay, but bakery really has to go a long way in the -- at the industrial level. And there's so much you can do in bakery.

And this is largely around breads largely.

No, we are starting with breads, but like I said, what we've developed from one of our large customers, goes much beyond bread, goes in as a dessert as a frozen dessert. So it could move from breads to frozen desserts also.

All right. And also other things like tortilla and stuff like that.

No, that is all covered in breads. Sir, I mean, that is all covered in bread.

That's all covered in breads.

That's all covered in breads, yes.

Wonderful. No, this is all I wanted to know as to how the company's future may look beyond our existing expansion plans that we have in mind. So you're saying that there is far more room to expand further. I mean the industry is big enough for us to keep on expanding as we keep going on higher utilization levels.

Yes, yes. Yes.

Next question is from the line of Nirvana Laha from Badrinath Family Office.

So my first question is around the strategy for our new veg line. So I've heard you talk about multiple things like the bakery and there's vegetables itself. Then there's our own brand sales versus large QSR that we are already doing versus we have also talked about independent QSRs and the small QSR. And then you've talked about exports also. So basically, on these two, three dimensions, if you can help us understand what is your strategy with the new veg line of 15,000 metric ton capacity, like bakery versus vegetables and then on these different customer segments and then exports. Like what percentage of top line or capacity are you targeting for this segment? And what is your priority?

Sir, our priority to begin with, when we talk of a bakery line, bakery line is something which -- I mean, when we talk of breads also, it's kind of a bakery product only. So -- and when we talk about the customer base, yes, exports is one customer is one segment. Large QSR is another segment. Small QSR, stand-alone, I wouldn't say stand-alone, but yes, small QSR, small QSR, casual dining restaurants, flight kitchens, they're all another segment what we're looking at. And then we are looking at the own brand sales also in the domestic market. So strategy, sir, mainly for the large QSR, there is a huge demand for breads, certain kind of breads, which we are developing, which we propose to start producing. So there already is a huge demand. We are already in dialogue with customers. We have already started product development. So we are already very deeply rooted with all the large QSR. We know what's the demand. We know what's going to be their future demand. We're already in discussion with them. So that is -- it is going to be the same strategy as what we have for chicken, approaching them with products or designing or developing products for them as per their requirement. For exports, it's not going to be our own brand sales. For exports, it will mainly be a white label kind of a business we want to do. We have no plans as of now to go into our own brand sales for exports. So it will mainly be contacting the large overseas retail hypermarkets for the private label. It will be participating in fairs, the large fairs like Anuga, like Gulf Food or other fairs all over the world to do -- to be able to do white label for large customers. And for the small QSR, we -- our sales team is already in place. Our distribution network, we're already expanding. We are getting inputs, data, pricing structures, requirements from our sales team, how it works. So by the time we hit the new plant, I think we should be present in at least 60 to 70 cities with distributors for the large and the small QSR. For the B2C for our own brand, we are still toying with the idea. We are still trying to understand the market. We are definitely interested in going into the B2C market for the flatbread product because in the coming times, we do see a lot of demand from growing in this segment. It is already there at a very nascent stage. But over a period of time, we see a huge demand coming in for these flatbread products because cooking at home in metro cities, even in a city like Chandigarh is really diminishing. Domestic health availability is decreasing. domestic health cost is growing. The delivery pattern is becoming in very popular. So that's how we plan to do it, if I'm able to answer your question.

Right. Got it. So you mentioned that 15,000 tonne capacity and about 60% utilization is what you are looking at in 2 years. So by FY '26, if I look at your current...

FY '26, '27. So '24, '25 '26. '25, '26, yes.

Yes. FY '26 is what you said.

Yes.

Like last year, it will be around 35%, next year you're hoping to reach around 60%.

Yes, yes.

So if I look at current veg realization, that's about INR 220 a kilo. So if I put that number on a 15,000 tonne and 60% utilization, that's about INR 200 crores. So is this number accurate or because of bakery this number changing?

Sorry, sir, can you -- your voice is echoing a little, sir. I mean some things I'm not able to make out.

Am I audible?

You're audible, sir, but your voice echoes a little. Some part of your questions, I'm missing.

Sir, am I audible now?

Now it's better. Now it's better. It's better.

Yes. Sir, my question was you said on a 15,000 tonne capacity and 60% capacity utilization. If I basically apply your current realizations in the veg segment, which is around INR 220 a kilo, so the total revenue from the new plant seems to be around INR 200 crores. Is that assumption correct? Or because you're introducing bakery, are those numbers changing significantly?

The numbers are changing, sir. The per unit sale -- so the per unit sale on the bread is going to be much lower, the per kg sale is going to be much lower. Then we're going into the ready-to-eat section where we are already in dialogue with a few customers for retort rice to the U.S. that is also much lower. So these numbers are averaging between INR 90, INR 115 per kilo.

Okay. And so on an average...

The INR 220, the INR 220 one is, yes, that business will also be there. But then there is a substantial amount of business which is coming in as INR 95, INR 115 like a naan would be like INR 135, tortilla would be like INR 90 a kg. So we are ranging in that also. And that is quite a large. We're looking at a 50%, 60% capacity from -- coming in from these brands.

Got it. And the remaining would be from the existing INR 220 per kilo kind of vegetable product?

It would be slightly lower here and there. But when we're looking at INR 220, we're looking at a lot of plant-based products also what we were doing like the ones we were supplying to Blue Tribe and Shaka Harry. But sadly, their volumes are not growing. And once we put up a large frozen to prior lines, we will go in for products like Amul patty, Burger King or some other customers. So I mean, that ratio will also come down slightly.

Got it, sir. So can you help me with what the average realization will be for this 15,000 tonne plant, around like 120, 125 or...

It will be slightly more than that, sir.

Okay. Okay. And what kind of margins are you expecting to make on this plant? So currently, your overall margins -- EBITDA margins are around 9%. So will the margins be higher here?

Substantially higher, sir. Substantially higher because -- substantially higher because, one, it's going to be a very large volume-based production instead of a batch production what we are doing in the chicken mine now. So it's going to be a line volume-based production. We are very sure we will be lower on manpower utilization as well as compared to a chicken plant, a non-veg plant. And secondly, as per our industry surveys, we have done competition analysis and what is selling in the market now. The margins are way higher than what we are doing as of now in chicken. So the margins in the bread line are substantially higher than what we are doing now. So even if we do a price war, even then the margins are substantially higher.

Okay. Sir, just to get an idea, would they be like 15% compared to the 9% we do right now?

Close to that, sir, yes.

Okay. Okay. Got it. And sir, we recently -- basically, we were doing some industry research and we found out that one of your largest customers in the pizza segment, they have actually gone in-house in their the meat sourcing in South India. So they have actually replaced the vendor and they are now doing it in-house. So how do you see that from your existing business perspective? Is that something that the industry or that particular customer is moving towards and therefore, is also a threat for us in the North?

Sir, that has been -- I don't know when they declared it, but they have done it from the last financial year. I mean almost -- it's been almost 7 to 8 months or maybe 9 months, they have been producing some of the products from their Bangalore unit. But simultaneously, the volumes are also growing. So the North and the East business, plus a lot of other products for which they don't have the capability are still with us and they will remain with us. Plus we are also simultaneously developing a lot of new products. So this was -- setting up the facility was before they set up or in the process of setting up, and it was very openly discussed with us. The business strategy was very openly discussed with us. So I don't see it as like -- yes, our business might not grow with Domino's or our existing customer. But the business will sustain. It will sustain. It will be a sustainable business.

Okay. Got it. And final question, sir, from my side. So what we have understood in the industry is that in terms of, say, topping suppliers or finished product suppliers like Chatha, there are two kinds of vendors. One who are able to be very agile and sort of serve whatever the NPD team of the QSR is designing, we are able to collaborate with them and deliver that product. And the second is a company which is innovating on its own on new SKUs and maybe bringing those to QSRs or selling them under their own brand. So from whatever we have understood, Chatha's DNA seems to be on the former side where we prefer the QSR to innovate and we are very good at execution. So do you feel that, that needs to change for us to grow going forward? And -- are we therefore taking any steps in building our own NPD team? What kind of hiring are we doing there? And in the new plant, are we going to sort of see more NPD...

In a new plant, it's going to be more of the latter. It's going to be more -- even now, we have shifted gears. Even now, we have really started innovating on products. We will -- in another month, 1.5 months' time, we have developed some very innovative products for a few of our customers. We will disclose that once those products are successfully launched. So in own brands that nobody -- QSR doesn't buy, I mean, in brands, so mainly like even we supply, so it's mainly manufactured by Chatha Foods. It's institutional pack. Companies like McCain who are world leaders, who are very large, obviously, yes, they do supply products which -- they don't really develop for customers, and we call them that picking up off-the-shelf products. But majority of the companies, is what I am aware, majority of the business from all the vendors is designed on the way the NPD team -- because it is not -- when the NPD team is working in QSR, it is not only developing a product. It's got a lot to do with what marketing wants, what price marketing wants to sell up. So it is -- even the QSR is coming back a long way from consumer preference to consumer price preference to product development and then to getting into develop it. So it is primarily going to stay this way. But yes, in the new plant, we would be looking at developing a lot of new products and showcasing them to QSR. Because as of now, in chicken, it's just one raw material we have. So there is not much scope of showcasing. I hope you understand.

Yes, sure, sir. Can you...

But when we go into the vegetarian segment, your source of raw material changes, the kind of products you can showcase is much larger. You can go from dairy products to dessert products to bakery products. So in chicken, limited, there is a limitation on showcasing because your primary raw material remains just the same.

Sure, sure. And sir, final question from my side. We decided to go into vegetarian just a year or so back and now in a big way, it seems, right?

Yes.

So was fines the only constraint, and therefore, we were waiting for this kind of an IPO to happen before we venture? Or was there any other reason that we did not venture into [indiscernible].

No. So we did not see. We did not venture into it before because we wanted to, but then we were shaping up very well on our chicken business before COVID hit us. And we would have hit -- we would have gone into this veg. It was always on our mind. We would have gone into it earlier. But then COVID came on, business dropped. And so we thought that it's better to start up with a small facility, do test markets, see how the customer responds, one. Secondly, the major interest, sir, was exports. So we set up the veg unit. We spoke to customers, but exporting just one line of products does not work like we just had the side snacks or the finger food option with us as of now. Once we thought we'll do export, we did a lot of research. Breads came in as a winner for exports. Retort rice came in as a winner. So the thought was always there, but we just wanted to go slowly into it and before we go into a large investment.

Next question is from the line of Pawan Kumar from Shade Capital. With no response we move on to the next participant. Next question is from the line of Agastya Dave from CAO Capital.

You've answered most of the questions. I just had one question on what happens to your fixed cost after this expansion. You mentioned that the productivity, the labor productivity would be much higher. Is there -- I mean, could you quantify that? Your capacities are going up massively. So the current employee base is around INR 12.5 crores. How does that grow?

What I was saying was that in chicken in our current business of non-vegetarian. So we are more -- this industry in India is more of a batch process kind of production. Yes.

Now you're going to more mass production.

So now we are going into more line production, sir, where the most of the production is automized and it's a line production, less involvement of manpower.

But sir, your veg build up from INR 12.5 crores, does it go to INR 50 crores? Or does it go to INR 30 crores? Or does it go to INR 25 crores? I mean how much do you need to add? You still need people, right, because it's a brand new product.

Sorry, sir, I didn't get the question. From INR 4 crores.

So as of now, you are doing INR 12.5 crores in employee cost. So you're adding such a huge capacity, you're tripling your capacity, right, in terms of sheer volumes. But I understand that the new capacity will be much more automated in nature. So I'm just trying to understand the fixed costs. How do they move? Will you need to double your employee strength or a 50% increase will be more than enough. What happens to your employee cost? Because that's a substantial cost, right?

If you look at the labor, I think it will be close to a 50% increase in the manpower, not more than that.

At full utilization, sir, at full utilization.

At full utilization, yes.

Okay. Sir, my second question, I'm not very familiar with your company because obviously, you're very recently listed, and I don't have all the past financials. Based on what I could get from the DRHP, I was just wondering how do you tolerate the volatility in chicken prices? What's your arrangement with your clients?

The volatility in chicken prices.

Yes.

We are normally -- on majority of our sourcing, we are working on annual prices, majority of our sourcing. Like 70% of our chicken purchase is done on annual pricing. Our pricing with customers is also annual. So we just left with 20% to 30% purchase on chicken, which we normally do on a monthly basis. So it is all hedged. I mean it's -- our pricing will always -- so we are not buying on a daily base prices of live chicken or the way the live market goes. So purchases, most of the times or majority of our purchase is done on an annual basis.

So historically, have you ever had the issue with the -- I mean, do you get squeezed on either side? For example, if the chicken prices are spiking, but you have an annual pricing agreement with your customers, so they will say, come after 1 year. Is there a lag in passing on the prices?

There have been a few incidents where our customers have fully supported us. See, if we can -- I mean, it's very simple, sir. If we can genuinely -- see the chicken market is a public news. Everybody tracks it, everybody can track it. right? It's available on apps. It's available everywhere. So there have been incidents where our customers have overheartedly supported us. But yes, I mean, the pricing, you have to -- it has to be justifiable that, okay, this price is going to sustain for the next 5, 6 months. Otherwise, chicken prices volatility on a weekly basis or a daily basis is something we cannot go to them every day or every week or every month right for a price change. But yes, if whenever if some maize prices or soya prices have gone up or the [ DOC ] prices or there is some disruption in the supply chain, some disease coming in the hatcheries and where we have been able to convince them that the chicken prices are going to remain like this 4 to 5 months. So there has been an arrangement [Foreign Language] till the time the prices are high, we will give you the support and the prices come back, we will come back to the original price. So these incidents have happened...

Sir, on the CapEx side, the DRHP had mentioned around INR 30 crores for the new facility. So I was, again, wondering, it was also talking about approximately 29 metric tons per day capacity for the new plant. So this one seems to be slightly bigger than that. Are you revising the CapEx capital expenditure?

Yes, we are slightly revising the capital expenditure and we'll be using our own internal accruals and bank finance to fund it.

Sir, would it be closer to INR 40 crores, sir?

It would be close to INR 38 crores.

INR 38 crores. Okay.

Yes.

Not much. Not much. Okay.

Not much. Not much. Not much. I mean we wanted to increase the capacities. We are talking to our customers where the demand is quite high, one. And secondly, we've had a customer come in. In the earlier product retorted rice. The boiled rice in at shelf-stable boiled rice was not in the picture. But we had a customer who come to us who has a huge demand for boiled rice that is something what other people also do in India. So that is one line which we have added, which is a substantial increase in the volume also.

Okay. Got it. And sir, when you set up a new plant, how fungible is it? I mean are they very highly specialized equipment that you go for? I guess the refrigeration unit would be more or less the same. There will be common utilities, but like what percentage of the machinery is like extremely specialized?

This time, everything is special. The utilities are common. The utilities are -- so this time, to be very honest, it's very special for us because we're moving from a chicken unit to a totally bread lines. So -- but yes, all these lines are very -- I wouldn't say they are very special or they're very unique, but different for us and slightly different from a batch process to a continuous belt process or a continuous line kind of a process. But nothing really what the world is not using or others are not using in India. Utilities are common, yes. The refrigeration from what we have now, what we call as a blast freezing process, we are moving into the spiral freezing or the IQF process.

And sir, just to ensure that I got the time lines, right, you will finish -- you are starting the plant now the construction is starting now, you will finish by March, 6 months of testing plus getting approvals. So we are approaching like September of next year, CY '25. Then you get 6 months of FY '26 when the production is like initially starting. And in '27, you get around 65% utilization as you ramp up.

Yes.

And before that, you will -- going by the trends, you may have to go for another round of expansion in the non-wage unit?

Yes. As the trend is on the demand, we might have to increase our chicken capacities, yes.

Would you go for a similar scale of increasing from 5,500 tonnes to 15,000? Or would it be slightly smaller?

It's too early to predict.

Next follow-up question is from the line of Gaurav from Excellence Research.

So I had a question like in case there is some chicken-related, I mean, disease, epidemic disease, flu and all, what is the general strategy for you especially expecting.

Hello?

Can you hear me?

Yes, I can. Your voice was disrupted for a minute. Now I can hear you. So see, if there is a widespread pandemic like we had COVID in chicken, I mean, there's nothing much you can do about it. But flu, regional flus do keep coming and going. I think region-based flu, bird flu as we call them are influenza, Avian influenza. It keeps coming and going every year. So I mean it is almost coming region-based. It becomes a pan-India kind of a pandemic, sir, I don't think we can have any backups for that.

Next follow-up question is from the line of Nirvana Laha from Badrinath Family Office.

Sir, if I look at your history from March 2019 to March 2022 for these 4 years, our revenues actually degrew and then sort of they remained flat for 4 years. And then for the last 2 years, we've been seeing good growth. So if you can tell us what happened during those 4 years and why are we seeing growth again?

It was COVID. These were the COVID years.

Okay. Okay. So even the degrowth from March 2019 to 2020 also, I mean, we degrew a little bit. That was Pre-COVID.

Yes, yes.

So any other particular reason for that or that is normal in this business to not grow year-on-year?

To grow year-on-year, sir? Sorry?

No, sir. I meant even before COVID. So in March 2019, our revenues were about INR 90 crores. In March 2020, we were at around INR 85 crores. So we were flattish even in that year. So that was pre-COVID. So that was just like -- I mean, nothing special happened in that year, and that's just part of normal business?

Sir, there was nothing special. No. So I really am not able to recall that period to be very honest, what was the reason. I mean, if I could -- I mean, think about it and go back to why it happened, I can personally get in touch with you and explain that. But as of now, I really don't have the right reason for it to fix up. It's almost been 6 years on that. After that, it was purely COVID and because during COVID, practically all the QSRs were shut down. It took a long while for them to recover.

Understood. Understood, sir. And I missed one answer that you gave to a previous participant who was asking that our capacity is becoming 3x. How is our fixed cost going to go up? I missed your answer to that.

Sir, our fixed cost is not going to go up substantially. We were talking about the labor involvement there, labor cost there. I mean the answer was that our labor cost will go by 50% to 60%, sir, from our current -- I won't say the labor cost, I would say the labor demand. Like if we have 100 people now, it could be 50, 60 people for the new plant because that plant is mostly automatic. Labor cost is slightly difficult to say because the labor -- the minimum labor wage and everything keeps changing. So the manpower requirement is what we're talking about.

Sure. At peak capacity for the new plant, the incremental demand will only be 50%, 60%, you're saying?

60%, yes. 50% to 60%, yes.

Okay. Okay. And in terms of depreciation, sir, so this INR 38 crores, if you can -- if it's possible for you to give us some idea of over how many years the capitalization will be depreciated?

Mr. Walia, are you there? Can you answer that question, please?

Yes, sir. Yes, sir. So it will be normally on the 15 years and building would be about 30 years. The plant and machinery is 15 years. And the building, it is 30 years.

Okay. And how much of this INR 38 crores is building?

Building is around INR 6.5 crores.

And all the rest is plant and machinery?

No, it's INR 4.5 crores is land and the rest is machinery and some utilities also.

Plant, machinery and [indiscernible] diesel. So basically plant and machinery diesel. So basically, plant machinery will be supporting utilities. The boilers, the generators, the -- yes, yes.

[Operator Instructions] Next follow-up question is from the line of Dharmil Shah, individual investor.

More on the customer concentration...

Can you speak through the handset, please?

Am I audible now?

Much better now.

So my question is more on customer concentration. If we look at your PBT almost 75% to 80% is from two customers.

Yes.

From a risk management perspective, I mean, how do we try to impress this customer concentration because much of our performance would be dependent upon how their performance would be.

Sir, you're absolutely right. But next year, you will see -- and even now, the customer concentration is much widespread now. We have acquired new customers. We have acquired new businesses. So the customer concentration is not up to 80% now, there's a lot of reduction in that percentage.

Sir, any, I mean, 3 to 4 years down the line, how much this -- the top two customers would come down to around?

They are down by almost -- as of now, as I speak on today, they are down by almost 20%.

Okay. Got it. And another follow-up question. Usually -- I mean, QSR industry is growing very fast, but there is a very high attrition within the industry as well. So even if we onboard our new customers and I mean, how do we those would be our long-lasting relationships?

Sir, to be very honest, all our relationships have been very long. All our relationships have been very long lasting.

Got it. And just a follow-up question from one of the previous participants. I mean how does the pricing work with our top two customers? Is it I mean, annually...

Yes, it is annual.

Those contracts are?

Yes, it is annual, sir. It is annual, sir.

And what would be our wallet share with these two customers broadly?

Sorry, sir, what would be?

I mean what would -- how much would the Chatha Foods account for their meat procurement?

So I really wouldn't be sure. But I think with Subway, we should be at above 80%, with Domino's, we should be close to 65%...

Got it. And the remaining 35% and 20% for both the companies, is their in-house processing? Or are there any?

No, sir, you see Domino's is in-house. They recently started it. But as you would know that these companies, all the customers are very large customers, spreading at a very fast pace, growing at a very fast pace, large number of stores, large number of customer base. So that is something I totally agree with our customers and these companies that a single vendor dependency is not good for them to have. So obviously, they have to do their risk management, which is very well accepted by us.

Got it. So just to -- I mean, if you can name a few of them, are there any companies in India, which are, I mean, similar of your size or maybe...

So there are companies, there is Mission Foods, there is Vista. They're much larger. VENKY'S is much larger than us. CP is much larger than us. In terms of companies as a whole, they're much larger companies than us. Mission Foods is our size. Republic of Chicken is our size.

Next question is from the line of Pawan Kumar from Shade Capital.

Sir, am I audible? Can you hear me?

Pawan, your voice is breaking. Can you speak on the handset, please?

Is it clear now?

Yes, please go ahead.

Can you give some sense of your export market, like what sort of targets you have? Maybe some color on this, maybe next 2, 3 years, what sort of percent of revenue you'll be getting from export market?

Sir, I can't comment on that. I really can't comment on that. The plant has to come up. The product has to come up. So it's a little difficult for me to comment on it as of now, sir.

And when we'll start seeing like this orders showing up maybe this year, like what is the time line for this?

No, sir, this year, the plant only will come up. I mean by next year, March, the plant will be -- the new plant only will come up. And after that. After that, we're looking at a good 6 months' time line once the plant is commissioned, we'll have to do trials. We'll have to run the products on the line. We'll have to standardize the products. So we are looking at by after September next year...

Okay. And sir, secondly, for this plant-based meat products, can you give some color what sort of market scenario you are looking into? What sort of opportunity in this particular segment?

So plant-based meat products in India are not taking off. But exports, yes, there is a demand coming in. Some of our customers also whom we are supplying to are exporting. So the European market is growing, not at a very, very fast pace as it was expected to grow in 2021 or '19, '20 or before that. But the market is definitely growing in the European markets and in the England market. So we plan to target that market once the new facility comes up. But if we talk about it in India, there is not a very huge demand coming in. It is quite a low demand coming in as of now.

As there are no further questions, I'll now hand the conference back to Ms. Priyanka Oberoi for closing comments.

Thank you. Thank you all for joining us today. As we concluded this conference call, making the financial year results 2024, I would like to take a minute on the behalf of Chatha Foods Limited to express my gratitude to each of you for your active participation and insightful contribution throughout our discussion today. We are always grateful for the continued support and trust for our investors, our clients and our team members. Together, we have the strength to overcome the challenges and seize opportunity in the months ahead. Thank you all for your ongoing dedication and unwavering support. Let us make this conference call a productive session, setting the stage for the strong finish to the financial year 2024. Over to you, Nirav.

Thank you very much. On behalf of Chatha Foods Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you, Nirav.