Chatha Foods Limited (544151) Earnings Call Transcript & Summary

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

Thank you, Sagar. Good afternoon, ladies and gentlemen. It is my pleasure to welcome you all to Chatha Foods Limited Investor Earnings Call to discuss the audited financial result for the half year and financial year ended March 31, 2025. We are joined today by Mr. Paramjit Singh Chatha, Managing Director; Mr. Vishal Singh Sirmauria, Chief Financial Officer; Mr. Kulbeer Walia, Chief Accounts Officer of the company. Together, they will present an overview of our financial performance, key business developments and strategic priorities for the period under review. This session will begin with the opening remarks from the management followed by the question and answer segment during which we look forward to addressing your questions and hearing your perspectives. With that, I now invite Mr. Paramjit Singh Chatha, Managing Director of the company to begin the proceeding by sharing his thoughts on the company's performance and outlook. Thank you, and over to you, sir.

Thank you so much, Priyanka. Vishal, can you please take up the announcement on the financials, please?

Right, sir. Hi, good afternoon, everyone. On the financial highlights, I would like to update our revenue for this financial year stood at INR 157 crores, reflecting an 18% year-on-year growth, driven by product expansion and new customer acquisitions. Our gross profit reached INR 42.31 crores with a gross margin of 27%, which is slightly lower due to increased share of hand-cut and artisan products, which are higher in the OpEx. Our PAT for this period stood at INR 6 crores with a PAT margin of 4%. On the operational and product performance, we successfully launched various products across QSR channels, including clean label products, oven-baked fried products and food service specific innovation for the customers. Our total SKU count stands at 194, serving 316 QSR outlets across 40 cities. Our capacity utilization has also increased to 80% for the non-vegetarian facility. Our net worth increased to INR 82.4 crores from INR 57.7 crores in the last financial year, post successful IPO listing and reserves buildup. As of March 31, 2025, INR 31 crores has been utilized out of the IPO proceeds. And as of 31st March 2025, the proceeds from share capital issue via preference issue is available with the company and being invested in bank deposits. On the customer and market developments, we have onboarded 6 to 7 mid and large-sized QSR brands in the last financial year. Our product realization has improved across all the key categories and total non-vegetarian products contributed close to 96% of our total revenue. We are aiming to maintain the same plus 20% growth -- revenue growth for the next financial year also. That's all on the financials from my side. We can move to the question-and-answer session.

[Operator Instructions] Our first question comes from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I'm trying to understand that who are our major competitors and our major customers like Domino's, Subway, et cetera? Are we the single source supplier of the products that we do? Or which are the other suppliers from which these customers are sourcing their products?

Vishal, please answer.

Okay. Right, sir. Yes. So Madhur, on the customer's part, so Jubilant -- all the QSRs, be it Domino's, Subway and other key customers, so they all have a policy of working with minimum 2 to 3 vendors. So in our case, for the Domino's we are supplying 60% of their total requirement, and for Subway, it is close to 80% of their requirement. So that's on the major key customers' revenue contribution that we have.

Sir, that is well understood. The question is that which are the other suppliers, alternate suppliers, our competitors.

Okay. So Madhur, our competitors would be -- it's Darshan Foods in Gurgaon. Then we have...

We have Venky's. We have...

We have Venky's. We have Sneha Farms. And then we have Square Meal in Bangalore. So there are multiple vendors. So -- I mean we really -- these are the key players who are there in the QSR space. There would be a few others as well. So we really don't know how much share is being taken from all these guys. So we just are aware of the percentage of the revenue we are doing with our customers.

So why I'm trying to understand this is because, sir, I'm trying to understand whether our customers give us the order that this is what we want, this is the ingredient, just make it and give it to us or we go to the customer with our, let's say, veg patty or whatever, and once the customer approves, then we start supplying.

Madhur, it works both ways. It works both ways. Customers also have their new product development and R&D departments. They also keep continuously working on developing products in their new product development centers. So they also give us a guideline. So it is not that they make the absolute product what they want. But yes, based on their kitchen trials, they give us the guidelines on what they want. And we also keep our product development ongoing for the year round, and we also keep offering our products to customers. So our offering ranges from offering it to the larger customers to even the medium or the small-sized QSR. So it works both ways. I hope I've answered your question.

Yes, sir. So if we come out with a new product, let's say, some kind of spicy burger patty. And let's say if our -- some customers, Subway, let's say, it accepts that. So does that mean that we cannot offer that same product to any other customer? And does that mean that, that customer will source that product only from us or it can ask another supplier that this is a new product, spicy burger patty, you also start making it and giving it to us?

No, no. So if the development is from our side, then we are at liberty to give it to anybody else. Like we have a lot of products which are common across QSRs, which have been developed by us. They are our IP. And yes, but if we -- that product, obviously, the customers can give it to competitors to develop a similar product as well because they would like again to [Audio Gap] 30 or that 60-40 ratio across all vendors. But if the product is the recipe -- not the recipe, if the idea is given by the customer, then we sign an NDA with them, and then we don't give it to anybody else.

Okay, sir, understood. And sir, last year, why did our margins went down even though the revenues increased? Is it because the agro commodity prices went up? Or is it due to some other reasons?

Vishal, please answer that. I'm sorry, Madhur, I'm driving. Vishal has all the numbers in front of him.

Yes. Sure, sir. So Madhur, on the gross margins, I would like to update that there was a significant change, which is close to 30% on our product mix. And this change is basically the higher share of hand-cut or artisan products, which is the new trend in the industry. So this new 30% addition, the handmade or artisan products addition, it gave us close to INR 46 crores of revenue in the last financial year as compared to INR 10 crores in the last financial year. But this came with the challenge that these artisan products are hand-cut products, which are manpower intensive, labor intensive. So which led to higher operating costs. So we almost, I mean, ended up spending additional odd INR 60 lakhs, INR 70 lakhs on the manpower cost. But to address that we have already invested in an imported cutting line in the past year. So since the volume has stabilized now, so this automation will help us to reduce these operating costs. And apart from this manpower cost. So since we were facing margin pressure due to QSRs slow demand or declining demand in the last financial year, so we were not able to keep the same margin percentage in the new -- these artisan kind of products. So that was another reason for this margin decline.

And we did a lot of customer acquisition also, where the cost of acquisition in terms of trials and sampling and R&D and customer acquisition also was a cost to us.

That was close to 60, sir.

So then going ahead, sir, what kind of steady state operating margin do you think that we can sustain in our business?

So the margins, Madhur, will be better than this. Won't be the same. We will improve on the margins. The industry will improve from next year. So margins would be better. Now if -- and we're talking only of the chicken business, yes. As we're going to operate our vegetarian unit as well, so the overall company margins would be much better.

Sir, what's the outlook for FY '26 in terms of top line as well as operating margins? And sir, can we pass on the agri commodity prices to our customers because onion, et cetera, they are very volatile? Sir, what exactly is the pricing arrangement with our customers? And sir, what's the outlook for the current financial year?

The current financial year looks much better, Madhur. It will be better on revenue and better on margins than the previous year. And on the commodity prices, Madhur, see the only price we cannot control is vegetables, as you rightly said. But vegetables don't contribute a very large part of our raw material inputs. So other than vegetables, all our -- let it be oil is also some 4- to 5-month long-term tie-ups with suppliers, and chicken is the main ingredient again. So all these are annual contracts. So we work on annual contracts on the pricing of our raw material, and we work on annual contracts with our customers. But there have been cases where the chicken prices have really gone out of hand. And that is where our customers knowing that this price is not going to come down like in 15 days or 20 days, it was a long drawn out -- not this year, but a couple of years back it was a long drawn-out price increase. So customers have been looking at the market scenario. They have been giving us a price increase accordingly. Otherwise, it works annual both ways. Vegetables is not a major component, but yes, vegetables, we never get annual pricing.

Got it. Sir, you're...

Sorry to interrupt. Madhur sir, may we request to return to the question queue for follow-up questions as there are several other participants waiting for their turn. Our next question comes from the line of [ Sanyamm Sondhi ] from Desvelado Advisory.

[indiscernible].

Sanyamm ji, you are not audible, sir. Your voice is very faint.

Congratulations for your numbers. I have question that in last con call, you gave a guidance that you would see 4x revenue growth by FY '28 to '29. How much of this is expected from the new vegetarian facility the Allana JV and the core chicken QSR business?

Sanyamm ji, can you please rephrase? Your voice is echoing. I can make out in bits and parts. I'm not able to really understand the question, sir.

Sir, in last con call, you have guided to 4x revenue growth by FY '28 to '29. I want to ask how much of this is expected from the new vegetarian facility, the Allana JV and core chicken QSR business?

Vishal, please answer that.

All right, sir. So Mr. Sanyamm, are we asking for the revenue from the JV unit, the projected revenue from the JV unit?

Yes, sir, I want to understand what revenue you will get from all the three businesses, the vegetarian, the Allana and the core chicken QSR.

I'm not able to clearly...

Vishal, Sanyamm is asking about the overall revenue from all the three units by '28, '29.

Yes. Okay. Okay.

So you can talk about the installed capacities and Vishal, the installed capacities, and yes.

Versus everyone else.

Yes. Sure, sure. Right, sir. Mr. Sanyamm, so for this chicken facility, the existing one big facility, so we are projecting a 20% increase for this current financial year. And with this 20% increase, so will be roughly at INR 180 crores, INR 185 crores, and that's the max that we can do from this facility. The new vegetarian facility that is under...

They are all almost the same kind of revenue capacity, Vishal, yes.

Yes, yes. So we have 16,000 -- we will be having 16,000 metric tons installed capacity there and that we'll be able to generate close to INR 200 crores, INR 210 crores revenue from the vegetarian facility. And for the Allana, the JV, Allana CF Foods Private Limited, the JV company, we will be -- that will be again close to INR 180 crores, INR 190-odd crores kind of revenue. So on total, we are looking at close to INR 550 crores of revenue by FY '28.

Okay. Sir, and I want to ask that what can be the risk that could derail this plan?

As of now we see no risk. What kind of risks?

Sir, any from high competition, government...

Sorry? Sorry?

Please continue, sir.

Sorry, I could not make out. Any competition...

Yes, sir.

Same, competition will always be there. We have competition in chicken also. We are still able to grow at 20%. So I don't think competition is a risk we should be really looking at. As of now, we see no major risks which could derail the project. Our project -- setting up of project time lines are on time. We're just slightly derailed on our veg unit because of the rains. But yes, we will complete our veg unit, it will go live by September. The Allana unit will go live by November. So things are on track. We are talking to customers. Allana -- in the Allana JV, the products are to be marketed worldwide. I mean, almost in 85 countries by Allana. Samples are being made, tested, customer feedbacks are positive. So I see things going in the positive direction.

Our next question comes from the line of Vinod Madathil Sasi, an investor.

Am I audible?

Yes, yes. Perfect.

I have a couple of questions. One is regarding the expansion of the veg facility. Could you throw some more color on -- just now you said the Allana product sampling, everything is going on well. Could you throw some color on the veg facility as well regarding customer feedback about products? Have you done any sampling? Also, have you done interview, recruitment and tech -- I believe the equipment is also new, something new we are trying to do. So what is the feedback on installation and all that? And my second question is to Vishal, on the receivable front. The sales has grown around 18%, but receivables has doubled. So please explain that.

So let me take it up first. So sir, the veg facility, like I just mentioned, we should be going live in September. And trials are almost done, sir, on all the products. We have not sent out the products to the market as of now because we are still -- we want to come to a line trial kind of a situation to come to the final pricing. So these products, we are talking to exporters -- importers. We are talking to Indian customers. We've sent samples for tortillas, for paratha, for stuffed parathas for our vegetarian frozen-to-fry products. We are in dialogue with a large burger chain for the veg patty. So things are going on, sir. Things are going on and at a very a steady pace and a very -- I mean, I would say a satisfying pace the way we want it on the trials and the R&D. And on hiring, we are -- hired three very experienced people from the trade who are heading this R&D and then they will be handling the production also. The QA team has been hired, and I think we will close the total hiring, the top hiring by August.

Fine, yes.

Anything else you wanted to know?

Yes. Regarding receivables, if Vishal could...

Yes, yes.

Yes, Mr. Vinod. So on the receivable part, you're right, the receivables have doubled -- almost doubled. So the reason behind this is -- there are two reasons. One is that we had to extend the credit terms for a key existing customers from the existing terms to 45 days in order to support the revenue generation, that was one thing. And the second is the new customer acquisition, like I mentioned earlier, we have onboarded almost 6 to 7 mid and large-sized QSRs in FY '25 and a few large customers in FY '24 also. So these new customers operate on a higher credit terms as compared to our legacy clients, I would call, which has led to this increase in overall receivables. So we are working towards stabilizing it around 50, 55 days from existing -- current 60 days. So looking at this -- the broadened customer base, we are targeting 50, 55 days to be the new normal for this.

And as you see, sir, you would be seeing it in the reports, the industry is in a little bit of an uphill struggle at the moment. And these are times we as vendors have to come and support. And so it is all -- as Vishal said, so one of our legacy customers we had to extend the credit period and then there was a lot of new customer acquisition we did, but it was done -- all done at a slightly higher credit period than what we had before.

All right. So do you see a similar trend in the new businesses, the JV and the veg in terms of receivables, credit period and all that?

So the veg could be the same. JV, no. JV because our billing is going to be Allana, we're going to bill everything to Allana. We are the manufacturing partners, and they are the marketing partners. So for us, it's all going to be ex-factory to Allana. So I don't see this kind of scenario. Veg could be a similar kind of a scenario, sir.

Our next question comes from the line of Sandesh Kumar, an investor.

This is Sandesh. I know we have customers like Blue Tokai and Taco Bell. Like are we supplying our products to vendor locations or nearby locations like Delhi or Gurgaon?

We're supplying everywhere. Sandesh, we are supplying everywhere. We are supplying everywhere to Taco Bell. Blue Tokai, Vishal, I'm not sure. You would know better, but I think -- Vishal, Blue Tokai, we're doing pan India or we're just doing north.

Yes, we are doing a pan India, sir. Blue Tokai is also pan India.

Okay. Like if you are doing pan India, then who is bearing logistic cost, customer or we are doing it? Who is bearing logistic cost, logistic cost?

Logistic cost is all by the customer.

Okay. My second question is like...

For us, with all our existing -- with all the large customers, Vishal, correct me if I'm wrong, Blue Tokai is new, but be it Taco Bell, be it Subway, Domino's, Burger King, Chinese Wok, the logistic cost is always borne by the customers. Ours is an ex-factory price to them.

Okay. Correct, sir. My second question is like, now we have imported all automated machines. Like are we going to reduce the labor headcount in future?

The veg plant will definitely -- see in our chicken plant, like what we were talking of that we -- there is a huge trend of we call them hand-cut whole muscle products in the industry now, which was quite -- it gave us a very big jump in the revenue also. But yes, initially, when we started the last financial year, we had to go totally -- it was totally labor oriented and we had to really jack-up our manpower. But yes, then we were able to source equipment just for that for cutting the chicken, what we were cutting the hand. So that has drastically reduced the manpower from what we were doing. Otherwise, in the veg unit, we have made it quite automated. Chicken units cannot be really automated because chicken units, we have to stick to batch processing, so they can't be really highly automated because highly automated plants are very high-capacity plants and India doesn't have the demand for those kind of high capacity plants. The veg unit is quite automated because the kind of products are into -- we are into is more of a commodity kind of products with a high demand kind of a thing. So the veg plant labor will be quite lesser as compared to our chicken plant.

Our next question comes from the line of Manohar Rao, an investor.

My question was, we started an initiative of developing these products and selling them and like the chicken bowl and the sweet. I just wanted to know how those initiatives go ahead where the development is completely from our side?

Manohar, the development is done, and we are getting a response, it's taken time. But yes, we have onboarded a few customers, and there are a few large customers who are in the process of implementing in their main menu. One of them for the sweet empanada is a large Chinese fast-food chain, and we have almost closed that with them.

So these would be rolled out with these QSRs?

The rice bowl have been rolled out. The empanadas have been rolled out. But those are with the smaller clients who onboard products very quickly. 3 or 4 large customers are going to onboard, but being large companies, they have to do a lot of menu changes, store changes and implementing it in the store things. So they are taking time, but it will be rolled out on a large scale.

Okay. Sir, my second question is like the capacity of our veg plant has slightly not been very clear. Initially, we said 16, then we said 14, and now I think in the presentation, I saw 16. So I do understand that there are product changes, strategy changes. So is the 16,000 metric tons we can take forward because last time, what I remember is we were not going to do the patty line and due to which we were expecting a 14,000 metric ton kind of capacity per annum. But now again, I can see it to be 16,000. So is that we are, again, doing patty or something else? Or how is that exactly, sir?

Yes, we are doing patty, Manohar. And one additional product, which came in after our discussions with importers was that the handmade samosa has to be an integral part of the containers. So that is one product which we have introduced. So the capacity more or less stays 16,000-plus metric tons.

Got it.

So there is no major investment coming in for the samosa because the customers require it handmade, which is a 40 and 70-gram samosa, which we were not planning to do. But as we started talking to customers, so the feedback is that every container should have -- it should be a part of samosa as well. So that is something we have also brought in.

Wonderful, sir. Sir, my -- another question was -- I'm really sorry if I'm repeating it because I slightly joined the call later, is that the veg facility, there has been some slight delay in getting everything onboarded and executed. So now what I read is it is supposed to be completed by August and fully operational by September. If you could just share some light like post all the audits from our clients to whomever we are supposed to supply, when will the commercial production likely start?

Manohar, sorry, I'm traveling. So your voice got cut. So on when we are going to complete and when the commercial production will start?

Yes, sir. With the client audit because I have understanding like it takes 2 to 3 months to get the auditing done and all of that, whatever the quality check post completion.

Yes. September, we will complete -- we will get into line trials in September, Manohar, and we should start shipping out orders by October, November. October, hopefully.

Okay. And sir...

And the reason for the delay, Manohar, was that, yes, I will not be hesitant in saying it that this large capacity veg unit was new -- this veg production was new to us. So there were a few changes which we were bringing about not to make mistakes. So mainly changes in the building layouts. So a couple of products came in like the samosa came in and as we were talking to customers. So the delay of a couple of months was mainly due to the building layouts we had to change as per the product requirements, which came up after talking to customers.

Okay, sir. Sir, just last question from my side is, I think we were also targeting exports from the last con call, what I got to know. So is it that we can have these discussions before the facility is coming up because I think my understanding is hardly 2, 3 months? Or is it after that? And if it is before that, have we started those discussions for something like that...

Yes, Manohar, we have started those discussions. We have not started these discussions directly with customers, but we have started reaching out to -- we are not really reaching out to customers, Manohar, like I said, you missed on the call was that we have the products ready. We have the pricing ready. But trial pricing and the actual line pricing could vary. So we are sending out samples. We are sending out pictures. The website also will go live very fast because the products are made. We have started talking to a few people in this line. So it's not that we're going to wait until the production starts. So we are working on that. But we are going a little slow because we don't want to go wrong on the pricing.

Okay. Wonderful, sir. I mean if I can just ask one last or I'll come back in the queue if I'm allowed to. I have already asked. Just one last question I had. So is that, sir, we are targeting anything this year? And if we are comfortable disclosing, that would be very helpful.

Vishal, if I'm not wrong, we are targeting around 20%, 25% capacity utilization this year?

Correct, sir. Correct, sir.

Yes.

Sir, this would be for veg, right?

It would be for veg and Manohar, for the JV, we are targeting somewhere around 15% to 20% for the Q4.

Is this on a per annum capacity or just the capacity, which it will be live for those number of periods?

On the per annum capacity, Manohar.

Our next question comes from the line of Kiran Paranjpe, an investor.

Just one question. If I look into the presentation, I see that we are adding 16,000 metric ton veg capacity. And on the next page, we are talking about underutilization of our current veg capacity. So can you please throw light on that, that why are we adding more veg capacity when our current capacity is underutilized for veg?

Yes, yes. So it will take a slightly -- it will take a couple of minutes for me to explain that. Our current veg facility, sir, is a very small facility, which we set up in '22, right? So this was -- this facility was mainly set up for making plant-based products like the vegan mock meats, which unluckily couldn't take off. So we were working with quite large buyers for that like the Alkem Group and the Graviss Group and a couple of other large people, if you're aware of the brands called Shaka Harry, Blue Tribe. So we were producing for them. But somehow -- and we didn't expect a much large volume. But yes, it was quite a high-margin niche kind of a product we had developed and the world was very happy about it. But unluckily, the whole concept of plant-based mocks meats failed worldwide. So this plant is a very small plant, sir. We keep getting a lot of queries. We -- our large QSR customers want to work with us in this. And that live -- that plant just has one flying line. It doesn't have other the bread lines or the other large lines. It just has one flying line to make fried products. And the line is not big enough to onboard any large customer, sir. It's just a 4,000, 4,500 square foot area, which is adjacent to a chicken plant. And once this machinery, what we have shifts to the veg plant, this space also will be incorporated in the chicken plant.

Okay. So we're going to convert this into chicken plant, you're saying?

So once the new veg facility comes up, then these machines for the existing small vegetarian unit will shift to the new vegetarian facility. And this 4,000 square foot or 5,000 square foot area will be merged into the chicken plant. [Foreign Language].

And our new plant completely different than this one, right, the old one for veg?

So the new plant has 8,000 to 10,000 pieces per our tortillas line. It has a 6,500 pieces per our Malabari paratha line, another paratha line, stuffed paratha line, samosa, frozen-to-fry products, retorted rice. So that's a very large capacity, different type of products facility here, which we plan to export and sell to our QSR customers as well.

Our next follow-up question comes from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, what would be the breakeven level of revenue that we would want to achieve for these Allana and the veg plant for us to breakeven?

Vishal?

Mr. Madhur, can you please repeat the question?

Yes, sir. Yes, sir, I'll do that. Sir, what would be the breakeven level of revenue that you would want to achieve for these two plants to get like operating profitable?

For this veg facility, it will be close to 45% capacity utilization. And for the JV facility, it will be close to 35% to 45% of the capacity utilization to be profitable for each of the equipment.

Got it. Sir, so when I look at our -- like the veg facility, sir, the 16,000 tons is for a single shift or is for a double or triple shift?

It is for the double shift on the 16,000...

Vishal sir, if I consider a INR 200 crore revenue on INR 16,000, so it's coming out to be 1 lakh, 1.5 lakhs, but our current bridge plant for realization is around 2.5 lakhs. So why is that? And, yes.

So Mr. Madhur, it is due to the products that we are planning to do in this new facility. So this is based on the current market prices and prices, the projected prices that we'll be able to sell. So it is majorly the bridge, which is ranging from INR 120 to INR 150 kind of per kg prices.

And at the existing veg plant, Madhur ji, we are doing a lot of paneer products for the coffee chain. So the paneer products are driving up the price. And in the veg unit -- the new veg unit, the major capacity is being taken up by the breads, which are like Vishal said, like the average price of INR 125 to INR 150 a piece.

Got it. Sir, are our capacity fungible between these units or we need to set up a very specific line for a bread or very specific line for a chicken processing, different SKUs?

No. These -- the bread lines are not fungible. They are very large lines, Madhur ji, with very large capacity.

Got it. Yes, sir, will the export orders come at a higher margin than the domestic? And currently, what percentage of our revenue comes from exports?

No, we are not doing -- at the moment, we are not doing exports, Madhur ji.

But sir, we have mentioned that this handmade samosa that we are planning from the new...

We are planning to do. Yes, we will definitely have higher margins.

Got it. And sir, we mentioned that there's a raw material issue with us. So there's this company called HyFun Foods, where they do contract manufacturing where they contract manufacture their main ingredients from farmers and process it and sell to the customer. So have we thought something on that line like what a Sula wine would do for their basic requirements where we can save our cost?

Sir, I don't think so. We are not at that large volume of like -- HyFun is doing only potatoes and making French fries. So that's a different concept altogether. We will not, like I said -- our requirements will not be so large on vegetables that we can go into contract manufacturing.

Our next question comes from the line of Prateek Chaudhary from Saamarthya Capital.

Am I audible, sir?

Yes, you are audible.

Yes. Sir, for the veg facility...

Yes, we can hear you, sir.

Yes. Sorry, I think there was some disturbance at my end. For this Allana JV, what would be -- would our margins be better than our current company-wide margin?

Yes, they will be better, sir. As per the business plan we've signed with the JV, they will be better.

Okay. And any other synergies or other plans that are being worked out with Allana?

Synergies in terms of?

Or any other projects where we are discussing a similar kind of an arrangement?

No. No, sir, not at all. Not at the moment.

Okay. And what roughly -- and Allana is completely exports, right, is what I understand?

They have a very small domestic sales, sir, which is like hardly mentionable. But yes, they are very large into exports.

Okay. And what -- roughly, what proportion of your veg facility production would be exported, roughly?

So we -- on our numbers, we plan to do around 60% exports from the total capacity.

On the vegetarian facility?

On the vegetarian facility, yes.

And in terms of tying up with customers or distributors -- and because this will be the first time we will be going into the export market in a big way, would -- I mean, how would we go about it? And would Allana in any way help us by opening their distribution to us?

Sir, that has been discussed. And I wouldn't say there is any written agreement. But yes, principally, yes, they will support us in this.

Okay. And in exports, what would be your receivable days or the credit period that you would give to your customers?

So that is something which is new to us. We will cross the bridges as they come.

Will it be similar to what it is currently or...

So we will try to keep it similar. We will try and keep it similar. That will be the effort. But it's slightly early for us to comment, sir. Once we start our commercial dealings, we'll have a better understanding of this.

Okay. And this optimum utilization of the three facilities, is it likely to happen by FY '28 instead of FY '29?

So the effort is '28, but yes, it could get pushed to '29.

Okay. I'll get back in the queue. Just one last question. The margins on the export side, in percentage terms, how higher would they be in comparison to the domestic margin?

Sir, they are much better. As we've done our market surveys, we've done competitor surveys, they are much better than our existing chicken margins. In the vegetarian, even in the domestic market, sir, as we've done our market understanding, the margins in some of the products are much better in the vegetarian segment.

Okay. And as you said, you would start getting production in FY '26 itself, where you said that 20%, 25% for the vegetarian plant and 15%, 20% for the Allana JV would happen from '26 itself?

That's the plan, yes.

So that -- in that case, then your revenue growth would be -- could potentially be much higher than 20%, right? Because 20% you were saying for your existing...

20%, sir -- yes, 20% we're saying just for existing chicken unit.

Our next question comes from the line of [ Om Thakkar ] from Smart Horizon Opportunity Fund.

Sir, could you share more details on your agreement with the QSR clients? Like what is the typical duration of these clients? And what are the pricing terms and volume commitments?

The pricings are done annually. And the agreements, Vishal, you would know better. We have signed agreements which are slightly long-term agreements with various customers. I wouldn't remember them off the cuff, but the pricing for all the customers is done annually, 3 to 5 years. Pricing is annual, sir.

Okay. Sir, have your major -- any major QSR clients shifted to in-house sourcing?

Jubilant has, sir. Jubilant, Domino's has. Domino's has set up their own facility in Bangalore, but it has not affected our volumes because their volume has grown and it was shifted with a total agreement with us on the volumes they will pick up from us and the production they will do in their own Bangalore facility. So we were very well informed a year before. And the volumes which had been committed by Domino's, we are doing higher volumes than their commitment.

It is -- just to add on, it is a 20% year-on-year increase with Jubilant.

And sir, my last question is like for financial year ended FY '25, could you provide the revenue split between newly onboarded QSR clients and your existing long-term QSR customers?

Yes. Sure, Mr. Om. So for the newly added customers, so in the FY '25, we have onboarded 6, 7 customers, which have given close to INR 7 crores to INR 8 crores revenue. That is not the annualized rate, till some of the clients started in the second half of the year. And -- yes, that's all on the new customer acquisition in FY '25.

Our next question comes from the line of [ Dipali ] from Desvelado Advisory.

My question is, in the last con call, you said you were in final stages of onboarding KFC. Has the deal closed yet? And if no, what's the status? And when do you expect actual volumes to start?

Vishal, you can answer that?

Yes, sure.

I think August, Vishal?

Yes, we will be starting from August onwards. And so Dipali, it will be 3 to 4 months kind of trial run where we would be doing approximately 60 to 65-odd metric tons on a monthly basis with them. So first, it will be on this trial phase for the Tri-City and then post 3 months trial we will be supplying to the Delhi NCR region to the KFC. So we are -- the commercials have been closed. We are just signing up the agreements and the processes have been defined. So we'll be starting from August.

Our next follow-up question comes from the line of Prateek Chaudhary from Saamarthya Capital.

So would we need to increase our capacity to service KFC because we are getting close to full utilization of our chicken facility?

Sir, for KFC, we are getting into a model of marination. So we're going to marinate the chicken and -- so it's a trial they are doing, sir. So for this, as of now, we don't need to increase capacity.

Okay. So it's only a process that you will be -- marination process that you will be doing for them?

Yes, sir. Yes, sir. Yes, sir. So the marination, which was being done in the store, it's a new concept KFC wants to try, which they have implemented in a couple of countries that has been successful. So that is why, as Vishal said, that it will be started as a 3-month trial. Things go forward, then definitely, we would love to -- if it comes to increasing capacities, we'll be very willing to increase capacities for them.

Okay. And they don't have an in-house facility. They also procure from other vendors, right, currently?

See, if you understand the KFC model worldwide, so KFC is procuring raw chicken, and they were doing the marination and the process in their stores, where with the new stores crossing a number of 1,200 now, they want to standardize the marination process. So earlier, KFC was procuring raw chicken only. They were not into the marination part of chicken. So this is the first trial they're going to initiate in India is with us.

Okay. And if one has to roughly understand what sort of a value of business it will unlock for you if say...

So that is something we would not like to disclose as of now.

But figuratively, can it be a significant contributor to us 2, 3 years down the line?

If the trial goes well, it will be significantly -- it will be quite significant, sir. Because it is at a trial stage, so putting numbers on a public platform with such a large customer at a trial stage is, I think -- is something I wouldn't like to talk about. I am sorry for that.

No, I totally understand, sir. And one last question on the Domino's part. Are you aware of any plans that they would have to be increasing the capacity of their in-house facility?

As of now, we have no awareness on that, sir.

So you don't foresee any risks on your business with Domino's at least in the medium term?

No, sir. Not at the moment. In fact, the volumes are growing. They have been -- as business partners, they have been very realistic with us and our business with them is -- even after Domino's starting their own facility, our business with them is still growing.

Right, right. And just one last question on vegetarian exports. Would U.S. be your major target market?

So we are looking at U.S. at the moment. The markets we've zeroed down on, sir, is U.S., Australia and England. So these are the markets we've targeted. We are not planning to do it in our own brands in these markets, like I've mentioned in all my previous calls also because that's a very expensive affair for us. So we are looking at food service distributors, and we are looking to do private label production.

And any discussions that are already ongoing with potential distributors or customers?

Yes, sir. Yes, sir. At a very nascent stage, sir, I will be very honest because people have liked the products and people are willing to. But as distributors, as customers, the first thing everybody looks at is price, which we have told them that we'll be able to give you definite pricings after September. We don't want to give pricings after small trials because pricings could change once we run the full line productions. So we're holding back the price, and we're not finalizing any deals yet because of the ambiguity in the pricing we will come out at.

Okay. And these are pretty standard products in terms of existing tastes and preferences that you will be making or you've done some own tinkering or innovation with taste and...

So we are going ahead with very standard products also because that's where we'll have to begin. But yes, we have -- like one of the paratha line we've brought in is very innovative. We are developing some very innovative, not Indian, but other types of base gravies as well for the food service. We are developing some very innovative, you can say, the mainstream customer taste retorted rice for these markets. So we're working both ways. We're going standard as well because that's -- which is going to give us a quick start and innovation obviously will help us get better margins.

[Operator Instructions].

Vishal, if you could take up the rest -- Sagar, if Vishal could take up the rest of the question and answer, I will in a zone where I won't have a signal. So I would just like to thank everyone on the call for the questions, for the time, and look forward to a long-term relationship with everybody. Thanks.

Our next question comes from the line of [ Tanmay Roy ] from LinkedIn.

I joined late. I just have two questions. One is why the receivable days has gone up for this last half yearly? And second one is like why the margin also has gone down in the last quarter result?

Mr. Tanmay, sorry, I was not able to get your second question. Can you please repeat?

Second question was on margin, why the margins also has gone down compared to last half yearly result?

Okay. Okay. So Mr. Tanmay, like I explained earlier, so this -- on the margin thing, there have been change in our product mix, which is close to 30% on the total product mix, and that is the hand-cut or artisan products being introduced in the last financial year, so -- which are generally manpower-intensive products, which led to higher operating costs. And -- so we resulted in an additional outlay in the manpower cost due to that. And due to this declining or stagnant QSR same store demand. So we were facing margin pressure as well. Due to that, we were not able to keep the same margin percentage for these new developments. So these are the two main reasons for the decline in our gross margins. And on top of this, we have onboarded 6, 7 mid and large-sized QSR brands in this last financial year, for which we had to spend almost INR 50 lakhs, INR 60 lakhs on the product development trials, the line trials and material sampling and the transportation part, so which is strategic and onetime cost and will yield benefit from this year onwards, we will start getting regular revenue from these customers. And on the receivable part, there are two reasons for this increase. One is that we had to extend the credit terms for one of our legacy clients to 45 days to support the revenue generation. And second is the new customer onboarding that we have done in the second half of FY '24 and in FY '25. So that is on the higher credit terms as compared to our existing -- or as compared to our -- sorry, the existing clients, so which led to this increase in overall receivables. So we are working towards stabilizing it and we are targeting some odd 50, 55 days kind of cash conversion cycle for this year.

So in future, then we'll have to work, it will have to go with like 55, 60 days of receivable or cash conversion cycle and then margin is like 7%. Is it going to be the new normal?

Yes. So on the receivables part, we are targeting somewhere around 50 days. And on the cash conversion cycle, we can consider 50, 55 days to be the new normal, looking at the broadened customer base and the new customer acquisitions.

And 7% margin going forward?

No, no. So like I mentioned -- so we have invested on the manpower cost, we had invested in imported cutting lines. We -- so we -- since the volumes have stabilized now for this handmade products, so this cost will get rationalized. So we'll be improving or we will be maintaining close to 27% kind of gross margins.

I'm talking about -- okay, I was talking about that EBITDA -- operating profit margin. So should we work with 7% or it can go up because the cost has been stabilizing?

So we will be trying to maintain this, like I mentioned, so it is all the gross margins impact on the EBITDA side, but we will be maintaining this 7% to 8% kind of EBITDA going forward.

Okay. So you're saying gross margin, which has currently come down to 25% something, it can -- I mean it can stabilize to around 27%, which is like the previous standard.

Yes.

As there are no further questions from the participants, I now hand the conference over to Ms. Priyanka Oberoi for closing comments.

Thank you, Sagar. We sincerely appreciate your involvement in today's earnings call. Your continued interest, engagement and continued confidence in Chatha Foods Limited reflects your valued support as stakeholder of our company. We look forward to maintaining transparent and constructive communication with all our stakeholders. Thank you once again.

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