Foods and Inns Limited (507552) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Foods and Inns Limited Q4 and FY '25 Earnings Conference Call hosted by Arihant Capital Markets Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Anushka Chitnis. Thank you, and over to you, ma'am.

Thank you. On behalf of Arihant Capital, I would like to welcome everyone to the Q4 FY '25 Earnings Conference Call of Foods and Inns Limited. I would like to take this opportunity to welcome the management of Foods and Inns, represented by Mr. Milan Dalal, Managing Director; Mr. Moloy Saha, Chief Executive Officer; and Mr. Anand Krishnan, Chief Financial Officer. Now, without further ado, I will hand the conference call over to Mr. Anand Krishnan for the opening remarks. Over to you, sir.

Thank you so much, Anushka. Good afternoon, ladies and gentlemen. This is Anand Krishnan, the CFO at Foods and Inns Limited. Thank you for joining us, and I extend a very warm welcome to all the participants of our Q4 FY '25 investor conference call. A major highlight during the quarter was the sanction of the third tranche of incentive from the Government of India under the production-linked incentive scheme. On the 19th of May, on the day of our results, we received an incentive of INR 25.08 crores for FY '23-'24. This milestone is a testament to our strategic execution and planning. I'm also proud to share that we have already met the eligibility thresholds for FY '24-'25 incentives. While a portion of the dues from FY '21-'22 and '22-'23 remains pending, which is to the tune of around 10% of what we are yet to receive, we are actively engaging with the authorities for its release. This recognition by the Ministry of Food Processing Industries will further enable us to scale responsibly and strengthen our contribution to India's food ecosystem under the Atmanirbhar Bharat vision. We are pleased to report a decent finish to FY '25 with domestic sales rebounding in Q4 and the momentum continuing into the month of April. Customer sentiment remains positive, and we expect a healthy uptick in our order book for FY '26. The tomato season ended on a strong note, and we have built adequate inventory for FY '26. The Alphonso mango season began in mid-April with satisfactory crop yields in most regions and lower raw material prices than last year. The Totapuri crop is also promising, and we are targeting higher production than the previous seasons. Our spray dried powder division continues to see strong demand with the plant running at full capacity. We are now planning to add and expand capacity by adding a midsized plant at the same site to capture this opportunity. Frozen foods recorded more than 35% growth in FY '25, driven by encouraging global demand. With our new greenfield capacity at Vankal, Gujarat, we are poised to maintain or exceed the growth in the years ahead. In the Kusum brand, we saw a dip in sales due to the loss of a tender-based client over pricing concerns. However, this was partially offset by continued growth in our general trade branded sales. On the product innovation front, we dispatched our first Tetra Recart export order to Finland and are in active discussions with a major customer in Canada. We have also onboarded a master chef to co-develop products for the ready-to-eat segment, building a strong pipeline of differentiated offerings. With a focus on disciplined execution, expansion and innovation, we remain confident in our ability to deliver sustained value in FY '26 and beyond. As I come to the end of my opening remarks, I would like to thank each one of you for your support and your invaluable presence on this call. Now, I request the moderator to open the forum for any suggestions that you all may have. Thank you.

[Operator Instructions] The first question is from the line of Arnav Sakhuja from AMBIT.

So in Q3, we had a notional loss of INR 4.2 crores, which is due to currency movements. So just to clarify, has there been any such loss in this quarter or that issue has now been resolved?

Sorry, this question was with respect to the ForEx losses, right?

Right. Yes.

There was a ForEx loss in this quarter as well because the rupee actually, I mean, remained at a depreciated level at that point of time for 31st of March, but the extent is not as much as what it was in Q3. It's the notional one.

So how much will loss be as compared to the INR 4.2 crores level we had in quarter 3?

I'll give you the exact number of that probably during the course of the call.

Okay. Sure. And just I had 1 more question. Was there any revenue in the pectin segment?

Nothing has been recognized as revenue in the pectin segment in this particular quarter. And I mean, just as a guidance, we are expecting around in FY '26 to book around INR 6-plus crores of revenue. But, I mean, as we have explained with our spray drying division earlier, any time we put up a capacity, we give our products to the B2B segment to the large brands to test as to how they can actually incorporate that particular product in their scheme of things. And the testing for that is currently going on, like with the spray drying, which started full capacity utilization by November and December of FY '25. So for pectin, we are actually producing as we speak because of the mango skin, which is actually available currently. But in the whole year, we are expecting to book around INR 6 crores of revenue. That's our reasonable estimates that we have.

Okay. And just 1 final question. So you mentioned that in our Tetra Recart section, we started some exports to Finland. So did this segment generate any revenue? Or will that also start to come in, in FY '26?

Sorry, can you please repeat the initial part of the question? I couldn't hear it properly.

So basically, I was just referring to our Tetra Recart business. So in that, as you mentioned, we started exports to Finland. So did we see any revenues in that segment or that -- the revenues will start coming in, in FY '26?

In FY '26.

The next question is from the line of Mulesh Savla from Shah & Savla.

Am I audible?

Yes, loud and clear.

Sir, my question is that, we have multiple products, diversified revenue stream. But still I find that somehow we are not able to reach to the expectation of investors or even our own internal targets also, I see that we are not able to achieve. So when can we expect things to be on track? That is my first question.

I'll take the first question, Milan Dalal here. If you see the performance of last 5 years, yes, we have stagnated INR 1,000 crores, but if I don't know at what level you have invested, but we have shown growth from INR 350 crores to INR 650 crores, INR 650 crores to INR 1,000 crores. And as you would know that anything new that you start, any newborn baby, you have to give it time for it to kind of get on to in shape, basically these are incubation stages. Having said that, we have never said that any of our new businesses will be more than our traditional business. Yes, the endeavors are to exceed the current pulping division and the efforts are in that direction, and there has been no degrowth in and around that area. So I'm not too sure exactly on to the expectations. There is a shortcoming, but definitely not the way I could understand as to be a way beyond the possibility of doing it the fact that we have performed in PLI, which requires a minimum 10% CAGR, maximum 15% is taken, and we have got 15% growth each of those years. As also our EBITDA margins have improved, maybe not as much as one would expect, why not we will strive with the support of you guys and with the nudge that my investors would give me, we would definitely strive to give a better performance.

So basically, our traditional business of pulping, mango pulp also, as we noticed that even last time also, whosoever our customers have committed the quantity. And ultimately, those quantities were not lifted till the last quarter of the year. So I wonder that we see a lot of traction. We see a lot of demand and still the lifting of those material is not happening as per the desired level.

Yes, that is our desired level, I agree. But as per the contract, they have 15 months for them -- 15 to 18 months for them to lift off and it is that they are prerogative to doing about it. So yes, it would have been just wonderful that I manufacture and then within 3 months, they pick up everything. But while we have been made to create that kind of storage and the facility warehousing, but the actual users, our customers, they want to lift it just in time for their production. So that's the business. And this is a tradition. There is no change in trend. This is for over 2 decades. This is what is being followed. We do nudge, we do push, we do things, but it's slightly worse, but the volumes are increasing. So we are not in a position to kind of totally demand a change in the business policy. But it's part of the contract. So there has been nothing that has been [indiscernible].

All right. So at least we expect, hence for the lifting would be a little faster or some new customers would be engaged. And one accounting question to Mr. Anand. By the way, current year, how much we have recognized as PLI incentive in the current financial year, '24-'25?

In FY '25, the revenue recognized is INR 25.08 crores.

INR 25.08 crores?

Exactly. Just to answer the question that Arnav had actually asked though the mark-to-market loss, which was actually there in ForEx was around INR 2.25 crores.

The next question is from the line of Koustubh Shaha from Wallfort PMS.

Congratulations on good set of Q4 numbers. I had 1 or 2 questions, but firstly, on the outlook for FY '26-'27 in terms of either the revenue or tonnage and the EBITDA margins, if you can just provide that?

Moloy, if you are on the line, would you like to take that? Would Anand -- should Anand answer? Mr. Moloy is at our factory with some visitors. Maybe Anand will just answer. We'll not waste time.

Sure. So with respect to tonnage that we actually expect to grow in the mango pulping segment is around 15% as per the initial orders that we have actually got. We have already given you a guidance on the tomato that -- I mean, we have pulped to our full capacity in the previous year, and we are expecting to hit revenues of around -- anywhere between INR 70 crores to INR 90 crores in FY '26. And we will be again pulping for tomato this particular year. But having said that, I mean, we are more than well stocked for the inventory, which is actually required throughout FY '26 with respect to tomato. Spray drying division, last year, we did around INR 21 crores, INR 22-odd crores that is in FY '25, and we are expecting that to reach around INR 30-odd-plus crores in FY '26. And with respect to Kusum, I mean, we have lost out on a particular client because of the tender process that we -- I mean, we couldn't -- I mean, win in. But then having said that, the general trade is compensating for that, and we are, I mean, really targeting growth of at least 30% to 40% in the Kusum business in this particular year. So overall, broadly, these are the numbers that we are looking at.

Okay. And in terms of the EBITDA margin, what should we assume?

So EBITDA margins are always a function of what my gross margins are. And as I've time and again explained on various calls that we have been in, the gross margin percentage is not the right way to look at this business. The absolute gross margin is something that we will increase. And as a result of which, because of the operating leverage, the EBITDA margins are also expected to increase. But having said that, as we have told in the opening remark, the raw material price this year as in, in FY '26 is actually slightly lower. So the effect of that will actually start coming in Q4 of FY '26. But since the prices of raw materials in the inventory season of 2024 was higher, so that would actually result into higher gross margins or higher sales value in the first 9 months.

Okay. So if I understand, you're saying the raw material cost for first 9 months will be higher and in Q4, it will start trending down. Is that correct?

Correct. That's right. So these are very early trends that we don't know the final pricing of the raw material.

Understood. Understood. One more thing was on the tax percentage. So, obviously, this year, the tax percentage was lower as compared to the previous year. So any reason for the same? And what should we assume again as a steady-state basis from a tax percentage perspective?

So steady-state basis, you should assume 25.17%. Having said that, if you have actually attended our Q2 conference call, we had actually mentioned that we have opted for the new tax regime under Section 115BAA, where the new tax rate is at 25.17% as compared to 34.94% earlier.

Okay. Fair enough. And lastly, on the PLI benefits for the FY '25, I don't know if you have mentioned that. What would be that for FY '25, which we'll get in FY '26?

If you can just give me some time, probably I can just look upon the number and come back to you on this. It is north of INR 30 crores is what my rough number estimates are, but probably I can just look upon my estimates and come back to you.

No, it is INR 34 crores PLI projection for this year.

Sorry?

It is INR 34 crores PLI projection.

Moloy is saying INR 34 crores.

[Operator Instructions] the next question is from the line of Amish Kanani from Knowise Investment Managers. It seems like the management -- the participant's line has got disconnected.

No, we are very much...

Yes. So the incentives are at around INR 33.2 crores is what we are actually expecting for FY '25, INR 33.2 crores.

We take the next question from the line of Giriraj Daga from Visaria Family Trust.

My first question is regarding the PLI accrual, the one what we have booked in FY '25 of INR 25.08 crores. How much was booked in quarter 4?

The entire INR 25.08 crores.

Okay. My second question is, you gave the breakup of the segment-wise number. So any, let's say, 2, 3 segments which is pending the guava pulping, what was the expectation that, let's say, this year, we did about INR 25 crores.

Correct.

And frozen food, what is the expectation? Frozen food, we had a good growth last year. So what is the expectation there?

So a minimum of 35% is our internal target for this FY '26. With respect to guava, I'll let our CEO, Mr. Moloy Saha, elaborate more on that.

Guava is a cyclical crop. This year crop is not good, it's a crop failed. So this year it could not produce much. But from -- due to this good rain in the guava crop region, especially in the [indiscernible] Shirdi. I believe that we are expecting a good crop which is likely to start from August and September onwards. So if the crop is good, we can make it at least 50% minimum growth we can expect in this segment because last 18 months, we see significant growth in guava in India, as well as in overseas market with a good opportunity for us.

Okay. So we are expecting this year can be 50% higher compared to last year?

Yes. Subject to Crop, and we're expecting a good crop this year.

Okay. Okay. How about the new segment, which we reported last year also, but there's no mention of that, Tetra revenue -- Tetra Recart? What is that, let's say, revenue expectation this year?

I think if, Moloyji, Anand you already told regarding Tetra.

So I hadn't specifically mentioned about Tetra, but I mean, just to give details on the Tetra, I mean, on a very conservative basis, we are actually thinking of revenues around INR 6 crores based on what we have as visibility today. But having said that, what is not visible is the development that we have actually done, the incubation that we have actually done with a lot of large brands, not only in India, but globally. So a few which we actually see coming only in the next year, but a few which may potentially happen this year. But till the point of time, we don't sign the contract, I don't think we'll be able to give you any visible numbers on that. But a minimum or a conservative basis of INR 6 crores is what we can actually expect from the Tetra business this year.

Okay. What was the CapEx number for this year?

CapEx, I don't think it's going to be much. It's going to be less than INR 10 crores, if I'm not wrong. MS?

Yes. CapEx on last year or...

FY '26.

Yes, it will be less than INR 10 crores.

Okay. Because, see, when I look at last year, just to get the comparable number right, last year in the cash flow, I see CapEx number INR 57 crores compared to INR 57 crores this year number will be INR 10 crores.

Yes. We have front-ended a lot of CapEx because a lot of CapEx was also related to the PLI for which we had to complete it by March of 2024. That is number one. But having said that, we also did this tomato CapEx that actually went online in December or November of 2024. So all those things put together actually came in, in FY '25. But having said that, roughly around INR 10 crores or maximum of INR 15 crores is what you can actually consider in FY '26 as CapEx.

Okay. Okay. Last thing, like we have been mentioning a couple of times about INR 1,800 crores of revenue guidance. So...

By FY '27 is what we had -- I mean, targeted internally as such.

Correct. So do you think now that will be pushed by a year or so? Or we are still like saying that there is possibilities out there?

See, I mean, the management has given -- the promoters have given us ESOPs and our incentives are also aligned to it. So as much as you are interested is what I'm also interested to actually grow the sales, honestly. So -- I mean, I don't know. I mean, we'll strive for FY '27. But see, the point is, the raw material prices, everything is not in our hands being in an agri business.

Okay. Okay. Just last thing. When you mentioned 15% increase in the mango pulping tonnage, like I'm assuming that -- we are already at the end of May. So large part of the inventory of raw material is -- you have visibility now. Is that a right assumption?

No, no, no. So there are 2 major varieties that we do, which is Alphonso, which the visibility is totally in front of us. The second is Totapuri and Totapuri hasn't actually started as yet. That starts a little later by June end, early July, August. So -- but early indications of the order book position is how we are giving you these estimates.

The next question is from the line of Amish Kanani from Knowise Investment Managers.

Congrats on a good Q4. Sir, if you can give us some sense on the working capital? I see inventory also increasing. So between the raw material and the finished goods, if you can give us some sense how is it planning? Obviously, we are preparing for the season. So if you can give us some sense there, how is it shaping working capital? And trade payable days also, I saw increasing. So maybe we are getting good credit. And in that context, if you can give us some sense of how the debt position is panning out? And how do you see that, that will be helpful.

Amish, so just to elaborate on the working capital, it's a function of 2 things. One is the raw material cost and basically, how soon my customer picks up my material that I produce for him, right? So on these 2 factors, the raw material cost in the previous season, that is 2024 inventory crop season, the raw material prices were high. So because of which the working capital went up. Also, there was a delayed call-off from customers, whether it was export or domestic, even though they are fulfilling their orders delayed, for which they are also giving us the inventory holding cost sort of a thing, but that adds pressure to my working capital part of it. So both put together, last year was a pressurized situation for us. But having said that, you correctly said that we have actually enjoyed a good credit from our farmers, as well as the traders who actually supply to us because of which we are happy to be in the ecosystem, and they are also knowing that as a company, we might delay but not default. So that's the comfort because of which the third or the fourth generation farmers continue to be with us saying that these guys will never default, but maybe delay. But if we support them, then probably they will also support us. For them, if the raw material is not consumed within 7 days after the fruit ripens, basically, it's a waste, it's like an airline seat or a hotel room loss that actually happens. So they come to us believing that we would actually take the entire produce. They know we are the largest producers in India, and that's the comfort and support that we actually give them. So they are ready to give us good credit. So because of that, we get support from them, and we are able to manage our working capital. But if you were to also ask me to link it up with what you can actually expect going forward, if we have to grow sales, then there is definitely a need for a larger working capital, which is actually required. So, I mean, it might go hand in hand. That's the only guidance that we can actually give you.

So, sir, you can update on the debt numbers and the cash on hand as of 31st March?

So the debt number is something that is already published. I think it's around INR 440-odd crores. A breakup is around INR 350 crores of working capital -- INR 355 crores of working capital and the rest is in the form of long-term debt.

Sure, sir. And sir, if you can give us also the breakup between exports and domestic solution? In the second quarter, if I remember, there were some concerns on the shipping lines and we were delayed. Of course, they have covered up in the fourth quarter. So if you can give us the...

It was covered up in the fourth quarter.

Yes. So if you can give us the sense between the exports versus domestic.

It's there in the investor notes, I don't know whether you've actually managed to go through that. We have given the tonnage breakup and the value breakup in that.

Sir, I'm asking for the outlook, how is it shaping up now in first and second quarter, if you can?

So in the first quarter, the orders that we have actually received is only for the mango pulping part of it for which we are actually telling you a guidance of 15% incremental sales growth in tonnage.

Okay. Okay. So the point was, sir, that we had missed on the export side when the shipping line was uncertain. Should we be worried about that in the ensuing quarter is the question?

That you would need to first tell me whether there would be uncertainty, whether there's a Suez Canal problem or there is a Red Sea problem or if there are any [indiscernible] attacks or you need to give me guidance, is there any war. So based on that, I might be able to tell you as in -- we wouldn't have a problem if the industry doesn't have a problem. We go in sync.

So I'll just add that, generally, now the customers have taken up extra lead time. So delays may be still for a while. The uncertainties are there. If it reaches early, we are able to recognize it earlier. So a little bit of uncertainties are still there, but hopefully, all getting back in track.

[Operator Instructions] We take the next question from the line of Apeksha Maheshwari from AV Fincorp Private Limited.

Could you please throw some light on inventory? What constitutes the major portion of inventory? And how is the demand shaping up now?

So mango and tomato actually consists the major inventory that we actually have, apart from which the other inventory that we actually build up just before the season is the packaging inventory that we have for the mango -- upcoming mango season. So broadly, these are the larger inventory items that are there.

So could you bifurcate it?

Sorry?

Could you bifurcate it amount-wise?

I don't have the ready breakup available. Maybe we can take this off-line.

Okay. And what is our expectation? How is it going to get liquidated? Any light on that?

We have contracts for around 15 to 17 months by which the call-off need to happen. And if you would have actually seen our Q4 numbers, the domestic volumes actually picked up quite considerably. April was really good for us again. But in the month of May, as we speak, there has been slight slowdown basically because of the rains, which have actually come in. But having said that, April was great, and we are yet to see as to how we end this quarter.

The next question is from the line of Naitik Mohata from Sequent Investments.

Sir, my first question is regarding...

Sorry to interrupt, Mr. Naitik, could you please come closer to the device while asking the question?

Am I audible now?

Yes, you are.

Yes. So, sir, my first question is regarding the guidance for the mango pulp that we have given. So we are expecting around 15% of volume growth in FY '26, right?

Correct.

Okay. And my second question, sir, is it's a little bit of an accounting question. So the INR 25 crores of PLI funds that we might have received in FY '25, so does this pass through our P&L? And does it show up in our cash flow? And if it does, then in which line item could we see that?

So revenue from operations is where the income is actually recognized in P&L.

Okay. And do we see the effect of that -- of the PLI scheme also in the cash flow statement?

Of course. So the money has not been received as on that particular date. So it was in receivables that was actually shown.

Okay. Okay. Understood. And sir, what was the PLI amount recognized in FY '24?

INR 25.4 crores.

In FY '24 also?

Correct. But in FY '24, the income which was recognized was pertaining to 2 years, which was FY '22 as well as FY '23. FY '22 pertaining income, which was recognized was INR 9.71 crores and FY '23 relating was around INR 15.4 crores.

Okay. That's helpful, sir. Also, sir, lastly, you have guided that the raw material cost will be higher for the first 9 months. So do we expect we'll continue to see margin pressure for the first 2 quarters of the year?

So ours is a cost-plus business model. So if you have gone through our previous calls, it's always a pass-on that we actually have. What I was trying to say is basically whatever we built up as inventory last year will be sold in the first 9 months of this year in FY '26. And then from Q4 onwards, you will see a lot of sales of the current production that we are actually doing. So last year's raw material prices were higher because of which the sales would seemingly be higher in the first 9 months. And in Q4, the -- I mean, the current year's inventory or the raw material, which is cheaper, would start getting sold.

Understood, sir. So our absolute gross margins would be same?

Absolute gross margins would be better is what our strive is to do it from year-to-year.

[Operator Instructions]

If there are no further questions, then probably we can end the call.

Sure. As there are no further questions, I would now like to hand the conference over to Ms. Anushka Chitnis. Thank you, and over to you, ma'am.

On behalf of Arihant Capital, I would like to extend my gratitude to the management for giving us the opportunity to host them. Thank you so much.

Thank you so much, guys. I would like to thank each one of you for your support and your invaluable presence on this call. Thank you so much. If you have any further questions, please feel free to reach out to us.

Thank you, Anushka and team, Arihant and the rest of the people on this call. Thank you so much.

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