Gulf Mushroom Products Co. SAOG (GMPI) Earnings Call Transcript & Summary

Good morning, everybody. My name is Deepak Agrawal, I'm the CFO of Gulf Mushroom. With me is Mr. Abdullah Nasser Al Hadhrami, the CEO, and we welcome you to this fifth MSX discussion session. So we open this session now for you all and we invite any questions. As you must have seen the results that have taken place, we have done fairly well. Our sales have increased by 10% and our GP margin has increased from 45% to 49% and our profit has increased from OMR 1.385 million to OMR 1.947 million. We are working at full capacity and we have announced a small expansion, which is in progress now, which will be completed by next year first quarter hopefully. So I invite your questions, please.

This is Rajan. First of all, congratulations to all of you for posting a good set of results. I have a few queries regarding the operations of the company as well as some outlook about the outlook of the industry itself. Basically what we see is that coming to the outlook of the industry like there is a wide variation in consumption of mushroom if we talk about in different geography. China is showing around 30 kg per capita consumption while U.S. is showing hardly 2 kg and Europe is 7, 8 kg or so. So why is there so much variance and in this context, where do we see the region where Gulf Mushroom operates where the per capita consumption is going to stabilize over the, say, next 5, 10 years and where is it right now? As a very key player, how do you estimate these things and how do you see this going ahead? First is about this consumption. Then I have many other questions also.

Okay. This is a very good question, Rajan. Mr. Abdullah, you want to answer this?

You can answer, Deepak.

Rajan, mushroom is basically traditionally consumed the maximum in the Asian country; particularly China, Thailand, Philippines, Singapore; and that is why you see the consumption rate is so high there. And of course in Europe also, it is a very predominant item on their menu. But in Gulf, mushroom is basically not part of the local cuisine. So in Gulf of course now the awareness is going up and slowly people have started consuming mushroom, but still the local consumption is very minimum. And the consumption and growth and demand of mushroom in this region is primarily driven by tourism and hospitality industry. But the local consumption is also growing with increased awareness especially after COVID, mushroom being a very health product and that is basically, you can say, our captive demand because as that awareness increases, as the local population starts making mushroom as part of their daily cuisine; the demand will just grow exponentially. So the outlook is positive for the region. That is what is our analysis.

Okay. Going by the company's sales trajectory, what we are observing that over last, say, 5 or 10 years, the average compounded annual growth is in the range of 7% to 8%. It varies year-to-year, but broadly we can say that Gulf Mushroom is posting the sales growth in terms of 7% to 8% per annum. This year also it was around 7%. So how do you see the volume growing for the Gulf Mushroom over the next 5 years or next decade? What will be the -- can we expect similar 7% growth since the market has also -- due to the growth that it has seen over last decade or so market has also reached a sort of higher level. So do you see the similar growth continuing over next decade or what kind of growth the company is visualizing in the market and which are the major markets right now?

Thank you for that question, Rajan. Yes, we are positive on the growth outlook in this region. As you know, the economic diversification and expansion in the regional economies like Saudi, Dubai and diversification of the economy away from the hydrocarbon sector. So there's too much of a push into tourism and hospitality and this we expect to continue for the next decade or so. So the growth we believe should be anything between 5% to 10% CAGR over the next 10 years.

Okay. 5% to 10%. And where this growth will primarily be coming from now? First, what is the sales mix? I mean how much -- of the major Gulf countries, the total production that we make, how much it goes into different GCC countries basically? If we assume that GCC is a major market, do we have other market also? So how much share of the total sales is going into this country and where do you see the growth in future coming from? I believe the primary market is U.A.E., but what is the share in other markets and how the growth is visualized from this stage onwards.

See, the main market is Saudi, Dubai, Bahrain, Kuwait. These are the main markets. And of course as you know that Saudi is a very big market not only for mushroom, for many things and it is just on a growth phase now. And Dubai has always been a tourist hotspot so it is also a major market. Exact numbers we don't want to share due to competitive reasons, but they are the 2 main markets.

Okay. So major produce will be going into Saudi and Dubai right now?

Yes.

Okay. And some will be consumed locally?

Locally, Bahrain, Kuwait and also we are exporting to other Middle East countries like Jordan and we used to do also Far East countries before, but we have stopped it for some time. So the demand is there. Now we are focusing on our capacity in the local markets, in the regional markets.

Among Dubai, U.A.E. and Saudi, what would be the kind of breakup right now means how much would be going into U.A.E. and how much you estimate is Saudi right now and what will be the difference here? So Saudi will be growing very fast? Is something like that we are seeing right now?

Yes, Saudi growth is faster, yes.

Regarding pricing what you observed in U.A.E. when we go to super stores, we have seen over last 2, 3 years, the prices of mushroom has increased substantially means reasonable increase is there. But when we look at your financial, the growth in the realization of Gulf Mushroom is in the tune of around 3%. So what is the question here means if the prices increase, how it flows to our company vis-a-vis retailers? Is it major gain is being captured right now by the retailers and we are just primarily getting volume growth or how it is going to stay and where it is going to change going ahead?

Yes, you're quite right, Rajan. Actually there's a lot of pressure on the prices in the entire region because of competition from some low cost producing countries and volume is very important to drive your numbers and the retailers are also doing a lot of promotions actually. So the prices generally are not going up. I mean generally it is in range. Maybe once in a while you might see some small section of the mushroom on display in Carrefour showing AED 8.5, but you'll see also alongside with it a bigger segment showing AED 4.5 upon it. So that's a very small part of the mushrooms. They do differential pricing to drive the consumer to buy the cheaper one. So that's just marketing techniques, yes. But overall, there's a pressure on the prices.

So basically you see the prices have been broadly stable and it's likely to stay that way. Major driver of the growth will be volume or growth of sales and profitability will be the volume.

Yes, yes. and economy of scale, yes.

And economy of scale. Among the product mix, what is the product mix? How much would be like button mushroom is getting sold? How much would be the other premium mushroom would be getting sold? What would be the breakup in terms of volumetric if we estimate Gulf?

Yes, about 80% to 85% of total sales is white button. White button means white button and baby and sliced white mushrooms altogether will make up about 80% to 85%. The remaining 15% to 20% will be brown, portobello, those categories.

And accordingly, there will be differential in prices also. So average prices will be blend of these 2?

Yes, that's right.

Okay. Now about the expansion that we are carrying out. What is the size of expansion? What is our current capacity in terms of tonnes per day and how much we are adding the new expansion?

Now we are doing about 18 tonnes per day, which is our peak capacity you can say and the expansion will add about 1 tonne per day extra so about 6% growth in the production capacity. We are adding these rooms like we added 6 rooms in 2023 so that we use the capacity immediately. We don't want idle capacity because the capacity is costly. So we added 6 rooms in '23. Now we want to add 6 rooms in '25. So immediately we'll be using these capacities and there will not be any idle capacity. That is the driving thing.

This is like adding rooms at the existing set of itself not sort of --. It's just like we can say it's just a brownfield expansion and somewhere falling between debottlenecking and brownfield expansion.

Yes, yes. Because when we have the utilities -- when we install utilities, we always get higher capacity. So we don't have to add utilities every time we want to add rooms. So those costs are already there. So we just want to utilize the existing...

Rajan, you are asking so technical question. Sorry, we can't answer these questions. You are supposed to ask about investment, okay? So any technical question we will not answer for your information.

What would be the investment CapEx that we will be making going ahead and how these will be funded basically?

So this is about OMR 1.3 million project and we plan to fund it with the subsidized loan as far as possible.

Okay. Most of it will be coming from subsidized loan.

Yes. That is the effort.

And this is what our strategy will be like. Whenever we are operating at a peak capacity, we keep adding new capacity as the demand just to absorb the existing -- to cater to the growth in the demand and not going for a very substantial greenfield project like that just to keep utilizing the existing facility to the maximum.

Rajan, expansion and these things connected with the demand and the market. So we don't know the future in fact. It depends on the market.

Okay. So market, you're saying that it is a stable market and accordingly we are expanding at this pace that we are following right now.

Nothing in the market is stable. Nothing is stable in the market. The market is up and down and competition is there.

So tomorrow, if you see a better opportunity, we can go for greenfield expansion also. Sir, my next question is regarding the input that we use for production. How much are we dependent on import for that and how much is the captive? Are we fully backward integrated? Are we already into inputs like composite and spawning and all other things we do in-house only or we are...?

This is technical question, sorry, we can't answer.

This is operational side also.

Operation we don't answer. We are not concerned about the operation. We are concerned about the investment. No, we can't answer this question.

As a potential investor, it gives us the insight into how well the company is self-sufficient in terms of responding to the challenges of the market. That's why this question is there otherwise that's the vision. I think most of my questions are answered. If you would like to add anything special other that I might not have asked and if that is relevant to the investors? Any other detail about the business or the company itself?

As already announced, we have proposed a dividend of OMR 0.20 per share, which is going to the AGM on 17th March for approval. That is one and it has increased from OMR 0.15 last year, it has gone up to OMR 20 per share. That's 1 important thing on development.

Okay. So a major part of our earnings is getting distributed to the shareholders.

Not most.

OMR 0.34 I think is the...

Yes, we have a net profit of about OMR 1.95 million. So against that, about OMR 900,000 will go for dividend.

Almost 50% is the dividend.

Dear all, thank you for attending the session today. So it's 12:00 and we are now closing the session. Thank you very much.