Gulf Mushroom Products Co. SAOG ($GMPI)

Good morning, everybody. [Foreign Language] Welcome to this seventh meeting, we are arranging especially for investment analysts who have some questions about the company. So welcome. I invite any questions, please?

So Shaoor from Vision. They are asking for permission, Deepak.

Yes please. So please. Shaoor, please. Welcome.

It's always a pleasure speaking to you guys. Brilliant results we have seen for this quarter, we have seen a jump in top line on both sequential -- I hope I am audible, right?

Yes, yes, perfectly.

Okay. Perfect. So we have seen a jump sequentially from the last quarter as well and then from last year's first quarter, both in top line and in the bottom line. So just the question is that what -- because our understanding is you're already operating at a 90%-plus capacity. So is this jump related to any price increases? Is my first question.

Yes. We have had to increase the price to cover the additional cost which resulted from the ongoing geopolitical disturbances, supply chain disturbances, so the raw material costs, the logistic cost increased. So we have increased some amount of selling price.

Okay. And seeing that, obviously, your gross margins have slightly shrank, but the geopolitical disturbances were only during the March month of the last quarter. And in this quarter, obviously, they are continued as of now. So we should expect this increased prices to continue for this month, resulting in a higher top line is my first question. And then should we also expect your gross profit margins to normalize to the north of 50% level that they were did during the fourth quarter?

Yes, the selling prices will be maintained. And the GP margins, of course, will have to stabilize because the impact of the -- full impact of the raw material cost is still coming in. So we'll have to wait and see how the GP margin stabilizes or what further action we need to take on the selling price front, but we expect to maintain the GP margin around 50%.

Okay. So you have been successful in passing on all of the cost, all of the increase in costs that you had to suffer due to this conflict?

Yes, so far. So far, yes.

Perfect. Okay. My next question is you had mentioned in the previous call of a capacity addition of close to 15% coming online this year. Is that still on track? And what is the expected time line of that, please?

Yes, the new capacity has been commissioned in January. So we are already using the new capacity.

Okay. So the increase in top line, how much of it is attributed to the increase in volumes versus increase in price then, if you could bifurcate that, please?

In the first quarter, the increase in quantity terms was 10%.

And if I'm not wrong, the capacity addition was 15%. So there's still room for a 5% increase in top line, right?

Yes. But then there are many variables. We have to see the raw material side. Some things are not normal. So depending on that, yes.

Right. Okay. It makes sense. And then my follow-up question would be because of the recent geopolitical events, we have seen the tourism industry in the UAE, especially has suffered quite a bit. And seeing that as your commodity is a premium product being served, have you seen any backlash in demand or any decrease in demand on that front?

Well, the hotel occupancy has gone down drastically. So the demand from the hotel industry has come down. And -- but it has been quite compensated with reduced supply from overseas particularly from Iran.

Okay. So we should not be expecting this recent geopolitical conflict to disturb your sales as much?

Yes.

Okay. And any further plans for capital expenditures on the books going forward in the short term at least?

As of now, we have a normal CapEx for the same capacity. For new capacity, we haven't taken any decisions yet. So there's nothing we can share now.

And would you mind giving us a number -- a ballpark number of what your actual maintenance CapEx is after this capacity enhancement? What your maintenance CapEx would be in the coming years?

Our normal CapEx is about [ OMR 0.5 million ], but we have had to go for a special cost of acquiring some land, which was shared in the AGM. So total is [ OMR 750 million ].

Okay. Great. I'd be happy to wait in line if there are any more participants with questions. If not, then I'll come back.

Sure. Mohamed, your question regarding additional capacity. So our growing capacity, in last year before the new rooms came into commissioning was 8,098 tonnes for the full year. And with the new rooms, it is 9,054 tonnes. This is again based on some assumptions regarding yield and the room turnover and normal operational conditions. I hope I have answered your question. So as of last year, we were 87% utilization of growing capacity. And if you see in the first quarter, with the increased capacity, we were at 85% of growing capacity utilization. And for the remaining part of the year, we cannot give you certain numbers because it all depends on the supply chain. But we will be able to maintain at least last year's turnover.

Mr. Deepak, if I may ask another question. You mentioned that there have been issues with the raw material sourcing. Are there like issues bottlenecking your capacity or your production? Are they hurting as in their -- the availability is an issue or just the prices have gone up?

See, there are 2 things. The main raw material is compost. And we have our own production capacity in the far region for compost and -- but there's a limit to that capacity, and we are using 100% of that compost capacity. So we have vision to import extra quantity of compost. So depending on the supply chain, if you can -- and the quality of the compost available, the pricing, so we can use the growing capacity more. But whatever we have done production last year based on our entire capacity of compost, that will continue. So the bottleneck will only affect additional production. To the extent it depends on compost.

And what percentage of your total growing capacity is covered by the compost production in [ Indofar ]? If you could tell us that?

Yes, we can do about 7,300 tonnes.

Okay. So that's close to 80%, if you are not able to source any raw material in the worst case scenario, you should still be able to maintain an 80% utilization?

Yes.

Mr. Deepak I also have a question.

Yes, welcome.

Yes. This is probably a clear nature to the products that the company sells. So out of curiosity, is it like a raw mushrooms that you sell and source to the market?

Yes, we are making a -- we produce fresh mushrooms only. We're selling them fresh.

Right. So no consumer products specifically like being bought in the shelves or anything like that, right?

Yes. Like we have white button mushrooms, fresh. We have brown button mushrooms. We have baby white. We have portabella, brown portabella, large brown mushrooms. Then we have brown button mushrooms. So about 5, 6 varieties of fresh only that we have.

Do you think there's better opportunity to sell directly to the consumers, like, off the shelf that have your own products like, I don't know, mushroom soups and mushroom...

We are selling to distributors in all the markets. And we don't deal directly with the retail because that affects our cash flows because collections and many things, it's better operationally. They're good deal with distributors. And regarding making of other products on mushroom like soup, et cetera, those are like value-added products, and those are in our consideration, but no decision has been taken.

Okay. Maybe just one more question. Do you see any price competition in the market in the near term, i.e., any competitors, whether that's can be locally? Or are you -- but any other potential competitors within the MENA or Gulf region where there could be...

Yes. The price competition is there from the local farms with small capacities, but we don't compete with them because we are the market leaders, and we don't compete with them on the price.

Thank you, Mr. Deepak. As you mentioned that you have your own compost capacity of 7,300 tonnes, I'm assuming that utilizing this capacity is -- would result in a higher margins compared to when you import the compost for the remaining growing capacity, right? So any plans on any plans on increasing this compost capacity of your own? Is that feasible? Or how do the dynamics work in this space?

Yes, that's a very good question. And it is in the consideration of the company, but there is no decision yet.

Okay. And the recent capacity addition was of the growing capacity and not of the compost capacity, is that correct?

That's right.

Mr. Deepak, I have a question as well?

Yes, sure.

Yes. So usually, you mentioned directly to the [indiscernible] as well because you mentioned [indiscernible] not necessarily.

I couldn't hear you. There was a break in the voice. Can you please repeat the question, Motasim?

Yes. I will repeat. So you mentioned that one of your biggest customers are the [ industry ]. And obviously, they would use [indiscernible] for their [ catering ] and for making the food. However, there's also many restaurants outside there, obviously, in the country and outside where they probably like to buy mustrooms freshly for their own dishes and menu as well. Is that sort of business sector? Is that like operated also through the distributors? Or is it not something that has been maybe potentially explored yet by the company?

No, no. The distributors are selling to all kinds of businesses. They supply to retail, they supply to restaurants, they supply to hotels. They also supply to other traders. So every part, every segment of the consumer is supplied through the distributors. Thank you all for attending this session. We'll now close the session. Thank you very much.