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

No, no. We are importing compost because compost is the shortage. Growing capacity we have plenty. So we want to use our growing capacity fully. So that is why we are having to import compost to meet the shortage.

So what's your comp capacity, 7,000 metric tons?

It is almost about 20,000 tonnes per year.

And 20,000 right now and where are you increasing it to?

50%.

And when is it expected to start operation?

We have given a tentative date of end of '29, 3 years.

And what's the envisage CapEx for this?

Sorry, we haven't disclosed that. I can't comment on that now. Yes, please.

I have one more question from my side. When do you think you'll reach a utilization level of more than 90%?

Which capacity are not growing or composting.

Composting.

That will depend on the construction of new growing rooms. So the existing growing rooms, we use about 86% by the end of '29 -- I mean, by the end of '30 actually. Yes, please.

I just wanted to know what's your dependency on the HoReCa segment overall?

Actually, we don't sell directly to the retail. We are selling through distributors. But we have an estimate an idea of about 50-50 retail and HoReCa.

So is it fair to assume that first half, the 50% of the business was impacted?

It was impacted, yes, the HoReCa was impacted. The exact volumes can't be commented upon because we don't sell directly.

And one more thing, Deepak, is all the hotels, all the restaurants don't use fresh mushrooms. So that also has to be seen.

But I want to correct myself that the estimate of 50-50, I'm not quite sure that HoReCa will take 50% of the market. That is something data we don't have because they're selling directly to distributors.

My question here is about the capacity utilization. I see it declined from 96% to 81%, while the sales and the profit increased.

Because we added capacity in this.

My question is what the main reason for this decline? And when do you expect utilization will increase or recover?

Yes. This is actually not a decline because we increased our capacity of growing rooms -- growing production. So from 20 tonnes per day, it has increased to 25 tonnes per day. That is why as a percentage terms, utilization has gone down, but the sales have actually gone up.

And sales volume increased by only 6%, while revenue 16% -- so I see gross revenue came higher than the price -- the volume -- higher volume.

Yes, yes, because we had to increase the prices to match the cost increase in raw material costs.

Can I speak or is there someone else before me?

Go ahead.

So Mr. Deepak, just a question about going to the future. If everything gets better in terms of the current war situation, I keep hearing about the Iranian mushroom products in the market. Do you think or consider that that's a threat to the business by any means?

Yes, they are a good challenge to the company's business, of course, because they produce cheap and they produce in the quantities, they are a challenge. We cannot ignore that. But our advantage is the quality and consistency. That is our advantage.

Within the next, let's say, 2 to 3 years, I've heard that you have expanded a little bit and -- or are planning to expand. When do you see the impact of that investment in the coming 2 to 3 years or so?

Yes. Currently, our compost capacity expansion has just been decided and we have started working on that. So that will be completed by the year 2029. And so for the next 2, 3 years up until the compost expansion is completed, we are going to import the compost to meet the shortage. And once our own compost capacity goes up, then our margins, everything will go up accordingly.

And obviously, I'm thinking the distribution for shareholders will increase probably at that time.

We hope so, but we cannot say now. Thank you for your question that will we be able to maintain the current price levels or will we have to reduce them as normalcy returns to the region? It is possible that we may have to. If the cost of raw materials go down substantially, the competitor prices go down, then we'll also have to make adjustment to our price. So it all depends.

Mr. Deepak, you've seen the local mushrooms, especially the ones in Salalah -- this is just a random question. From what I've been hearing that it has very good qualities, -- is that cable?

I think you are talking about -- I think Mr. Abdullah will answer this question, sir. Abdullah?

Talking about the -- this is the [indiscernible] It is a type of tables. And this is -- till now not cultivable. We can't cultivate indoors because it needs special food that comes from ants.

Because what I've seen is it looks like mushroom and it's quite large in size. Because it's still for very highly expensive prices in Salalah. So, I think 1 kilogram is like QAR 10 or so.

Now it's the season.

Now a question from one of the attendees. Can you tell us about distributors? Sorry, that again is a competitive information we would not like to go into. And when is the next mushroom production expansion -- mushroom production expansion? Well, we have just completed 6 growing rooms this year in January, and we don't have enough compost to use it fully. So we are importing temporarily. So the next mushroom expansion, we don't plan anytime soon until our capacity is completed. Do you have any volume growth targets for full year? We are not discussing budget and we would like to keep it that way, sir, if you don't mind. That might give some misleading ideas. We always try to, of course, improve. We can go by our previous year growth will give you an idea. One question from Mohamed regarding export percentage compared to local sales in Oman. Yes, as you have mentioned, about 90% is exported and that we are maintaining that, plus/minus 1%. So Oman market is growing consistently, of course. But then our overall sales is growing. So that sectarian ratio is still maintaining. And a question from Mohamed is what is the expected percentage increase in net profit this year compared to net profit achieved last year? Well, as you can see, we have increased in the first half by 40%. So we can base our understanding from this. I cannot exactly comment on that, but that should be a good indicator. I hope I've answered your question. Do you think that the rise in net profit will continue in the coming years? Or will it reach a point where it remains stable? Hypothetically, the profits will rise as long as our production goes up. So once we reach our capacity, we're not able to expand our capacity further then there will be kind of stability. That also will be subject to matching increase in selling price with increase in costs. So basically, if you can see that once you reach the capacity, the profit should start basically tapering down slightly. It will not remain stable continuously or indefinitely. So we have to continue to grow. Will you decrease cash dividends in the next few years to focus on compost expansion and pay debt like when the company stopped it doing. Well, our cash flow as we are planning to -- I mean, as of now, I mean, there's no commitment as to what kind of dividend will be for the next 2 years. But it's difficult to say anything. But our cash flows and our funding lines are comfortable to meet the expansion cost without creating undue pressure on our internal cash requirements for dividend purpose. So that's all I can say. But anything is possible in the next 3 years. But definitely, we are not under pressure to liquidate our debt. Debt servicing ratio is comfortable. Yes, sir.

I have 2 questions. First question regarding the geopolitical issues currently, what implication that you had? And what is your motivation towards it? This is the first question. Second question is, as an investor, when I would feel the expansion effect as a return at what time?

Yes. So taking your first question, geopolitically, the circumstances are challenging. The raw material supplies are affected. The container costs have increased. The raw material availability also is under pressure. But we have mitigated that risk by keeping a good stock of material, raw material. We're keeping some high stocks. And we have dedicated supply lines. We plan our procurement well in advance. So that is the mitigation steps we have taken regarding the geopolitical impact on the supply chain. And regarding the expansion, it will take 3 years for the expansion. And during that time, we have -- we don't expect any problem in getting sufficient funding for the project. So our cash flow from operations should not get impacted. So our dividends will not be under a threat, as you can see, if everything remains the same. That also again depends on the policy of the Board, the policy of the shareholders. But as far as cash availability is concerned, if everything goes on fine as it is, then the cash flows are not under pressure.

So by end of -- I mean 29. And this year, you should not be affected by dividends due to geopolitical or due to the expansion. Do you see any effect on dividends this year?

We don't know. There is going to be a policy decision by the Board. But from the cash flow side, I can say I'm not very worried.