Hindustan Foods Limited ($519126)

Ladies and gentlemen, good day, and welcome to the Q4 and FY '26 Earnings Conference Call hosted by Hindustan Foods Limited. [Operator Instructions] I now hand the conference over to Mr. Sameer Kothari, Managing Director from Hindustan Foods Limited. Thank you, and over to you, sir.

Thank you, Farah. Good morning, and welcome to our Q4 FY '26 earnings conference call. I'm joined on the call by Ganesh Argekar, Executive Director; Mayank Samdani, Group CFO; Vimal Solanki, Head, Corporate Communications; and SGA, our Investor Relations adviser. I hope everyone has had a chance to go through our updated earnings presentation uploaded on the exchange and our company website. FY '26 was a milestone year for HFL, a culmination of various initiatives taken over the last few years. It was a year in which we undertook an ambitious CapEx goal of investing more than INR 700 crores and in spite of the macroeconomic and geopolitical headwinds, we were able to deliver capacities across geographies and product categories, laying a strong foundation for a continued compounding growth across revenues, profitability and manufacturing capabilities. This year marked also the successful pivoting of our business to a more broad-based manufacturing platform. This was achieved by deepening relationships with existing customers, bringing in new customers and scaling up of new product categories. All of this resulted in record numbers across profitability parameters, including EBITDA, PBT and PAT and also laying the foundations for the future growth of the company. The company continues to maintain a strong project pipeline with new projects worth approximately INR 150 crores that have already been signed up for FY '27. These include investments of around INR 50 crores in beverages, another INR 50 crores in HPC and a similar amount in the ice cream capacities. With such a strong pipeline and onboarding of the new management leadership across the verticals HFL remains confident in its ability to sustain profitable growth and deliver on our FY '27 PAT guidance. With that, I will now hand over the call to Ganesh Argekar, our Executive Director, to brief you on the operational highlights.

Thank you, Sameer. I will now walk you through the operational highlights for our Q4 and FY '26. Q4 Fy '26 capped a year of strong operational execution across our manufacturing network. All our divisions performed well, posting robust performances with some of the seasonal business like beverages and ice creams delivering record volume growth. A smooth commissioning of the -- and the integration of the acquisitions further added to our performance. The company was able to successfully maneuver the disruptions caused by the geopolitical condition through strategic buildup in inventories, working capital investment and continue to serve our customers with agility. Two, our factories are temporarily affected by LPG shortage. And while we have been able to pass on the increased cost of our raw materials across all our verticals, our footwear division did face the brunt of rising petrol prices in the quarter. Now coming to specifics. The Home and Personal care business made steady momentum during FY '26, supported by investment across home care, personal care and other categories. The Aurangabad personal care strategy has now been successfully integrated into the network and strengthen ability to cater to emerging D2C and premium product categories requiring small production batches. In addition to this, the Silvassa liquid detergent project and Lucknow detergent bar facility are also progressing well and expected to become operational during FY '27. The cream division delivered a strong performance during the fourth quarter, aided by favorable seasonal demand and ramping up of newer capacities. The company took an important step in capturing a bigger share of the value chain through backward integration. The acquisition of the cone manufacturing facility and the commission of the stick manufacturing facility will enable the company to better serve existing customers and also develop new relationships. The Panipat plant was commissioned in April '26 in a record time of less than 10 months. Within Food and Beverages, the company continues to scale operations across beverages, dairy, snacks and other fast-growing consumption categories. Several facilities recorded peak production levels during the summer season, reflecting strong customer demand and improved operational efficiency. HFL is also entering the Greek yogurt segment as a part of its strategy to expand into higher value and wellness-oriented dairy categories. Simultaneously, the company is expanding its beverage platform through a new bottle capacity in Aurangabad and South India, both of which are expected to be commissioned during FY '27. The Healthcare business continued to strengthen its manufacturing quality and product development capabilities during FY '26. The division added new customers during the year and successfully completed several domestic and international regulatory audits, reinforcing its credibility in regulated and export-oriented market. The company also continued to increase its presence in wellness and Ayurveda focus categories and is currently establishing a dedicated ayurvedic wellness manufacturing facility at Baddi alongside modernization initiatives at the existing facility. The Foot care division also made steady progress during the year with continued focus on operational strengthening and manufacturing efficiency improvements. The last quarter saw elevated raw material costs and external market disruptions due to the ongoing geopolitical conditions. But our customers have been supportive and appreciate the inflationary impact of these variables. The company is now currently expanding capacities across North and South India facilities while also strengthening relationships with existing customers and engaging with new brands across lifestyle, athleisure and comfort footwear categories. As we look ahead, our manufacturing network is now better equipped, more diversified and more capable than any point of time in our history. Our focus for FY '27 will be on accelerating utilization ramp-up across recently commissioned assets, continuing to judiciously invest in new CapEx and ensuring that it translates into sustained improvement in earnings and return across all platforms. With this, I will now hand over the call to Mayank Samdani, our Group CFO, to take you through the financial results for the quarter and year ended 31st March '26.

Thank you, Ganesh, and good morning to all. I would like you to run through the financial performance for Q4 and FY '26. FY '26 has been another year of strong financial performance for the company with Hindustan Foods delivering its highest ever annual profitability. During the year, the total income increased by 17% Y-o-Y to INR 4,264 crores, while EBITDA grew by 20% Y-o-Y to INR 377 crores. Profit after tax for FY '26 stood at the record high of INR 149 crores, registering a growth of 29% year-on-year and reflecting a healthy operating leverage, improving utilization levels and disciplined execution across business verticals. Importantly, the company achieved the guidance communicated despite operating through a dynamic external environment. For Q4 to FY '26, the total income grew by 17% year-on-year to INR 1,120 crores, while EBITDA increased by 28% year-on-year to INR 104 crores. PBT before exceptional items grew by 40% year-on-year to INR 58.2 crores and PAT increased by 32% year-on-year to INR 41.5 crores, making it the strongest quarterly performance in the company history. From the balance sheet and capital allocation perspective, FY '26 marked the commercialization of one of the largest investment cycles undertaken by company. Gross block, including capital work in progress and capital advances increased to INR 1,800 crores as of March '26, reflecting the scale up underway across multiple growth categories. Even during this peak investment phase, the company continued to maintain prudent mix of internal accruals and debt while maintaining the balance sheet discipline. Overall net debt to equity as on March '26 stood at 0.84x, which is well within the company's internal comfort level of 1x. Additionally, during the peak investment phase, we have continued to generate healthy returns with adjusted ROCE of 18.9% after normalizing the newly commissioned and underutilized assets. Cash flow during the year were impacted by the higher working capital deployment, primarily on account of GST rate changes under the inverted duty structure effective September '25 as well as proactive inventory buildup undertaken to safeguard supply chain continuity amid the prevailing geopolitical environment. As communicated in the past quarter as well, owing to the inverted duty structure, we are in discussion with our customer to transition certain businesses from the gross to net revenue recognition from Q3 FY '27 onwards. This will be an accounting reclassification and will not have any impact on the absolute profitability or cash generation, although the reported revenues for those businesses will show a reduction in numbers. Backed by improving the utilization across newly commissioned capacity rising operational operating leverage and healthy execution momentum across business verticals, we remain confident in sustaining profitable growth and delivering FY '27 PAT guidance in range of INR 200 crores to INR 220 crores. With this, I would like to open the floor for questions.

[Operator Instructions] The question is from the line of Abhishek Mathur from Systematix.

Just wanted to check on the footwear business, we would have likely crossed sales of INR 500 crores in FY '26. You can correct me if that's wrong. But any call out on the profitability of this division for FY '26? And what is our target for FY '27 in terms of sales and profitability here? That's my first question.

So Abhishek, I'll address the question in terms of the macro outlook of the footwear division. So the footwear division, as we've been talking about it for a few quarters now, we finally got a grip on the business, and we started performing well in terms of deliveries to the customers as well as profit. However, this last quarter, the footwear division is the one which has seen the maximum impact as far as the war and the geopolitical conditions affecting petrochemical prices is concerned. As you are aware, a large part of the raw materials of our footwear are imported. Though we are imported from the Far East, freight rates have gone up substantially. And in addition to that, all the polymers, which are used in the manufacturing of the soles, the prices have increased by nearly 50% or 60%. From that perspective, given the nature of the footwear business as opposed to our other businesses, just to refresh your memory, in our other businesses, price increases in raw materials, packing materials are immediately passed on to the customer. However, in case of our footwear business, that's not instantaneous. We, as a team, have been in touch with various customers and customers do understand the changes which have happened in the price of various components and are indulging us in terms of changes in the pricing. However, that's the one division which has been affected in this last quarter and continues to be affected in Q1 as well as far as the P&L is concerned.

Right, Sir. I appreciate the color that you gave, but any quantification you can give on the sales and profitability and on the targets here.

So in terms of the sales, we continue to be as bullish. We have an order book, as you are aware, the season -- the way the seasons are for the shoes, we have an order book visibility for the end of the year. We do believe that we will be well above the growth rates that we had targeted last year. So we should be about INR 700 crores to INR 800 crores of turnover as far as shoes is concerned in this FY '27. Profitability target is something that I would much rather not talk about, especially for this division right now because there's just too much variability in terms of the raw material prices and our discussions with the customers are still ongoing.

All right, Sameer. Secondly, this INR 50 crore investment in ice cream in North India, this is separate from the Panipat facility? Or is it an extension of the same? Is it a separate location? Just to clarify.

So this is a brownfield expansion, which will be both in Lucknow and Panipat.

The next question is from the line of Virat from Skyridge Wealth Management.

Congratulations on a great set of numbers. My first question is, upon completion of the announced CapEx by FY '27, how will the gross block of approximately INR 2,150 crores be distributed between dedicated facilities and shared facilities?

We believe that currently, the gross block is distributed as mostly around 61 and we believe it will be on the same range in -- from INR 2,150 crores also.

Okay. That is helpful. And could you elaborate on which business segment is transitioning from gross revenue model to net revenue model? And could you help us quantify how will it impact the reported revenue and EBITDA margins?

So this is mainly for foods, Virat. That's where we are seeing the maximum impact of the duty inversion. As you are aware, most of the food categories have been shifted to 5% duty. And that's the place where packaging material as well as some of the raw materials continue to be coming in at a much higher GST rate. So that's the basic category where we are trying to see the effect of GST. In terms of quantifying it, unfortunately, while discussions were on and we did say that this quarter, we'll be able to give some light around it, all our customers and us have been busy with fighting battles on stocking inventory, especially because of the geopolitical conditions. And this particular discussion of changing the way of doing business has gone to a little bit of a back burner, which is why we've shifted the goalpost in terms of when we will be making this transition. We were hoping to be able to make this transition starting from Q1 and finish it by Q2. Now it looks like it will start in Q2 and finish by Q3. I will unfortunately have to come back to you in the next investor call and give you an idea of how many customers have agreed to move to the new business model and how many have not. I'm sorry, Virat, I just remember that there was a second part to your question, which was what will be the effect on EBITDA margins and PAT margins. Obviously, like we've maintained, and this is something that we would like to reiterate again, this will not affect our bottom line numbers, whether it is of EBITDA or whether it is of the PAT in absolute way. So as a result, the margins will definitely look much better because the denominator, which is the sales will reduce.

That's helpful. Lastly, I had just one more question. While I understand the management does not provide CapEx guidance prior to deal closure, could you share which business segment is currently witnessing the strongest traction in terms of client inquiries and pipeline activities?

So we did -- we will try to give some forward-looking statements for all of our businesses in our PPT, in our presentation. Currently, we continue to see a lot more engagement in personal -- in home care, in beverages and in ice cream.

[Operator Instructions] The next question is from the line of Mayur Parkeria from Wealth Managers.

Congratulations on decent set of numbers and also for a better clarity on the presentation and some of the disclosures. Having said that, I would request some of the clarifications on the numbers more -- a little bit more so that we also on our own are able to understand how the numbers are moving. While many of the details are much in your -- which you are much more detailed present, but with us, it is very difficult to reconcile some of the numbers. And when I look at the presentation numbers in terms of ROCE, capital employed, everywhere, 2 things becomes very common. We are unable to go back to the reported balance sheets and able to reconcile any of the numbers, firstly. And secondly, all of the numbers have got some kind of a stresses, high funds adjustments, which makes it very difficult for us to understand that are we also able to compute the numbers without your help and without your clarification so that we also are in a position to project that, understand that and reconcile them. So if you can help us reconcile, it may be slightish, it will take 5, 7 minutes for everybody, but if you can help us understand. And last time also I had requested capital employed is not getting reconciled. The fixed assets, the gross fixed assets commissions, which is there for the year is not getting reconciled with the cash flows. Can you help us reconcile all of that because it becomes very difficult apart from operational guidance and the positive outlook that we have a clarity on numbers part also.

Absolutely, Mayur. Happy to take that question, and I'll request Mayank to pitch in wherever I think I am being wrong. So let me start off with all those high films, et cetera, and let me start off by talking about.

I'll just request to start from Slide #9, where you start with net capital employed for FY '25, '26, INR 1,476 crores in 2003 that's not getting reconciled from the balance sheet. Firstly, if you can help us understand which are the numbers which are getting plugged in there? And how are you calculating those numbers? And then we can move on just slide by slide, just 2 or 3 slides are there because on one side, you say strategic investments. On other side, you say gross blocks, but then it is capital employed. So just wanted some clarity on those. Yes.

Sure. Mayur, I think Mayank did try to explain this last time and maybe we didn't do a good enough job the last time. What we said is that if you look at our reported numbers because of the Ind AS in terms of the acquisitions, and we've been very aggressive in terms of acquisitions, the cost of the asset, which is recorded in the books is probably different to the amount of money that we've paid on it. As management, we continue to look at it in terms of how much money we've paid for it, not the accounting entry of having a higher gross block and then having a higher depreciation. So when we look at capital employed, we look at how much money has been paid because as a business and as management, we would like to maintain and measure our returns based on the capital that we have actually employed and not as an accounting entry. So the reconciliation between the net capital employed written in our slide as compared to the one mentioned in the annual report has got to do with the Ind AS disclosures, mainly for the Baddi acquisition. The Baddi acquisition, as you are aware, we purchased it from -- you want to give the details.

So we have -- Baddi acquisition we have purchased from Reckitt and it was a little older plant where the gross block and the accumulated depreciation was high. And we -- the recorded numbers in the books gross block is gross block -- original gross block and accumulated depreciation till the time we have taken it over. And the net difference is what we have paid, and that is what we are capturing in our CapEx numbers.

And that Mayur was a difference of about a couple of hundred crores -- sorry, around INR 220 crores. So that will probably explain a bulk of the discrepancy as far as that is concerned.

So the net capital employed, we need to -- what is the net capital employed as per balance sheet when we look at very simple definition of equity plus borrowings which is there, that number needs to be -- why should that be different?

So 2 things in that. One is the net capital employed, the equity is the average equity for the average of 2 years. And the net -- the net debt from -- which is reduced by the cash in the balance sheet. So these 2 numbers are those.

So even the net capital employed on Slide #9, which is INR 1,476 crores and INR 2,003 crores is the average.

So if you look at it, Mayur from -- and I would request you to understand...

Our total balance sheet size itself best on means if we look at net current assets, is it possible to take this little offline? And can I share...

Mayur, if I may request in the interest of everybody else as well. Making this question more about accounting housekeeping, which I think we can take it offline. Let me explain to you how as a business, we look at these numbers, right? And let's understand why are we disclosing this and what's the idea behind this disclosure. The idea behind the disclosure is that as a business, we evaluate each and every expansion, each and every investment on the basis of an ROCE threshold. And we've internally decided that any project that we invest, any acquisition that we do should give us an 18% IRR over a long period of time. When we try to look at it this way, we said we would also like our shareholders to start evaluating the performance of the management on that basis. The idea of this slide was to try and reconcile the difference between the reported ROCE and the adjusted ROCE. And the difference there is...

Yes. I appreciate Sameer, but the problem is this underutilized capacity of underutilized assets of INR 508 crores...

I was just coming to that. Right? So the difference between the reported ROCE and the adjusted ROCE, Mah, is that as a company which is investing substantially in CapEx growth year after year, it is very important for shareholders to understand that any given point of time, some of our projects, some of our assets would either be in a ramp-up stage, some of them would be in capital work in progress. Some of them would have started production, but would not have contributed for the whole year. Let me give you a tangible example for this particular year. We've invested close to INR 200-odd crores in our Panipat facility, which actually started commercial production in April. While the bulk of this money would have been recorded as capital work in progress in FY '26, the actual earnings for this number will start only from FY '27. So if you look at it from a perspective of to be commissioned, this is a classic example. If you look at another couple of our investments, we acquired the Aurangabad facility as well as we acquired the CN facility, which have contributed for barely a couple of months in case of the cone. And in case of Aurangabad, it hasn't contributed at all because it got integrated from 1st of April. Now that's the other reason why you would have to take average capital employed in the beginning at the end of the year because there will be some projects which we would have started production or which would have gotten recorded only for part of the month. When we are giving our guidance, we are assuming that these assets will contribute for the whole year once they have ramped up to their entire capacity. That's the reason that to be commissioned stroke underutilized assets -- the reason that number is so large is because we've invested a very large sum of money in this financial year. And over the course of the year, most of these projects have actually not been working for the whole year.

I understand. So I'll just take the last one so that and then come back in the queue. When we give our guidance of FY '27, 200, 220 broadly, we are talking of anywhere between 50% -- 40% to 50% kind of growth. I just wanted an understanding that based on -- so is it that the sales because of the commission and underutilized assets, which have already been there and what is going to come, even the sales jump directionally, I'm not asking for a number. But directionally, is it that there is going to be a significant -- we understand operating leverage because of the businesses, but is it going to be significant delta -- or because the growth in the FY '26 has been 17%, 18%. So is it -- does it mean that the growth -- top line growth is going to be significantly different? Or is it that the operating leverage part will be significantly higher?

So in terms of the sales, we've been vociferously articulating that, that's not the right number to look at, especially now that with the GST inversion, et cetera, we said that we might actually consciously go back.

No, like-to-like basis.

There won't be a like-to-like basis, because some of our existing factories will get converted into a job basis model where sales will drop. Now if you look at volumes, just purely volumes and do not attribute value to it, obviously, if we have about INR 500 crores of assets, which are going to get fully ramped up in the coming year, the total quantum of production that we do will see a huge and significant jump between FY '26 and FY '27. If I give you just one example, the Panipat facility has a capacity of about 20,000 tonnes of ice cream, given that we've made about 35,000, 40,000 tonnes of ice cream in FY '26, that facility alone is a 50% jump purely in our ice cream facility. Now whether it contributes in terms of the turnover value or not has got to do with our discussions with the customers in terms of GST inversion, et cetera. But she in terms of the number of sticks, cones, cups of ice cream that we manufacture, we will probably see a jump of more than 50%.

Reliance has also come with this ice cream facility now I know -- but are we also planning to have make for that?

We generally don't like to comment about specific customers, Mayur. But be rest assured, we are in touch with all customers who are either in the ice cream business or trying to launch new brands in the ice cream category, not only in ice cream actually in all categories.

The next question is from the line of Ankit Dharamshi from R&M Capital Trust.

Congrats for the great execution. I understand before the crucial year for us because the large CapEx was coming onboard, but I just want to go back to the initial guidance that was given that we are facing some cost pressure in terms of shoe business considering FY '27 was anticipated to be year that -- your bottom line is going to be driven by the operating leverage that will come in. Just wanted to understand how this cost pressure in 2 businesses impact the cash guidance because we have reiterated that PAT will remain same, while we are saying that we are seeing significant impact wherein some of the prices of the raw material have gone up by 50%, 60% and still we are very confident to achieve the guidance pressure, just wanted to understand.

Sure. Ankit, I understand your question. So let me explain 2 things, right? As far as the -- one of the main things that we've been able to achieve in FY '26 is that as a company, we have diversified in so many categories that we do expect that there will be some headwinds in some categories at any given point of time. And yet some other categories should be able to help compensate for that. Your specific question about shoes is absolutely right, shoes is facing the headwind in terms of the inflation, et cetera. But in spite of that, we continue to -- and we have reiterated our PAT guidance because we believe that we will have more than compensatory growth in some of the other categories. For the time being, we are extremely confident. Obviously, we do not have a visibility any more than anybody else about what is going to happen in terms of how long this uncertainty will rise. Maybe by next quarter, if we have anything else to say, we will come back. But as of now, we remain confident that we should be able to deliver the PAT.

Got it. Just one follow-up question. I mean we just broke even across the business in Q3, right? Do we foresee that we will be able to operate at an optimal level or there's a possibility of burning cash over there?

So we actually broke even earlier Q2 as mentioned. Second, it was never a cash loss. We were EBITDA positive for, I think, more than that then. So from that perspective, I don't see the business going to a situation where it will be in a cash loss situation. The only reason we point it out is because of the questions around how geopolitical uncertainty will affect us. This was the only segment where it is affecting us, and we just wanted to ensure that shareholders understand that. Is it significant enough for us to change our guidance? I already answered that earlier saying that it isn't. Do we expect the volatility to actually end up affecting the shoe business in such a way that it will start making cash losses. Again, the answer is no. Customers -- all of our customers also understand what is happening in the market. Engagement and discussions have already started. We are quite confident that within the next month or so, we will be able to work with them in terms of passing on some of these costs to them and them onwards.

[Operator Instructions] The next question is from the line of Karan Gupta from ACM.

So my question regarding the segment-wise, if you can just directionally or broadly comment on the segment-wise contribution to the profitability part or the revenue side so going forward, what you're saying that INR 200 crores to INR 220 crores of profitability, which segment is contributing more in terms of margins or the growth part? And the second one is, again, on the chart you've shown the performance -- operational performance side. So your shared facility part has increased, right, in terms of EBITDA, in terms of gross block. So how the margin is improving because your EBITDA proportion is doubled from FY '25 and your gross block is also increased quite a bit now in shared facility part. So how the asset turn is improving, how the profitability margins, EBITDA margins is improving? That's a typical thing I want to understand here shared and dedicated part.

First thing is from a segment-wise EBITDA or profitability perspective, we don't give out those numbers. We promised that towards the end of this year, we will start giving out that number. And the rationalization of why we are not giving out that number is because in some of those product categories, our numbers would be very, very indicative of our customers' performance. We don't want our numbers to be used as a proxy for some of our customers. And as a result, we don't do that. But in terms of the significance of the segment, we started disclosing the gross block which is invested in that particular segment, and that data is available in the PPT, which would give you some kind of an idea in terms of which is a segment which is growing, where are we putting in more money. We've also given capital allocation decisions in terms of where we are investing our money in which categories, et cetera. And let me just answer a question which you haven't asked. We are agnostic as far as those 5 categories are concerned. We will invest wherever we see growth in any of those 5 categories. So from that perspective, we are not going after one particular category or we are not focusing after one particular category. The organization has been broken up into 5 divisions. We've got a new leadership, which is heading all of these divisions. And all of them have been given a simple mandate, which is to grow the EBITDA at 20% and to continue delivering 20% ROE numbers. So from that perspective, we are agnostic as far as the categories are concerned. Now in terms of the second part of your question, let me -- I'm not sure I'll be able to give you the exact split, but let me explain to you the mechanics of how that works. In case of shared manufacturing business, -- as you are aware, operating leverage plays a larger role in it. So EBITDA percentage as -- again, I hate to use EBITDA as a percentage of sales. But let's say, ROCE for shared manufacturing businesses on the assets which have been deployed as shared manufacturing should be much higher than, let's say, a dedicated manufacturing. That's the simple thumb rule. Since we are taking on a higher risk in terms of shared manufacturing, we expect a higher ROCE number. Now that's the expectation. Sometimes our expectations are met like we did in the guidance this time. Sometimes we might not be able to meet it. So like the shoe business currently has not met our expectation of delivering a higher ROCE number for this quarter for reasons which are completely beyond our control. However, in case of the dedicated manufacturing business, the ROCEs are more humble, but they are very, very well predicted. And as a result, we don't see any variability in those numbers. Not sure whether that actually answers your question, but that's about the extent of what I can give you in terms of information.

Okay. Fair enough. But just trying to understand the capital allocation part on segment-wise, right? So blended ROCE is fine. But the segment-wise, if you are saying that the gross block or you are giving the CapEx numbers. So we can just take a proxy of CapEx number as a revenue growth side, right? You can also share some numbers directly correlated to revenue, but still the efficiency of the capital that you are using, that's how we can gauge segment-wise that you're putting more CapEx on in which segment -- the other thing is what...

The question that you need me to address there? Or was that just a comment? Because you're right. I mean at some level, as an analyst, you can definitely look at our capital allocation across segments that. What I would urge you to do is think about the fact that in case of the ROEs, ROCEs, you would have to multiply or take into consideration the fact that in our various 5 BUs, we might have a separate percentage in terms of shared versus dedicated. What you see as a consolidated, which is 60-40 approximately for the company as a whole may not be true for a particular segment of business. Specifically, if you look at the shoe business, 100% of that business is shared manufacturing. It's not 60-40. So from that perspective, our ROCE expectation for the shoe business would be much higher than the blended ROCE for the company as a whole.

Okay. So for FY '27 what's the ROCE you are targeting? And what would the expectation of growth -- in shared and dedicated site.

So I think Mayank already answered about the fact that when we -- the indication that we have given so far is about INR 2,150 crores of investments. We expect the split to remain the same, which is about 60-40. In terms of ROCEs at an individual project level, the minimum threshold remains the same, which is about 18-odd percent. However, again, since we will be undertaking a substantial amount of CapEx in this year as well, we will come back to the same discussion that I was having earlier, which is some projects would have commercialized, let's say, in the first quarter like Panipat, some would probably commercialize in the second, third or even fourth quarter. And as a result, the blended ROCE number is not a guidance that we are currently giving. At an individual level, we strive to maintain the ROCE at 18%, which is why what we've done is we've given an absolute number of the guidance of that.

Okay. And what was the ROCE numbers in dedicated side earlier before starting the share or increasing your share basically share? So what was the target of the ROCE in the dedicated side? So just wanted to gauge how we have improved from dedicated to shared facility in terms of ROCE.

We were just trying to remember your name. Karan.

So as we told you that our discussion in dedicated manufacturing revolves around the ROEs which we make on our equity contribution. So we strive to be between 16% to 22% ROE pretax, where we negotiate. It depends on the customer, it depends on the product category, and it also depends on the location of where we are putting our money. So the range is between -- you can say between 16% to 22%...

Okay. 16% to 22%. Okay. So next, just one last question. On next 2 to 3 years if we assume what's basically the strategy on the shared part or the dedicated part? I mean to increase the shared part to, let's say, 60-40, 60 will be shared or dedicated will be 40 or what's the strategy from here on to increase the profitability and the ROCE part? Just a broad question.

So difficult to say. I think the market is evolving in all of these segments very, very differently. I would be hesitant because all these 5 businesses have very, very different contours of the new businesses which we are signing up for. If I give you a specific example, in case of beverages, our strategy now is to set up multiple units across the country. We are -- we will probably, at the end of FY '27, become the single largest independent bottler of beverages in the country. And by independent, I mean we do not have an affiliation to any brand. We are manufacturing for multiple brands, and we will be the single largest independent bottler in the country. Now that business is growing in such a way that it will be shared manufacturing, right? Similarly, in case of shoes, as I mentioned earlier, the business is definitely that of shared manufacturing. In case of Home and Personal Care, we continue to see a lot more emphasis on dedicated manufacturing or what we are beginning to see as a hybrid, which we call as anchor tenant model where a part of the capacity is dedicated and a part of it is shared. In case of OTC pharma, we continue to see a lot more traction as a shared manufacturing capacity as well as dedicated. So it's evenly split. Like Mayank said, we have visibility only till FY '27, which we believe that it will be 60-40, 60 dedicated and 40 shared. Beyond that, I think we'll have to come back depending on how we announce new projects coming in.

Okay. Okay. And you can also share the customer acquisition numbers over the years, if you can in your -- and maybe you can share the brand names, if it is possible?

Generally try not to give out the brand names of the companies. Just as a sweeping statement, I can tell you that if you are consuming an FMCG product, the chances are that it has been made by us across all of the segments that we are in. We are working with the largest brands as well as some of the emerging D2C brands. Due to client confidentiality reasons, we generally avoid giving this. But I take your point in terms of bringing in new customers. I think maybe we will put in some information of how many new customers have come in over the year.

The next question is from the line of [ Ritansh Chandak ] from Unify AMC.

Congrats on a great set of numbers. I actually broadly have 3 questions, if you could help me. Pharma, the health care side, if you could give us some more color on what's happening over there and how things are progressing and what our outlook is because I think the CapEx that we've done on that over the past year has also been fairly minimal. That's question one. Question two is, I think our target for FY '26 gross block was INR 2,000-odd crores, and we're about INR 190 crores short, which I can see that you guys have said that is in progress and it will get done over the coming year. My question is broadly this INR 150 crores of additional block that we're adding over the course of FY '27, if I can venture so far to say, a fairly small number -- because considering the INR 790 crores we did in FY '26, if you could give us some color there. And the third bit of the question is that since I think inventory is consuming more of our cash flow, our thoughts on how we're planning to finance this because our cash flow from operations have fallen, not fallen, but I mean, as a percentage of our EBITDA has gone down given working capital constraints, how the financing for incremental CapEx looks like.

Ritansh, let me address the second question first because we had a similar discussion in our Board meeting yesterday. Let me give you some color around that INR 150 crores. So the INR 150 crores is new contracts which have been signed since April. That's in the last 45 days. Just to be sure, that's not the guidance for the entire year. We do have a strong pipeline of projects that we are discussing. We generally, as a policy, do not give out the number unless the contracts have been signed. And we are reasonably confident that, that number of INR 150 crores, I forget the objective that you used, but will not be as small as you think by the end of this year. I think we will make announcements as time goes by, which should hopefully satisfy demanding Board of Directors and shareholders. Second, in terms of -- you know what, actually, I don't remember your first question, but I'll address the second question, and then we can come back to your first question. As far as the second question is concerned, you're absolutely -- sorry, the third question is concerned, in terms of working capital, I'm going to request Ganesh to just kind of highlight because that's an important point that you raised. And I'll ask Ganesh to give you specific examples of what is happening in terms of the inventory buildup, what is happening in terms of the geopolitical situation. But broadly, I think I should spend a couple of minutes on explaining that because you are absolutely right. And we ourselves as a company did put this out in our presentation as well because we think it's an important parameter as shareholders to monitor that while we met the guidance in terms of the profit, the cash flows have been less than satisfactory. I'm going to request Ganesh to explain why they have been less than satisfactory.

Did you hear what Sameer had said?

I heard that there's been -- you guys are going to address the cash flow first, and I think he missed out on the second question. Did I get that right?

No, I did not miss out, Ritansh. I just said that you are as demanding as our Board of Directors.

Sorry about that.

So let me go back to the second question, and I'll summarize it not to waste everybody else's time. The INR 150 crores announcement that has been made are projects which have been signed up in the last 45 days, which is starting from April. The year is still young. And what we confirm to the Board of Directors is that we do have a strong project pipeline. Discussions are ongoing with a bunch of customers. So hopefully, before the end of the year, we will be able to make announcements, which will satisfy our shareholders as well as Board of Directors in terms of new CapEx signing on. as the working capital is concerned, I said that, yes, it's a very valid point. I think we need to elaborate on this. Ganesh was just about to give you some examples and anecdotes of why our working capital situation is what it is.

Sorry, Ganesh, I fully understand why the working capital situation is the way it is because of the GST backwardation. I follow you on that. My question is more to do with a plan for financing the incremental CapEx, assuming we're not able to keep inventory on customer books.

Assuming -- I'm sorry, what?

Assuming we don't transition to...

Okay. So there are 2 things, right? So as far as working capital is concerned, yes, Mayank and I spend a lot of time on the GST duty inversion. But there is also an increase in terms of our inventory. I was letting Ganesh talk to you about that, but look like you don't want to hear Ganesh talk about it at all. So let me just rest it as saying that Ganesh and his team have tried hard to ensure that we are able to service our customers. And one of the things that we have had to do is stock up on inventories to ensure that there's no production loss. In terms of funding the inventory as well as the GST duty inversion, I think Mayank and his team have done a phenomenal job in terms of getting working capital credit across all our product lines. And as a result, the working capital investment is currently not limiting or constraining our investment in the CapEx. Secondly, if you look at our overall debt equity ratio, it is currently at about 0.84, and we have some amount of cash on our balance sheet as well, which gives us enough buffer or runway to be able to take on the investments that we are talking about. So we are well seized of the fact. We are also well seized of the fact that in terms of the uncertainty around GST duty inversion as well as the inventories, we need to be a little bit more cautious and not go out all out in terms of our investments. I think Mayank does a stupendous job in terms of ensuring that we don't fall short of money.

Got it. And sorry, last bit was color on Healthcare segment...

Okay. That was the first question. Can you please repeat that question, Ritansh?

I basically wanted to know more about what's happening in the health care business because I think broadly what we're seeing in pharma as a whole is that APAC is doing well and exports are on the move. Just wanted to get a sense from you on how that's progressing on your end.

Sure. Okay. So the health care segment actually is doing well for us. We've made some announcements about how we've signed on a bunch of new customers. We've signed on 3 or 4 new customers for that facility. And as a result, I think that segment will start contributing very well for us. We've been lucky to inherit a facility which has got all the regulatory approvals, whether it is the U.S. FDA or the Russian FDA. Vicki here is also being nominated as the Head of Exports. And he is going to talk about, hopefully, in the next couple of quarters about what we are doing on the export front. You're absolutely right that exports is definitely something that we are focused on. Though this is probably not the best time for us to go out and get new customers. There seems to be a lot of uncertainty around global supply chains, et cetera. But we've taken a contrarian approach, and we recently started talking to a bunch of customers, including modern trade, large big box modern trade players in the U.S. And hopefully, in the next couple of quarters, we should be able to come back to you with some tangible data around it.

The next question is from the line of Rajat Parag from Systematix Group.

Sir, can you please help me with FY '26 sales number for the footwear division? And any comments, if possible, on the profitability of this division for FY '26 as well?

Rajat, as Sameer told you that we generally don't give the number BU-wise. But sales-wise, we have reached INR 500 crores in turnover in the shoes division, in the footwear division. But we generally don't give the number of profitability. But I can say that we are -- we have broken even in Q2, and now we are PAT positive. But the strain on the prices of -- because of the geopolitical issue will surely have some impact on the shoe in this quarter. While we are talking with the customers to get some of it back, but these are not the contracts just like our dedicated where the RM cost is directly passed through.

The next question is from the line of Jay Prakash Kumar from Corman Capital.

I think you targeted INR 4,000 crores revenues and target. When will you come up with this guidance for -- vision?

Jay Prakash, we cannot hear you clearly.

Am I audible now?

Yes, better.

When will you come up with this guidance earlier there was -- the target of the revenue target recently met, right? Is there any long term 3 years, 4 years kind of a target you have in mind which you want to move? That's the first question. And the second question is given this kind of a bit of a shift in the business model to share which will be making up 40% of the gross block can see 10% margins? These are the 2 questions I have.

So Jay Prakash, currently, we are avoiding giving guidance on the sales numbers because of the various things that we mentioned, both in terms of the discussions with the customers to change the nature of revenue recognition, which will have downward pressure on the sales. The second, of course, is inflation where given the pass-through nature of most of our contracts, you will see an increase in the sales as far as those businesses is concerned, both of which actually do not affect the performance of our company. And as a result, we avoid and are currently definitely avoiding giving any kind of a guidance in terms of the sales number. We will stick to the guidance of the PAT, which for next year, we've given a very clear guidance even last quarter, and we've reiterated it in this quarter, which is we are confident that we should be able to get to a PAT of between INR 200 crores to INR 220 crores for FY '27. Second, in terms of the margin, and I'm assuming you're talking of margin as a percentage of sales. If all of the customers that we are speaking to actually agree to change to conversion cost model, your wish could actually be realized where the PAT margin will go to 10%. But frankly, that's not because of anything that we do. It will be purely an accounting entry because our sales would have fallen by that much.

No, no, I'm just talking in terms of like-to-like basis. Of course...

On a like-to-like basis, as a contract manufacturer, I would be really surprised if we deserve 10% PAT margins.

No, I'm talking about your current EBITDA margins, which are like close to 9%. So that's the one...

At the EBITDA level. I am sorry, I thought you were talking about -- sorry, EBITDA 10% is definitely achievable, Jay Prakash. That's not even a question actually. I'm sorry, I was thinking you were talking of PAT.

No. So another question I have is now that you have 5 verticals, right, and each of this vertical is huge in terms of the percentage so I think you mentioned you are -- I'm not sure if I heard correctly you get 20% growth through each vertical, right? I'm not sure if I heard that correctly. But anyway, so how do you see business panning by, let's say, FY 2030 and each category, if you can just talk about.

So you didn't miss here. The mandate given to the management is very clear that we should be able to grow at 20% in each of our BUs. And as a result, the company as a whole should definitely grow at 20%. There will be intervening periods of time where one of the BUs may not perform at that number. But on a whole, and that's the reason why the SGA team has taken a lot of effort in putting that slide out there with the industry opportunity size that growing at 20% in spite of all the macroeconomic pain at our level where we are such a small player of each of those segments is not an impossible target. Is it easy? It definitely is not. As a manufacturing company, I can tell you that pushing even a smallest factory to start manufacturing and ramping up is not an easy job. But is it achievable? That's what we get paid for. So yes, it is definitely achievable. To be able to get to 20% growth across these BUs. So that's something that, yes, that's where we see. So if you extrapolate that to 2030, assuming that by 2030, consumption numbers for the country as a whole are also back up. If anything, I think it should be easier for us if we get some tailwinds from increasing consumption and lower inflation, which currently we are having to fight as a headwind.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Vimal Solanki, Head of Corporate Communications and Emerging Businesses for closing comments.

Thank you. Can you hear me?

Yes, sir.

So to conclude, FY '26 -- so FY '26 has been an important year for HFL with the company delivering record financial performance alongside strong operational progress across business verticals. And over the course of the year, we continue to expand capacities, strengthen manufacturing capabilities and deepen customer relationships while maintaining a disciplined approach towards capital allocation and execution. As we move into FY '27, our focus remains on scaling up newly commissioned capacities, commercializing the ongoing project pipeline and further improving utilization and operating leverage across the network. With a stronger manufacturing platform, healthy demand visibility and continued momentum across categories, we remain confident in our ability to sustain profitable growth and deliver long-term value creation for all stakeholders. Thank you once again for joining us today and for your continued trust in Hindustan Foods. Trust you are taking care in the summer heat, stay hydrated, eat some ice cream, drink some beverages. And should you require any further information, please feel free to reach out to us or connect with strategic growth advisers, our Investor Relations partners. Thank you so much.

Thank you very much, sir. On behalf of Hindustan Foods Limited, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines. Thank you.