LT Foods Limited (LTFOODS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for patiently holding your lines. We have the line of management reconnected. Thank you, and over to you.

I'm really sorry for the technical glitch. Good evening, everyone, and thank you for joining us on our earnings conference call. I would like to highlight that certain statements made or discussed on the conference call today will be forward-looking statements, and a disclaimer to this effect has been included in the results presentation shared with you earlier. Result documents are available on company's website and have also been uploaded on the stock exchanges. A transcript of this call would also be made available on the Investors section of the company's website. I would like to begin by taking you through the key highlights of the first half financial year '21. Our consolidated revenue for the half year financial year '21 was up by 24% at INR 2,439 crores versus INR 1,970 crores last year, on account of increased sales from U.S., Europe and organic business. The other income was down by 17% on account of exchange fluctuation. The gross margins also expanded by 175 bps to 29.1% due to change in product mix towards high-margin products and impact of lower input costs. The EBITDA margins also expanded by 96 bps to 13.2% versus 12.2% last year, despite the increase in the employee cost, which was on account of strengthening management capabilities in Europe to cater to increased operations. The other expenses as a percentage to sales were up by 80 bps on account of variable costs for increased sales, professional charges for digitalization of supply chain project and additional CSR spend. In absolute terms, the EBITDA was up by 34% from INR 241 crores to INR 322 crores, aided by higher gross profit. The depreciation was up by INR 12 crores due to capitalization of fixed assets during the second half of the last year. The finance cost was down by 26.5%, as the overall debt was down by INR 150 crores. And the fund cost was down by 116 bps from 7.67% to 6.52%. The profit before tax was up by 71% to INR 220 crores. The PAT increased by 73% to INR 160 crores, while the margins expanded by 185 bps to 6.6%, supported by savings in finance costs. The earnings per share was also up by 78% to INR 4.73 per share versus INR 2.66. On quarterly basis, the revenue was up by 24% from INR 984 crores to INR 1,218 crores on account of increased sales across geographies and business segments versus last year. The gross margins also expanded by 252 bps to 29.8% due to change in product mix towards high-margin products and impact of lower input costs. The EBITDA margins also expanded by 140 bps to 13.1% versus 11.7% last year, despite the increase in the employee cost, which was on account of strengthening the management capabilities in Europe to cater to increased operations and onetime bonus in U.S. entity. The other expenses as a percentage to sales were up by 70 bps on account of variable costs due to increased sales. In absolute terms, the EBITDA was up by 39% from INR 116 crores to INR 160 crores, aided by higher gross profit. The depreciation was up by INR 7 crores due to capitalization of fixed assets during the last -- second half of the last year. The finance cost was down by 26% as the overall debt was down by INR 150 crores. And the fund cost was down by 150 bps from 8.4% to 6.9%. The profit before tax was up by 83% to INR 109 crores. The PAT increased by 64% to INR 77 crores, while the margins expanded by 155 bps to 6.4%, supported by savings in finance costs. The earnings per share was also up by 71% to INR 2.27 per share versus INR 1.33. The company has generated significant [Technical Difficulty] The company has generated significant cash flows amounting to INR 436 crores, driven by strong performance in the first half of financial year '21. Now I would like to update you on all the efforts taken towards the strengthening of the balance sheet of the company. The ROCE has also improved by 422 bps to 18.6%. The normalized ROCE on account of funds blocked in the fire insurance claim is 19.6%. Return on equity has also improved from 12.3% to 11.1%. The debt equity ratio improved from 0.86x to 0.64x, as the overall debt of the company was down by INR 150 crores to INR 1,124 crores on year-on-year basis. Long-term debt to equity has reduced to negligible levels of 0.12x from 0.15x last year. This is to reiterate that majority of our debt is working capital debt, which is required because of the nature of the business. And our focus is to maintain the debt-to-EBITDA ratio between 2 to 3x. The debt-to-EBITDA ratio for this half year is 1.7. Current ratio has also improved significantly to 1.79 from 1.59 last year. Because of our continuous focus on working capital optimization, our net working capital days has reduced by 5 days to 195 days in the -- in this half year versus 200 days last year. I'll now hand it over to Mr. Chandra for the further business update of first half of financial year '21.

Thank you, and good evening. Last quarter, we reported a revenue growth of 24%, coming from all segments of our business. Growth trend has continued in this quarter as well, and we have closed our first half with a 24% revenue growth. Growth continues to be broad-based. The basmati and specialty rice segments of our business grew at a strong 20%, bolstered by the growth in demand, especially in our international businesses. Organic business grew by 82% versus FY '20. New product business has also continued to grow and now accounts for close to 2% of our revenue. In the first quarter, during the global lockdown, our wide distribution reach in all our key markets ensured availability-led consumption. This gave us many new homes who tried our brands for the first time. These new trialist homes have been retained, and they continue to buy LT brands, which has resulted in a good growth in our consumer-facing business, even in the second quarter, resulting in a first half growth of 20%. In the first half of the financial year, U.S., Europe and the organic business have been big drivers of our total growth. Our U.S. business has a revenue growth of 23% in the first half and also saw an expansion in its margins. In North America, our brands are available to all consumer groups through distribution across different channels of the Indian and Middle Eastern ethnic stores, the club stores and the mainstream stores. Our business has grown across all channels, and therefore, to all ethnicities. Our flagship brand Royal leads this and accounts for more than half this growth. The ready-to-heat product experienced very strong trials in the first quarter, and the business has continued its momentum to register 162% growth in the first half versus a year ago. The ready-to-heat business under our own brand, Royal, which is about 70% of the total RTH sales, have almost doubled in the first half versus a year ago. The strong growths in our brand Royal are setting a strong platform for sustained growth. RTH continues to gain new listings and new distribution in already listed chains and is thus well poised to maintain its business growth in the future. We are further driving more trials and consumption with the launch of new flavors to continue RTH's broad appeal across consumer ethnicities. Our Europe business has also been performing well quarter-on-quarter, both in terms of revenue and margin profile and has also been able to strengthen its balance sheet. The revenue for this half year was up 171% on a year-on-year basis, and the business has delivered another good EBITDA-positive quarter. Responding to the marketing and sales initiatives, which started last quarter, Daawat branded business has shown a good growth in U.K. in this quarter, leading the Europe branded business to grow 92% in the first half of the year. Our key markets in rest of the world have continued strong growth momentum. Total revenue in the rest of the world has also delivered good growth despite muted Ramadan sales in the Middle East and impact of almost nil HoReCa sales, as eating out was impacted due to staggered opening of the lockdown in these markets. Our India consumer business continues to see good growth. And in first half, small pack business has grown 7%, resulting in 2% share gain in this quarter, as reported by AC Nielsen. We continued to strengthen our share in modern trade in this quarter, as most supermarket chains resumed business activity post lockdown. HoReCa business continues to be very muted, and this impacted the overall India revenue performance. E-commerce has grown significantly and has doubled in first half versus last year. We have partnered with the leading e-commerce players to provide availability, visibility and promotions and have also expanded our listing in more e-commerce accounts, both at a national and at regional levels. Our marketing programs continued to build the consumer business and focus on the consumer trend of health with marketing campaigns on brown rice and Daawat Sehat. Second was the trend of experiential cooking at home and Daawat's marketing campaign promoted the relevant products for this trend, namely Daawat Biryani and Daawat Sauté Sauces. We also focused on the topical relevant themes with very widely viewed and highly appreciated digital Daawat advertising on Raksha Bandhan, which promoted celebrations while maintaining lockdown norms. Organic business has also registered a very strong first half growth. Demand for organic products has been very strong from U.S. and Europe, as consumers move to safer and healthier foods. This led to very good demand for the NBFL organic business. Additionally, our expansion into soya meal business has also added a very robust and strong new stream of revenue in our business, resulting in an overall strong double-digit growth in the first half. In the first half, LT has made good progress on its new product initiatives. Daawat Sehat, the fortified rice, which has met with very good consumer response in its lead market of Delhi NCR, was expanded to other geographies of North India. Daawat Cuppa Rice, which was launched last quarter and met with good consumer response, is now being expanded to e-commerce and general trade in India and has also been put in test in international markets. Daawat Rice Sauté Sauces was rapidly expanded, especially into e-commerce, to cater to emerging need of consumers for convenience. Kari Kari business, which was impacted with the closure of supermarkets in the first quarter, has made a very smart recovery in the second quarter and registered a growth of 204% in the first half versus last year. We are also starting to export Kari Kari to international markets on a trial basis. I would now like to hand over to Mr. Ashwani Kumar Arora for his comments.

Thank you, Vivek-ji. Good evening, and thank you for joining us on the call today. My colleagues have shared the results with you. We continue to deliver on 3 strategic pillars, that is growth, margin expansion and strengthening of the financial metrics with the objective to build a progressive, sustainable, profitable and growing business to create value for all our stakeholders. We were able to capture the share of increased category growth with a combination of the strategy adopted by the company and efforts of our people in implementing them, along with investment in our strong brands, distribution network, supply chain and new product base on the changing consumer trends. From the industry perspective, on the demand side, we expect some decrease in the overall basmati exports from India due to Iran problem. But we are witnessing good demand from other geographies. LT Foods as a company is present only in a stable and growing economy and doesn't have any exposure in Iran. On the other side, the procurement season is underway and the market is witnessing some dip in pricing of a few varieties due to slowdown in demand from Iran, although the prices of most of the other varieties are firm and we expect the average prices to stay same. LT Foods along with its strong brands, farm-to-fork approach, robust distribution network, supply chain and people has demonstrated the strength of the business in COVID times. We are positive on the outlook of the business. The stocking up of the previous quarter will impact the coming months in international markets and in the organic business. However, with the opening up of the countries, this may be partially offset by the opening of out-of-home consumption. Overall and on the strength of our core strategy and new products, we remain positive to continue to see growth versus a year ago. Thank you. Now we open the session for question and answers.

[Operator Instructions] The first question is from the line of Amit Doshi from Care PMS.

Congratulations on a good set of numbers. Just a few questions on the -- in the initial opening remarks, Monika-ji mentioned about other expenses. There are some professional charges on digitalization, et cetera. So can you clarify if there is some sort of a onetime expense in that? Or is it part of a routine?

The CSR and this digitization process is a onetime cost, but the variable cost will stay there as the revenue...

What could be the portion, because there is significant -- approximately, year-on-year, there's a 40% jump. So if you can...

If you talk about the other expenses, other expenses in the legal and professional charges, there is an increase of INR 4 crores. And in the CSR activities, there is an increase of around INR 3 crores. And the rest is, because of the increased sales, there is an increase in the other expenses.

Okay. That I -- Okay, okay, okay. On the employee expense, you mentioned that on the European side, there was a management team or some strong management team has been appointed. So the European operations have already been in place for quite some time. So any specific, I mean, need of new strong team or something, some strategic changes, if you can share on thoughts on that?

So already, we have started this operation 3 years back, and we have reached a sizable business now. We have a plan to further grow our European business. So based on that plan, we have structured the new team there. If you have seen that, 3 months back, the new Managing Director has joined in our European business. And we wanted to strengthen our team to take over the plans.

Okay. Anything on increasing the capacity? Because I can also see some INR 47 crore, INR 48 crore of capital WIP on the consolidated balance sheet.

So some are maintenance expenses, but the major expansion has gone in all geography. In India, we have just set up a 3-megawatt cogen plant, that's a green energy. And we have done some investment on the warehousing. Europe and America, we have invested in the packaging facility, because our -- the smaller pack business has grown and [indiscernible] utilization of the capacity.

Okay. Okay. You mentioned that the -- of course, the paddy acquisition has already begun, and the prices are low in variety. So what would be our strategy, considering the prices are lower, and of course, we are looking at a stronger growth going forward?

So we have to plan to cover our requirement. As I said, some varieties are cheaper, and that majority goes to the Middle Eastern countries. But some varieties are as relatively stronger on prices, but we have a plan to cover our requirement.

What would be the, I mean, year-on-year fall? I mean we read news reports of some 20%, 30%...

That's not. If you see, the average pricing will remain the same, as I said in my...

Okay. So nothing much on that.

Nothing much. There's this one variety, which has gone very low.

Okay. Okay. And sir, about increasing the market share, so we grew our market share by 2%, as per the Nielsen data. So that strategy, which Vivek-ji mentioned about the small pack, is that something driving or anything else apart from it?

Yes, Doshi-ji, when we report market share, which is AC Nielsen, AC Nielsen only picks up the consumer-facing packs, which are primarily the small packs. So they are, therefore, interlinked. When we grow our small packs, that's what gets also reflected in the share.

Okay. Okay. Okay. Got it. Got it. And you mentioned about e-commerce is growing strongly. What would be our overall contribution of e-commerce in our sales?

The e-commerce, when we say that, you have to recognize that before, e-commerce was only accounting for 3% to 4% of the total grocery purchases. Now that's gone up. I think at an overall level, our -- we've gone up to close to 7%, 8% of our total business in India.

Okay, okay. Got it. Sir, there is a mention about the change in the dividend policy and whereby you plan to pay out 20% or 30% of the profits. That's really appreciable. Just wanted to know, would this be done on a quarter-on-quarter basis? Because considering that Q2, you have already announced the interim division.

So that will be on a half yearly basis.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Congratulations on delivering another steady set of quarter numbers. And sir, one question, sir, is this H1 -- so this quarter, our growth was similar to last quarter. And this H1 also, we have been able to deliver 24%. But last year, I think in quarter 4, we had seen good acceleration in the business. So my question was that for the remaining part of the year, which is the second half, do we expect a similar sort of growth on a Y-o-Y basis? Or do we expect a slightly lower growth number?

So on Y-o-Y basis, we are looking forward the growth, if the question is this. So we will definitely grow year-on-year.

Yes. But is it similar to what we have achieved in the first half of this year?

We'll be a little muted on that side. As I said, some impact of stock-ups will happen in the organic business. But that may [indiscernible]. That's what we are expecting that, this out-of-home consumption will grow in India. And we are seeing in October month if this is going to sustain that make-up.

Okay, sir. And secondly, this -- which is what my question was, I mean, on the HoReCa side, are we seeing -- just to give you a sense, I or myself in this entire lockdown for the first time, we had a meal outside of our house in the last week. So are you seeing some recovery now happening, because most of the restaurants and all are open now?

The consumption, I think Vivek-ji will add in to -- mainly consumption is 2 types. So one is fine-dining restaurants. That, for sure, is not opening up, and there is no consumption happening. But there are in B-class towns, this biryani corner and all these things, that have already opened and we are seeing the demand.

So have we reached like 30%, 40% of usual in the HoReCa segment? Or where are we right now?

It's just building. Because when we say HoReCa, one big part of that has also to do with catering. And the big catering events, whether they're weddings or parties, they are yet to start. So there's a fair amount of that consumption, which is -- which has to come onstream. What we've seen now is some eating out has started and some takeout has actually -- is probably at the levels where it used to be. So HoReCa, at an overall level, you could say that it will be 30% of where it was, 30%, 35%. But I don't think that's -- it fluctuates on a quarter-to-quarter basis. This quarter usually is a very strong quarter for weddings and catering and parties, and we will just have to see how all of that comes back.

So Sarvesh, just to sum up, so if your question is how much, we will come back -- we will not come back to the pre-COVID level. But if we compare to the last 6 months, based on our October sales, we are expecting as what Vivek-ji said.

Okay. And sir, final question is on -- I was looking at your product-wise revenues. Now of course, on the rice part, we have displayed a steady performance as last quarter. But I was expecting a little bit more growth on the organic and the new product side from a quarter-to-quarter perspective, given that they are small and these are new products, which are also related to the health and everything. So on the organic and the new product segment, sir, how are we looking at this? Because we saw some sort of slowdown in this quarter versus last?

Sarvesh, if you see our organic business, and that has grown by 86% on a year-on-year basis. And our convenience part of the product, that has gone by 40%. Hope that answered your question.

Yes. No, I was saying that, because these are new products, I was hoping for some acceleration from quarter 1 to quarter 2 and then quarter 2 to quarter 3 and so on. So are there some seasonality aspects in this? Or how are we looking at it?

Actually, Sarvesh-ji, we -- for example, actually in all our new products, if I was to talk about them first, quarter 2 has come out stronger than quarter 1. I think the reason why you see the numbers as you do, it is because almost 65%, 70% of our new products is made up by the U.S. ready-to-heat. Ready-to-heat had a very strong quarter 1. But if you see Kari Kari, Daawat Sehat, Daawat Rice Sauté Sauces, they are all significantly higher than quarter 1 in quarter 2. So I think we've had -- when you look at organic, organic had almost doubling of its business in quarter 1, and it has sustained that in quarter 2. So to that extent, you've sort of seen the numbers to be the same, but that's creditable that it has held a very strong number.

Understood. And congratulations again. And especially, I think I must congratulate you on paying down so much of debt, and ROE has also crossed 20%, so -- around that number. So very good performance, and all the best for the coming quarters.

Thank you, Sarvesh. Appreciate it.

Thank you.

The next question is from the line of Amit Vora from PCS Securities.

Congratulations on a good set of numbers. My first question is on the absolute ad spends, what would have been the absolute ad spends for the quarter?

Sachin, can you answer the question?

For this quarter, the ad spend was INR 22 crores.

And what would that number be for the first half compared to last year first half?

So in this first half, we have made a spend of INR 40 crores. The last year, it was INR 38 crores.

Okay. And any reason for the effective tax to go up? You have paid almost close to INR 35 crores on INR 109 crore of PBT. Any reason for that?

There were certain disallowances, which were in this quarter. So we have made a provision for that.

So -- but overall, for the full year, we will be in the 25% tax bracket. Is that...

Yes. Overall, if you see the half year numbers, it is 26%.

26%, yes. So we will continue to be in that bracket for the full year is what my -- yes. And are you revising your guidance upwards? I know you've already mentioned about that indirectly. But looking at the way we have grown in first half, assuming things are not going bad, are you revising your guidance upward, which you had mentioned in Q1?

Amit, this question is about the guidance on H2 you're talking about?

Overall, sir, I mean, because we have already grown 26%...

If you talk about full year basis, we will be -- we will keep our growth momentum.

Okay, sir. Okay. Okay. And one last question, if I may squeeze that in. So once the HoReCa is catching up and things get back to normalcy, do you see that the branded business to get impacted and to get a slowdown in the momentum in that particular aspect? The way we have grown in the branded business is phenomenal. So do you see any risk to that once HoReCa opens up that business to get impacted?

So they are actually 2 separate business. And firstly, I'd like to say that we run our HoReCa business also with our brands. And therefore, that allows us to take a little bit of a premium, because a brand Daawat Chef's Secretz is really made for HoReCa. The momentum that we are seeing is in our small pack business, which goes to the consumers. And they run on different strategies. They run on different investments. And we -- if HoReCa comes onstream, it will only add on to what we are doing with the consumer side of our business.

The next question is from the line of Roshan Mishra from SageOne Investment.

I wanted to ask, the shipments to Europe, were those all pesticide-free procurements we did last year? And if you could quantify that?

Can you repeat your question?

Yes. I just wanted to know if the shipments to Europe, were they pesticide-free varieties? And how much was that quantity that we shipped to Europe?

Okay. So can you -- at the moment, I cannot give you the exact quantity, how much we have shipped to Europe. So you can write it to our Investor Relations department, they will let you know.

Okay. Sounds good. But this was just pesticide-free, right?

One has to do a compliant product.

The next question is from the line of [ Vipul Kumar Shah from Sumangal Investment ].

So I just wanted to know why our U.S. business has substantially de-grown in this quarter. So what -- any particular reason, sir?

Actually, the U.S. business has grown quarter-on-quarter against last year. But quarter one was an exceptional because of this COVID time. So a lot of stock-up happened. So this is coming to normalize, but we are growing year-on-year there.

No. I mean -- because from INR 792 crore...

For the first half, if you see, we have grown by around 20%.

Sir, I'm talking about quarter-to-quarter from INR 792 crore, we have degrown to INR 674 crore in U.S.. In tonnage also from 75,000 tonnes to 68,000 tonnes.

Give me a -- we will let you know. Let me -- this was not only the U.S., this is the total..

Sorry, it is international -- I correct myself, which is total international revenue, yes.

Because your number was not reconciling with us. That's why we took a pause. So international business, as I said, in the quarter one, everyone knows that because of the COVID time, a lot of stock-up has happened, and that's corrected. But overall, we have grown year-on-year. We have increased our consumer base. We have increased our customer base.

So my simple question is we have not lost any market share in the U.S. -- in international business in last quarter?

No, no, no. Our market share is very well intact.

I think we're -- interesting to see the fact that after a very big quarter 1, quarter 2 is still holding at about the levels which some of the best quarters in the previous times that you would see. So whatever went in has gone into consumption, and we've returned to some higher level of consumption. As we said, we got -- because of our superior distribution and product supply capability, the extra stock that went into quarter 1 in addition to stocking, which was done at both consumer and trade level, it also got us new stores and new consumers. And all of that has translated into new -- into holding of a consumption at a higher level than pre-COVID.

Okay, sir. That helps. And my second question is, sir, what do you think this impact will be on our business due to these changes in -- recent changes by union cabinet in this farm laws? Will it have any impact on our business?

It will have a positive impact in the long run.

Means. Can you elaborate a little in detail, sir?

Yes. So because now with this new law, we can directly buy from the farmers. So there is no need of going to mandi and getting an auction. That will further strengthen our sustainability program. And we are -- the company is excited on this law. And as I said, it will have positive impact in the long run, because immediately, the things will not change the -- but it has a positive impact, both for farmer and for us.

So already you have started buying directly from farmers, sir?

Some. Not -- but some quantity, we have already started.

So for those buys, will you save commission?

That's very nominal. That's because this is a new law and you can't change the way of buying in a 15 days or 1 month time. As I said, it will have a long-term impact, not immediately.

And sir, lastly, status on this -- our court case against the insurance company, any update, sir?

Yes. Because of this COVID times, the courts are closed, and unfortunately, we are not able to feed up the case. Let's see when these courts open up. And we are expecting -- when the courts will open up, we are expecting within 6 months, the first verdict will be out.

Okay. And lastly, sir, can you give the figures for our European business turnover and EBITDA for this quarter, if that is possible?

The turnover for this half year was INR 364 crores and EBITDA is INR 21 crores.

The next question is from the line of Resham Jain from DSP Investment.

Congratulations on good consistent performance. So a couple of questions. So first is, if we just look at the margins, we have done very well on the margins also at the EBITDA level in the first half. Do you feel that this margins can be sustained now? Because our objective was to improve margins over the last 2, 3 years, and now we are actually seeing that benefit coming through. So do you think that this margin can be sustained 12.5% to 13%.

Resham, we are very confident on that.

Okay. Okay. Yes. Right. So that is one. And my second question is the other gentleman also asked this question. On the mandi charges. So has the mandi charges come down already in the state of Punjab and Haryana or not yet?

Yes. In Haryana, they have reduced the mandi to 3%. And in Punjab to 2% and in Madhya Pradesh from 1.7% to 0.5%.

Okay. So that's -- what percentage of your procurement cost roughly? Is it like...

Same. Like if they have -- earlier, it was on an average was roughly if you talk about the 3%. Now it has come down to roughly 1%.

So it's a 2% benefit on procurement costs, is that right way to look at it?

Yes, yes.

Okay. Okay. Right. And sir, my second question is on this freight charges. We keep hearing about the overall -- and because you have a very large export, the overall logistics cost has gone up significantly for exporters. Are you also seeing the same thing at your end?

Resham, yes, you have heard it right, the logistic costs have gone up. But we are fortunate, we have a long-term contract with the shipping lines for full year basis. We will have a very small impact. In some market, like Europe and America, we have a long-term contract. But some market, we don't have a contract. There, we will have small impact. The streamer freight is just roughly 1.5x, it has gone. Because more export and lower imports, that has created a supply gap of containers and the prices of the fleet has gone up. But thanks to the contract we had.

Right. And sir, just one last question. We have launched this multiple products in the new product development and is growing fast, obviously, on a smaller base right now. 5, I think, 5 product lines, roughly. So -- and we have seen in a lot of other FMCG companies that the new products are launched, and then at some point of time, they even do well, and the products are pulled back from the market. So out of these 5 different products, including fortified rice, Cuppa Rice and all, what is your philosophy of giving a chance to all these brands individually in terms of growth? And what kind of investments you would like to do? Because I'm sure, initially, they will not make money for you. But still what time you will let this brand -- you will invest in these brands, basically?

Sure. I will -- Resham, I will ask Vivek-ji to answer this question.

See, all the products that we have launched, they are firstly coming with a big research around the fact that they are relevant for the consumers. So Sehat or fortified rice or Rice Sauté Sauces, Cuppa rice, Kari Kari, et cetera, they all meet a very distinct consumer need, which is currently not being serviced by products in the market. Some of these, we are pioneering. We then take them into a limited geography so that we can further validate without having to do very heavy upfront spends. And that allows us to read the market, to modify and keep the product there and to change, modify it so that it is ready for expansion, as we've just done with the Rice Sauté Sauces and Kari Kari. And we are doing it right now with Daawat Sehat. So I think what I'm really saying is that we burn as we earn rather than do a very big upfront spend, either in A&P or in CapEx. And really we can, therefore, afford to keep these products in the market and make them work.

So Resham, I hope you got the answer. So fundamentally, 3 principles. One is there should be consumer need. And then the second and third is that we should be able to leverage our brand equity and distribution. And third -- fourth is, of course, we have a future cash flow. So that should justify the business case.

All right, sir. That's very helpful. And just to explain this question further, what is your, let's say, next 3 to 5 years' plan of this product that are like currently less than INR 100 crores? But as a way, as you mentioned, the need of the market, do you have any internal plans of how big this whole market can become?

So we are targeting for this to be around 12% to 15% of our revenue. And these are all brands that come with a superior margin profile. So what we're looking at, you could say, in this range of about 12% in 5 years' time of our revenue should come from new product initiatives.

The next question is from the line of Sudhir Bheda from Right Time consultancy.

Sir, a very good set of numbers, congratulations. And you have done well on the all front, whether it is ROE, ROCE. And the major thing which, as an investor and your customer, I'm also your customer, we like is, you have guided the 25% to 30% distribution of your net profit as a dividend. So that will help us in a long way, sir. And congratulation for that.

Thank you, Sudhir-ji. Thank you so much.

Sir, my question is, see, again, Europe is going for lockdown and U.S. also COVID cases are surging. So whether in next 2 quarters, the third and fourth quarter, can we see a momentum of Q1? So what I mean to say whether we will be able to beat Q2 numbers in Q3 and Q4 as well as far as international market is concerned. And my second question is, in India, how this -- our e-commerce things are playing? How much sales we are doing and what is the traction over there?

Sure. So the first answer is, as I said, the H2, we are expecting growth year-on-year, whatever the new customer, new consumer we have acquired, and we are confident to retain them. So we will have a little bit stock-up or a slowdown, a little bit, in organic business. Regarding the answer on the COVID, the new thing -- we are not -- so that we have to see how it behaves, but we are ready for all of that.

Sir, whether we'll be able to see growth in Q3 over Q2 in international business due to the development...

I think it is a little premature as well as presumptuous for us to predict how lockdown in various places will happen, how long they will be, what impact they will have. I mean we are all praying and hoping that actually things get better. But it's very difficult. But I think one thing to -- one thing, which is there, is that the first quarter had a very strong inventory buildup even at a trade and market level. Perhaps that kind of things we may not see. But I think this is all in the space of being speculative. So as Ashwani-ji rightly said, we are prepared for any eventuality, and we will see how things play out. The second question you had was on e-commerce. E-commerce has started to become much bigger, consumers have started buying more grocery online. They've discovered that. And we do believe that this is going to stay at higher levels. In markets like India, we believe, almost 14%, 15% of sales may come from e-commerce. E-commerce has -- we have -- we work very closely with all the big players as well as we've expanded to regional chains. And e-commerce is now about 10% of our total revenue in India.

And sir, my last thing is, I wanted to know, sir, how the U.S. market is panning out right now? Whether we are able to increase our market share from 57% to maybe more than 60%, how things are going over there?

We are a strong brand. We are doing growth. And our aspiration is to grow our market share, and we are working towards that.

Next question is from the line of [ Anup Ramachandra from ANP Advisors ].

Guys, you are doing exceedingly -- you guys are doing exceedingly well in this period. My question is with respect to this Iran issue. I know we don't have any exposure to Iran. But basmati industry as a whole, as in the India's production, I think so far as I know, Iran consumes like 1/3, right?

That's right. No, yes, it consumes roughly whatever. The total export is 25% to 30% goes to Iran.

Correct. Considering the embargo on Iran, what -- I just want to the management's view on how far this restriction for exports to Iran will impact the basmati industry as a whole and as far as particularly LT Foods, as far as the prices, will there be more competition in other geography? Or will there be a supply glut to other geographies?

Based on the history, now Iran is consuming Indian basmati for the last, I would say, 13, 14 years. And that we have seen, even because of these problems, they are able to able to import Indian basmati. And we are expecting that the same will happen, may not be the same quantity they are used to import, they find some other ways how to import by -- they have their other mechanism to import from the other countries. So we are not totally -- as in LT Foods, it will not go, it will definitely -- the lesser quantity will go. And as far as impact on the LT Foods is concerned, fortunately, this happened, we -- as the industry has got mature and we understand the trend, how the Iran is going to happen, that's how we take the position of our raw material based on the trend. So fortunately, for the last 2, 3, 4 years, it has not impacted LT Foods. And we are expecting that with a better procurement strategy and understanding of the business, we will be able to manage this fluctuation in Iran business. I hope [ Anup ] that answered your question.

Yes, but I know it's a very difficult thing to answer.

Yes.

And the second question is with respect to what's the total debt on books as per the end of quarter 2?

The total debt, the bank debt is INR 1,124 crores.

INR 1,124 crores. And what is the average cost of debt?

That is 6.5%.

6.5%. See, I think the debt will start increasing by Q3, right, since the procurement starts from Q3 and Q4, right?

Yes, yes, yes.

See, this equation of debt-to-EBITDA that the company is targeting, 2, right? 2 ratio, right?

Between 2 and 3.

2 and 3. I know you guys require a lot of money since you guys are scaling up and you're doing extremely better. But eventually, my only suggestion is that the company target something like an absolute number, because the more we -- I mean I'm a little bit cautious or a little bit worried that as the company progresses quite well, as we generate more cash and more EBITDA and since they're scaling up and we have this ratio and the debt portion may also go up since we need more money for expansion, eventually, I feel that the management should target on some absolute number than this ratio?

Thank you [ Anup ] for your suggestion and better advice. Internally, that's where we are working towards, that we should target -- this is the maximum borrowing we should have in this company. And we have a good plan, how we will manage our cash flow and business, and therefore, the borrowings. Although it's all working capital-related borrowing and not the long-term borrowing. But we are conscious about that. And I think good suggestion from your side. And thank you.

Okay. And the last question -- I'm going to end this here. Since you guys -- since we are also entering into this e-commerce sector, is there any particular concern that -- is there any particular focus on the company as far as the -- our strategy in e-commerce is concerned? Because -- I'm asking this question, because mostly in e-commerce, ratings and reviews drive a major role in sales and any quality issues that are being highlighted, one, infestation in our products and all that get a lot of traction in e-commerce sales. Is company focusing anything in this aspect?

What we do there is, ultimately, whatever are the reviews and ratings are going to be a function of the product that we are supplying. It is to do with the quality. And one of the underlying and a very, very sacrosanct philosophy that we follow is a consistent quality of our product. Now as a result of that, we are -- the ratings that we have on all the sites, they are actually pretty good. They are in a very good space. So we are happy to see them, because they do reinforce our drive to give good quality consistently in every single bag that we send.

Okay. But is there any added strategy or focus for this particular aspect in e-commerce sales from the company? Any strategy to drive this...

There is a channel strategy, but there is never a strategy to manage reviews and ratings.

No, not directly manipulation. As in some focus towards...

No, no, none at all. The focus is on the product and the focus is on the consumer and how the consumer behaves on this channel, say, as compared to kirana and what we will do as a company to target that. So ratings and all of that are a follower. There is -- directly, indirectly, there is nothing that we do for them.

No, no, I got that. Is the company keeping a track on how it doing...

Like a consumer feedback. Of course, feedback should always be honored.

The next question is from the line of Amit Doshi from Care PMS.

Just on the Cuppa Rice, sir, what do you think the market size could be, considering that it would be in probably -- I don't have tried the products or something, but like this Nestlé or many ready-to-it rice or noodles, et cetera. So can you -- do you have something in mind as to what would be your target industry size or what could be that number or something on that front?

See, all -- a whole set of products that we have launched right now are catering to consumers' need for convenience. Now consumers are looking for convenience in eating. They're looking for convenience in cooking. They're looking for variety. And these have all got very accelerated and exacerbated during the lockdown when people had to stay at home. So Cuppa is fitting in this space, and there is a space which is both in-home and out-of-home. This market is growing at very, very high speed. So I think anything that we say right now is the fact is that this is a very fast-growing and fast-evolving market. We just see this whole space of convenience eating, eating healthy, eating tasty to grow exceedingly rapidly and become big. So today's market sizes are really not that relevant.

Okay. And when I ask about this strategy of this, whether this is Cuppa Rice or any other this new product portfolio, since you target around 10% to 15% as the overall contribution to your business, of course, in the next 3 to 5 years period, I believe so, then what my concern or my question is coming from is that these products really require a lot of marketing initiatives and a lot of spend, et cetera. So since we have started improving on our margins on our core business, which is a stated target of the company, there could be -- my worry is that the spend on the new products, et cetera, because when you say 10%, you're talking about approximately 20x the current contribution of this new product, and that can require a significant marketing expense as well. So how -- on the margin front as well as this market ad spend front, what kind of strategy do we plan to grow this business to those 10, 20x from the current level?

See the -- there is -- absolutely, there should be no doubt, whatever we do, we will do fiscally responsibly. We have said that the 4 pillars, the 3 pillars for us, one of them is margin expansion. We also -- all the new products have a superior return profile. So as they grow and as they become bigger part of our business, they are actually going to enhance margin. There are different approaches. When we say that there's a lot of expenditure. Previously, these expenditures were more in terms of awareness building. But in today's digitally connected world, these can all be achieved in very different ways which don't require that level of investment with new products needed in the past.

Okay. Okay. Okay. Fine. And one of the questions that I actually had in the last quarter and this quarter, if you repeat it. So the pace at which our overseas business is growing is far ahead than the domestic business. So can you share some thoughts as to what's stopping us from growing in domestic market?

I think as we alluded to in our earlier comments, and I will just expand on that, the consumer-facing business in India is growing at the same robust rate as the rest of our business in the world. What we are seeing in India, as we said, is the impact that the HoReCa business, which is more sizable in India as compared to international, we do more business in HoReCa here, that is the one which is impacting the total growth numbers that you see. But if you were to just split out from it, the small pack consumer-facing business, India is registering the same kind of growth as we are in any other part of the world.

The next question is from the line of Vedant Khaitan from Konark Investment Agency (sic) [ Konark Investment Partners ].

My question was, since our goal is to expand our margins, where do you think the next bid comes from? Is it from cost savings or from increasing the price of our final products?

So Vedant, this is a mix of -- our margin expansion strategy is improve the sales of the higher-margin product and bring efficiency. That will be a mix of 2 things: product mix and efficiency in buying and other things.

Okay. And I have a second question. You said that our interest that we are paying on the debt is around 6.5%. But also out of our profits, we are looking to give 20% to 30% as dividends. So wouldn't it be more prudent to not give a dividend and instead reduce debt?

As we said, we are following -- we are not over-leveraging our sales. We will remain in a debt-to-EBITDA kind of 2, 2.5, that ratio. And whatever the -- we will not over-leverage on all these things. We have a policy now how much -- as in the presentation, we have said that whatever the free cash flow will -- how much it will go to the growth, how much it will go to CapEx and how much it will go to the debt repayment and how much will go to the dividend. That's how we have made our policy, that around 20% of our free cash flow, we will give to the dividend.

Okay, sure. And the third question was, in our financial statement, you said something about LT International being divested to a promoter group holding. How does the price for that come about, the consideration? I think it was INR 2.6 million or something?

Yes, it is INR 26 lakh, that is, Vedant. So it has no operations. LT International, it has no operations. And it has been sold off to the promoters and on a value of INR 26 lakh and at arm's length basis.

This is a part of our drive to rationalize our structure. And we have done it to promote for a rational reason. We don't want to close LT same name. Thus -- we said we will -- as a promoter, we will not do any business in this company. It will be a shell company.

Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you, everyone, for your continued support. Hope we were able to address all your queries. Should you have any further questions, please feel free to contact our Investor Relations team. Thank you, and we look forward to connecting with you again in the next quarter. Thank you, and stay safe. Thank you so much.

Thank you.