LT Foods Limited (LTFOODS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to LT Foods Limited Q4 FY '21 post results conference call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. And over to you, sir.

Thank you, Aisha. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of LT Foods. From the management, we have Mr. Ashwani Kumar Arora, Managing Director and CEO; Mr. Vivek Chandra, CEO, Consumer Business; Ms. Monika Chawla Jaggia, VP, Finance and Strategy; Mr. Sachin Gupta, Group Financial Controller, on the call. Without further ado, I would like to hand over the call to Mr. Arora for opening comments, post which, we will open the floor for Q&A. Thank you, and over to you, Mr. Arora.

Thank you, Manish. This is Monika. Good afternoon, 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 the 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 quarter 4 and of the financial year '21. Our consolidated revenue for the financial year '21 was up by 12% at INR 4,686 crores versus INR 4,173 crores last year, on account of increased sales from the U.S., Europe and organic business. The gross margin expanded by 232 bps to 31.1% due to change in product mix and lower input cost. The EBITDA margins also expanded by 58 bps to 12.8% versus 12.2% last year and was up by 18% from INR 509 crores to INR 598 crores. The company has generated significant cash flows amounting to INR 345 crores driven by strong performance in financial year '21 that led to decline in overall debt by INR 205 crores. This further led to a fall in the finance cost by 34%, and the overall fund cost was down by 242 bps from 7.45% to 5.12%. The PAT increased by 45% to INR 289 crores, while the margins expanded by 140 bps to 6.2%. The earnings per share was also up by 49% to INR 8.57 per share versus INR 5.77 per share. Last year, in quarter 4, there was a lot of panic buying, which was not the trend in this lockdown. And therefore, in quarter 4 financial year '21, the revenue was down by 6% from INR 1,218 crores to INR 1,147 crores versus last year. The gross margin expanded by 329 bps to 31.8% due to change in product mix and lower input costs. EBITDA was lower by 8% on a year-on-year basis due to investments in the international operations aligning with our overall strategy to grow in those markets. The margins were marginally lower by 26 bps on a year-on-year basis. The finance cost was down by 46% as the overall debt was down by INR 205 crores. The PAT increased by 2% to INR 60 crores, while the margins expanded by 42 bps to 5.2%. Now I would like to update you on all the efforts taken towards strengthening the balance sheet of the company. The ROCE, R-O-C-E, improved by 193 bps to 15.6% and a normalized ROCE on account of the funds dropped in the fire insurance claim is 16.3%. Return on equity improved by 283 bps to 15.3%. The debt equity ratio improved from 0.91 to 0.66x, as the overall debt of the company was down by INR 205 crores to INR 1,253 crores on a year-on-year basis. This is to reiterate that majority of our debt is working capital debt, which is required because of the nature of our business, and our focus is to maintain the debt to EBITDA ratio between 2 to 3x, which stood at 2.1 this year. Current ratio has also improved significantly to 1.70 from 1.52 last year. Now I would like to hand over to Mr. Vivek Chandra for the further business update for the financial year '21. Thank you. Over to you, Chandra.

Thank you. For FY '21, the company revenue of INR 4,686 crores has registered a good growth of 12% on a year-on-year basis. U.S. Europe and the organic business has been big drivers of this growth. And in India, consumer pack business has also shown robust growth. Our growth continues to be broad-based. The Basmati and Specialty Rice segment of our business, which contributes to the bulk of our revenue, grew by 9%, bolstered by growth in demand, especially in our international businesses. Our organic business, which now accounts for over 10% of the revenue, grew an impressive 51% versus last year. New products business also grew by 45%, and it now accounts for 1.5% of our revenue. Biggest contributor to NPB revenue into its growth has been the RTH business in the U.S. This year; also saw the successful expansion and launches of Kari Kari Snacks, Daawat Cuppa Rice and Daawat Sehat, the iron and vitamin fortified rice. All of these initiated are poised for big growth in the coming years and will transform our business to value-add in consumer food business. I now share some more details on the businesses. Our U.S. business delivered another strong year in terms of growth, margin expansion and strengthening of financial metrics. The branded business revenue was up by 7% in FY '21 versus last year. The revenue growth was driven by growth in our flagship brand Royal, which has 50% plus market share. The company adopted various marketing initiatives to drive top-of-mind awareness for Royal and Daawat in the region. Campaigns also reached multicultural consumers to expand the consumer base of Royal. Royal ready-to-heat has been performing well and witnessed a growth of 97% in FY '21 versus last year. This product has been very well accepted by the consumers, and the company has adopted a multi-tier campaign to build awareness, consideration and trial of Royal RTH. RTH continues to gain new listings and, in the already listed chains, it gains new distribution and is thus well poised to maintain its business growth in the future. Europe business continues to grow year-on-year. And this year, it grew 92% versus last year, and it has also shown significant improvement in its return ratios. The company has been extensively working on expanding its customer base by way of new listing with mainstream consumers and increasing traction of brand Daawat in U.K.'s ethnic market. The company is also expanding its product portfolio and has launched Daawat volume pack this year and plans to further expand its portfolio on health and convenience platforms by leveraging its brand equity of Daawat and its distribution network. To better service the demand from expanded reach, LT Foods has made further investments in additional packaging lines in Europe. Our key markets in rest of the world have been performing in line with our expectations, led by our flagship brand, Daawat, and other brands such as Heritage, Devaaya and Rozana. The company has adopted various initiatives to build brand preference by consumer promotions, increasing availability by adding new geographies, increasing brand consumer pull by launching campaigns on the digital platform. The company has also expanded its product portfolio by launching products on the convenience platform, such as Daawat Cuppa Rice, Daawat Sauté Sauces and Kari Kari. Our India business overall has been impacted by the severe hit to the HoReCa business due to the lockdowns and nonoperations of hotel, restaurants and also catering business for a big part of the year. Daawat was the leader in this segment with a majority market share in organized hotels and restaurants. Daawat was also a very highly penetrated brand in catering business. HoReCa business saw some recovery in the third quarter, but the same was impacted again in the fourth quarter due to the second wave of the pandemic. The consumer business, on the other hand, not only remained strong, but gained due to Daawat's established wide distribution and our strengthening of Daawat's leadership in e-commerce. The total consumer pack business saw a growth of 8% versus last year. Our e-commerce has grown significantly and was up by 70% in FY '21 versus last year. The company rolled out various digital campaigns to increase engagement with its consumers. Our campaign for the health product range received a lot of traction across social media, and many well-known personalities from all walks of life have participated in the campaign. Second was the trend of experiential cooking at home, and Daawat's marketing campaign promoted the relevant product for this trend, namely Biryani -- Daawat Biryani and Daawat Sauté Sauces. Organic business has also registered a revenue growth of 51% in FY '21, with a revenue of INR 556 crores. The revenue growth was driven by new product lines and an increase in demand for organic products as consumers move towards safer and healthier Foods. Our soyameal business has seen a sharp increase this year, aided by our soyameal plant setup last year. At LT Foods, we also closely monitor consumer trends and preferences. The modern-day consumer is making discerning choices, bases which we have expanded our product offerings on health and convenience platforms. In FY '21, our new product portfolio contributed 1.5% of the revenue. Daawat Cuppa Rice, which was launched in this year-end, met with very good consumer response. Consumers found it to be a good option for meals as these were convenient, and we believe we have been in the recipes. Cuppa Rice is currently available across India in all channels and has also been launched in UAE and Australia. Daawat Sauté Sauces was rapidly expanded, especially into e-commerce, to cater to emerging needs of consumers in convenience and cooking. Kari Kari Snack has continued its momentum of growth and has shown a growth of 239% in FY '21 versus last year. Product launch in January 2020 has received very good consumer response and is currently available across e-commerce and several modern trade chains and standalone outlets. Company has also started exporting Kari Kari to Australia and UAE. Our brand, Daawat Sehat, the iron and vitamin fortified basmati rice saw a significant growth versus last year and has received very good consumer response in its lead market of Delhi NCR. Its distribution has been expanded in India via modern trade, general trade and e-commerce. On the marketing side, a 30-second film was launched on digital to promote the product across India. In addition to the business achieved on Daawat Sehat, Daawat Sehat is FSSAI certified F+ brand and addresses a pressing national need of malnutrition and undernutrition. I now invite Mr. Ashwani Arora to give his comments on the [indiscernible] driving the business and his remarks.

Thank you, Vivek. Good afternoon, and thank you for joining us on the call today. I hope that you and your loved ones are all safe and well. The ongoing pandemic has impacted every aspect of our lives and created much uncertainty across the globe. At LT Foods, we have responded to the same with agility by prioritizing the health and safety of our team members across the globe, along with ensuring the availability of product through our global supply chain hub to our loyal consumer and also serving the community. On the operations front, the company has well-entrenched distribution network with global supply chain hubs to reach its consumer in 60-plus countries. With the company's complete control on the value chain and highly mechanized automated infrastructure, we have been able to meet the growing demand of our consumer. This year, we saw an increase in our Basmati and other Specialty Rice business led by increased home consumption and enhanced presence in international markets. This has been achieved with a combination of the strategy adopted by the company and the efforts of our people in implementing them. A trend that particularly accelerated during the current scenario is that the people are more health conscious and switching to more packaged products, and the new channel that has emerged and gained traction during these times is e-commerce and digital engagement. The company's investment on strengthening its presence on the e-commerce platform and digitization has been the major ingredient for increasing consumer engagement in this year. We will continue to enhance our digital capability going forward as well to improve consumer engagement and drive sales through e-commerce. All the efforts of the company mentioned above have been directed towards delivering on its 3 strategic pillar of growth, margin expansion and strengthening of our financial metrics. Our growth strategy has been expanded our consumer base through effective marketing mix and go-to-market strategy that focus on improving our distribution network across all channels, general trade, modern trade, e-commerce. On the margin expansion front, the company has been -- has seen a margin expansion across all geography and segment on year-on-year basis through continuous scale and improving product mix. The company continued to focus on strengthening the financial metrics by free cash flow generation and prudent working capital management. This effort on the strategic pillar highlights the underlying resilience of our company and performance of management team. We are positive about our category growth in the core business, with the strong brands maintain and grow our share. In short term, we are expecting slowdown in India market because of the pandemic, whereas in the international market are performing well, and were delivered in line with our targets. We are looking forward to grow further via organic route and also keep evaluating inorganic route to further strengthen our business. We are also optimistic on the outlook of our overall business, as we progress on our journey of creating strong, progressive, sustainable, profitable and growing consumer business across all geographies. Thank you. Now we open the session for question and answers.

[Operator Instructions] The first question is from the line of Resham Jain from DSP Investment Managers.

Congratulations on back-to-back 2 good years in terms of overall performance. And -- so I have 3 questions. The first one is on the current Basmati market and the outlook on the same in terms of prices. What kind of inventory is there in the market? And also in context to that, this year, you have built a slightly larger inventory compared to the previous year. So how should one look at it from the growth perspective given that you are building a slightly high inventory this year?

Thank you very much for all the appreciation. So one, you said on the Basmati market, so we are not -- the last year crop was good, and we are expecting this year crop, whatever the indication we are getting, that the crop will be okay next year also. So the prices are very stable. Regarding the inventory, of course, that this is -- this business is all about aging. And this year, we were expecting the higher growth. So one, we have the high inventory. The other is that for the stronger product quality of supply chain, we have built up this inventory level. Hope that answers your question, Resham.

Yes, sir. Yes, sir. So basically, in anticipation of a slightly higher growth, some of the inventory buildup has happened. Obviously, this is aging, so it will come probably next year or maybe second half of next year.

Yes, yes.

Okay. Sir, my question is on the Europe geography, where you have mentioned that more investment has happened in the geography, and new listing has also happened with the mainstream retailers. So what kind of growth are we expecting based on these newer initiatives, which has happened in Europe for the next year?

Okay. So as far as the expectation, market wise, the Europe, the category is growing. The U.S. category is growing. And rest of the world, the category is growing. The only thing is in India, because of this pandemic situation, we're just evaluating that how it goes. But overall, the category is growing, and whatever the category is growing, we have a very strong brand in all these regions. So we are expecting that if the category is growing in -- depends on which world we are talking from 5% to 10%, and we are expecting in line with that, the growth.

Okay, okay. And sir, my third question is on the new products, all the 3 products which you mentioned. They have -- if you can tell us whether those products have settled down in terms of whatever initial typical bridging, which happens with this brands. And now are these brands ready to take off from here on? Because if you look at from absolute revenue perspective, they are still like very small. So let's say, in the next 3 to 5 years, what kind of scalability opportunity do you see from this new product basket? Like currently, I think they are doing some INR 18 crores, INR 19 crores sales, if I'm not wrong, per quarter. So from a scalability perspective, how do you see them doing, let's say, 3 to 5 years from here on?

Sure. So Resham, I will ask Mr. Chandra to add on to it then. But broadly, I will tell you, we have defined 3 engines for our business. One is our core business, the other is organic business, and the third is these new products based on convenience. So regarding this convenience business, broadly, in the 5 years where we have set a target for ourselves is from INR 700 crores to INR 900 crores or roughly 10% to 12% of our business. And now I will ask Mr. Chandra to add answer your question that how these products are doing.

Yes, thank you. See, I think the biggest example of how this is going to ramp up is in the U.S. RTH business. So that's in its third year in market, and the first 2 years were sort of gaining listing, creating awareness. And in this year, this business has more than doubled. We would see similar for all -- we've now had Kari Kari and -- in test, and Sauce is in test for about almost 1.5 years, and they've now expanded nationally. And we would -- we are seeing similar sort of trajectory. Daawat Sehat, which has met both its social need as well as the consumer need, actually has ramped up higher. So I think if we were to see in terms of new products and the kind of success rates that new products have, we are actually enjoying a better success rate. And we do believe that these will ramp up to the kind of numbers that Ashwani just mentioned.

But Resham, whatever you look in the last 4, 5 years, whatever the development has happened in this third engine, which is NPB, we are all internally very excited.

Okay. Sir, just one bookkeeping question. You have the 2 line items, employee expense. If I look at last year, we're almost the similar level of sales was INR 46 crores. This year it is almost INR 67 crores. And similarly, other expenses, which has increased from INR 126 crores to INR 160 crores. So if you can just explain what is -- what are the components in these 2 costs.

So I will pass on this question to Mr. Sachin Gupta.

So employee cost, the employee cost -- the increase in the employee cost is basically on account of strengthening in the -- strengthening of the European operations. The European operations are going under full swing and revenue growth. In order to have that kind of revenue, the employees were required. So it is -- the employees growth is on account of it on the sales front. And regarding the other expenditure, other expenditure, whatever the increase is for the basis increases on account of the sales growth, which has been made during this year. Secondly -- second, the increase is on account of the legal and professional charges, which have been incurred. This is basically on account of our supply chain -- strengthening of the supply chain facilities, with the projects which we have incurred for the better supply chain. So -- and certainly, there are certain provisions, which we have made on a conservative side during the last quarter of this year.

Provision related to, sir?

As we told you, it will be account of certain tax, which we have made in the last quarter of this year.

I wanted to add into what Sachin said, Resham, one, he explained on the implied cost is basically Europe. If you see that Europe has given a last year growth of roughly INR 300 crores, roughly 100% growth, and now the facilities are running on the full capacity. Therefore, we were looking for more people to run that operation. And the other is we are strengthening, as Sachin said, our European operation for the next growth. So that's people, and I think on the 122. The overall -- I think the 2%, if you -- this increase, he explained where all has gone. It's a mix of all these things, some cost on logistics, some transformation cost and all these things.

Okay, because it's quite steep actually, almost 43% increase in employee cost.

Maybe if you see our full year, full year, we are on the same metrics. If you see our quarter 1, quarter 2, quarter 3, we are not far from average.

[Operator Instructions] The next question is from the line of Meet Jain from LKP Securities.

My first question is regarding the realization. During the -- one of the presentation, realization in the business has dropped significantly. So can you [indiscernible] on that?

Sure, Meet. This is basically because of the mix. This year, we have exported non-Basmati to China, so that's how the -- you're seeing. But as far as Basmati, the same product is concerned, the realization has not decreased.

Okay. That means basically due to the scaling product mix, the non-Basmati products, you have exported to China.

Yes, yes. We have exported to China some non-Basmati. So that average is coming down. But apple-to-apple, there is no...

Right. Okay. And also in the previous con call, you mentioned that our trade cost will increase around [ 80%, 90% ] in this year. So are you increasing other expenses, which previous participant also mentioned? Was this increase also part of that?

Yes. Your voice is not clear, but we're saying that the other expenses, the logistics was higher is the part of that. That's what you're...

Yes, yes.

As I said, it's a mix of all the things. But logistic cost has definitely passed on -- sorry, increased.

Yes. Okay. And the last question is regarding our HoReCa business. So in the Q4, how was the recovery of HoReCa business feel? And what is the current scenario?

So Q4 was better than quarter 2, I will say, but not to the normal. So it has not yet -- quarter 4 was also not normal to pre-COVID levels.

Okay. So can you quantify how much percentage of recovery you did find in Q4?

Sorry, can you repeat that, please?

Can you quantify that, I mean, how much percentage of recovery have you seen in Q4 in HoReCa business?

In HoReCa business?

Yes.

So I will say, pre-COVID level, it is roughly around 60%.

60%.

Yes, pre-COVID level.

Pre-COVID level.

Yes.

Okay. So in Q3 also, we mentioned that our HoReCa business record around 60%, 65%. So much -- there's not much improvement in Q4.

No, no, no. Actually, HoReCa started opening in the third quarter. The fourth quarter last month was, again, this COVID thing started in the March, and it started coming down. The second wave started in the mid of March kind of thing.

Okay. So in the current scenario also, most of our business have been impacted or just HoReCa only.

So as I told that HoReCa business is roughly globally 15% of our revenue, and India is roughly 25% of our revenue, and that has a severe impact in the coming quarters. But as far as consumer business is concerned, last year also, we have grown by 12.2%. And in the April month, we have seen growth. May is a little slow, but international business is as per plan, as Mr. Chandra just told that.

The next question is from the line of Yash Gupta from Angel Broking.

The first question on the international volume. So basically, we have done a volume of 97,000 metric unit tons as compared to almost 70,000 something metric tons. But our sales is on the constant price, as you have mentioned that China thing has come up. So can you just quantify the number what we have exported to China? And how the things are looking in this Q1 FY '22?

Sure. I will pass on this question to Mr. Gupta, Sachin Gupta.

So as far as China business is concerned, in quarter 4, we have exported around 23,000 tons of non-Basmati rice to China.

And what was the value of it?

So it is at a average rate of INR 22, INR 23.

And how this is looking into this particular quarter? In Q1, is in the same line?

So it will be in the -- Q1, it will be in the same line, 20,000 tons of -- that will be another 20,000 tons -- 20,000 to 25,000 tons of sales.

So sir, other than China, have you lost some volume other than China in the international volume?

Mainly from Saudi Arabia, we have lost some volume because last -- when this pandemic happened, some of our customers, they have procured and stocked too much quantity, and their HoReCa business has not opened up. But it will come back. We are expecting in the -- it will come back in the next quarter.

As far as the branded business goes, nothing has been lost across the group.

And the same Saudi loss has been seen in the Q1 also, in the last 2 months.

On the private label.

Sorry?

On the private label business.

Private label business.

Not on the...

Branded.

Not on the branded.

Okay. Sir, second question on that you have given a revenue growth guidance of around to be 10% for FY '22, despite a high base of 2021. So I just want to understand from you, like what was the thought process behind it from where we think the next leg of growth will going to come in 2022?

As I just said that -- you want to take it?

Okay. We are on a growth momentum, and this momentum is coming because in the -- across, firstly, as Ashwani had mentioned, the category is growing across the globe. And all our marketing and selling investments that we've done is helping us grow faster than the category. The second reason why there is headroom for growth is the fact that, while we are a leader brand, there is still a lot of headroom available in terms of share growth across most of the markets that we are in. And in the peak markets, we -- where we've got bigger shares, we have actually invested a lot in terms of expanding our consumer base. So if I was to summarize what we are saying is that there is a category growth, which we will more than participate in. Second, we are expanding the consumer base, either through share gain or through expanding consumption of Basmati. Third, we have well-entrenched and well-established distribution reach, and we are expanding that network. All of these combined, which is the core of our strategies, will continue to drive our growth.

Okay. Ashwani, sir, do you want to add anything on to this point?

So whatever Mr. Chandra said, as you know, if you see our CAGR growth, it's almost in double digit. And we believe that category will keep growing in this space. But only different I will -- not different, only whatever the forecast we have given, so India may get impacted, as I said. So internationally, we are seeing that consumption growth will keep happening. And as a strong brand, we will have a share of that growth. But India, we have planned a bigger growth, but because of this pandemic second wave, it may get delayed to our program -- growth program.

Okay. Sir, last question on that inorganic growth that we are talking about on the TV financial in the starting on this show. Can you throw some light on the inorganic growth that what we...

As a company, we always see growth through organic route. I mean, organic, if you see historically, ours has been acquired. And we have acquired from Unilever and 817 kind also. So we -- as a strategic thought, we are open to keep evaluating if any other opportunity comes in this space, which has as per our roadmap. So if you ask me any immediate, immediate is nothing is available, but we are open to evaluate any inorganic opportunity.

As of now, no proposal and responded directly.

I can't disclose that. But as I said, it's -- we are open to evaluate any inorganic opportunity if something comes.

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

So first question, sir. I think we have been growing steadily in the past many years, and this was happening until, I think, December quarter. And I think, first quarter onwards, when the pandemic struck, so I'm talking about fourth quarter of last financial year onwards, we came to this 1,100, 1,200 sort of a quarterly run rate of revenues. And since then, we have not been able to build on that. So last 5 quarters, sir, our revenues are more or less at a similar level. This is despite adding more CapEx of INR 100 crores per year and adding significantly in terms of employee cost, like our employee cost is up 30%. But that traction in revenue growth momentum has stayed flat in the last 5 quarters. So then given how we are positioned today, all this CapEx plus higher employee cost, how -- when can we expect some delivery on the growth part given all this, sir?

Thank you, Sarvesh, for the very good question. If you see, Sarvesh, last year, our average quarter was 1,035 roughly. This year, we have delivered average quarter, 1,150. That's an excellent growth, 12% growth we have given. So we -- the kind of business we are in that -- quarter-on-quarter growth is not something in this business is expected. And whatever the growth strategy, it has to be implemented 1.5 years before that. And whatever we have done in the last 2 years, that has resulted in this year, and that's how the company has delivered an excellent top line growth -- bottom line by 45%. And regarding your CapEx thing, last year, we have invested CapEx in 2 areas. One is roughly INR 50 crore on the growth and INR 50 crore in building infrastructure and the -- putting this green energy. That will definitely result in this year, the project we have done in green energy. We have put 3.5 megawatt power plant, which is -- which will be done on our own fuel, which we produce in the company. That will lower the cost of our power. And we are building warehouses to see if this -- the logistic cost. And the rest we have -- if you see the organic business, we have delivered 50% growth, and that has been a result of the CapEx we have invested in the organic business. And we have added soyameal in that, and that has delivered that. I hope that answered your question.

Yes, sir. And on the employee cost front, are we done with the increase? Or are there further hirings and all that which is required as per our business strategy? Or should we model in like this level of employee cost going forward as well?

So first of all, we are a growing company, and our ambition is to grow. Definitely, there will be investment in the people, there will be investment in the infrastructure brand and how the growth will come. The second is, as a company, we have operation in India, and we have a 50% roughly operations in Europe and America. And as I just explained, they are -- Europe, last year, we ran the full capacity. Therefore, we have grown in Europe by 100%, and we need people to run that kind of operation. So I will -- so this extraordinary increase will not come. But as I said, growing company, we will keep investing in the people to bring that growth. But we are very conscious on our cost, whatever we invest. You see in the -- so our people cost is in the -- average is 5%, 5.5%.

Yes, yes. Understood, sir. Just finally, this -- so on the growth part, again, so any guidance? I mean, Q1, we understand that it will be subdued because of pandemic in India. But assuming this COVID wave is going to go away, at least the second wave, so the guidance for the remaining part of the 9 months for the financial year, sir.

We are very positive on this business model, and we have a very strong brand in Daawat. So whatever the consumer acquisition already has been done and whatever the programs are next to acquire the consumer base and customer base, we are very positive on our core business, which is Specialty Rice organic business. And the third is on the new products.

Okay. Any growth number, sir, that you would want to give for the 9 months?

We are all -- we were -- we are aspiring to always to double digit, but we are -- in this year, we are all going through difficult times. It's very, very difficult to predict the thing. But as I said, we are very committed to grow. We are very positive on our business and the markets we do our business. So we -- politically, as I said, that we always do business, which is a politically stable business. And the category is growing, and we are all positive.

Okay. And in terms of the paddy that you will be procuring for this year, are you seeing -- I mean, in general, we are seeing commodities going up everywhere, right? So of course, this year, we would be utilizing last year crop, and I think we should have some benefit on the margins because of that. But for this procurement cycle, any guidance on what can...

It's very difficult to predict at this moment. But as I said, initial signal what we are getting, the production will not be less this year, although we were doubting that. Because of this pandemic and labor shortage, there may be some impact on the production. But till date, whatever the signals we are getting, they're saying that the production will be in line with what we thought. So as far as prices are concerned, too early, but we are optimistic it will not be impacting our margin.

[Operator Instructions] The next question is from the line of Amit Vora from PCS Securities.

My first question is, sir, you have spoken a lot about the other expenses to other participants. One thing is how much of this is onetime in nature? And what of this is recurring in nature? So can we assume that 14% of sales, which is the quarterly run rate for other expenditure to be continuing or we can go back to 12% of sales as other expenditures?

So I think the average will be in the range of, whatever, 12.5% other expenses will be.

Right, sir. So there are some one-offs in this year -- this quarter, particularly, which will not reappear in the coming quarters is what to understand.

As I said, we will be in the range of 12.5%.

All right, sir. Sir, another question is on the debt, sir. What portion of the debt is Indian debt? And what portion of the debt is the foreign debt, sir? And if you can give me the cost of the borrowing, sir, for each picture.

So as regarding the debt, so Indian debt is around INR 786 crores and foreign debt is around INR 467 crores. And the average cost of the debt is 5.1%.

And he wants breakup of India and...

So I have answered your question?

Yes, yes. Yes, you have. Third question that I have is, sir, in case you do not go for an inorganic way of growing, what would be the reduction in the debt that you would be looking at, assuming that if there is no opportunity that comes through or it doesn't materialize, sir?

So as we are saying from whatever this organic and Basmati business, we are generating free cash flow in the range of INR 300-and-something 50 crores. So that will add the policy that will go in growth, reducing the borrowing and the dividend.

All right. Sir. Again, so one thing -- follow-up on this one, and then I'll join back in the queue. So there has been a lot of confusion. I think in the earlier quarters, we had mentioned in the presentation of 20% to 30% of profits. Then we kind of said that 20% to 30% of cash flows, and now we have said it that 20% to 30% of profits of standalone operations. So now this remains as the policy for the time being. Is that the correct way of looking at it, sir?

Yes, yes. And in the last call also, we clarified that the dividend will be 20% to 30% on the standalone profit of the company.

[Operator Instructions] The next question is from the line of Anurag Patil from Roha Asset Managers.

Sir, my question is on this proposed GI agreement on tax with European Union. Can you elaborate how it will impact us if other smaller exporters from India?

Anurag, just, can you repeat that, please? Yes, please, Anurag, please.

Okay. yes, yes, So my question is on the GI Tagged agreement with the European Union that is proposed in the coming months. How it will benefit us working for other smaller exporters from India?

This is a positive thing for us. It should have a positive impact as the Basmati rice industry and as an LT Foods. It's a very positive thing. There's nothing negative on it.

Okay, okay. And sir, will it lead to any increased realizations for our private label business there?

Private label business, what you said?

So will this agreement for the GI Tagged will lead to increased realizations for us?

No, that's -- that is. GI is not only protected to India. GI has a right as far as Basmati is concerned. Pakistan has the equal rights. So on the pricing power, I don't think on the -- India will have any impact on that. GI is only a protection from brands other getting registered, nothing else.

Next question is from the line of Amit Doshi from Care PMS.

Sir, you clarified about the realization fall on the international side. But on the domestic side, although there has been a realization reduction, so is there a change in the pricing or anything? Approximately INR 53,000, which has come down to INR 46,000.

It's a -- the numbers are in not here, but -- okay. So if you say it's more of product mix. When your -- sometimes HoReCa sells more than, your price realization goes up. Otherwise, it's a product mix change. But as far as profitability is concerned, it is not getting impacted with this product mix change.

Okay, okay, okay. So you want to say that when the HoReCa, et cetera, resumes, so your target of...

HoReCa -- Yes, yes. So HoReCa can resume this whole grain rice, the expansion rice.

Okay. So this last March con call, you had mentioned you try and you want to achieve a margin of, say, around 15%. So what -- do you second target date as in by then you want to...

So we are on that journey. If you see year-on-year, we are improving on the margins, but we are very much on that journey. Sometimes, the product mix changes, like the China thing came and the -- but overall, in the core business, we are improving our margin. Basically, our gross margins have also improved.

On the inventory side, in the presentation and in the balance sheet, there has been a difference in the amount. Can you clarify? Or is there some error?

Sachin, what is the...

So...

It's in Slide #15.

So this is -- what you're taking up paddy and the rice inventories. We have other item inventory as well, and the inventory that is sitting in foreign countries. So this slide -- that slide talks about the inventory, paddy and rice only. So there is no gap in that.

Okay. So that -- you want to say that's almost around INR 500 crores plus.

Yes, yes, yes.

Okay. So that's the inventory overseas.

Yes.

Okay, okay, okay. Fine. And sir, on the organic business as well as this new product business, I understand that now, Devaaya undergoing phase. And on a year-on-year, I don't have to look quarter-on-quarter. But there is no seasonality involved there, right? So this Q1, Q2, there is a sharp jump. And the Q3, Q4 is not able to -- I mean kind of have that average number. So any particular reason that it's not going on a sequential basis?

I think it's about organic with much stronger quarter 1, quarter 2. I think that's the question being asked, right?

Yes.

Yes. So why is sequential growth is not coming in, I mean, because once you are -- it's a growing business. So...

Yes. As I said, the growth strategy is to adding new products. So last year, we have added a soyameal, which has given roughly in the range of INR 200 crores of revenue. So we are in the process of adding more product for the next growth engine. So on the base, we are not expecting -- for example, we have it. Okay. So that happened in every year. Sorry, I'm not understood your question rightly. So that will just stock up because of this COVID quarter 1 and quarter 2.

[Operator Instructions] The next question is from the line of Shikha Mehta from Equitree Capital.

I just have a couple of questions. Could you give us an update on the insurance claim and what's happening thereon?

Yes. Shikha, because of this COVID, the courts were not open, but we are on the last stages of getting our first verdict. Keeping our finger crossed, if this June month everything gets opened, we are expecting in the next 2, 3 months, we will get our first verdict.

Okay. And sir, you said on the raw material pricing points, as of now, it's too early to talk about pricing, but it should not impact the margin substantially, right? Is that the correct way to look at it?

Yes, that's what we are assuming. Yes.

Okay. And sir, a lot of your subsidiaries are outside India, so I was just wondering what your policy is to bring cash back to the country and how it works.

Okay. So that's only with the dividends.

And so as far as the cash back, we have announced our dividend policy. We had to offset a dividend policy, and it is across the globe. So whatever the dividend policy we have adopted in India, that is applicable for other companies as well. So if the metrics -- if they are within the metrics, the dividend will flow to India.

Right. So if you could just give me a brief update how much your cash balance would dry out of the country and how much will be inside the country, if you have something about this.

So this is as per our dividend policy, whatever the dividend we have for our policy, what we have stated earlier stated policies, it is applicable for the U.S. as well as for the European entity. So if the metrics is there, the dividend will surely flow to India. Now they have -- we have announced this in the previous quarters. And in this quarter, and -- there will be some.

Dividend will come. So if you -- short answer, we have a policy. The dividend will come from the overseas subsidiary.

The next question is from the line of [indiscernible] from [indiscernible] Capital.

Sir, just 2 quick questions from my side. So first one, sir, on the European market, what has been our share growth over the last year? Because that is somewhere where we have made some strategic investment as well as new management. So just -- how is that panning out in our normal Basmati segment plus the other product? Second question, sir. You explained on the exceptional item expense, but I just wanted to understand. We have lost -- I mean, we have reduced our margin because of that onetime off, so that is something of a revenue nature expense that we have incurred outside. Or -- I mean, if you can just add more to that.

Sure. So first of all, on the Europe, we have -- so we have a mixed business here. One is private label business and the branded. On the private label, we have -- in the Continental Europe, we have roughly, I will say, 25% share. And U.K., as we are not there, so we haver in our branded business, we are improving our share there. I hope that answers your question on the first question.

Sir, just, I mean, what is the growth that we have seen there, I mean, in terms of year-on-year basis in the European market?

As I said, the category is growing in the range of 8% to 10% in Europe. And we are confident that we will -- our growth will be in line with the category growth.

The next question is from the line of Girish Jain from KJMC Financial Group.

Am I audible?

Yes, Girish. yes.

Can you give some idea on the net working capital cycle of the company on a standalone basis as well as on a consolidated basis, the number of days?

So as on the consolidated basis, my working capital cycle is of 232 days, in which the inventory days are 251 and the receivable days are 38, and the payable days are 57. And as regarding the standalone numbers, the working capital cycle is 172 days. And all -- these have improved from the previous year. It has improved by 5 days in case of consolidated and 3 days in this case of standalone.

And is it likely to improve further going ahead?

Not big, but maybe more 2, 3 days.

Okay, sir. And how much of CapEx have we outlined for this financial year?

It's around INR 80 crores.

Sorry, INR 80 crores?

8-0.

Okay. And last question, sir, which is more of an industry question. There have been some talk that Iran -- the sanctions on Iran may be lifted by the U.S. Will that have any impact on the Basmati market overall?

Yes. That will have positive impact on the Basmati rice industry. As I every time say that LT Foods is not an Iran business. But as far as the industry is concerned, this will definitely is a positive news.

Due to the paucity of time, we take the last question from the line of Aditya Mehta from GK Capital.

Sir, my question is regarding what is the maximum revenue that we can generate from European business with the existing capacity that we have.

So the maximum, whatever the till date we have invested the CapEx, so we can do roughly, I think, EUR 100 million. And -- but as the business will grow, we will keep growing our capacity also.

Okay. And sir, regarding our Middle East business, we are seeing lackluster growth in the past few years. So what is your strategy over here? And why we are struggling to grow in Middle East, despite being one of the largest market for Basmati?

Good question, Aditya. Everyone has its growth trend. And we, as a company, believe that we have a better play in India, America and Europe. Of course, Middle East is a big market. That's in our roadmap, so next phase is to grow from there on.

Okay. And sir, any threat do we see from related tariffs that U.S. is planning to impose on Basmati rice?

So it may can have impact, but Basmati is a kind of monopoly in the America market, although we are all working. That government should not consider that. But if it happened, it will definitely get passed on to the consumer.

So can we deviate our supplies from Europe to U.S., like -- something like that?

No. They are putting on the Indian region, either your product coming from there, it doesn't matter. So only option you have is you change your -- if you wanted to do a debt duty to Pakistan. But Pakistan is -- doesn't have much infrastructure to supply these kind of countries. So 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 Relationship team. Thank you, and we look forward to connecting with you again in the next quarter. Thank you, and stay safe.

On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.