LT Foods Limited (LTFOODS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the LT Foods Q4 FY'23 Earnings Conference Call, hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumant Kumar from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and a very warm welcome to LT Food Q4 FY'23 post result earnings, earnings call hosted by Motilal Oswal Financial Services Limited. On the call today, we have management team being represented by Mr. Ashwani Kumar Arora, MD and CEO; Monika Chawla Jaggia, VP Finance and Strategy; and Mr. Sachin Gupta, CFO. We will begin the call with key thoughts on the management team. Thereafter, we'll open the floor for Q&A. I would now like to request the management to share their perspective on the performance of the company. Thank you. Over to you, Monika.

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 exchange. A transcript of this call will also be made available on the Investor section of the company's website. I would like to begin by taking you through the key highlights of [ last ] quarter 4 financial year '23. Our consolidated revenue for quarter 4 financial year '23 was up by 19% at INR 1,836 crores versus INR 1,537 crores in Q4 financial year '22 and account of increased sales from Basmati and other specialty rice and convenience and health segment. The gross profit for the Q4 was up by -- up to INR 609 crores from INR 515 crores. And the gross profit margin contracted by 30 bps on account of increase in the input cost and decrease in freight costs. The company did an additional investment in brands, and there was a decrease in the freight cost as a percentage of revenue. The freight cost decreased by 230 bps, which led to a decrease in the other expenses, by 140 bps versus last year. This is a reduction in other expenses led to an increase in EBITDA. The EBITDA for Q4 was up by 29% on a year-on-year basis to INR 200 crores from INR 163 crores. The PBT was up by 35% to INR 149 crores from INR 110 crores. The PAT for Q4 was up by 75% to INR 132 crores from the INR 75 crores. The earnings per share for Q4 stood at INR 4, up by 79% on a year-on-year basis. The cash profit for Q4 was up by 52% to INR 167 crores from INR 110 crores. Our consolidated revenue for financial year '23 was up by 28% at INR 6,979 crores versus INR 5,451 crores in financial year '22. This is on account of 31% growth in Basmati and speciality segment and 11% growth in our organic segment. The gross profit was up by 31% to INR 2,402 crores from INR 1,836 crores, and the margin expanded by 70 bps to 34.4% from 33.7%. This is on account of change in product mix and the partial size increase. The EBITDA was up by 20% to INR 744 crores from INR 620 crores in financial year '22. The PBT was up by 25% to INR 535 crores from INR 428 crores. The PAT was up by 37% to INR 423 crores from INR 309 crores. The earnings per share stood at INR 12.59, up by 38%. The cash profit was up 27% to INR 550 crores from INR 432 crores. Now I would like to highlight the key ratios of our balance sheet. The debt equity ratio stood at 0.34x. 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. It's stood at 1.3x, which is lower than the benchmark that we set for ourselves. Current ratio has also increased significantly to 1.96 from 1.78 last year. The return on capital employed stood at 17.8%. The normalized return on capital employed on account of insurance claim stood at 18.5%. The return on equity stood at 18.4%, up by 309 bps and the interest coverage ratio also improved from 7.2 to 7.5x. Now I would refer Mr. Ashwani Arora to give you an update on the business and the strategic initiative.

Thank you, Monika. Good evening, and thank you for joining us on the call today. In financial year '23, the company continues to deliver on all the strategic pillars plus growth, margin expansion and further strengthening the balance sheet with a 28% growth in revenue, gross profit growth of 31% and PAT growth of 37% and significant stamping of the balance sheet. Basmati and other specialty rice segments saw a growth of 31% and Convenience & Health segment witnessed to grow to 36%, which is 2% for our revenue. The organic segment also saw a growth of 11%. We are delighted to share that the company's market share in India [ as per AC Nielsen ] stood at 29.6%, up by 230 bps on the back of marketing initiatives across all the mediums and increasing distribution reach. Our retail outlet reach also increased by 9.1% and stood at [ 176,741 outlet ]. Also, Daawat consuming household increased by 31.3% on a year-on-year basis to 45.38 lakhs which is [indiscernible]. We are glad to share that we have concluded our strategic transaction with SALIC, which is PIF, [ Saudi Soverign Fund ]. Successfully SALIC now holds 9.22% equity stake in LT Foods through a primary and secondary investment of INR 455.5 crores. The move came to accelerate LT Foods organic and inorganic expansion plans across business segments, give a boost to our future growth plan particularly in the Middle East and Saudi Arabia region and 45-year position as a leading player in the industry. The India business kept the growth momentum. Our business reported a growth of [ 40.4% ]. Wherein the specialty and mid-segment registered phenomenal performance and surpassed the industry standard by reporting 15.7% and 15.2% growth. We have identified 3 platform for the extension of our brand, a specialty line, second, is health and third is convenience platform. In all of these platforms, we have expanded our portfolio during financial year '23. In the Specialty rice segment, we launched another right variant of Devaaya rice. In the health segment, we launched [indiscernible] rice , which is another initiative to cater to the health conscious consumers in the Convenience segment, the Daawat Briyani kits, Royal ready-to-heat is performing as per our expectations. In the U.S., we continue to maintain our market share of 50% with our flagship brand oil. We increased ready to keep food production capacity. Sales of Royal RTH foods grew by 37%, which took Royal RTH to the fourth largest brand in the ready-to-heat right segment in the U.S.. During the first half of the fiscal, we entered into achieving with Golden Star trading with the brand, which we have bought of jasmine rice. We have successfully integrated the operations of the golden star into LT Foods America and deliver to our expectations. We command a significant market share of approximately 30% in the Continental Europe in Basmati rice category. This year, the Europe business has grown by 23%. In the Middle East market, U.A.E., Kuwait and Iraq were the top-performing countries accounting for 78%of our Middle East business. U.A.E. experienced remarkable 121% growth, reaching volume of market share of 4% in financial year '22, '23. Kuwait showed growth strong 78% growth, achieving a volume market share of 3.7%. Iraq had a significant volume market share of 7.8%. We have delivered 50% year-on-year growth in the e-commerce platform in Kuwait and U.A.E. We hold a 16% market share in far East, despite the price increase impacting overall export to the region, we managed to mitigate the impact and maintain our position in the market. Our focus lies in strengthening our distribution network and achieving over 90% product penetration in all countries. To boost the growth of just in line segment, we also opened an office in Thailand to support strategic procurement of Jasmine rice. We continue to make visible progress in our ESG program in each of our focus area, we are committed to training 50,000 partners on sustainable farming practice by 2025. We are also on the track of having 2.5 lakh acres of organic farmland by 2030. We have highlighted our ESG framework and ESG scorecard in the earnings presentation. We're also significantly prioritizing digital transformation assets to enhance our operations closely. We maintain an optimistic outlook for our overall business, and we continue to start towards building a robust forward it sustainable, profitable and expanding business globally. Now we open the session for questions and answers.

[Operator Instructions] The first question is from the line of Amit Agarwal from [indiscernible] Investments.

Congratulations on good set of results. Sir, my question is regarding the dividend. So this time, your dividend has been less than last year, in spite of the we've been promised in early conferences that 20% of the dividend will be distributed to the stakeholders, 40% of the profit to distribute to the shareholders. And second question is regarding investments in plant and an machinery. Sir, we've been spending about INR 50 crores around about every year on plant and machinery. Will the FMCG business acquire so much investments in plant and machinery. Can you elaborate the investments it has been this much for the last 2 years? These are the 2 questions.

So answering to the first question on the dividend. We have said that we will ever 20% dividend our stand-alone basis and we will doing that in this financial year also, like the coming. And on the plant and machinery, last year, we had invested mainly on the two things. One is on the green power generation with turbine we have installed 3.5 megawatt turbine, which we will be run on the half by products of the company. And the second, we have invested in the solar power. Third, we have invested on the warehouses because earlier we were storing goods by renting out the warehouse outside. So the plan is to build a warehouse. So the main investments have gone in that. And the third is because in Europe, the operations are growing so we are investing mainly in the packaging side of the business.

So can you give more details how much power generation and in the past 2 years and how much for the warehouse?

So you send that email, we will send you directly.

Okay. And this dividend thing sir, I'm talking about 2020 to 2030. So this was 1 year aberration or still will be looking for an [ awesome ] dividend?

Sorry. Because your voice is breaking.

So the dividend for 50% dividend for last fiscal year, is the more aberration or you're talking about still to be?

So the previous one dividend was the interim dividend. So there will be, of course, once the final dividend also will be declared and as per the policy adopted by the company 20% of the will be declared. So there will be a final dividend that will be afterwards.

The next question is from the line of Abhishek Maheshwari from Sky Ridge Wealth Management.

Congratulations on good set of numbers. We are very pleased to see the improvement in margins and good profit growth. So a couple of questions, sir. You made a volume growth of 18% in FY'23 against a revenue growth of 28%. I think 10% was contributed by increase in Basmati prices correct to assume that?

Just I will pass over to Sachin.

So in this year, the volume growth what we have achieved in the Basmati and the specialty, that is a 10% volume growth. and the realization has increased by 20%. So the is [ 32%, 31% ] of the revenue growth from the Basmati.

Actually, what I'm seeing in the press release is LT Foods reported an offtake volume growth of 18.2% for FY'23 versus category growth of 9% in the same period. So volume growth is 18%.

Growth that has been stated as India, India volume growth, India volume has been stated. So it has been correctly reported that is an India volume growth.

Okay. So overall basis, you are seeing it was a 10% volume growth. Okay. And going ahead, do you see this to maintain similar levels in FY'24 also 10% to 15% volume, sir?

Next year, as we are optimistic and the category is growing across the geography we are working. So we are positive to deliver double-digit growth.

This will be very new geographies. And we are hoping to see good distribution in the Saudi, Middle Eastern market?

It's not a short term, but that's the medium to long term. So but the present whatever the base we have, we are seeing deposited as said, like double-digit growth in [indiscernible].

But sir, if they are planning the 15%, assuming 15% volume growth in FY'24 also. And I'm sure that Basmati prices are even higher than what they evolved 1 year ago. So the realization might should be over 30%, 40% right? I mean, value-wise, revenue growth.

So value growth is the price impact has already come in the last quarter. And as I said, we always build our business plan on roughly 6% to 7% volume growth and 5% to 6% on the value growth.

And I'll get back to this maybe later on. Secondly, sir, do you see that at 11.5% EBITDA margins, you are at the peak of the operating leverage? Or there is still some potential that operating leverage will take in with higher volumes and EBITDA margins right and so?

If there is a potential, and we will keep have given the guideline that year 2025 our return on [indiscernible] we are targeting 20%, return on capital employed 23%. So there is still a room for the margin expansion.

Okay. And one question before I get back to the queue. So regarding SALIC, I mean, can you elaborate on what talks are going on over there? Will SALIC itself be your distributor? Or will you be looking for some other distributors? I mean what are the thoughts going on what is a strategic plan to enter that market?

SALIC is our investor company, we will not distribute that. A lot of strategic discussions are happening. I'm sure we will come up with the winning proposition.

The next question is from the line of Shubham Shukla from Voyager Capital.

Actually, first question will be on EBITDA front. We were opportunistically aiming to achieve EBITDA of 13.5% in the next 3 years. Your margin also still the same despite any flat to negative for the entire FY'23?

Sorry, the voice is a little bit cracking. So what you said the margin you said on something margin?

Well, we were aiming for EBITDA margin to be at 13.5% in the next 3 years. Margin outlook still the same despite remains flat to negative for a entire year?

If I understood your question correctly, as I said, we will -- we are targeting to improve our margin here.

My question was like you did 10 plus margin this year, EBITDA margin, and we are aiming for 13.5% -- we were aiming for 13.5%.

Yes, yes. So this quarter, we have delivered 11.4%. And next year, we are targeting to improve on the further margin.

Okay. Okay. And second on the SALIC deal, we have intention to do 150,000 tonnes of business in Middle East, and we were around 40,000 tonnes odd. Is it the product price are [ to down ] for that market. So did we record any growth in volume to?

This we have done in case because they have invested one of the reason is the food scarcity. So under that, we have done in agreement with us that in case in, we will supply them [indiscernible].

I think [indiscernible] like we are doing 40,000 tonnes in Middle East. Did you see any increase in our business there?

Yes. Yes. Middle East is a focus, and we have good plans to grow the Middle East business.

Okay. And if I could just get the Golden Star revenue and EBITDA margin, we were told that profitability of, let's say, is largely in line with LT Foods margin [indiscernible] number. .

So the Golden Star the profitability. Golden Star profitability for that has been consolidated, that is amounting to INR 31 crores. So it is a profit and this is a 51% share.

Could you repeat that again, you are not loud enough.

INR 31 crores is the profitability of Golden Star, that has been consolidated in the financial number. And that is 51% share of -- that is our.

Okay. And the revenue will be?

The revenue side of the -- after the taking over 51% and the rest are [ 52 million ].

The next question is from the line of Mohammed Patel from Care Portfolio Managers.

The International business has done very from INR 2,800 crores to INR 38 crores. So can you give us some color on any specific geographies that have done well?

See, all geography has done well. The U.S. has grown Europe has grown. All geography has grown on the similar percentage almost similar.

Okay. Can you highlight growth by geography? Or some of the keys geographies?

Just a minute. So my, Europe is growing by 73% on year-on-year basis and the revenue growth in marketing if I look at the U.S. that has grown by [ 48% ]. So we have a major geographies in [indiscernible] India, if I talk about the India [indiscernible] that the revenue has growing by 16% volume growth [ and the other growth is 38%, 37% ].

Hey, it is very difficult to hear. Second question is, is the freight cost only reason of improvement in margins? And if yes, do we see that we shall pass on the benefits in correcting prices downwards in coming quarters?

Freight cost was one of the reasons for the growth in the margins in the quarter as well as a year-on-year basis. So of course, certainly certain part is to be passed. But I think the whole part will be passed on. So we are expecting a margin expansion in the going forward years as well. There was certainly the scale also kick in and [indiscernible] to have a 44% expansion in the profit on out of scale asset. And there was a GP also. So these all factors impacted to an increase in the overall EBITDA margin in this quarter.

So if you pass on, then there will be an impact -- negative impact on the margins?

Not really because the freight cost after that also have decreased further.

Okay.

We have a inventory lab of the [indiscernible] now, so that has beginning an increase. So afterwards after March, there was certainly a price decrease, but at [indiscernible] effect keeping the margin intact.

Okay. Share on JV was INR 19 crores in Q4 FY'23. So this is a substantial jump from the last quarter, which was INR 8 crores. So what explains this? And what is the run rate that we should expect going forward?

This quarter, it has got an impact of rate. So going forward, not this kind of margin, but we are positive on the JV we are expecting in 12%, 13% EBITDA margin.

Okay. And you mentioned in the opening remarks...

Just to explain on the growth, this is a part of value growth and quantitative growth, and it has impact of rupee depreciation also. So just to clarify on that.

Okay. You mentioned...

Last year, the market was opened up after COVID. So food service has delivered good performance.

Okay. You mentioned in the opening remark that you hold 30% market share in the Europe continent. So can you throw some light on who holds the remaining 70%?

So there are different European players they hold. Yes continent.

The next question is from the line of Santos Joshi from AD Financial Services Limited.

So congratulations, sir, for good set of numbers. I have two basic questions. Please give a volume breakup of domestic and exports? And within exports, how much is Basmati and how much would be non-basmati?

Mainly Basmati, I will hand over to Sachin to be you a bit perform, but mainly that.

So I guess about a percentage, what would be the volume breakup of domestic and export? And within exports, basmati and non-basmati?

India there's a revenue of [ 3 lakh tonnes ] and international the revenue is [ 284,000 tonnes ] volume.

Okay. Okay. And within export, how much would be non-basmati?

So this is Basmati total Basmati what I talked about. And in the non-basmati that is was in the last year after September, the sales was 43,000 tonnes.

43,000 tonnes.

The next question is from the line of [ Sudhanshu ] from DIA.

My first question is regarding the Daawat acquisition that has been done inside the LT Food. In this quarter's consolidated number, have we consolidated the Daawat's revenue fully or did it be happening from next year?

So Daawat was earlier fully owned subsidiary of majority owned by LT Foods. And we have acquired the SALIC stake in LT Foods. It is not having any impact on that -- earlier also it was a consolidated too now also consolidated too.

No. So the remaining 30% won't we are dumped in revenue to 30% of the consolidation we were consolidating it 100% previously also.

Now after, in the month of March, it is 100% subsidiary steady. So 100% profits are coming, so my minority shareholding has not been [indiscernible] So we look at into my financials, there is a [indiscernible] in the minority services. That has gone in the investment.

Okay. And -- got it. And on the front of trade payables, I'm seeing this around 1,078 due to trade due to others can you can jump from last year and the September balance sheet as we [indiscernible]. What is the reason for that?

So we are able to maintain a good relationship with our suppliers and we made a relation where we secure the supplies from the supplier. So the inventory and it is setting in their time at their warehouse, but the arrangement after the accounting standards, we have to improve that inventory and the rates in our books of cost. So this is the arrangements which we had made with our supplier. So that has resulted in an increase in the traders current credit.

Okay, sir. And just last question. This is on one of the ASG metrics that you mentioned. Under renewable energy, you have mentioned the baseline was 46% and then FY'23 it's 42%. Is there a drop somewhere? Or is this a base of electric consumption has increased?

So you need to see ESG. On the ESG target you are going [indiscernible].

Yes sir, ESG. On the climate change in the presentation, you mentioned in the renewable energy, baseline at 46% and FY'23, 42%. So why is there a dip from baseline is my question.

The consumption will grow.

It's a consumption [indiscernible].

The next question is from the line of Sunil [indiscernible] from KM Financial Advisers.

I just wanted to understand, can you please let us know what are your plans for non-basmati? And what all variants of non-basmati has been launched so far?

Non-basmati not our focus even in the last 2 years. Basmati export is not our focus. In the last 2 years, we have done only for China because LT Foods was among the few companies which were allowed to export China that was having a good margin. But strategically, non-basmati is not except the regional price, which we do we call it and specialty rise. So that we will keep growing.

Right, sir, and what are your CapEx plans going forward?

So it will be similar in the range that we have done in the last year. So similar will be so mainly, again, in the some will be increasing the production. Some will go in generation of power and some will go in CapEx.

The next question is from the line of Amit Jeswani from Stallion Asset Private Limited.

A great set of number. My first question is and my team has been asking you the same question multiple times, but sir your equity today is INR 2,800 crores assuming you do a INR 500 crore PAT next year, you'll be at INR 3,300 crores and broadly to achieve the 20% ROE okay, which you have guided, you'll have to do INR 660 crores of PAT that would be super. As of today, sir, we are -- our market cap is INR 4,000 crores. And you are now 40% bigger than the market leader, the old market is leader. If you reinvest this cash flow that you're generating, I'm just seeing your last 4 year's free cash flow is INR 1,000 crores, right -- your operating cash flow minus CapEx is INR 1,000 crores. Sir, it makes no sense for you in our [indiscernible] experience. So why are we not doing buybacks at the INR 4,000 crores market cap. You're less than [ 9%, 10% ] PE your ROC will be north of 20%. If you can reduce your equity, you've been looking at a very large EPS. Our EPS today is INR 12.5. You're targeting closer to INR 18 and if you do a buyback of INR 300 crores, INR 400 crores, you're looking at north of INR 20. I'm just trying to understand, sir, your thinking about it. Because you've built a building business in the last 70 years. You've got one of the better auditors. Just trying to understand how you think about it.

No, we have -- as said in the last con call also, we are positive and because at that time, some deal was happening. And we are positive next board meeting we may discuss about that.