LT Foods Limited (LTFOODS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to LT Foods Q2 FY '24 Earnings Conference Call, hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Sumant Kumar. Thank you. And over to you, sir.

Thank you. Good afternoon, everyone, and very warm welcome to LT Foods Limited 2Q FY '24 post result earnings call, hosted by Motilal Oswal Financial Services Limited. On the call today, we have the management team being represented by Mr. Ashwani Kumar Arora, MD and CEO; Mr. Sachin Gupta, CFO; Ms. Monika Chawla Jaggia, VP, Finance and Strategy, Company Secretary and Compliance Officer. We will begin the call with key thoughts from the management team. Thereafter, we'll open the floor for Q&A session. I would now like to request the management to share their perspective on the performance of the company. Thank you. Over to you, Monika.

Thank you, Sumant. Good evening, everyone, and thank you for joining us on our Q2 and First Half '24 Earnings Conference Call. Before we start with the key highlights of the quarter and half year ended 30 September, 2023, I would like to highlight that certain statements made or discussed on the conference call today are forward-looking, and a disclaimer to this effect has been included in the presentation of the results shared with you earlier. Result documents are available on the company's website and have also been uploaded on the stock exchange. A transcript of this call will 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 Q2 Financial Year '24. Our consolidated revenue for Q2 financial year '24 was up by 15% at INR 1,992 crores versus INR 1,732 crores last year on account of increased sales from the Basmati and other specialty rice segment. The gross profit declined by 5%, and the gross profit margin contracted by 668 bps from 37.6% to 30.9% on account of an increase in input cost and price reduction. The freight cost reduced, which led to a decrease in the other expenses, and this led to an increase in EBITDA. The EBITDA for Q2 was up by 43% on year-on-year basis to INR 255 crores compared to INR 178 crores last year. And EBITDA margins expanded by 248 bps to 12.8% this quarter from 10.3% in Q2 financial year '23. That is led by achieving efficiencies at the manufacturing level and benefit of scale. Profit after tax for the quarter increased [Technical Difficulty] to INR 157 crores compared to INR 95 crores in the previous year. EPS increased by 61% to INR 4.49 versus INR 2.80 in the previous year. The cash profit increased by 53.8% to INR 193 crores compared to INR 126 crores in the previous year. Now coming to half year performance. Our consolidated revenue for the first half increased by 13% to INR 3,781 crores versus INR 3,352 crores in H1 financial year '23. This is on account of increased sales from Basmati and other specialty rice segments, as well as an increase in the convenience and health segment. Gross profit stood at INR 1,219 crores and the gross profit margin contracted by 421 bps from 36.5% to 32.3%. EBITDA increased by 35% to repeat INR 479 crores compared to INR 356 crores last year. And EBITDA margin [Technical Difficulty]. Hello?

Yes, ma'am. You can go ahead.

EBITDA increased by 35% to repeat INR 479 crores compared to INR 356 crores last year, and EBITDA margin expanded by 209 bps from 10.6% to 12.7%. This was aided due to increased efficiencies at the manufacturing level. The profit after tax also increased significantly by 55% to INR 295 crores versus INR 191 crores last year. And earnings per share also increased by 51% to INR 8.45 versus INR 5.60 in the first half of financial year '23. The cash profit increased by 46% to INR 366 crores versus INR 250 crores last year. Now, let me highlight the key ratios of our balance sheet. The return on capital employed improved to 21.9% on net debt basis from 17.7% in the first half of financial year '23. Return on equity has also improved to 19.5% versus 16.5% in the previous year. The debt equity ratio improved from 0.5x to 0.2x as the overall debt of the company was down by INR 528 crores to INR 611 crores on year-on-year basis on net debt basis. The long-term debt to equity was reduced to negligible level of 0.01x from 0.13x last year. The current ratio has also improved to 2.4 from 2.1 last year. Because of our continued focus on the working capital optimization, our net working capital days have been reduced by 10 days to 174 days in the first half versus 184 days last year. I will now hand over to Mr. Ashwani Kumar Arora for his comments.

Thank you, Monika. Good evening, and thank you for joining us on the call today. It fills me with immense pride to announce that we have demonstrated outstanding performance and sustained growth in the quarter and half year. Our dedication to the excellence has started -- resulted in a 13% increase in total revenue, and 55% increase in PAT, driven by harmonious blend of product mix and exceptional performance across all geographies. We have made substantial investment to reinforce our brand equity and that resulted that we have entered 5 new geographies, which means that now we have our mark in more than 78 countries. Our success story is linked to the evolving preference of consumer, particularly the growing demand for consistent and high-quality product, along with global presence and wide distribution network. According to AC Nielsen, our market share in India has surged by 160 basis points to 30.2%, while the market share in the Americas has witnessed a growth of 1.6%. Furthermore, the number of household consuming Daawat product in India has risen by 24% year-on-year, reaching INR 48 lakhs. The India business continued its growth trajectory by growing 15% through the introduction of new products and comprehensive 360 degree marketing campaign, along with the distribution expansion. In US, we strengthened our market leadership in the Basmati rice segment, achieving a noticeable growth of 27%. Our flagship brand, Royal, enjoys leadership position in the US, which is why we have a notable market share of more than 50% plus. In Middle East market, we are on the path of strengthening our position and have witnessed a significant growth of 55%. Our journey to becoming the market leader in this geography is well underway, driven by marketing campaigns, brand development and the introduction of the new products. The European market has grown by 13%, and all our brands are performing very well. The rest of the world segment also grew by 8%. In the Convenience & Health segment has shown promising results, and we look forward to this segment contributing more to our revenue in the future. In organic segment, we have de-grown by 22% on account of antidumping duty imposed by US. To mitigate this, we have revisited our growth strategies and are confident on the outlook of the business, and we will be back on the growth trajectory. We look forward to achieving greater milestones and are grateful to you all for being a part of our journey. We can now open the floor for question-and-answer.

[Operator Instructions] The first question is from the line of Yash from Stallion Asset.

Congratulations on a great set of numbers. Sir, my question was regarding gross profit margin. So, I can see that there's a significant contraction of [ 668 ] basis points from about 37-odd percent to 31%. So could you please elaborate on why the margins are contracted so much? And what would be the sustainable gross EBIT margins for the year?

Thank you, Yash. The difference in the gross margin, although the EBITDA margin [Technical Difficulty] that said, because of the input cost has gone up. And the second is, whatever the freight reduction, partially, we have given the price decrease, especially in US, say, seeing the competitive landscape. So going forward, we are expecting to be -- the gross margin will be in the range of 32%...

32%, 33%.

33%.

Okay. Okay. And sir, what are the kind of -- could you quantify the amount of price hike or -- sorry, the price decline that you've taken in terms of percentage? Would it be 5% or something like that broadly?

Broadly, yes.

The next question is from the line of [ Amit Aggarwal ] from [ Leeway Investment ].

My question is regarding the paddy prices. They have fluctuated a lot in the last 2 months. So what is the outlook for the next 6 months of the exports of Basmati rice? And do you think the paddy prices have come back to the original -- to the last year comparatively to the last year prices? How do see the market of export market? And my second question is regarding parboiled rice. There's a custom duty of 20%. I'm aware that you don't export any parboiled rice. But does this affect our Basmati prices in markets overseas? That's it.

Yes. So Amit, your question number one is that how we see export in the 6 months. As an LT Foods, we see our business is kind of FMCG. And we see the consumption will keep happening and the growth momentum will remain the same. So we see H2 also a positive. Regarding this parboiled rice, this doesn't impact us because the parboiled markets are very different than the Basmati consumption market is, so will not have any impact.

Can you give some advice adding up -- paddy prices that have gone up and down because of the government restrictions of $1,200 for the Basmati rice exports, and that will come down to 950. So how has the market reacted? And does it benefit or is it neutral to us?

So more or less neutral to us. But although the production against last year is up by 12% and as the consumption is also growing, so we don't see any market coming down as compared to last year. So procurement costs may be higher than the last year little bit.

And my last question was regarding Middle East. Sir, there is a conflict going in Middle East. So has it affected up consumption over there, especially in markets like Iran and Egypt -- sorry, Egypt, sorry, this....

Israel.

Israel market.

Israel is a very small market to India, although Daawat is a leading brand there in Israel. But we have seen the higher growth, maybe the people are stocking up. And food is -- what we have seen historically, food is the last one to get impacted. So whenever -- these situations has come either part of the world, mainly in the Middle East. So, we have seen rather growth in the market. Maybe they wanted to stock after the food security or something.

If I understand, shipping is not a problem there, that means.

No, no, there is no problem.

Next question is from the line of [ Mahesh Atal ] from [ Atal & Associates ].

Sir, congratulations on good set of numbers. Sir, my first question would be, sir, what is our export realization as of today on per tonne? And I'm talking on a consolidated basis towards Basmati. And also you mentioned that 160 bps is the rise in the market share in India. So do we also take the market share outside India? I mean, do we also have that metrics? Do you count on that metrics also? This is my first query. Second, sir, coming to this under the revision of -- to $950. So for this time being, was there any, I mean, added advantage to branded players and they have garnered the market share from the unbranded players? Can you throw some light on this? What this period was and how it was, and you can just please throw some light on it?

Sure. So Mahesh, thank you. So, I will take your last 2 questions first and the realization, Sachin will let you know. So, you asked that first is $950 and $1,200, do we have any impact? So as LT Foods, our export is almost 95% above then $1,200. So it will not have any positive or negative impact on LT Foods. Of course, 5%, 7% will have an advantage. That's an answer to the last question. And what was the second question?

160 bps points in share.

Okay. So what was the question?

Do we also have any metrics where we calculate...

India and America is our major market, and we track through Nielsen in both markets. And in the Middle East, also we track through Nielsen. So, these are the 3 markets we buy data from AC Nielsen.

So, my other question was, sir, was there any impact in the branded players getting some market share during these times when the government actually raised it to $1,200 from the unorganized sector because those were the people who were selling it below that value, right?

That was too a little time because Basmati inventory is always -- like in Middle East, they are always sitting on 8 months to 10 months inventory. So it was only 1.5 months. And people were expecting that the government had given assurance that it will come down. So, we have not seen any impact.

And what was the export realization, if you can throw me a number on that?

Export realization during this period was INR 143.

INR 143 per kg.

Yes.

That's overall outside India. Anything that we have sold outside India?

Yes, yes. That's outside India.

[Operator Instructions] The next question is from the line of Nikhil from SiMPL. Please go ahead.

Yes. Hello. Am I audible?

Yes, Nikhil. Yes, please.

So with this INR 1,250 prices coming down to now INR 950 or INR 1,000, one is, how did you see the market behaving? So just trying to understand that if this kind of a price movement or variation keeps happening, how do you see your business getting impacted? And overall exports, does it become beneficial or anyways make things better for us against some of the other unorganized or smaller players who are exporting?

So Nikhil, of course, this would impact all these kind of variance in government policy, may impact us. But from going $1,200 to $950, as I said, LT's mainly business is more than $1,200. So it has not impacted. But yes, when it was coming from $1,200, paddy prices came down because approximately 2 million tonnes goes less than $950 million. So there was no customers who were exporting $950. So the moment the $950 opened, the paddy prices have gone up. So in a way, it has negatively impacted as far as input cost is concerned. Nikhil, have you got the answer? Or you have any follow-up question.

The next question is from the line of [ Dikshan Mulchandani ] from [ DB Wealth ].

Congratulations on the great set of numbers first. Sir, my question really is on our market share in USA. So as we have seen that our market share -- our market share is increasing [ 10% ]. And where do you really think what is the limit of our contribution to USA from which we will not be as comfortable? I think we have -- 41% of our business is coming from USA, what is the top line that we want to stop at [Technical Difficulty] to other countries?

Dikshit, we don't want to stop the growth of the company. It is a very highly consuming market for us. And we will make sure that we are -- as the category is growing, we are growing at par with the category or better than the category.

Yes. But our risk from one market would be at the highest, right?

41%, you're right. And to diversify our risk also, we have bought Jasmine brand, which is $100 million brand. And we are diversifying our risk. As far as historically, we have seen that these economies -- the western economy is a very matured economy. So no surprise is coming on these economies.

Got it. One more question is on our key developments on the new segments that you have been working on. So going forward, how much are we looking to invest in the new sort of high-margin businesses as in the last 3 years to 4 years? How focused are we in increasing our revenue from these sources?

So, we have given a guidance that from all these new processed food NPD we call is value-added. This will be 8% to 10% of our revenue. This is what we have said last year in the next 5 years. So, we are evolving our strategy to achieve that goal set for us.

Amazing, amazing. Loving the new product, sir.

[Operator Instructions] The next question is from the line of [ Vipul Kumar Shah ] from [ Sumangal Investments ].

So can you give the domestic and international tonnages? You've given the revenue for half year. But can you give the tonnages for both the segments?

So India has a tonnage of 115,000 tonnes and international is 156,000 tonnes.

India, 115,000, 1-5, right?

1-5-1. 151,000.

151,000. And international is 156,000?

Yes.

Okay. And sir, second question is what is the reason to put this organic plant in Uganda? What are the advantages Uganda is offering? Just trying to understand the logic.

Good question, Vipul. As we have just said that the Basmati -- sorry, the organic soya business has degrown because of this antidumping duty on India, soybean. And the alternative source we have developed in Uganda for milling this soybean.

So there, you will not be subject to antidumping duty, sir?

That is not, yes.

Okay. So when it will become operational, sir?

It's already operational.

So now this organic business should see the bounce back, right, sir?

That's what we are expecting, yes.

And sir, what is the status of our insurance case, which is very old.

So the case is all now in the final argument. So, we are expecting in 2 months the final outcome of that.

Okay. So now it should reach its logical conclusion this year, hopefully.

Yes, yes.

And my last question, sir, growth is very muted in our Convenience & Health segment from INR 86 crores to INR 92 crores, if I compare H1 '23 with H1 '24. So why we are not getting traction in that? Any view, sir?

So, this is the business we have started. In America, it has become mature. So the growth is better than the ex-percent. So India, we have just launched this Biryani Kit and the other products. So, we have got a very good response. So now we have -- rolling it out to the broader level. So in the coming times, you will see a better response.

The next question is from the line of [ Subhanshu ], an Retail Investor. Please go ahead.

Yes. So, I was looking at the inventory figures of Daawat rice. I see a significant dip. So, we haven't started procuring as of now? Or what is the case? Will we be procuring in the coming months?

Yes. So Subhanshu, the sourcing season starts kind of first -- like 15 September. So the next quarter will be big time to buy. That's the main sourcing time.

And what are the numbers that we'll be looking for? Broadly, if you can give an idea like last time, we had like around INR 3,000 crores. Will we be surpassing that this time or?

We buy in -- Sachin, can you take? So, we buy 500,000 tonnes to 600,000 tonnes of paddy. So that will be roughly -- you're right, around INR 3,000 crores.

So where will the topping would be coming from? Because if the numbers that you are speaking are same. So, you have guided at 10% to 15% revenue growth rate. Where do you see this growth coming from where?

Subhanshu, sorry, your voice got cracked. What was the question?

I think on the long-term growth, you have mentioned that 10% to 15% revenue growth guidance, right? So where do you see this growth coming from? [ Will we be seeing ] the inventory levels similar to last year?

So the guidance we have given, the double-digit growth and we are positive on that. And we will be able to achieve that.

He said from where it will be coming.

So it will come across geography. As you have seen in the historical, America has grown better than the other geographies. So it will be in the same mix, that's what we are expecting.

Are you expecting it to come from higher price realization? Is that what you are expecting? Just trying to understand the levels of inventory you are trying to keep same according to last year only. So where will this would be coming from? Because you previously had increased margins.

Your voice is cracking. And can you be little slow so that we can understand your question better?

So like in FY '22 to FY '23, we increased our inventory by a big margin and we see good topping growth also this year. So I'm trying to understand where are you expecting the topping growth to come from? Are you expecting higher realizations?

So as your question is around inventory, we will maintain -- by 31 March, the working capital cycle will be 250 days to 260 days. So that's the answer.

The next question is from the line of Vincent Andrews from Geojit Financial Services Limited.

I have only one question. I missed the volume data for India. You mentioned something like 151,000. I think it is -- can you please once again confirm?

Yes, yes. It is right. 151,000 tonnes.