LT Foods Limited (LTFOODS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the LT Foods Q3 FY '24 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. Meet Jain from Motilal Oswal Financial Services Limited. And over to you, sir.

Thank you. Good afternoon, everyone, and a warm welcome to LT Foods 3Q FY '24 Post-Results 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 Jaggia, VP, Financial and Strategy, Company Secretary and Compliance Officer. We will begin the call with key thoughts on the management team. Thereafter, we will 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, and over to you, Ms. Monika.

Thank you, Meet. Good evening, everyone, and thank you for joining us on our Quarter 3 and 9 Months Financial Year '24 Earnings Conference Call. Before we start with question-and-answer session, 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 results presentation shared with you earlier. Results documents, including the presentation, all are available on the company's website and have also been approved on the stock exchange. And I'm sure all of you have read the same. A transcript of this call will also be made available on the Investors section of the company's website. As we have uploaded all the documents, now we will open the floor for question and answer, please.

[Operator Instructions] The first question is from the line of Abhishek Maheshwari from SkyRidge Wealth Management.

Congratulations on a good set of numbers and an improvement in margins. So I think first question would be -- I think it would be on everyone's mind right now. Can you throw some light on the supply chain resiliency that we have, not just from India, but also from Thailand where we source our Jasmine rice from? And with respect to Jasmine rice, do we use the Pacific route? Or do we the use the Suez Canal only for exports to U.S.? So I think can you just throw some light on the supply chain situation?

Abhishek, this Red Sea issue is only as far as supply from India and not from the -- and that is only to the East Coast of U.S. and Europe. That's the area where -- and somehow to some part of the Saudi Arabia, which is where this interruption has happened. And the impact of this is it is not impacted to the West Coast of U.S.A. or supplies from Bangkok. So there no issue on that. Regarding the impact of this is 2 impacts has happened. One is that the freight rates to the East Coast and Europe has gone up, so the shipping line has imposed emergency surcharge on that. And the other impact is the target time has increased by 15 days. So that the 2 impacts has happened with this disruption due to this Red Sea issue.

Okay. So sir, a follow-up on that. So I think in last 2, 3 years, this is the second time that you are facing a freight cost situation. So at the peak of container shortages during COVID, when the freight cost had gone up 6, 7x, are you seeing the cost moving up to the highest level? Or is it still very manageable at this point?

No, not to that level. At that time, container rates had gone, to, for example, USD 10,000. So the shipping line has, in fact, has $1,400 per container they have imposed. So it's manageable. So there will not be any loss of sales because of this disruption. So the only impact is cost, and we are evaluating on pricing, how to pass on this impact. So the most critical and important is that we should not have a loss of sales. So that is not the case.

So that's good to hear because we thought, maybe, the customers on the other side might think, okay, let's delay the sales a little bit and let's see where the situation leads us.

We are a FMCG consumer company, so it's not a kind of buyer/seller where the delay can happen. So if you are not on the shelf, it's a loss of sale, and we understand this. So we are making sure that as far as supply to consumer is very stable, consistent.

That's clear. Sir, one last question before I get to the queue. For instance, we are not having any loss of sales. But at the same time, freight cost has not really moved up to a level where we had seen during COVID time. So we might see some minor level of margin impact, but it should not be as severe as you know, margins going down to 10% level.

No, no, no. You are right, Abhishek, you are right.

Very minor impact. So very minor.

Minor. Very minor, yes.

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

Sir, on the front of -- there is an announcement in December that where we won that case, long-pending case of that fire incident, and the court has granted in our favor. And there is amount of some interest also, which has been granted. So post that announcement, is there any development whether -- when are we expected to receive that amount or just to understand whether the insurance company can go further to the, I mean, higher courts or anything of that sort, if you can just throw some light on that.

So Amit, so we have won the -- in the first court. And the opposite party has option to go to the higher court. So it's 60 days, so let's see how they react. And we will come to know in the coming days that they will -- will they appeal in the next court or not. But they have the option and right to go to the next court.

Okay. And in the meantime, do you see any sort of amounts on kind of in the interim?

No, no. So unless and until the exhaust with -- so we have not received any amount, so I can't comment further on that.

Okay, okay. And the interest amount itself would come quite big, right, if I'm -- it would be in the range of INR 60, 70, 80 crore plus, right?

It's more than that, it's more than that. Yes. So we -- I think if you -- we did do the calculation, it is more than INR 250 something crores.

Wow, it's that. Okay, okay. Got it, got it. Fine. In terms of, sir, the exports, which has been banned for non-Basmati, do you see -- so there are 2 parts to it. A, in terms of price impact to the Basmati, which I understand last time you had said no. But even post that, is there any change? And b, in terms of what are we reading in the articles, et cetera, now that the gap between the prices is likely reducing. So are you witnessing any shift in the demand from probably non-Basmati to Basmati owing to its nonavailability as well as the price rise? So if you can answer on both sides.

So the category is moving to -- from non-Basmati to Basmati, but that's a routine. If we have seen historically the Basmati consumption has grown in a volume term, 6% to 7%. And as per euro monitor also, this is only premium grain where the consumption is growing. If you say the total consumption globally is around 500 million tonnes, in Basmati, it's just around 10 million tonnes consumption. So we expect this category to grow. But answering your question, is pricing makes difference? Is non-Basmati goes higher than the Basmati consumption goes? So that is -- we have not seen that. We have seen that there is a big difference in non-Basmati prices and Basmati. So normally, people, as the income grow, they wanted to have a better food. So they moving to Basmati in India and across the globe.

Fair enough, fair enough. And sir, in terms of ready-to-heat category, so have we expanded anything? Are we -- because I think, we were almost on the full capacity last time we did first. So anything on that, whether it is Cuppa Rice or whether it be snacks or whether it is ready-to-heat category. So anything on that?

You have seen in the presentation of this ready-to-heat and ready-to-cook business is growing at 23%. And we are optimistic about that. We have 4 product at the moment, which is one is heat and eat, which is in U.S.A. Then in India, we have -- and actually globally, ready-to-cook, this Biryani Kit and Cuppa Rice. And especially in Biryani Kit, we are getting a good response. And in the rice snacks also, we have changed our communication strategy a little bit and that -- and changed some -- the product portfolio also, and we are getting the good response in the rice snacks also. So all the 4 things are reasonably doing well. And we expect that it will...

My question was more on that capacity and any CapEx in terms of increasing it.

Capacity, we have already increased RTH capacity. And next year is not in the agenda.

Okay. Currently, we have already expanded. And we are far ahead, having low from the optimum capacity. Okay, okay. And last question, sir, on the dividend front, I mean, so it's good that last call, you expanded your dividend policy from standalone profits to consolidated profits. But since last couple of years, we have been receiving on an interim front. So in this -- till this data, we have not announced any interim dividends. So again, is there any change in thought process in terms of dividend policy.

No, there is no change in the thought process. Whatever we have said on that consolidated, we will distribute 10% to 20% of the net income.

Okay. No -- so not announcing the interim, so that is the...

So I think that's some stats they wanted to do. And final...

That will be done in the final one. We will be doing in the final.

Okay. So no interim, only the final...

Whatever the guidance was given...

We have moved it at the end of the year. One will be interim, and one will be final. We have given last quarter, yes.

[Operator Instructions] The next question is from the line of Amit Jeswani from Stallion Asset.

Sir, I've got 2 questions. First question is on our guidance of 20% ROE for FY '24. First of all -- for FY '25, sorry. Sir, are we on track for that? Because we'll have to do about INR 730 crores PAT next year to achieve that. That is the back of the annual calculation of...

So the return on equity has already moved up. So it is 18.7%, and return on equity is 20.3%. So we're already moving to that goal. So whatever -- I think we have set up a goal for 20% return on equity. So we are not far from there.

Right, right, right. So my other question is about since we're generating a lot of cash flow lately, so there's been deal about Capital Foods got acquired at INR 5,500 crores, Organic India got acquired at INR 2,000 crores. Our market cap after 70 years of being in existence, adding [ like 4 other ] auditors, now being market leaders in rice is nowhere close to -- I still don't like when the stock price of INR 110, INR 120. I used to ask you why you are doing buybacks. And that same question I asked at INR 200 also. And now you have proof of concept also that what -- how that market value keeps on rotating food companies. Have you given a thought that would increase the ROEs of cost? And have you given a thought of what if we do a INR 500 crore kind of buyback and reduce equity by 7%, 8%? Because I'm sure the markets will start rewarding the stock in a very different way once that happens.

No, no. You're right. So we keep on evaluating this. The first goal was to reduce our -- this working capital borrowing. And now we are consistently considerably lower of our borrowing, which is now -- so maybe next year, we will look into this. We are on a comfortable position as far as our debt to -- so we will evaluate. We'll keep on evaluating all these things.

Because our total interest cost, right now, our total interest cost is about INR 19 crores a quarter, right? And our PAT is INR 150 crores. So it will be more efficient if we could go for buybacks than reducing dividends in my humble opinion, of course, if the valuation stay, which they do. My, sir, second question is on the Red Sea problem. Sir, if you can quantify what kind of impact are we seeing. Would it be right to say that we are losing about INR 3 crores a quarter or INR 6 crores a quarter?

So the impact is roughly around this. But as I said, we are evaluating pricing strategy, how to compensate or -- so we're still evaluating is it a short term, is it a long term. So maybe in the next month, we will decide our pricing strategy. But the impact is, as you said, it's roughly INR 4 crore apiece per month.

INR 4 crores a month. So sir, if you increase prices by 0.5% also, shouldn't that be more than easy to get it done? Why so much time on increasing prices by 0.5%?

No, no. As you know, we are a FMCG consumer-facing business, so it is not a kind of commodity that tomorrow you increase and next day, you decrease. It doesn't happen. So we are evaluating that -- we are talking to shipping lines, how long it will go. There's 2-, 3-month phenomenon than the -- maybe the strategy will be different. If it is something long run, then the strategy will be different. So this has just happened in this month only. On January 1, we have seen -- starting seeing the impact. We are waiting for a month how it evolves. And to your question, we have seen historically if the cost has been increased, we are able to pass on to the consumer then without having impact on the growth of the business.

Exactly my point, sir. That is a fair call, sir. So PBT impact, which is a INR 204 crore PBT, there's a possibility that if we don't pass on prices, we'll have a INR 12 crore kind of an impact as of today, right, sir?

So it will not be in this quarter because we always had inventory in hand in our -- the destination. So the impact will start from the next year, first quarter.

I'm sure, by then, you can increase prices also.

So we'll look into that, yes.

Got it, sir. Got it. So we are clear on buyback. We are clear on -- sir, and the growth should be -- what kind of growth do we expect for Q4?

So on a full year basis, we are expecting double digit, which is roughly 9% to 10% growth on a full year basis.

And that's by volume or value, sir, combined you're saying?

Value. Value.