LT Foods Limited (LTFOODS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Business Update Conference Call of LT Foods 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. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and a very warm welcome to LT Foods Business Update Call hosted by Motilal Oswal Financial Services Limited. On the call today, we have the management team being presented by Mr. Ashwani Kumar Arora, MD and CEO; Mr. Rohan Grover, CEO Organic Business; Mr. Sachin Gupta, CFO; Ms. Monika Chawla Jaggia, Chief Corporate Development Officer. We'll begin the call with the key thoughts from the management team. Thereafter, we will open the floor for Q&A session. I would now like to hand over the call to Mr. Ashwani Kumar Arora for the opening remarks. Thank you, and over to you, sir.

Thank you, Meet. On behalf of management and LT Foods team, I would like to thank you all for joining us today at such a short notice. I warmly welcome you all to the conference call to discuss the recent preliminary notice received by our fellow subsidiary company, Ecopure Specialities Limited. Ecopure is the organic arm of the company. The key products of our organic portfolio include rice, pulses, soya bean, seeds, millets, nuts, flour, extruded oil, etc. The organic business contribute 11% of total revenue of LT Foods. As on financial year '25, LT Foods consolidated total revenue is INR 8,770 crore, wherein, organic business revenue is INR 933 crore. Soya bean is one of the products exported to the U.S.A., with a revenue of INR 47 crore as on financial year '25. This comprise only 0.5% of LT's consolidated revenue. We are taking all necessary recourse available to us under U.S. Law, and we are very positive of the positive outcome. Further, I would like to reiterate that we don't foresee any material financial impact on the cash flow or future earnings of the businesses. I will now invite Rohan Grover, our CEO of Organic Business, who will take you through in detail. Thank you.

Thank you, Mr. Arora. Hello, everyone. Good morning. Happy to give you an update. In 2021, the U.S. Department of Commerce imposed a countervailing duty, CVD, on imports of organic soyabean meal from India, primarily to protect the U.S. domestic pressures. As a process, we usually choose top 1 or 2 exporters to represent the case. The chosen mandatory Indian respondent received a 9.57% duty and all others, including Ecopure Specialities, fell under the same rate. After reviewing the respondent's data, who got 9.57% duty, which showed significant subsidies they have got due to their SEZ operations, we consulted legal exports and concluded that we could reduce the duty to around 3% by volunteering as a respondent. This would have allowed us to be in a very strong competitive position in the U.S. organic soybean market. We filed our voluntary response for the 2023 review period, covering shipments worth about INR 50 crores. In the process, we submitted data for various group companies as required. Unfortunately, due to misinterpretation and non-appreciation of the facts on record, BOC had imposed an adverse fact available. We would like to emphasize, this is only preliminary findings and not final. A final result is due in December 2025, and we now have an opportunity to represent our case and correct these misunderstandings. The CVD applies only to 2023 period. Future sales of 2024 and '25 will be reviewed separately. In terms of our exposure, like Mr. Arora said, organic soya meal contributes roughly about 5% of the organic business and less than 1% of the LT Foods business, with margins of about 4% to 5%. So the net impact is very low. The financial impact if we have to come out of the business is low, and it is limited to about INR 4 crores to INR 5 crores, and we are confident to offset it through our product introduction and growth into the U.S. and European market and diversifying our international sourcing and moving our soya meal operations to our Uganda operations, which could take over part of this business depending on the crop. We have enlarged top U.S. legal counsels who are confident by the Department of Commerce interpretations and can be effectively challenged. To sum up, we do not see a material impact on our ongoing future business, and we are committed to resolving this matter decisively in the right way. Thank you.

Now we can take up any questions.

[Operator Instructions] Our first question is from the line of [ Shivam Mittal from Care PMS ].

So just want to know INR 47 crore is the number which is soya meal export to U.S. for FY '25. Is that correct?

Yes.

And similar situation, sir, I earlier also. So we set up facility in Uganda. So how this will impact -- I mean we have a facility in Uganda...

We have 2 facility for processing soya meal, one in India and one in Uganda. It depends from where we are competitive. So we keep using the facility of Uganda in India. Hope that answer your question or...

Sir, any financial impact, so we have CVD from India and, I guess, Uganda facility is in north. CVD, we don't have that facility.

No, CVD is not applicable on the Uganda. It is only from the export from India.

Okay. So sir, in terms of situation in terms of Iran, so what has been the impact, sir, on LT Foods like export number?

So we -- as an LT Foods, we don't deal with Iran. So we don't have any business with Iran, so we've no impact on LT's business.

Okay. And any impact on freight ports?

No, no, not yet. Yesterday, we checked with all the shipping lines. Only it has impact on the Jebel Ali port, where we don't have much exposure. So till time, we don't see any impact.

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

So I have a question only related order which has come out. So from what we see that the countervailing duty on sales pertaining to period January to December '23 amounting to INR 50 crore, so -- and 340%, right? So does this mean that the notices for INR 50 crore into 3.4, that is INR 170 crore? And as far as the FY '25 sales are concerned, '24 and '25, are we to assume that this preliminary duty of 340% will be on retrospective basis?

No. This is only for the year '23 and not to any business on '24 or '25. Rohan can explain it further. It is up to us if we want it, yes, yes. Sorry?

No, should I repeat my question?

Yes. So what I have understood your question, this is only this duty, which is -- again, I'm reemphasizing, this is a provisional preliminary only on year '23 sale, which is INR 50 crore and not applicable to any sales in year '24 or year '25.

Understood. So essentially, the demand is for INR 50 crore worth of sales and 340% preliminary notice, which is -- which comes to around INR 170 crore. So the, I mean, impact is pretty material, right? So I mean, are we going to be doing some kind of provisioning? Is it too soon to make any kind of comment?

It is too soon. It is too soon. It's preliminary. We have filed -- we are going to file the reply in the next week. And then we have 120 days to revert back. And we are very confident. We don't feel anything.

Understood. And one last thing. This is not an LT Foods specific issue, right? This is an industry-specific issue.

No, this is -- Rohan will explain the process how it works. So as of now, for soya meal, it's only LT specific. Rohan, can you explain?

Yes. So countervailing duty is imposed on the industry as such. The Department of Commerce were able to review other companies or the mandatory respondents and they give every company a countervailing duty if they are getting -- this is on if they are getting any subsidiaries or not. In our case, they could not review the information, and that's why they have given an AFA, which is 340%. But after the review, they will come up to an Ecopure Specialities pertaining countervailing duty. So the general CVD is for the industry, but this percentage will drive for every company.

The next question is from the line of Vishvender Singh from Prudent Equity.

Am I audible?

Yes, yes. You're audible.

Yes, sir. So I had 2 questions. So yesterday, ET reported that domestic basmati rice prices have declined INR 4 to INR 5 per kg due to this Middle East turmoil. So if this situation persists, like do you see any margin reduction for current financial year?

No, we don't see. This is a regular thing because of Iran, the market is a little depressive. But being a very strong brand and what we see the competitive landscape, we are hopeful that, that will not impact any margin of LT Foods.

Okay. Noted. And also, I had another question, and this is from the annual report. So if you can bear this question. So I looked upon the other income section and it reported that we have sort of inventory management fees from one of our companies based in U.S. So can you share some light on that? What is that part and how it is calculated for us?

So actually, there is other income that we charge to one of our associate company in the U.S. So that is the golden stuff. So once it gets consolidated -- this year, it will be getting consolidated and there will be line-by-line consolidation. So this other income, there will be no other income this year, and it will be getting in the normal course of the business. So this is the income which we charge -- the company charges from the associate company that is shown in the other income.

Okay. So for like FY '26, it came -- other income came somewhere around INR 88 crores, INR 88.5 crores. So what was the quantum from inventory management piece, if you can share it?

So almost INR 50 crores was from this aspect.

Okay. And like, can we expect regular sums in the next few years?

No, no. That will be getting consolidated. We won't be charging to our -- so there will be an elimination and it will be getting consolidated. So there will be no other income as such once it gets consolidated.

So it will be like ending in FY '26, am I right?

Yes, yes, yes, you are right.

The next question is from the line of Gaurav Somani from Korman Capital.

Sir, you said this is a company-specific issue. Just wanted to understand how are the other exporters doing in terms of duty structure when they're exporting to U.S.?

Rohan, can you take this question?

Yes, please. See, usually how the process works is U.S. Department of Commerce selects top 1 or top 2 exporters from the country and will give a countervailing duty, which then applies to all others. In this case, there were 3 companies, 2 of them were the mandatory respondents and we filed ourself as a voluntary respondent. So the other 2 have already got reduced countervailing duty and our data could not get reviewed. So the all others would fall under the category of the countervailing duty, which the other 2 companies have got. So this is the average of the 2 companies, which are the mandatory respondents the entire industry gets, the countervailing duty.

Sir, just wanted to understand this countervailing duty is on soybean exports. Does that have any impact on other lines of business in terms of the understanding which the U.S. department have for other organic businesses which you import? Are there any such confusion in countervailing duty structure at the moment?

No pertaining to that it's in -- no, it is pertaining to only that HSN code of organic soybean and has no impact on any other product that we export to the U.S.

I understand that. My question is more in terms of the -- because of the current tariff regime, which is coming into picture as well, right? Are there any product lines which we have where such confusion might still persist?

See that would remain.

Yes, take on, Rohan.

So that would remain, as in -- of course, that is unclear on how the India and U.S. tariffs will fall in place. So we're very hopeful that should fall into the space. India has a very strong edge or strong competitive edge in the organic market when it comes to the U.S. consumption. So whatever that comes in, we will find ourselves in that competitive edge compared to other countries, and we are hopeful we will find our way in.

And just to add on what -- so if whatever the duty structure under this -- so that will be passed on to the customer when this 10% duty came and we passed on to them. So that will not be a challenge to the margin.

Sir, as per the last call, my understanding was you said you'll absorb the duty given the price benefit we have because of the price reduction in Basmati?

Yes, you are right. Yes, you are right. But as Ashwaniji told, this is in case of organic, so not on the basis of the Basmati and the specialty. In the Basmati and specialty, this year, we had input cost reduction. So that will be -- the duty effect has been absorbed by the raw material cost.

Got it. Got it. Sir, one last question. So yesterday, there was this news article which said that 1 lakh per tonne worth of stocks are stuck at Indian ports because of this Iran conflict. So are we also facing such that issue in terms of exporting our material? Or is that all okay?

No, no. It is not impacting LT Foods. LT Foods doesn't have any exposure in Iran.

Not the exposure, sir. Because the sea lines are impacted, the goods are probably not being exported from the ports. Does that impact?

Yes. No, no. That is stuck up because Iran war and the shippers are not shipping to Iran because of not getting their insurance. So we are not exporting to Iran. So our shipments are smooth, regular going.

The next question is from the line Jolyon Loo from Amiral Gestion.

Sorry, I missed the first part of the con call. Could you quantify the impact of the CVD again on our business? And I heard that there will also be investigation for the 2024 and 2025 calendar year. So could you also quantify the impact should the CVD be imposed on these 2 calendar years as well, please?

So I will again tell that this -- whatever the impact has been is only on the sales of '23 and not '24, '25. And this is a preliminary notice, and we will get the final outcome in the next 120 or 130 days. I hope that answers.

So we are following an appeal to the notice. And then in the next 120 or 130 days, they might -- they will probably review the appeal and give final outcome, which in this case, might be 0% is what I'm hearing. Is this correct?

Rohan, are you taking this question?

Yes, sir. See, countervailing duty is something that the country imposes when there are subsidies that an exporter or an exporting country has. In our case, our fundamentals are strong. We are very sure we don't have any subsidies. We unfortunately could not get reviewed. So once we will get reviewed, we are very hopeful we will be able to bring down our current countervailing duty of 9.57% to much lower. That should give us significant edge as well. So it all depends on how we are talking to them and representing and how they are taking our representation. So we are not that's why able to quantify anything, and we do represent our case and they will review our data and we will get it lower rate.

Okay. So from to 340% to 9.75% is our expectation?

No, 9.57% is the current countervailing duty. The 340% is usually the companies get when they do not publish or do not share their information with the Department of Commerce. That's an AFA. In our case when 9.57% duty was applicable, we filed a response to reduce the duty from 9.57% and our expectation was to make it close to 3%. So we will be able to reduce it once our data gets reviewed.

Okay. So can you just clarify, so once data gets reviewed, you will be reduced from 340%, which what they're imposing right now to 3%. Am I correct?

Yes.

That's our expectation.

Yes, that's the expectation.

Okay. And the current impact of this 340% ruling is on INR 50 crore of revenue?

Yes, on the sales, what we have done in year '23.

The next question is from the line of Rahul Agarwal from Bandhan Mutual Funds. Sorry to interrupt, sir. The current participant has been disconnected. We will move on to the next question. It's from the line of [ Yash from Art Ventures ].

Sir, I actually wanted to know that the CVD you said is applicable only on the 2023 sales and not on 2024 and 2025 sales. So what about the sales that we will be doing in FY '26, is CVD applicable on that sales of 340%?

Rohan, can you take up this question?

Yes. See 2020 -- so there is a period of review that the Department of Commerce uses. We were reviewed on 2023. There are still 2024 and '25 remaining and 2026 would come much after that. We would have a clear position, as Mr. Arora has said by end when we do [indiscernible] 2023. So whatever will be the duty that will be decided will be applicable in 2026 onwards. And if whatever the duty that would come up, our material impact on this business is lower and we can easily move this business to any other locations or Uganda for this particular instance.

Okay. Sir, in case if we are going to export organic soybean today to U.S., then what is the duty that will be applicable to us then? Is it 340% or some other duty?

No, we are currently exporting to the U.S. already, and we are paying 9.57% duty as it is for the entire industry today.

Okay. Okay, sir. And sir, you just mentioned that the revenue from organic soyabean was INR 47 crores. So this is for the year FY '25 or FY '23?

'25.

Okay. Okay. All right. And what was the revenue from it in FY '23?

INR 50 crore.

Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to the management for their closing comments.

Thank you so much. Thank you.

Thank you.

Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.