LT Foods Limited (LTFOODS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the LT Foods Limited Earnings Conference Call Q1 FY '27. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumant Kumar. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and a very warm welcome to LTI Q1 FY '27 result earnings call. hosted by Motilal Oswal Finance Services Limited. On the call today, we have management team being represented by Mr. Ashwini Kumar Arora, Managing Director and CEO; Mr. Sachin Gupta, CFO Mr. Monika Chawla Java; Chief Corporate Development Officer, will 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 request the management to share their perspective on the performance of the company. Thank you, and over to you, Ashwani ji.

Thank you, Sean, for the introduction. Good evening, everyone, and thank you for joining us today on the post Q1 financial year '27 Earnings Conference Call of LT Foods Limited. Before we begin, I would like to remind you that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. The results after me are available on our company's website as well as stock exchanges. A transcript of this call will also be made available on the Investors section of the company's website. I'm pleased to share that LT Foods has delivered another strong quarter, achieving 26.4% year-on-year growth despite a challenging operating environment marked by geopolitical uncertainties supply chain disruptions and straight volatility. This performance reflects the strength of our brands, resilient business model, effectiveness of our long-term growth strategy and disciplined execution. Before Mr. Sachin Gupta takes you through the financial highlights, let me briefly update you on the performance across our key geographies. India, the engine just getting started. We are growing profitably for the 3 -- for the last 3 straight years with a CAGR of 12%, wherein the profit has grown faster than the revenue with a CAGR of more than 30%. And we believe we still have a huge scope of growth as Basmati remains majority ungranted in India as in data as well. And every year, more households shifts to branded and tested basmati. Our financial year 30 ambition is a step change of more than doubling the revenue with expanding margins driven by reaching consumers at every price point, building distinctive brands expanding availability and scaling our organizational backbone digitally, also by expanding our portfolio in the adjacent categories by leveraging our brand equity and distribution network. The United States, category leadership on the hard way. We are growing faster than the category. Our U.S. partner the import share is now more than 60% Royal and Golden Star continue to pull ahead as clear segment leaders on the back of consistent brand investments, innovation and execution across every channel. [indiscernible] created pricing volatility this year, and we are focused on converting dollar growth into the real unit growth as the pricing normalizes while broadening our reach across every price point and format and U.K., they both are in the investment phase. So Europe and the U.K. rent an investment phase, and we remain very positive about the long-term potential this ops carry. We are continuously investing in the capacity, the cost structure and the right channel mix, and we expect these investments to translate into the profitability over the coming quarters in the medium term. Another geography is the Middle East, where we are building in roads, the trough and saturated market. So Middle East is a saturated market and as a relatively new entrant, it is not an easy one to crack for us. Despite regional disruption to shipping this year, our demand held firm and our e-commerce business is the #1 category position. We are approaching the market across multiple price points to building roads and we are encouraged by the progress so far. Rest of the world, wherein we are strengthening our share, though it's a small market in terms of the Basmati consumption, but we are enjoying leadership position in most of the countries and we have further solidified our position with the continuous brand investments and the distribution expansion. The other segment that we are into, which is organic. So financial year 26 brought cost pressure as we change the business model from wholesale to CPG, and we expanded our European capacity. We still see organic as one of our most exciting long-term bets with bike space in the Americas and in European organic ingredients, which will help us to balance growth and margins in this in the medium term. India is a proven growth issue still in its early innings as there is huge potential lies in front of us. The U.S. is generally category leader working through near-term tariffs Europe and the U.K. are in the investment phase with strong long-term potential. And the Middle East is a tough market where we are building inroads. Organic is a long-term bet where we are reactors and all the geographies and business segments are moving forward with full vigor. Now I hand over to our CFO, Mr. Sachin Gupta, for the detailed financial update. Thank you, over to you, please.

Thank you, Monika. Good evening, everyone, and thank you for joining us today. LT Foods delivered another strong quarter, reflecting the resilience of our business model and the strength of our brands. and the effectiveness of our long-term growth strategy. During quarter 1 FY '27, the consolidated revenue on a year-on-year basis grew by 26%. On a normalized basis, it grew by 19%, and the revenue stood at INR 3,161 crores, driven by strong demand across our key geographies and sustained momentum in our branded portfolio. The gross profit during this quarter increased by 19% to INR 1,029 crores. Davita grew by 20% to INR 363 crores. Profit after tax stood at INR 183 crores, registering a growth of 9%. EPS likewise, stood at 5.3 per share, a growth of 9%. Profitability remained healthy. However, the EBITDA margins moderated from 11% to 11.5% as compared to 12.1% in primarily due to ongoing restructuring within the organic food segment. Now coming to quarter-on-quarter basis, the revenue grew by 8%. The gross profit margin grew by 13%. EBITDA grew by 21%, and the profit after tax on a quarter-on-quarter basis grew by 35%. Turning to the segmental performance. Our core Basmati and the specialty rice business continue to perform exceptionally well, delivering revenue growth of 34% year-on-year basis to INR 2,845 crores. Importantly, the volume grew by 11%, demonstrating the sustained consumer preference for a flagship brand across markets. Despite the geopolitical uncertainties and trade disruption, this segment EBITDA margin stood at stable 13%, highlighting the strength of our business model and operational execution. In India, the revenue grew by 23% on a year-over-year basis, supported by continued marketing share gain and deeper household penetration. Our market share reached to 23.1% by household penetration increased to 264.4 lakh households, reinforcing the growth growing strength of our Daawat franchise. We also continue to maintain leadership position across e-commerce, quick commerce platform, which remains strong drivers of our premiumization and consumer acquisition. International business also continued its growth momentum and contributed 71% of our consolidated revenue, with North America, maintaining the leadership position with 49% growth. Normalized growth during this quarter was 27%. Middle East and the rest of the world grew by 44%. Our brand continues to strengthen in these markets across all geographies. In organic food and ingredient business, witnessed a temporary decline in the revenue due to remodeling of the organic business. The revenue stood at INR 254 crores, with EBITDA margin at 4% However, the underlying demand fundamentals remains healthy, and we are expecting gradual normalization over the coming quarters as the business mix improves. We continue to believe strongly in the long-term opportunities within the global organic food market. The ready-to-heat and ready to cook portfolio delivered revenue growth of 13% on a year-on-year basis, with 42% growth coming in the Biryani kit. This portfolio continues to represent an important strategic growth revenue for the company. Our RTH facility in the U.S. is expected to become operational in this quarter. With a it will accelerate the growth in this segment in the upcoming quarters. From the balance sheet perspective, we remain focused on disciplined capital allocation and efficient working capital management. We delivered meaningful improvement across key operating metrics during the quarter. On a year-on-year basis, inventory base reduced from 221 days to 187 days. Receivable days improved from 30 days to 26 days. With these improvements, our overall working capital reduced from 195 days to 170 base. These improvements reflect our continued efforts towards enhancing efficiency across the value chain. Our return on capital employed remains robust at 21.1%, demonstrating our ability to generate healthy returns while continuing to invest behind the future growth opportunities, while net debt to EBITDA improved during the quarter to our net debt to equity also remained comfortable at 0.15x providing adequate flexibility to support future expansion initiatives. To summarize, a FY '17 revenue has been a strong start to the year with record revenue of INR 361 crores, EBITDA at INR 363 crores packatINR 183 crores and an EPS of 5.3 per share. Importantly, these results are in line with our annual estimates, and we are on track for the full year across all financial parameters. With this, I now request the operator to open the floor for question and answers.

[Operator Instructions] The first question is from the line of Pooja Shangri from InCred Asset Management.

I wanted to understand how much is the planned CapEx for the Australian facility?

We have just opened the company. So there is no plan for the CapEx right now, but we'll see how tables. At the moment, we have just infused very small equity to open the company.

And sir, second question is if you can give some regional favor on what are the key drivers that are responsible for driving revenue and profitability for each of the regions?

For India, I will request Ritesh to take this question call.

So for India, the focus is multifold. We are obviously increasing our distribution as you move forward, there is a robust plan in place that is created in the last year, which will just helping us go deeper into every city. So let expansion in an every channel is in focus where you're largely focusing on premiumizing top product mix as well as looking at white spaces in the market to launch new products. So these 2 are the key -- we saw a growth in revenue as well as gross margins.

Pooja, just to add what Rakesh said. So broadly, we have 3 areas where we will grow. One is in our core, which is specialty right. And second is organic. And third is RTH and [indiscernible] So the specialty rice is across globe and RTS is bigger in U.S.A. So we have doubled our capacity, hopefully, in 3 years' time, we are aiming to make our ready-to-eat business double.

The next question is from the line of Nisha from Nuvama.

My first question is on the impact -- so clearly, currently showing off price is happening. And of course, in many areas, there is a deficit some areas that may access also. So if you could update what will be your prognosis of the sowing season. And what will be your plan of action if the yield is low because [indiscernible] can impact fee and the cost of litigation also goes up because diesel usage is higher. So how do you see on the margin side given there is inflation. And on the deal side, are you now going to source some other markets also if there is an option?

As, fortunately, so the majority of the Basmati grow area have an alternative irrigation, which is kind on the groundwater. So historically, we have not seen much impact but there will be a little bit impact, but it's too early to project on the exact size of the crop. So by mid of August, we will be very clear. So if there will be a lesser crop, then there will be inflation. And we have all the plans to make sure that whatever the demand it has is for brands. It will be met. And if inflation comes then historically, we have been able to pass on to the consumer and quite confident that we will be.

Second question is on India market as a demand side. So 2 things. One is on the organic side, I see companies like Tata Sanmar just done a brilliant acquisition in that space ramp up gradually for the India market. I understand you've seen that regulations in India [indiscernible] So you are focusing in terms of organic more outside India. So if you could update on what will be the India plans in the next 1 or 2 years on the organic side. Second is on the Basmati India, clearly the #3 player, we are seeing ramp-up Fortune plus going old. If you could tell us next 3 years, do you expect top 2 players to lose market share? And will there be healthy content? It becomes a slightly market with third lasting much smaller than the number top 2, but still gaining some share. Would you be worried on that?

Ritesh, are you taking this question?

Okay Sure. So for us, the larger focus is on market creation. So the focus is to increase the market size of basis, as multi are still very underpenetrated as a category. So our focus is on improving our availability and creating market where the largest focus is to gain share from households which are consuming basmati, but lose and shifting them to branded base. So that's the larger focus on the core Basmati side, and we believe that this will lead to an increase in our market share. On the organic bit, we've also launched IM organic in [indiscernible] in e-commerce. So we are starting this journey of launching organic product range, and this will continue as we will launch more products in this space in the future.

Two quick follow-up and I'll end here. One is in terms of organic, are you charging a premium versus organic India of Tata consumers? And on Basmati, any aggressive pricing by the #3 player. And I have the top 2 players lost some market share. I'm not referring to the official market share data if you're referring to that a real sense on the market share because that get the [indiscernible] gene. So you have grown the top 2 players have grown slower than the numbers in there because #3 player is already out in the results.

Yes. So we have gained market share in the last quarter. I don't know about the other plan, but we have gained market share in the last quarter both in terms of -- on the China mix, as you can see in our growth rate as well that our first quarter growth has been good. And the second or the first question on organic, yes, we are charging a premium over -- in the special basmati and so a Maori to all the players that are available in the market.

The next question is from the line of Shar of Beria from Sumika Capital.

My first question is, I would like to just retouch upon the El Nino part. What -- so largely basmati crops remain irrigated from the canal or the coolers. So what are the current order levels in the areas where we source from -- and till when do you expect it to get utilized? Because below a certain level, we cannot use that ground order, right? So what are -- what is the study of us on that part?

I may not have the exact now on the water level. But broadly, our ground service is telling us that and historically, we have also seen. So till date, there is no [indiscernible] on that will impact. Some destitwe have issued but majority the trick is not a challenge. But say, in 20% of the area where it has grown, there is an issue, but I think we will have an exact thing on by end of August. But more or less, we don't see the crop to be more than last year as we were expecting as farmer has got a good price last year. So on the prices will be -- will remain for in the coming crop also.

Okay. Still on an average, what percentage of the basmati crop gets supplied via the irrigation? And what percentage are the ongoing rainfall?

So I will say 80%, 85% is by alternative sources also, which is [indiscernible] and the groundwater. And 15%, 14%, 15% is where is dependent on the range.

And the second question, so if we look at the stand-alone numbers, so if I talk of the subsidiaries, can you give me a bifurcation of what are the gross margins and the EBITDA margins separately for the stand-alone and for the subsidiaries because what IP is for the subsidiaries this quarter, the margins and both the gross and the EBITDA level margins that's fallen on a Y-o-Y basis. So what is your read on that?

So the major reason for the fall in the gross margin is 2 factors. Firstly, the change in the payment or the shipping terms that we have changed from the C2C basis. And secondly, there has been a drop in the margins in the organic segment. The organic segment initially last year had a gross margin of 35%. This year, the margins are at the -- it -- so this had an effect. Otherwise, on an overall basis, our margins have improved gross margins have improved, and this is reflecting in our EBITDA margins as well the EBITDA margins, if you look at the last quarter itself through this quarter, our EBITDA margins have improved.

Perfect. Okay. And on the sourcing cost part, so what is the current level of inventories we hold -- and what was the -- if you can share on average price? And going forward, what is the level until we don't have to source further inventory because as price rises given there's an adverse effect of an old have impact on the margins on a lag basis, say, for 4Q of FY '27 or first year of FY '28. So what is your read on that?

As far as the inventory level goes now, the inventory as on June '26, our price inventory is 346,000 tonnes at an average rate of INR 56 and party inventory is a 64,000 tonnes at an average rate of INR 38. So this inventory is the -- whatever the inventory we have, we have sufficient carrier inventory to service the next year, whatever the branded demand or the sales status. Yes, the new crop of the season, what it comes out that we are still at a bad situation as [indiscernible]

Yes. So just to add on the last ask that if the inflation comes and [indiscernible] price rise last year, as we are confident that we will be able to pass on to the consumers. So there will be no issue on the demand side. So because Basmati is a specialty rice premium rights. So there is no impact of demand and on the margin side also.

Just one last one. Would you like to add something?

Yes. I said the margin can be historically that we are seeing is that assay is around 13%, 14% EBITDA margin. So there can be a plus/minus 1% FCM.

Perfect. Just one last question. The standing 10% rate got expired on 24th of July. So what is the current rate? I assume it is 10% again. And what percentage do we pass it on to the consumers

No, we have reset our [indiscernible] has been -- so that has been -- the prices has been reset.

Current rate is 10% as you -- the previous rate, 10%, it has continued for after that expiry as well.

And we are passing on the entire tariff to the end consumer, right?

Yes.

The next question is from the line of Sujan from Inked Asset Management. It's a follow-up question.

I just wanted to ask on the geopolitical crisis and how it would have impacted our transport and logistics and how do people put this in?

Yes. So a, it has impacted to geography, the big name, one is the Middle East and Europe and U.K. And that has impacted our margin. That's why in this quarter also, the geography has been negative because of this logistic cost. So hopefully, in the coming quarters, we will be able to partly pass on to the consumer. But there is an impact on the business in Europe, U.K. and Middle East of tissucture. In Middle East, the freight rate has gone from $200 to and that market was difficult to a competitive landscape has not allowed us to Baotou that market.

The next question is from the line of Praveen Kumar from Acuitas Capital Advisers.

I had a couple of questions. One was that you have been referring to restructuring this organic business and the impact from the same. So I just wanted to understand, when would we have completed this restructuring? And when can we see the margin improvement from -- in this part of the business?

In terms of changing our route to market, I said earlier, we were selling to the wholesaler now we are directly selling to the retailer, which we call. So all the infra has been set in terms of our organization as well as the CapEx. So now I think in the coming quarters, we are expecting that in 1.5 years, every quarter, it will improve.

Okay. Do you have a sense of what it could be by the end of this year, the margins from this segment?

Yes. So we are expecting that end of the year -- for example, this organic business will be around INR 70 crores to INR 80 crores of data.

Understood. I had a second question on the -- on your experience in the Saudi and the Middle East markets. I understand that the current geopolitical crisis has given some setbacks. But adjusted for that, I mean, except for that, what has been -- what have been your early learnings from entering this stuff compete to markets? And yes, if you could throw some light on that.

So you mean Saudi, in the Middle East? About Middle East.

Yes, Middle Petratis the Saudi market.

Saudi and Middle East is almost same very mature market, very tough entry barriers. But as a strategy, we have uptake to -- we are in this market for the last 15 years. But we are going slow and steady. Every year, the business is growing. And we are choosing the either channel or the product where we have a better right to them. We are quite confident in the coming time we will make our position respectable position in that kind of market here. Because in Middleton, mostly, it's a very commoditized end of the market. And we have chosen our plays around where we will be growing and making margin also.

The next question is from the line of Abhishek Mataro Systematics Group.

Just again, on the Middle East market, it's clearly a sizable market. And I think we have -- as you mentioned, we have been here for 15 years. but I think we would just have reached maybe INR 1,000-odd crores in terms of annual revenues here from the disclosures that you have given. So I just wanted to -- wanted some -- if you can give some more color on what is our strategy now to maybe cut this market further, we would probably have scratched just about 2% to 3% of this market. So what is our strategy in the next maybe 5 to 10 years to further make inroads here? If you can give any color in terms of [indiscernible] Country-wise or product launch wise or distribution-wise, how are we planning to sort of make further results? Or at some point, is there a thought to maybe exiting abandoning because we have not made further inroads even after 15 years.

So as far as executive concerns, no, it will be best of our core business, and we will remain in the market. As far as the strategy is concerned, a very clear strategy that we will mostly play where the gross margins are good and maybe in the premium and which segment not the lower seller. And as far as rupee market is concerned, in some of the markets, we will have our distributor in place. And in some of the markets, we will have a direct distribution. So this is broadly the strategy on the product side and as far as go-to-market that.

Okay. And just another question about...

The growth will be in the range of as the base is small, but we will keep growing in the Middle East.

Got it, sir. And just a second question on a bookkeeping one. The other income for the quarter seems to have been quite low. Any one-offs or call outs here because, in general, the other income for the past 2, 3 quarters has been a bit irregular. So comment here.

So Abishek, in the previous quarter, what happened, there was certain revaluation of the investments that happened and that created an income -- so there was a one-off income that was set. So now it has normalized everything, and that will -- this income will remain -- will remain as such.

The next question is from the line of Baha Johan from Care PMS.

Congratulations on the Mana -- so my first question is related to the company. So the rate costs have been reduced. I think the sales should -- but if I look at the other expense as you assort on numbers, it has been increased from INR 49 crores to INR 40 crores. Could you please provide the breakup of this?

Firstly, I want to say one thing. This change in the shipment terms has happened to -- with a related party of 1 of the subsidiaries that is in the U.S. So we have changed that terms. So it is just a movement from the other expenditure that has come to GP margins -- so as regarding the other expenditure, yes, the other expenditure has increased in this quarter from -- if you're comparing it immediate year-on-year basis for from INR 49 crores to INR 486 crores. This is mainly because of the increased operations if you look at because now the coldest 1 of our subsidiaries that has got consolidated. In the last year, it was not getting consolidated. Our revenues were -- there were no consolidation of the revenue or the expenditure. So this has resulted in an increase in the revenue side as well as the expense side as well.

Okay. And the second question is related to the U.S. So U.S. revenue has been improved by 49% on a normalized basis -- so which -- and company health right talking about some discounts. So is this growth after discount? Or it is the discount is actively passed on to the impact coming in next quarter?

So the sales are recorded at net basis. So there is no discounting or other things that happen. So it is the net sales that are being recorded. The promotions and these are always -- and as per the accounting itself, this has to be net off. So these have been netted out.

Okay. And another last one is on the supplier financing side...