Madhusudan Masala Limited (MADHUSUDAN) Earnings Call Transcript & Summary

Ladies and gentlemen, on behalf of Kaptify Consulting Investor Relations team, I welcome you all to Q4 H2 and FY '26 Post Earnings Conference Call of Madhusudan Masala Ltd. Today on the call from the management team, we have with us Mr. Rishit Kotecha Chairman and Managing Director; Mr. Hiren Kotecha Whole-Time Director; Mr. Kirit Dharaviya, CFO; Mr. Jayesh Khagram, Group CFO. As a disclaimer, I would like to inform all of you that this call -- as a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, this is a reminder that this call is being recorded. I would now request the management to detail us about the business and performance highlights for the period ended March 2026, the growth perspectives and the vision for the coming years, post which we'll open the floor for Q&A. Over to the management team.

Thank you for Kamlesh for briefing the company details. I would like to thank you all the investor and our IR team and all our Madhusudan team. Good afternoon, everyone. Myself, Rishi Kotecha, Chairman cum Managing Director of the Madhusudan Masala Limited. A very warm welcome to our quarter 4 and full year of FY '26 earnings conference call. Before I begin, I want to thank our entire Madhusudan team, our channel partners, distributors, our advertising agencies. Our FY '26 performance is the result of your passion, our hard work and belief in our journey. Thank you. Now coming to the business update. First of all, our financial year '26 has been our strong growth and stronger branded sales. FY '26 has been excellent year. We closed with a total sale of INR 291 crores, which was last year INR 232 crores. And real story in our strength is branded sales, which has grown at 40% Y-o-Y from INR 144.75 crores last year FY '25. And this year, we have closed the branded sales to INR 203.88 crores. Today, 77.90% of our total revenues come from branded sales, which was 66% in last year. This 11.25% basis point jump showed that Madhusudan is now firmly established as a consumer brand company. While I'm talking for the category-wise leadership driving growth, our brand spices continue to be our growth engine, which is 64.4% grown from INR 54.60 crores to INR 89.75 crores and now contributes 34% of our total company sales, while whole spices delivered INR 67 crores, other grocery scaled to INR 33 crores and tea already doubled to INR 2.15 crores. We rationalized the branded sales to focus on profitability. Third is execution. Our team and market expansion like we have 101 sales team in -- dedicated sales team for entire Madhusudan umbrella, which is focused only on our branded business. While region-wise sales, Gujarat remains our home market as a 47% of branded sales, but our expansion playbook is also working like Punjab, Chandigarh and Delhi now contributes 12%; UP, Bihar, Jharkhand contributes 12%; while Maharashtra contributes 10% and Jammu Kashmir also contribute more than 9% to 10% in our branded sales revenue. While talking about the brand-wise contribution, our Double Hathi brand is flexing, which continues to grow and Double Hathi brand sales is more than INR 120 crores to INR 122 crores, making up to 60% of total brand sales, while 77, Maharaja and Mantavya are gaining rapid [indiscernible]. In ground spices, chile leads with 65% value share followed by turmeric and coriander-cumin powder. Fifth, our road -- journey ahead. For FY '27, our focus is clear. We target to achieve 80% of branded sales, deepen distribution in focus states, drive premium SKUs and continue margin expansion. We will invest behind automation, food safety and brand building. FY '26 proved that Madhusudan Masala can scale profitability as a brand. FY '27 will evolve to a leadership. Let's now move to the presentation, post the management team and I will take your questions. Thank you. Thank you so much. Over to management IR team.

Yes, sir, you can continue with the presentation.

Yes. As compared to last year, we have expanded our presence in some states like Bihar, Uttar Pradesh and Jharkhand. These states are contributing smaller sales in entire segment, but we hope in this current year, FY '27, we will continue -- get the growth from these newly added regions from this -- our branded sales. Next. Actual growth engine of our brand is, like, grounded spices is our main growth category and blended spices is a value-added category, which grow our margins and profitability. We have added more than 21,000 retailers in last financial year, 770-plus wholesalers, 120-plus distributors and 15-plus super stockists, while we have added 2 states in our entire portfolio. Our mission is clear and like we want to grow our own brand sales. And for that, we are gaining region-wise -- region-specific grounded spices like we -- earlier, we have talked about that, like, we want to serve -- we are serving region-specific ground spices in specific region like in Punjab or in Chandigarh, we are serving at particular ground spices taste. So this is our mission and vision. Next, yes, this is our time line history. Next. As a management, myself, Rishit and my cousin, younger brother, Hiren Kotecha led the company. Next, some of our business strategy like we regularly fight with the regional commodity players in newly established region also and existing regions also. But we also got the advantage of these regional players because they do not have quality specifications or they do not have much more SKUs in their portfolio. So this quality of our Madhusudan company led us to easily acquire the distribution channel, retailers and our super stockists channel because we have more than 500-plus SKUs in our umbrella. So any distributor or super stockist can easily convert to our Madhusudan umbrella. Next, our business model is like we procure the raw material in respective seasons, then store it in particular cold storage. Then as and when required, we do the manufacturing process like grinding and sieving as per batch wise processing, then product packaging and later distributed to distributors and super stockists chains. Our product portfolio is in Madhusudan umbrella, there is 3 brands, Double Hathi, Maharaja and Mantavya. Double Hathi has an entire product portfolio, while Maharaja and Mantavya is only grounded spices portfolio. And our subsidiary, Vitagreen product has a 77 Green brand. And this 77 Green brand has also entire product portfolio in the exclusive range of instant mix in 77 only. Our manufacturing process is very simple. There is no any -- much more rocket science in grinding the -- making the masalas. We just dry the raw material, then clean it and grinding and blending, sieving and packing. This is a very simple nature to manufacture spices. We have 2 manufacturing facilities. One is Jamnagar facility, which is 6,000 metric ton manufacturing capacity, which was last year 4,800 metric ton. And we -- I'm very happy to say that we are utilizing 99% of our capacity in this Jamnagar unit. Second is our manufacturing unit at Rajkot Metro, GIDC, and total capacity is 600 metric tons, and we are utilizing 100% of capacity from this unit. And this unit is exclusive for manufacturing of blended spices and instant mix, all other grocery products and grounded spices is being manufactured at Jamnagar plant. Next, we are going to expand our Rajkot manufacturing facility, which is located near -- between the Rajkot and Jamnagar Highway. Almost project is going under construction. And mostly, we expect to commence production from September 2026. And the capacity will be 6,000 metric tons out of Jamnagar capacity. So from FY '27, our capacity -- combined capacity will be 12,000 metric tons. So this will also benefit to provide our product easily to newly launched regions and also we want to launch some new products. So this will also help to launch our new products in this new facility. Some of our states which are currently operated. We are expecting 30% of CAGR growth from last -- from next 5 years. Our company is evolving as FMCG brand. First, we dominant as a regional brand. Second stage, we expand our distribution channels. And third, we competition -- competition with national brands and with pricing strength and margin expansion. And fourth, we want to expand our network pan-India. So as at second and third stage, we are already deployed in our category. Some of the industry market outlook -- these are the industry output. Like Indian spices market is INR 2.2 lakh crores in 2025, which will project it to be reached INR 5.3 lakhs by 2033-'34. Industry is growing by 10% of CAGR. And more interestingly, branded sales is growing by 26% of CAGR. So this transition of non-branded to branded will also benefit Madhusudan. These are our financial highlights. If we exclude the extraordinary items from last year, our revenue grew almost 50% EBITDA -- sorry, EBITDA has grown 50% from last year, while our revenue has grown 33% Y-o-Y in quarter 4 while in FY '26, our revenue grew by 26% to INR 291 crores, while EBITDA has grown by 36% in FY '26, which is almost INR 33 crores. Our margin is moderately improved because of our branded sales contribution has been increased. So margin was earlier below 11%, now it has been increased to 11.3%, while profit after tax has been also increased to more than 50%, and it has been stood at INR 18.5 crores. So this only possible due to the -- increase in our branded sales. Product-wise revenue is also interesting to -- I will interested to share with you our ground spices stably growing with -- stands at 44%, while whole spices is also consistently growing at 33%. And other grocery products, which has grown significantly from 5% to 6% with newly added products like ginger garlic paste and other salts like black salt, pink salt in small SKUs. So this category has been grown by -- marginally. And sorry, this category has grown from 13% to 16% and tea is constantly sales have doubled from last financial year. Total volume wise by progression of our category, like ground spices has been stood at 4,464 metric tons while whole spices also at 4,656 metric tons and blended spices also growing. So continuously, our branded sales are growing and the category -- led by the category of ground spices only. I hope our financial data has been reviewed by all of you -- all of your.

[Operator Instructions] So we'll take the first question from the line of Ms. Surbhi Mishra.

Sir, I wanted to know the procurement and quality control are key strengths like seasonal sourcing is around 80% amid spice price volatility. How are you managing raw material costs? And do you expect any margin pressure or benefit in the coming quarters?

Yes, sure. As our regular practice, we are -- we procure our raw material in respected season like -- between 50% to 70% as per the market scenario and forecasting of crop data and export data, we procure our raw material in respected season minimum to 50% and maximum up to 70%. So this practice we gave to -- for the entire year to maintain the margin like if we get the forecasting of raw material as a constant price, then we store at the 50% minimum ratio. And if we forecast -- we get the forecasting of margin will be higher and the crop is lower from farmer side and export will be also in good numbers. So we procure the raw material maximum up to 70% and then 30% we'll be procuring in -- as per -- price will be going to be much lower or going to be much higher. We procure the material at 30% at the current price. So this process makes our margin stable. I think your question will be answered.

Surbhi, do you have any further questions?

Yes, sir. One more question. Since you have added significant retailers, wholesalers and distributors in FY '26, reaching 15 states, what are the priority regions for FY '27 and '28? Example, can you tell us deeper penetration, which is in Maharashtra, Telangana or North Indian states? What is the targeted distributor and retailer addition? Can you let me know about that?

Sure. Last year, we have added more than 21,000 plus retailers in our portfolio. So in FY '27, we are targeting to reach our retailer portfolio up to more than 70% to 75% -- 75,000 by adding 100-plus distributors and 10 to 12-plus super stockists, because super stockists are region-wise, we are appointing region-wise. So the super stockists give us 10 to 15 distributors and each distributors provide 40 to 50 retailers, so expecting this scenario, we are expecting that more than 75,000 of retailers and 500-plus distributors will be in FY '27.

We'll take the next question from the line of Mr. Deepak Poddar. [Operator Instructions]

Many congratulations for a good set of numbers. I wanted to understand the cost of branded sales. I think currently, we have 70%, right, this year. So how should we look at the trajectory going forward in the next 2, 3 years, where you want to take this 70% to?

Yes. As I already told that we are expecting this branded sales from 70% to 80% in 1 or 2 years. Maybe if our planning for specific region expansion is going fruitful, then we will achieve 80% of branded sales in FY '27. But anyhow, we will achieve 80% till second half of FY '27 is our 100% target.

No. 80% by when? Second half or FY...?

Lately, it will by second half of FY '28.

Next year. Okay. Second half of FY '28. Okay.

Yes.

And what does it mean for margins because your branded sales will increase. So ideally it should be margin accretive, right?

Yes.

So how should one look at your margin going forward?

If you are talking about EBITDA margin, then at -- 70% of branded sales, we are currently stood at 11.5%. So as per our projection, it will stood between 12% to 12.5%.

Which year? FY '27?

FY '28.

FY '28, I mean when we can reach 80%, right?

Yes.

And then what is the differential? And what is your branded revenue margins versus nonbranded?

If you want to know the category-wise...

No, no. Overall, not category-wise. Average, average branded revenue margins versus nonbranded.

Our -- majorly EBITDA came from branded sales only. Margin from non-branded sales is only 4%. Branded sales is growth driver for margin.

Okay. Understood. And given that both of the Unit 1 and Unit 2 in Jamnagar and Rajkot is at 100% capacity utilization, and we have greenfield will come only in the month of September. So what will drive our growth in the first half of FY '27?

See, as of now, we have a capacity of 6,600 metric tons from both of our manufacturing plants. But as you can see that our sales in volume-wise more than -- just a minute -- our branded sales volumetric sales was more than 6,000 metric tons. So currently, we are outsourcing mostly other grocery products and some of blended spices from some other vendors. So after commencing of our new plant, we are able to manufacture these outsourced products from our own unit also. So this will impact in margin. So as per our -- sales will be as per our target, but the major improvement will be seen in our margin because currently, we are going -- we are outsourcing some products from third party.

Okay. So since our capacity is kind of full, so we are outsourcing from other vendor in branding until our new capacity comes?

Yes, yes.

Okay. That would be from my side. Just one more thing. What's the CapEx for this greenfield?

This new project CapEx will be around INR 16 crores to INR 17 crores.

We'll take the next question from the line of Tanya Kalra.

My first question is that -- so the EBITDA margins for FY '26 have improved meaningfully. So how much of this improvement is sustainable versus the onetime operating leverage benefits from the Vitagreen integration?

No, no. This is -- our margin has been improved because we have launched some high-margin products in this last financial year. So I am pleased to say that last year, our other grocery product EBITDA margin was 10%. And this year, this margin has been improved to 12% because some high-value products has been added in grocery products. So -- and this category is also growing much faster than other categories. So due to this high-margin products, our margin has been improved.

Okay. So what is the long-term sustainable EBITDA margin profile for the business?

See, if we achieve 100% of branded sales, then it could be reached up to 15% to 16% as an industry specific EBITDA margin, like our peer companies are enjoying with 15% to 16% even some of pan-India brands, national brands like MDH, Everest are enjoying with 20% to 25% EBITDA margin because they have only blended spices in the portfolio and majority sales of the blended spices -- sorry, majority sales are coming from blended spices, which is a very high-margin category. So if we manage to keep our blended spices category more growing in entire category, then our margin will be improved significantly.

So like sir, blended spices generally command higher margins, but they require stronger brand pull. So what investments have been planned in branding and advertising to improve premiumization?

Mostly, we do spend lesser in advertising. We do some region-wise marketing like we do holdings, we do brand facia at our retailer stores. But majorly, we are focusing to give targeted incentive to our retailers so that they are connected for entire year to our products. So our majority spend of marketing budget is an incentive -- target-based incentive to retailers and distributors. This is from 4% to 5% of our sales.

Okay, sir. So one last question. Given the volatility in spice prices, what procurement and inventory strategies help protect the gross margins?

See, first question of my answer, I already explained our procurement cycle. So this procurement cycle leads us to maintain our profitability throughout the year. As I already explained this in my first question. But if you know, I can again explain to you.