Manorama Industries Limited (541974) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 and 9 Months FY '26 Conference Call of Manorama Industries. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hiral Keniya from EY. Thank you, and over to you, sir.

Thank you, Rudhra. Good evening, everyone. On behalf of Manorama Industries Limited, I welcome you all to the company's Q3 and 9 months FY '26 Conference Call. To discuss the performance of the company and to answer your questions, we have with us the management team comprising of Mr. Ashish Saraf, Chairman and Managing Director; Mr. Deep Saraf, Deputy Chief Executive Officer, Chief Coordinator; Dr. Krishnadath Bhaggan, Deputy Chief Executive Officer, Business Development, Vice President, R&D; Mr. Ashok Jain, Director and Chief Financial Officer; Mrs. Ekta Soni, AVP, Investor Relations; and Mr. Deepak Sharma, Company Secretary and Compliance Officer. Before we proceed this call, I would like to draw your attention to the fact that today's discussion may contain forward-looking statements that are subject to various risks, uncertainties and other factors, which will be beyond management's control. We kindly request to bear in mind that there might be uncertainties when interpreting such statements. Please note that this conference is being recorded. We would now start the session with opening remarks from the management team. Afterwards, we will open the floor for an interactive Q&A session. I would now hand over the conference call to Mr. Ashish Saraf for his opening remarks. Thank you, and over to you, sir.

Thank you, Hiralji. Good evening, everyone, and a warm welcome to the Manorama Industries Limited Earnings Conference Call for Q3 9 months of '26. I'm accompanied today on this call by our Director and Chief Financial Officer, Mr. Ashok Jain; our Deputy CEO, and Vice President, Mr. Deep Saraf; our Deputy CEO and Vice President, Mr. Krishnadath Bhaggan; our Chief Compliance Officer, Mr. Deepak Sharma; and our Vice President, Ekta Soni; and other members of our senior management team. On the company's behalf, I want to express my gratitude to all our investors, analysts and stakeholders for participating in today's call. We are thankful for your ongoing trust and continued faith in our long-term vision for the company. I am extraordinarily pleased to share that we continue to sustain our growth momentum in the third quarter and for the first 9 months of financial year '26. We have reported revenues of INR 363 crores, which reflects a remarkable year-on-year growth of 73.3%. This strong performance can be attributed to several key factors, including an enhanced mix of value-added products, the optimized utilization of our newly upgraded fractionation facility and our commitment to operational excellence. Additionally, we have experienced steady demand for our -- from our key customers in the chocolate, confectionery and cosmetic industrial sectors worldwide. In light of these positive developments, we are excited to announce that we have upwardly revised our financial year '26 revenue guidance from INR 1,150 crores to INR 1,300 crores. This revision underscores our confidence in our growth trajectory and the strength of our business model. Our backward integrated model, High-tech R&D, research and development with cutting-edge technology and deep sourcing network and the confidence of our hundreds of customers create a defensible competitive moat for Manorama. As many of you know, we operate in a structurally undersupplied and high-growth exotic niche specialty fats and butters market. To address the increasing demand for specialty fats and butters, we have plans to boost our existing capacity by 30%. This expansion will increase our capacity to 52,000 metric tons of fractionation per annum through debottlenecking the existing plants, which we expect to complete by financial year. Furthermore, I'm pleased to report that we have acquired 19.40 acres of new land adjacent through our existing facility and simultaneously, we have successfully commissioned a new packing plant with the new laboratory building and other infrastructure, all funded through our internal accruals. This strategic investment will enhance our operational capabilities and support our growth initiatives. Looking ahead, to facilitate the phase of growth, we are structurally planning to enhance the company's capacities in both India and West Africa. We are committing a capital expenditure of INR 460 crores over the next 2, 3 years for the below projects. Forward integration through setting up a manufacturing facility for cocoa butter alternatives with 75,000 metric tons per annum capacity. Setting up a new fractionation manufacturing facility for shea pump, mango and other exotic seeds with 75,000 metric tons per annum capacity, including ESOS. Setting up of new refinery manufacturing facility with 90,000 metric tons per annum capacity. Backward integration to processing factory in Burkina Faso, West Africa, with 90,000 metric tons per annum capacity. These investments will enable us to expand our production capabilities and meet the growing demand of our markets. At Manorama Industries, we leverage our integrated value chain to ensure margin stability and foster long-term customer loyalty. Our backward integration from procurement to research and development to super critical fractionation provides us with unparalleled control over quality, cost, supply stability and the confidence of our worldwide customers. This strategic approach positions us as a trusted partner for our customers in the chocolate, confectionery and cosmetic industries who highly value us, regard us and honor us. We prudently planned CapEx, we aim to strengthen our leadership in specialty fats and butter with pricing power, robust growth visibility and high structural advantages, all well positioned to deliver sustainable growth for our esteemed stakeholders. With that, I now hand over the call to our Chief Financial Officer and Director, Mr. Ashok Jain, to take you through the financial and operational highlights for the quarter and the first half of the year. Thank you.

Thank you, Ashish, sir, and good evening, everyone. Let me through the financial performance for the third quarter and 9 months ended December 31, 2025. For 9 months financial year '25-'26, Manorama Industries reported revenue of INR 975 crores, delivering a strong 81.3% year-on-year growth. EBITDA for the period stood at INR 265 crores with margin of 27.2%, while profit after tax was INR 174 crores translating into a margin of 17.8%. This improvement in profitability reflects our commitment to optimizing our product mix, enhancing capacity utilization and implementing disciplined cost control measures. For the quarter 3 FY '26, revenue stood at INR 363 crores, while EBITDA came at INR 98 crores with a margin of 27.1%. Profit after tax for the quarter was INR 68 crores, reflecting a margin of 18.8%. This result highlights our ability to maintain strong operational performance despite ongoing capacity expansion and seasonal fluctuation in the business. With robust business fundamentals, expanding customer relationship and continuous operational improvements, we are very confident in our ability to sustain our growth momentum and achieve our revenue guidance for the financial year '25-'26. That concludes my remarks. We would now be happy to take your questions.

[Operator Instructions] The first question is from the line of Jeevan P. from Capital.

Congratulations to entire Manorama team for a wonderful set of numbers. I just want to understand one thing about the CapEx. So we have announced INR 460 crore CapEx. So I have seen the capacity 75,000 tonnes for CBA and 75,000 tonnes capacity for fractionation. So just wanted to understand, if you can just explain how is it? Like current capacity is 40,000 tonnes, which is going to increase by 52,000 tonnes by end of this March. So this fractionation capacity will be enhanced by further 75,000 tonnes or how is it?

Yes, sir. The question is related to the CapEx. So the CapEx plan, what we have announced is related to the fractionation capacity, which is more related to our product, which is called ESOS and our other exotic seeds and -- exotic seeds in the line. So that particular capacity of fractionation will be used for making ESOS product and also the HPMF, which we're going to use and blend it with our existing stearin component and going forward ESOS component to make a better and value-enhanced product. So that particular fractionation capacity of 75,000 tonnes is with respect to the project of ESOS, which we have announced for 75,000 tonnes. So those both capacities are related to each other.

Okay. Okay. And what is ESOS.

ESOS is a process where we are going to convert our soft fractions like Olein and other soft oils into a hard fraction, which is called ESOS, enzymatic stearin, oleic stearic. That will be further be used as a different application in the food sector and will be further blended with HPMF, which is called hard palm mid fraction, and it will become a CBE component thereafter, which has a wider application and usage in the food industry. So that enhanced capacity will be of around 75,000 metric tons. So overall, we are going to increase our CBE output capacity with this ESOS and SF fractionation.

Okay. Okay. Understood. And the pricing will be similar to CV pricing for this?

Yes. So the pricing are somewhere similar to the cocoa butter and the existing fat and butter prices of our product, existing model. So only the raw material will be different. So the raw material will be there will be the soft fractions like the existing olein we manufacture and some other commodities oil that we can use in the process of making ESOS.

Our next question is from the line of Shrenik Mehta from Indo [indiscernible] Wealth.

Just some very quick questions. So I see that you have a much higher growth in the cost of goods sold, which is the raw material versus the growth in sales. So that is leading to a significant shrinkage of the gross margins, almost 8% down versus the previous quarter. So is this some onetime kind of a cost? Are you seeing some increase in the raw material cost? What's really happening here?

So sir, with respect to the GP margin, we have always been shared that, that remains in the range of 45% to 50%, owing to the freight costs and there are some other byproduct realization. So it happens to be in the range of 45% to 50%. So you can consider that range in the model in your assumptions and calculations.

Okay. This quarter, it is down to 44.3% and the last quarter, it was 52.8%.

So it is...

It is a range bound because there are a lot of situations with respect to freight costs and our byproduct realization. It doesn't impact our EBITDA margin or PAT margin that way. But the gross margins are in the range bound of 45% to 50%.

Okay. So this doesn't trigger any changes in the price. This is just a normal raw material fluctuation in the cost?

Right. Yes, sir.

Okay. And you have a major plan right now for increase in the capacities. So this capacity increase would possibly take care of the revolutionary growth that you're getting for next at least 2 more years? Or how do you see this panning?

So sir, this capital expenditure, whatever the plan we have for this CapEx, it happens to be happening in a phased manner. And all our investments are going to be deployed over the next 2 to 3 years, which aligns our strategy of -- yes. So the growth we are targeting is for the next 4 to 5 years because our existing capacities will give you the growth for the next 1-odd year. and this capacity will give you a growth for next 2 to 3 years. So overall, we have a plan and visibility with this CapEx for the next 4 to 5 years of growth.

Excellent. Okay. And most of this funding for the CapEx is through internal accruals, I assume?

Yes. So we are primarily relying on our internal cash accruals, which are very strong and sufficient enough to support our planned projects over the next 2 to 3 years. And we already have begun deploying these funds. We already have spent INR 52-odd crores towards this CapEx plan, and we intend to continue doing so. But any external kind of financing could be considered selectively, if necessary, but we intend to do all through our internal accruals.

Our next question is from the line of Kumar Saumya from AMBIT Capital.

On the revenue growth side. 80% growth on the 9 month year-on-year. If you could help me breakout in terms of...

Sorry to interrupt your audio is not clear.

Is it audible now?

Can you use the handset?

I'm using the handset.

It's not clear. We're not able to hear you. Our next question is from the line of Rohan Mehta from [indiscernible]Family Office.

Congratulations on a great set of numbers. So firstly, I wanted to clarify in your press release, the forward integration project that you have mentioned for cocoa butter alternatives, this is essentially the fractionation capacity we are talking about. Is it so?

Yes. So if you see the project, so there are 4 projects which we have mentioned. So out of 4 projects, one is which is related to Burkina Faso project, which is going to come in Africa, that is a backward integration project. The rest of the 3 projects, which is related to solvent fractionation capacity of 75,000 tonnes and also the ESOS CBA capacity of 75,000 tonnes and refinery of 90,000 tonnes are in a similar line of production, which is related to a forward integration plan of the company.

Okay. So in terms of the pricing for cocoa butter alternatives compared to stearin and CBE, how does that compare? Is this margin dilutive? Can you give some thoughts on that?

So the products which we are going to come, of course, they are not going to be a margin dilutive thing. Of course, we are looking for the same sustainable margin level what we have currently in our business, even we are looking for a better lever. But the margins are going to be maintained with the new projects coming up with those products also.

Okay. And purely just isolating for the fractionation capacity of 75,000 tonnes, what would be roughly a broad range of cost that you're looking at right now and the asset turns that you're looking to generate from this?

So if I want to bifurcate out of our CapEx plan of INR 450 crores, so approximately INR 300 crores to INR 330 crores would be attributed to this forward integration projects, which we are targeting an asset turnover of more than 5 with our investments.

Okay. Okay. And my final question is on your working capital needs. So incrementally, after taking into account even the backward integration projects, what sort of working capital needs will you require going forward?

Sorry, can you repeat the question?

Yes. So my question is on working capital requirement. So after conducting the backward integration projects and once the forward integration project of cocoa butter alternatives comes online, how much incremental working capital requirement do you foresee?

So for those projects which we are coming up, the working capital would be around 1 or the 2 months of the cycle because those -- for forward integration because those raw materials are very different, which is related -- which is not related to current raw material of the products. So those raw materials could be the captive consumption of our only and maybe some other soft oil, which we can have imported from some other sources. So those working capital cycle will be much, much lesser compared to our existing business model, which is existingly, which is around 5 to 6 months. So that will be around 1 to 3 months of working capital, which we will be required for that business. That...

1 to 3 months...

Yes, 1 to 2 months.

Our next question is from the line of Sanjay Manyal from DAM Capital.

Congratulations on a good set of numbers. My 2 questions. One is 73% kind of a revenue growth. What would be the volume growth over here? And what would be the pricing growth? That's my first question.

You are talking 73% on Y-on-Y basis, right?

Yes, 73% Y-o-Y basis.

So in the 9 months that -- it's more related, the growth would be around 65-odd percent should be around from the -- approximately from the volume growth and the rest would be the inflation adding growth with respect to the pricing. So we have utilized our capacity, which we have commenced last year of 25,000 tonnes. So that attributes mainly to our growth in this number.

And also give me -- at what price we are doing incremental volumes at what price we are locking our cocoa butter equivalent -- at what price we are locking a cocoa butter equivalent for the future contracts?

So that is one product, sir, which is there in the portfolio, and we are locking in the same prices what we have been locking in the past.

Okay. And one last on the employee expense front. I think during the quarter, it seems the employee expense has been down by 23%. What could be the reason for that?

23%?

That seems what I could...

It was the ESOP provision. So we have completed our -- we have granted the ESOP to the employees. And now it is not required to make the provision for the ESOP.

Our next question is from the line of Kaushik Mohan from Ashika Group.

Congrats on the good set of numbers, sir. I just wanted to understand like towards INR 460 crores of capacity that we are putting up, right, in that, how much currently from this year balance sheet that we can do an internal accrual?

So we have plans. We already have invested around INR 50-odd crores towards CapEx, buying the land and breeding, packing and other supporting infrastructure. We plan to invest approximately INR 70 crores, INR 80 crores in this financial year to build CapEx. And in the next financial year, we are planning to spend around INR 100 crores, INR 150 crores towards our CapEx plan of the project.

Okay. So with this CapEx, ma'am in the previous call, you told that -- in the previous question, you told us we can do 5x on asset turns. So can we assume safely INR 2,000 crores on the top line can be added with this CapEx over the next 3 years?

Yes. So what -- in terms of the asset turn, we expect it to be more than 5x. So if the calculation comes exactly what you have said right now.

Okay. And currently, what is our capacity utilization for 40,000 metric tons that we have?

It is around 85% capacity utilization for our plant combined.

Okay. So 1 year more growth is left out in sense. Are we also considering the recent 12,500 metric tons addition that is 52,000 metric tons, 52,000 for next year?

We are already increasing our throughput approximately by 30% through debottlenecking. So that will cater to the growth for the next odd years and the next 2 years, you can say. So we have good room for the growth for the next 2 years. And with the CapEx coming in, we see a very good growth overall for the next 4 to 5 years.

Okay. Ma'am A lot of people in the industry like will be saying that cocoa prices are going down from the last 2 years and all. So how are we differentiating ourselves from the cocoa prices? Like can you just explain that because our margins are maintained, our numbers are maintained and we are on the growth phase, and we are doing fantastic numbers. So can you just give that bifurcation that why are we not related to cocoa prices?

So sir, our performance should answer that, as you have rightly said that we are doing good performance despite cocoa butter prices volatility. But I can explain you the technicality and how our product is not related to cocoa butter per se, recycling moving and everything. Our CD is these fats and butters are developed through specialized fat blending and fractionation. There has advanced formulation and R&D expertise, which is there to make functional fats based on our customer application. So hence, our prices are not directly related to any commodity cycles. So we are manufacturers of cocoa butter equivalent, which is a more technology and formulation-driven business, not a commodity business. And hence, we are like more solution-oriented rather than a commodity-linked business. And our customer relations are more application-specific and technical. So once we have developed the product with our clients for their formulation, so we are there -- happens to be there for a longer term. So overnight changes in any of the commodity cycle will not hamper our demand or pricing model for our business because our raw material base is very different than cocoa butter raw material. So that will be volatile because that is a commodity and our raw material prices are sustained because we are not a commodity business. We are doing a very niche manufacturing a very niche technical product for our customers.

What is the average volume prices that we are selling now? Is it around the range of INR 550 something around? Is right?

So it is in the same range what we have been selling to our customers. So we are doing cost plus margin basis business model. So our product prices are similar.

Our next question is from the line of Ninad Sarpotdar from Aditya Birla Money.

Congratulations on a good set of numbers. Just 2, 3 questions. First, that did we do any volumes from the upgraded facility and any volumes from the Dekel Group in these quarters?

So sorry, you need a volume numbers for what?

I mean I just wanted to understand that has the new upgraded facility of 12,000 metric tons and the JV with the Dekel Group has any contributions to the top line in current quarter?

So that upgraded 12,000 will be -- it's currently in the process. So that facility expanded capacity will be available from the Q1 onwards to the company. And yes, we have also started our batches with Dekel and we are in the process of doing that.

So during current quarter, no contribution from that as such, right?

Yes. Dekel, we are -- we have started the revenue...

So we have minor contribution, which is there from the Dekel as we have just started our ramp-up with them.

Okay. Okay. Okay. And my second question is, so you have planned a lot of new CapEx and backward integration projects. So on the margins front, you have been guiding on a very conservative basis of around 25 percentage. But can we see these margins stabilizing or becoming the new normal or any more accretion from new product lines that you are launching, maybe the cocoa butter alternatives and the PMF backward integration and the Burkina Faso projects?

See, sir, we believe that the current margin, which is around 25% to 27%, which we always share and guide in the range happens to be on a sustainable mode. But of course, we are in the trajectory to improve over the medium term and in the longer term because there are multi-level strategy. We are coming up with projects, which is related to forward and backward that should really help in improving the margins, and we are working for that. But you can take the current margins, for example, as a more sustainable level. [indiscernible] business and we are working we are doing everything for that.

Okay. Okay. Got it. Got it. Just one last question, just needed some clarity on my understanding that the new 70,000 MTPA of CBA facility is the new product that you were talking about with a lower working capital cycle. And the 75,000 MTPA of solvent fractionation is in line with the existing 52,000 -- I mean, the similar technology and similar kind of output facility, right?

So that 75,000 is related to the new product of CBA, which is ESOS and the other products what we have mentioned in the project details. So both the capacities are each other. It's not related to the existing project.

And both are new?

Yes. So those will be the new products coming out of both assets, the new solvent fractionation capacity and the ESOS one. So both the projects are related to each other in terms of capacity output.

So just to get clarity, it's not fungible. It's a completely different line, right?

No, it is fungible. Of course, we can run any exotic seed in the -- in that dedicated -- in that new solvent fractionation capacity, but that will be more used for the new 75,000 CBA capacity, which we have announced.

Our next question is from the line of Rehan Syed from [indiscernible]Asset Managers.

[indiscernible].

Sorry to interrupt, you're not clear. Yes, I request you to be a little more clear.

I want some understanding regarding the CBA [indiscernible] now. So you have done forward integration toward 75,000 within [indiscernible] and then cocoa butter alternative personality. So how does the margin profile in competitive landscape for CBA differs from your CBE. And do you intend to target as the same for [indiscernible] this product?

Declines in the market for CBA products are also same. It is also -- it is only going to be used in the food sector. It could be in chocolate, it could be in confectionery, it could be in other HoReCa kind of a market. So the applications of both the products are similar only into the food sector, and we will have good margins in that product line also as we are doing in the current business model.

Okay. And my second question is around your Dekel partnership in Brazil that you have done. The first commercial production that has the Dekel partnership in Brazil was in quarter 3 FY '23. So could you provide a road map for the expected revenue contribution from this partnership in FY '27? And what are the logistical advantages of manufacturing in Brazil versus exporting from Raipur plant?

So the advantage is more related that we will have a geographical presence in that region because LatAm being the huge market and is the biggest consumption for this. So the advantage is more for being the local presence there and cater to all customers, not just the top 5, top 6 customers in the world. So the idea is that to be there, and it will help in a lot of facilities and to get everything. Also the idea of getting into the projects like CBA or Sovereign fractionation 3 is to increase the output product of stearin or the hard fat, which we already make. So overall, if you see the capacity or the projects which we are coming up with is related to the hard fat only. So we are going to have a very diversified raw material base in those projects. We can also use our olein as a captive consumption to make the stearin and the cocoa butter equivalent. So the overall idea to have that project is to make more and more production of the stearin-based fats and more cocoa butter equivalent, which has a wider application and different usage in the industry as well. So that is going to increase the output of our production capacity of stearin and CBE.

Our next question is from the line of Akhil Parekh from B&K Securities.

Many congratulations on a good set of numbers. My first question is just a clarity, right, on the margin front, the gross profit per kg is the right metric or margin is the right metric to evaluate our business. I believe that in one of the questions when you replied, you said you work on a cost per basis model. So GP per kg would be the right number to look at, right, rather than gross margin? EBITDA.

EBITDA level.

EBITDA per kg?

Yes, we see the overall as a whole business EBITDA. So you can take the EBITDA which is a sustainable margin.

No, I got it. But is it the per kg which is the number which we should look at? Margins may fluctuate, right, I believe because we are in a processing business and because of the fluctuation in the raw material, the GP margins can fluctuate and EBITDA margins can accordingly fluctuate and hence, per kg is the right metric. That's my understanding. I mean please clarify if I'm wrong.

At EBITDA level, we have actually maintained our margins. So that fluctuation is not on the EBITDA part. So you can take EBITDA margin on a per tonne basis.

Okay. Okay. Yes. So per tonne-wise, how it does vary on a Y-o-Y basis, EBITDA per tonne?