Prime Fresh Limited (540404) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Prime Fresh Limited Q1 FY '27 Earnings Conference Call. We have the promoters on the call with us today, Mr. Jinen Ghelani, Chairman and Managing Director; and Mr. Hiren Ghelnai, Founder, Promoter and Whole Time Director. [Operator Inructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jinen Ghelani, Chairman and Managing Director. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everyone. Myself, Jinen Ghelani. From Prime Fresh Limited, I warmly welcome, all of you to the earnings conference call. [indiscernible] [Technical Difficulty]

Sir, sorry to interrupt. This is the operator, but your line sounds a little muffled at the moment.

Is it properly audible?

Yes, this is much better, sir. Please go ahead.

Good afternoon, everyone. Myself Jinen Ghelani, Managing Director of the Prime Fresh Limited. Prime Fresh -- on the end of the Board and the entire team of Prime Fresh Limited, I warmly welcome all of you to earnings conference call. Prime Fresh began its journey in 2007. So the single idea at that point of time is to get into a functionable -- we initially target the B2c. So we started with the fruits and vegetable van. We had a 6 vans, and we had 3 type with the few societies. These business we have started initially in -- from Ahmedabad itself. So we tied up with the almost 90, to 100 societies, and we had 6 brands. So the Van is actually going to 1 -- say, explain the morning. And then 1 hour it will be stand there and customers will come and buy the goods and vegetable and other products which are required on a daily basis. So we have started in April 2007, and then we slowly, slowly increase and then we introduced 6 van and almost -- we were covering 90 to 100 societies initially. After that, we also started supplying to fruits and vegetable in premium packing and losing to the supermarket companies like Reliance, [indiscernible] And other companies, we started in 2007 itself. At the same time, we built -- we started working with a company like [indiscernible] More retail or as a service provider for fruits and vegetables to deliver the basically fresh fruits and vegetable to the stores, they've given an opportunity to work as a service provider for the Ahmedabad and Baroda and Surat. So that was basically a starting period strong when we raised that B2C concept is a very early kind of a concept where basically [Foreign Language] so lots of offers and other things were going on. And we realize there's a small organization, we realized that point of time [Foreign Language] hypermarkets and other companies, we started supplying and then we build the [indiscernible] [Foreign Language]. So initially, we are supplying to all these companies for all items, almost all items. [Foreign Language] so we used to buy from the market, the PMC market, some farmers were delivering the goods to our warehouse strategy. So initially, it was quite kind to cover almost [Foreign Language] So by the time, 2008 and we got a good orders from -- we were getting good orders from the supermarket, hypermarket and other companies. [Foreign Language] So we started collection center initially in 2011, 2012. [Foreign Language] So this way, we start in the bulk [Foreign Language] So then we focus on potato, onion, [indiscernible] then Banana, pomegranate, grapes, orange, we slowly built the farmer base. Maharashtra, Gujarat, Rajasthan; and then [Foreign Language] Himachal and Kashmir. [Foreign Language] and then slowly, slowly, we get into more customer. So this is how we increase the farmer base. And then currently, we have -- we are operating in 19 states with -- have we have more than 130,000 farmers in our overall network. We have 2,400 plus suppliers. We have 90-plus [indiscernible] Relationships FPOs, and we are currently focusing -- we are currently supplying to basically modern retail, e-commerce, general trade, HoReCa, foods, excess and in solution as buyers. So we built the organization in the last 19 years. We have done lots of experiment. We got success in some ideas. So now I would like to basically some of my overall journey and I would like to hand over to Hiren Ghelani. He will brief us about the next business journey and all. Thank you very much.

Good morning, everyone. I'm Hirin Ghelani. Thank you very much for your participation. I would like to just summarize the business in a couple of minutes. As we stand today, Prime Fresh Limited is a fully integrated value chain company with core focus on fruit, vegetable segment. Currently, we have a business model where we procure from collection centers. We procure from farmers. We procure from large suppliers. We have some sort of a trial in are-based joint venture and contract farming model. We have also been developing a lot of local area aggregators where we invest in their land. We invest in our working capital, and we bring in our ecosystem of sourcing and operations. Post procurement, what we do is processing. So essentially, it is about sorting, grading packing as per customer's requirement. And in many details sorted graded at the farm level also and some of the material flows to the convention center as well. And lastly, the model is placement. So basically, we are omnichannel strategy sales model. We have large part of our sales come from modern trade e-commerce partners. We have around 20 large companies as our customers. Then we have [indiscernible] , around 90 PMC partners across the country. We have about 10, 15 food processing companies and about 20, 50 exporters. We have been trying our own efforts on the export side, but the recent environment has been pretty volatile and the freight rate and all have gone up. So we have that domestic market is far better opportunity. So we have the [indiscernible] a domestic focus company. As we speak, our last year's INR 275 crores sales for FY '26 came from around INR 245 crores plus from F&B business and the balance came from service business. Currently, in terms of our growth strategy, we have been pursuing a couple of projects. We have been working on Nashik Cluster Development Program, which is under National Horticulture Board of India. So that project, we are likely to be awarded in the current month. The project is further backward integration and forward integration of our existing business model. During the Q&A season we will further discuss about this model, if any questions are there. We have been trying to elaborate this on various forms other than our growth catalyst or geographical expansion in UP and Northeast. We have been also expanding a lot in southern markets. So that's a brief summary. We are currently focused on about 9 to 12 F&B products. And as we speak, the product portfolio, we rise by 3 to 4 more categories in the coming one year. With regard to a brief comment on the financial performance for Q1. Our sales was up combined 15.7% for Q1 at INR 51.71 crores versus last year's INR 53.34 crores. Our EBITDA is at INR 6 crores, which is a jump of 51% versus last year's INR 4.02 crores. Our EBITDA margin would have been higher at 9.83% versus last year, 11.53%. PAT has been at INR 4.35 crores versus last year's INR 2.89 crore, jump of 51%. Going forward, these margins may not be sustainable because a couple of reasons because of that, this extensive jump has come during the quarter 1. One is, of course, we had old recoveries trending on account of certain pending billings in [indiscernible] business. Second, we had an overall good volume growth in Service business as the margins were pretty strong. We had some iris and LME prices have been going up. So there was some gain on the account of inventory as well. Over and ago, of course, we have been improving our efficiency. And if you look at the tonnage business, which has also been growing pretty well for Y-o-Y as well. Other than that, I think I would like to touch upon a couple of other growth drivers which will be there in the coming quarters. One is we have been adding a lot of new channels. We've been trying to focus more on the general trade and the new AMC partners. We have added 4 to 5 food processing customers during the quarter. Our Onion business will also get a benefit because [indiscernible] Haven't floating up. And when the product price goes up very high, the local irrigators ability to give credit and complex it becomes very difficult. We are one of the only pan-Indian national players who have been able to supply to this multi-trade e-commerce partners across [indiscernible] city, with regard to onion and pomegranate, orange, a couple of these products. Other than that, we have invested a lot over the last 10 years in pomegranate supply chain. We have almost 3,000 plus farmer base of pomegranate, we have 40-plus local aggregator partners. And we believe that pomegranate production has been on the rise in the coming years. These are also the production is very strong. Though the prices may fall the value growth may not be in line with the volume growth because there is a substantial drop in the pomegranate prices. So [indiscernible] , Onion, pomegranate will continue to drive our growth. We have been putting our efforts through one of the company where we have acquired a 51% stake, which is into value-added products and ready-to-it segments. So we gain advantage on both the value addition. So it will also slightly support the margins. But overall, our margin guidance for the EBITDA will remain between 7%, 7.5% range. The net profit guidance also remains 5.5% to 5% because we are putting investments in the current year, and we will have a little higher corporate overhead. So we will keep growing our volume between 15% to 20% minimum in spite of the current climate challenges. And our value growth would be between 25% to 30%. So I would like to kind of -- and here with regard to [indiscernible], I certain that we move on to Q&A.

[Operator Inructions] Our first question comes from the line of Prateek Giri with Supla Research.

Sir, my first question is on the working capital involved in the business. I understand probably the customers we have, the quick commerce and the bigger modern retail formats. But it seems that we have to pay a cost to do business with them. Probably our receivables are already around 1/3 [indiscernible]. So I was just wondering, is there any way with which this receivable can be drawn down, can we negotiate better payment from our customers because capital will keep going into receivables, probably for growth every time, we'll be needing to dilute the equity. So from that perspective, I'm asking this question. That's the question number one.

All right. So thank you very much. And yes, I completely agree with you, and we have been pretty conscious on this working capital cycle and receivable. In the last couple of interactions, we have mentioned that we are very conscious about it, and we have taken some of the initiatives like taking legal action, building a client credit exposure system and having a more suited norms when onboarding a customer in terms of having agreements in place, having [indiscernible] in place, having security deposit check in place. Initially, because we wanted to grow fast and we were kind of very aspiring to grow, we have made some errors between 2022 and 2025. And we have about INR 7 crore, INR 8 crore as either slow moving or not moving letters which we have been improving, and we intend to collect better. Overall, long term also, we understand that to grow business and to increase our market share in organized channel. We have given a credit to a couple of customers, and we have kind of burn our fingers. So our internal target is definitely to go to atleast 88 to 94 days as a percentage of sales. And we should be able to have at least 4x sales of outstanding letters and not have [indiscernible] or on 25% of sales. And I think Q1, though, we are not required to probably the balance sheet so -- but we have reduced stand-alone debtors by around INR 12 crores. There is an improvement, and we are pretty much working on that. We have added a couple of senior people in the organization to make sure that we monitor this data on a monthly and a fortnightly basis. So -- and yes, I think our diligence would not be for working capital now. We have been able to get good [indiscernible] Credit facility limits from Bank of Baroda. Our limit has been [indiscernible] From INR 7.8 crores to INR 20 crores, and the cost is -- that is 8.5%. Over and above for our Nashik facility also BOB has additionally INR 20 crores. So I don't think we will ever be -- come to market for this working capital funding. But yes, we are putting up a very good project in Nashik Sinnar, we are coming out with a [indiscernible], which is a fully integrated project where we have [indiscernible] farmer trading rooms. We have our own prototype nursery, prototype farm, we have machinery ranking division. We are setting up a laboratory. We are focusing on [indiscernible], and that would probably require some sort of equity capital. Is that answer your query?

Certainly certainly. No, no, this answers my question, sir. The second thing I wanted to understand since we are there are very few organized players probably in my limited understanding in this space. And then farmers are doing business with us or the intermediaries are doing business with us, they should have -- they also could have some level of confidence that we will be paying them in some time for sure. So basically, my question is coming from trade payables, is there a way where we can increase this number, getting more credit from [indiscernible], we are procuring our vegetables and fruit from?

Yes. Once again, very valid questions. And I've been -- again, whenever I meet people, I explained them that when we were in a race to be scaled as a minimum sustainable side. we had to be different at the marketplace, and we were paying too fast, like we were paying some time on the same day within 2 hours of the dispatch, sometimes same [indiscernible] . Now as we speak because we have built that credibility in the goodwill. And we have made huge payments over the last 4, 5 years, if you look at numbers to farmers, there's a confidence in the system, and there is a slow and steady improvement in our payment cycle. Even with some of the suppliers, they are trusting more particularly in a time like this when the prices go up and the value of the vehicle those are very high. They want to deal with the corporate. They want to deal with someone who is well established for to [indiscernible]. So our interim expiration is that by FY '28, we would be enjoying and internally, we are targeting that we would have on an average rolling INR 10 crores to INR 15 crores supply available to us on a credit basis throughout the year. And that even if [indiscernible] Somewhere in FY '29, we should be able to do an incremental sales of about INR 60 crores without any single rupee investments from either working capital or equity capital. So I think now is the time that our credibility, our track record will start paying off and we will be able to enjoy a better credit limit.

Understood. No, [indiscernible] will be that we free up some capital for us, either we can fund our receivables through it or we can shore up our inventory levels to that money. That answers again. Sir, my third question is on ...

I also want to just touch up on one point that why we were so fast and why we have been remaining there is that a lot of start-ups in a lot of B2B start-ups raised INR 100, INR 200 crores, INR 500 crores INR 1,000 crores, right? And they did not have to be profitable because they had to build the market share. They had to build the [indiscernible] -- for us, we were listed, and we have to make sure that we may move profit or more margin. And if I pay faster and buy cheaper 2%, 3%, that is what my margins are actually. Right? And most of this local area aggregators don't pay GST or income tax, and they don't have a compliance cost. So again, how do you cover your cost, you try to be either giving a little long credit and earn more margin or you pay fast and you buy cheap, something like that we have followed so far, your technical strategy of trying to increase market share and trying to maintain profitability. But in the last 2 years, we have seen that most of the start-ups [indiscernible] Have slowly rated the place. And we are 1 of the fastest growing and only company which is sustainably supplying Pan-India to all our customers. So I think the time will start that , we will get the advantage of what hard efforts we have put in.

I get that. No, Mr. Ghelani, it's easy to ask questions on receivables as but creating a business in this kind of a value chain is actually very difficult. So in fact, close to your team for building even in this INR 250 crores of business to around INR 300 crores top line business. My third question is on the recent quick commerce boom in India and somewhere people have realized the value of quality vegetables, quality fruits. When these are reaching their homes vis-a-vis the poor quality fruits and vegetables, which are usually sold in market. So I'm just trying to understand when there's a value proposition for everybody. In fact, even quick-commerce would [indiscernible] Plus categories fruits and vegetable inventory, because that is also a customer traction point for them that whatever they are sending A+ quality. So I'm just trying to understand that we are probably solving the most difficult part of the problem in this entire value chain, yet, probably our margin -- I understand this is a very initial phase of the business. But I'm trying to bring the perspective that [indiscernible] Maybe the more difficult part of the problem in future, even is it a probability that we can command some good margins because of this?

Sure. Okay. First, let me explain why our margins are not that great...

Mr. Ghelani, I am attending the call for the first, so pardon for the repetitive or basic questions over the line.

Yes, it's okay. So okay. So first, let's understand why I'm in the lower currently correct? So in a business, which is totally unorganized and fragmented, right? So you have farms which have [indiscernible] Customers have fragmented your end consumers are fragmented. So you're putting a lot of efforts initially to build that scale. Now what that effort takes up a lot of cost, whether I am acquiring farmers, whether I'm training aggregators, whether I'm training my field teams which is not easily available, whether we are spending so much on traveling food and stay cost of the field team and the sales team, right? Then again, you tend to kind of take risk with new suppliers, new partners who may not always give it the best price or may not always be the best quality and you end up losing some part of your margins in the entire value chain by additional efforts on the sort grading and the packing expenses -- then the packing material expenses. Then you also have an in-transit rate losses. And then at the end of the day, a customer when you receive the 25 tonnes vehicles of an all year an example, we will always want to do a further grading and there will be some returns, right? And these returns are sold at a lower price, right, tender opening price, which was quoted earlier. So these are the couple of reasons why the margins have been lower. And as I said that when we have built this business model, the cost of building the business model has been built into this margin structure. However, as we scale up from here, our cost of acquisition of farmers will fall substantively because you have a word of mouth and you have the same team in the same area, and you don't have to travel so much. The already have built a huge capacity. So if you look at our capacity today, in terms of SME segment, our sourcing capacity is close to 2.5 lakh tonne, our last year sales was around 65,000 tonnes. Now my focus now on technology and the process is if we try to kind of have a market intelligence model, which we are working, we are also working on [indiscernible] these two will try to monetize these network efforts and data. And over the time, we will not have to spend so much on sourcing and the operational cost. And maybe we are hopeful that, No, we should see slow and steady rise in operating margin from mid FY '28. Our internal expiration is to have at least 9.5% to 11% EBITDA margin in the next 2, 2.5 years. So I'm talking of 2029 type of a scenario. And then eventually, we have a reason for our company to reach INR 2,000 crores by 2031. And that includes both the backward integration on the farming part and the value add and the for integration basically in the process for the value-added food and exports and the branded packed fruits and vegetables. This backward and forward integration strategy should also help us to raise 2%, 3% margin at both like further. So eventually, I believe this is a business model where easy to reach 14% to 16% EBITDA margin in the next 4 to 5 years. So that's quite possible scenario.

Our next question comes from the line of Tanmay Javeri with Wintrust Capital.

Sir, my first question is, if you can give a better clarity on our Sinnar Nashik Project. Like what kind of capabilities will the Sinnar facility give you that we cannot achieve from a current asset-light network, it -- is it primarily procurement, sorting, cold storage or value-added products? If you can just highlight is on the best [indiscernible]

Sure. So let me explain what this project is. So basically, we are being appointed as an implement agency. So when we put up this project, we have two components of the project. One is the farmer component. The second is the IA component. IA is timeframes. Now in the farmer component, government is going to provide subsidies and through third-party and through our approval to farmers, which is around INR 16 crore value and maybe around 35% subsidy. So this project gives us an opportunity to further [indiscernible] with a lot of farmers in our area. Make sure that we are able to put the farmer cost. We are able to deploy technology, like [indiscernible], weather stations, farm ERP and also our cost of agronomists which we can monetize from this government subsidy facilities. So this is a farmer component where farmer when he is using inputs, whether it is planting material seeds, but it reside even some sort of a small key material and all that [indiscernible] Farm get back out. These things are likely to be subsidized by the government. And these farmers will come through our platform. So that's the first differentiating factor. So far, it is Prime Fresh, which has been all the years allocating its own money for farmer education training and many other things like agronomic practices and all. The second component, which is IA, where our balance sheet gets exposed, right? So that is around INR 75 crores, excluding INR 5 crores to INR 6 crores preoperative expenditure, which we have already spent. So in INR 75 crores, we have around INR 45 crores to INR 50 crores spent on building integrated packhouse, Wolchain, refer vehicles, food processing unit, farmer training room, laboratory and a couple of such -- within infrastructure like collection centers, megligation centers, some of the investments will be in making account and all that. Now this part in this is that out of INR 75 crore investment of ours, the INR 50 crores, INR 52 crores component is eligible for a subsidy up to 40%, in some cases 50%. So we will get a subsidy basically a current government grant on milestone basis of around INR 24 crores. Now so in that level of infrastructure you are able to address your global. And based on the infrastructure and the farmer backward integration strength, we will be able to convert your business model into hard for B2B day-to-day ecosystem model to a order book model, because I have farmers because I have fully integrated approach because we have a packhouse everything, we will be able to convert our business into our order book model. And because we have such a huge set up, a lot of customers will trust us, particularly the global customers and give us an advance also. And similarly, looking at your this infrastructure, many farmers who know us and many farmers who we are ready, we'll also start giving credit. So traditionally, if you look at it, they start giving credit when you are sitting in their area with a big capacity and the big team. So I think this is a brief of [indiscernible] Development program. We can have a separate call to discuss to our on what this project is. It's a game-changing project in our company's career and lifespan.

Right, sir. In ad to this only, I have a couple of follow-up questions. first, what were your cumulative CapEx over the next 1, 2 years considering the subsidies that will get prophy government? Second, if you can quantify the expected impact on our revenue per tonnage and EBITDA margins once we reach, let's say, full utilization in this field? And third, considering these projects, are we also looking for more such projects in different cities of India?

Right. Okay. So first of all, as I said we could probably can awarded this project in the current month. And based on that, there will be two months of detailed blueprint preparation and appointment of consultants and negotiation with machinery suppliers and everything to go on for another 2, 3 months. So some where our first real CapEx should start getting spent between, let's say, end of October and end of November, and this CapEx will be done over a period of about 18 to 20 months, beginning from, let's say, first at mid-October, and it will go on for two months. Now as we -- in the first phase, when we spend, we'll have a 3 month, 6 on phase on the Phase 1 depending on when we get the project awarded. And the second phase will last for 6 to 9 months and the third phase will be further about 8 months. In the each late, our own CapEx from our own balance sheet including debt, would be ranging between the first INR 6 crores to INR 9 crores, the second phase about INR 10 to INR 15 crores and the balance in the third phase. So that's how we will end up spending from our balance sheet. Now for the first phase, what we spent, our brand will be awarded after 4 months of completion. So that's the whole cycle. So over a period of, let's say, 5 years from now, our debt should -- for TL for term loan and for the project loan, should be utilized at the peak of roughly around INR 35 crores -- we have INR 42 crores sanction and the reason with the peak and then probably when you get back your brands as you know over the time, you have about INR 18 crores to INR 20 crores outstanding debt on the project account. So that's the first question. Am I able to make it here. The first?

Yes, yes, sir.

With regard to the outcome -- we are targeting to have at least 15,000 farm address. If I take an average of conservative only 2 hectares, which is around 5 acres, so we are able to acquire this kind of farmer base and the coput tie up. Now even if I assume 20% strike rate, have tonnage sourcing capability in the year 1, so conservatively go up by about 15,000 tonnes. And eventually, in the 6 years, we target to have two next tonne capability getting increased from this project in the Nashik districts. And what was the third question?

Are we also planning to replicate such models in different sectors of India?

First of all, it is a very interesting model, which exactly what we have been following is what government has found out that rather than having too many subsidies, too many schemes, too many projects under too many institutions expected to have launched integrated projects. So it seems a pretty strong model. It seems a pretty viable model where on a longer-term basis you will have a complete equity payback in maximum 5 years, right? And you are also helping your existing business model. With regard to sales and marketing for this project, our cost, we will be able to monetize from the existing business. So we are open to a subsidiary route or [indiscernible] we get some good long-term investment partners. And also, of course, our internal approval, how they pan out.