Prospect Consumer Products Limited (543814) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Prospect Consumer Products Limited H2 FY '25 Results Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. Before we begin, I would like to point out that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. I would now like to hand over the floor to Mr. Rajnish from ConfideLeap Partners. Thank you, and over to you, sir.

Good day, ladies and gentlemen. Myself Rajnish Mishra from ConfideLeap Partners. We represent the Investor Relations of Prospect Consumer Products Limited. On behalf of Ventura Securities and ConfideLeap Partners, I warmly welcome you all to Prospect Consumer Products Limited H2 FY 2025 Earnings Conference Call. The company is repented by Mr. Vimal Mishra, Managing Director; Mr. Ronak Khambhati, Finance and Compliance Officer; and Ms. Bhargavi Pandya, Company Secretary. I would now like to hand over the call to Mr. Vimal Mishra for his opening remarks. Thank you, and over to you, sir.

Thank you so much. Good afternoon, everyone. Myself, Vimal Mishra, I am Promoter and Managing Director of Prospect Consumer Products Limited. It's my pleasure to welcome all our investors, analysts and stakeholders to our H2 financial year '25 earnings conference call. Let me begin by giving you a brief overview of our company's journey and positioning. Prospect Consumer Products Limited, formerly known as Prospect Commodities Limited, was founded in 2015 with a vision to become a trusted player in global cashew industry. In just a short span, we have transformed from a commodity trading company into an integrated cashew processing and premium consumer brand powerhouse. Our sourcing strategy is built on a strong partnership across Africa, South Asia and India, ensuring a consistent and high-quality supply of raw cashew nuts, which we process into diversified portfolio of 35-plus SKUs, including cashew kernels of various grades and value-added byproducts. Our operation headquarter is based in Gujarat, where we have set up a state-of-the-art manufacturing facility equipped with advanced automation systems. This facility currently has an installed capacity of 2,500-plus metric tons per annum, and we are on track to double our capacity to 4,800 metric tons within the next 12 to 18 months to meet the growing market demand. Even beyond this target, our infrastructure is built to scale up up to 6,000-plus metric tons per annum allowing us to stay ahead of the demand trends and serve new geographical with agility. In line with our vision to becoming a diversified consumer company, we have successfully entered the B2C and D2C segment through the DriFrutz brand. This increase in production capacity directly supports our growing B2C and D2C ambition under this brand. As consumption patterns shift towards healthier snacking, we are well positioned to capitalize on this momentum. With premium offering like Majestic, Luxurious, Delicious and Everyday cashew grades, we have launched 6 innovative flavored variants, each crafted to appeal to evolving consumer preference. We have already forged strategic partnerships with leading retail and e-commerce platform like Amazon, JioMart and ONDC. We are now working towards expanding to Flipkart, Big Basket and Blinkit and other quick commerce platforms to further broaden our market reach. Let me now take you through a brief financial overview for H2 financial year '25. Revenue for the period stood at INR 30.99 crores, up 43.11% year-on-year basis driven by strong growth across both domestic and international markets. EBITDA increased by 40.51% year-on-year basis to INR 4.25 crores reflecting improved operational efficiency, capacity expansion and our focus on automaton. Profit after tax for the period stood at INR 2.14 crores compared to INR 1.73 crores in financial year '24. To conclude, H2 financial year '25 has been a period of strong execution, strategic progress and meaningful transformation for Prospect Consumer Products Limited. We have not only delivered robust financials, but also laid the groundwork for scalable, sustainable expansion. Our increased production capacity, automation-led efficiencies and deepened global sourcing have positioned us to meet rising demand with agility and quality. At the same time, our successful entry into B2C and D2C segment under the DriFrutz brand with leading online platform markets, a pivotal shift in our growth trajectory. As we continue to strengthen our retail presence and expand our portfolio, we are targeting a CAGR of 40% to 45% over the next 3 years. With a clear road map, a strong brand foundation and an experienced team, we remain confident in our ability to create long-term value for all our stakeholders. Thank you once again for your continuous trust and support. With this, now I would like to open the floor for question and answers. Once again, thank you so much.

[Operator Instructions] First question comes from [indiscernible]

I was just trying to [indiscernible] So how is the company funding its extra capacity expansion and automation investment?

So last year, we have raised the fund through the preferential allotment, and we have utilized that fund for the further expansion as well and where we are able to go for the automation on a maximum level.

Okay. Got it. And sir, as you scale B2C operations, what robust quality assurance and product recall mechanisms are in place to safeguard the brand reputation, especially in the context of food safety and compliance standards?

So we are actually compliant with all the norms for FSSAI or probably for the packing and everything. Actually, we are ensuring when doing the packing for retail, we are actually ensuring more care. We are doing thoroughly actually packing in that sense as well whenever we are going to retail presence. So we always ensure that packing has to be as per the norms. We follow all the FSSAI rules and regulations, which are in place. So, so far, we have not found any sort of lag in that or probably we are actually looking to expand that safety measures more and more going forward because the volume has started getting increased right now.

Okay. Got it, sir. And sir, just last question on our cost structure part. So are there any foreseeable regulatory changes like food safety standards or export duty?

So we are already following all the norms and there is no cost to actually -- much more cost actually on that because we already have the agencies who are taking care for the FSSAI compliance part, we have all the norms registered with us. Our compliance team, they are taking care of everything at the same time. So that cost has already been taken care will into the consideration long before. So no additional cost coming for that.

The next question comes from [indiscernible] Shah, an individual investor.

I wanted to understand the EBITDA margins have increased pretty well and also, the revenues have increased, although PAT is more or less flat. So what is the primary reason for it?

Well, there are so many factors coming into effect with this. We have actually started procuring directly from Africa. So our procurement has gone -- increased actually has reduced the cost for procurement in that case, probably roughly, you can say 15% to 20%. That has also helped us with a new facility in place. So till the time we didn't have the permission from the pollution department. So we purchase the good actually on a semi-finished basis, and we started using our facility on the back side, basically on the sorting and trading side, where we don't end up in any trouble with the compliance part. So that's where actually the revenue has gone up. The cost of raw material has gone down because of the procurement directly from the Africa and the PAT level, which you can see actually, we are roughly around the same level, that is because of the machineries. That we have procured the depreciation effect is there.

Okay. And this year, what is the projection next for the financial year?

And we mentioned, we are looking for 40% to 45% CAGR for the next 3 years. We are quite confident that we will be doing more than that this year itself.

So that is across revenues, EBITDA, NPAT, all 3 across the same business?

So we can say that actually revenue-wise, we are looking somewhere around 50-plus. That's the minimum of what we are targeting. Our EBITDA stands somewhere around 14% to 15% and PAT will be somewhere around 8%, 8% plus.

Okay. So there will be a lot of investment because of PAT projection is lower? Is that the way?

Please come again?

The PAT is around 8% to 10%. That's what you said, but the revenue is 40% to 50%. So is it due to some other investments or some projected cost for which the PAT is expected to be lower?

It has to get increased. That's what actually we said. It's a minimum. That's what we are updating because the depreciation cost because we have done the expansion of the plant and machinery. So we have invested heavily in that. So the depreciation cost is coming year-on-year basis on that. So -- but this is the minimum what we are targeting that it should be this.

The next question comes from [ Rajesh Shah ] from Shah Investments.

Yes. I have a few questions. So the first is with regards to your capacity expansion. You're nearly doubling your capacity from 2,500 metric tons per annum to 4,800 metric tons per annum within 12 to 18 months. So like can you elaborate on the specific risks which are involved in this CapEx? And like what is your strategy on mitigating the risk especially your capacity underutilization or things like cost overruns. Can you elaborate on that?

See, the facility which we expanded, that is some 1,200 tonnes to 2,500-plus tonnes capacity. However, the infrastructure what we have developed right now, it do have capacity to go for production. It's more than 6,000 tonnes production, what we can do in the same premises here. So what we are doing actually is we are going step by step. This year, we are targeting 2,500-plus tonne capacity. Once we are used to and once we are familiar to handle that capacity on a daily basis or weekly basis or monthly basis, we'll keep on improving our production. So that's why the CapEx has already been done. It's hardly a few supporting investments need to be done in few of the machineries, which is a very, very small part. But most of the CapEx investments we have already covered in our last year expansion itself. So gradually, we will increase that depending on the market condition, depending on the raw material availability and looking at the market scenario in terms of price. So that's why slowly we have actually mentioned in the market that we are expanding our capacity to 2,500 tonnes at this stage, plus next year, we'll go for 4,800-plus tonnes and after that, 6,000-plus metric ton per annum volume.

Okay. Fair enough. And given the significant investments in automation that we have made, so what will be your estimated payback period? And how have you like factored some of the potential risks such as your technology becoming obsolete, maintenance cost and what are the various challenges when it comes to realignment of your workforce?

So we have gone for some maximum automation, what is available in cashew industry. So we have gone for that. So whatever technology comes into the place, we are one by one, actually, we are looking at it. We are looking for the feedback in the market, whoever players are using the technology. What is the -- what are the pros and cons of that technology. If it is useful to us, definitely, we can replace it with the current technology what we have, but mainly in cashew, it's all about the capacity, right? If we have our grading machine, which can produce right now 200 kg per hour. So going forward, we are actually -- when we want to increase our capacity, so we will just set up a few machines there. So if some new machines or new technologies are coming out, so rather going for the same machine in future, we prefer to have the new technology in place. So that's how we exchange those actually technology with our existing setup one by one. So it's not that we won't utilize the machineries, which we have already installed at this stage. However, we'll prefer to add a few more technologies or few more machineries, which can help us to increase our production, which can help us to reduce the cost or can get us the better results in terms of quality.

Okay. Fair enough. This is regards to your sourcing of raw cashew nuts from the South Asian and African market. So like what are the contingency plans which you have in place to manage geopolitical risks, trade restrictions or supply chain disruptions in these geographies?

Well, as far as the raw cashew is concerned, so it's coming mainly from the West African countries. So there are a few countries which do have a restriction of exporting raw cashew nuts. So we try to balance out with all the countries because when you see the raw cashew coming from Ghana, Nigeria, Burkina Faso has just lifted the ban for raw cashew export. [indiscernible] already banned actually for raw cashew, but the cargo is coming from [indiscernible] as well. Ivory Coast has also withdrawn the restriction of raw cashew export. Then [indiscernible], Senegal, this entire belt actually. So there are so many locations from where we can get the raw cashew nuts. As we mentioned earlier as well, there are more than 21 lakh tonnes raw cashews coming in India. So there are different, different countries on a different time period where we are able to get the raw material from the African continent as well. When we come to the South Asia, so Indonesia is there, Myanmar is there from where we can get the raw material as well. East African side, Tanzania is there, who is doing the export of raw cashew. So as far as the supply is concerned, there are so many options available in the market apart from the local crop, what we have in India. That is apart from [ direct ]. These are the options available in the market. So how we are actually balancing this? So we are diverting some of the volume to direct import from Africa. And we are actually looking -- we are buying from the local supplier as well who are a trader actually who are doing this trading actually on a regular basis from West African countries. So we are buying from them as well just to balance out our demand and supply so that, I think we won't end up in short of raw material at any point of time. So we are just balancing in both the ways.

Okay. And one last question from my end. So while you mentioned that one of the measures for reducing cost is by direct [ procurement ]. So what are the specific changes which are being made to your working capital cycle? Like can you quantify the expected improvement in days payable, receivable and inventory turnover over the next 1 year?

We are looking to have a better result in that particular period because actually, when you go for import and probably you end up paying actually more that time in terms of the traffic time because actually, if I want to import something from [indiscernible], I'll transfer the payment in advance [ or probably open the LC ] for them. They will start preparing the export documentation, start preparing the loading of the containers. Once it gets loaded, it will reach in India within 40, 45 days, another 10, 15 days for the custom clearance and [ reaching ] the material to my factory. So this cycle will remain unchanged as far as the import is concerned. So that's why we are balancing it out. So at one point, we have a cost saving of, let's say, 15%, 20%, then we import directly from Africa. But same time, we need to ensure that we should have material in our factory on a regular basis. That's where we are buying from the local traders as well. So once we have that material on hand with us, so it ensure that we have sufficient stock available to process on a regular basis.

The next question comes from [indiscernible] Capital.

Sir, my question was regarding the cost structure of cashew during full year FY '25. Did it [indiscernible] a lot? And did we see any pricing pressure in the raw material that we are sourcing?

Please come again. And if you will be a little slow, that will help because the voice is not coming exactly clear...

Sir, I wanted to ask regarding the pricing of our raw material during the full FY '25. Were there any significant changes during the full year?

The changes have already been done actually. Once the market -- the new season has started, so the price -- so sometimes you get a better price directly in Africa. Sometimes you get higher price locally here. So right now, the price is stagnant roughly around when you go for local procurement. So roughly, it goes somewhere [ around INR 160 ] something actually. But when you go for import, so it comes somewhere around INR 130 or INR 135 something actually. So the price structure is set almost for this entire season. So I don't see any major changes in that as far as current scenarios are concerned. So it should be okay actually. It move with the same price level, price [indiscernible] actually for throughout the season. And against that, the finished market stand with the same size of differentiate in the prices. So that should be okay in terms of profitability for the company as well...

[indiscernible] this price has been stable for what, around 6 to 8 months back? Or it has been changing...

It's more than that actually. Last year, somewhere around in April, May, the prices have started skyrocketing like anything. But from that time, it started like something INR 100 to INR 130, INR 140. And it went up to INR 170, INR 180 as well. So this year, it is very much stable because the price, what we see, so there is a quality difference in that as well. So when you just compare, average it out, then probably roughly around INR 150 to INR 165 in the local market, that is stable. That is what is okay in terms of processing.

The next question comes from [indiscernible] Venture.

I actually have a couple of questions to ask. So I wanted to ask like given the different challenges of building a consumer brand, have you onboarded or are you planning to onboard a dedicated senior management team like for B2C marketing, digital marketing or for retail strategy? And even could you share details about any new hires or planned hires with relevant FMCG or retail experience in this area?

So yes, we have plan to look for a senior management people actually for retail brand. So that we are already working out. And as far as the -- currently, the people with whom we are working, so we have tried with so many agencies. And now we have just actually jumped to another agency where we are feeling quite confident that we will be able to deliver the result as well in terms of online digital marketing as well. And even for the offline, we are actually pushing [ just ] last week itself, our B2B channel. In that only, we have received some positive response to have the B2C business model there actually because there are a few traders or distributor who have tried to approach us in [ value ] market who want to take our products in the North Indian region actually. So we are in discussion with them as well at this stage. But definitely, this is one of the most priority for us as far as the retail business is concerned. It does help us a lot actually in terms of branding, in terms of increasing the profitability and overall the visibility of our company.

Okay. And I had one more question. Like how sensitive are your EBITDA margins to fluctuations in raw cashew prices? And what is your hedging strategy? Like if there are any, then again, the commodity prices, are there...

Well, definitely, EBITDA do have impact as far as the raw material prices are concerned because if prices suddenly go up in market, it may take some time actually to rectify it or probably to accept it. But it is not happening only with me. If price goes up, so that is for the entire industry. So it is not only for particular companies. So it does impact actually EBITDA margin. But as I just mentioned with the previous question, right now, we are looking at this price level as stable at this stage and which is quite easily accepted in the market as [indiscernible] the finished [ rubber market is there ]. So it is accepted. In terms of the additional revenue what we are getting from the shell, what we are selling actually, [ there's ] cashew shell, which we are selling to the CNSL oil processor. So we are getting quite good response in that as well at this stage. Overall, at this stage, it is stable. But yes, if any sudden changes are there, then probably it may take some time. But if you really ask me, probably -- mostly, let's say, from August, the market will start going up as far as the thermal is concerned or probably raw is also there actually because the festival season will begin in India. So from August till Feb, I don't see any challenge as far as the prices are concerned.

The next question comes from [ Jayraj Jain ] from Patel Advisors.

So my first question is like [indiscernible] there is a competition in the premium dry fruit market. So how does [ your own ] brand, DriFrutz intend to publish beyond price and packaging, especially when there are large FMCG players dominating this market? So would you like to throw some point on it?

See, there are no big brands available as far as the dry fruit market is concerned. You will hardly find a name of 2 or 3 people actually whom you can see as a premium brand or probably they have done so much marketing, right, they are visible in the market. But if you see, apart from that, this is an unorganized market actually. Even today, people, they prefer to buy from the local kirana stores. They will go and buy the plain plastic actually for the dry fruits. So this market is there. I don't see -- because there is so much room available right now. So I don't see any competition factor comes into the play at this stage as far as the dry fruits are concerned because you won't see any big brand actually. Few brands who have done a very good marketing, they are visible right now in the market. But however, if you still go with the quality, then you will have so many other options that no one actually is pretty much sure that this brand is there in the market where you will get the best of the quality. And that's where we, [ as DriFrutz ], we are preferring to have experience-based market, where we prefer customers to have our product experience. Once they see our product, once they have the experience of our product, they will be able to make out the difference by themselves only. We don't want to push from our end that much. We want to have the quality-based market rather [ than quantity ] at this stage. We don't want to jump directly on the quantity right now. That's where we are not pushing it aggressively. And we are slowly targeting region by region, city by city for our retail presence.

Okay. So sir, as you have mentioned that it is an unorganized market, like I know people go out and buy in the local store and all. So what would be your strategy to change the mindset of the consumer? Like will you be opening your own store or you will be publishing your products in different highway -- in different stores, like Haldiram's or something like that? Like what will be your strategy to change the consumer mindset?

That may be in consideration because we are actually thinking of that sort of chain itself that is in, you can say actually in consideration, but we don't have any strong plan on immediate basis for that. Same time, we have presence in retail stores we have just gone. So the online presence [indiscernible], actually, we are already available in the [indiscernible] outlets as well across the India. And same time, we are targeting the premium chain where we can have our products available. People are able to experience our product. Once they have the experience, they can see the difference in the material what they're getting in the market and the material which we are selling. If they are able to make a difference, definitely, they are going to come back to us because as far as we know, we are taking utmost care actually while doing the retail packing because that's the area where we have a direct impact from the customer. So we are taking care of that part very seriously. And we want to grow in that segment. And going forward, yes, we may look for our own stores, own chain. So that is already in agenda. But yes, it will be too early to comment anything on that part.

Okay. Great. And sir, as you have mentioned that you have started publishing on the BigBasket online and all other platforms. So what is the revenue contribution from online sales [indiscernible].

We are about to start Blinkit and BigBasket because we are yet to get our product registered there. Online, the Amazon is there actually, ONDC [indiscernible] we have actually already started. So contribution at this stage is very less because we are trying to tap the retail market for around 10% of our revenue at this year. So that improves the gifting as well because during the festival season, we are having a very good requirement in gifting as well. So online, we are pushing our product slowly steadily. Online directly through our website as well, we are getting the orders. So we are getting in that zone right now. But again, that is not that much volume because as I mentioned, it's an unorganized market. So we have to balance out both the things. As far as the numbers are concerned for the company, we have to stick with the B2B market. And slowly steadily, we need to increase our presence in [ B2C ] market as well. So we are slowly trying to get into that zone through digital marketing, through offline stores, through retail channel, whatever ways we can find out just to reach to the end customer directly, like the exhibition as well, we are participating in that so that customer can see our product, they can have the experience of our product. That's how we are trying to push our product in the [ B2C ] market right now.

Okay. Great. So is there any plans to start exports in the near future like the last 2, 3 years?

We already are into export, but that is on a small quantity at this stage. We are already exporting in the U.S. country. We are already doing it actually, but that is on a small basis. But right now, our entire focus is on domestic consumption only because we are getting better price in the local market compared to export. But yes, definitely, that vertical is already in place.

Okay. And sir, I assume that you have a B2C product line [indiscernible] flavored cashew variants. So can you provide some insight into total addressable market size for this very niche segment in India? And how will you be capturing these market shares from the [indiscernible]

Can you please come again? The voice was not clear actually.

Okay. Can you hear me now?

Yes. You can just go slow, so probably I'd have a clear message.

Okay. So I assume that you have a B2C product line, which includes cashew variants. So can you provide some insights into total addressable market size for this very niche segment in India? And how is the strategy to capture the market shares?

See, overall cashew industry, as I mentioned earlier as well, 21 lakh tonnes cashew is getting processed in India as far as the overall cashew is concerned. When we go for a flavor cashew, so I exactly don't have the numbers, but it has to be somewhere around probably $1 billion market in India, which include cashew and other and other dry fruits as well. So we are definitely targeting that zone value addition, what can be done from our side in terms of flavoring the cashew because there is a big market out there. We are able to see the demand as well. We are able to see the different packing requirement as well because just recently, actually, we have done one event where in the golf community, people, they are coming with the dry fruits on a daily basis when they are coming to play golf. So I saw that actually, and we have just introduced our 25-gram pouches as well. So people, they can just carry the pouch while going there, they can even give to their children as well while going to school or going out anywhere. So this sort of thinking is already in place where we can tap these flavored cashews or flavored dry fruit market. Wherever we can see the possibility, we are trying to increase in that as well. But if the market stands more than $1 billion for sure.

Okay. And my last question will be, [ I assume we ] have a target of EBITDA margin of 10% to 15%, and there is a significant portion of revenue projected from B2C. So how do you plan to sustain this margin given higher marketing, logistic and retail distribution cost inherent in this B2C section?

[indiscernible] because in the retail market when we grow B2C as well, we are getting the good margin share. Actually 15%, 20% is the margin after having all the costs absorbed with us because we being a direct manufacturer, we are able to have the better margins, better capacity, better quality control with us. And all these things are helping us because we don't want to keep the stocks piling in our factory because of the B2B market as well and B2C market as well. So whenever we see any stock is piling up, we prefer to get into the B2B zone. And whenever we feel that for a few grades like for cashew, 180 grade and 210 grade, we are one of the most premium grades. So we prefer not to sell into B2B market. We prefer to hold it and store it in a better position so that we can have this demand cater in the festival season [indiscernible]. So we are just balancing out the things depending on the demand and supply, depending on the stocks we have available on hand with us. And we always try to keep that inventory available with us so that we can take care of the immediate requirement, what we have, we can have actually probably in the next 15 days, 20 days or 1 month [indiscernible] not more than that.

[Operator Instructions] There are no further questions. Now I hand over the floor to management for closing comments.

We would like to thank you all the investors, analysts and stakeholders who have participated in this call. Thank you so much for your time. If you still have any further questions, you may reach to our IR advisers, and we may connect on a one-to-one basis as well. We are always open for the question [ and answer ] or discussion further.

Thank you, sir. Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may disconnect your lines now. Thank you, and have a good day.

Thank you.

Thank you, sir.