Edited Transcript of DAAWAT.NSE earnings conference call or presentation 29-May-20 10:00am GMT

The EBITDA was up by 54% to INR 150 crores versus INR 98 crores, and the EBITDA margins were up by 275 bps to 12.3%. This was on account of higher GP and operational efficiency. The PAT for the quarter increased by an interest of 167% to INR 58 crores versus INR 22 crores on a year-on-year basis. The PAT margin expanded by 265 bps to 4.8%.

Our consolidated revenue for the financial year ’20 was up by 7% at INR 4,184 crores.

As mentioned in our earlier earnings calls, our strategic intent has been to focus on our branded business. With continued focus, our branded business was up by 14% and the share of our branded rights portfolio increased to 74% versus 69% last year. The gross margin also expanded by 174 bps to 26.7% as there was an increase in the contribution of branded business and the strong growth from all the geographies. This is to further highlight that our premium and mid-priced product range achieved double-digit growth on a year-on-year basis.

The EBITDA margins also expanded by 140 bps to 12.2% versus 10.8% last year. The actual results, the EBITDA was up by 21% from INR 421 crores to INR 509 crores. That is due to better gross margins and operational efficiencies. The PAT increased by 45% to INR 199 crores, while the margins expanded by 125 bps to 4.8%.

Now I would like to update you on all the efforts taken towards strengthening the balance sheet of the company. The company’s net worth was up by 11.5% to INR 1,599 crores led by strong approvals. The overall debt of the company was down by INR 235 crores to INR 1,425 crores. The debt equity ratio improved from 1.16x to 0.90x. Long-term debt-to-equity has reduced to negligible levels of 0.13x from 0.17x last year. This is to reiterate that majority of our debt is working capital debt, which is required because of the nature of our business, and our focus is to maintain the debt-to-EBITDA ratio to less than 3x.

I would also like to give you an update relative to the continued interest from the international investment community in the group. After a rigorous due diligence and negotiations, SALIC, Saudi Agricultural & Livestock Investment Company, has acquired stake in Daawat Foods Limited, which is a subsidiary of LT Foods Limited through its subsidiary, United Farmers Investment Company. SALIC, as you may know or as you may be aware, is a strategic partner and a public investment committee of the Saudi government. The transaction in Daawat Foods Limited impairs acquisition of 29.81% stake of India Agri Business Fund, which is sponsored by Rabobank, and 0.1% stake of the REAL Trust by the United Farmers Investment Company, which is a subsidiary of SALIC, for an amount of $17.23 million.

Please note that there is no dilution in the listed LT Foods Limited. Also, there should be no impact on the shareholding of LT Foods Limited and Daawat Foods Limited, which remain intact at 70.09%.

[LT Foods] was able to provide a rewarding exit to Rabobank, which has been partnered in this subsidiary for more than 10 years. This new strategic partnership will open up the new opportunities and help LT Foods strengthen its position in the Middle East region.

I’ll now hand over to Mr. Chandra for the further business update for this financial year. Thank you.

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Vivek Chandra, LT Foods Limited – CEO of Global Branded Business [4]

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Thank you, Monika.

The branded business revenue of INR 2,631 crores in FY ’20 registered a growth of 14%. This is higher than the total business growth of 9% due to which the share of the branded business in total improved to 74%. Quarter 4 was a particularly strong quarter, with a growth of 20% in the branded business.

All our business entities have performed well during this financial year. Our India branded business saw good growth in FY ’20, with the premium and mid-price segments registering double-digit growth. LT Foods had launched various marketing initiatives on these segments on the Daawat brand and specific premium variants like Daawat Biryani and Daawat Traditional. India also strongly promoted its unique product offering of Quick Cooking Brown Rice.

In quarter 4 of FY ’20, we extended this health franchise by launching the iron-, folic acid- and vitamin-fortified Daawat Sehat product in the test market. This was supported with print and digital advertising and launched only in the quarter 4 of full year ’20 has quickly built up to a good level of consumer demand. You will be glad to note that during this pandemic, Daawat Sehat tied up with an NGO, Feed My City, to provide meals to the needy.

Our regional rice business continues to receive good response from the market. Sona Masoori has now created a niche for itself in the quality segment with both the retail consumers and the food service customers.

In order to cope up with the twin challenges of manpower and logistics availability posed by the unprecedented crisis of COVID-19, the company has identified and nimbly executed a number of innovative go-to-market approaches. The company joined forces with Zomato and Swiggy to use their platforms for direct delivery to customers. Post-enforcement of complete lockdown, a telecaller facility was set up to directly reach top retail outlets in the country and take orders from them.

Moving to our U.S. branded business. U.S. branded business also saw a double-digit growth in revenue terms. The business has performed well across all channels, and there was a significant increase in the sales for the month of March due to the ongoing pandemic.

E-commerce as a channel continued to see a surge in demand in the last few months. Our recently launched ready-to-heat products were very well accepted by the consumers and also experienced a huge increase in demand. The RTH sales have more than doubled in Q4 FY ’20 on a year-over-year basis.

Our Europe business has also performed exceedingly well in this — on a quarter-on-quarter basis, and it gives me great pleasure to share with you that our Europe business has become PAT-positive in FY ’20. The business has also seen a surge in demand for packaged rice as people are giving preference to packaged brands, taking into account the safety aspect.

Our organic business has also seen a growth of 15% in quarter 4 on a year-on-year basis. While its major product categories continue to grow, the business had experienced a fall in its soybean business in the first half of the year. The company decided to move from the commodity-based soybean business to the value-added soy meal processing-based products.

The business has seen a ramp-up in the second half, with installation of a dedicated organic soy meal processing plant done in a record time of around 3 months. The plant is running at full capacity to cater to the large orders received from global customers. Another expansion of this facility is now planned in the current financial year, which will help the company achieve even higher growth in the current financial year 2021.

I would now like to hand over to Mr. Ashwani Arora. Thank you.

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [5]

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Thank you, Vivek.

Good afternoon, everyone, and thank you for joining us on the call today. I hope that you and your loved ones are all well and safe.

As we all know, over the last 2 months, worldwide economy and various industries across India and international markets have been facing a unique situation due to the COVID-19 pandemic. Our primary focus during this challenging period was to service and make our product available to our loyal consumers, along with assuring the safety of our colleagues and manage our operation in the chain scenario with agility. We are proud of our colleagues in the manufacturing unit, distribution, the front liners, and [this Board] function who also ensure smooth operations while working from home as well. During these prime times, all the employees have come together, and the company has been able to demonstrate its true values through its action. Needless to say that all the norms prescribed by the government and WHO have been strictly followed by — at our manufacturing facility and distribution centers across the globe.

The company’s growth has accelerated in the wake of very strong consumer demand for our products and trusted brand name. Our international subsidiary plants are also functioning in line with the increasing demand.

From an industry perspective, the export of the Basmati rice from India are approximately same in FY ’20, and we have seen a growing trend in Saudi, Iraq, Europe, America and rest of the world. Iran has shown negative growth. Anyway, our exposure to Iran has been mild, and our global presence is helping us to tick up the growth momentum.

India consumption, till last year, was growing at 13%, and we have been part of this growth journey. The branded business contributed 26% of market share. We believe that in the current ongoing COVID situation, consumer demand for packaged rice will increase because of the rise in home consumption, especially in the health and convenience segment globally.

The HoReCa segment, however, has seen a decline. However, with — HoReCa focused on online delivery. And with government announcing opening up of outlets on selective basis in few states, we have seen some pickup in this category.

As far as inventory is concerned, we have procured enough during the last procurement season and are geared to meet the expected demand in the current year.

As far as the next crop production is concerned, as per the trend market data availability, the scale of Basmati seed is going more or less following the same trend. The transplantation process is expected to start in mid-June. The farmers might experience some problems with labor — with respect to the shortage of labor, but they are working to find out alternative solutions so as to minimize the impact on the Basmati production.

As far as operations are concerned, there were challenges in the initial phase. But the company is having control on complete value chain, and having highly mechanized infrastructure have been able to overcome the challenge and deliver their performance.

We have delivered a strong operating performance for FY ’20 and quarter 4 FY ’20. As mentioned in earlier calls, the company has been extensively working on 3 strategic pillars of growth, margin expansion and strengthen the financial metrics, which is visible in our financial performance, and we’ll continue to do so in the future.

To add to the 3 pillars, the company also continued to strengthen its management capability. It has had a couple of senior-level position across its operations. We will be separately updating on this position from time to time.

Thank you. Now we open the session for question and answer.

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Questions and Answers

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Operator [1]

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We will now begin the question-and-answer session. (Operator Instructions) The first question is from the line of Resham Jain from DSP Investment Managers.

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Resham Jain, DSP Investment Managers Pvt. Ltd. – Assistant VP [2]

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Congratulations for a good set of numbers and particularly on repayment of debt.

Just on coming year FY ’21, with most of the businesses actually showing positive trend, like this year, we have paid almost like 230 crores, 240 crores of debt. And next year, what would be the plan on the debt repayment front? That is my first question.

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [3]

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Yes. Good afternoon, Resham. As I said in my saying that we will be keeping the same trend, and we will maintain the debt-to-EBITDA ratio less than 3, and that’s what we are focusing on.

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Resham Jain, DSP Investment Managers Pvt. Ltd. – Assistant VP [4]

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Okay. But from — just from a capital allocation perspective, this year, you generated like close to 400 crores of cash after the CapEx. You…

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [5]

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The plan is to reduce the borrowings only, whatever — internal liquidity will come. But I’m just making the statement that we will keep the debt-to-EBITDA ratio because if the paddy prices will go up in the next coming year, then may not be — we will be able to reduce our borrowing. But more or less, whatever the — we are not spending in the CapEx. So the goal is to reduce the borrowing going forward.

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Resham Jain, DSP Investment Managers Pvt. Ltd. – Assistant VP [6]

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Okay. And what would be the CapEx plan, sir, for FY ’21?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [7]

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So next year, we have set up INR 60 crores of our CapEx plan.

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Resham Jain, DSP Investment Managers Pvt. Ltd. – Assistant VP [8]

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And what would be the broader breakup of the 60 crores, sir?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [9]

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You mean where we are spending?

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Resham Jain, DSP Investment Managers Pvt. Ltd. – Assistant VP [10]

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Yes, yes.

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [11]

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So mainly we are spending, one is on — we are putting the power plant, which is cogen power plant. That’s one. The other is we are spending on the warehousing. And thirdly, we are investing in the mechanization, more mechanization, more automation. So these are the 3 area, broader areas where we are investing.

Repair and CapEx — maintenance CapEx is very low. So mainly is the mechanization. And whatever in this quarter, we have seen the growth. As I said, remember, we are expecting that more packaged rice will grow, and we need more packaging machines. So we are investing in that. So at the moment, all our consumer pack machines are running at full capacity.

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Resham Jain, DSP Investment Managers Pvt. Ltd. – Assistant VP [12]

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Right. And so my last question is on overall margin trajectory. How do you see that coming out in FY ’21? And what will be the levers for this?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [13]

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So that — so in the coming year, our — both gross margin and EBITDA margin will grow. And the strategy is we’re saying that our product mix will change and there will be — in the gross margin, there will be an impact on the lower cost of the COGS also and the scale. These — broadly, these 3 things will help us to improve our margin.

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Resham Jain, DSP Investment Managers Pvt. Ltd. – Assistant VP [14]

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Okay. And any specific geographies where you see that you were playing out more positively as compared to other regions? For example, Europe, your turnaround in the last 1 year from negative territory to the positive side. So within various geographies and various segments.

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [15]

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Yes. So this will — of course, it will throw — plays across — play across geography. But the major thing will play in Europe, America and the rest of the world. And India, because of this HoReCa impact, we may see a little de-growth in HoReCa business. Of course, the consumer business will grow.

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Operator [16]

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The next question is from the line of Dikshit Mittal from Subhkam Ventures.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [17]

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Yes. My question is on inventory. You have given the absolute level of inventory of paddy and rice. So can you give the volumes also?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [18]

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Yes. Sachin will answer.

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Sachin Gupta, LT Foods Limited – General Manager of Finance [19]

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Dikshit, our inventory levels during this year is 1 lakh — paddy is 1 lakh, 93,000 tonnes; and our rice is 1 lakh, 40,000 tonnes.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [20]

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Okay. And estimatingly, for the last year, if you can do, for comparison?

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Sachin Gupta, LT Foods Limited – General Manager of Finance [21]

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It was 2 lakh tonnes of paddy and 1 lakh, 27,000 tonnes of rice.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [22]

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Okay. So that means the reduction that we are seeing, that is totally because of the lower prices of paddies leading to lower inventory, right, this year?

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Sachin Gupta, LT Foods Limited – General Manager of Finance [23]

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Yes.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [24]

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Okay. And so can we assume that this lower cost of inventory will help you into margins in FY ’21?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [25]

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That’s what I said. It will be a mix of all the things, the lower costs and the product mix and the scale. All 3 will help [costs] to improve the margin.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [26]

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Because we have seen 15%, 20% reduction in per unit inventory holding, right, as compared to last year?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [27]

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Yes.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [28]

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So to that extent, maybe something will be passed on. But if you can quantify what kind of margin benefit that can accrue for.

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [29]

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Normally, we change the prices after June. So we have to see the competitive landscape in the month of July fully then. But definitely, it will help us to improve the margin before the competitive landscape reacts on the July, August. Only then how much this cost we will pass so much will be kept. We have to see the competitive landscape.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [30]

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And sir, secondly, India growth, we have seen flattish growth in domestic market. We have seen like [mixed] growth in overseas. So is there any impact because of logistic issues that restricted the growth in domestic market?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [31]

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So I mean if you see our consumer business, we have — we call it like consumer packed business, which is 1 to 10; and then there is the 25 kg business. We have seen the growth in 1 to 10 kg. That’s our strategy in 10. So we are growing. Of course, our export business has grown better because our [rotations] are running now full, and U.S. also has shown good growth. But India is growing as far the category is growing. We are in line with the category growth.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [32]

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Okay. And sir, in terms of private level, we have seen sequential big jump in volumes. So that is onetime, or maybe that will be maintained for next quarter result?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [33]

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So as far as the latest, whatever the trend is going, we are expecting the same trend will be there.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [34]

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Okay. Because earlier, we were trying to reduce the trading to improve the balance sheet. But suddenly, we have seen like big increase in volumes in this quarter. So will that impact balance sheet next year in terms of higher trading volumes?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [35]

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That’s a more private label sale, not trading. So there are 2 types — or 3 types of business we were in: the consumer business, we call it as — branded, as we call it; other is the private label; and the third is trading. Trading, of course, we are reducing. But the private label business is where the growth is coming. That’s our strategic intent with our — the sustainable business is there.

So any business, which is we are doing private label, is all strategic in nature, and that’s a very sustainable business.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [36]

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Okay. And sir, lastly from my side, can you give Europe numbers for this year, both EBITDA and PBT number for Europe?

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Sachin Gupta, LT Foods Limited – General Manager of Finance [37]

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Europe had EBITDA of INR 17 crores and a PBT number of INR 4 crores.

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Dikshit Mittal, Subhkam Ventures – Equity Research Analyst [38]

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Okay. And last year, if you’ve been just…

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Sachin Gupta, LT Foods Limited – General Manager of Finance [39]

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Last year, there was a loss of INR 11 crores, and there was a PBT loss of INR 24 crores.

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Operator [40]

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The next question is from the line of Subhankar Ojha from SKS Capital.

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Subhankar Ojha, SKS Capital & Research Private Limited – Senior Analyst [41]

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So 3 questions. On this European operations, so good part is that you have reported a positive PAT. Can you give some sort of direction for FY ’21? What are your internal targets for the margin for this European operations? That’s one.

Second, you had a very high other income in this current quarter. So if you can give a further breakup of the other income will be helpful.

And how is this same transaction wherein even though it’s at a subsidiary level, but can you share some more data on what was the revenue and what multiple did this deal happen? And what was the earlier investment by Rabobank? I mean they are exiting at $17 million for 30% stake. What was their investment?

So these 3 questions, basically.

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Sachin Gupta, LT Foods Limited – General Manager of Finance [42]

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Sure. So the first question is on the — you said on the Europe. This year, we will be — the target of EBITDA is in the range of 7%? Okay. Yes, in the range of 6% to 7% EBITDA, we are. That’s it. That’s it in that…

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Subhankar Ojha, SKS Capital & Research Private Limited – Senior Analyst [43]

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Okay. So what was the revenue, sir, for European operations? The EBITDA number was INR 17 crores.

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Sachin Gupta, LT Foods Limited – General Manager of Finance [44]

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Yes. So revenue, we are targeting in the range of 4…

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [45]

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The revenue for this year was 468 crores.

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Subhankar Ojha, SKS Capital & Research Private Limited – Senior Analyst [46]

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468?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [47]

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Yes.

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Subhankar Ojha, SKS Capital & Research Private Limited – Senior Analyst [48]

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Okay. Okay. So you have done a 3.5% tax EBITDA and you are looking for a 7%?

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Sachin Gupta, LT Foods Limited – General Manager of Finance [49]

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That’s in the range. That’s what we are in.

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Subhankar Ojha, SKS Capital & Research Private Limited – Senior Analyst [50]

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Okay. Okay. Second question, other income.

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Sachin Gupta, LT Foods Limited – General Manager of Finance [51]

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The other income includes the exchange income. It’s majorly the exchange income, and this is a part of the operations income only. So this is — as per the accounting, we have to disclose in the other income. Otherwise, it is exchange on it.

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [52]

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And third, on SALIC, what was — so what exactly?

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Subhankar Ojha, SKS Capital & Research Private Limited – Senior Analyst [53]

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My question is basically this unit had — I think as valued previously, we had a 20% revenue contribution to the company. So that’s about some 550 crores-odd. And the deal is happening 30% stake for $17 million here. So my question is basically, what was the Rabobank investment? Then 10 years back, Rabo invested in INR 25 crores and in dollars, $5 million.

Okay. Okay. Okay, so that’s — so this is — is it the right way to rate it? I mean 20% of your revenue coming from Daawat food, and that is getting valued at, say, about what, I mean, $50 million, right? $55 million. And that’s about…

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [54]

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That’s the one thing, that’s a purely manufacturing subsidiary of that all the brands, everything is in LT Food business. So that’s a purely manufacturing valuation of the company.

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Unidentified Analyst, [55]

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No, sir, that business — also my question is that, that business is getting valuation higher than the parent company, which is not a value addition and there (inaudible) I think that answer is nice that more on the investor side. But as far as we think that if we evaluate our company the kind of business model we have, the sustainable, profitable with the global footprint. But normally, the companies globally have a valuation of 15, 16x of EBITDA.

I missed the initial part of your answer wherein — what is your plan for deleveraging? I mean what is your plan for reduction of debt in current financial year?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [56]

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No. As I said just now, the plan is — the broader plan is to keep the debt-to-EBITDA ratio less than 3 as the business will grow, and we are in the business of (inaudible) the rice. But broader plan is in normal circumstances, all the accrual will not go in CapEx and either reduction in the borrowings or if needed, to increase the inventory. So broadly, the more focus is in the reduction of the borrowing and take to the level of 2.5x or less than 2.5x to EBITDA.

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Operator [57]

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The next question is from the line of (inaudible) from (inaudible) Consultancy Services.

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Unidentified Analyst, [58]

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Congratulation on simpler set of number. And sir, one more thing, I am also a consumer of your brand, Daawat Basmati rice.

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [59]

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Thank you.

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Unidentified Analyst, [60]

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And it’s (inaudible). Sir, my question is you have done international brand business of around 1,655 crores from your present business. So what are the geographies, sir, major geographies? Does it include Iran and those kind of countries or…

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [61]

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Our major geographies outside India is U.S.A., Europe and then Middle East and then rest of the world. As I said, we don’t have any exposure for the last 3 or 4 years to Iran. So that’s the company’s strategy not to get into a country, which…

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Unidentified Analyst, [62]

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So we don’t foresee any threat as far as our exports are concerned?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [63]

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To Iran, no.

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Unidentified Analyst, [64]

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Okay. And sir, my another question is what is the proportion of rice and (inaudible) certain other business (inaudible) like organic revenues and all?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [65]

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We have 2 businesses. One is the Basmati rice business and the other is organic ingredient business. So out of the total revenue, approximately 10% to 11% come from organic ingredient business and rest is all in the Basmati rice business, which is all supported by other strong brands, which is our (inaudible)

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Unidentified Analyst, [66]

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And lastly, your original improvement has come, I think, in the margin and in the (inaudible). Is it because of your branded business are ramping up in India as well as at both U.S. and Europe? Is brand becoming popular over there?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [67]

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That’s one level. Brand is already very popular all over. It’s only we are doing the acquisition of new consumer and new markets. So brands are very, very popular. That’s so from where the growth is coming.

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Unidentified Analyst, [68]

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And soon, from the consumer, I will also become shareholder.

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [69]

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Thank you. I will tell you, I don’t know how much time — this COVID time. We got an e-mail from our one of the loyal consumer in Bombay who was brown rice — cooking brown rice. He said her wife is pregnant, and she doesn’t like any other rice, and we are not able to get this Daawat brown rice. And we made sure that in 24 hours, we delivered the Daawat cooking brown rice to their home.

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Operator [70]

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The next question is from the line of Sarvesh Gupta from Maximal Capital.

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Sarvesh Gupta, Maximal Capital – Founder [71]

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Congratulations on a good set of numbers. Sir, first question, sir, on the domestic branded side, we have seen some dip, obviously, because of maybe the HoReCa segment and all that. But how has been the market shares movement, if at all, in our favor or against us? Have you gained or lost any market share?

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Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [72]

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You are talking about the post-COVID or pre-COVID?

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Sarvesh Gupta, Maximal Capital – Founder [73]

——————————————————————————–

So I wanted about 4Q, but if you can give us some indication about (inaudible)

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [74]

——————————————————————————–

As you know, it’s too early because recent given quarterly data. But our estimate and our whatever, our internal data is telling us that we are doing good. We are able to maintain our share even in the difficult times, and we are trying our best to be available in all channel.

As Mr. Vivek said, we are trying to find new, innovative ways to reach the trade and the — and therefore, our consumer will get us. We have done the whole digitization in reaching to the retailers. So answering…

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [75]

——————————————————————————–

So broadly, we have maintained market share in domestic branded business?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [76]

——————————————————————————–

Yes. That’s what our — the data will come in June. And then — but we are sure that we are maintaining our share here. We have a great presence in online modern trade. And as I said, we are trying to find innovative ways to reach our grocers.

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [77]

——————————————————————————–

Understood. And sir, this investment by SALIC into LT subsidiary, so what are the financial merits for this company?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [78]

——————————————————————————–

So the…

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [79]

——————————————————————————–

Or maybe I can take it off-line also if…

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [80]

——————————————————————————–

Yes. Yes, we can do that. We can do that.

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [81]

——————————————————————————–

Okay. Understood. Now thirdly, there was this news about one of the large Basmati trader, SBI case against that. So because of this environment of leverage, are you seeing some of the competition dying or going away in a way which will help players like you?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [82]

——————————————————————————–

I told in earlier conference, so there are 2 types of model in Basmati rice industry. If you see globally, the 15 brands, which — approximately, the 15 brands, which hold the 100% Basmati market. And India is, as an industry, is mainly dependent on private label. There are only 2 companies who have the complete value chain in their hand. And as manufacturing, if someone is getting disturbed, it will have not — I will not say it will improve our margin because of the less competition. And the brand, it is helping us.

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [83]

——————————————————————————–

Understood, sir. And this other income that you mentioned is mostly forex gain? Is it the higher other income that (inaudible)

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [84]

——————————————————————————–

Yes. Yes.

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [85]

——————————————————————————–

Understood, sir. One more thing, the capital deployed in Europe as of now?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [86]

——————————————————————————–

Just a minute. Approximately EUR 25 million?

——————————————————————————–

Vivek Chandra, LT Foods Limited – CEO of Global Branded Business [87]

——————————————————————————–

EUR 25 million.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [88]

——————————————————————————–

Approximately EUR 25 million.

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [89]

——————————————————————————–

EUR 25 million. Okay. And sir, if you look at the cash flow statement in the last 2 years, we have done CapEx of INR 120 crores in the last 2 years. So if you can just give a broad indicator of what is the split of this 90 crores and 120 crores that we have spent on plant, property and equipment, sir?

——————————————————————————–

Vivek Chandra, LT Foods Limited – CEO of Global Branded Business [90]

——————————————————————————–

In the previous year, the cash outflow of CapEx was 60 crores. The remaining part is foreign exchange fluctuation. The exchange one is and the entire 60 crores, the major CapEx was in India. In India, we have installed new silos. We are — and there was a mother warehouse that was installed at (inaudible) City, mother domestic warehouse.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [91]

——————————————————————————–

So we have built a highly mechanized distribution center near Delhi. From there, we will supply to the whole of India and to improve our service level and less dependent on (inaudible). Just to — whatever the last year CapEx we have done in either in the silo and mechanizing our distribution. That’s how we were able to service even these difficult times because as a company now, we have very highly mechanized operation.

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [92]

——————————————————————————–

Understood, sir. And sir, you had mentioned in an earlier interview, I think, that we will come by end — we will come to know by end of May that what is the impact because of COVID on paddy production. So do we have some visibility there in terms of: a, (inaudible) it depends on this crop season; and b, what is the likely impact on the paddy prices that we will have to put?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [93]

——————————————————————————–

(inaudible) just told that the initial survey saying that the seed is selling more or less the same, and the transplantation will happen — will start happening in the 15th of June. And we are expecting that there will be some problem on the labor shortage. But I think farmers are making the alternative arrangement. So in a nutshell, we are not seeing the much impact on the production till time, whatever the indications or trends we are getting.

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [94]

——————————————————————————–

Understood, sir. And lastly, if I may ask one more question, sir. These are — so if I look at your private label business, we see quarter back, it was on a higher trajectory and then we kind of lowered it. And then, of course, in Q4, I think we got a very good opportunity to scale it up back. So that is understood from an opportunity point of view. But from a strategy point of view, I think we wanted to also increase our margins on a sustainable basis to increase the return numbers.

What is your strategy around private label, sir? Are we going to increase it in equal proportion to branded business? Or how do we look at our private label? I mean trading part is understood that you want to decrease it. And your private label strategy is something that I was not very clear of.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [95]

——————————————————————————–

Yes. So private label, as I said, we have 2 areas where we will grow business. One is the brand. There, we’ll even acquire new consumer, new distribution. Private label business, we do from the right perspective. And so we are — as far as ROIC is concerned, we have sent a benchmark that below this, we will not do a private label business. And the private label business we do, which is sustainable in nature. So we don’t do any private label business, which is a transactional kind of thing. That’s how the major private label business happened in Saudi Arabia and the first (inaudible) industry, Iran and Iraq, and we don’t have much exposure on this. Whatever the private label business we have is either in Europe or America that do with the organized stores and a little bit in Saudi Arabia.

——————————————————————————–

Sarvesh Gupta, Maximal Capital – Founder [96]

——————————————————————————–

Understood. So what is this target ROIC that you — below this, you would not do? What is that number, if you have a range or a number that you have?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [97]

——————————————————————————–

The range is — we will not do any business which has the lesser, in private label business especially, is less than 15%.

——————————————————————————–

Operator [98]

——————————————————————————–

The next question is from the line of Chintan Desai from Param Capital.

——————————————————————————–

Chintan Desai, [99]

——————————————————————————–

Congratulations for a good set of numbers. I just wanted to understand the insights on how has been the situation post COVID in India as well as our overseas markets. Has the offtake has increased? Or how is the current scenario?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [100]

——————————————————————————–

So whatever the trend we are getting is across globe, the home consumption is growing. So the only HoReCa is impacted. But whatever the home consumption has grown, as far as our company is concerned, we are able to offset that whatever the loss we have done in the HoReCa business.

So overall, if you see every category, 25% to 30% of Basmati consumptions is in HoReCa and 70% in home. But that depends on geography to geography, like India has more dependence on HoReCa business, Middle East has more dependence on HoReCa business. But our market, which is India, U.S.A., Europe, we have less dependence as compared to the industry on the HoReCa segment.

But consumption at home is growing. That simply is the trend we are getting.

——————————————————————————–

Chintan Desai, [101]

——————————————————————————–

Okay. And sir, I believe FY ’20 was kind of a year of consolidation for our U.S. business. So how has been the U.S. business in Q4? And will we start looking at strong growth numbers from this year onwards?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [102]

——————————————————————————–

So yes. So U.S. business is always a growing business for us. Only the Europe was the business which we have started 3 years back. And last year, it has turned to positive. And we are seeing the good growth in this year, both in top line and bottom line.

——————————————————————————–

Chintan Desai, [103]

——————————————————————————–

Okay. And sir, what would be the capacity utilization at our Europe’s — Europe facilities — facility, sorry?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [104]

——————————————————————————–

This year, we will be above 80%.

——————————————————————————–

Chintan Desai, [105]

——————————————————————————–

Okay.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [106]

——————————————————————————–

Because of this increased demand post COVID.

——————————————————————————–

Operator [107]

——————————————————————————–

The next question is from the line of Rakesh Roy from Indsec.

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [108]

——————————————————————————–

Sir, my first question is regarding your supply chain and logistic. Can you highlight on the supply chain and logistic time to market scenario, sir?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [109]

——————————————————————————–

Sorry, Rakesh, can you just repeat your question, please?

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [110]

——————————————————————————–

Sir, just my first question is regarding, sir, supply chain and logistics parcel. So can you highlight how the supply chain and logistic in certain markets scenarios?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [111]

——————————————————————————–

Rakesh, supply chain issues, there was a disruption. But government interventions, there are subsidies of normal lowering here. But as far as IT is concerned, from the day 1, as I said, with high mechanization and the great team, we were able to manage our supply chain efficiently. Have I answered your question or something is left?

——————————————————————————–

Operator [112]

——————————————————————————–

Mr. Rakesh Roy, can you please confirm?

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [113]

——————————————————————————–

Hello?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [114]

——————————————————————————–

Yes, Rakesh. Have I been able to answer your question?

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [115]

——————————————————————————–

Yes, sir. Yes, sir. So my second question is, sir, can you highlight on the discounting on your side to market to gain some market share or to gain the market, extend market scenario, sir?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [116]

——————————————————————————–

Yes (inaudible) discounting (inaudible) supply the (inaudible) so (inaudible) focus.

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [117]

——————————————————————————–

Yes, sir. Right, sir. Okay. Then, sir, any price increase in (inaudible)?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [118]

——————————————————————————–

Sorry?

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [119]

——————————————————————————–

Price increase in (inaudible)?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [120]

——————————————————————————–

Clearly, as we know, in this (inaudible) brand also, we don’t want to get into a commodity mindset on demand. And so as a brand, we are — the first focus is to make sure that availability is there. So neither we are decreasing price nor we are increasing price at this moment.

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [121]

——————————————————————————–

Okay. Sir, last question, just as you mentioned, you are now focusing more CapEx in automation, sir. So how much margin expansion (inaudible) last year after automation in (inaudible) industry?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [122]

——————————————————————————–

Power generation. So we are putting 2.5 megawatt plant in our (inaudible) unit.

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [123]

——————————————————————————–

That’s it?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [124]

——————————————————————————–

Yes. That’s it. [Cogen] plant and then the mechanization. So what is your question now?

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [125]

——————————————————————————–

Sir, how much margin expansion you are looking in year 2 to (inaudible) this CapEx?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [126]

——————————————————————————–

CapEx, sir, that’s more for the growth, not the margin expansion. But yes, absolutely, the growth will come. The margin will improve with the scale and — they’ll improve on the scale.

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [127]

——————————————————————————–

Yes. My next question is with regards after automation (inaudible) margin expansion (inaudible) when you start doing the (inaudible) automation, how much more margin you are seeing in your [peak]? I guess my question is this.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [128]

——————————————————————————–

(foreign language) (inaudible) situation, we are able to supply our consumer and let labor dependence (inaudible) And your trend (inaudible) you have to run your business with great efficiency and lesser people. So that’s what we are focusing. And (inaudible) packaging may — Europe may (inaudible) investor and go basically with the increased demand. We need more packaging facility. So with the scale, the margin expansion will happen.

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [129]

——————————————————————————–

Okay, sir. So okay. (inaudible) so how much this — just for example, just on the page, how much (inaudible) after doing this thing in next 2, 3 years, sir? Because we’re trying…

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [130]

——————————————————————————–

(inaudible) voice (inaudible) at the end so I’m not able to hear you properly.

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [131]

——————————————————————————–

Hello?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [132]

——————————————————————————–

[Sanji]?

——————————————————————————–

Rakesh Roy, Indsec Securities & Finance Ltd., Research Division – Research Analyst [133]

——————————————————————————–

Yes. So (inaudible) it’s not this — you are seeing (inaudible) next 2, 3 years, sir, from here?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [134]

——————————————————————————–

So we have defined over that we wanted to take our EBITDA margin to 15% in the next 2 years.

——————————————————————————–

Operator [135]

——————————————————————————–

The next question is from the line of Nitin Awasthi from East India Securities.

——————————————————————————–

Nitin Awasthi, [136]

——————————————————————————–

My question was regarding your subsidiary, Nature Bio-Foods Ltd., for which I believe is your organic division [side]. Could you please shed some light on this company because I believe Rabobank has an investment in the company, and you’re making subsidiaries across Europe and the U.S. for this company. So is that only like capital investment out there in facilities? Or is that only for branding, which is going to happen in Europe and U.S. and the whole manufacturing happens in India? Plus, what are the kind of ROIC that you will have in this business, the newer products, including the business (inaudible), et cetera? Can you shed some light on this company overall?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [137]

——————————————————————————–

Let me explain you the organic model of our growth. So this Nature Bio-Food, which is handled now — is owned by LT and Rabo. And the business model is we are supplying the ingredient, which is used for either the brands or making ingredients like baby food, as rice milk, rice cake and all these things and then making the — this protein, organic protein, which — where we use — where they use from the feed, the (inaudible). So this business is all B2B business and which is mainly in America and Europe. And all the manufacturing capability are in India because we have a very strong network with the farmers where we grow our organic produce.

And this company is 25-year-old company. They are in this business for the last 25 years.

——————————————————————————–

Nitin Awasthi, [138]

——————————————————————————–

So in your presentation and also on your website, I see there a brand within the Nature Bio-Foods subsidiary.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [139]

——————————————————————————–

Brand is majority B2B business. (inaudible) business is a small, I’d say, only roughly total revenues, 10% business.

——————————————————————————–

Nitin Awasthi, [140]

——————————————————————————–

Okay. So just 1% of your total top line, if I’m correct?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [141]

——————————————————————————–

As a group, you are saying?

——————————————————————————–

Nitin Awasthi, [142]

——————————————————————————–

Yes. As a group, LT Foods.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [143]

——————————————————————————–

As a group, you can say 1.5%.

——————————————————————————–

Nitin Awasthi, [144]

——————————————————————————–

1.5%. Okay. And you’ll be getting into the oils also in this segment?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [145]

——————————————————————————–

So in organic ecoLife brand, every — there is a complete portfolio of organic food. There is lentil rice. We have (inaudible) tea. We have flaxseed oil. So all the complete portfolio of organic baskets.

——————————————————————————–

Nitin Awasthi, [146]

——————————————————————————–

Okay. And this is also manufactured in India and…

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [147]

——————————————————————————–

We have already launched this brand in Northern of India and U.S.A. and doing well, speaking of well.

——————————————————————————–

Nitin Awasthi, [148]

——————————————————————————–

Okay, sir. And what are the kind of margins that you see in the Nature Bio-Foods, like ratio — sorry, like rough ROIC?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [149]

——————————————————————————–

The ROIC, you mean to say?

——————————————————————————–

Nitin Awasthi, [150]

——————————————————————————–

Yes. The return ratios in the organic business.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [151]

——————————————————————————–

Just a minute there.

——————————————————————————–

Vivek Chandra, LT Foods Limited – CEO of Global Branded Business [152]

——————————————————————————–

The ROIC in the organic business is 18%, 18% ROIC here, Nitin.

——————————————————————————–

Nitin Awasthi, [153]

——————————————————————————–

Okay. And I believe the working capital days will be also much shorter because there’ll be no aging involved as in the traditional business?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [154]

——————————————————————————–

Yes. There is no aging involved.

——————————————————————————–

Nitin Awasthi, [155]

——————————————————————————–

Okay. And the focus is — is there a push coming in from the management in this business segment? Do you wish to take this from more than 10% to a bigger share?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [156]

——————————————————————————–

We have a big focus. One of the — this is — organic business is one of the focus of — and that’s why we have a good plan to grow this business in this year basically in Europe and America to do the stock and sell, and that’s (inaudible) good year.

——————————————————————————–

Operator [157]

——————————————————————————–

With the time consumed, we’ll take the last question, which is from the line of Deepak Kolhe from (inaudible) Capital.

——————————————————————————–

Deepak A. Kolhe, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [158]

——————————————————————————–

Sir, I wanted to understand, first on the growth part. Basically, 7% growth we have seen overall for the year, and this quarter was abnormally high-growth at 20%. So what sort of sustainable growth one should look at over the next, maybe a year or two?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [159]

——————————————————————————–

So as I said, pre-COVID plan was to grow in double digits. And post the COVID, we have to see how this HoReCa business behaves. But the first quarter trend says us — say to us that we will be able to deliver the double-digit growth if the same trend continues.

——————————————————————————–

Deepak A. Kolhe, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [160]

——————————————————————————–

Double-digit growth is what you might be targeting. But do you see that — because of the current situation, people might be buying more, right? So is that one of the impact that you’re seeing a higher growth and then the normalized growth would be at the lower [half]?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [161]

——————————————————————————–

Actually, home consumption is growing, especially in the international market. The people, at least 1 or 1.5 meal they had away from the home, they prefer to have at home. Basically, the home consumption is growing.

India is a little bit different. India, the dependence on HoReCa business is more and the premium segment of the Basmati is a kind of luxury in India.

But in overall, if I talk overall as a company, we think that whatever the trend we are seeing right now in the 2 months or in the first quarter and the same trend continue and then the same doesn’t go worse, we will be able to deliver.

——————————————————————————–

Deepak A. Kolhe, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [162]

——————————————————————————–

Double-digit kind of a growth.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [163]

——————————————————————————–

That’s right.

——————————————————————————–

Deepak A. Kolhe, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [164]

——————————————————————————–

And all your plans are currently operational at the optimum of utilization (inaudible)?

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [165]

——————————————————————————–

At the moment, yes.

——————————————————————————–

Operator [166]

——————————————————————————–

Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for closing comments.

——————————————————————————–

Ashwani Kumar Arora, LT Foods Limited – CEO, MD, CFO & Whole Time Director [167]

——————————————————————————–

Thank you. Thank you, everyone, for your continuous support. Hope we were able to address all your queries. Should you have any further questions, please feel free to contact our Investor Relations team. Thank you, and we look forward to connecting with you again in the next quarter. Thank you, and stay safe. Thank you.

——————————————————————————–

Operator [168]

——————————————————————————–

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.