ADFFOODSNSEQ2 FY 2022-23November 15, 2022

ADF Foods Limited

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Management on call

Bimal Thakkar

CHAIRMAN & MD, ADF FOODS LIMITED

Shardul Doshi

CFO, ADF FOODS LIMITED

Devang Gandhi

CHIEF OPERATING OFFICER, ADF FOODS LIMITED

Bhavin Soni

ORIENT CAPITAL

Key numbers — 40 extracted

Rs. 155 crore

m as we have achieved strong and profitable growth. On a standalone basis, we recorded revenue of Rs. 155 crores in H1 financial year 23 and Rs. 83.2 crores in the Q2 financial year 23, a growth of 17.3% and 1

Rs. 83.2 crore

growth. On a standalone basis, we recorded revenue of Rs. 155 crores in H1 financial year 23 and Rs. 83.2 crores in the Q2 financial year 23, a growth of 17.3% and 12.8% respectively for the same periods last

17.3%

. 155 crores in H1 financial year 23 and Rs. 83.2 crores in the Q2 financial year 23, a growth of 17.3% and 12.8% respectively for the same periods last year. On a consolidated basis, we recorded rev

12.8%

es in H1 financial year 23 and Rs. 83.2 crores in the Q2 financial year 23, a growth of 17.3% and 12.8% respectively for the same periods last year. On a consolidated basis, we recorded revenue of Rs.

Rs. 204 crore

2.8% respectively for the same periods last year. On a consolidated basis, we recorded revenue of Rs. 204 crores in H1 financial year 23 and Rs. 106 crores in Q2 financial year 23. Our standalone EBITDA and PA

Rs. 106 crore

year. On a consolidated basis, we recorded revenue of Rs. 204 crores in H1 financial year 23 and Rs. 106 crores in Q2 financial year 23. Our standalone EBITDA and PAT for the half year stood at Rs. 22.8 crore

Rs. 22.8 crore

s. 106 crores in Q2 financial year 23. Our standalone EBITDA and PAT for the half year stood at Rs. 22.8 crores and Rs. 20.5 crores, respectively. Our consolidated EBITDA and PAT for H1 financial year 23 and

Rs. 20.5 crore

2 financial year 23. Our standalone EBITDA and PAT for the half year stood at Rs. 22.8 crores and Rs. 20.5 crores, respectively. Our consolidated EBITDA and PAT for H1 financial year 23 and Q2 financial year 23

Rs. 27.1 crore

ively. Our consolidated EBITDA and PAT for H1 financial year 23 and Q2 financial year 23 stood at Rs. 27.1 crores and Rs. 21.2 crores, respectively. Weare showing constant growth and resilience in our overall b

Rs. 21.2 crore

ted EBITDA and PAT for H1 financial year 23 and Q2 financial year 23 stood at Rs. 27.1 crores and Rs. 21.2 crores, respectively. Weare showing constant growth and resilience in our overall business despite the

rs,

oducts under this brand. In order to improve our product portfolio and to serve our valued customers, we continue to launch new products in categories of ready to eat foods and meal accompaniments lik

15.3%

ly basis the Q2 FY23 revenue stood at Rs. 83.2 crores which is an increase of 12.8% on Y-on-Y and 15.3% quarter-on-quarter. Our Q2 gross profit and EBITDA for standalone business stood at Rs. 47.7 cror

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Guidance — 20 items

Bimal Thakkar

opening

“Through our wholly owned subsidiary Telluric Foods Limited, we are pleased to announce the launch of our brand ADF Soul in India which will be sold through e-commerce channels all over India via the company's own e-commerce website, soul-foods.in and various leading e-commerce platforms like Amazon.”

Bimal Thakkar

“So, there have been some challenges, but now going forward, we are already now seeing that hopefully by the end of this year we get our freezer started off in the warehouse as well and things should improve.”

Devang Gandhi

“So, our CAPEX plan in the next 2 years is basically, we have a Greenfield project that should be in the region of about Rs.”

Bimal Thakkar

“It is a premium brand and in the first month we have had good traction on the products, we have had repeat orders and now we will be going very aggressive with campaigns on Amazon and also launching on other websites as well, but we are very pleased with the initial response that we had.”

Bimal Thakkar

“So, we are very pleased with the initial response that we have got on the brand and there are lots of more products that we will be adding on under this brand.”

Tushar Shetty

“What are our internal sales target for the same?”

Bimal Thakkar

“So, the first full year, which will be next financial year, we should be looking at least about Rs.”

Bimal Thakkar

“Yes, Patanjali has started off for us and we are pretty much on target to achieve our half a million- pound target for the first year.”

Bimal Thakakr

“We will be adding some new product line as well in this, so the first phase is frozen, then we have a second phase planned for some other ambient products as well.”

Bimal Thakkar

“The lease facility is for frozen products and probably we will continue with the lease facility till the Greenfield project is complete, so for another 2 years at least.”

Risks & concerns — 8 flagged

In the current quarter, cost control, operational savings and prudent price increase across select product categories has mitigated the impact of inflationary pressure and improved the margins.

— Shardul Doshi

Couple of questions from my end, you did mention in the opening remarks, US supply chain had an impact on sales, could you help us quantify the impact of loss sales because I think we had Rs.

— Prakash Kapadia

3 crores, so there is a profit impact of almost Rs.

— Shardul Doshi

In a global inflationary scenario, how does demand look like in say the balance of 23, how does second half look like if the inflation continues to be pretty high globally, so you have a risk of demand because I think now the supply chain and US could have been resolved, right, is what my understanding?

— Prakash Kapadia

So, there was a transition period between the sale process, so that lead to some slowdown for us.

— Bimal Thakkar

I just wanted to understand on the raw material like we also participated in many calls where management indicated that the raw material price has started stabilizing, but still they see some kind of inflationary pressure in coming quarters, so I just wanted to understand your view on that on our raw material?

— Raj Oza

Inflationary pressure continues to remain on the raw material prices.

— Bimal Thakkar

Because of COVID and certain disruptions, this financial year was a little bit of challenge, but otherwise had we not gone through those disruptions, I think we would be on track to do that, now that the worst is behind us, I think we hope to continue with that trajectory of doubling up every 3 years.

— Bimal Thakkar

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Q&A — 10 exchanges

Thank you very much Mr. Bimalji for reasonable set of numbers. Sir, we are doing hard efforts at US and 2 godowns on rent or lease, but since last 2 to 3 years not growing much in topline or bottom line, so what is your comment and what you think for next 1 to 2 year in a line?

Bimal Thakkar

So, ever since we took warehouses on lease, right, we were hit with COVID and there were disruptions in terms of getting people, setting up that warehouse. We had some challenges and headwinds, but now that is all in the past and this is an investment which we have made for the future, and we are very confident that it is going to yield results and you will see in the coming quarters that things will get much better. Our distribution business subsidiary which we have set up for distribution also will continue to grow strong and we have already seen that happen where the indirect benefit is com

Couple of questions from my end, you did mention in the opening remarks, US supply chain had an impact on sales, could you help us quantify the impact of loss sales because I think we had Rs. 107 crores of consolidated sales, so what could be the impact due to this US disruption in terms of sales for the quarter?

Shardul Doshi

So, our ADF Foods USA business which is the Nate’s & PJs business, there is a disruption which has happened in fact there are no sales from that business in first half. When first half last year, we did almost Rs. 25 crores of topline and we had earned a profit of around Rs. 3 crores vis-a-vis impact in this year, first half, there is a loss of around Rs. 3 crores, so there is a profit impact of almost Rs. 5 odd crores and topline impact of Rs. 25 crores. So, at this business if you reduce that from last year, there is a good growth which we have seen in all our other businesses. In a global i

Congratulation Bimal and team, you all have done a good job this quarter. My simple limited question is, is there any room for spending more on marketing in terms of advertisements etc., because the presence in the Indian market seems to be quite not so visible and any other acquisitions in the pipeline if the CAPEX that we have, the cash we have is quite a lot in the company?

Bimal Thakkar

So, yes we have not started our ad campaign in the domestic markets. You will start seeing activity on social media from this month onwards and we are committed in investing and know that we have to invest in marketing to get this brand popular in India. So, we will do that and you will see the activities starting up from this month. We just didn’t want to launch a campaign last month because it was high season Diwali time, and these products wouldn’t have really got any kind of impact or push because of the Diwali season. So, you will start seeing the campaigns from this month onwards and as

Sir, just wanted to know, how has been the response to the launch of ADF Soul in India and how are we planning to scale up?

Bimal Thakkar

So, I just answered Tushar. we’ve had a very encouraging response and it has just been one month and we are now going to step up on the marketing activity of that brand in India. So, we are very pleased with the initial response that we have got on the brand and there are lots of more products that we will be adding on under this brand. We are very optimistic. What are our internal sales target for the same? Can we share it will be helpful. So, the first financial year, it is just going to be 5 months in this financial year so we are not looking at anything over the top, but next financial yea

Congratulations on good numbers. I will start up with, sir if you can help us understand the freight cost during the quarter as a percentage of sales how much would that be? And what is the kind of variation we have seen in the cost Q-o-Q and Y-o-Y?

Shardul Doshi

So, freight cost in fact in Q2 has come down by almost 5% of our topline, which used to be 20% in the previous quarter it come down to almost 15% now, so that is the number which we have. So, secondly, I want to ask you the CAPEX timeline, the Rs. 60 crores CAPEX, if you can help us understand by which quarter will that start to commission and on peak utilization, what is the kind of revenue potential it can have? So, the CAPEX is primarily both Greenfield as well as internal expansions in existing plants, so while I can give you a timeframe for the Greenfield to be about, say roughly 1-1/2 to

Sir, did I hear correctly that we are planning a Greenfield expansion of Rs. 180 crores totally?

Bimal Thakkar

No, sir it is Rs. 60 crores. So, with the strategy of so many D2C brands who have really scaled up so well and taking the social media approach and telling a very compelling story, so will our new marketing firm which we are going to also get PLI benefits abroad, will it be now more targeted towards this kind of platforms and so that we can scale up much faster that is one? And second is sir, how many more countries do you think we can really expand to? And third is that how many more companies are we now engaging to act as a distributor for Indian diaspora products abroad? So, as far as the P

First of all apologies, if this question got repeated because I have missed your commentary. I just wanted to understand on the raw material like we also participated in many calls where management indicated that the raw material price has started stabilizing, but still they see some kind of inflationary pressure in coming quarters, so I just wanted to understand your view on that on our raw material?

Bimal Thakkar

So, as we have mentioned we are still seeing some strong headwinds on the price increase on the raw materials. We are still seeing that, and we hope in the next quarter, it gets better, but what is helping us is the freight cost are coming down and we are trying to maintain our margins by better efficiencies and better product mix. Inflationary pressure continues to remain on the raw material prices. Sir, my one last question was like we have seen a good growth in our standalone business, but how do we assess the performance of our products on a local level like which big-box retailer we are t

My question basically is sir, is that we are currently running at a run rate of about Rs. 200 crores per quarter, by when do you feel that we can kind of reach a run rate of say Rs. 400 crores per quarter in how many years or how are you seeing that the opportunity space opening up for us?

Bimal Thakkar

Ashish, you know as we always maintained that our endeavor is to try and double up in size every 3 years. Because of COVID and certain disruptions, this financial year was a little bit of challenge, but otherwise had we not gone through those disruptions, I think we would be on track to do that, now that the worst is behind us, I think we hope to continue with that trajectory of doubling up every 3 years. So, you are saying because the US and these are mature markets, so what would lead to this doubling of our sales out there? So, if you saw the standalone business of ours, ethnic food, Indian

Sir, if you can help us understand the 17% growth on H1 over H1, can you bifurcate that between price hikes we have been taking on the volume growth?

Shardul Doshi

So, it is roughly around 60% is coming from the price and 30% to 40% is coming from the volume. And how easy is it for us to take such a price hike every year or is it just onetime every 2-3 years? We can’t take such price increases every year unless we are under like these kinds of extraordinary circumstances where everyone was getting hit by high cost on the raw materials, on the freight, all of that, but normally we do have price increases of about 4% to 5%, it all depends. So, this year was an extraordinary year and everyone, not just us, but a lot of other competitors also did take a pric

Thank you everyone for the participation and wish you a good evening and we will catch up in the next quarters. Thank you.

Management

Speaking time

Bimal Thakkar

Anupam Aggarwal

Moderator

Shardul Doshi

Faisal Hawa

Prakash Kapadia

Tushar Shetty

Ashish Kacholia

Ravi Naredi

Devang Gandhi

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Opening remarks

Bhavin Soni

Thanks. Good evening everyone. I am Bhavin Soni from Orient Capital. We are Investor Relations Advisors to ADF Foods Limited. On behalf of ADF Foods Limited, I extend a very warm welcome to all the participants on this Q2 and H1 FY23 financial results discussion call. Today, on the call, I am joined by Mr. Bimal Thakkar - Chairman and MD; Mr. Shardul Doshi - CFO and Mr. Devang Gandhi - Chief Operating Officer. I hope everyone has had an opportunity to go through the investor presentation and press release that we have uploaded on the exchanges and company’s website. Before we begin the call, I would like to give a short disclaimer. This call may contain some forward-looking statements which are completely based on our beliefs, opinions, and expectations as of today. These statements are not a guarantee of future performance and involve unforeseen risks and uncertainties. With this, I hand over the call to Mr. Thakkar for his opening remarks. Over to you, sir.

Bimal Thakkar

Thank you, Bhavin. Good evening everyone. I am pleased to welcome you all to our Q2 and half year ended 30th September 2022 Earnings Conference Call. The demand for our products continues to be strong and I am happy with the performance of the ADF team as we have achieved strong and profitable growth. On a standalone basis, we recorded revenue of Rs. 155 crores in H1 financial year 23 and Rs. 83.2 crores in the Q2 financial year 23, a growth of 17.3% and 12.8% respectively for the same periods last year. On a consolidated basis, we recorded revenue of Rs. 204 crores in H1 financial year 23 and Rs. 106 crores in Q2 financial year 23. Our standalone EBITDA and PAT for the half year stood at Rs. 22.8 crores and Rs. 20.5 crores, respectively. Our consolidated EBITDA and PAT for H1 financial year 23 and Q2 financial year 23 stood at Rs. 27.1 crores and Rs. 21.2 crores, respectively. Weare showing constant growth and resilience in our overall business despite the supply chain disruption whic

Shardul Doshi

Thank you, Bimal. Good evening, everyone and thank you for joining us today. Let me brief you on the financial highlights for the second quarter. Let me cover the standalone first. On a quarterly basis the Q2 FY23 revenue stood at Rs. 83.2 crores which is an increase of 12.8% on Y-on-Y and 15.3% quarter-on-quarter. Our Q2 gross profit and EBITDA for standalone business stood at Rs. 47.7 crores and Rs. 15.5 crores. Q2 PAT stood at Rs. 13.1 crores with margin of 15.7% which is an improvement of 110 bps Y-on-Y and 540 bps sequentially. We are continuing not to book any income on account of PLI incentive for the current year due to change in policy with respect to start year under the PLI policy. On standalone basis, our H1 FY23 revenues increased by 17.3% to Rs. 155.3 crores compared to the same period last year. EBITDA stood at Rs. 22.8 crores and PAT stood at Rs. 20.5 crores with a margin of 13.2%. The freight cost is showing declining trend which has continued for September also, howev

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