HNDFDSNSENovember 15, 2023

Hindustan Foods Limited

8,727words
77turns
8analyst exchanges
4executives
Management on call
Sameer Kothari
MANAGING DIRECTOR, HINDUSTAN FOODS LIMITED
Ganesh Argekar
EXECUTIVE DIRECTOR, HINDUSTAN FOODS LIMITED
Mayank Samdani
GROUP CFO, HINDUSTAN FOODS LIMITED
Vimal Solanki
HEAD, CORPORATE COMMUNICATIONS, HINDUSTAN FOODS LIMITED
Key numbers — 40 extracted
Rs. 400 crore
y announced expansion. The Company has initiated the process of issuing warrants to the tune of Rs. 400 crores to some of our existing investors, namely Convergent and Sixth Sense, and also to a few new inve
rs,
ated the process of issuing warrants to the tune of Rs. 400 crores to some of our existing investors, namely Convergent and Sixth Sense, and also to a few new investors, including Malabar Capital, Bay
Rs. 100 crore
the last couple of quarters and accordingly the board has given us the permission to invest up to Rs. 100 crores in this sector. We do believe that this sector will see some unprecedented growth, aided by the
Rs. 75 crore
addition to that, I am now pleased to inform that the Board has authorized an investment of up to Rs. 75 crores in a Greenfield project for ice cream. Both as far as Beverages and Ice creams is concerned, we
100%
the Company has executed a share purchase agreement with KNS Shoetech Private Limited to acquire 100% share capital. KNS Shoetech is engaged in the business of manufacturing the entire portfolio of s
Rs. 1,297 crore
nancial Performance” of Q2 and H1 FY24. Performance of H1 FY24, revenue remained flat at Rs. 1,297 crores in H1 FY24 from Rs. 1,262 crores in H1 FY23. EBITDA grew by 29% to Rs. 106 crores in H1 FY24 fro
Rs. 1,262 crore
H1 FY24. Performance of H1 FY24, revenue remained flat at Rs. 1,297 crores in H1 FY24 from Rs. 1,262 crores in H1 FY23. EBITDA grew by 29% to Rs. 106 crores in H1 FY24 from Rs. 82.7 crores in H1 FY23. PAT
29%
nue remained flat at Rs. 1,297 crores in H1 FY24 from Rs. 1,262 crores in H1 FY23. EBITDA grew by 29% to Rs. 106 crores in H1 FY24 from Rs. 82.7 crores in H1 FY23. PAT increased by 42% to Rs. 48 cror
Rs. 106 crore
ained flat at Rs. 1,297 crores in H1 FY24 from Rs. 1,262 crores in H1 FY23. EBITDA grew by 29% to Rs. 106 crores in H1 FY24 from Rs. 82.7 crores in H1 FY23. PAT increased by 42% to Rs. 48 crores in H1 FY24 fro
Rs. 82.7 crore
in H1 FY24 from Rs. 1,262 crores in H1 FY23. EBITDA grew by 29% to Rs. 106 crores in H1 FY24 from Rs. 82.7 crores in H1 FY23. PAT increased by 42% to Rs. 48 crores in H1 FY24 from Rs. 33.8 crores in H1 FY23.
42%
EBITDA grew by 29% to Rs. 106 crores in H1 FY24 from Rs. 82.7 crores in H1 FY23. PAT increased by 42% to Rs. 48 crores in H1 FY24 from Rs. 33.8 crores in H1 FY23. We are able to achieve 21% ROE, whic
Rs. 48 crore
grew by 29% to Rs. 106 crores in H1 FY24 from Rs. 82.7 crores in H1 FY23. PAT increased by 42% to Rs. 48 crores in H1 FY24 from Rs. 33.8 crores in H1 FY23. We are able to achieve 21% ROE, which we expect to s
Guidance — 20 items
Coming to the overall performance of the Company
opening
“In the Beverage segment, we have already announced setting up of a huge manufacturing facility in Assam and I am pleased to inform that project is progressing well and we are confident that we should be able to start production by Q4 of this financial year.”
Coming to the overall performance of the Company
opening
“75 crores in a Greenfield project for ice cream.”
Coming to the overall performance of the Company
opening
“We have talked about this in a couple of calls and we continue to be bullish about the Indian consumption story and are confident of reaching our stated target by FY25.”
Ganesh Argekar
opening
“The Company’s CAPEX plan for setting up the Soaps & Bars project was commercialized in Q1 and continues to ramp up satisfactorily.”
Mayank Samdani
opening
“We are able to achieve 21% ROE, which we expect to sustain.”
Mayank Samdani
opening
“As far as the fundraise is concerned, we are awaiting the in-principle approval from the stock exchanges and expect to receive the initial subscription amount before the end of this month.”
Sameer Kothari
qa
“What we have done is that depending on the opportunities that come in, we will be calling for the money.”
Abneesh Roy
qa
“My question is on what you mentioned China Plus One and footwear, etc., so my question here is over a medium long term 3-5 years, would you expect more of your business from non-FMCG given this kind of eco changes happening?”
Abneesh Roy
qa
“I understand footwear demand is much more volatile versus FMCG demand, but the margins also obviously will be superior to FMCG plus given the China Plus One opportunity, if two kind of similar opportunities there, one from FMCG and one from footwear, where would your preference lie?”
Sameer Kothari
qa
“You are right that the shoe industry, especially with the China Plus One and the internal consumption demand aided by the fact that the government has levied import duties, brought in BIS on shoes etc., we do see that that growth will be superior.”
Risks & concerns — 9 flagged
The slowdown in the FMCG demand and especially the deflation in the commodity prices continue to affect the short-term sales performance of our Company.
— Coming to the overall performance of the Company
I understand footwear demand is much more volatile versus FMCG demand, but the margins also obviously will be superior to FMCG plus given the China Plus One opportunity, if two kind of similar opportunities there, one from FMCG and one from footwear, where would your preference lie?
— Abneesh Roy
So Abneesh, we have been quite agnostic as far as product categories is concerned as long as we are very clear that the mandate is to do contract manufacturing, which in our mind basically means that we do not take on any inventory obsolescence risk, we do not take on any risk as far as the market is concerned and we do not take on any risk as far as marketing branding is concerned.
— Sameer Kothari
There is definitely some amount of pressure in terms of product categories, etc., however, if you look at it from an outsourcing strategy perspective, I would hesitate to say that the outsourcing strategy for brand owner would be different for a mass market or for a premium product.
— Sameer Kothari
The down trading would affect the contract manufacture, in fact, we, as a Company, have been aware of this risk for a while and that is the reason why we are dealing with a bunch of customers, right, so we are dealing with the larger guys, we are dealing with the premium products, but we are dealing with the smaller guys, we are dealing with private labels, we are dealing with the mass market products as well.
— Sameer Kothari
There might be bouts where seasonality would affect products like ice creams and beverages, and we have tried hard to ensure that our product basket diversifies across all this risk and I think that is playing out as far as we are concerned.
— Sameer Kothari
As you are aware, our business model and more importantly our financial model allows us the luxury of taking on debt without increasing the financial leverage or the risk profile of the Company and we will continue to leverage that aspect of our business.
— Sameer Kothari
That is one thing we are very clear on and I can tell you again in no uncertain terms, we are not having any of our own brands and we do not intend to launch our own brands at all in any of the product categories, including shoes.
— Sameer Kothari
10 crores and it is very difficult for me to extrapolate the entire business model and the business modalities on the basis of that small acquisition.
— Sameer Kothari
Q&A — 8 exchanges
Q
Sameer, what is the acquisition cost as a metric of market cap to sales for this new shoes facility that we have acquired? And what is the contribution of the top 5 customers in revenues of this unit? And the third is, what is the capacity utilization the present owner is having? And what is the reason that the owner would have sold to us?
Sameer Kothari
Faisal, I need to delineate a couple of things. So the board has authorized a total investment of Rs. 100 crores as far as sports shoe is concerned. We have initiated the diversification into sports shoe by taking over a very small Company called KNS Shoetech, the exact acquisition cost, Mayank will elaborate, but that is not the entire outlay of Rs. 100 crores. As far as KNS Shoetech is concerned, the actual contours of the transactions are Faisal, we have taken over this Company by paying Rs. 3.75 crores, against share, this is a share acquisition. It will become 100% subsidy of the Company
Q
My question is on what you mentioned China Plus One and footwear, etc., so my question here is over a medium long term 3-5 years, would you expect more of your business from non-FMCG given this kind of eco changes happening? I understand footwear demand is much more volatile versus FMCG demand, but the margins also obviously will be superior to FMCG plus given the China Plus One opportunity, if two kind of similar opportunities there, one from FMCG and one from footwear, where would your preference lie?
Sameer Kothari
So Abneesh, we have been quite agnostic as far as product categories is concerned as long as we are very clear that the mandate is to do contract manufacturing, which in our mind basically means that we do not take on any inventory obsolescence risk, we do not take on any risk as far as the market is concerned and we do not take on any risk as far as marketing branding is concerned. That is how we are defining contract manufacturing. So from within that space, we have been frankly agnostic as far as product category is concerned. You are right that the shoe industry, especially with the China
Q
The first question is out of the Rs. 400 crores that you are raising or you mentioned utilization of about Rs. 225 crores, by when would plans be announced for the pending Rs. 175 crores and which categories are we targeting, could you just throw some light on that?
Sameer Kothari
Aakash, obviously we can't, but let me step back for a second, right. We are hoping not to fund the entire Rs. 225 crores that we have talked about through equity. As you are aware, our business model and more importantly our financial model allows us the luxury of taking on debt without increasing the financial leverage or the risk profile of the Company and we will continue to leverage that aspect of our business. So out of this Rs. 225 crores, a part of the money would be coming in from debt for sure. As far as the balance is concerned, we actually do not have a clear visibility of when we
Q
I have one question, could you please quantify CAPEX spend for financial year 23 and work- in-progress CAPEX for financial year 24?
Mayank Samdani
So in the answer of last question Muthukumar we have answered that the work in progress which we have announced is around Rs. 350 crores which will come in this year, right and for the last year, our total gross block including CWIP as on 30th September is around Rs. 915 crores. So that 915, Muthukumar does not include the new CAPEX that Mayank has talked about, which is the Rs. 325 odd. Do you have any plan to make a divestment from your core business as of now? If it is core, we will definitely not divest Muthu. We don't have any plans of any divestments as of now. You are right in terms of
Q
Sir, my first question is, if I have to go back to your history in December 2021 quarter, which is Q3 FY22, you were at Rs. 522 crores of revenue and gross margins of 11.8%, now fast forward it to September 23 which is almost now eight quarters ahead we are at a gross margins of 16.4%, it is 500 basis point change and this has roughly doubled our profitability in terms of gross margin, now this has to do with outside the utilization ramp up that you have done, so if you can help me, what has really changed over last 8 quarters, which is 2 years now, which has led to the gross margins growing u
Sameer Kothari
Priyank, before I answer that question, let me tell you, I urge most of the people who look at our Company not to look at profitability margins as a percentage of sales because for us the entire sales is made up of RMPM, which is a passthrough cost. To give you a specific example here, and I am going to ask Ganesh to give you actually specific examples, but broadly any kind of change in RMPM prices ends up inflating or deflating our sales without affecting our EBITDA or our PBT, but I will ask Ganesh to give you a specific example on this. The process here is Priyank that we buy material all t
Q
Sir, the first question is in regards to the Rs. 4,000 crore sales target for FY25, but does that assume the flattishness in sales in FMCG what you are anticipating or there is some kind of work and bullishness being kind of factored in for our Rs. 4,000 crore of target?
Sameer Kothari
To be fair, we try to ensure that we are not irrationally exuberant as far as our products and our guidance is concerned. If you recollect, we had given this guidance, I think nearly a year ago and we still stand by that. So obviously a year ago, we did not expect that the FMCG industry would become tepid or that the growth would start tapering off. We still feel that we should be confident about reaching this with a little bit of help from our shareholders and God. So just to reiterate it means like even if the macro situation continues to remain the way they are right now, we are still hopef
Q
There seems to be some increase in working capital for the first half, should that be the new trend going forward or should we treat it as a flip?
Mayank Samdani
Bhaskar, the increase in the working capital is basically because of the new factory ramping up and those factories are yet to achieve their capacity utilization, so you will see this kind of thing when a new factory comes in, but it will normalize as we achieve the capacity utilization on those factors. In the last quarter, Bar factory and Ice cream new investment is capitalized and yet to achieve their capacity utilization. So this trend is not permanent, but this will come and go as the new factories is ramped up and capitalized. I should caveat that from the fact that the shoe business is
Q
Thank you, Yashashri. Good afternoon. We at HFL are passionately committed towards ESG and have undertaken various sustainability initiatives like integration of solar power plants and rainwater harvesting assistance at our new and existing factories, adoption of brick and boilers to replace traditional coal-fired ones, transition to cleaner fuel to reduce carbon emissions and promotion of cleaner energy alternatives, embracing smart lighting and air conditioning systems, digital payment and signature methods, replacing vapor lamps with LEDs to conserve power consumption and striving to minimu
Management
Speaking time
Sameer Kothari
29
Moderator
10
Mayank Samdani
6
Akhil Parekh
6
Faisal Hawa
5
Aakash Javeri
5
Priyank
5
Muthukumar
3
Ganesh Argekar
2
Abneesh Roy
2
Opening remarks
Sameer Kothari
Thank you, Yashashri. Good morning and welcome to everyone for our First Half & Quarter 2 FY24 Earnings Conference Call. I am joined on the call by Mr. Ganesh Argekar - Executive Director; Mr. Mayank Samdani - Group CFO and Mr. Vimal Solanki – Head, Corporate Communication. In addition to that, we have SGA, our Investor Relations Advisor. I hope everyone has had a chance to go through our updated Earnings Presentation that was uploaded on the Stock Exchange and our Company website.
Coming to the overall performance of the Company
The slowdown in the FMCG demand and especially the deflation in the commodity prices continue to affect the short-term sales performance of our Company. Additionally, the delay in getting approval for our Baddi acquisition has also hurt our plans for this financial year. However, we have still ended up with a record PAT for the quarter and for the half year. From a business and usual operations perspective, this has been a stable quarter and a predictable one at that and I am going to request my colleague, Ganesh, who will give the operational updates in a few minutes from now. However, I would like to make a brief statement on our planned fundraise and our recently announced expansion. The Company has initiated the process of issuing warrants to the tune of Rs. 400 crores to some of our existing investors, namely Convergent and Sixth Sense, and also to a few new investors, including Malabar Capital, Bay Capital and Vanaja Sundar Iyer. I would personally like to thank these investors f
Ganesh Argekar
Thank you, Sameer, and good morning, everyone. I will now take you through the “Operational and Business Highlights” for H1 and Q2 Financial Year 24. The factory being set up in Guwahati, Assam for the manufacture of juices is progressing well and is expected to start commercial production by Q4. The Company’s CAPEX plan for setting up the Soaps & Bars project was commercialized in Q1 and continues to ramp up satisfactorily. The upgradation CAPEX in the beverage facility in Mysuru for the new MNC customer was completed and commercial production has started in the month of October. Elaborating about expanding presence in the contract manufacturing of shoe space as referred to by Sameer, the Company has executed a share purchase agreement with KNS Shoetech Private Limited to acquire 100% share capital. KNS Shoetech is engaged in the business of manufacturing the entire portfolio of sports shoes, sneakers and open sports footwear. The Company has a factory located in Kundli, Haryana and i
Mayank Samdani
Good morning, everybody. Now I would like to take you through the “Financial Performance” of Q2 and H1 FY24. Performance of H1 FY24, revenue remained flat at Rs. 1,297 crores in H1 FY24 from Rs. 1,262 crores in H1 FY23. EBITDA grew by 29% to Rs. 106 crores in H1 FY24 from Rs. 82.7 crores in H1 FY23. PAT increased by 42% to Rs. 48 crores in H1 FY24 from Rs. 33.8 crores in H1 FY23. We are able to achieve 21% ROE, which we expect to sustain. Our consolidated cash flow from operation was stable in spite of increase in inventory levels due to the commencement and ramping up of our new facilities. We will talk about the performance of Q2 FY24: Revenues also remain flat in this quarter as in half year at Rs. 677 crores in Q2 FY24 from Rs. 620 crores in Q1 FY24 and Rs. 663 crores in Q2 FY23. EBITDA grew by 8% Q-on-Q and 26% Y-on-Y to Rs. 55.6 crores in Q2 FY24 from Rs. 51.4 crores in Q1 FY24 and from Rs. 44 crores in Q2 FY23. PAT increased by 6% Q-on-Q and 31% Y-on-Y to Rs. 24.7 crores in Q2 F
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