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Edited Transcript of DAAWAT.NSE earnings conference call or presentation 7-Feb-20 10:00am GMT

Q3 2020 LT Foods Ltd Earnings Call

Feb 19, 2020 (Thomson StreetEvents) -- Edited Transcript of LT Foods Ltd earnings conference call or presentation Friday, February 7, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ashwani Kumar Arora

LT Foods Limited - CEO, MD, CFO & Whole Time Director

* Monika Chawla Jaggia

LT Foods Limited - Compliance Officer & Company Secretary

* Vivek Chandra

LT Foods Limited - CEO of Global Branded Business

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Conference Call Participants

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* Anurag Patil

Roha Asset Managers LLP - Research Analyst of Equity

* Chintan Desai;Param Capital;Sr. Equity Research Analyst

* Deepak A. Kolhe

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Rakesh Roy

Indsec Securities & Finance Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q3 FY '20 Earnings Conference Call of LT Foods Limited, hosted by Batlivala & Karani Securities India Private Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Deepak Kolhe from Batlivala & Karani Securities.

Thank you, and over to you, sir.

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Deepak A. Kolhe, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [2]

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Thanks, Margaret. Good afternoon, everyone. On the behalf of Batlivala & Karani Securities, I would like to welcome all the participants who had logged in to this third quarter results con call of LT Foods Limited.

From the management team, we have with us Mr. Ashwani Kumar Arora, Managing Director and CEO; Mr. Vivek Chandra, CEO, Global Branded business; and Ms. Monika Chawla, VP of Finance and Strategy; and Mr. Sachin Gupta, General Finance Manager. Thank you, management, for giving us the opportunity to hold this call. I would like to request Monika, madam, to first begin with her opening comments, post which we will have a Q&A session. Thank you.

And over to you, ma'am.

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Monika Chawla Jaggia, LT Foods Limited - Compliance Officer & Company Secretary [3]

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Thank you, Deepak. Good afternoon, everyone, and thank you for joining us on the LT Foods Quarter 3 Financial Year '20 Earnings Conference Call. My name is Monika Chawla Jaggia. I head the Investor Relations team at LT Foods. Joining me today is Mr. Ashwani Kumar Arora, the Managing Director and CEO; Mr. Vivek Chandra, the CEO of Global Branded business; and Mr. Sachin Gupta, the General Manager, Finance of the company.

I would like to highlight that certain statements made or discussed on the conference call today will be forward-looking statements and a disclaimer to this effect has been included in the results presentation shared with you all here. Result documents are available on company's website and have also been uploaded on the stock exchanges. A transcript of this call would also be made available on the Investors section of the company's website. I would like to begin by taking you through the key highlights of our 9 months financial year '20 performance.

Our revenue for the 9-month period is at INR 2,967 crores, a growth of 2%. Our strategic intent has been to focus on our branded business and gradually reduce the nonbranded, private label and the trading business, so as to build a business sustainable and more profitable. As a result, the share of our branded rice portfolio increased to 76% versus 70% last year. Our branded sales growth has been broad-based coming from [our] all the markets with the India-branded business growing at 6%, and the international-branded business growing 16%. Our second strategic focus has been growth in our profitability. With the combination of change in sales mix and manufacturing efficiencies, the gross profit for 9 months financial year '20 increased by 10% to INR 794 crores.

EBITDA for 9 months financial year '20 increased by 12% year-on-year at INR 358 crores due to higher GP and further operational efficiency. The EBITDA margin for 9 months improved by 107 bps on year-on-year to [12.1] basis, which is in line with our plan to expand EBITDA margin by 200 bps in the next 2 years. We'd also like to mention here that our [water] business, which achieved EBITDA breakeven in quarter 4 last year, continues to do well and has EBITDA of INR 11 crores for the 9-month period. PAT, the PAT, jumped by 22% in 9 months financial year '20 to INR 141 crores. We have performed exceedingly well in terms of the cash flow front as well. The cash flow generated from the operation, up by 150% to INR 269 crores.

Now I would like -- I will be taking you through the key highlights for our quarter 3 financial year '20 performance. Our revenue for the quarter 3 financial year '20 at INR 998 crores fell by 11% on year-on-year basis, mainly due to the decline in the private label business, as explained earlier. While our branded business grew 6% in the quarter 3. During the quarter, the gross profit margin improved by 300 bps due to better product mix. The EBITDA margin for Q3 improved by 170 bps on year-on-year to 11.7%. 11.7%. PAT for the quarter increased by an impressive 26% year-on-year basis.

Now I would like to update you all on the -- all the efforts taken towards the strengthening the balance sheet of LT Foods. Net worth of the company is up by 12% to INR 1,561 crores year-on-year basis. Because of our continued focus on strengthening our balance sheet, the long-term debt has decreased by 22% to INR 205 crores. The long-term debt to equity has reduced to negligible levels of 0.13 from 0.19 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.

Because of our continued focus on working capital optimization, our net working capital has also reduced by 7 days to 257 days, which has helped in reducing short-term debt by INR 12 crores to INR 1,380 crores. Total debt of INR 1,585 crores is lower by INR 70 crores on a year-on-year basis. The total debt-to-equity ratio has also improved to 1.02 versus 1.18 year-on-year basis.

Interest coverage ratio has also improved significantly in quarter 3 financial year '20 from 2.8 to 3.2 year-on-year basis. Debt-to-EBITDA ratio has also considerably improved to 3.3 versus 3.9 last year. The current ratio has also improved significantly to 1.49 from 1.38 last year. The ROCE has also improved by 80 bps to 12.6%.

Thus, our efforts have started reaping dividends in the form of strengthening all kind of key financial ratios, solvency return and the liquidity ratios. These have started getting reflected in our strong credit rating of your company enjoys of A- positive outlook given by the reputed credit rating agency CRISIL.

I now hand over to Mr. Chandra for the further business update.

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

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Thank you, Monika. We at LT Foods have been the industry default leaders and technology innovators. We are proud of the fact that most consumer-centric ideas like consumer packaging or recipe-based solutions like the Biryani, Pulav and Rozana variants, or usage-based products specifically designed for HoReCa, all have originated from LT Foods. LT Foods, one of the first to introduce 2 year age rice was the first to recognize that during these 2 years, rice needs to be stored hygienically and carefully, and so pioneered the use of silos for storage.

Similarly, LT pioneered the launch of brown Basmati rice and is the only one to sell a genuine quick-cooking brown rice with its full bran still intact. I'm happy to announce that LT Foods has continued its innovation and consumer-centric leadership by launching a fortified Basmati under the brand Daawat Sehat. This product is fortified with iron, multivitamins and folic acid and is certified F+ by FSSAI. Launched in test in Delhi, the brand is gaining very good trade and consumer response.

As discussed in earlier quarters, we have forayed into certain greenfield ventures which are a natural extension to our current portfolio. And I would like to give you an update on those. On Kari Kari, post the successful test launch 18 months ago, we have started commercial production from our new facility in North India. This facility will enable pan-India expansion for Kari Kari.

Regarding our ready-to-heat facility in the U.S., I'm happy to share that this is expanding well with the product being well accepted by the trade and consumers and has a revenue of INR 16 crores in the first 9 months of this year. We have started commercial production from our organic soya meal plant with a capacity of about 10,000 tonnes. We are pleased to inform that the plant has reached 75% utilization in the first quarter of the operation itself.

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

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

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Good afternoon, everyone. LT Foods is a 70-year-old food company, delivering the finest-quality rice and rice-based food brands, providing taste and nutrition in more than 80 countries. We are also proud producer of organic agri ingredient, supplying them to the leading business in Europe and the U.S. for the past 25 years. Overall, we are on the track with our strategy for this year. As informed on our earlier calls, our strategic focus continues to be driven by 3 broad pillars: growth, margin expansion and strengthening our financial metrics.

Our growth strategies are to strengthen our brand; secondly, further widen our distribution network and increase brand penetration across all consumer segments. Margin expansion strategies are to focus on change in product mix towards higher-margin brands, manufacturing, cost efficiency; and, thirdly, to realize economy of scale. We will focus on strengthening our balance sheet through growth, margin expansion and focus on cash flow generation. Thank you.

Now we open the session for question and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of [Nehal Bake] from MAN Finance.

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Unidentified Analyst, [2]

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First of all, I would like to congratulate for the excellent set of numbers, and we're showing strong focus on the margin growth, which is very good for investors.

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

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Thank you.

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Unidentified Analyst, [4]

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Could you throw some light on competitive intensity in various geographies? And how will you achieve further margin expansion? Also, what is the goal of yours in this current tough market situation?

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

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As far as -- we as a company, we are strong in India, America, Europe, and the rest of the world, like Far East, we are very strong. So in this space, the consumption is growing. And as a brand, we are a very strong brand. In India, we have a 26% market share. In U.S.A., we have more than 45% market share. And we are, in some part of the world, we are in a leadership position. So as a strong brand, we will keep leveraging and commanding the price power.

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Unidentified Analyst, [6]

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Okay, okay, okay. And I have one more question. You have shown in the presentation that your branded portfolio has shown a growth of 6%. Earlier, it was 70%, now it is 76%, which is very impressive. Could you give me the reason for the same? And what would be your strategy going forward to improve it to a further extent?

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

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As I said, the category is growing, and we will keep focus on our consumer business, and we will keep this momentum.

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Operator [8]

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The next question is from the line of [Parul Mehta] from (inaudible) Wealth Advisors.

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Unidentified Analyst, [9]

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Could you tell me just how [Basmati] prices moved in the last 9 months?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [10]

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So this season, the crop '19 is cheaper by 15% to 20% than the last year, and the crop was good.

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Unidentified Analyst, [11]

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Okay. And what is your outlook going forward on this?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [12]

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So the prices, as you know, on the bottom, so we expect that going forward, if Iran improves the demand, then the prices will be firmed.

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Unidentified Analyst, [13]

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Okay. And do you feel that there is possible inventory loss due to fall in the (inaudible) prices?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [14]

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No. I think, as I said in the last 2 con call also, crop '19 is not a replacement of crop '18. And there is no price decrease in the crop '18. Therefore, there is no loss.

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Unidentified Analyst, [15]

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Okay. Okay. And sir, what is your CapEx plan for the next 2 years? And what is the CapEx done in this year?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [16]

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CapEx is roughly -- this year will be INR 40 crores. And going forward, as we said that...

(technical difficulty)

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Operator [17]

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Ladies and gentlemen, we seem to have lost the line from the management, request you to stay connected while we check.

Ladies and gentlemen, thank you for patiently waiting. We have the line from the management reconnected. Over to you, sir.

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

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Okay. Until December -- if you've missed this line, I'm repeating that, until December, the CapEx is INR 42 crores. And going forward, the CapEx will be in the range -- same range.

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Operator [19]

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The next question is from the line of Hardik Sodha from Crescita Investments.

We'll move to the next question, which is from the line of [Daksh Solanki], an individual investor.

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Unidentified Participant, [20]

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So I've seen that the private label business has been reduced. So is this a conscious strategy? And then probably we're looking forward to reduce the product and focus on the branded business? So what's the strategy going forward?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [21]

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That's what the strategy is, to grow our branded business. And only -- which is sustainable, be it the private label, it has to be a sustainable business. As I said, we are only doing private label, which is strategic in nature and -- yes.

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Unidentified Participant, [22]

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Okay. And the other question I have in here, can you comment on the kind of margins regarding the organic business? (inaudible) profitable right now?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [23]

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What is EBITDA margin?

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Unidentified Company Representative, [24]

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EBITDA is 13.4.

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

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So organic business, EBITDA margin is at 13.4.

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Unidentified Participant, [26]

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Okay. And the final question which I had is that I just realized that you all have taken a Board meeting for declaring a dividend in this coming next few weeks. Has the Board considered the possibility of a buyback since the stock is trading at 5x earnings? And it will be very -- it will get a lot of value if we buy back at these low prices.

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

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Yes, we are going to discuss in the Board. Yes, we'll evaluate.

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Operator [28]

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The next question is from the line of [Ashok S] from Merlin India Fund.

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Unidentified Analyst, [29]

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Good set of numbers this quarter. I would just like to understand a bit more on your strategy going forward. I noticed your organics food or the new products, around 15% of revenue. So 2 parts to the question. Do you see this becoming a big portion going forward? And second is, is that kind of -- how do we interpret because you still have quite a room to go as far as market share goes in some of your geographies? So can we expect market share gains also? Or is it -- market share is kind of tough to now increase and, hence, new products in organic and new businesses?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [30]

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Okay. First, I will answer your -- the organic side. So organic side, we have the plan to grow 10% to 15% year-on-year. And the branded business will grow also in the range of 10%. And going forward, what we expect that organic business will be in the range of 15% to 20% of our revenue.

And regarding this -- our core business, which is consumer business. And we -- in some geography, we are trying -- the focus is to gain market share. And in some markets, like U.S.A., we are already 45% to 50% market share. Here the focus is to maintain market share and get into the value-added things. And as you know, last year, we have got RTH, which is 2-minute microwave rice. So that's the focus.

In India also, the focus is to grow core business. And as the consumer trend is changing -- so we have launched, which is rice value-added, we have launched Rice Sauté Sauces, which is getting very good response. And some products are in the pipeline according to the consumer demand. So as we said, we have the finest rice, Daawat brand is a very strong brand in India. And as a brand, we will provide consumers all the needs regarding rice-based solution.

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Unidentified Analyst, [31]

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Great. And sorry if I could just kind of continue on that same thing. So from a margin and overall capital -- return on capital from these new businesses, I understand we have to invest for a while until they become stable. But longer term, these are also high-margin, high ROC businesses?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [32]

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Yes, high-margin, high ROC business. And the margin expansion strategy is the same, the product mix and the scale and the growth. So these are the margin expansion strategies.

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Unidentified Analyst, [33]

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Sorry, just one last bookkeeping question on your tax rate. That seems to have come off. Is it that new tax rate adopted? Or how should we look at this going forward?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [34]

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This is the new tax rate.

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Operator [35]

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The next question is from the line of [Shalini Gupta from Royal India Investment Managers].

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Unidentified Analyst, [36]

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Sir, congratulations on the good quarter. Actually, just wanted to inquire whether the company will be moving more towards the health segment as you all have gotten new rice towards, which is on the healthy side. But would we be moving into something like cereal, quinoa, or couscous?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [37]

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No, I think I will ask Mr. Vivek to -- we have 3 pillars, which is health, convenience and the core dry rice. So he will put more light on the -- moving forward on the health question here.

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [38]

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Yes. I think I'll just build on what Mr. Ashwani Arora said that we are expanding into health and convenience, which is from our core of rice. Grains like quinoa, et cetera, if they fit into what the consumer needs and what Daawat as a brand can offer, will be evaluated. But it's currently not on the annual.

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Unidentified Analyst, [39]

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Okay. But do we see there's something as -- is there something while all within the pipeline for us? Or have you not given it much thought?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [40]

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Quinoa, not. Not at the moment.

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Unidentified Analyst, [41]

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Okay. Okay. And just one last question. You have launched Kari -- launched Kari before. So there are a lot of established players already in the market. So how do you see yourselves standing in this competitive space?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [42]

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So in snacking, we are entering into the premium snacking side. And as you know...

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Unidentified Company Representative, [43]

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And health.

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [44]

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And the health. And as I said, we have done the consumer test, and we have got a very good response. And we have done our complete homework on this. And we assure that we will have success in this venture.

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Unidentified Analyst, [45]

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Okay. And how will we be planning the distribution of these products?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [46]

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So distribution will be, of course, as a premium product, it will be the modern trade, online and a [class] outlet in GT and the HoReCa.

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Operator [47]

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

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Chintan Desai;Param Capital;Sr. Equity Research Analyst, [48]

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Sir, my question is on the branded domestic revenue front. For the quarter, we have [degrown] by around 3%, which is largely a realization in (inaudible). Whereas -- and we look at one of the competitors' numbers, the realizations have not come down. In fact, they are higher. Even on a 9-month basis, if you look at our realization is around 1%, 1.5% compared to around 6%, 5%, 6-odd percent for the competitor. So what -- where does this mismatch happening? Is it because of the mix, HoReCa and consumer mix?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [49]

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Of course, this is -- one is the product mix. And in the last quarter, the prices have -- because the new crops started coming and the food service people pick new crop. And new crop was competitively less priced in this quarter.

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Chintan Desai;Param Capital;Sr. Equity Research Analyst, [50]

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And sir, if you were to further split it with HoReCa versus the consumers, what would be a rough mix 9-month -- at 9-month level this year versus last year?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [51]

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So we're -- roughly 17% is HoReCa business and the rest is all consumer business.

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Chintan Desai;Param Capital;Sr. Equity Research Analyst, [52]

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Okay. And sir, my second question is on the branded exports front. Volumes have been growing at a very healthy space. What would be the reason for realizations being around 10% or lower levels?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [53]

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Again, can you repeat that one?

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Chintan Desai;Param Capital;Sr. Equity Research Analyst, [54]

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Sir, in the branded exports business, the realizations are almost 9.5%, 10% for the quarter I mean down. So what would be the reason there?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [55]

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So okay. So one is, it's product mix because a lot of brown rice is going to the Europe. It's a product mix, I will say, yes. But overall, on our brand while (inaudible), we are not -- except the India food service, the realization is not less as compared to last year, if you see the [brand-wise].

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Chintan Desai;Param Capital;Sr. Equity Research Analyst, [56]

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Okay. And sir, lastly, on the organic business, the decline in the top line is largely price-led? Or is it a volume-led decline on, say, a 9-month basis?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [57]

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Okay. Okay. So because of -- again, it's a -- so we have a threefold portfolio in the organic ingredients. So as far as rice and other, like this oil seed and the other category has grown. Only the soya has decreased. And with this, the soya meal plant, we will recover it back. So we have just inaugurated in our organic company, the soya meal, organic soya meal. And as Mr. Vivek said, in the first quarter only, it is running 75% of the capacity.

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Operator [58]

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

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Rakesh Roy, Indsec Securities & Finance Ltd., Research Division - Research Analyst [59]

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Sir, this is Rakesh. Sir, my first question regarding this is can you share the EBITDA margin for the domestic branded and the international branded and organic?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [60]

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Yes, just a minute. As I said, in organic, it's 13.5. And international it's 15-point...

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [61]

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14.2%.

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [62]

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14.2%. And India is...

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [63]

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Is 13%.

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [64]

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India is 13%.

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Rakesh Roy, Indsec Securities & Finance Ltd., Research Division - Research Analyst [65]

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India is at 13%, sir?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [66]

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Yes.

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Rakesh Roy, Indsec Securities & Finance Ltd., Research Division - Research Analyst [67]

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So next question, sir. This year, sir, your top line degrow by, I think about 10%. But sir, other expense increases. Any -- how much -- in the other expense, how much is the advertisement and other things, sir? Kind of break that up.

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [68]

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In other expenses, only the salary has increased. That's because of -- we have started capitalizing Europe salary. And...

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [69]

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Ad and promotion expenses.

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [70]

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Yes, ad and promotion is INR 64 crores.

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Rakesh Roy, Indsec Securities & Finance Ltd., Research Division - Research Analyst [71]

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So essentially INR 64 crores?

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

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Yes.

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Rakesh Roy, Indsec Securities & Finance Ltd., Research Division - Research Analyst [73]

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In terms of revenue, is it nearby 2% to 3%?

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

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No, no. It's 9%, 10%? 9%?

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [75]

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The revenue is 2%.

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

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Yes.

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Rakesh Roy, Indsec Securities & Finance Ltd., Research Division - Research Analyst [77]

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Did you say 6% now?

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

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2%.

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Rakesh Roy, Indsec Securities & Finance Ltd., Research Division - Research Analyst [79]

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So 2%, sir. So any guidance for EBITDA margin for next 2 years, sir? How will it...

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

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So as I said, the focus is to improve our margin through growth and efficiency. We are sure that we will maintain the -- there will be a margin expansion in the coming years.

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Rakesh Roy, Indsec Securities & Finance Ltd., Research Division - Research Analyst [81]

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Okay, sir. What about the debts here? Any debt reduction (inaudible)?

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

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So as we said in our call that the idea is to maintain debt-to-EBITDA ratio less than 3. So that's the goal we are working towards.

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Operator [83]

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(Operator Instructions) The next question is from the line of Anurag Patil from Roha Asset Managers.

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Anurag Patil, Roha Asset Managers LLP - Research Analyst of Equity [84]

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So sir, how much is our exposure to Iran? And are you taking any payment or credit-related volumes here?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [85]

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No, Iran and LT Food, have not any exposure for the last 3 years. So there is no question of payment.

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Anurag Patil, Roha Asset Managers LLP - Research Analyst of Equity [86]

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And what is the short-term debt as of now?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [87]

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INR 1,380 crores.

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [88]

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INR 1,380 crores.

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Operator [89]

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The next question is from the line of [Anup from A&P Advisers].

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Unidentified Analyst, [90]

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Congratulations on a reasonably good set of numbers.

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

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Thank you.

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Unidentified Analyst, [92]

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I noticed that there are only 2 things which are bothering investors with respect to LT Foods. One is the operating profit margin and other is debt. With respect to operating profit margin, one of your competitors expects a sort of surprise with respect to your U.S. business, at the margin, what you are deriving out of the U.S. business because they were surprised at how you were able to sell at such lower prices. Can you please throw some light on it as to what is the margin that you're at?

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

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I cannot comment on there, whatever they have said. But as a company, we are getting very strong margin in that business.

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Unidentified Analyst, [94]

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Okay. So -- and as far as your debt is concerned, what -- do you have any target -- short-term target as to what we're going to achieve as figures -- as far as the figure is concerned?

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

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Can you repeat that, please?

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Unidentified Analyst, [96]

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As far as the debt is concerned, do you have any short-term targets as to the -- what -- as the numbers, what you want to achieve as?

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

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As I said, the most debt is working capital debt. And long-term debt is only INR 200 crores. But still, we have target to -- this year, we will be reducing end of the year roughly INR 150 crores to INR 200 crores either as compared to last year. And going forward, we are going to maintain our debt-to-EBITDA ratio less than 3. That's the goal we are working towards.

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Operator [98]

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The next question is from the line of [Mihir Desai from EMA Associates].

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Unidentified Analyst, [99]

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I just have 2 questions. One is that our other expenses are down roughly by 9% Y-o-Y in this quarter. Can you please explain or to elevate for the possible reasons for the same?

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

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Just a minute. So if you see, the sales is down by quarter-on-quarter, 10.6%, and expenses are down by 8%. So almost in terms of where we -- percentage to revenue is almost same.

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Unidentified Analyst, [101]

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And also, just wanted to know that what could be the major component for our -- if we were to break up this other expenses, sir?

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

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Other expenses?

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [103]

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Yes, the other expenses comprised of our manufacturing and our admin expenses, admin and the selling expenses. So...

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

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And advertisement.

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [105]

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Advertisement expenses.

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

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Advertisement fees and distribution, admin manufacturing expenses.

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Unidentified Analyst, [107]

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Sure. Sure. So on the debt front, what would be our average cost of debt, sir, for long-term and short-term growth?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [108]

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7.8%.

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Unidentified Analyst, [109]

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7.8%. And sir, do we have -- I think we have foreign currency loan also, sir?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [110]

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Yes, that's right.

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Unidentified Analyst, [111]

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So what would be the amount of that loan, sir?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [112]

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So there are 2 types of -- one is borrowing from overseas, Europe and America, that's roughly INR 500 crores?

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [113]

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INR 23 crores.

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

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INR 523 crores. But here also, we have a mix of -- in our export, the foreign currency loan and the rupee loan.

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Operator [115]

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Next question is from the line of Hardik Sodha from Crescita Investments.

Due to no response, we'll move to the next question, which is from the line of [Dixit Matel from Shukla Managers].

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Unidentified Analyst, [116]

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So my first question is on domestic branded volumes. So they are flattish on a Y-o-Y basis. So any particular reason? Has the market not grown? Or have you consciously scaled down? Like what kind?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [117]

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Okay. So as I said, if you see the 9 months, we have grown by 6%. But in this quarter also, our premium segment and mid-price segment has grown. So the only -- degrowth is in the, we call it, [$1] so that's the -- where the degrowth is. But the focus is where the premium and mid-price that's growing.

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Unidentified Analyst, [118]

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Okay. And so secondly, we have seen a sharp fall in the basmati prices in this season. So has that led to any inventory valuation loss also during this quarter?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [119]

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That's a -- good for us, as I just clarified just before that. So there is no -- I meant to say '19 crop cannot replace '18 crop. So there is no loss in that. And we have not reduced any prices of our brands also because basmati sells, aged right, up to 2 years.

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Unidentified Analyst, [120]

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Okay. So sir, for next year, like now, you'll be having lower input cost. So will you be investing behind brand? Or will you be, like, I think, higher margins? Or what kind of a strategy that you'll be having?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [121]

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Yes. That's what we are planning. And hopefully, we will be working 2, 3 strategy, investing behind the brand and other marketing mix we will be using.

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Unidentified Analyst, [122]

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Okay. So margin expansions, sir, how much can we expect next year?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [123]

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It will be improved margins. Yes. So we are expecting a better year ahead.

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Unidentified Analyst, [124]

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Okay. And lastly, what is the status on that Daawat foods you're manufacturing stake sale. I think the [boys] about to exit that. So any movement on that front?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [125]

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So we are working on that every -- so hopefully, it will be -- we are working on that.

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Unidentified Analyst, [126]

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Okay. So any time line that you can give some indication like by when do you likely come on that front?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [127]

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So maybe within 2 months.

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Operator [128]

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The next question is from the line of [Ananya Sharma] from AB Capital Advisers.

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Unidentified Analyst, [129]

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Congratulations on the good set of numbers. So I wanted to ask about Kari Kari. Like, how do you plan on further increasing its presence in the market?

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

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So as I said, we have, in the last 1.5 years, we have done our test marketing in the limited outlets, and we have got a very good response. As now, the production has started and we are rolling it out to all the modern trade, e-commerce and selected A class outlet. And the team has done there all the work. And hopefully, in the last quarter, we are going to roll it out to all the channels.

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Unidentified Analyst, [131]

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Okay. And so what are the margins do you expect to come in the future from Kari Kari?

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

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So Kari Kari is in the range of gross margin, 35% gross margin. Yes.

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Unidentified Analyst, [133]

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Okay. And if I may ask, like how many retail outlets do you plan on having in the coming years?

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

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10,000 outlet, that's the plan we have.

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Unidentified Analyst, [135]

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Okay. All right. And so what is the advertising spend during the quarter?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [136]

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So to start with, it's more sampling and below-the-line activity. And once -- maybe in a year's time, we'll record above the line.

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Operator [137]

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The next question is from the line of [Pipo Shah from Audibly Equity].

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Unidentified Analyst, [138]

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So my question was relating to the month of March, last year, so in the month of -- for the quarter-ended March, sorry to say month, we actually had one of the more subdued margins and EBITDA margins and tight margins probably in LT between the last 3, 4 years. So just wanted to understand, sir, so far, do you think that was an aberration and we probably will not repeat what we -- what the company made in March '19?

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

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We are expecting similar kind of result in this quarter also.

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Unidentified Analyst, [140]

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Similar to December? Not March, right?

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

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Whatever we have performed in the last 3 quarters, so fourth quarter will be...

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Monika Chawla Jaggia, LT Foods Limited - Compliance Officer & Company Secretary [142]

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We maintain the momentum.

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

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Yes. We will maintain the momentum.

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Unidentified Analyst, [144]

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Okay. So that's very good to know, sir, because the whole yearly (inaudible) trailing analysis, it's like the month -- the March quarter is actually because of its subdued results will now be return ratios.

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Operator [145]

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The next question is from the line of [Tirat Muchala from Elusive Video Capital].

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Unidentified Analyst, [146]

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So a few months ago, there was a couple of press releases about consolidating some of our international operations, with some, I think, scheme of arrangement or something? So what was that regarding? Was it more for tax planning or what was the purpose?

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

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It's for consolidating our international business. So we were exploring how we can do that. So we're working on the different schemes. But until that, no scheme has yet finalized. So until time, the status is the same.

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Unidentified Analyst, [148]

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But the reason is, is it for fund raising of any kind? Or like debt raising?

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

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It was because -- no, no, there was no plans. So the idea was to consolidate our international operation. There was no plan for any fund raising and all these things.

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Unidentified Analyst, [150]

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Okay. Okay. And for the Europe business, the fact...

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

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Actually, there is no need of fundraising at the moment for the company. As we see, our balance sheet is getting stronger and stronger and whatever the money we need for the growth of the company. So we are self-sufficient. So at the moment, we don't have any plan unless and until some other opportunity of inorganic opportunity comes. But still, there is no plan, but I'm just letting everyone know that.

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Unidentified Analyst, [152]

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So for the Europe business, the fact that we export, I think, brown rice and then we process it over there, does that get rid of the problem of pesticide residues that a lot of other basmati exporters are facing?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [153]

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So as we told that we have a very strong farmer extension program, and we make sure that whatever the compliances are needed, we abide by that. So that's -- yes.

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Unidentified Analyst, [154]

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So -- no because, as we understand, there's a big problem in the Europe basmati market because of this compliance. So are we expecting full utilization pretty soon of the facility?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [155]

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Yes. We have just declared that we have come on a profit. And this year we will be using roughly 70% of our capacity, and we have got our business stronger and stronger and we are getting good orders. And in the coming years, the business will be even better than this year. The last quarter also will be better than whatever we have performed in the 3 quarters.

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Unidentified Analyst, [156]

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Okay. Okay. And so if I may, one question is on the fact that most of our business is actually outside India and that the Royal brand business is actually bigger than the Daawat brand business. So for the size of our company, which is almost INR 4,000 crores of revenue, do you feel that we need a CFO in the top management, with all the ForEx movements and interest raising because we have foreign loans? So just something on that line?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [157]

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We have a very strong team on the finance. And if you see our ForEx and everything is being managed very well. But if they'll be needed going forward, definitely, we will think on that line.

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Operator [158]

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I would request [Mr. Muchala] to come back in queue for follow-up questions. The next question is from the line of [Tanya Bakshi from Galaxy Investments].

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Unidentified Analyst, [159]

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I wanted to ask you about the competition, actually, that given that there are many other basmati rice and ever since we have the healthy segments also, there are many other competitors placed in this market. And how do we see ourselves placed going ahead in about the competition as well as market share?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [160]

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So different geography has a different competition. So India, mainly 2 brands are playing. In U.S.A., there we're at majority 50% -- 45% to 50% market share belongs to us. So it depends on the geography we are talking. But we have good plans how to recruit consumer and taking the -- whatever the category is growing. And we have good strategic plans.

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Unidentified Analyst, [161]

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Okay. And also, I wanted to know since in the U.S., you have a good market share of 40% to 50%. Is there any scope that we see a growth in that or maybe reintroducing some new segments into it?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [162]

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So whatever the natural growth is coming, the category is growing. As you know, our U.S. sales business is growing until 9 months also. And our branded business has grown more than 10%. And as a strong brand, of course, any leader brand has the first opportunity to capture the -- whatever the category is growing. And that's what happening. And the second is, as I said, as in the U.S.A., we have just set up a business plan which is 2 minute microwave rice and that's also getting good response. So there are 2 levers there. One is the core business growing and the convenience business growing.

Every geography has a different strategy as per the emerging demands. There, we are strong.

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Operator [163]

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The next question is from the line of [Parul Mehta from Shah Jain Health Advisers].

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Unidentified Analyst, [164]

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Congratulations for the numbers. First, if I see, you have done good on the debt reduction side. So can you throw some color on like what you are planning to be a 0-debt company and by when you expect it to happen? And moreover, because of the debt reduction and you have a good cash generation in your company, how you are planning to reward investors? And you have...

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

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As I said, we are a -- the plan is to grow around 10% year-on-year. The discipline we wanted to make is we wanted to maintain our debt-to-EBITDA ratio, and we will be working on that goals here. We are quite confident that we will be leading to that goals on debt-to-EBITDA ratio.

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Unidentified Analyst, [166]

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And any plans on giving a good dividend growth or buyback of shares or like that?

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

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So we are discussing in the coming Board meeting, and we will evaluate all these things.

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Operator [168]

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The next question is from the line of [Anup from A&P Advisers].

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Unidentified Analyst, [169]

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Yes, this is with respect to the domestic market. I see a lot of institutional retail are coming up with their own labels, Big Bazaar is coming up with their own label. I mean, do you see any competition from that side?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [170]

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So this is -- for the last so many years, this is happening. But as a strong brands, we are getting the growth. And we believe that we have both with a strong supply chain and the strong brand, we will be able to grow as per our plan.

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Unidentified Analyst, [171]

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Will it affect your operating profit margin with respect to this competition is concerned?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [172]

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Not at the moment, that's not what we have. Yes. As I said, this business is a very strong supply chain business. You have to wait the rice up to 2 years. And I think on the quality front, it's very difficult for any private label to give a consistent quality. And as a brand, what we are offering is the finest and the consistent quality. And that's how we've won, and that's how we have grown our business year-on-year. And we believe that with all these promises to the consumer, we will keep growing.

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Unidentified Analyst, [173]

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Okay. As far as your new product Daawat Sehat is concerned, is it only for mogra and mini mogra? Or is it for -- even basmati as well?

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [174]

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So it is right now, mogra and mini mogra because they are more regular consumption variants. And for those to really make a difference, you have to consume it more frequently. So currently, that's what it is offered here.

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Unidentified Analyst, [175]

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It's targeted towards health-conscious customers, right?

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [176]

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It is actually to more for undernutrition where or where there is a certain fear in mind about -- is the total nutrients that are required going in? So it is health, not so much in lifestyle, but health in terms of supplying the requisite nutrition.

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Unidentified Analyst, [177]

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Okay. It's like a mass-based health nutrition product, that's what you are targeting in that?

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [178]

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Yes.

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [179]

--------------------------------------------------------------------------------

And as well, my company has done that.

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Unidentified Analyst, [180]

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Okay. And my last question, this is with respect to Daawat Saute Sauces, exactly what position the company is in and what is the level of investment the company is going to make with respect to this product?

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [181]

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So the Daawat Saute Sauces was in test market and has now been expanded predominantly in modern trade. And it's doing exceedingly well there in terms of the category of sauces, cooking sauces that are available. Our investments are really more in marketing and building consumer trials and awareness with pretty much no investment at the back end.

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Unidentified Analyst, [182]

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Approximately what is the total amount of investment you're going to make in saute sauces?

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [183]

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Yes, I think that is a figure that will evolve as the business grows and as the requirement of building it with the consumer comes in. So we're not operating here at a fixed sort of number of what we will spend. It is in relation to the business development that we will see month-on-month.

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Unidentified Analyst, [184]

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The commercial launch will be expected in the year of...

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [185]

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No, I mean, the assumption that there would be a fiscal commercial loss still needs to be seen. We believe that this product we should start on a month basis breaking even pretty soon.

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Operator [186]

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I would request Anup to come back in the queue as there are several others waiting for their turn. We'll move to the next question, which is from the line of [Vipul Shah], an individual investor.

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Unidentified Participant, [187]

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Sir, what is the status of the court case against the insurance company? It's a very large amount.

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [188]

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Yes, we all know Indian justice, Indian court. But hopefully, it is in the final stages. So we expect in this '20, we will be getting justice from court, in the first court.

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Unidentified Participant, [189]

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Okay. And what is the amount involved, sir?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [190]

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So the amount is now -- debentures more than INR 300 crores, but in the balance sheet, it's INR 136 crores. The first year, we have...

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Vivek Chandra, LT Foods Limited - CEO of Global Branded Business [191]

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Written off.

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [192]

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Written off INR 40 crores. The actual loss was INR 190 crores. Yes, so if you calculate the interest and everything, it's more than INR 300 crores.

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Unidentified Participant, [193]

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Sir, what is the realization difference between our branded rice and private label realization that we get?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [194]

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So it depends. As our private label business EBITDA is in the range of 9% to 10%, whereas the branded business EBITDA is in the range of 13% to 15%.

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Unidentified Participant, [195]

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Okay. And lastly, sir, you said that in spite of a drop in trading prices, you'd expect any loss in realization for our basmati, so would you elaborate further on how it works?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [196]

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Yes. Again, repeating that in crop '18, which is in June, we sell a majority. So we sell also the crop '19 also. But the pricing index is based on the crop year. So when this '19 year crop, aging will come, we will see the competitive landscape and decide how the -- it has to be in terms of what should be the pricing strategy.

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Unidentified Participant, [197]

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So I mean, I've still not understood. But means basmati means older basmati sells at a higher price? Is that the interpretation one should look at?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [198]

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In consumer business, only the aged basmati sells. But in food service, less aging, and we call it through acceleratory aging that sells in food service.

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Unidentified Participant, [199]

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But still, I'm not able to understand that when your raw material prices falls 20%, how can finished product price will not fall proportionately?

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [200]

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That's what I'm saying. This -- there are 2. One we sell -- some we sell just in time, some we sell 1-year age, some we sell 2-year age. So the '19 crop is not a replacement of the old crop. And old crop prices, whatever are, because of their demand and supply of situation of that crop. So we are not seeing any decrease in the old crop prices. It is only in the '19 crop. And '19 crop, we are getting -- like what we sell in '19 crop, like we sell parboiled rice, we sell accelerated aging rice, that we are getting the reduction. So whatever we are getting, a lesser realization in the '19 crop selling price.

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Operator [201]

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

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Ashwani Kumar Arora, LT Foods Limited - CEO, MD, CFO & Whole Time Director [202]

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Thank you so much. Thank you.

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Operator [203]

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