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Edited Transcript of PARAGMILK.NSE earnings conference call or presentation 5-Aug-19 10:15am GMT

Q1 2020 Parag Milk Foods Ltd Earnings Call

MUMBAI Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Parag Milk Foods Ltd earnings conference call or presentation Monday, August 5, 2019 at 10:15:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Akshali Shah

Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing

* Devendra Prakash Shah

Parag Milk Foods Limited - Executive Chairman

* Natasha Kedia

Parag Milk Foods Limited - Head of IR

* Shashikant Dalmia

Parag Milk Foods Limited - CFO

* Venkat Shankar

Parag Milk Foods Limited - CEO

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Conference Call Participants

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* Aejas Lakhani

Edelweiss Asset Management Limited - Equity Analyst

* Akshay Bhor;Premji Invest;Investment Analyst

* Amarjeet S. Maurya

Angel Broking Private Limited, Research Division - Senior Research Analyst of Mid-Caps

* Aniruddha Joshi

ICICI Securities Limited, Research Division - Research Analyst

* Bhargav Buddhadev

Kotak Mahindra Asset Management Company Limited - Research Analyst

* Jasdeep Walia

Infina Finance Private Limited - VP

* Kaushal A. Shah

Dhanki Securities Pvt. Ltd., Research Division - VP of Equity Research

* Nitin Gosar

Invesco Asset Management (India) Private Limited - Analyst

* Percy Panthaki

IIFL Research - VP

* Pritesh Chheda;Lucky Investment Managers

* Rishab Bothra

Sharekhan Limited, Research Division - Equity Research Analyst

* Shailesh Kumar

Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst

* Sudhir Bheda;Right Time Consultancy Services

* Sunil Kothari

Unique Investments (Private) Limited - Partner

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and a very warm welcome to the Parag Milk Foods Limited Q1 FY '20 Earnings Conference Call.

This conference call may contain certain forward-looking statements about the company, which are based on the beliefs opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. (Operator Instructions)

Please note that this conference is being recorded.

We have with us today on the call Mr. Devendra Shah, Chairman of Parag Milk Foods Limited, along with the senior management team of the company.

I now hand the conference over to Mr. Shah for his opening remarks. Thank you and over to you, sir.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [2]

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Good evening, and warm welcome to everyone on the call.

I would like to begin by introducing our new addition to the top management team. We have with us Mr. Venkat Shankar, our new CEO. Venkat Shankar has more than 15 years experience in the FMCG space and has worked in reputed companies like Britannia Industry Limited as a VP and Head of the Dairy Businesses, PepsiCo as Segment Sales Marketing Head. He has a PGDM degree from the IIM Ahmedabad and engineering degree from the IIT Kanpur.

Mr. Shashikant Dalmia, our new CFO; Shashikant has been with our group for the last 7 years and has handled various functions with -- including direct taxation, [costing] , treasury, risk management, corporate finance and accounts. He is a qualified chartered accountant.

We are delighted to have these seasoned professionals as the -- part of the Parag team. As you can see, we have constantly strengthened to -- our top management keeping the long-term horizon in the mind.

Going forward, we are confident that the management team's commitment -- skills and abilities will greatly benefit the company.

Now moving onto our quarterly performance. Overall, the company is facing a lot of headwind with a tight liquidity and a reduction in demand. We have seen business across segments fighting to maintain their performance in the situation. However, we are fortunate enough to take wins in the consumer food business and therefore have been able to keep our [skis] on the track.

We have started the new financial year on a positive note by achieving healthy numbers, which was driven by the growth in our consumer product segment. However, drought situation of the last year in the key milk prices -- milk-producing areas of the country and delay of the monsoon leads the significant increase in the price of feed, which has disturbed the viability of the farmers. Further milk production dropped during the lean season in the summer and the raw milk prices are required to be increased compulsorily for all.

In production. In order to help the farmers in the situation, we have frequently increased the prices of the raw milk during the quarter. Being a consumer products-focused company, we have been able to successfully pass the increased raw milk prices by reducing the trade schemes and discounts as well as increasing the consumer prices of our products. Our brand strength, consumer loyalty has helped us in the passing of these price increases we see. The full effect of this price increase will be replicated in the financial numbers from the next quarter onwards.

Despite the significant increase in the raw milk prices, we have been able to maintain a good level of popularity due to our continued focus on the manufacturing efficiency.

Cost control and launching innovative value-added product with a good range, which was [around country] during the last 2 months. We are looking at the improvement of the milk production scenario going ahead. Further, quarter 2 and quarter 3 will be covering high-demand periods because of the festivals. We are therefore hopeful ending up the year on track to achieve our Vision 2020.

We are very happy to inform you, although we have now fully covered up all Mumbai city under our new way of the working base of the principles that [have concerned] POC through this model, we have almost doubled our retail presence in Mumbai, and have witnessed significant improvement in depth as well in the width of the distribution from the geography.

We have now set our eyes on implementing the same in the Delhi-NCR region and have started the groundwork at the mapping of the outlets. Further, we are continuously upgrading our retail presence throughout the country with a special focus on the north and east regions.

The quarter gone by, we have launched our new variant under the Avvatar brand called Rapid, which is the only hydration drink in the category fortified with whey protein. It is an ideal [intra-workout] drink with a combination of the glucose and electrolytes to replenish the sweat losses of the energized post incentive (sic) [intensive] training.

In order to strengthen the health and nutrition portfolio further, the company has acquired Provilac brand at the lump-sum [constitution] of the INR 86 lakhs. The brand already has a range of consumer-focused health and nutrition products with a top line of INR 2 crores achieved the last year. With the addition of this brand's products, we are looking to further tapping consumer market in the nutrition space.

We are also very happy to inform you that our farm-to-home premium milk brand, Pride of Cows, has been launched in Singapore, with objective of providing the farm-fresh experience to consumers in Singapore. The company is airlifting the milk from our dairy farm located in Manchar, near Pune, to Singapore. Singapore has one of the highest per capita income in the world. With amazing affluence of millennials who are aspirational and are looking for healthy and organic food options to couple with new experience.

Further, it is a milk deficiency market lacking farm-fresh milk, and we believe that is the perfect market to expand our brand globally.

Additionally, ongoing activities of the brand building and marketing and continuously with the [same moment] , and we will continue to invest behind our brands and operating capabilities to perform better going forward.

Now I will request Mr. Venkat Shankar, our new CEO, to share the few thoughts.

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Venkat Shankar, Parag Milk Foods Limited - CEO [3]

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Thanks, Devenji, for the kind introduction, and very good evening to everyone on the call. I am quite delighted to be a part of the Parag Milk Foods story. Actually, it's been exactly 1 month since I came on board and over this period, I have been spending time and getting to know the different business verticals in Parag and the people that drive the organization across our different markets and plants.

In fact even as I am speaking now, I am on the road to yet another market. Even from earlier times, I've always admired and respected Parag's expansion and innovative product portfolio. The brand's strength has a deep category expertise. And my personal [strength] over the last 1 month is that we have a very solid platform to stage from.

Now I do believe that the first set of priorities will be around deepening our position in the categories that we already have presence in even as we will continue to lead innovation in the dairy category. So to that extent, I guess my initial focus will be a little more front facing in terms of intensifying our distribution, our product availability across channels and sharply focusing our marketing efforts.

However, I must say that these are still early days for me. I am on a pretty intense learning curve here, and I look forward to sharing my thoughts about the future direction of the business in subsequent interactions with you all very soon.

Thanks, and I would request Mr. Shashikant Dalmia, our CFO, to take you through the financial performance for the quarter.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [4]

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Thank you. Good evening to all. I am happy to present before you the financial performance for quarter ended June 30, 2019.

Consolidated revenue from operations for Q1 FY '20 reported a growth of 14.6% year-on-year to INR 6,297 million as compared to INR 5,494 million in Q1 FY '19. Growth was driven by an increase in revenue from Milk Products by 16% year-on-year to INR 4,211 million.

The share of Milk Products for Q1 FY '20 is 67% of total revenue, while that of Liquid Milk was 18% and the same for Skimmed Milk Powder was 13%.

Gross profit for Q1 FY '20 registered at a growth of 1% year-on-year basis to INR 1,684 million as compared to INR 1,668 million in Q1 FY '19.

As highlighted by Devendra sir earlier, the compression in gross margin were caused by slight lag effect in passing on the increased milk price to the trade and consumers. We expect this to stabilize from Q2 FY '20 onwards.

EBITDA for Q1 FY '20 stood at INR 569 million as compared to INR 596 million in Q1 FY '19. EBITDA margin for FY '20 stood at 9%, which was impacted mainly due to a decline in gross margins. PAT for Q1 FY '20 stood at INR 275 million as compared to INR 283 million in Q1 FY '19. PAT margins were healthy at 4.4% in Q1 FY '20.

I would also like to take this opportunity to inform you that our rating by ICRA improved from [ICRA]A to ICRA A+ for long-term borrowing and from ICRA A2+ to ICRA A1 for short-term borrowing.

On the working capital side, we are largely in line with the FY '19 [days] .

That is all from our side, and now we can open the floor for questions 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 Percy Panthaki from IRI FL.

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Percy Panthaki, IIFL Research - VP [2]

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Just wanted to understand this milk price inflation. How much is it on a Y-o-Y basis for the June quarter? And what is the procurement price standing at currently?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [3]

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So in terms of Y-o-Y basis, the inflation in raw milk prices is roughly about 12% to 13% on an average basis. And milk procurement prices during last quarter were in range of roughly around INR 28 a liter.

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Percy Panthaki, IIFL Research - VP [4]

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INR 28 a liter, okay. And do you see now that the monsoons in Maharashtra have been sort of progressing, do you see the procurement price cooling off? Or it still continues at that level?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [5]

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So it will definitely start cooling off. We have seen monsoon [good] across all parts of the country and it is definitely going to improve the production scenario. So immediately we can see some improvement in the raw milk prices and some effect will be felt after conclusion of the festival season.

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Percy Panthaki, IIFL Research - VP [6]

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Right. And this passing on the burden to the trade, which was delayed, so has it been passed on completely? And will Q2 see the complete benefits of that? Or Q2 will also see only partial benefit and only Q3 will see the full benefit of sort of those reduction in trade margins to the trade partners?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [7]

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So it has been completely passed on during the quarter. However, being a consumer product company, there is always a lag in terms of passing on and that is the only thing, which has been felt in terms of slight compression in gross margins. So going ahead, Q2 and Q3, we are quite confident in terms of recovering not just the gross margins back, but also recovering whatever we lost in Q1 as well.

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Percy Panthaki, IIFL Research - VP [8]

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Fine. And finally, on Avvatar, just wanted to know what is the traction? Can you share some numbers because it's been now 2, 3 years since we have this brand. So can you share what is the kind of top line generated by the brand Avvatar?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [9]

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It is too small a brand and too new for us. So it is just one year, in fact when we started branded sales under Avvatar. So it would be too premature to comment on numbers for Avvatar as of now. We will come back to you when it is 10 cities in size.

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Operator [10]

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The next question is from the line of Sudhir Bheda from Right Time Consultancy Services.

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Sudhir Bheda;Right Time Consultancy Services, [11]

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Sir, just I want to know your Vision 2020, if we take the lower end of your vision and [given the performance] , I believe that it is almost impossible to recoup and attend the vision in next 3 quarters. For that, you have to record at least more than 40% growth in EBITDA, sir. So I am a little bit surprised that in spite of Q1 performance, you have maintained your Vision 2020.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [12]

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So as we mentioned, we still stick to our Vision 2020 and in fact our top line is in trend with whatever we have provided the guidance on. In terms of EBITDA also, we have achieved 9% EBITDA margin during Q1. So there is a small gap that we need to bridge, so we are confident of reaching the...

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Sudhir Bheda;Right Time Consultancy Services, [13]

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No. No. Average if we want to [attain] 11% to 12%, that is what you have said in the Vision. Even if I take 11% and the lower guidance of INR 2,700 crores to INR 2,800 crores of turnover, still you need to have like 40%, 50% kind of growth in EBITDA in next 3 quarters.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [14]

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No, no. That won't be necessary, sir. As I told you, there is a small gap that we need to bridge, and we are confident of bridging that in Q2 and Q3.

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Sudhir Bheda;Right Time Consultancy Services, [15]

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So in spite of Q1, you are still confident of achieving 2020. Am I right?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [16]

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Yes, absolutely.

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Sudhir Bheda;Right Time Consultancy Services, [17]

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And just I would like to invite your thoughts, sir, on the -- since 2010, you are growing traditional products at the rate of 15% and new products at the rate of 26%. But [since listing a] shareholder, I am not seeing any kind of gain. So just I want your thoughts on that.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [18]

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So that gain, I suppose you are thinking about increase in share price. Am I right?

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Sudhir Bheda;Right Time Consultancy Services, [19]

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Right. So shareholder in spite of the -- so growth -- we are a limited company and have reported a 15% CAGR in your traditional and 25% -- more than 25% in your new products. Still the early -- since your listing price, there is no gain we are seeing. So just I want your thoughts on that.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [20]

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That's concern of market, sir. It is not in our hands.

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Sudhir Bheda;Right Time Consultancy Services, [21]

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Okay. So you don't like to comment on that?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [22]

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No, sir. It's completely a function of market.

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Sudhir Bheda;Right Time Consultancy Services, [23]

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And what is the debt pool...

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Operator [24]

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Sudhir, I am sorry to interrupt you, maybe request you to come back in the queue for follow-up questions. (Operator Instructions) The next question is from the line of Nitin Gosar from Invesco Mutual Fund.

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Nitin Gosar, Invesco Asset Management (India) Private Limited - Analyst [25]

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First question is on SMP inventory. What kind of SMP inventory are we seeing right now? And the numbers that we are seeing for the first quarter, did it -- does it see any kind of benefit of SMP pricing going up right now?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [26]

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See, the overall inventory, it is in same line of Q4. We won't be able to share a segment-wise inventory of product.

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Venkat Shankar, Parag Milk Foods Limited - CEO [27]

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Yes. And in terms of pricing, I don't think there will be any further increase in realization of SMP. As we were discussing, we would now see some softening of milk prices and accordingly, there will be some softening of prices for commodities as well going forward.

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Nitin Gosar, Invesco Asset Management (India) Private Limited - Analyst [28]

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Okay. So we haven't sold any kind of SMP [versus] March, is that the reading or post-selling you were, let's say, that...

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Venkat Shankar, Parag Milk Foods Limited - CEO [29]

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We have sold SMP. We have sold SMP. That is not the case and it is still roughly around 13% of all portfolio in Q1 sales as well. So we have sold SMP and we will be holding some inquiries to take care of the festivals we got.

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Nitin Gosar, Invesco Asset Management (India) Private Limited - Analyst [30]

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Okay. Second question is with Vector Consulting, now that we have covered whole of Bombay -- Mumbai, would you please highlight what kind of inventory and [as] it is kind of saving we would have been out of this whole [exercise] ?

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Venkat Shankar, Parag Milk Foods Limited - CEO [31]

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I think this is an experiment which we have conducted in Mumbai and it is still 1 or 2 months down the line, where we will have full reserves available for the market. So it will be a bit premature for us to arrive at some numbers, especially for this market, which is being done on experimental basis.

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Nitin Gosar, Invesco Asset Management (India) Private Limited - Analyst [32]

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But sir, I believe when Vector Consultants were appointed, I think Mumbai was one of the key markets that have been highlighted that once the sales are through, it will be extrapolated to other cities. Now that we are done with Mumbai, don't you think it's the right time for us to articulate what kind of benefits we are seeking from this exercise?

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Venkat Shankar, Parag Milk Foods Limited - CEO [33]

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Yes, yes. So I think the opening statement by Chairman himself mentioned that we have seen very good results in Mumbai, and we are now contemplating launching similar exercise in Delhi-NCR. So that proves the fact, only thing is there are definitive improvements which are visible, but it would be a bit premature to arrive at a specific number and that was the only point here.

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Nitin Gosar, Invesco Asset Management (India) Private Limited - Analyst [34]

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When should be the right time for us to again ask you this question?

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Venkat Shankar, Parag Milk Foods Limited - CEO [35]

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Maybe in 2, 3 months down the line.

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Operator [36]

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The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [37]

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In terms of quantification, is it possible to know what could be the extent of price hikes we would have taken in liquid milk and value-added products? And also the frequency, I mean how many times have we taken price hikes?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [38]

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Yes. So overall, see, we have done 3 things, one was reduction in terms of trade discounts and schemes that we did initially and then there were 2 rounds of price increases that we had done into the market during this quarter. In terms of quantum, overall the price increases are in range of around 8% to 9% that we have done across categories.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [39]

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Okay. And the price increase would be on the higher side for the value-added products?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [40]

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Yes, yes.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [41]

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Okay. And sir, in terms of the sequential, Q-on-Q, what could be the increase in milk procurement price?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [42]

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Increase in milk procurement price on an average for the quarter...

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [43]

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Q1 and Q2.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [44]

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Yes, yes, it would be roughly around 12%, 13%.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [45]

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12% to 13%, okay. And sir in terms of balance sheet numbers, is it possible to know what could be the inventory, debtor and creditor days as on 30th June? And how are they moved on a Y-o-Y basis?

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Venkat Shankar, Parag Milk Foods Limited - CEO [46]

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In terms of working capital days, we are in the same line of last year. And in the absolute number of inventory, debtors, we are almost in same line of last year.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [47]

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Last year, meaning March '19 or June?

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Venkat Shankar, Parag Milk Foods Limited - CEO [48]

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March '19.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [49]

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(foreign language) March. So on a sequential basis, the working capital days are at about 68 days, is it fair to say?

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Venkat Shankar, Parag Milk Foods Limited - CEO [50]

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Yes. Somewhere in range of 67, 68 days.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [51]

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Okay. Okay. On this ESOP, is it possible to know how many employees would be covered under this ESOP scheme and what would be the impact on the P&L of this scheme?

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Venkat Shankar, Parag Milk Foods Limited - CEO [52]

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Definitely. So as of now, we have just proposed the policy for ESOP, which has been now recommended to AGM for its approval. So once the policy has been approved by AGM, then we will formulate exact details and revert back to you.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [53]

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Okay. And lastly on this PSI incentive, is it possible to know what would be the amount as on 30th June outstanding?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [54]

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It's somewhere, in absolute terms INR 52 crores [is pending] .

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [55]

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And what was it, sir, as of March '19?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [56]

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Somewhere INR 47 crores.

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Operator [57]

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The next question is from the line of Aejas Lakhani from Edelweiss Asset Management.

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Aejas Lakhani, Edelweiss Asset Management Limited - Equity Analyst [58]

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I wanted to check with you that in 4Q investor presentation, there was a mention that Mr. Vimal Agarwal was the CFO. So has he moved on to a different role?

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Venkat Shankar, Parag Milk Foods Limited - CEO [59]

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You know we have already informed that he has resigned and has been relieved from the services and Shashikant Dalmia has been appointed as the CFO of the company.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [60]

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He joined another company as a CFO.

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Aejas Lakhani, Edelweiss Asset Management Limited - Equity Analyst [61]

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Okay, sir. And sir, the Chief Commercial Officer and Chief Operating Officers who were mentioned in the 4Q presentations, they still continue in their role. Is that correct?

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Venkat Shankar, Parag Milk Foods Limited - CEO [62]

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No.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [63]

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After the joining of Venkat, before they left.

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Aejas Lakhani, Edelweiss Asset Management Limited - Equity Analyst [64]

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Sir, Mr. Harshad Joshi and Mr. Amarendra Sathe as well?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [65]

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Yes, yes, both.

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Operator [66]

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The next question is from the line of Jasdeep Walia from Infina Finance.

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Jasdeep Walia, Infina Finance Private Limited - VP [67]

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Sir, the Y-o-Y growth in the Others segment, which you report in your results, is only 1%. Does it mean that the growth in Avvatar has been much less than expectations in this quarter?

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Venkat Shankar, Parag Milk Foods Limited - CEO [68]

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No. Sorry, Jasdeep, let me clarify. Avvatar gets [clubbed] under consumer product portfolio and Others has some other income that we generate, mainly interest and some conversion that we do. So that is a different thing.

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Jasdeep Walia, Infina Finance Private Limited - VP [69]

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I thought health and nutrition was part of the Others segment?

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Venkat Shankar, Parag Milk Foods Limited - CEO [70]

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No, no, no. It is part of consumer product portfolio.

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Jasdeep Walia, Infina Finance Private Limited - VP [71]

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Okay. Got it. Sir, what are the outstanding subsidiary receivables from the Maharashtra government?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [72]

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At June 31st -- as on 30th June, total outstanding somewhere around INR 35 crore, but we have received INR 12 crore on July 31. (foreign language) As of now, it's INR 25 crores outstanding with Maharashtra government.

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Jasdeep Walia, Infina Finance Private Limited - VP [73]

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INR 25 crores. Okay. Got it. And also, could you mention the number of retail outlets you reached directly as of end of first quarter?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [74]

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Around. We are mapping 55,000 stores in Mumbai and 80% we achieved.

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Jasdeep Walia, Infina Finance Private Limited - VP [75]

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Pardon?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [76]

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80% we achieved.

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Jasdeep Walia, Infina Finance Private Limited - VP [77]

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Sir, earlier, you used to give the direct reach for pan India...

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Venkat Shankar, Parag Milk Foods Limited - CEO [78]

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Yes. So Jasdeep, we informed last time it is 3.5 lakhs. And we inform these figures on an annualized basis. We will update you again by end of next year.

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Operator [79]

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The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

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Pritesh Chheda;Lucky Investment Managers, [80]

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Sir, I want to know the operating cash flow generated for first quarter?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [81]

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In amount terms, it is somewhere INR 5 crore to INR 6 crore.

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Pritesh Chheda;Lucky Investment Managers, [82]

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Which is the operating cash flow?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [83]

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Yes.

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Pritesh Chheda;Lucky Investment Managers, [84]

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So if you -- so working capital is flat and you have received some money from the subsidy also.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [85]

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Yes.

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Pritesh Chheda;Lucky Investment Managers, [86]

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So then the working -- the operating cash flow should be a higher number than the INR 6 crores, right, because we have a INR 57 crores EBITDA...

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [87]

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You know we have sales of SMP in June 2019, so that's why the number of debtors somehow increased in June. So whatever we earned, accrued cash flow is invested in debtors.

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Pritesh Chheda;Lucky Investment Managers, [88]

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But your net working capital is same, 67?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [89]

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Somewhere in the range of 67 to 68 days. So 1 day's impact will be somewhere around INR 5 crores to INR 6 crores.

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Pritesh Chheda;Lucky Investment Managers, [90]

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Yes. So you have a INR 27 crore PAT and INR 13 crore depreciation, that takes you to INR 40 crore and your working capital, you said, is the same in days. So there's a INR 100 crore extra revenue, on which there is a 68 days working capital, so 68 -- so there will be about INR 18 crores of working capital. So 40 minus 18, it should be INR 20 crore, INR 25 crores EBITDA and operating cash flow number?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [91]

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We have made some repayment of banks interest payment as well in Q1, repayment of term loan of IFC, it is in -- somewhere in INR 12 crore to INR 13 crore.

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Pritesh Chheda;Lucky Investment Managers, [92]

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Okay. So that -- okay. So what's your net debt accounted to...

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [93]

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Now it's somewhere INR 260 crores in -- at gross basis and somewhere INR 225 crore on net basis.

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Pritesh Chheda;Lucky Investment Managers, [94]

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So gross is INR 260 crore and INR 225 crore in net debt?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [95]

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Yes.

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Pritesh Chheda;Lucky Investment Managers, [96]

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And on the gross margin side, I was just looking at the past years as well, so last 3, 4 years, we don't see any improvement in gross margin despite the mix change. And again, this time also, there is this price increase, which has happened on the milk side. So incrementally, do we see a gross margin change and this price increase that you have taken is sufficient enough to offset the current rise in milk price? If you could give some direction in terms of gross margin and your EBITDA margin?

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Venkat Shankar, Parag Milk Foods Limited - CEO [97]

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Yes. So Pritesh, as we were discussing earlier, we have passed on the raw milk price increase into the market and are confident of recovering and maintaining our margins for an annualized basis. And we also been earlier discussing that being dependent on agri commodities as a raw material, there are bound to be some fluctuations and therefore, in our kind of business, maintaining performance solidly quarter-on-quarter may not happen in linear fashion. There will be some ups and downs. But on an annualized basis, the business looks good and in line with whatever guidance that we have given.

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Operator [98]

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The next question is from the line of Aniruddha Joshi from ICICI Securities.

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Aniruddha Joshi, ICICI Securities Limited, Research Division - Research Analyst [99]

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Can you update a bit more on the Provilac acquisition?

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [100]

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This is Akshali here. So we -- just on expanding the health and nutrition segment, we acquired the brand, Provilac, which has the sales of approximately INR 2 crore. And moving forward, we're trying to see how we're going to put the brand type -- brand architecture and it's going to go into our current distribution system itself. So we'll be -- with 1 more brand, we will be reaching around 3 lakh -- 3.5 lakh retail.

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Aniruddha Joshi, ICICI Securities Limited, Research Division - Research Analyst [101]

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I mean this brand will compete with Pride of Cows, if I am correct?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [102]

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No. This is an...

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [103]

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So Provilac is a nutrition brand, which is basically -- which is in a similar category of whey protein and our Go Protein are the same. It is -- we are just trending up our entire basket by adding another product. So they have around 15 SKUs on this as nutrition, basically the milk additive kind of the product.

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Aniruddha Joshi, ICICI Securities Limited, Research Division - Research Analyst [104]

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So these are -- Provilac gives milk additives?

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [105]

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Yes, it's protein basically. It's milk proteins.

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Operator [106]

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The next question is from the line of Shailesh Kumar from Sunidhi Securities.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [107]

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A couple of housekeeping questions. I mean what has been our milk procurement, average milk procurement during first quarter of FY '20?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [108]

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It's 12 lakh liters and 12.5 lakh liters per day in Q1 FY '20.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [109]

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And what is the cash position as of June 30, 2019? Cash and books?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [110]

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It's somewhere INR 25 crores to INR 26 crores.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [111]

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INR 25 crore to INR 26 crore?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [112]

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Yes.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [113]

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And I have seen some movement in other expenses. Q-o-Q basis, it's down drastically, so if you could elaborate further?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [114]

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In Q4 -- if you compare number with the Q4, in Q4, we had one-off item, which is exceptional and which is not in continuous. And we have [laid] extensive on marketing and branding side in Q1.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [115]

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So and then what was the quantum of exceptional item in Q4 FY '19?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [116]

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With -- it is in range of somewhere INR 7 crores, INR 8 crores.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [117]

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And this was towards?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [118]

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GST write-off.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [119]

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Okay, okay. GST write-off. And what has been the change in marketing expenses?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [120]

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See, we have festival season, which starts from second quarter and third quarter. So we have higher side expenses on marketing and branding.

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [121]

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In Q3 and Q4. So most of our marketing expenses will be happening during the festive season, now that Shravan has started and Diwali period, that's when we would be spending on a lot of our marketing initiatives at that time.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [122]

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I will really appreciate if you could just change -- tell me the number. What was it in Q4 FY '19 and what is there in Q1 FY '20? It will help me understand better.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [123]

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Yes. So that, we will inform you, but I think what you are trying to bring down the point here is what would be the normalized range of other expenses as a percentage of sales, and I think on a normalized basis that would range somewhere around 14% to 15% of top line.

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Operator [124]

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The next question is from the line of Amarjeet Maurya from Angel Broking.

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Amarjeet S. Maurya, Angel Broking Private Limited, Research Division - Senior Research Analyst of Mid-Caps [125]

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Sir, just wanted revenue growth for FY '19 as well as first quarter FY '20, so segment-wise just like ghee, cheese, paneer, butter, dahi, curd and whey protein, if possible?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [126]

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Sir, I'm sorry, but we don't provide product wise figures, so we won't be able to do that.

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Amarjeet S. Maurya, Angel Broking Private Limited, Research Division - Senior Research Analyst of Mid-Caps [127]

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So, okay, (foreign language), no problem. So can you provide what is the retail market share of cheese in retail segment currently in India?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [128]

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Our overall market share is 34%.

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Amarjeet S. Maurya, Angel Broking Private Limited, Research Division - Senior Research Analyst of Mid-Caps [129]

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34% in cheese?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [130]

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Yes.

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Amarjeet S. Maurya, Angel Broking Private Limited, Research Division - Senior Research Analyst of Mid-Caps [131]

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And what is the market size?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [132]

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Market size? So another big player is Amul, which has around 41%, 42% market share and remaining all are small players. So that's how the market is spread.

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Amarjeet S. Maurya, Angel Broking Private Limited, Research Division - Senior Research Analyst of Mid-Caps [133]

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So, no, no, just wanted to understand what is the INR 1,500 crores, what -- in terms of numbers, what is that you all see the market size? I mean...

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [134]

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Yes. That we will update you definitely.

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Amarjeet S. Maurya, Angel Broking Private Limited, Research Division - Senior Research Analyst of Mid-Caps [135]

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Okay, okay. And sir, just wanted to know recently you launched your one product in Singapore. So what was the reason behind that? And I mean, you are not seeing any further opportunities in India or something like you wanted to expand in the international business or how much you're expecting of volume in terms of revenue in Singapore? Like what is your strategy behind that? Because I believe India has a lot of untapped market, so.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [136]

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Yes. India has a lot of untapped market, but for niche type, this type of the product, when we -- after the Mumbai, Pune and Surat, we launched the Delhi market with a good experience of the supply chain. We have successful partner with air handling systems and definitely, the nearest and closest and good market because Singapore is that hub earlier I mentioned in my speech also. It's a good market and milk deficiency is there. All milk comes from the New Zealand and Australia, and we're so confident about this type of market. Once we succeed in Singapore, [this type] of 40 metros in the country and nearby the country, there is a good opportunity for the Pride of Cows. And Pride of Cows naturally you know the farm-to-home concept. We provide them from the -- only farm milk from our -- in the Pride of Cows and farm is growing every year. And therefore, we are continuously expanding this market.

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Operator [137]

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The next question is from the line of Rishab Bothra from Sharekhan Limited.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [138]

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Sir, continuing on the same question, what's the quantum you want to scale up to in terms of Pride of Cows' international business? And how is the cost of profit metrics as of now? Are we losing out money because it's initial phase?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [139]

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No, no, we are selling at par our Indian price, same. And we add our logistics cost also.

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [140]

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So we are planning to expansion of -- because a few asked earlier, so he mentioned that we'll be supplying to you know 40 -- in the next 5 years, we see ourselves supplying to 40-odd cities in India. And moving forward, even the neighboring cities, like Dubai, Hong Kong, and Singapore, something if that we're trying to explore. The profit margins are more or less the same because there's passing the air cargo services or whatever charges that are there on to the end user. So it's similar to what it is right now and it will be similar moving forward, that's right.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [141]

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But can you quantify -- I understand 40 metros, but can you quantify the quantum with which we can be selling in these markets? What we are selling now and what we will be selling, let's say, 3-year cycle down the line in these 40 markets, metros?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [142]

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Yes. So we have already informed in the presentation that we are looking at doubling the Pride of Cows business over next 2 years.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [143]

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Okay. And secondly on the distribution side, we are expanding aggressively on the distribution network in the northern and eastern geographies. So when can we see the benefits reaping out on these distribution investments, which we are making at this stage?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [144]

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It will take some time. So hopefully next 2, 3 years, we will start seeing some good results from those areas as well.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [145]

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So margin expansion would be in the range of, what is the target margin expansion?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [146]

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So we have provided our guidance till FY '20. As of now, we will stick to that guidance and we'll come out with new guidance later on.

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Operator [147]

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The next question is from the line of Nihil Parekh from Dhanki Securities.

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Kaushal A. Shah, Dhanki Securities Pvt. Ltd., Research Division - VP of Equity Research [148]

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Sir, this is Kaushal from Dhanki. Sir, if you can share your thoughts on Bhagyalaxmi? I believe the performance there in the last current quarter and even in the March quarter has been a little weaker than before. So your thoughts on that? And also some thoughts on the northern market where, I think, for roughly 1 year now we have had operations. So how has that particularly, the Sonipat plant scaled up?

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Venkat Shankar, Parag Milk Foods Limited - CEO [149]

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Yes. So Sonipat plant has scaled up quite well. We are roughly around 65% of utilization in that facility. By end of this financial year, we would be exiting somewhere around INR 100 crores kind of revenue from that plant. So it is doing quite well for us. In terms of Bhagyalaxmi as Mr. Devendra Shah explained in his briefing earlier, there had been significant increase in cost of feed and while we have paid increased prices to farmers, the same that we have borne in our farm as well and we had to pay higher prices for the feeds, that has led to some deterioration in margins there as well.

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Kaushal A. Shah, Dhanki Securities Pvt. Ltd., Research Division - VP of Equity Research [150]

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So there, sir, we are expecting a recovery as the festive season starts and the milk production increases, also our procurement prices reduce?

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Venkat Shankar, Parag Milk Foods Limited - CEO [151]

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Yes, definitely.

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Operator [152]

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The next question is from the line of Akshay Bhor from Premji Invest.

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Akshay Bhor;Premji Invest;Investment Analyst, [153]

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A couple of clarifications from earlier participants' questions. First is, the quarter-on-quarter increase in 1Q for milk price was about 12% to 13%? Is that right? And I just wanted to understand on a -- from Q1 to Q2, what kind of milk inflation or deflation do you expect?

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Venkat Shankar, Parag Milk Foods Limited - CEO [154]

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Yes. So, Akshay, as we were just discussing, the quarter-on-quarter increase in terms of milk pricing was in the range of around 12%, so that was the kind of increase that was for the average quarter 1 as compared to quarter 4. However, during peak, the increase was somewhere around 20%, that was for a few days.

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Akshay Bhor;Premji Invest;Investment Analyst, [155]

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Understood. And now on a sequential basis, what's your expectation? Will it be a sequential increase as well or do you expect...

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Venkat Shankar, Parag Milk Foods Limited - CEO [156]

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No. We don't expect any further increase in milk prices as of now because now we have got ample quantity of rain all across, and we see production improving further. And there is chances of a pricing softening a little bit now and little bit maybe post festival season.

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Akshay Bhor;Premji Invest;Investment Analyst, [157]

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Understood, understood. Just wanted to clarify on that operating cash flow math, but before that, borrowings for the quarter were due to -- because I think last quarter, you ended up with INR 213 crores of gross debt, what's the number for this quarter?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [158]

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On a gross basis, it's INR 260 crore.

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Akshay Bhor;Premji Invest;Investment Analyst, [159]

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So the gross debt has gone up sequentially is what you're saying?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [160]

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No. In last quarter, if you look at the number for year-end, then it was somewhere INR 260 crore.

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Akshay Bhor;Premji Invest;Investment Analyst, [161]

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So it's flattish you are saying on a sequential basis. Understood. But then you said that you also paid down some debt at the end of quarter?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [162]

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Yes. We have paid some term loan installment in this quarter, Q1, which is roughly INR 8 crores to INR 9 crores.

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Akshay Bhor;Premji Invest;Investment Analyst, [163]

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So INR 8 crore to INR 9 crore debt you repaid...

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [164]

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And there is some increase in the working capital utilization because our subsidies payment is stuck with the government, so there is some increase in working capital utilization in this quarter.

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Akshay Bhor;Premji Invest;Investment Analyst, [165]

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Understood. But the operating -- net operating cash flow is, what, like INR 6 crores after your working capital and...

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [166]

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Yes.

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Operator [167]

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The next question is from the line of Sunil Kothari from Unique Investments.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [168]

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Sir, just if you can a little bit clarify on this Mr. Sathe leaving and Mr. Vimal Agarwal leaving in July because they just [joined] , I think, sometime back and I think Mr. Shishir Upadhyay (sic) [Shirish Upadhyay] is supposed to join since July?

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [169]

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Yes. So Shirish Upadhyay has already joined, he joined and he is also on the call right now. And Mr. Sathe -- Vimal actually got like a very good opportunity somewhere else, so he has moved on to a better opportunity to a much larger organization. Talking about Amarendra Sathe, due to some personal issues, he had to leave.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [170]

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Okay. And my second question is on, I think last quarter we explained on call that we have written off some INR 16 crore one-off item and just now Mr. Shashikant has told it was INR 8 crore, INR 9 crore. So if you can clarify what was the amount last quarter we have written off? I think it was related to some receivable and something related to inventory. So please, if you can clarify on this?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [171]

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If you look at the one-off item number, it -- in totality, somewhere INR 16 crore is spent in 2 items; one is PSI, it means GST write-off and some -- other one is related to receivables.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [172]

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And Shashikant, can you throw some light on this receivable from the government, which is not happening, and I think we have given advances to farmers. So on this amount, any comments from your side.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [173]

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Yes. We have outstanding receivable of milk subsidy from government, somewhere it's INR 25 crore, which is pertaining to March and April. And advance amount is in line with the last year to farmers because there is a deduction -- reduction in production, so we have given more advances to farmers, but it is in same line of last year.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [174]

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Are you receiving from farmers now?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [175]

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Yes. We are deducting the same in supplying by the farmer.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [176]

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And if you can provide us volume growth in this quarter?

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Venkat Shankar, Parag Milk Foods Limited - CEO [177]

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Our volume growth is roughly around 9% to 10% during this quarter.

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Operator [178]

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Thank you. That was the last question. I now hand the conference over to the management for their closing comments.

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Natasha Kedia, Parag Milk Foods Limited - Head of IR [179]

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I would like to thank all the participants for taking the time out to join us. Please feel free to get in touch with me or our investor deck for any further questions. Our [coordinates] are provided at the end of our Q1 FY '20 Investor Presentation, which you can find either on our company website or on both the stock exchanges. Thank you.

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Operator [180]

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Thank you. Ladies and gentlemen, on behalf of Parag Milk Foods Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.