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Edited Transcript of PARAGMILK.NSE earnings conference call or presentation 31-Jan-20 10:00am GMT

Q3 2020 Parag Milk Foods Ltd Earnings Call

MUMBAI Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Parag Milk Foods Ltd earnings conference call or presentation Friday, January 31, 2020 at 10:00:00am 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

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Conference Call Participants

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* Amarjeet S. Maurya

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

* Nagraj Chandrasekar

Laburnum Capital Advisors Private Limited - VP

* Nitin Gosar

Invesco Asset Management (India) Private Limited - Analyst

* Percy Panthaki

IIFL Research - VP

* Prateek Giri;Emerge Capital;Research Associate

* Sunil Kothari

Unique Investments (Private) Limited - Partner

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Parag Milk Foods Limited Q3 FY '20 Earnings Conference Call. From the management side, we have with us today, Mr. Devendra Shah, Chairman; Mr. Shirish Upadhyay, Senior VP Strategy; Mr. Shashikant Dalmia, Chief Financial Officer; and Ms. Akshali Shah, VP Strategy, Sales and Marketing.

(Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Ms. Natasha Kedia, Head of Investor Relations. Thank you and over to you, ma'am.

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Natasha Kedia, Parag Milk Foods Limited - Head of IR [2]

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Good afternoon, everyone. I hope you got a chance to have a look at our financial results as well as our investor presentation. I would now like to hand over to Devendra Shah who is our Chairman for further remarks. Thank you.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [3]

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Good afternoon, and very warm welcome to everyone on the call. We have delivered a steady performance in the next -- of a challenging operating environment, recording a revenue growth of 10.4% and EBITDA margin of 9% in 9 months in '20. We have seen continued increase in the milk prices over the last few quarters. However, because of our brand strength, distribution network costs, cost rationalization and productivity measure, we have managed a tough industry situation.

The situation turned unfavorable during the year because of the excessive unseasonable rainfall this year with lead to shortage of the feed for the availability and resulted in the decline in the milk production. Heavy rainfall across the country washed away the first crop of the season creating the shortage of animal feed and affecting the livestock farming to feed them. The late onset of and the extended monsoon, nonavailability of the green fodder and delayed calving have affected the flush season. During the Flush season, (inaudible) users pile up on the inventories of the SMP for the utilization during the rest of the year with the drop of availability of the milk and no significant improvement seen on the onset of the flush season. There has been the scramble to get a required investor in the market fearing the further consolidation and availability during this lean season.

To add to all this due attractive incentive to export our SMP announced the last year, made it real -- the rough situation, carry forward the inventories on already very low levels. This has been lead abnormally increase to demand of the commodities and price have almost doubled as compared to the last year.

As a result, milk procurement which is usually improved during the flush season has not taken the place in this flush season. We were expecting the raw milk prices taper down the post high consumption festive season which is also the onset of the peak production season. There were early signs still visible during the early November. However, the situation tightened going forward and milk prices were back to August-September levels.

Moreover, with the peak season nearing the completion, there is further increased milk prices during the December and January cover up for the available of the milk.

We believe this peak pricing and the most buying nearing completion improvement in terms of the availability and the stabilization of the milk prices may take some time as the next production cycle dependent on the calving season. We are accepting the tight environment of the last -- for the couple of quarters post which is a correction in the milk availability, is inevitable because of the following reasons: a strong monsoon had made abundant availability of water, which shall ensure more than enough feed for the availability for the next season up to 18 months.

Further, dairy farmers have started getting more than the remunerative prices for the milk which will increase their attention towards this business.

Both these factors combined will be surely lead bumper availability of the milk going forward. We have been in the dairy business for almost 3 decades and have successfully navigated this situation in the past, reflecting this environment stand up our business model.

Now moving on the other business initiative innovative. We have continued to focus on the key products like ghee, cheese and the paneer, as these are the mainstays of our business. We also did, as the TV runs a top regional channel for the Gowardhan Ghee, Swarna, and the Go Cheese and the -- and they ran digital campaigns for the Pride of Cows and Avvatar on the social media platforms.

Our health and nutrition business has shown very positive traction and it's a very promising segment in our current production portfolio. Avvatar was promoted at The FitExpo of Kolkata and our brand ambassador Sunit Jadhav conducted the tour and the conference for our whey protein distribution and the business. We are also continuing our efforts for driving depth of distribution in our expecting outlet desks. We believe this will be help in the increase our relevance with the customer, increase the stickiness with the distributors, improve our quality of revenue and drive growth of the existing investments.

Before I hand over the call to Shashikant Dalmia, CFO, and discussing the financial numbers, I would like to update on the promoter's pledge. We are very happy to let you know that over the last 2 quarters we are --have partially repaid the outstanding of the loan amount which was taken post IPO. The increased promoter stick, we have sustainably released 20.5 lakh shares but we are bringing down the promoters pledge to 14%, 1-4, of the total equity.

We are committed to repaying the outstanding debt and looking to releasing of the pledge in the phased manner or in the next few months. Further to let you know, we have increased our stake in the company by acquiring some shares during the quarter also.

On the note, I would like to request Mr. Shashikant Dalmia to take you through the financial performance of the quarter.

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

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Thank you, sir. Good afternoon, everyone, and thank you very much for joining us to discuss the operating and financial performance of our company for the third quarter and 9 months ended December 31, 2019. For 9 months FY '20, consolidated revenue from operations grew 10.4% year-on-year to INR 19,027 million in 9 months FY '20. EBIDTA stood at INR 1,711 million, while EBITDA margin stood at 9%, while PAT stood at INR 836 million with a PAT margin of 4.4%.

Consolidated revenue from operations for Q3 FY '20 stood at INR 6,329 million, a growth of 5.4% year-on-year from INR 6,006 million in Q3 FY '19.

And a minor slip of 1.1% quarter-on-quarter from INR 6,400 million in Q2 FY '20.

Growth was subdued on account of the shortfall in milk availability during the quarter. EBITDA for Q3 FY '20 stood at INR 588 million as compared to INR 554 million in Q2 FY '20, while EBITDA margin stood at 9.3% for Q3 FY '20.

Decline in employee and other expenses is due to tight operational control and improved productivity measures as well as decline in the variable costs and marketing expenses.

PAT for Q3 FY '20 was INR 276 million with a PAT margin of 4.4%. Due to constraint in the availability of milk, we had to make faster payments to our farmers which has led to about 10 days decrease in creditor's base. Further, there is an increase of about 518 receivable days and inventory days is almost similar due to inflation effects. As a result of this, our working capital cycle stood at 90 days in order to meet this increasing working capital requirement as discussed over the previous call. We have seen an increase in overall debt position during the quarter by about INR 100 crores to reach the current debt position of INR 309 crores at the end of December '19. We are committed to bring this down over the next few quarters as the milk availability situation improves.

In terms of the government incentives such as the PSI incentive and milk subsidy which is INR 75 crore is still pending from the government against claims submitted. On that note, we come to an end to opening remarks and we'll like to now ask to the moderator to open the line for Q&A. Thank you.

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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 IIFL Securities.

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Percy Panthaki, IIFL Research - VP [2]

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Sir, just wanted to understand the split between the volume growth and the price growth for this quarter.

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

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Yes. So basically, it is all inflation with growth which has come. In fact, volume has dipped a little bit around 5%, 6% during the quarter.

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Percy Panthaki, IIFL Research - VP [4]

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And the dip in volume is largely across the board? Or is it concentrated in a few segments?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [5]

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No. So you are talking about availability of milk or in terms of product sales volumes?

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Percy Panthaki, IIFL Research - VP [6]

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Sales, sales, sales.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [7]

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Yes. So that -- what we've tried to do is we have tried to protect our core categories like cheese, paneer and ghee and we had to sacrifice a few of the non-core categories based on the current availability situation.

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Percy Panthaki, IIFL Research - VP [8]

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Right. Secondly, sir, wanted to know, especially in your institutional business like cheese and all that, have you taken all the price increase that is necessary? Or is there some more price increase likely in the future?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [9]

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No. See there has been sequential increase in terms of raw milk prices which has happened in Q3 as well. And as we are speaking in Q4 also there has been further price increase in raw milk. And accordingly, we have taken further price increase in the market. So for example, in a few categories, it's effective on 1st of February, we are taking further price increases.

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Percy Panthaki, IIFL Research - VP [10]

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Right, right. And sir, this -- basically SMP prices have gone up quite a lot. So have you taken advantage of that and tried to liquidate as much of SMP inventory as possible? And if you can give us some idea on what is the kind of SMP inventory that you are sitting on at the end of the quarter?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [11]

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Yes. So obviously, we have also tried to liquidate. In fact, for us, a lot of liquidation happened during Q4 of last year itself and there were some government incentives for exports and whatever little bit, we've also tried to liquidate during the first 3 quarters of this year as well. So as of now, it is a bare minimum inventory that we are maintaining for SMP.

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Percy Panthaki, IIFL Research - VP [12]

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Right, sir. So how do we look at the outlook going ahead? What kind of margins should we sort of pencil in for the next few quarters given the volatility and the increase in the procurement prices?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [13]

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Yes. So as Mr. Shah discussed in his speech, the current tightness in terms of availability and therefore the effective increase in raw milk prices is a situation which we believe will last for another 2, 3 quarters or so till the time -- new season starts post calving. And till that time, our focus has been to work on bringing back the EBITDA margins to a level of around 9% which is a comfortable level for us and that is what we have been trying to do. But any further issue of expansion of margins, as we discussed, it will take some time for things to normalize.

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Percy Panthaki, IIFL Research - VP [14]

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Right. And lastly, sir, do you think that because of availability of milk being short for the next 2, 3 quarters, your sales growth will remain in single digits?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [15]

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Sales growth -- see there are 2 things. Number one is, Q4 for us will always be a challenge because last year's Q4 was bulkier for us because of exports of SMP and other things. And obviously, this Q4 won't be able to match that kind of level.

Going forward, next 2 quarters of the next year will depend how the availability situation improves. So as of now, with this abnormal kind of situation, it would be difficult for us to quantify in terms of numbers.

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Operator [16]

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Next question is from the line of [Sneha] from SKS Capital.

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Unidentified Analyst, [17]

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In the last call, you said that the working capital days have been increased by 3 days. Is the situation under control right now? What is the status of the working capital days?

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

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Basically, it's linked with the milk prices. There are certain varices. There's a constraint on the availability of milk. So we are making some faster payment to our suppliers. This showed (inaudible) that our working capital has increased by INR 100 crore in this quarter -- so -- and perennially, our creditors has decreased by somewhere INR 85 crores in this quarter. So our overall working capital days has increased by another 14 days, it's now 90 days. (inaudible) decreased from 40 to 30 days.

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Unidentified Analyst, [19]

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Okay. And sir, secondly, I was asking if the government -- last quarter you said it was INR 150 crores, that subsidy was there, INR 75 crores or less. So have you received anything regarding that?

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

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In this quarter, we had growth of INR 4.5 crores for PSI subsidy from the government and we have accrued another INR 5.5 crores for this quarter. On an average, INR 1 crore has increased in terms of the government receivable and for the milk subsidy, we are expecting to get before March end. Overall subsidies spending with the government is INR 75 crore.

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Unidentified Analyst, [21]

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So it has reduced from INR 150 crores last time to INR 75 crores this time, right?

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

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Last time it was somewhere INR 74 crores and it's increased at INR 1 crore.

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Operator [23]

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(Operator Instructions) Next question is from the line of Amarjeet Maurya from Angel Broking Limited.

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Amarjeet S. Maurya, Angel Broking Private Limited, Research Division - Senior Research Analyst of Mid-Caps [24]

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Sir, could you tell me your future strategy for -- I mean for the next year, FY '21-'22, what is the strategy? And what kind of product you will launch for further growth?

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Unidentified Company Representative, [25]

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Yes. So as you were discussing, Amarjeet, with the difficult situation of availability which is prevailing as of now and which we see will also spill over in the next year as well. As of now, new launches are something which are kept on hold. As and when the situation improves, it would be a better time for us to talk about that.

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Operator [26]

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Next question is from Nitin Gosar from Invesco Mutual Fund.

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Nitin Gosar, Invesco Asset Management (India) Private Limited - Analyst [27]

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Any update on previous call, Mr. Venkat articulated strategy? Any update on the strategy? Where have we started? What's the progress?

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Unidentified Company Representative, [28]

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Yes. So Nitin, as we had discussed on the call last time, we are continuing on the same strategy, focusing on key categories, focusing on key markets and key outlets. And that is going on. Secondly, we have also been working diligently in terms of productivity. And some of the early results are visible in terms of the savings that we have seen in the margin profile that has been delivered. So all those work is going on and early signs are quite good.

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Nitin Gosar, Invesco Asset Management (India) Private Limited - Analyst [29]

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On this cost saving program. Sir, my question was pertaining to staff cost which has come down Y-o-Y. How should we look at the staff cost, as well as even the other expenses have been summing down for the last 2 quarters? How should one look -- and what's your new normal one should look at if this is a sustainability size from hereon.

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Unidentified Company Representative, [30]

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Yes. So basically, the other costs as well as staff costs, if you break it down, I'd say, basically will fall down into 3 different buckets. One, our sports like advertisement and promotion expenses which because of difficult situation we have postponed or cut down on the cost because of availability issues. Second, our costs which are more variable in nature, something like freight costs and direct manpower costs, which are because of reduced volumes have gone down. And third, our productivity related cost savings that we have done. And that third part is more sustainable in nature. The first 2 part will come back once the situation normalizes.

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Nitin Gosar, Invesco Asset Management (India) Private Limited - Analyst [31]

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Okay. How big will be the third part?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [32]

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So Nitin, as you were discussing, it has only been a few months since we have started this exercise and started taking the gains, and secondly, the current savings have happened on a suboptimal utilization. So as the situation normalizes, we will have a better handle in terms of the absolute savings that we have readout of this.

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Operator [33]

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Next question is from the line of Nagraj Chandrasekar from Laburnum Capital.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [34]

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Yes. Couple of questions, first on the pledged shares, right? Could you let us know how much the original loan was that you took against the pledge of the shares and who that -- and also the purposes for which the proceeds were used? At one point in the earlier calls, you had said that some of that money was used to buy back -- to buy shares of the company to increase the promoter shareholding. But I think if I look at the amount pledged, it looks like the loan was significantly larger than what has been used to buy back shares. So what was the other purpose of buying -- of taking out this loan by pledging shares? Secondly, guarantee -- so in your annual report, it wasn't clear to me whether the promoter is guaranteeing the company's debt or the company is guaranteeing the promoter's debt, will be useful to clarify? And finally, on the accounts receivables originating from bad debts, et cetera. Could you give us some sense of how you think about that? On the aging of the receivables, at what point we should be looking to write these off such that we don't realistically think they're recoverable?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [35]

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Total shares have reached around 1.38 crore. Out of that, we reduced recently 20.5 lakhs shares. Yes. At the time of rate 225 to 240 promoter increased this shares with this money-lending.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [36]

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Yes. And now, Shashi will take you through in terms rest of your 2 questions.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [37]

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No, no, sorry. That didn't answer my question. I know the amount that the promoter increased the stake by. I'm just saying, if you look at the amount that's pledged, I can calculate based on that using a 50% LTV or whatever it is that the lender uses, what the size of the loan is. That size looks significantly (technical difficulty) than buying the shares. So what else has the money been used for? So what was the total loan amount? How much was used for buying back shares? How much was used for purposes other than buying back shares? And what were those purposes?

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

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The total loan amount is around INR 55 lakhs -- INR 55 crores.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [39]

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INR 55 lakhs?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [40]

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Okay.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [41]

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INR 55 crores.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [42]

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Okay.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [43]

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Yes. And after that reducing it's INR 38 crores.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [44]

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Okay. And so how much has been used to buy back shares? And how much has been used for other purposes?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [45]

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Total 100% was used for the buyback.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [46]

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Okay. So there was no other purpose for which this was used?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [47]

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No other purpose.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [48]

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Okay. So it looks like under the LTV that your lender is using was quite low then because they -- it looks like they want a very high level of cover to make this known.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [49]

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Yes, yes, yes.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [50]

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Who is the lender?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [51]

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Sir, this becomes a personal question.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [52]

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What's the harm in disclosing who the lender is? There's no -- I mean it's not a -- I mean especially the only purpose for...

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [53]

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What you want the amount the shares claim and everything. It's a total commercial bank, don't worry about that.

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

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And it's a transaction between promoter and a third-party lender, the company has nothing to do with that. So I think as far as company is concerned, we have clarified everything.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [55]

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Okay. Because the LTV that you're specifying here seems much lower than what most commercial banks use. But okay, let's carry on. You can -- we can move to the other questions.

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

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Yes. Yes. So then you had 2 more queries if you can repeat, please, for more clarity on our side.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [57]

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Yes. I -- some of the language in the annual report, I wasn't able to understand when it came to guarantees between the promoter and the company. Is the company guaranteeing the promoter's debt or is the promoter guaranteeing the company's debt?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [58]

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It's a company debt and the promoter has given their personal guarantee, whatever the company has taken loan from the bank, so promoter has their personal guarantee for this.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [59]

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Okay. But the company has not guaranteed any personal debts to the promoter?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [60]

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No, no.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [61]

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Okay. And -- fair enough. And the third question was on the accounts receivable and the policy for bad debt, age of receivables, et cetera. Could you let us know how you think about that?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [62]

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If you can see the overall latest position for this 9 months, we have the provision of 6 policies which is in early course of the business. Last year, it was first time there is applicable of (inaudible). So it was higher on side for doubtful days, but we are looking somewhere INR 6 crore to 8 crore for this year, FY '20. And FY '21, mostly, we are looking some reversal in case of provision amount.

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Operator [63]

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(Operator Instructions) Next question is from the line of [Danish Jain from AC Capital].

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Unidentified Analyst, [64]

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Sir, I have 2 questions. Sir, one question is on the revenue side. Sir, can you provide any long-term revenue guidance for around the next 3, 5 years, (inaudible) to 5 this time?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [65]

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Yes. So as we were discussing earlier with the kind of situation that we are going through as of now, it would be unwise for us to provide any guidance going forward.

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Unidentified Analyst, [66]

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Okay, sir. And my second question is on debt. What is the latest debt-to-equity ratio up to December's quarter?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [67]

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We think it is somewhere going to 3.4%.

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Unidentified Analyst, [68]

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Okay. And my last question is on that you must be aware on -- about the recent announcement by Maharashtra Government, the 24x7 open restaurants and all. And that it will accepted by the most of burger chains and pizza chains and the -- as the company which supplies to this permanent burger chain and leading pizza. So are you seeing any improvement or any -- the deposit demand from this -- that announcement, sir?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [69]

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Too early days for us to comment on that.

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [70]

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Yes, I think it's going to happen now. So I think we should see the impact in the coming months.

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Operator [71]

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Next question is from the line of Sunil Kothari from Unique Investment Consultancy.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [72]

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Shashikant, this INR 100 crore additional debt -- can you just give a little bit more details? Where it is used? Broadly, you said working capital. So inventory and debtors if you can bifurcate?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [73]

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Yes. If you see on the debt side, the particularly our creditors has decreased by INR 85 crores in this quarter because of the milk availability. So we are giving some faster payment to suppliers. And whatever credit we are getting earlier, it has also reduced and some partial we'll clear by (inaudible) system also. So our creditors has decreased. Inventory, we are at the same level. In quantum -- quantity-wise it's decreased. But the value of raw milk has increased. So inventory also in the same level of Q2. And debtors -- our debtors has increased roughly INR 20 crore, INR 25 crore in this quarter. Basically, we see festival season, Christmas in the last week of December which is temporary. You see for the overall basis and we will be in some range of 300 to 324 overall debtors for the quarter.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [74]

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Right. And are you expecting any debt repayment in last quarter or now it seems very difficult?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [75]

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This is based on the new scenario. If the availability issue is within this quarter also, then we will be on the same debt line for this quarter also.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [76]

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Okay. And my last question is, we are substantially reducing our marketing spend and expenses. We had a vector consulting strategic change and restructuring in our marketing strategy also. So benefit of how that is progressing and working are we continuing with vector or not? And this reduction in marketing expense, how do you see impact of all these things over the next 1 or 2 years on our business?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [77]

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Akshali?

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [78]

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Yes. So the first turnaround, we are doing a lot of things. In fact, we're improving the solution to (inaudible) day-by-day. So that's going pretty much on track. And talking about the marketing spends. In fact, we did a little bit in Q3. Moving forward, we're doing a lot of digital. So basically, especially there are baby brands like Avvatar and Pride of Cows, we do a lot of digital and influential marketing. So that is not really not that expensive, but it is giving us good results. So moving forward, we see a lot of digital activity on these 2 brands. Cheese also, we're doing a lot of things on TV and digital. So moving forward, I think it's going to be a good quarter and things like that. So that's not going to be much impacted.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [79]

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And regarding the vectors relationship?

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [80]

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Vector -- regarding vector's relation, so they're still on board. There is a solution that has been provided by the -- it's come across, we've done a solution. We are improving it day by day and is going as per our track. So we are even making the solution better and better day by day. So I think by end of this quarter or early somewhere in May, we should be able to get back with the results, effective earnings results, on what is happening with vector.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [81]

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Okay. And my last question is, last quarter, we had our CEO, Mr. Venkat and this quarter he is not on the call. Any specific reason as to why we can't continue with the same practices the way he explained last quarter? So any reason for -- he is not present on this call?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [82]

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No, he is basically not keeping well and therefore he is unable to join this call unfortunately today. But that has nothing to do with the overall strategy and the policies that he had discussed over full last quarter. And as we were discussing all 3 questions, we are continuing in the same line and we have seen some early results out of it as well. So these are quite encouraging and we are moving in that direction.

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Operator [83]

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(Operator Instructions) Next question is from the line of [Arvind Krishna] from Allegro Capital Advisors.

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Unidentified Analyst, [84]

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My questions have been answered.

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Operator [85]

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Next question is from the line of [Jai Shroff from Fast Capital].

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Unidentified Analyst, [86]

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Again, I had a similar question. So you said Venkat is unwell. So, he's on leave or is...

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

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He is on medical leave.

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [88]

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Yes. He is on medical leave.

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Unidentified Analyst, [89]

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Okay, okay. Because he had promised on last call about your detailed explanation or the way forward in terms of the strategy. So...

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [90]

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So as we are continuing on those...

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Unidentified Analyst, [91]

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Sir, it is not about continuation. I think he said that we are working on our product strategies and all. And maybe next call will be able to better explain in terms of what products you want to push, what we want to discontinue or something like that. So are we planning a separate call with him, I think that should be...

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [92]

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I think that you refer to the Chairman's speech earlier as well as the whole discussion that we have had during the last discussion. And today, a lot of water has flown under the bridge and the situation has become tighter and tighter going by the day. So based on that, while all those initiatives are going on, the exact results that are coming out of them are suboptimal in nature and we don't have complete clarity in terms of those. And as we were discussing earlier, once the situation normalizes, we will have a better handle over the situation. And therefore, the exact nature of where forwards will also become more clearer as of now.

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Unidentified Analyst, [93]

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Okay. All right. So you don't think that a call separately with him is required?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [94]

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Currently, the situation is such that we are trying to just meet the existing demand in the market with whatever supplies that we have on hand. So in that situation, it is more of thinking about today rather than anything for tomorrow.

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Unidentified Analyst, [95]

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Okay. Just a very inquisitive question. I mean he is still with the company, right? I mean there is no -- nothing that he...

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [96]

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It's 3 times, my friend.

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [97]

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Yes. He is still around. Yes.

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Operator [98]

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Next question is from the line of [Rakesh S] from Indsec Securities and Finance.

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Unidentified Analyst, [99]

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This is Rakesh here. Sir, my first question regarding, can you highlight on the major product performance during the quarter?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [100]

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Yes. So as we were discussing on the earlier questions, we have been trying to focus on our core categories and trying to protect volumes and shares in cheese, ghee and paneer. And we had to sacrifice a few non-core categories based on today's situation.

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Unidentified Analyst, [101]

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Okay. Sir, can you highlight on the reasonable performance of the company, in which region you sit and why is there a decline or [which area]?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [102]

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See, as we are discussing, I would again like to reiterate, we don't have any problems in terms of demand slowdown here. It is more of input milk availability which is forcing us to restrict whatever size and shape that we are in. And it has nothing to do with any particular geography, this is a nationwide phenomena.

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Unidentified Analyst, [103]

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Okay. So my last question is, can you -- sir, can you share the breakup of the other expense? How much the advertisement and other expense are?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [104]

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Yes. The other expense basically are some of the transportation costs, advertisement, and provision costs. Advertisement is somewhere -- advertisement and sales promotion which is in the range of INR 14 crore, INR 15 crore for this quarter.

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Unidentified Analyst, [105]

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Okay, sir. And how much is the transportation?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [106]

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Another INR 22 crore.

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Unidentified Analyst, [107]

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INR 22 crore.

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Operator [108]

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Next question is from the line of Prateek Giri from Emerge Capital.

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Prateek Giri;Emerge Capital;Research Associate, [109]

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Yes, sir. This is Prateek. Sir, I was just wondering that we already have a really good and extensive distribution network but most of our products seem to be commoditizing in nature and that is what is reflected in our gross margins. But on the other side if we see, we have lot of startups who are working, who is making products more fancier and people are really happy to own them and people are really paying for those kind of products. And that is somewhere leading to, I mean, these startups are having some first-mover advantages. Although sir, I have been listening to the strategy of the company that we are not focusing much on the product side right now. Then sir, what about having the joint venture or having the partnership kind of relation with a similar startup and giving them a leverage or boost of our distribution network and making some incremental margins? Because we already are a INR 2,400 crore -- INR 2,000 crore company, so will we try to capture this increasing consumer habit -- consuming habit for people and try to make our brands where you can get a first move?

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

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Hello.

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Operator [111]

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Sir, the line for the participant was disconnected, I believe.

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

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Okay.

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Operator [113]

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Sir, please bear with me.

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

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Yes.

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Operator [115]

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Prateek, go ahead. Your line is on talk mode.

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Prateek Giri;Emerge Capital;Research Associate, [116]

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Am I audible now?

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [117]

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Yes.

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Prateek Giri;Emerge Capital;Research Associate, [118]

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So I will be needing your help. Was I disconnected since the beginning? Or...

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [119]

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No, no, no. So we heard you out...

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Prateek Giri;Emerge Capital;Research Associate, [120]

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Yes. My point is, why not leverage our distribution network with a fancier product where we can have some first-mover advantage and really focus on the margin, sir. Because our gross margins somewhere belies the fact that we are a brand company and we are a milk brand or a FMCG dairy company, sir.

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [121]

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Okay. So we will take your suggestions in good earnest, and we'll try to see what best can be done within the existing set up that we are. Having said that, I would also like to clarify that we are a dairy-based FMCG company. And based on the space that we are sitting in, our margins are quite healthy as compared to the other players in the market. But we take your suggestion in good earnest, and we'll try to see what best can be done there.

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Prateek Giri;Emerge Capital;Research Associate, [122]

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No. Sir, I totally agree with you. Yes, our margins are definitely better. Definitely good even in this market. But it's -- there are a lot of players who really want extensive distribution network. So I was just thinking that if we you can collaborate with them and have a first-mover advantage in any of the new category of even the consumption of people, sir. So secondly, yes, please, sorry.

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

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Yes, we'll look into that definitely.

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Prateek Giri;Emerge Capital;Research Associate, [124]

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Yes. Sir, secondly, I have been told that in a whey protein category, we have been making good gross margins?

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Shashikant Dalmia, Parag Milk Foods Limited - CFO [125]

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Right.

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Prateek Giri;Emerge Capital;Research Associate, [126]

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Yes. So sir, I was wondering, there are a lot of players in this space, like a lot of ayurvedic players as well, a lot of established player as well. And moreover, since this category particularly caters to youth of the country, it is very difficult -- it is very easy for any startup to penetrate into this category. Sir, I was just wondering, basically, if entry barriers are a bit low in this segment, so how come these high-gross margins are sustainable for the next 5, 7 years, sir. Because I'm seeing newer products in this category every third or fourth month, sir.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [127]

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Yes. You are right. You need to understand 2 things currently, whatever are the products which are there in this particular category are whole import dependent. So they depend on imported raw material. And currently, it is all packing and branding, which is done locally. Otherwise, everything is all made out from imports from Europe. Differentiation with us is that this is 100% our own product right from milk to the shaker cup, and that is where it differentiates. And while there may be 100 different players who will be doing this second job they might find it difficult going forward. For us, that is not the competition.

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [128]

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Yes. And on the other bit, we are the only company in the entire India who is making whey protein from scratch. Hello?

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Prateek Giri;Emerge Capital;Research Associate, [129]

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Yes, yes, I'm on the line.

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [130]

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Yes. We are the only company that is making whey proteins from milk (inaudible). So we're already 2 steps ahead. In fact, I would say the entry barriers of what we are doing are very, very high. Because by the time somebody needs to get that cheese or paneer volume to set up a whey protein plant and then make a product. So right now, whatever that you see are the third-party manufacturing or importing. And on the gross margin for them would not be as high as what we have. So -- and we are looking at this game, like -- of whey protein market as a long-term theme. So whatever players that you're seeing or something that comes, stays for a couple of months, something new comes up. So this is going to happen. But whatever we are doing, we're actually doing which we are seeing from 5 years from now or 3 years from now, the things that we are doing in the whey protein category. It is very different from what these small time players are doing.

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Prateek Giri;Emerge Capital;Research Associate, [131]

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Understood.

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Operator [132]

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Ladies and gentlemen, due to time constraint that was the last question for today. On behalf of Parag Milk Foods Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

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Akshali Shah, Parag Milk Foods Limited - SVP of Strategy - Sales & Marketing [133]

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Thank you.

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

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Thank you.

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Devendra Prakash Shah, Parag Milk Foods Limited - Executive Chairman [135]

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Thank you.

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Unidentified Company Representative, [136]

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Thank you.