Foods & Inns August 2024 Concall Highlights: Navigating Challenges and Maintaining Growth Momentum
Foods & Inns Limited (FOODSIN) reported a mixed bag of results for the first quarter of fiscal year 2025 (Q1 FY25), marked by strong volume growth initially but hampered by unforeseen export challenges related to container availability and freight costs. Despite these challenges, management reiterated its confidence in the company's long-term growth prospects, driven by capacity expansions, particularly in tomato processing, and a renewed focus on strategic initiatives such as its new pastry line and expansion into global markets.
a. Financial Performance:
Q1 FY25 witnessed a deferral of approximately Rs. 11 crores in export revenue due to income recognition standards and shipping delays. This resulted in lower-than-expected revenue recognition for the quarter, which management expects to be realized in Q2 FY25. Despite these challenges, volume growth mirrored the momentum of Q4 FY24 until mid-June. The blended realization per kg for the quarter was around Rs. 88, compared to Rs. 105 in Q1 FY24, due to a shift in the product mix and lower raw material prices last year.
Anand Krishnan, the CFO, highlighted the impact of Totapuri raw material prices, which nearly doubled compared to FY24, on working capital and inventory. However, management indicated that the lower mango output this year (down 25%) would ultimately reduce working capital requirements and aid in debt reduction.
b. Operational Updates:
The company experienced a slowdown in domestic growth, achieving only 5-6% growth compared to the targeted 20%. This was attributed to temporary plant shutdowns at a key customer's facility, leading to a drop in order volumes.
Export shipments faced delays due to container shortages and high freight costs, particularly after mid-June, with roughly Rs. 10-12 crores worth of shipments affected. However, management expects the shipping situation to normalize by Q3 FY25, leading to a resolution of backlogs.
The Kusum business demonstrated year-on-year (YoY) growth of 24%, while the Tetra Recart segment, focused on contract manufacturing, continues to face challenges in gaining traction with major brands due to ongoing product development and testing. Management anticipates gaining momentum in this area by the end of FY25.
c. Management Insights:
Moloy Saha, the CEO, emphasized that the company's domestic business is largely dependent on seasonal factors and that the order book doesn't always fully reflect sales due to the nature of production cycles. He highlighted the importance of the company's focus on its frozen food segment in international markets, anticipating stronger growth in this area.
Milan Dalal, the MD, expressed satisfaction with the performance of the company's new pastry line, planning to expand it with two more lines in the near future.
Management's outlook for tomato-based products remains optimistic, with expanded capacity and a positive outlook for the upcoming season, leading to expectations of better performance in FY25 compared to FY24.
d. Strategic Initiatives and Future Plans:
The company highlighted the planned expansion of its tomato processing capacity, which is now more than double what it was previously. This enhanced capacity is expected to play a key role in fulfilling a large pending Rs. 150 crore order that was deferred last year due to capacity constraints.
The development of new tomato varieties with improved color and lycopene content in partnership with seed companies is also underway, with the potential to enhance the company's competitiveness in the global tomato market.
The pastry line, designed for global markets, is demonstrating success with the first line installed and initial export orders to the UK. Management aims to install two additional lines by October/November and plans for five more lines in the future.
Management outlined its efforts to expand geographically, including exploring opportunities in Russia, the UK, Sri Lanka, and Spain, with a continued focus on the lucrative B2B tomato business in India.
e. Q&A Session Highlights:
- Open Offer: The open offer concluded successfully, with the acquisition of approximately 500,212 shares, exceeding the 25% threshold required for further creeping acquisitions.
- Volume Growth: Challenges in income recognition standards and export shipment deferrals significantly impacted volume growth in Q1 FY25.
- Domestic Market: Domestic volume growth was lower than expected due to temporary disruptions at a key customer's facility.
- Tomato Category: Management expects strong growth in tomato-based products in FY25 due to increased capacity, the positive monsoon, and potential for larger orders.
- Hong Kong Market: The Hong Kong market is still relatively small for the company, and the focus there is on building the Greentop brand in the B2B space.
- Tetra Recart: Trial runs and testing are ongoing with various brands for Tetra Recart, but commercial orders are still pending, with potential revenue generation expected in FY25.
- CapEx: The company anticipates only modest CapEx in FY25, mainly focused on expanding its pastry line production.
- Debt Reduction: Management aims to reduce debt in FY25, but it depends on revenue growth and the impact of the Totapuri raw material prices.
- Order Book: While the order book is expected to be higher than last year, management cautioned that it might not translate directly to higher sales due to seasonality and the current capacity constraints.
Conclusion:
Foods & Inns faces near-term headwinds related to export-related disruptions and domestic volume growth, yet management conveyed a confident outlook for the future. Capacity expansions, especially in the tomato processing segment, the promising new pastry line, and a focus on international markets, particularly in the frozen foods space, position the company well for future growth. The company's ability to navigate the current challenges, capitalize on the potential of its strategic initiatives, and continue to attract investor confidence will be crucial determinants of its success in the coming quarters.
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