ADF Foods Limited (ADFFOODS) Q2 FY23 Earnings Concall Transcript

ADF Foods Limited (NSE:ADFFOODS) Q2 FY23 Earnings Concall dated Nov. 09, 2022

Corporate Participants:

Bhavin Soni — Investor Relations

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Shardul Doshi — Chief Financial Officer

Devang Ghandhi — Chief Operating Officer

Sharon Roper — Sales Coordinator

Analysts:

Prakash Kapadia — Anived Portfolio Managers — Analyst

Kartik Shasha — Resident Investor — Analyst

Tushar Sheti — GB Capital Markets — Analyst

Anupam Agarwal — Lucky Investment Managers — Analyst

Faisal Hawa — HG Hawa & Company — Analyst

Raj Osa — Side Investor — Analyst

Ashish Kacholia — Lucky Investment Managers — Analyst

Anupam Makara — Lucky Investments — Analyst

Ravi Naredi — Naredi Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the ADF Foods Limited Q2 and H1 FY ’23 Earnings Conference Call. As a reminder, all participant lines will be in — and there will be an opportunity for you to ask questions after the presentation concludes. Serenitas during the conference call, please seniority pressing Stan on your Truston phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Bhavin Soni.. Thank you, and over to you, sir.

Bhavin Soni — Investor Relations

Good evening, everyone. I am Bavan Soni from Orient Capital. We are Investor Relations advisers to ADF Foods Limited. On behalf of ADF Forge Limited, I extend a very warm welcome to all the participants on this Q2 and H1 FY ’20 Financial Results Discussion Call. Today on the call, I am joined by Mr. Bimal Hacker, Chairman and MD; Mr. Shardul Doshi, CFO; and Mr. Dewan Ghandi, Chief Operating Officer. I hope everyone has had an opportunity to go through the investor presentation and press release that we have uploaded on the exchanges and company’s website. Before we begin the call, I would like to give a short disclaimer. This call may contain some forward-looking statements which are completely based on our beliefs, opinions and expectations as of today. These statements are not a guarantee of future performance and involve unforeseen risks and uncertainties. With this, I hand over the call to Mr. Tacka for his opening remarks. Over to you, sir.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Thank you, Bhavin. Good evening, everyone. I’m pleased to welcome you all to our Q2 and half year ended 30th September 2022 Earnings Conference Call. The demand for our product continues to be strong, and I’m happy with the performance of the ADF team as we have achieved strong and profitable growth. On a stand-alone basis, we recorded revenue of INR155 crores in half year in H1 financial year and INR83.2 crores in Q2 financial year ’23, a growth of 17.3% and 12.8%, respectively, for the same periods last year. On a consolidated basis, we recorded revenue of INR204 crores in H1 financial year ’23 and INR106 crores in Q2 financial year ’23. Our stand-alone EBITDA impact for the half year stood at INR22.8 crores and INR20.5 crores, respectively. Our consolidated EBITDA NPAT for H1 financial year ’23 and Q2 financial year ’23 stood at INR37.1 crores and INR21.2 crores, respectively.

We are showing constant growth and resilience in our overall business despite the supply chain disruption, which we have in our U.S.-based subsidiary that has affected its contribution to our revenue and profitability. The company continues to see inflationary pressures on raw material side and is constantly working on improving cost efficiencies. The fitness softening prices of freight costs as compared to last year and this quarter. We are making every effort to maintain our margins despite strong headwinds in raw materials with a better product mix and cost optimizations and price hikes taken in the previous quarters. Through our wholly owned subsidiary, Telerik Foods Limited, we are pleased to announce the launch of our brand ADF Sol in India. — which will be sold through e-commerce channels all over India via the company’s own e-commerce website, sold cash foods and various leading e-commerce platforms like Amazon. Currently, we launched pickles and Japanese in India created with the right balance of healthy olive oil, sweet, less salt and spicing ingredients using traditional recipes.

This is just the beginning as we are planning to launch a category of various international gordonae products under this brand. In order to improve our product portfolio and to serve our value customers — we continue to launch new products in categories of ready-to-eat foods and meal accompaniments, like pace and pickles. Our distribution continues to be on the right track and is helping growth of our own brands as well. To conclude, we are extremely excited to capture all these opportunities, especially the launch of products under ADS sold in India. This is all from my side for the moment, and I’ll hand over to Sharon for the financial update. Thank you. Over to you, Shardul.

Shardul Doshi — Chief Financial Officer

Yes. Thank you very much. Good evening, everyone. Thank you for joining us today. Let me brief you on the financial highlights for the second quarter. Let me cover the stand one first. On a quarterly basis, Q2 FY ’23 revenue stood at INR8.2 crores which is an increase of 12.8% Y-o-Y and 15.3% on quarter-on-quarter. Our Q2 gross profit and EBITDA per standalone business stood at INR7.7 crores and INR15.5 crores. Q2 PAT stood at INR13.1 crores with margin of 15.7%, which is an improvement of 110 bps Y-o-Y and 540 bps sequentially. We are continuing not to book any income on account of PLI incentive for the current year due to change in policy with respect to start here under the G&A policy. On stand-alone basis, our H1 FY ’23 revenues increased by 17.3% to INR155.3 crores compared to the same period last year. EBITDA stood at INR22.8 crores and PAT stood at INR20.5 crores with a margin of 15.2%.

The freight cost is showing declining trend, which is continued for September also. However, we are still facing some inflationary challenges on the governmental side. In the current quarter, cost control, operational savings and prudent price increases across elect product categories helped mitigate the impact of inflationary pressure and improve the margins. On consol basis, our top line was INR106.7 crores for Q2, EBITDA stood at INR18 crores and PAT at INR13.6 crores with a 12.7% margin. For H1, our consumed top line was INR203.9 crores, EBITDA at INR271 crores and PAT at INR212 crores. is all from my side. We can now open the floor for a question-and-answer session. Thank you.

Questions and Answers:

Operator

[Operator Instructions] First question is from the line of Ravi Naredi from Naredi Investments. Please go ahead.

Ravi Naredi — Naredi Investments — Analyst

Thank you very much, Mr. made for a reasonable set of numbers Sir, we are doing hard efforts at U.S. and go down on rent or lease. But since last 2, 2, 3 years, not growing much in top line or bottom line. So what is your comment and what you think for next one to two years in a line?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So our — ever since we took warehouses on lease, right, we were hit with COVID and there were disruptions in terms of getting people setting up that warehouse. We had some challenges and headwinds, but now that’s all in the past. And this is this is an investment which we have made for the future, and it is — we are very confident that it is going to yield results. And you will see in the coming quarters that things will get much better. Our distribution business, the subsidiary, which we set up for distribution also will continue to grow strongly. And we’ve already seen that happen where — the Internet benefit is coming on the stand-alone basis because our growth of our own brand through these distribution companies has grown substantially from what it was earlier in the same areas. So this is just the initial setting up phase. And unfortunately, we got caught in that in the covets. I mean we set up a freezer. We made an investment on a flier, but we’ve not been able — and it’s been now over a year, and we were not able to get a transformer. — electricity board doesn’t have a transformer to give us. So we are still struggling with outside storage. And so there have been some challenges, but — now going forward, we will — we are already now seeing that they are — hopefully, by the end of this year, again our feeder started off in the parole as well, and things should improve.

Ravi Naredi — Naredi Investments — Analyst

Okay. And sir, at what capacity of different locations we are running like Sura, Nadia and Maxi?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So each various lines are running on different capacities. And I’ll have Dan era, if you want to just take that question, please? So what is happening is that, like we said, there are all different lines. As far as Nadia as far as media is concerned, we have got about basically about the majority, about 12,000 to 15,000 tonnes this depends on various products. As far as worth is concerned, we have got 3,200 tonnes roughly. And as far as Nasik is concerned, we have got another — let me — it’s about 14,000 tonnes again. This is more because of our Canicapacity there.

Ravi Naredi — Naredi Investments — Analyst

Okay. And sir, what is our CapEx plan in next 2 years?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Dean, do you want to get that?

Devang Ghandhi — Chief Operating Officer

Yes. Yes. Yes. So our CapEx plan in the next 2 years is basically we have a greenfield project that should be in the region of about INR60 crores, and we would have additional balancing equipment, additional capacity expansions at both Sura sorry, Sura, has as well as Nadiad, — and that would be another in the line tune of about INR10 crores.

Ravi Naredi — Naredi Investments — Analyst

INR10 crores. Okay. Thank you. These are my questions.

Devang Ghandhi — Chief Operating Officer

Thank you.

Operator

The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Yes. A couple of questions from my end. You did mention in the opening remarks, U.S. supply chain had an impact on sales. Could you help us quantify the impact of lost sales because I think we had INR107 crores of consolidated sales. So what could be the impact due to this U.S. disruption in terms of sales for the quarter?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Sharon, do you want to get that?

Sharon Roper — Sales Coordinator

Yes. So our ADI USA business, which is net PSusiness, there is a disruption which has happened. In fact, there are no sales from that business in first half. In first half last year, we did almost INR25 crores of a top line, and we had earned a profit of the leverage impact in this year’s first half, there’s a lot of an growth. So there is a profit impact of almost INR5-odd crores and top line impact of 253. So as this business if you reduce that from the last year, there is a good growth, which we have seen in all our other businesses.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Understood. And in a global inflationary scenario, how does demand look like in, say, the balance of 23, how would the second half look like? — because inflation continues to be pretty high globally. So is there a risk to demand? Because I think now the supply chain and U.S. could have been resolved, right, is what my understanding is.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

No. For our subsidiary, we’ve still not been able to resolve problem on the supply of products. So the ADF Foods USA, the subsidiary of ours, which Calgojust gave you information on that will still have challenges, we’ve still not been able to resolve the supply chain. But all the other businesses, we are not seeing any — we are seeing a strong growth and strong demand for the products. So all the ethnic Indian food, which we are doing from India, the agency businesses, we are seeing good demand on both.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Okay. And on the domestic side, how is sold price as compared to competition? Is it higher? Is it lower? Is it at par? Because online is a very price-sensitive kind of a market. So how does pricing of our products happen?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So the whole sole value proposition is healthy and Phase II products. So it is not priced on the economy, and it is priced for the millennials, and it is at a slight premium. There are lots of other products within the same kind of category, which are there and they are on similar kind of price points at those. But they are not an economy or mid-level kind of brand. It is a premium brand. And we’ve had — in the first month we’ve had a good traction on the products. We have repeat orders. And now we will be going very aggressive with campaigns on Amazon and also launching on our websites as well. But we are very pleased with the initial response that we’ve had. Consumers have come back, we bought. So that is a very encouraging sign.

Prakash Kapadia — Anived Portfolio Managers — Analyst

All right, right. And lastly, from the U.S. business perspective, how and what should you give us the trigger, which will ensure and get us a better understanding, the worst is over and these issues have been sorted and demand would come back?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Well, So I mean, I cannot see it going anything worse than what we were selling one because the ADF Foods USA subsidiary has virtually given 0 business, and it’s only gone negative once. All the other businesses we are seeing good growth on them. And I think the versus in us, and we look forward to a good future now from the cities.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Understood. Thank you all the best. I’ll come back if I have more questions. Thank you. Thanks.

Operator

Thank you. The next question is from the line of Mr. Kartik Shasha from Resident Investor, please go ahead. [Operator Instructions] Sasha, over to you.

Kartik Shasha — Resident Investor — Analyst

Yes. Congratulations, Bimal and team have done a good job this quarter. My simple limited question is, is there any room for spending more on marketing in terms of advertisement, et cetera, because the presence in the Indian market seems to be quite not so visible. And any other acquisitions in the pipeline if the CapEx that we have is — the cash we have is quite a lot in the company. That’s all.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes. So thanks. So yes, we have not started our ad campaign in the domestic market. You will start seeing activity on social media from this month onwards. And we are committed in investing and know that we have to invest in marketing to get this brand popular in India. So we will do that, and you will start — you will see the activity starting off from this month. We just didn’t want to launched a campaign last month because it was high season, Diwali time, and these products wouldn’t have really got any kind of impact or because of the Diwali season. So you’ll start seeing the campaigns from this month onwards. And as far as acquisition opportunities, we constantly evaluate, and we are always on the lookout — so we will look at that. We definitely want to look at something and hope we get something at a — which is a good fit for us and at the right pace.

Kartik Shasha — Resident Investor — Analyst

Thank you. Thank you so much Bimal

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Thanks.

Operator

Thank you [Operator Instructions] the next question is from the line of Tushar Shetifrom GB Capital Markets. Please go ahead.

Tushar Sheti — GB Capital Markets — Analyst

Hello

Operator

Tushar you still have

Tushar Sheti — GB Capital Markets — Analyst

Yes. I just wanted to know how has been the launch of ADF sold in India? And how are we planning to scale up?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So I just just answered that share had a very encouraging response. And it’s just been 1 month. And we are now quite a step-up on the marketing activity of those — of that brand in India. So we are very pleased with the initial response that we got on the brand. And there are lots of more products that we will be adding on this under the strategy.

Tushar Sheti — GB Capital Markets — Analyst

Okay. Thank you. And what are our internal sales target for the team? Can we share it will be helpful.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So the first financial year, we are looking at — I mean, it’s just going to be 5 months in this financial year. So we are not looking at anything over the top. But next financial year onwards, we are looking at a minimum of INR1 crore a month to begin with, and this is all online, okay? And after we’ve established that, then we want to look at getting into modern trade. So the first full year, which will be next financial year, we should be looking at at least about INR12 crores of line

Tushar Sheti — GB Capital Markets — Analyst

Okay. Okay. That’s — that would help. And the second question is, sir, the growth in quarterly revenue for the distribution business has remained flattish could you help us by throwing them right the same?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Sure. So one of — one of the 4 agency brands that we have, which is the universe right? That has undergone some changes where Unirinternationally, I mean, globally has sold those brands to a private equity firm. So I mean, we now are working with the private equity firm for imaging the distribution. And there were some disruptions during the whole transition, which is why there was a flattish sale. But now from next year from Jan — I mean everything is now resolved. And from Jan onwards, you should start seeing again a good growth trajectory — so there was a transition period between the sale process. So that led to some slowdown for us.

Tushar Sheti — GB Capital Markets — Analyst

Okay. else. And sir, does this quarter reflect the sales made for Patanjali as we onboarded them in the last quarter?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes. Patanjali has started off for us, and we are pretty much on target to achieve our GBP0.5 million target for the first year. We’ve not yet — we’ve just noted it in the U.K. We are now in the process of putting it in some other European countries as well. But yes, so this quarter does reflect a

Tushar Sheti — GB Capital Markets — Analyst

Okay. Thank you, and all the best.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Anupam Agarwal from Lucky Investment Managers. Please go ahead.

Anupam Agarwal — Lucky Investment Managers — Analyst

Yes. Hi good afternoon, and congratulations on good numbers. I’ll start off with, sir, if you can help us understand the freight costs during the quarter. As a percentage of sales, how much would that be? And what is the kind of variation we have seen in the cost Q-o-Q and Y-o-Y?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Sure. Sharon, do you want to please get that?

Sharon Roper — Sales Coordinator

Yes. So freight cost has impact in Q2 has come down by almost 5% of our top line. So which used to be 20% in the previous quarter rate come down to almost 15% now. So that’s a number which we have. So yes, I don’t know what got it

Anupam Agarwal — Lucky Investment Managers — Analyst

Yes. So secondly, I want to ask you the CapEx time lines, the INR60 crores a if you can help us understand by what — which quarter will that start to commission? And on peak utilization, what is the kind of revenue potential it can help.

Sharon Roper — Sales Coordinator

So on, Yes. So the CapEx is primarily both greenfield as well as internal expansions in existing plants. So while I can give you a time frame for the greenfield to be about, say, roughly 1.5 to 2 years, it’s an ongoing process at our plants. So as far as revenue kicking is concerned, at full capacity at 100% capacity, the greenfield should be around INR170 crores to INR180 crores as well as we would be giving probably quite a substantial figure from our internal expansion as

Anupam Agarwal — Lucky Investment Managers — Analyst

Understood. And sir, what is the steamfield. Is it largely for frozen food category or some other actions

Sharon Roper — Sales Coordinator

It’s more frozen foods just to give you an idea where we would add most of we would replicate all the lines which we have in area today. No. And we’ll be adding some new product lines as well in the — so yes, it’s — the first phase is frozen, then we have a second phase planned for some other ambient products as well.

Anupam Agarwal — Lucky Investment Managers — Analyst

Understood. And the Indian brand area sold, where is that getting manufactured — is it in the lease plant or

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

No, that’s being manufactured in our Mastic facility.

Anupam Agarwal — Lucky Investment Managers — Analyst

Understood. And MB products. Got it. And the lease facility is for what category and when then is the lease contract?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So the lease facility is for frozen products. And the cost, it will probably — we will continue with the lease facility in the Greenfield project is complete. So for another 2 years at least.

Anupam Agarwal — Lucky Investment Managers — Analyst

Understood. Understood. Sir, just to understand on the gross margin piece, between the U.S. and our other European and Middle East markets, and the brands that we cater to in those regions, how would Indian ADS will be — I’m just trying to understand on the gross margin piece, how would ADS sold be for us? Is it higher than the other regions? Or

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So the area also is because it’s a premium brand, the gross margins are upwards. I mean, it’s between 40% to 50% at gross margins.

Anupam Agarwal — Lucky Investment Managers — Analyst

Okay. Got it. And what is the kind of marketing ad spend we’re looking at, let’s say, in the next 5 months, we’ll be getting 5 months in FY ’23. So what is the kind of or an absolute amount, if there is in my invest.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So for the next 5 months, we are looking at close to about INR3 crores in marketing spend.

Anupam Agarwal — Lucky Investment Managers — Analyst

Okay. So will we be breaking even in those 5 months or breakeven is going to happen FY ’24?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

No, FY ’24 will be breakeven this financial year or it won’t break even. But it’s a new brand. We have to make the investments.

Anupam Agarwal — Lucky Investment Managers — Analyst

Lastly, just an update on the QSR acquisition we did last quarter or an investment we did last quarter. What is the update there?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So we put that investment on hold for the moment. So we haven’t made the investment yet. We put it on hold. We will be deciding on it in the next — before the end of this fiscal year.

Anupam Agarwal — Lucky Investment Managers — Analyst

But is it committed or is there some other reason for not keeping it on to

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

No. There are certain discussions we are having with the company with that company. So in certain clarity is not there, we’ve decided to put it on hold. So we are on — the discussions are still going on. It’s not ended — I mean we have been going on with the questions.

Anupam Agarwal — Lucky Investment Managers — Analyst

Right, right. Sorry, sir, last one to my end, the INR60 crore CapEx greenfield and downfield INR70 crores will be funded through internal cash or

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes, yes. It will be funded through internal accruals. We will be taking some term loan, but primarily through internal approvals. — and we are getting — we are hopeful of getting a mean some government subsidy also on this.

Anupam Agarwal — Lucky Investment Managers — Analyst

Right. Right. Got it. I will come back in the que. Thank you so much.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Faisal Hawa from HG Hawa & Company. Please go ahead.

Faisal Hawa — HG Hawa & Company — Analyst

So sir, total did I hear correctly that we are planning a greenfield expansion of INR180 crores totally.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

No, sorry, 60 of the sector.

Faisal Hawa — HG Hawa & Company — Analyst

So I mean, with the strategy of so many B2B — sorry, B2C brand and who have really scaled up so well and taking the social media approach and telling a very compelling story. So will our new marketing from which we are going to also get PSI benefits abroad Will it be now more targeted towards this kind of platforms and so that we can scale up much faster. That is one. And second is, sir, how many more countries do you think we can really expand to — and third is that how many more companies are we now engaging to act as a distributor for Indian Dana products abroad?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Right. So — as far as the PLI scheme and so what we are going to do on the — of course, even for our international brands, we do use social media. But not to the extent that we intend to use in India because India we are going to — our focus is to be online and sell these products line only for the first 1, 1.5 years. So internationally, even though we use the social media, majority of our monies are spent on above the line, like television, in-store promotions, POS material in the stores, demos at is solvent internationally. India is primarily tote social media, right? The second, please remind me of your second question again.

Faisal Hawa — HG Hawa & Company — Analyst

Second question, sir, how many more countries can we really expand to where there’s a very big Indian diaspora and

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes

Faisal Hawa — HG Hawa & Company — Analyst

I mean, I always believe that somebody who is able to succeed this model in the U.S. can then do it anywhere. And that is what ADFs actually done

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Right. So we are — we are currently in over 55 countries. We are adding constantly every year, a couple of new countries get added on. We’ve added some countries in Europe as well — so that’s a constant process. But the more important thing is within the main markets that we are in, we are increasing our depth in that market. That is the important thing. And within those markets also, we are now trying to target the non-Indian consumer, okay? So that’s where you’re going to start seeing more growth coming. The new countries will, of course, help and add — but it’ll be smaller countries because all the major ones, we are already present in — the important thing is in these major markets is to increase the penetration, which is what we are doing and addressing a new consumer base.

Faisal Hawa — HG Hawa & Company — Analyst

Third question is how many more companies that we could engage with us for. Take a sole distributorship.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So at the moment, we have the 2 anchor ones are Unimever and animate have 2 more discussions going on, and we hope to conclude that within the next — we’ve got one other company in — from Malaysia, where we’ve just started distribution of that. And there is one more company, which we are in discussions with for further decision.

Faisal Hawa — HG Hawa & Company — Analyst

And going forward, you feel that these terms could get more and more favorable for us with the kind of mass we are building up and the distribution and the warehousing strength that we have because with HUL and Patanjali, you may not have been able to negotiate that being this our first foray, but now it could get much more favorable to us.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes, absolutely. And it will only help us — I mean, as we add more products through our pipeline, it’s only helping us reduce our distribution costs. The fixed costs get reduced further. So yes, it will be more beneficial for us

Faisal Hawa — HG Hawa & Company — Analyst

Going forward. Thanks for our plan things all later.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Thank you

Operator

Thank you. [Operator Instructions] The next question is from the line of Raj Osa, side investor. Please go ahead.

Raj Osa — Side Investor — Analyst

Hi. Am I audible?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes, you’re

Raj Osa — Side Investor — Analyst

First of all, apologies if I If this question was repeated because I missed your commentary. Okay. I just wanted to understand on the raw material, like we also many other calls, okay, where management indicated that this is raw material prices started stabilizing, but still they see some kind of increase in pressure in coming quarters. So I just wanted to understand your view on that on our raw materials.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So as we’ve mentioned, we are still seeing some strong headwinds on the price increase on the raw materials. We are still seeing that. And we hope in the next quarter, it gets better. But what is helping us is the freight costs are coming down, and we are trying to maintain our margins by better efficiencies and better product mix.

Raj Osa — Side Investor — Analyst

Okay. Inflationary pressure continues to remain on the raw material price.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Sure.

Raj Osa — Side Investor — Analyst

So one last question was like we have seen a good growth in our stand-alone business. But how do we assess the performance of our products on a local level like which big box retailer we are targeting to enter? And on what criteria, what basis we enter them and how do we assess like a country manager in performance country manager performance.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So all our country managers performance is evaluated on the budget and targets that we’ve given to them, right? And as far as India goes, we have just started last month with the launch of ADS sold, which is going to be online only. And the initial response on that has been very good. So we hope to see good traction in the next financial year on this brand as we have a lot of exciting new products which we intend to launch in the market.

Raj Osa — Side Investor — Analyst

Sure. Sure. Thank you.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Thank you.

Operator

Thank you. Our next question is from the line of Ashish Kacholia from Lucky Investment Managers. Please go ahead.

Ashish Kacholia — Lucky Investment Managers — Analyst

Good evening or good afternoon. The team. My question basically, sir, is that we are currently running at a run rate of about INR200 crores per quarter. But when do you feel that we can kind of reach a run rate of INR40 — INR400 crores per quarter in how many years? Or how are you seeing that opportunity still is opening up for us.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

In. So as we’ve always maintained that our endeavor is to try and double up in size every 3 years, because of Cove and certain disruptions, this financial year was a little bit of a challenge. But otherwise, had we not gone through those disruptions. I think we would be on track to do that. Now that the worst is behind us, I think — we hope to continue with that trajectory of doubling up every 3 years.

Ashish Kacholia — Lucky Investment Managers — Analyst

So you are seeing because the U.S. and these are mature markets. So what would lead to this doubling of our savings out there?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So our — if you saw the stand-alone business, the news of our ethnic food Indian food brand, — that gives us all the confidence that we should be able to do it. We are seeing strong demand for those products. And we are pushing that we’ve seen a good growth on that even in this fiscal year. So we feel confident on that basis from this product line.

Ashish Kacholia — Lucky Investment Managers — Analyst

Isolargely the Indian diaspora or this is — we are able to retail to the local community there as

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

But at the moment, it is the Indian asperaAnd of course, we have already started making inroads in distribution for the mainstream consumer as well. So — but currently, largely through the Indian Aspera that we are seeing a strong demand. And as I mentioned, the mainstream is something where we see a good runway going forward for us.

Ashish Kacholia — Lucky Investment Managers — Analyst

Okay. But the Indian diaspora will — I mean the for itself may not be growing at a great pace, right? So I mean, we’re taking market share from somebody or what are the main demand drivers for us grow.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

It’s a combination of a couple of things, Ashish. We are taking market share. We are increasing our penetration in terms of our width and depth in the stores, and we are adding new products, which are helping the growth as well.

Ashish Kacholia — Lucky Investment Managers — Analyst

All right. Very well. Thank you very much and all the best.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] Sorry, we have a follow-up question that has come up from the line of Anupam Makara from Lucky Investments. Please go ahead.

Anupam Makara — Lucky Investments — Analyst

Yes. Just, sir, if you can help us understand the 17% growth on H1 over H1. Can you bifurcate that between the price hikes we’ve been taking and the volume growth?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes. Cargo, can you please answer that?

Sharon Roper — Sales Coordinator

Yes. So it’s roughly around 60% is coming from the price and 30% to 40% is coming from the volume.

Anupam Makara — Lucky Investments — Analyst

Okay. And how easy is it for us to take such a price hike every year? Or is it — I mean just a onetime every 2, 3 years?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes..Sorry.

Sharon Roper — Sales Coordinator

Yes. I mean we can’t take such price increases every year unless we are under like these kind of extraordinary circumstances where everyone was getting hit by high cost on the raw materials, on the plate, all of that. But normally, we do have price increases of about 4% to 5%. It all because so this year was an extraordinary year. And everyone, not just us, but a lot of other competitors also did take a price increase. Everyone’s percentage would have been different. So — but this is not a normal trend. It all depends on all the other situations. If there’s a crop failure, of course, then one does take a price increase accordingly. But if it’s just normal, then it’s about under 5%.

Anupam Makara — Lucky Investments — Analyst

Understood. Sir, you mentioned about actual selling some brands to pay from — and because of that disruption, we are in a transition phase and all that. What is the kind of revenue loss we have seen during this transition and the brand centers sold to the fund.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

So brands like Lipton, all their key brands have been sold for HUL India, and I think Unilever, Indonesia, if I’m not mistaken, there are 2 of the Unilever companies which have kept those brands. the rights across the world everywhere else has been sold to this other brands. So all your brands like Red Label Tea, Padman, Lipton Yellow Label. — all these brands have been — Volis rights have been sold to this private equity fund. And what happened during this whole transition period is we had, I think, in terms of sales loss share, how much was the sales loss. There wasn’t any growth, and I know there was a marginal sales loss because of that.

Anupam Makara — Lucky Investments — Analyst

Roughly 7% to 8%.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

7% to 8% of the HUL billing that we used to do?

Anupam Makara — Lucky Investments — Analyst

Yes.

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Yes. Correct

Anupam Makara — Lucky Investments — Analyst

Is it possible to

Sharon Roper — Sales Coordinator

We have worked with HUL. We were always working with Unilever Canada and Unilever International. So our dealings are never been with

Anupam Makara — Lucky Investments — Analyst

Right. Sir, absolute amount as you can highlight?

Bimal Thakkhar — ADF Foods LimitedChairman and Managing Director

Okay. Yes, San.

Sharon Roper — Sales Coordinator

So in Q2, we did around — when we convert in rupee terms, it’s around INR16 crores versus INR18 crores in the last year increased

Anupam Makara — Lucky Investments — Analyst

Got it. Sir, lastly, on the distribution business after Patanjali so — for us to grow to a higher level, let’s say, INR50 crores, INR20 crores — are we in dialogues with other brand agencies as well to — for us to distribute their products?

Sharon Roper — Sales Coordinator

Yes. Yes, we are. We are having some ongoing discussions with to 2 more companies.

Anupam Makara — Lucky Investments — Analyst

Got it. And any time lines you can

Sharon Roper — Sales Coordinator

So with one company, I think before the end of this year or probably in the last quarter by then we should finalize it. We are hopeful to finalize with this one company before the end of this year.

Anupam Makara — Lucky Investments — Analyst

Understood. That’s it from my time. I wish you all the best or

Sharon Roper — Sales Coordinator

Thank you.

Operator

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Divakar for closing comments. Thank you, and over to you, sir.

Devang Ghandhi — Chief Operating Officer

Thank you, everyone, for your participation and wish you a good evening, and we catch up in the next quarter as. Thank you.

Operator

[Operator Closing Remarks]

Devang Ghandhi — Chief Operating Officer

Thank you.