ADF Foods Limited (ADFFOODS) Q3 FY23 Earnings Concall Transcript

ADF Foods Limited (NSE:ADFFOODS) Q3 FY23 Earnings Concall dated Jan. 31, 2023.

Corporate Participants:

Bimal Thakkar — Chairman and Managing Director

Shardul Doshi — Chief Financial Officer

Sumer Thakkar — Manager, Business and Strategy

Analysts:

Bhavin Soni — Orient Capital — Analyst

Rishi Maheshwari — AKSA Capital — Analyst

Keval Sheth — KS Investments — Analyst

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Tarak Mehta — Kotak Securities — Analyst

Foram Bauva — Abakkus Asset Manager — Analyst

Anupam Agarwal — Lucky Investment Managers — Analyst

Faisal Hawa — HG Hawa and Company — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the ADF Foods Limited Q3 and Nine Months FY’23 Earnings Conference Call. [Operator Instructions] 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 — Orient Capital — Analyst

Thank you. Good afternoon, everyone. I am Bhavin Soni from Orient Capital. We are Investor Relations Advisors to ADF Foods Limited. On behalf of ADF Foods Limited, I extend a very warm welcome to all the participants on this Q3 and nine months ended financial year ’23 financial results discussion call. Today, on the call, I’m joined by Mr. Bimal Thakkar, Chairman and Managing Director; Mr. Shardul Doshi, CFO; and Mr. Sumer Thakkar, Manager, Business Development and Strategy.

I hope everyone has had an opportunity to go through the investor presentation and press release that ADF team has uploaded on the exchanges and the 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. Thakkar for his opening remarks. Over to you, sir.

Bimal Thakkar — Chairman and Managing Director

Thank you, Bhavin. Good evening, everyone. I’m pleased to welcome you all to our Q3 and nine months ended 31st December 2022 earnings conference call. The year has begun on a very positive note for us as we have achieved the highest-ever quarterly revenue and PAT on a consolidated basis and standalone basis. This shows that the demand for our products remained strong and our efforts to improve the product portfolio and introduce new innovative products are giving us positive results.

On a standalone basis, we recorded revenue of INR99.8 crores for Q3 FY’23, an increase of 14.5%. Standalone EBITDA and PAT stood at INR25.7 crores and INR19.2 crores respectively. Despite inflationary pressures on raw materials, we have recorded a robust and resilient quarter. We are seeing some more softening on freight cost, which has had a positive impact on our margins and we are monitoring these costs closely. As mentioned in our last quarter, the company had launched ADF Soul brand on e-commerce platforms across India. The initial traction is encouraging, and as a result, the company has launched a range of new international gourmet products like dips, Italian sauces, thai curries etc. Apart from ADF Soul, the company has also launched new products under its existing brands Ashoka and Khansaama in categories of ready to eat, ready to cook categories. We have introduced new products under the plant-based meat categories under the Ashoka brand, which will enable us to expand our product offerings to meet every evolving demands of our valued consumers.

On the operational side, debottlenecking efforts are being undertaken to improve capacity utilization and mitigate costs in our existing facility at Nadiad. Further, I am pleased to announce the company has received an approval from the Ministry of Food Processing Industries, Government of India, that entitles with to receive grant in aid of INR10 crores towards its proposed Greenfield project at Surat, Gujarat.

To conclude, we are working to enter new markets and penetrate in existing markets, by improving our product portfolio and providing superior quality products to our existing and new customers. This is all from my side for the moment, I will now hand over to Shardul for the financial update. Thank you. Shardul, over to you.

Shardul Doshi — Chief Financial Officer

Thank you, Bimal. Good afternoon, everyone. Thank you for joining us today. Let me brief you on the financial highlights for the third quarter. Our standalone Q3 FY’23 revenue stood at INR99.8 crores, which is an increase of 14.5% Y-on-Y and 19.9% Q-o-nQ. Our consolidated Q3 FY’23 revenue stood at INR123.2 crores, which is an increase of 5.2% Y-on-Y and 15.4% Q-on-Q. As Bimal mentioned, our both standalone and consolidated quarterly revenues are the highest in the history of the company. This is despite muted sales in our ADF Foods USA business.

Our standalone EBITDA stood at INR25.7 crores, an increase of 79.1% Y-on-Y and 66% Q-on-Q. Standalone EBITDA margin stood at 25.8%, an increase of 930 bps on Y-on-Y and 720 bps on Q-on-Q basis. Consolidated EBITDA stood at INR27.1 crores, an increase of 37.5% Y-on-Y and 50.2% Q-on-Q. Consolidated EBITDA margin is at 22%, which is an increase of 520 bps on Y-on-Y basis 510 bps on Q-on-Q basis. Again, on standalone as well as consolidated quarterly, the EBITDA absolute number as well as the EBITDA margin is one of the highest in the history of the company.

On consolidated basis, Q3 FY’23 PAT stood at INR18.5 crores with margin of 15%, an improvement of 340 bps Y-on-Y and 230 bps sequentially. This is all from my side. We can now open the floor for question-and-answer session. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [Technical Issue]. The first question is from the line of Rishi Maheshwari from AKSA Capital. Please go ahead.

Rishi Maheshwari — AKSA Capital — Analyst

Thanks so much. I hope I’m audible. Congratulations Bimal and Shardul. I think these are splendid set of numbers after sometime. I have few questions, one of which was to understand this — the revenue growth in little more granularity, as I understand, Nate and PJ’s would yet not be contributing to the top line this quarter, whereas in the base quarter there would have been some revenue from Nate and PJ’s contributing to the top line this quarter whereas in the base quarter, there would have been some revenue from Nate and P.J.’s. Can you help distinguish therefore what could have been like-to-like performance —

Operator

Mr. Maheshwari, sorry to interrupt you, sir. The audio is breaking from your line. Please repeat your question.

Rishi Maheshwari — AKSA Capital — Analyst

Hello, am I audible?

Operator

Yes sir, now you are audible. Thank you.

Rishi Maheshwari — AKSA Capital — Analyst

All right, great. Sorry for the trouble. So my question was largely on understanding the nuances of the revenue growth this quarter, as I understand, Nate and P.J.’s in the prior quarter last year would have been some portion, contributing to the revenue whereas it wouldn’t have been any portion contributing to revenue this quarter. Can you please distinguish what would be the actual like-to-like growth dissecting away from Nate and P.J.’s and also explain that when do you think would the supply chain issue be resolved on that front?

Bimal Thakkar — Chairman and Managing Director

Shardul, can you get that?

Shardul Doshi — Chief Financial Officer

Yeah, so in terms of revenue numbers in Q3 of last financial year, we had INR8.5 crores contributed by Nate and P.J.’s business. For nine-month period, the top line was in fact INR35 crores, so if I look at the like-to-like number, it’s increase of almost 17% on rest of the businesses which we have to see.

Rishi Maheshwari — AKSA Capital — Analyst

Right. And my other question was on when —

Bimal Thakkar — Chairman and Managing Director

From the bottom-line also, Shardul, what did Nate’s and P.J.’s contribute last year, I think that would also be answered.

Shardul Doshi — Chief Financial Officer

Right. So even on the bottom-line side for nine months, it had done — we had a profit of INR3 crores from Nate’s and P.J.’s business, while in the current year nine months, we have a loss of almost INR4 crores from this business, so net-net impact on profitability is INR7 crores, so had Nate’s and P.J.’s contributed anything in the company in the current year, it would have been — the profit would have been higher by at least INR7 crores, for the nine-month period.

Rishi Maheshwari — AKSA Capital — Analyst

Got that. Is it also possible for you to explain that, when do you think the supply chain issues will be resolved over there and how should we look at growth in this division going ahead?

Bimal Thakkar — Chairman and Managing Director

So we are currently having discussions with three co-packers. We are finding it a bit of a challenge to — that’s why it’s taken us so long to get this business restarted. But with these current three co-packers, who we are discussing with, I’m hopeful that within the next three to six months, we should be able to start something. But the thing out there is, the factory needs to get approved by the customers, product formulation has to be done. So there are still some challenges on the supply chain on the raw materials — getting the raw materials from the current vendors. So we are doing our best and trying to see that we at least get this resolved by the — in this next financial year before September, that’s what our endeavor is.

Rishi Maheshwari — AKSA Capital — Analyst

Right, right. Also, the margins in this quarter has been splendid. This is — this looks like record margins since I have had numbers. Part of it, as you had mentioned, was a flow-through of fuel costs, which were lower in this year, this last quarter. Can you help us understand, I’m sure there would be certain other operating leverage also, what would you think the sustainable margins in your business?

Bimal Thakkar — Chairman and Managing Director

So the freight cost reduction has definitely helped us. And we hope the freight continues to go lower. There are some pressures, which we are facing on raw materials. Certain commodities are still continuing to go high. But we are trying to balance everything out by better efficiency and we will try our best to maintain in and around the current margins. We also have plans of running some consumer offers and trade schemes, but — I mean to help increase volumes and also increase our market share. So I hope we are able to maintain more or less the same margins or if at all it will be a couple of points lower. But definitely in the 20s is where we see ourselves continuing to keep subject to raw material and freight not going out of whack.

Rishi Maheshwari — AKSA Capital — Analyst

Fair enough. You’d also mentioned last quarter that distribution business would have had some more clients that would be ramped-up in this quarter or maybe next one. Distribution this quarter was fairly stable versus last quarter and last year. Help us understand if in case what is the outlook on the distribution business?

Bimal Thakkar — Chairman and Managing Director

So the distribution business is in fact this — from the last two months, we’ve seen it started to stabilize. There were certain issues, as I mentioned earlier, in the transition from Unilever to the new owners of the tea business. There were certain issues, which resulted in the business — in the loss of business in the earlier quarters, but things have now stabilized and we hope from this fourth quarter onwards, things will only look better.

Rishi Maheshwari — AKSA Capital — Analyst

So if I have to sum up this — the last few questions that I have asked, it seems like 15% to 20% is the organic growth that’s coming from pre-packaged food that’s supplied from India and distribution business also growing as you mentioned from henceforth. The Nate and P.J.’s will start reporting positive growth from next year onwards, somewhere mid of next year — next calendar year onwards. Therefore, from what I gather, this looks like a 20% to 25% kind of growth on a steady state with margins hovering around 20% is what you mentioned. Is that a fair assumption?

Bimal Thakkar — Chairman and Managing Director

Yes, I would say so.

Rishi Maheshwari — AKSA Capital — Analyst

All right. My last question is generally to understand the focus of the pre-packaged foods within the U.S. I so far understand that this is largely within the Indian diaspora community and the stores related to it. When I often see it on amazon.com or any of the — or any of such websites, Costco and others, I do not find your products, is there a concerted effort towards making your product more visible in the — in some of these large marts as well?

Bimal Thakkar — Chairman and Managing Director

Yes, in fact, in the UK, we are present in quite a lot of mainstream or the supermarkets. In the U.S., we have been in and out of Costco in some of their divisions and our effort is to continue increasing our consumer base which is — the focus is on the mainstream because there is a huge runway out there for us and Indian food is getting very popular with non-Indians as well. So yes, the efforts are continuously on for growing this business.

Rishi Maheshwari — AKSA Capital — Analyst

Thank you very much. All the best.

Bimal Thakkar — Chairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Keval Sheth from KS Investments. Please go ahead.

Keval Sheth — KS Investments — Analyst

Hello, sir, congratulations on a great set of numbers. My question is that on ADF Soul, where do you see this brand going forward? And what is the internal ambition on the size of ADF Soul for the coming three to four years?

Bimal Thakkar — Chairman and Managing Director

So, you know, the Indian — Indian consumer also packaged foods is being well accepted by the Indian consumers. And we believe India will be very strong market going forward for the kind of product range we have. The current plan is to first build the business on e-commerce and then I think, not this ’23-’24, but ’24-’25, start looking at modern trade. So in the next three years. I would hope for the brand to be at least in the range of. INR70 crores, INR75 crores is what the internal ambition is.

Keval Sheth — KS Investments — Analyst

Got it, sir. I just have one more question. Like, how are we seeing our position in the U.S., UK and Europe markets, like if you could just provide a roadmap that you have, as we are doing greenfield projects and brownfield projects to improve the capacity and increasing the sales.

Bimal Thakkar — Chairman and Managing Director

Yes, so we are expanding capacities on certain product categories, adding new product categories, and it’s a continuous process in all these markets where we are further increasing our reach in the stores, adding new stores, trying to get more penetration in the mainstream. So that’s a continuous process in all these markets and these are our key markets.

Keval Sheth — KS Investments — Analyst

Got it, sir. Thank you.

Bimal Thakkar — Chairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aakash Jhaveri from Perpetual Investment Advisors. Please go ahead.

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Hi. Good evening, and congratulations on great set of numbers. My first question is that with the news around. moderating consumer sentiment in the U.S. and UK, how does the business look now and for the rest of 2023?

Bimal Thakkar — Chairman and Managing Director

So we’re not seeing any reduction in demand for food products, especially. I mean, they’re seeing — we’re still seeing a strong growth, and that’s reflected in our Q3 numbers and even Q — even the month of Jan has started off well, so hopefully, we continue to see the strong demand. People still have to eat food. So, we’re not seeing any reduction in that offtake.

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Right, thank you so much. And my last question would be that in the processed foods business, we heard about some China destocking taking place some quarters back. so is that true, is that happening or do you see that happening or not so much in our case?

Bimal Thakkar — Chairman and Managing Director

Now, at the moment, things are pretty normalized from the last two quarters, you saw that right in the beginning of COVID times, but since the last many quarters, pipeline staffing has been what normally it should be.

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Okay, fine, thanks.

Bimal Thakkar — Chairman and Managing Director

Excess as we expect, right.

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Yes, thank you so much. That’s all from my side. Thank you. T

Bimal Thakkar — Chairman and Managing Director

Hank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Tarak Mehta from Kotak Securities. Please go ahead.

Tarak Mehta — Kotak Securities — Analyst

Thank you — just wanted to —

Operator

Mr. Mehta, the audio is not clear from your line. Please use the handset mode.

Tarak Mehta — Kotak Securities — Analyst

Sure. Thank you for your opportunity. Just wanted to understand, how was the —

Operator

Sorry to interrupt you Mr. Mehta, the audio is unclear from your line. Please use the handset mode.

Tarak Mehta — Kotak Securities — Analyst

Is it better now?

Operator

Please go ahead.

Tarak Mehta — Kotak Securities — Analyst

Thanks for the opportunity. Just wanted to understand the recent tie-up with Unilever and Patanjali. How are they shaping up and what are the roadmap ahead, please?

Bimal Thakkar — Chairman and Managing Director

So, as I mentioned, there were — Unilever International has sold their tea businesses to another company. And last year in that transition, there was a bit of supply chain issue. That has now been resolved and from last quarter onwards, things are getting better and normalized. So we hope to see good steady growth from Q4 onwards and the next year as well. Patanjali is also doing well, right now, it’s only in — we just launched it in UK. I think in the next two months we will be having our first shipments go into Holland as well. So we are now expanding the footprint into Europe. So this — both these businesses will — are looking promising for us and we will be adding on some other complementary agency lines as well so that whole agency business for us will also continue to grow in the next year as well.

Tarak Mehta — Kotak Securities — Analyst

Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Foram Bauva from Abakkus Asset Manager. Please go ahead.

Foram Bauva — Abakkus Asset Manager — Analyst

Yeah, hi, sir, congratulations on good set of numbers. Sir, my question would be like what would be the freight cost as a percentage of sales in quarter three and do we expect this to go down further?

Bimal Thakkar — Chairman and Managing Director

Shardul, do you want to get that please?

Shardul Doshi — Chief Financial Officer

Yeah, so freight cost at its peak had reached almost 20% of our top line, has in Q3 come down to the level of 12%. So that’s — and this is I’m talking about the standalone number where the impact is the highest. So even in absolute terms, in Q3 of last financial year, on a lower top-line, the freight cost was INR18 crores, while it’s INR12 crores in this quarter. So that’s quite a bit of a –yeah, gain, which we have —

Bimal Thakkar — Chairman and Managing Director

Also, please keep in mind also that we had increases in the RM cost. So, you know, the freight cost-reduction helped. But there was an increase in raw material, packing material costs as well. And despite all of that, that’s how we’ve been able to come — with better efficiencies, better product mix, all those things has helped in getting us to the kind of margins we have right now in Q3. The freight continues to be — I mean, we hope that it will come down further. There are some areas where it’s — still some regions where it’s still steady. Some places it is coming down every few weeks. So, we hope it comes — continues to go on the softer trend or coming down lower and then start increasing again.

Foram Bauva — Abakkus Asset Manager — Analyst

Thanks sir. And what would be our ad spend for the current quarter?

Bimal Thakkar — Chairman and Managing Director

Sorry.

Foram Bauva — Abakkus Asset Manager — Analyst

Advertisement spend for the current quarter.

Bimal Thakkar — Chairman and Managing Director

[indecipherable] always in the range of 5% to 6%.

Foram Bauva — Abakkus Asset Manager — Analyst

Okay. And you also had launched a few products on the e-commerce segment. So how has been the response of those products?

Bimal Thakkar — Chairman and Managing Director

That’s been pretty encouraging. We are just barely three months into that launch and we’ve just launched some more products this month. So we hope to — the response has been very encouraging. We are now going to open up some more channels for selling on e-commerce as well. I think by — in the next few months, we should be targeting a sale of about [indecipherable] every month on the e-commerce site.

Foram Bauva — Abakkus Asset Manager — Analyst

Right. Thank you sir. That’s it from my side.

Bimal Thakkar — Chairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Keval Sheth from KS Investments. Please go ahead.

Keval Sheth — KS Investments — Analyst

I have a follow-up question, sir. So sir, what is our progress on getting listings on the big-box retailers, like are you targeting specific geographies for big-box retailers and it will be really helpful if you can — and can listing in one provide you a good platform to penetrate more big-box retailers?

Bimal Thakkar — Chairman and Managing Director

So I presume when you say big-box, you mean like the large supermarket chains. Correct?

Keval Sheth — KS Investments — Analyst

Yes sir.

Bimal Thakkar — Chairman and Managing Director

Yeah, so we — as I mentioned, we are already in the leading chains in UK, so we continue to expand our product range into those chains, and in the U.S. also, our goal is to get more and more listings into these supermarkets. So we are continuing to do that. And that’s an ongoing process. [Speech Overlap] Sorry, does that answer your question? Yes sir, that answers my question. Thank you.

Operator

Thank you. The next question is from the line of Rishi Maheshwari from AKSA Capital. Please go ahead.

Rishi Maheshwari — AKSA Capital — Analyst

Yeah. I just had a follow-up on the capex, you had mentioned in the last call that the capex would be roughly about INR60 crores over the next two years, if I’m not mistaken. Now you have got a grant of about INR10 crores from the government. So, does that — should we assume that your capex would be roughly about INR50 crores over the next two years? The cash outflow, sorry.

Bimal Thakkar — Chairman and Managing Director

Yes, that’s correct. So how this works is, we will need to spend that money and then claim it back from the government. Right. So, yeah, it would drop to about INR50 crores.

Rishi Maheshwari — AKSA Capital — Analyst

Right. Sure. I have another question. This is in regards with your depth and width policy, you’re spread across 55 countries and garnering roughly about close to about INR400 crores, INR500 crores sales across and exclude India. You know, across 55 countries to be present with the marketing spend to be able to do that, wouldn’t it be a better strategy to be — to have a depth policy where market like U.S., UK and Middle-East itself is so large with the large kind of Indian diaspora and hence concentrate over there, as you know, a couple of questions relate to your strategies on being more inclusive within the large supermarkets and chains where you seem to be absent at this point in time. I understand that’s an ongoing format and a policy that or a strategy that you’d be undertaking. However, it seems like it is taking longer time. So instead of choosing to be spread across several other countries, would it make more sense to be vertically integrated within the same country in several other supermarkets?

Bimal Thakkar — Chairman and Managing Director

Yes, so we are doing that and I mean our major markets account for nearly 80% of our revenues and which is three regions, I mean. North America, Europe, GCC, these account for nearly 80% of our revenues, so the concentration and focus is in these markets. And we are going to continue focusing there adding — expanding our distribution in those markets and expanding our width in current outlets that we are in. So yes [Speech Overlap]

Rishi Maheshwari — AKSA Capital — Analyst

My question was largely related to do, I know that obviously one would like to be present across all markets as much as possible and concentrate on few of them. However, the presence across all markets would also require management bandwidth, it will also require a lot of marketing spend, it will require some personnel who will be responsible for all those markets, given that 55 countries seems a very large number for the size at which we are, I’m trying to understand how do you balance that kind of expenditure per market versus the sale that you derive from each of those markets?

Bimal Thakkar — Chairman and Managing Director

So, it really is not that much of an effort. The smaller markets are markets where we don’t really have any — make any significant effort. There is no separate marketing spends done for that. The focus is on the main markets. So it’s something where our brand is known, we’ve been doing business for many years, it doesn’t make sense to stop selling in those markets, right. When you are getting business without really making any effort in some of these smaller markets, it’s better to continue rather than pulling out of these markets. Our focus remains on the main markets and that’s where we continue to be.

Rishi Maheshwari — AKSA Capital — Analyst

Fair enough. Thank you so much.

Bimal Thakkar — Chairman and Managing Director

Yeah.

Operator

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

Anupam Agarwal — Lucky Investment Managers — Analyst

Yeah, hi sir, thank you for the opportunity. So just one question, on P.J.’s and Nate’s, you mentioned we would start looking at regenerating sales from the second half of FY’24. Is the entire INR35 crore or INR18 crore half yearly basis going to come one shot or is it going to take time to ramp that series up again?

Bimal Thakkar — Chairman and Managing Director

No I wish it could come one shot. It will take some time to ramp up, but there are certain key products of ours with some key customers. We hope to get them started off. So I would say a fair assumption would be that we expect at least 50% or 60% at least to come in in the — once we resume the business.

Anupam Agarwal — Lucky Investment Managers — Analyst

Understood. And on the ADF’s Soul, the India business, what sort of commissions are we paying for listing on these e-commerce platforms?

Bimal Thakkar — Chairman and Managing Director

So it varies from — Sumer, do you want to get that?

Sumer Thakkar — Manager, Business and Strategy

I know this, Amazon, So Amazon is about 25%.

Anupam Agarwal — Lucky Investment Managers — Analyst

And are we present across all the major platforms or initially just one or two are we starting off with?

Sumer Thakkar — Manager, Business and Strategy

Right now, just [indecipherable] in Amazon, but we are looking at other platforms.

Anupam Agarwal — Lucky Investment Managers — Analyst

Understood. And what level of monthly sales, so Bimal sir said INR1 crore — we would like to touch INR1 crore sales in a few months. At what level of monthly sale will we be breaking even on EBITDA level?

Sumer Thakkar — Manager, Business and Strategy

So hopefully the [indecipherable] month, by April.

Anupam Agarwal — Lucky Investment Managers — Analyst

Okay, thank you. Thank you so much. That’s all from my side.

Bimal Thakkar — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Faisal Hawa from HG Hawa and Company. Please go ahead.

Faisal Hawa — HG Hawa and Company — Analyst

Yeah. So sir, you had mentioned on a previous con-call that we are in talks with two other majors for some kind of an arrangement of distribution, where do we stand on that? And secondly, sir, what are the kind of margin expansions that we can now make if we have a better scale? And If at all, there are more countries that we want to now sell to, which would be a priority for you or would you be more sure of getting across the board in USA itself?

Bimal Thakkar — Chairman and Managing Director

So our — to answer your first question, the discussions with those two companies is still ongoing, we are at final stages of ironing out details on the agreement and the territories. So. I’m hopeful by the first quarter of next financial year, we should have at least one of these agencies lined up. Your second question was, we will continue to expand in our core markets, continue to focus in those core markets and expand our penetration there, expand our outlets where we focus more more on the mainstream side out there. So that is what our plan is going forward.

Faisal Hawa — HG Hawa and Company — Analyst

And my question about the benefits of scale, you feel that you know with much larger than exports, our profit margins could improve by like at least two or three percentage points.

Bimal Thakkar — Chairman and Managing Director

So it all depends on the commodity costs. Right now, we are juggling too many balls. I mean, freight has helped us, but commodity costs, packing costs, all of those things have gone up, so we are right now I think with the way things are, our team has done a great job in getting to these kind of margins. And we will continue to improve product mix, efficiencies, all those things is a continuous and an ongoing process. It’s just certain external factors, which are not within our control, if those go out of whack, then we will see margin pressures.

Faisal Hawa — HG Hawa and Company — Analyst

And any of these two arrangements that we are now going to sign probably in the next financial year would be almost equal in magnitude to the Unilever arrangement that we have?

Bimal Thakkar — Chairman and Managing Director

You know, it’s very difficult to say. Some of them are new products, which are going to be launched in. So it has a potential of being a large category, but from year one, it will not be that, so it will take time to build up. I mean, even Patanjali even though it’s a big brand in India, for the UK market, it’s got a limited clientele, and we are trying to expand that and increase that business out there as well. So things will take time. But the categories which we are — or the agencies which we are talking to have the potential of growing to that size.

Faisal Hawa — HG Hawa and Company — Analyst

And can you give me two or three steps that we’ve taken in this quarter or probably the quarter before this to improve our branding and visibility, because we are now looking at the PLI scheme also helping us in giving us some financing for our marketing initiatives.

Bimal Thakkar — Chairman and Managing Director

So we’ve been more aggressive on our listing fees, so in regions like in UK where we’ve spent money on visibility, we spent money on sampling activity. We do social media and television advertising. So it’s a full 360-degree approach that our company adopts and we continue to do that aggressively and the PLI scheme is only helping us increase our spends more.

Faisal Hawa — HG Hawa and Company — Analyst

Okay, thanks a lot for answering my questions so well, sir.

Bimal Thakkar — Chairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants. I would now like to hand the conference over to Mr. Bimal Thakkar for closing comments.

Bimal Thakkar — Chairman and Managing Director

Well, thank you very much everyone. Have a great day and take care and be safe. Thanks.

Operator

[Operator Closing Remarks]