Apex Frozen Foods Limited Q2 FY24 Earnings Conference Call Insights

Key highlights from Apex Frozen Foods Limited (APEX) Q2 FY24 Earnings Concall

• Quarterly Performance
  • Volumes down 13% due to weak US demand.
  • Realizations down 10% with lower shrimp prices.
  • Change in sales mix with higher EU share where no RTE sales.
  • Cost corrections in some key items.
  • Enabled 300 bps sequential EBITDA margin expansion.
  • 1% EBITDA margin in Q2FY24.
• Debt Reduction
  • Reduced debt by INR7 crore in H1FY24 to INR83 crore.
  • Debt to equity at favorable 0.17x.
  • Working capital cycle also improving.
• US Demand Outlook
  • Situation easing slowly, better by end of calendar year.
  • Optimistic on demand revival by Q4FY24 as inventory backlogs clear.
  • Retail customers also planning promotions for next year.
• New Market Expansion
  • Exploring markets outside US to diversify.
  • Focusing more on Europe, other East European markets.
  • Move will enhance resilience to market fluctuations, but remain cautiously optimistic on overall scenario.
• Farm Exits
  • Exited 1,500 plus acres of shrimp farms from 2021-2023.
  • Done due to difficulty in managing spread out farms and for better profitability.
• Ecuador Production Outlook
  • Seeing viability issues currently at farm level due to withdrawal of subsidies and other government support.
  • Impact expected in 2024 with new production planning.
  • Constraints on market’s ability to absorb supply volumes.
• India Dynamics
  • Costs and low prices causing cautious approach currently.
  • Aggressiveness of past not there but still slowly stocking ponds.
  • India farm gate prices around INR300 per kg on average.
  • Stable over 2022 and 2023 so far.
  • Changing stocking densities, harvest sizes, crop lengths.
• Capacity Expansion
  • Apex recently expanded capacity by 25,000 metric tons, including 5,000 metric tons for ready-to-eat products.
  • However, new capacity not yet approved for exports to EU, which is company’s second largest market.
  • Other companies have also expanded capacity based on their specific business strategies and target markets.
• Indian Shrimp Export Barriers
  • Currently 4-9% duties on shrimp exported from India to EU.
  • India-EU free trade agreement discussions could reduce or eliminate these duties.
  • Approval for 25,000 metric tons of new capacity exports contingent on India-EU agreement.
  • Petition filed in US to impose countervailing duties on Indian shrimp imports, alleging subsidies; could impact industry in 2024.
• India Facility Approval Delays
  • New shrimp processing facilities awaiting regulatory approval from EU for exports for past 3 plus years.
  • Holdup seems to be more political/diplomatic rather than related to facility audits or inspections.
  • May be linked to broader trade discussions between India and EU.
• Shrimp Production Costs – India vs Ecuador
  • Ecuador focused on commodity whole head-on shrimp.
  • Ecuador Lacks value-added ready-to-cook (RTC) and ready-to-eat (RTE) capacity.
  • Lack skilled labor, trying to use machines, but difficult to achieve same yields and quality as manual processing.
  • Asian countries like India, Vietnam, Indonesia have access to skilled labor for RTC and RTE production.
  • Ecuador’s costs likely higher than India due to labor constraints and dependence on automation.