Chaman Lal Setia Exports Ltd (CHAMANSEQ) Q4 FY23 Earnings Concall Transcript

Chaman Lal Setia Exports Ltd (NSE:CHAMANSEQ) Q4 FY23 Earnings Concall dated May. 29, 2023.

Corporate Participants:

Vijay Kumar Setia — Chairman Cum Managing Director

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Analysts:

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Keshav — — Analyst

Sanjiv Damani — — Analyst

Somnath Paul — Relay Investment — Analyst

Pravin Sharma — — Analyst

Presentation:

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Good morning, everyone.

On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all for Q4 FY ’23 and full year FY ’23 results conference call of Chaman Lal Setia Exports Limited. From the management side, we have with us, Mr. Vijay Setia, Chairman and Managing Director; and Mr. Rajeev Setia, Joint Managing Director of the company. We shall start the call with the opening remarks from the — Mr. Vijay Setia, and that will be followed by a Q&A session.

I shall request Vijay Setia for his opening remarks. Over to you, sir.

Vijay Kumar Setia — Chairman Cum Managing Director

Thank you. Thank you, sir, and I welcome all my investors and people who are interested in the company. With your support and blessings of all my investors and the blessings of my father who always give us the right direction to work earnestly and from best of our ability.

So company with the support of our investors is doing well. And for the better future of this company, we are working with the professionals and expert scientists like Ravi Saroj from IIT Kharagpur and Mandira from IIT Delhi, they are working with us now, and they are doing a lot of R&D on our rice. And we will share all these things with all the members. So this will be something very interesting that the new developments which we are doing in the company, they will give our company a very bright future and a different place in the industry, a different — with our special works, I can simply mention in one word right here. Our entire storage is insulated.

In summer, people lose a lot of weight loss… [Technical Issues]

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

I think we have lost the connection of Mr. Vijay Setia. We shall just wait for him to reconnect.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Meanwhile Vijay resumes — I’m Rajeev Setia, I will carry on.

At the outset, I welcome and thank you, everyone, for joining this Q4 ’23 and full year ’23 meeting. I’m delighted to announce that we have achieved highest ever growth in the company, revenue as well as profitability of the company. The revenue has gone up to INR1,387 crore and it’s 49% up year-to-year from INR932 crore in the preceding year, and the sales volume has also grown by 28%. The figures details for our investors, that has been circulated already and speak more about the future of the company. The coming year, we are expecting the prices to come down as the area under cultivation is being expanded. And the company with the new generation, they are very aggressive, all along. They are participating in every single full exhibition in the world. As executive, company is participating. And Ankit Setia and Sankesh Setia as very regular with follow-up of all customers. And they are the real plotters now. We are no longer. We handle from the back.

So Vijay, you’re already there now?

Vijay Kumar Setia — Chairman Cum Managing Director

Yes, I’m here again.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Vijay, you please carry on.

Vijay Kumar Setia — Chairman Cum Managing Director

So I was talking about how my team has able to reduce the brokens in our process. This is a big contribution, and credit goes to not only to the scientists in my company, it goes to the entire team, which at ground level work day and night to establish the things and in a very fair and correct manner. It is always a challenge, minor, minor adjustments made the thing work finally. Then we have a unique product that brown rice, the process we have developed in our company, the brown rice with all the benefits will be cooked in 15 minutes. Normal brown rice takes 40 minutes. So all the good qualities and vitamins are compromised if you are cooking something for a very long time. And the fluffiness is not there, meshy rice. So we have overcome this problem.

Now our rice is fluffy and cooks in 15 minutes, and it is healthy rice, and we are developing a new packing, very interesting vacuum packing for this product. And this will definitely do good for the company’s economic side also. Then we have ETP solution, effluent treatment plants. All effluent treatment plants, wherever they are used, they also generate a lot of pollutants. They use electricity. That means from the source electricity is coming, there is some pollution. And with the chemicals you are using for the water reclaiming, they also produce a lot of residues, which is another problem to how to sort it out. What we have done, we created a unique system, which was recommended for National Award in 2001. We further stabilized it.

And without any electrical use or chemicals use, organic system is developed and where we are doing our factories wastewater cleaning, recharging and environment-friendly environment of putting Banana on ash, nothing can be grown on ash, but we are able to do it because the technology used is doing wonders. This can be shown to the interested people. They are welcome to visit the factory and see the factory. Factory size is now quite big and our silo storage, everything is there. And our companies, everything is on YouTube and with one click, you can visit the factory and see how we are working from a distance, but you are most welcome to visit the factory, it is your factory.

Then we created another thing, which is unique. We have filed a patent for that also. That is 0 emission from the factory. When you burn fuels, definitely, there will be a problem that smoke and the harmful gases we put into the environment. We created a technology where I took support from Ravi Saroj. He was like my brain and eyes, and we together worked on this project and successfully completed our trial model and then scaled it up. And we tried on a 12 ton boiler, where we are able to clean 100% of the new gases. Investment is small, rather, the absorbent will also become a useful product for that sector. Then we worked on the idea of dry heat parboiling rice.

Dry heat parboiling is a unique technique, where rice becomes more fluffy, more soft and gives it better taste and even head grain recovery is better. Drying time is less, cost of making parboiled rice is less. So this technology, we further stabilized. We added some process into this. We are cooling and drying, which is a requirement for reducing the GI of rice, improving the quality of rice, which becomes suitable for the diabetics, which we are marketing all around the world under our main brand, Maharani, and the credit goes to Sankesh and Ankit. They have traveled all around the world to discuss this product with the potential customers and it is bringing good results to the company, good revenue, good income to the company. That is clear on the record now.

Then I will say one thing more that our research to make rice cooking in 2 minutes. You just soak it. After soaking period is over, feeling is like it is cooked rice. But — the 99% is a feeling of cookers, less than 1% feeling it needs a little bit more booking. So if you put this rice in a boiling water, it cooks in 2 minutes. We are putting up a new line designed for particular this product, and this will go a big way in the coming time and future. Nowhere in the world such technology exists and definitely, we are filing a patent for this also. And we are first time sharing with my investors what we are doing and what we are able to achieve for you. Then I will say, very interesting area.

Everybody has a vitamin D deficiency, not in India, all around, okay? So we are working on this area and credit goes to Mandira Kapri, she is from IIT Delhi, PhD; and Ravi Saroj and credit to all the directors who give consent that we should move ahead with this project. We are able to develop rice, which is in an organic way, full of vitamin D. This is a big achievement, but right now, cost is on a higher side. We are working on it to make it affordable so that this produce can be launched at a right time at the right price and to bring glory to the company. Here I see the social side, the social work for the people in the society. The message from my father was our MD Shri Chaman Lal-ji, he’s not with us, but his blessings and guidance is with us. He started supporting 1,200 widows in Amritsar. Still that program every month on 7th of every month, the kit of wheat and other things is provided to those ladies, those have not any earning or any family member who can help them. So this program is still going on.

Then on the innovative side and for the social cause, we are working on to develop organic material as a substitute for pesticides. Pesticides are becoming so harmful, they are in our food chain, they are now in our water chain also. Any groundwater because of fertilizers and pesticides, moving with the rainwater, the traces of these fertilizers and pesticides are now coming to the groundwater also. So we are working on those things that pesticides can be reduced and the produce we are getting should be free from or within the tolerance. So for this project, I gave my product to HAU. They did 1-year trial, and they did it on sugarcane. They rightly said that paddy season is — we are delayed to do this.

And this season, they will be working on paddy also. For sugarcane, they have given a wonderful report. It competed with the pesticides, the results they got with the pesticides they got with the material supplied by — the organic material supplied by Chaman Lal Setia Exports. So the name of Maharani Rice and the name of Chamanlal Setia, it is pride, and it is pride with its working, what we are doing and what our entire team is doing, what our directors as a team working together. And it is really very — I feel proud at this age that the younger generation is taking over everything in a very aggressive way, in a good way. And my good wishes and good feeling for all the investors and my blessings for the younger directors that they will carry forward what we have started, and they will bring the best results.

So this is all I want to say, technical side of this company. Since I look after only technical parts, so I have covered. Anybody who wants to ask anything, I’m open for that question.

Questions and Answers:

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

[Operator Instructions] We have the first question from Keshav.

Keshav — — Analyst

Sir, if you could just tell us about this current financial year FY ’24, sir, what is the expectation in terms of top line as well as margins. Sir, we are doing around 14% margin in the fourth quarter. Do you think that looking at the basmati rice prices and the demand feedback you are getting from your customers, sir, what kind of margins and top line should we expect for FY ’24?

Vijay Kumar Setia — Chairman Cum Managing Director

You see one thing, I have answered your question when I was addressing when company has come up with a product like rice suitable for diabetics and which we are marketing all around the world under our brand name Maharani, and its demand is increasing. That is giving us handsome profits. This is one. And other products, which like brown rice cooking in 15 minutes, this will be added support to us. Then our model of working is very important. We are exporting, I think, more than in 90 countries. So such a diverse base and around 70%, 60% business is like a retail business, which gives a sufficient profit all the time. Our buyers are small, someone is buying 5 containers, 10 containers. So they are sticking to this company for last 40 years, 30 years, 20 years, 15 years. So when I look at this thing, I will say one thing, my company’s first buyer, which we started our exports in Singapore is still working with us. So that’s why I’m confident that we will maintain healthy profits and a healthy business for the future.

Keshav — — Analyst

So in your judgment, sir, since past 2 quarters, we are doing around INR50 crores of operating profit or EBITDA. So you think that we can continue with this run rate per quarter?

Vijay Kumar Setia — Chairman Cum Managing Director

You see, why not higher than that? Why not we think that. If we work hard, it should be better than that. Otherwise, you see things depends on the global scenario, food production and rice contribution. And demand for gluten-free products is increasing. In my line, I’m thinking of adding 2 more things, which I’m still — we are planning to start that is cooked rice, okay? That is retort system. We are planning for that. Another is rice powder. I am picking up the powder. People are selling their rice powder. There are a number of companies, but they have not identified what variety should be used and what are the benefits from that variety. If you have that science with you, you can do better than your competitors. So we are confident we will maintain what we are doing.

Keshav — — Analyst

Sir, also recently, the news article came up that Kenya has also started growing basmati rice. So you think that going forward in next 5, 7 years, some impact can come or it’s irrelevant?

Vijay Kumar Setia — Chairman Cum Managing Director

No. It is all irrelevant because Kumaran & Sagar is the company appointed by [Indecipherable] to take care of all these type of false labels. They take care. It is a GI-protected product. Immediately government comes into action. And it is not the first thing. In many countries, many companies tried these things, and it is contested and Indian government and everywhere we prevailed and got it in our favor.

Keshav — — Analyst

Yes, sir. Sir, one more last thing, sir, there was, again, a news article, sir, which said that the price differential between Basmati rice and common rice in 1940 was 569%, which came down in the 1990s to 153%, and now the differential has fallen to 20%. And sir, there is a massive shift from Basmati acreage and the Basmati rice to common rice. So you think that in the next, again, 5, 7, 10 years, this trend is spread to the whole industry as well as for us?

Vijay Kumar Setia — Chairman Cum Managing Director

Okay. You started from a question from, I think, 70 years, what the data says. You see if we look at Basmati, it was guarded by the security that was the time. So this was the commodity. Then it became on a public domain available, it just started [Indecipherable] the yield was less, basmati came. They have covered the area with the [Indecipherable] non-basmati varieties have also improved. So but Basmati because last year, the good prices farmer received from the industry [Indecipherable]…

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Vijay, you are not audible.

Vijay Kumar Setia — Chairman Cum Managing Director

Okay. You answer.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Let me continue what you said. Let me little bit remind because you all — we all of us looking at the future profitability and future progress of the company. If you recall, Vijay said few time back dry heat rice, that’s kind of a roasted rice. He implemented — he produced this rice about 12 to 13 years back. That rice was selling in the international market at $200 higher than the conventional rice. But because it was all in-house and whatever he is planning for in-house, nothing is bought from outside or unnecessarily capex put on this. It’s all in-house done by Mr. Vijay and the team. And of course, we support everything.

Now this rice, he is going to start in the coming season, and I’m very confident my team is confident that this rice, the Maharani brand will be putting in all markets of the world. And definitely, we can get the best result because it sells in front of the conventional rice. It competes any good brand. This is not the good taste price, which Vijay explained. So this is something which we’ll be doing in every market around the world. Wherever our around 400 customers are buying, we’re giving samples to every one. So half container or full 1 container to every single people, and we expect a large and very profitable business from this variety. Vijay will explain if he comes again on the line.

Vijay, you are on the line?

Vijay Kumar Setia — Chairman Cum Managing Director

Yes, I’m there.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Vijay, little bit more explain about this rice it can compete all the conventional. I know the way we were doing in…

Vijay Kumar Setia — Chairman Cum Managing Director

You have to think out of box. You have to do some differently. Otherwise, for common man rice is rice and his questions are always why you are making more profit. If you look at the entire industry, there are people they might be making higher profit than me in their certain brands. There are people who are making less profit and there are always people who are losing money. It all depends on how you are planning your things, how your team is working for your company. That’s all.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

The next question we have is from the line of Mr. Sanjiv Damani.

Sanjiv Damani — — Analyst

Yes. My basic question is to understand in next year, crop prospects that is our raw material, their pricing and the international market scenario in view of the fact that we listen that there is a recession in Europe and America. So how we are viewing this situation for our trade on that side. One more thing that many a times, government announces the relaxation of export of broken rice and sometimes they stop it. So what are the impact for us and for the industry and for the ethanol industry as to pricing of those broken rices? And how — as you rightly said that you are ensuring that your broken rice production is least. That means you have higher efficiency while you are processing the rice to get a better yield on complete rice. So that is appreciated, sir. And how we are planning next year if you can kindly give some light on that.

Vijay Kumar Setia — Chairman Cum Managing Director

Your first question is regarding the next year crop. The IMD says that less rains but widespread. Basmati crops needs less water, so area under Basmati will in no way going to come down. Rather the survey and feedback we are having, the area under basmati varieties will be higher this time, especially in new areas where people were in the past, not doing the Basmati cultivation. So from the raw material side, I think industry will get sufficient material.

Second thing, people are more aggressive, and this effect will be remained in the market scenario next year. People will be the investment in plant and machinery in the rice industry this year is tremendous. Many rice mills are coming into this business. So I think raw material, availability and quality, these factors will be taken care. And regarding prices, this is always in the many factors which decide and they change very quickly. If there is any big tender or big buying from Iraq, Iran, Saudi — Indian markets suddenly behaves differently in a very aggressive manner. So there are other forces which are becoming active for Indian basmati rice.

You see Indian basmati rice has replaced American rice everywhere because we are giving a good quality at a reasonable price. So Indian basmati exports last year, they have also increased by 14%. And what industry’s views are that this trend will continue for another 2, 3 years because of disturbance in Ukraine and other supply chain disturbances advantage India and the surplus rice we have for basmati, Indian business will keep growing. Regarding broken rice, broken rice exports are still not very seems profitable. One, there are 2 issues. One is the request should be from some government. You…

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Gambia government has allowed 3.5 lakh tonne to Gambia. This is the news today.

Vijay Kumar Setia — Chairman Cum Managing Director

Otherwise, they have 20% export tax. That’s why I’m saying after being 20% tax, exporting will not be that attractive. So that’s my point. And — but the way other countries are doing, my views are always different, and I have told the government agencies and authorities we are exporting broken rice, whereas other countries are making wine and crackers from our broken rice. So why not we should spend more on food processing and agriculture produce, which can give better [Indecipherable] imports. So our Indian policies need some review for promotional offer because we are agriculture industry, 50% of our population is in agriculture. To provide jobs, we have to do food processing. If we say we are losing 30% fruits and vegetables, are 10% to 12% of food grain losses, so we can — by encouraging the food processing industries, I think this can be a big achievement for this country for jobs and everything.

Sanjiv Damani — — Analyst

And now regarding pricing in the international market, sir, that was my another question.

Vijay Kumar Setia — Chairman Cum Managing Director

I think in my first answer, I have told one thing that Chaman Lal Setia Exports is exporting in more than 90 countries. And wherever we are exporting where main business is dealing with the customers of a small, medium — that is a major part of our business, which is — always gives them better profit, and that depends on our management techniques, on-time delivery, quality assurance, that’s helping us. And since mostly in other countries, prices don’t fluctuate like India, so their buying power can increase, they can buy more. And our property will be less affected. But rather, we will be more benefited by that.

Sanjiv Damani — — Analyst

And the last question, sir, are we going to process more tonnage this year? And are we utilizing fully our existing capacities? Or will we be needing more capex in days to come?

Vijay Kumar Setia — Chairman Cum Managing Director

Damani-saab, I will say one thing, I should have put my company’s structure video, infrastructure, everything on record. But on YouTube, you can visit. You see we are putting silos. We are putting more warehouses, so that the opportunities can be availed for the future and for the profitability of the company. I think I have answered your question.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Mr. Damani, if you simply write Maharani rice on YouTube, you can visit our factory.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

We have our next question from the line of Mr. Somnath Paul from Relay Investment.

Somnath Paul — Relay Investment — Analyst

Sir, I have a few questions, if you can just throw some light. Sir, one is that you mentioned about the new businesses which you and your team are developing. So as a percentage of your business, say, FY ’24 and FY ’25, how much do you see the business as a percentage of your sales you expect it to be? And on a very high level, what would be the margin differential between say suppose the standard business which you are doing of the Basmati versus this percentage would be helpful.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Vijay, I’ll answer. As regard rice suitable for diabetic is concerned, that is regularly growing regularly growing. And in some parts of the world, continent, particularly Africa, it’s going very large, which could be 7%, 8% of our export at this point of time. And the other one out of the new products you said, yes, I can understand quick cooking and rice and a few other inventions that may take some time, but this rice, which I talked earlier also, dry heat in the raw form make a big deal. That’s going to be quite attractive and very quickly move that rice.

Somnath Paul — Relay Investment — Analyst

Sir, a couple of more questions…

Rajeev Setia — Joint Managing Director & Chief Financial Officer

And of course, profitability is much higher in both these varieties, both these variants.

Somnath Paul — Relay Investment — Analyst

So much would you basically double of your traditional business, approximately?

Vijay Kumar Setia — Chairman Cum Managing Director

It’s an interesting area, it depends — after all you cannot put such a price where sales will be affected. It should be always reasonable pricing and gradually, gradually, we are capturing the market and increasing the profit. So I think I can say that positive trend will be maintained, that I can ensure, that I ensure.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

I would add one thing here, just 1, 2 years back, particularly in the COVID era, we had never expected even the very well ongoing business, we had never expected the kind of profitability we have got in the preceding 2 quarters.

Somnath Paul — Relay Investment — Analyst

Yes. So I was also going through the PBT and I just had some data, which probably you could throw some light. Sir, I understand from last March to this March, shipping costs are down probably about 50% to 70%, generally on any route. But still, on an overall EBITDA basis, I see we have gone from 10.2% to 11.5%, right? Although I understand freight costs are also part of your operational costs. And also on the same lines, why is it generally Q4, we saw lesser volumes as far as the PBT, it is 41,000 metric ton versus 53 kilometric ton, whereby there was general impetus lot of demand for growth. So I mean I’m just trying to get some sense or if you can throw some light. And similarly, how you are seeing Q1 in terms of volume vis-a-vis the last year volumes?

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Yes, Vijay, let me answer. As regard — because 100% broken was banned in month of September. So the current quarter had only export of basmati, which has value of $1,000 to $1,300, $1,400 starting variant price. And as regard, March, corresponding March is concerned, we were exporting broken rice also which had in USD term $360, $370. So the volume at the low price was too much in the preceding year when we were exporting broken to China. So this is how this answers your question. The volumes were more in that quarter. And in this quarter, volumes are less, yes, our sales are a little higher.

Somnath Paul — Relay Investment — Analyst

Sir, but would that lead us to assume that you have some stock of broken rice as of now and whenever the government allows…

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Yes, you see when we were exporting broken, a stage came when we were selling at a very good margin. We started at INR380, INR385. Then with the competition, it started going down. A stage came when it was almost at breakeven and we stopped. When the government banned the rice, we had 36 bags in our factory, just 36 bags. Some of the people had huge, 5,000 to 10,000 tonne rice. That was horrible because suddenly it was stopped and the prices had come down by INR4, INR5 and that to the rice was at the port. And then Mr. Setia, my brother and our team helped somehow.

Vijay Kumar Setia — Chairman Cum Managing Director

There are 2 things…

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Can you explain that?

Vijay Kumar Setia — Chairman Cum Managing Director

I’ll explain one thing, because Ankit was leading on this front. He was handling all brokens, and he was discussing everything with me. And since I was former President of All India Rice Exporters, so a lot of things he was sharing with me. And the feedback I was getting in the industry was that Chinese are now instead of giving a better price, they are asking for discounts from the people. Because the market which is looking for the discounts and harassment to the Indian suppliers better avoid this market. So we’re coming down. So we started keeping only those customers in mind who can give us a good price. And they were saying the others are getting at a lower price. So we were holding our sales. And when you raise this question, that’s why you raised the hand. The government closed exports, the day they stopped exports, we were carrying a few bags only, only few bags.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Vijay I have the count, 36.

Vijay Kumar Setia — Chairman Cum Managing Director

36 bags means 10 quintal rice.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Yes, it is simply a business wisdom beyond that, nothing else.

Vijay Kumar Setia — Chairman Cum Managing Director

We were lucky. I can say we were lucky. I won’t say we are best judge, no. It is sheer luck also that we were in that position at that time.

Somnath Paul — Relay Investment — Analyst

Sir, you think the EBITDA margins, say, for H1 FY ’24, Q1, which is ongoing and the upcoming quarter, you see the trends to improve because, obviously, it will be mix of lot of things?

Vijay Kumar Setia — Chairman Cum Managing Director

As I have already answered this thing, though rice is a very competitive business, there is no doubt and a large number of there are rice exporters. But the model of working is very important, how you are planning, how you are catering your customers, how much you are traveling around, how much is your interaction with your customers and how much they have faith with you. Only one thing I will say, the first customer, we started in 1978 is still working with us. He is sitting in Singapore, and I think the entire industry visited that buyer, but he is with us. Why? If you are giving on-time delivery, your quality is free from any complaints.

So naturally, customers that faith is helping us and our — as I said, our large number of buyers, our large buyer base is also helping us to retain our profits and make our company grow. And I think this trend will be further maintained. We are participating in the trade fairs. We are meeting people. We recently participated in African trade fair. We have participated in a trade fair in THAIFEX also. Everywhere where we find that opportunity to interact with the small buyers, good buyers and select people who can continually work with us, they make money, we make money.

We work on this principle. So that means everything matters, on-time delivery, good package, and your commitment and to your — what you have sold. So this is all helping us to grow. And I think what we have achieved, we will — we are not content with that. We are still that energy with us. We will develop more business for the company, and younger generation has taken over. They are doing very well. So that’s my view. Thank you.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Our next participant is Mr. Pravin Sharma.

Pravin Sharma — — Analyst

Congratulations for excellent set of numbers. My first question is, though we anticipate yield of price, the acreage of rice will increase. But just in case of El Nino and poor rains, if the cost of raw material increases, how strong is our ability to pass on the prices?

Vijay Kumar Setia — Chairman Cum Managing Director

I will answer this. First thing, I think you missed one line that IMD says that rain will be less, but it will be widespread. So it is not going to be in previous year that it is raining certain pockets very heavily and some where it is deficient and average is on a higher side. It is not going to happen this year. This is one thing. Second thing is basmati varieties need less water as compared to non-basmati varieties. Non-basmati varieties, transplantation starts around 15th of June and whereas basmati varieties start sowing in July 1st week, and it continues to the 20th of July.

And after that, rain starts, so less water is required for basmati varieties. They are compensated by the rains. So there can be a stress on non-basmati varieties because of high temperature and water requirement, water table going down and government putting pressure for diversification from the water guzzling variety to less water. So even in Punjab, they are promoting basmati. They are telling farmer to shift from non-basmati to basmati. So I think pricing of basmati paddy raw materials are not going to change much in the coming season, and they will remain favorable to the industry and the farmers.

Pravin Sharma — — Analyst

That’s nice to hear, sir. My second question is, in the last con call, Rajiv sir said that we have a very strong marketing channel and very long-term relationship with the customers all over the world and there is a possibility wherein we can leverage over this marketing channel in terms of selling other commodities or other food items like pulses, tea, sugar, whatever, which are in demand in those geographies from those customers. So where are we on that? Like we are seriously looking at those initiatives to move on from rice only to other items?

Vijay Kumar Setia — Chairman Cum Managing Director

I tell you one thing, that in government meetings now I’m projecting one thing, why you have made India as a source of raw material supplier, why not be the value addition? People are making wine out of our rice. People are making crackers from our rice. They are making talcum powders from our rice, and we are selling brokens only, what we are doing? So another problem is why industry is less in this sector of food processing. In India, we start putting taxes on the raw material. No other country tax on the raw material. There’s market fees, which is a big nuisance. If you put the tax of 4%, 6% in the very beginning, people start thinking of saving the tax this way or that way. So healthy industry building in such environment is a challenge. So that’s why you see there is no flour mill industry in Haryana.

Haryana is the second largest producer and contributor of wheat to the center pool, but we don’t have a flour mills in this sector. And wheat flour, which government is selling at the ration shops is coming from UP flour mills. So that means corrections if it comes, definitely one can work. And definitely, in my mind, these developments are there, and I’m looking into these prospects, what we can do. In the past, we have exported small quantity of [Foreign Speech]. But we are very clear that there should be a reasonable profit for exporting anything. Otherwise, you export — why people are facing problems? My company is working on a principle of cash against documents. And whereas most of our competitors, they are working on DA. DA means you are dependent on your buyer when you will send the payment. So you lose the opportunities when you give credit. So our company is very clear that this money is public money, we have to protect it and our policies are very clear. So I think that’s why we are different and maybe God is kind on us, that I will say.

Pravin Sharma — — Analyst

Okay. No, I’m talking — I was talking about selling to the existing customers only where we have trust and long-term relationships.

Vijay Kumar Setia — Chairman Cum Managing Director

Yes. We have our — this type of relations and we want something if we have to do, it should be perfect. I can do wheat. I can do wheat flour — not wheat, wheat flour, value-added wheat flour. As my team is working, where we are worked on vitamin D enriched rice, we are successful. Our trials are successful. Cost is very high. We want to make it affordable. That is the second phase we are working. But side-by-side, we are working for this thing that vitamin D and which wheat flour, which I’ve not mentioned in the first go, but definitely, if this company will come, different product, better product with a particular segment which can support our company with the right price for the product. So I think we will definitely do something which will be profitable.

We are competent, our buyers are willing to. But there is specialized people, I say other agro commodities, there are experts. People are — you see, we don’t have our proof in a dehydrated fruits here. We are buying it from Thailand. We are getting it from China. Our industry should focus on these areas, people who are into these fields, government should encourage them. What we are doing, I share all information with the Haryana Chamber of Commerce, All India Rice Exporter Association. I put on their group that Thailand is making talcum powder from rice, baby talcum powder what they are making. That is the specialized things which are needed. And definitely, your company is looking into these areas. And definitely, we will come up with certain new things the next time we will meet.

Pravin Sharma — — Analyst

My last question is, sir, we are doing a lot of research and development, as you mentioned, in terms of quick boiling brown rice and soak and cook kind of rice. I think there can be a huge market potential for such thing in India with going forward into the people changing habits and healthy eating habits and things like that. So do you think we would be investing into marketing and developing channels in domestic market also at least for such things, which are highly value-added in nature?

Vijay Kumar Setia — Chairman Cum Managing Director

Yes. Very true. Once I will be ready, I will be spending on these things. And we have a very clear road map for that. And you will see the difference. And definitely, we will be doing that. As I said, about quick cooking brown rice, you see one of my existing customer from Canada, he met me 4 days ago. And he said I have to change my packings now. In the previous rice, it was taking 35 minutes, and I was writing 35 minutes, means in 35 minutes quick cooking brown rice will become halwa. He said halwa. So I told [Indecipherable]…

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Vijay, let me complete your answer. Your question is right when you ask when do you plan to expand in India for rice to market in the conventional business, which is happening. We were not interested to burn cash, today speaking. But [Indecipherable] which Vijay has told, they will be in production, in fine shape, we will definitely because these are more revenue and profit-generating products. So we’ll simply launch an online sales can be very quickly achieved on these products, quick cooking brown rice and 2 minutes like — the rice is like that. It’s a very, very vast market. With regard other products agro, because we have always cash surplus with us. That’s why I said I have an idea of doing this from Gandhidham. So right now, we are in the preparation stage of everything.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Before moving to the question queue, we have one question on the chat box. The question comes from Mr. Rahul Paliwal from Shefa Family Office. I believe the first part of the question has already been answered just now. The question was about inclination towards moving from B2B to B2C, which I guess, both Mr. Rajeev Setia and Mr. Vijay Setia had answered it mostly. We’ll move to the second part of the question, which is mentioning about what is your R&D team size and what is the qualification, how much you spend on R&D? Is it some MOU with food research institutions or owned by you? Any plan to get into RTE, Reay-To-Eat.

Vijay Kumar Setia — Chairman Cum Managing Director

Okay. This is something regarding the team. I think inventors are sometimes only one person who can do the change in the whole world. If we look at Green Revolution, credit goes to Dr. Swaminathan. And the real person behind all research was Dr. Mathur. His name is not known to anybody. He released the 29 varieties in this country with which we were able to remove this hunger from this country. The one thing which I mentioned regarding 0 emission from the factory, I have not seen such invention all around the world. 90% credit goes to Ravi Saroj. He is sitting beside me, I will show him on the screen. He is from IIT Kharagpur, a very young and very aggressive chap.

So if we talk about this thing regarding our team, I can say one thing, Ravi is one. Mandira Kapri, she’s not in my office today. She is IIT. She is from IIT Kharagpur, and she is my brain. She is working on vitamin D enrichment of rice and wheat flour. She is expert on mycelium. So she wants to go with that route, incubator and fermentation. And she has a lot of projects in her mind, where my company will definitely take it forward. Then we have in our team, that daughter is from Delhi. She is doing her PhD under Prime Minister Scholarship scheme. So our company is partner in that project, and she is working on oxidation of pesticide residue, which I have not mentioned in my first introduction.

We have our electrical team, which is expert in automation. 90% of automation in our factory is done by our own team. You call the outsiders, they take a lot of time to understand our requirements, 3% of their quoted price, and we are working with that team. So you need good leaders in your team. And then there are team members who work under their guidance and give the results. So I think regarding my research, R&D team, we — as I told, for pesticide reduction in the agricultural fields, last year, we made our MOU with HAU. After doing their trials on sugarcane, they gave the results. We were working on paddy. I have some personal agriculture farms where I’m doing organic farming. So I used this product. I did not get any disease.

Without using any pesticides I’m able to produce my 1121 variety without any trouble with a sufficient and equal yield as compared to my neighbors. The people who are using pesticide, they face the problem of neck blast. I did not face that also. Again, we are — we visited IARI in Delhi, Dr. A.K. Singh, Vice Chancellor cum Director, IARI and Dr. Anupama Chitkara. So we went there, this is a product which we are working and developing. And so far, we are freely distributing to the farmers. The government body said they will do the ring trials, and they ask for financial support of INR25 lakhs to INR50 lakhs for the project. It means if you finish in this period or a number of years you use, the cost can go like this. I will prefer that from our CSR fund that we should go ahead with this project if we can help our country with this type of alternative for the pesticides, I think it is the best investment than anything else I’m doing in my life.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

We have few more questions in the chat box actually. So just taking one by one. So the other part of the question from Mr. Rahul Kaliwal was about in India still hard to get your products through platforms and mind share is also lesser compared to Daawat. What is your market share in premium basmati rice overall in exports and domestic side?

Vijay Kumar Setia — Chairman Cum Managing Director

Rajeev, do you want to answer or I should answer? Okay, I’ll answer. You compare Daawat. They have an equally good team, and I have very high regards for Kohinoor, Daawat and KRBL. Kohinoor faced some problems because of some internal reasons whatsoever. But on the rice front, at one time, they were doing very well and maybe some reason unknown, I am not aware. But regarding L.T., their teamwork is almost on our similar manners. Like we have people of expertise with us, with a team of working on the R&D doing coming with the new products. And L.T. has invested on in their brand with a good quality, continuous supply, and I won’t make much comments on that. But definitely, they are doing good job. Same way this KRBL is doing good business, GRM is doing well. And for my company, I can say my team is not less than any other company’s team. My team is equally hard-working and devoted to the job, and that’s why we are improving. That’s all.

And regarding availability of our product, definitely, our main markets are export markets and around 90% or more than 90% of our rice, we are exporting outside India. With the new products coming, so definitely, we will focus on the Indian market also. And if you are kicking rice against rice, it’s a fight. And if you have a product against price, you have an edge. So we will be in the market with the product, which brings better revenues and a separate segment for our product. Definitely, we will do that. And I think the question is very valid. We are — our rice is available on Amazon and other sites also. So in domestic market, we are less active as compared to others, very rightly pointed and we will definitely be working on this side. And hopefully, we will be doing better results.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Yes. There was one question flowing on the screen about dividend. We have already recommended 50%, INR1 a share dividend already.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Just moving on. There was another question on the chat box by Mr. Sanjay Manyal from ICICI Direct. He’s asking about our gross margin, gross profit margin has come down on both on Y-o-Y and sequential basis, reasons for the same. Given that we procure 3 to 4 months only, is it safe to assume that gross margin will remain low for the next 2 quarters also?

Rajeev Setia — Joint Managing Director & Chief Financial Officer

I will answer. We are selling on a CIF basis, most of the business. And in the preceding year, the ocean freight ha gone up very, very high 4x, 5x, 10x also. So that way, the gross profit sale price was high vis-a-vis our incoming purchases. Ultimately, that goes in the profit and loss account and then it equates, but GP was high, but that’s why — the ocean freights are coming down, the GP is lower. That is the answer. But overall, we are running low.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Sir, the next question is from the line of Mahesh. He has put on the chat box, question is kindly advise on revenue projection for FY ’24, any drop in revenue expected post Ramadan in next 2 quarters? This is the first part of the question.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Because it’s a new year beginning and the prices were very high all these days when Ramadan buying was going on. And subsequently, they have come down. When the prices are coming down, people paused for some time and then again come up for the buying. So the business as usual will happen. And we — as we have repeatedly explained, we have a very separate metrics, so many countries, so many buyers. Sometimes we don’t know from which country suddenly demand comes, which country suddenly has come down. But in all, it helps the business. That’s the way of business.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Understood. The second part of the question is there has been a dip in gross margin in this quarter. Any reasons for this? And also guidance for margins for this year FY ’24?

Rajeev Setia — Joint Managing Director & Chief Financial Officer

You see whenever, because we expect — Vijay has said, the prices will be reasonable by — or reasonable, but the kind of my survey, I did yesterday, I talked to the scientist also, much seed is sold. The farmer is grabbing seeds. I talked to Punjab, the state government is pushing the farmer to grow basmati. Whenever the prices at the point of purchase of raw material low, we are expecting the profitability in any case closer. So this is what we expect in the coming season. Yes, this is a little slow period, but still very good companies…

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Sir, one more question on the chat box from Rishikesh. He’s asking contribution of Maharani in total revenue for FY ’23? And what is the target for the same over the next 2, 3 years?

Rajeev Setia — Joint Managing Director & Chief Financial Officer

One thing, the Maharani suitable for diabetic is doing very good as regard to overall sales is concerned because that gives better profit also, being an exclusive — and product with validation because some people are competing, but their claims are not validated. We have produced in a way, Vijay has explained, low GI, low glycemic index. And our claim is validated by Sydney University. We can share the links also. And so it’s growing very much, this side. And other conventional is selling, yes. But overall it is around 10% to 12% of the total sales. In domestic, it’s all our own brand international, although Maharani is in 40, 41 countries. But somewhere it saves us. We’ll improve once I told the rice I’m expecting from Vijay every day, we have to give this dry heat rice. I did very well in that, rice. In the past experienced also.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Sure. So there was a general announcement that we wanted to make, if anybody who wishes to visit the Karnal facility of Mr. German Setia. There has been a link which has been shared in the last page of the investor presentation. Anyone who wishes to be part of the visit can actually go and click on the link and can participate for the visit.

We have another question from Mr. Somnath Paul from Relay Investments. Mr. Somnath, you can unmute and ask your question.

Somnath Paul — Relay Investment — Analyst

Sir, I think most of the questions have been answered. This is just a general understanding of the rice industry. Japan is a big market. And as I understand from industry people, so a lot of products, Japan are trying to diversify from China as the sourcing partner. So I know Japan considers Japonica rice or the goodness rice. So can you throw some light on — have we tried doing that or as a market because India doesn’t do too much. Can you throw some light?

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Yes. We exported to Japan in the past. Now Sankesh is going in 3 days to Japan. He is meeting with 2, 3 companies, and we expect a resume of the business because nobody went to Japan from the company. Yes, Vijay visited, but so many years back, that was with the association. So we expect something to start from Japan.

Somnath Paul — Relay Investment — Analyst

But would it be general basmati rice for the Indian and the other people staying there? Or is it more like a traditional variety, which is more larger in volumes like consumed by the entire country?

Vijay Kumar Setia — Chairman Cum Managing Director

Actually, you see our Indian compete is all around, they and Pakistan Indian or oriental people of Afghan, Iran, Iraq origin, they buy — eat rice. But you see in every single restaurant, boiled rice is given. Many — in Europe, I have seen all along in all restaurants. So the Indian food is getting publicity is going on.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Vijay, I have something to add. I just understood that Japan market I will say one thing, Japanese eating habits are different from us. They prefer sticky rice. So Japan won’t be a big market for India. I have visited Japan when — from India Basmati Rice Exports was started. They did not like aroma in the rice, first thing. They like sticky rice. They use making for their sushi and other things, they use chopsticks. So there is a difference, what we are eating and what type of rice they are eating.

Going to Japan is — getting technology and a very small business of rice, definitely this much opportunity. And it may in future in Japan, if their eating habits change, then it is a possible. Then this is such a community when they were short of rice supplies, Government of Japan under some government treaties or some reasons, they imported some rice from Thailand. The consumers were forced to take one Japanese and one Thai pouch from the government sales or their sales system. After buying, they were dropping one back, that was Thai rice, and they were taking their Japanese rice.

Vijay Kumar Setia — Chairman Cum Managing Director

Nationalism.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Nationalism is too much. So that’s about that country. But we have exported rice to Japan to through Hatco Corporation in the past, but it was small quantities. And again, we will try to revive — because they were also investing on basmati is somewhere we can make market in our Japan areas. And I think they could not make much. But there are small quantities exported to Japan, and we will drive on that.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

We have another question from Sangoi Investment. They are asking, sir, any buyback plans as our share trading — are shares trading at a deep discount to peers?

Rajeev Setia — Joint Managing Director & Chief Financial Officer

I think it is free floating and we don’t have any such plan of buying or selling. And definitely, our main focus is on how we can develop our company to a next level, what more can be added to the company’s work culture and systems so that we can improve our presence in the global market in a more stronger way. That is our plan right now.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

And before we close, actually, so there is one part of the question from Mr. Rahul Paliwal. He is asking for the link. Just to inform every participant that the link is shared in the last page of the presentation. They can go to the presentation and can click on the link provided in the presentation for the plant visit. Thanks.

So on behalf of Anand Rathi, I would like to thank you both Mr. Vijay Setia and Rajeev Setia from Chaman Lal Setia Exports Limited for giving us the opportunity to host for the call and sharing of views on Q4 FY ’23 and full year FY ’23 results highlight, and also share views on the industry overall. Thanks for giving us the opportunity.

Vijay Kumar Setia — Chairman Cum Managing Director

Thank you very much.

Rajeev Setia — Joint Managing Director & Chief Financial Officer

Thank you very much for sparing the time.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

Thanks, sir.

Vijay Kumar Setia — Chairman Cum Managing Director

I’m thankful to all the participants for raising very valuable questions and which are enlightening to me and to my team also. I’m thankful to everyone. Thank you very much. Jai Hind.

Ajay Thakur — Anand Rathi Shares and Stock Brokers Limited — Analyst

[Operator Closing Remarks]