LT Foods Limited Q2 FY23 Earnings Conference Call Insights

Key highlights from LT Foods Limited (DAAWAT) Q2 FY23 Earnings Concall

Management Update:

• [00:06:40] DAAWAT said that in India, its retail outlet reach was up by 40% and stood at 176,000 outlet. And the market share in India stood at 28.5%, up 180 bps.

Q&A Highlights:

• [00:09:01] Amanjit Singh at Oculus Capital asked about the reason for EBITDA margins in basmati and specialty rice falling slightly, while GM improving QonQ. Ashwani Arora MD said that the logistics costs have increased by 2.5% vs. previous quarter and 6.6% vs. the same quarter last year, which has caused a decrease in EBITDA margins in 2Q23.

• [00:10:40] Siddhant Dand from Goodwill enquired about the basmati procured vs. last year. Ashwani Arora MD replied that the procurement is in progress as per plan. So DAAWAT will be achieving its procurement targets. To the total requirement, DAAWAT has sourced around 15-17%.

• [00:10:50] Siddhant Dand of Goodwill also queried why DAAWAT margins are lower than the largest player in the industry. Ashwani Arora MD answered that the GM has improved, but the logistic costs have gone up. DAAWAT chose not to pass this cost to its consumers as it believes it’s temporary and the freight trade will settle down soon.

• [00:13:37] Siddhant Dand with Goodwill asked about the share of exports of DAAWAT sales. Vivek Chandra CEO replied that in basmati, in the specialty segment, 70% of the company’s sales come from exports.

• [00:14:12] Anand Venugopal at BMSPL Capital enquired about the current state of basmati rice industry and the price trends and outlook. Ashwani Arora MD answered that basmati rice’s industry is doing very well and the opening price for this year is 25-30% higher than last year due to strong demand and a better crop. Prices are expected to remain higher than last year.

• [00:15:44] Abhishek Maheshwari from SkyRidge Wealth queried about the crop trend and if procurement prices may decrease, which could improve gross and profit margins. Ashwani Arora MD said the crop of Basmati is around 12-15%, with prices at 25-30% higher than last year. Due to the weaker rupee, there will be no impact on the price in the export market. In India LT has already started passing the hike in consumer prices, helping to maintain GM like this year.

• [00:18:56] Abhishek Maheshwari from SkyRidge asked about the reason for noncurrent borrowings up by INR100 crore. Sachin Gupta CFO said that it’s due to a one-off investment in USA in Golden Star.

• [00:19:25] Abhishek Maheshwari from SkyRidge enquired that since working capital requirements are very high, if rate hike impact will be substantial or marginal. Sachin Gupta CFO clarified that there will be a marginal impact on cost of capital, increasing from 6% to 6.5%.

• [00:20:01] Abhishek Maheshwari from SkyRidge asked about the demand from North America and Europe. Ashwani Arora MD answered that demand for the product is good, with 70% of revenue coming from exports and a 31% growth in 1H23. This growth is strong in Europe, America, and India.

• [00:26:33] Amit Doshi from Care PMS asked when does the company plans to breakeven in the Health and Convenience segment. Vivek Chandra CEO said the company is focusing on expanding the range of its products to make them a meaningful and significant part of consumers’ lives that would translate into increased revenue.

• [00:28:27] Amit Doshi from Care PMS enquired about the HoReCa segment contribution. Sachin Gupta CFO replied that the HoReCa segment now is contributing 19% of overall revenue. And it has grown by more than 15% from the last year.

• [00:31:24] Resham Jain from DSP Investment asked about the organic business run rate going forward. Ashwani Arora MD replied that margins in the organic business are expected to be lower than the last two years’ performance, but still in the double-digit range. The focus is more on margin expansion.

• [00:46:44] Vipul Shah from Sumangal Investment asked about the status of the court case. Ashwani Arora MD said that the company is expecting by the end of year, the first court verdict to come.

• [00:47:15] Vipul Shah from Sumangal Investment also queried about the turnover and profitability of the Europen business. Ashwani Arora MD answered that the Europe business is doing well this year with a projected profit of more than EUR100 million or INR800 crores and is expected to be PAT positive.

• [00:51:43] Subhankar Ojha from SKS Capital enquired about the freight cost as a percentage of sales in 2Q23 vs. 2Q22. Sachin Gupta CFO said that the logistic cost was 13.7% in 2Q23, 11.3% in the immediate preceding quarter, and 7.2% in the year-on-year quarter.

• [00:59:54] Arpit Shah from Stallion Asset asked about the revenue guidance and what’s stopping DAAWAT from guiding a 20%, 25% revenue growth for FY23. Ashwani Arora MD said that it’s because volume and value for this year have both grown, leading to 32% growth. DAAWAT are expecting more than 20% growth on a full year basis.