Venky’s (India) Ltd (VENKEYS) Q4 FY23 Earnings Concall Transcript

Venky’s (India) Ltd (NSE:VENKEYS) Q4 FY23 Earnings Concall dated May. 12, 2023.

Corporate Participants:

Rohan Bhagwat — Company Secretary

J. K. Handa — Chief Financial Officer

N.K. Toshniwal — General Manager, Oil Seed Segment

Vijay Tijare — General Manager, Poultry Segment

P.G. Pedgaonkar — Poultry Segment

Deepak Khosla — General Manager, AHP Segment

Analysts:

Aniruddha Joshi — ICICI Securities — Analyst

Akshay Krishnan — ICICI Securities — Analyst

Keshav Garg — Counter cyclical PMS — Analyst

Harsh Mantri — Flute Aura Enterprises — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Venky’s Limited Q4 FY ’23 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you and over to you, sir.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah, thanks Darwin. On behalf ICICI Securities, we welcome you all to Q4 FY ’23 and FY ’23 results conference call of Venky’s India Limited. We have with us senior management represented by Mr. N.K. Toshniwal, General Manager, Oil Seed Segment; Dr. Vijay Tijare, General Manager, Poultry Segment; Dr P.G. Pedgaonkar from Poultry Segment; Mr. Deepak Khosla, General Manager, AHP Segment; Mr. J. K. Handa, Chief Financial Officer; and Mr. Rohan Bhagwat, Company Secretary.

Now I hand over the call to the management for their initial comments. Post the initial commentary by the management, we will open the floor for question-and-answer session. Thanks, and over to you sir.

Rohan Bhagwat — Company Secretary

Thank you, Mr. Aniruddha Joshi. This is Rohan Bhagwat, Company Secretary from Venky’s India Limited, a very good afternoon and thank you all for joining us today for the conference. The company had published financial results for the quarter and year ended 31st March, 2023, along with the information for investors on 10th May. I hope you all have gone through the same. Today we have with us the unit heads to answer all your queries in respect of their respective segments an area of operations. Before we start discussing the company’s performance, I would like to mention that some statements made in today’s discussion may be forward-looking in nature and may involve risks and uncertainties. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team.

I will now hand over the call to Mr. Jeevan Handa, our CFO, to make the opening comments. Over to you, Mr. Handa.

J. K. Handa — Chief Financial Officer

Good afternoon, and a very warm welcome. I am Jeevan Handa, CFO. Once again, I am pleased to interact with all of you on the Venky’s earning call. I hope you have gone through the results and the information to the investors. As you have seen, Venky’s performance for the quarter and year ended 31st March 2023 has been subdued. In a challenging scenario, where the poultry feed cost has been high, there have been some issues in terms of lower realization from the sale of day-old chicks and grown-up broilers. Added to these factors, the performance of oilseeds segment has also been affected due to lower realization from finished products, that is de-oiled cake and oil.

As far as the current quarter is concerned, not much improvement has been seen in the month of April. Realization from the sale of poultry products has not been seen any major improvement. However, we are hopeful that the overall scenario will start improving in near future.

Prices of poultry feed have declined by a reasonable percentage, and we hope that barring some external factors, the feed prices may not see big increase till March ’24.

With this briefing, we now would like to answer your questions. You may please go ahead with questions. 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 Akshay Krishnan from ICICI Securities. Please go ahead.

Akshay Krishnan — ICICI Securities — Analyst

Yeah, hi sir, this is Akshay. So just wanted to understand what is the traction on the HoReCa segment we are witnessing as a client.

J. K. Handa — Chief Financial Officer

Yeah, we from Venky’s Process Food Division, we supply products to three segments, basically one for HoReCa, one for quick service restaurant chains and one for the retail market. So, these three segments are there, and when we supply to HoReCa, in HoReCa, also, we have two sectors, one is fresh chilled chicken with frozen boneless chicken that will supply to the various restaurants and caterers, and also we supply frozen processed food products, which are used for their own preparations for HoReCa sector, but in addition to that, lot many people consider HoReCa sector also as a QSR sector. So, let me update to you that we are supplying to around eight QSRs, which includes KFC and Pizza Hut, Taco Bell, Nando’s and Venky’s Xprs, Venky’s Xperience, McDonald’s all these organizations are there, and we supply to these people also.

Akshay Krishnan — ICICI Securities — Analyst

Thank you, sir. I just wanted to get some light on the RM outlook. So how do you see the price moving, and what is the overall outlook and what will be the margin predicted in the near term.

J. K. Handa — Chief Financial Officer

When we calculate on margin right now during the briefing, our CFO has already explained to you. So, there was a cost of — the cost of feed ingredients for the production of birds has reduced in this last quarter, and we are expecting a similar price reduction and the cost of production. And when there is a reduction in the cost of production, particularly for quick-service restaurant chains. With some of the leading quick-service restaurant chains we have open costing with them, we share open costing. So, it also reflects to them on our pricing, and we keep some margin percentage already with us while we supply the products.

Akshay Krishnan — ICICI Securities — Analyst

So are we witnessing any inflationary pressure even going-forward, like what will be your trajectory in [Indecipherable].

J. K. Handa — Chief Financial Officer

Yeah, there is always — there is an increase in inflation rate because of power, energy, water cost and labor cost. These inflations we always consider while we prepare the costing sheets, but these — since we are dealing with quick-service restaurant chains over the years, and since we also share them open book costing, so that is convenient. That is not an issue, and in fact, we had almost closed all our pricing structure for next six months with all the QSRs to whom we had supplied.

Akshay Krishnan — ICICI Securities — Analyst

Okay, great. So since you spoke about the QSR, so I just wanted to get an understanding, how are you witnessing demand in the semi-urban areas, especially on the QSR space, so is there a traction and how do you identify the spots of interest?

J. K. Handa — Chief Financial Officer

Yeah, what we have observed is all these quick-service restaurant chains are expanding more or less 10% plus and minus, and around 10% plus that is their expansion plan. And what we witnessed when these QSRs, they came into Indian market, particularly international QSRs, they started their operation in A-grade cities. Now what we found is they are now also moving to B-grade cities where the demand is more and appreciation for the product is also more, and that’s how most of the QSRs in our routine [Phonetic] are shifting from A-grade cities to B grade maintaining expansion plans in A grade also — A-grade cities also.

Akshay Krishnan — ICICI Securities — Analyst

Okay, okay, great. So, one final question, sir, I’ll come back in the queue. So, I just wanted to understand the volume numbers for the broilers, DOC and the delays that have been sold in. So, on the quarter and also on the value term [Technical Issues]

J. K. Handa — Chief Financial Officer

In regard to broiler chicks, day old chicks, which we are selling, last year we sold almost INR11.31 crores against previous last year of INR10.56 crores, and similarly for layered chicks, for this year ’22, ’23, it is INR4.16 crores, whereas, last year it was INR5.03 crores in regards to the numbers. Similarly, commercial broiler birds, it was sold 8.63 crore kgs, and last year it was 8.29 crore kgs. So this is in regard to the volume which we achieved this year as well as the previous year in comparison to that.

Akshay Krishnan — ICICI Securities — Analyst

Okay, great, thanks. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Keshav Garg from Counter cyclical PMS. Please go-ahead.

Keshav Garg — Counter cyclical PMS — Analyst

Sir, I wanted to understand that in all of our three segments, sir, if you could give us some idea that what kind of steady-state operating margin should we expect in each of the three segments.

J. K. Handa — Chief Financial Officer

Hello. Just a moment [Technical Issues] So there are three segments, one is poultry, animal health product segment and then oilseed segment. So in oilseed segment, there is a reduction in the percentage of margins because the raw-material prices were on the lower side, and there was no opportunity in regard to the stock and all those things here.

N.K. Toshniwal — General Manager, Oil Seed Segment

Here the percent of margin in oilseeds region we can normally expect a 3% margin on the — in the terms of value. And second thing what happens is, this is a commodity business, so there are opportunity benefits are also there which whenever it arises, that could be the additional profit for the business.

Keshav Garg — Counter cyclical PMS — Analyst

Right sir. Poultry and animal health saw that margin?

Vijay Tijare — General Manager, Poultry Segment

Yeah, animal health is very stable business and it is a margin of around 21% to 22% annually, that’s the margin.

Keshav Garg — Counter cyclical PMS — Analyst

And sir, lastly, poultry?

P.G. Pedgaonkar — Poultry Segment

Yeah, with regard to poultry, if you go through our past analysis from last six to seven years, you will find that they will be exceptionally high-profit and sometimes it is exceptionally low profit as purely, this poultry business is dependent on the raw-material prices. So, in our commentary also, we have commented that the prices of soya and maize, basically that decides the margin of the profit with regard to poultry business is concerned. So, with regard to poultry business if a steady business goes, then we can expect a profitability of 8% to 10%. However, we have witnessed that there is no steady profit as such, because the ingrain price varies a lot, particularly maize and soya. So last to last year, we have witnessed soya price as high as INR100, and today, the same soya price is around INR50. So, we can see a lot of variation with regard to ingrain prices. So, it will be too hard to predict a steady profitability as such by us. Thank you.

Keshav Garg — Counter cyclical PMS — Analyst

Sure. Sir, also lastly, I wanted to understand that in our investor presentation, we had mentioned that non-volatile or less volatile manufacturing activity was approximately 71% of sales and 29% or INR1,240 crores came from basically volatile segment. Sir, our total revenue from poultry segment last year was a INR1,752 crores. So out of INR1,240 crores as volatile and INR812 crores is non-volatile. So, what is this INR512 crore of revenue in poultry segment which is non-volatile?

J. K. Handa — Chief Financial Officer

Correct. Good question. With regard to poultry, as we say that we have three different segments under the poultry — one is the processing sector. Second is SPF division, and third is a purely poultry division. So, when we give this particular picture of INR1,751 crores turnover with regard to poultry, the INR1,751 crores include SPF, this includes processing and this includes poultry. Even in poultry, there is a further bifurcation that we do sell broiler hatching eggs, we do sell broiler chicks, we do sell layer chicks and at the same time, we have integration division where broiler birds are sold. So, when we talk of non-volatile segment, we consider processing as nonvolatile segment. When we consider non-volatile, we consider SPF division as a non-volatile, so though it is shown in poultry, INR1,751 crores, but if you further bifurcate the INR1,751 crores you will find that almost INR400 crore of turnover will come from non-volatile, though it is shown in poultry. So, this is the explanation with regard to volatile and non-volatile. That’s why under CB we have published that 71% each nonvolatile and 29% is a volatile. So, when 29% volatile we see, it’s a purely poultry business, whereas we rightly explained — have recently explained that, the profitability depends more on maize prices and soya prices, where the profitability can vary as high as and as low as, I mean when we talk of last two last year, the profitability was very-high in poultry division at INR266 crores, and this year it is hardly INR54 lakh, so this much variation when we calculate, we calculate it as a volatile segment. So that is the explanation with regard to volatile and non-volatile.

Keshav Garg — Counter cyclical PMS — Analyst

Sure sir, well understood. And sir, lastly, you mentioned the volumes that we did in last two years, but for this year, sir, any expectation in percentage terms in terms of our poultry segment and oilseed segment that what kind of volume growth we are looking at.

J. K. Handa — Chief Financial Officer

In oilseed sector, we are looking for about 7% to 10% growth in the terms of volume. As far as the value is concerned, we cannot predict the growth because the prices are market driven and quite speculative. So therefore, we normally plan out our growth in terms of volume, which this year we expect around 7% to 10% in terms of volume.

Keshav Garg — Counter cyclical PMS — Analyst

Sure, sir, and poultry?

P.G. Pedgaonkar — Poultry Segment

We are expecting the same growth as far as poultry is concerned. However, when we talk of value growth, lot depends on the ingredient prices and the realization of broiler birds. But as far as our target is concerned, we are expecting 8% to 10% of growth with regard to poultry business.

Keshav Garg — Counter cyclical PMS — Analyst

And sir, lastly, are animal health product revenues are totally flat year-on year. So, in this FY ’24, any growth is expected?

Vijay Tijare — General Manager, Poultry Segment

Yes, for animal health division, last year it was a flat because we were restructuring our new product lines, and we expect for ’23, ’24, we are expecting a growth of around 15% to 17% in the coming year.

Keshav Garg — Counter cyclical PMS — Analyst

Okay sir, thank you very much, and best of luck.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah. Sir, just one question, how do you see the long-term opportunity in the branded products. So we have Venky’s ready-to-cook products range launched many years ago. Obviously, it has done well to some extent, but still, we see there is still lot more scope for distribution and new product launches, etc. So, what has been the update on that segment? And secondly, well many QSRs are coming up. So how do you see the sourcing arrangements to these QSRs? Do you see that as a large growth opportunity for us? And as far as our revenue mix is concerned, which are the key QSRs that we are catering to, and where we see some definite potential for growth over the next three to four years. That’s it from my side.

J. K. Handa — Chief Financial Officer

The key QSRs to whom we are supplying, one is KFC, then we are also supplying to McDonald’s. We are also supplying to Vista Foods who is also producer for products for McDonald’s or their intent company, and then we are suppliers to Pizza Hut, we are suppliers to Taco Bell, we are suppliers to Nando’s, and there are two more new emerging quick service restaurant chains, which are expected in India. One is Papa John’s, they coming up with a big investment, and also there are certain expansion plans for one more pizza chain called Little Caesar. So, these are the new QSR chains which are coming, and we are in contact with the present QSRs to whom we are supplying products on the regular business. As I explained to you in the last question that more or less their expansion plans are around 10% plus/minus, and there is a big potential for the sales, and we are not only the suppliers for the products, we are also developing products for them, and what happens is, they also do not want to keep the same products over the year. So, we have a research and development unit with us. We work with their chefs and their executives, and we develop new product range for them. And the same product is further launched or rolled out in the market as per their plan, marketing plan. So, this is for the QSRs.

For the retail chain, we are already present in more than 6,000 retail outlets all over the India which covers A, B and C categories of cities. And of course, yes, there is a good expansion plan for us, and there is also a good expansion scope for these products.

What we recently started actually after COVID or during the COVID, the business model is slightly diverted, or I will not say diverted, but we have an addition of the new range of — same range of the products to be marketed to e-commerce. So now we are supplying our products to Swiggy, BigBasket, Grofers, Rapido [Phonetic] and Dunzo. So, these are the people who are supplying our products to them.

So, when we say that we have more than 6,000 outlets, these are additional avenues open for marketing the products. Presently, we have about 34 SKUs for processed food branded products and about 12 raw branded products, which are supplied in the name of Venky’s. And we plan to launch certain new products in next quarter, and we feel that next quarter with the launch of these new products, would be very well appreciated. Likewise, we launched some new products in last financial year, those were appreciated. So, this also, we will be planning for the new products in this. I think I have answered your question. Is there any question?

Aniruddha Joshi — ICICI Securities — Analyst

No sir, this is very helpful. Just some housekeeping questions. How do you see the capex for FY ’24 ’25, and the dividend strategy for the company? Thank you.

J. K. Handa — Chief Financial Officer

In regard to the capital expenditure for ’23, ’24, it is a routine expenditure. Only one new project has been started, which is of animal health products. The estimated cost of the new project is to the extent of INR50 crore rupees, which shall be funded from our own generation only, and no new funding is being taken. In regard to the dividend, that will be decided by the Board.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah, thank you. Thanks, that’s it from my side. Very helpful, thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Harsh Mantri from Flute Aura Enterprises. Please go ahead.

Harsh Mantri — Flute Aura Enterprises — Analyst

Hello sir. Sir, my question is that since our business is very much exposed to volatility and pricing pressures, so what are measures that we’re looking at to mitigate that effect, and any strategic potential move which can help us insulate from such type of volatilities in pricing?

Deepak Khosla — General Manager, AHP Segment

Yeah, if you go through the strategy of Venky’s from last few years, the burden, as far as volatile sector was concerned was more than 45% to 50%. So, the more reliance was there on the live bird sale and more reliance was there on chick sale [Indecipherable]. So slowly, slowly we have moved from this volatile sector, and we have increased our business in non-volatile sector, in particularly processed food, in particularly oilseed segment and in particularly AHP segment. So, all that put together, by keeping the poultry, I mean, the quantity and volume and value to make sure that other volume and other value increases, so by that way we are reducing our percentage of volatile and we are increasing the percentage of non-volatile. That definitely will take care of uncertainties, and that definitely will give some steadiness as far overall profit is concerned, that is our strategy and that’s where we are following, which is evident from last two, three years’ results.

Harsh Mantri — Flute Aura Enterprises — Analyst

Sir, any future diversification in terms of extending our offerings?

J. K. Handa — Chief Financial Officer

There is no diversification plan as such for the company.

Harsh Mantri — Flute Aura Enterprises — Analyst

Okay, Sir, one more question, in terms of our inputs, as you mentioned that the prices of maize and soya have been rooftop in the last year. So, I would like to have more discussion on what is our strategy in processing of raw-material? How much stock do we hold, and what is the overall process and the same.

J. K. Handa — Chief Financial Officer

See, as far as the holding and inventory listing is concerned, it is not in some sort of fixed strategy. It depends on the perception what we see for the future market. Right now, last one or two years, there has been, I mean, a very different change from the market. Earlier whenever the arrival of crop used to be there, the people will stop the material, and in the off season, may be April, May, June, the prices will shoot up, and the benefits will be accrued on that account. But now, this is what happened, the crop of our maize and soya, both have been growing up in the country and the holding at the farmers level — agriculture farmers level are also very good. Over the last couple of years, they’ve got a very good price. So now these days, the availability of both the materials are, throughout the year, it is available. Question is only the price. Whenever the prices are good, material comes good in the quantity [Indecipherable] this thing. Also, it is going on continuously and material throughout the year is available, so we cannot have a fixed strategy now for the storing the material for a longer period.

Harsh Mantri — Flute Aura Enterprises — Analyst

Okay, sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Keshav Garg from Counter cycled cyclical PMS. Please go ahead.

Keshav Garg — Counter cyclical PMS — Analyst

Sir, I am trying to understand, sir, you explained about the raw-material prices due to which we got hit. Sir, but as far as the demand-supply equation is concerned in poultry products, especially in broiler chicken, let’s say. Sir, so what is the demand-supply? Is there oversupply, and if not then why is the industry not able to take price hikes?

P.G. Pedgaonkar — Poultry Segment

Yeah, thanks for this question. For this I would like to take you to the broiler bird prices of last three years. When we see the last three years prices post COVID, we can see that during the period of COVID, the broiler prices or the realization to the net farmer was approximately INR70 to INR72. So that INR72 benchmark has gone to INR78 to INR80. So ideally, this should have added 8% to 10% of the profitability, but unfortunately, the prices of maize and soya which then was around INR15 to INR16 has moved to INR22, INR23, and the same with regard to soya, the prices which were somewhere around INR35, INR36, has gone up to INR66 and INR67. So when your input cost is going more than 20%, the realization ideally should go 20%, but that never happens in consumer market. Consumer market when customer is used to paying for INR70, suddenly, he’s not changing his benchmark directly to INR85 and INR90, though your quarter production cost changes.

So, this is the basic reason we get hit when the prices of ingredient changes, the price benchmark for consumer, it takes time to absorb, adopt and then change. So, usually the period required is one and half years, two years to accept and adopt a sudden abrupt change in the prices of the year. So, this phenomenon which we have observed post COVID that the prices of ingredients, particularly maize and soya has gone up like anything, but the same price to go up as regard to broiler price took us almost two and half years to three years. Today’s benchmark for poultry is INR90 to INR95 is well accepted, which was not the case one and half years to two years back. So, this INR95 benchmark is accepted by the consumer.

Tomorrow if maize price and soya price comes down, and if your cost of production comes to INR80, one can see a sudden surge in the profitability which may not be the true picture of that particular situation. So, this is what is happening in poultry — either there is a sudden increase in ingredient prices, and the realization is also moderate. And other way, the realization is good and the cost of production is going down. So, this is the reason why you are seeing abrupt change in the profitability with regard to poultry division.

Keshav Garg — Counter cyclical PMS — Analyst

Sir, what I’m trying to understand, the point you made is well appreciated. Sir, but what I’m trying to understand is that in the past two years, FY ’23 and FY ’22, then the poultry segment, it has really not made any money for us, sir, and it should be a fair picture for the rest of the industry also. So many small farmers must have gone out of the business due to losses etc., so that would have reduced the supply. And as the demand is quite steady, so, will that not increase — lead to increase in basically prices and realizations of poultry products?

J. K. Handa — Chief Financial Officer

Yeah, that phenomenon is there when COVID came in the period of ’19, ’20 and 2021, you can see that ’19 and ’20, lot of small farmers, they have reduced their operation or closed down their operation, the benefit of which has gone to organized player, but over a period of time when prices started stabilizing, those small and medium players, they have restarted their operations. So, in poultry business, I mean, small and medium farmers are not completely closing down their operation. It’s a suspension of the operation by medium and small player, because, the cycle is short, so these people usually whenever the period is good, prices are good, they restart their business. So, this phenomena by small farmers and marginal farmer is on phenomena. It is not completely on or it is not completely off phenomena. So, this is the reason why you will find that there is a regular increase in the consumption, which is to the tune of 6% to 8%, but whenever the production is high, realization is less, input cost is higher, that time it takes a hit on the profitability, particularly realization and cost of production.

Keshav Garg — Counter cyclical PMS — Analyst

Sure sir, and lastly, wanted to understand sir that even on the poultry side, broiler side, things are lukewarm. If we look at eggs, powder exports from India, they are probably at an all-time high and all the companies in that segment are really — I think the last one year is the best ever year for them, listed players like SKM etc., so are we not present in that segment at all? Can’t we just export our eggs?

P.G. Pedgaonkar — Poultry Segment

Actually, your point is valid and well taken, but thing is that the right now your company is not into egg processing segment.

Keshav Garg — Counter cyclical PMS — Analyst

Okay. Okay sir, thank you very much.

Operator

Thank you. [Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you sir.

J. K. Handa — Chief Financial Officer

Thank you all again for joining us for this con-call. We are very happy to answer all your questions. In case if any question has remained unanswered or any further details or request, we request all to please contact our Investor Services team, we will be replying to all the questions. Thank you all and thank you, ICICI Securities. Thank you.

Operator

[Operator Closing Remarks]