Some notes from the Q4 concall
Revenue Visibility
- The new greenfield capacity will add 3x of its 60 cr investment and will be up and running by 2024. So about 180 cr incremental revenue is expected going forward from 2024
- Another 50 odd cr revenue is ecpected from the current setup by modernising the current plant (which is running at almost optimum level ) and the leased facility (which started in Apr 21) which they expect to also rake up to optimum level in 2021 itself
- Overall the co has given guidance to reach 600cr revenue in the next 4-5 years
Margins
- 10-12% EBITDA margins are sustainable in the agency business
- 30-35% gross margins are sustainable in the contract/Private label business which is roughly 30% of the topline
- In the own brand business the gross margins are 60% -65% roughly
- Agency business is going to be 25% of their overall business and their main focus in on propogating their own brands
- Plans to take over a channel partner. Discussion in last leg. This will be margin accretive
- For new greenfield facility - plan is to take debt because govt policies mandate taking on debt from selected banks to receive PLI and other govt benefits else can fund entire thing from internal accruals
- Going forward intend to open 3 more distribution centers to better manage logistics
- Overall margins for each vertical are sustainable
Growth Levers
- New products - they are going to launch a new meat brand for the US/UK markets
- Renewed focus on domestic business - starting with online sales then moving to modern trade and then general trade
- With restaurants opening up in their key geographies - lost revenue is expected to come back - some 3-4 million dollars so about ~30 crs
- In discussions to add a new client for agency biz- Unilever+1
- Currently in the top 3 in Indian ethnic food stores. Drive to get into mainstream retail
- No direct online presence - have enlisted services of a US co specialzing in online business
My notes
- Co seems to be doing the right thiings and has laid a clear roadmap to get to 600 crs
- The ROCE is very good for each vertical right now with Processed foods doing 35% and distribution doing 25%.
- Margins for processed foods has been really consistent for the last few years at 20-23% giving confidence that they are sustainable in the long run
- The distribution biz is in the nascent stage, however Unilever has some product or the other to launch and lately become super agressive in the processed foods market
5 Overall - i think there are enough growth levers in my view for investors to bank on and one should see a steady 15% growth rate going forward. Valuation wise, given its growth plans one can expect a 15% type return going forward in my view
few more points from concall
by fy 24: capex 90 cr with AT 3x gives around 300 Revenue.
Indian Business to grow 10% level from 1% which gives 100 cr with A&SP 15 cr. Agency business will be 20-25% of consolidated revenue. R&D spend increased to 50L from 2L last year. Lock down sale loss of 34 crore.
Good to see ADF doing all the right things to improve reach and cross selling opportunities. Now with its tieup with Patanjali to exclusively distribute its products in UK and West Europe , we will see hopefully see greater asset turns in this segment improving overall ROC of the business which is quite nice to begin with.
what’s triggering the recent rally ? ??
Nikhil Vora sixth sense ventures bought 5 percent stake in the company, he is an astute stock picker in consumer space.
Q1 concall notes
- Increase in margin due to increased efficiencies, softening in rm & freight costs
- New product launches like frozen curries like palak paneer for food service in restaurants, chole, dal lakhn ii, ghee : 500g, 1 kg, 2 kg
- Large cold storage capacity in New Jersey, faster fulfillment
- Ashoka growing at 40% in q1. 33% cagr. 200 cr
- Received listing nods from 3 discounters, 15 cues spread across uk, usa
- Standalone 17% growth
- Capacity utilisation in us warehouse: up & running last week. At Max cap we can do 10 containers. Full capacity utilisation right now.
- Margins : Q3, q4 have higher margins. Q1 low demand : people travel. Consol 18-22% type margins
- Capex : 50 cr stage 1, 30 cr stage 2 in fy24 & fy25. Greenfield project in Surat. 250 cr revenue. 3x asset turn.
- Aksa capital : demand is robust. Can maintain 20% growth rate at consol level
- Supplying to Walmart Canada since few years. Supplying to other large retailers too.
- Costco relationship trying to develop
- Got 2 large retailers in uk. 350 stores
- Talks going on with large retailers in usa. Ready by Q3 of this year
- 1.5 cr pli benefits in this Q
- Freight is 7-8% cost in standalone. 7% can remain for the year. Bottoming out already
- Other expenses include many heads. Some are fixed costs. Lot of focus on launch we are doing. Certain expenses we incurred for testing , presentation. Investment for future sales growth
- Sales mix : aata, rice were there in last year in distribution. Margins were high. Product mix is reason for low margin in distribution biz. 9-10% is steady state ebit margins in distribution biz. Unilever biz is negligible now
- Consol & india & adf food usa losses are in the subsidiary
- Kanav garg : garg advisors. B2B fell. All our brands grew from fy21 to fy23. B2B can also come.back next year. They were sitting on lot of inventory
- Distribution: really helped grow our own brands. Utilizing distribution to grow own brand. We are in investment phase. Fixed costs high. Margins can increase after the sales increases in distribution biz
- Pasta paste & sauces are also in same range as other products
- Promoter pledged share holding. 8-10%. This was pledged last year. 5% of total shareholding. Raising funds for prescription of preferential share warrants. Soul brand doing well in Ahmedabad. Market karna chahiye
- It’s present on big basket, Amazon
- 50 cr spent in fy24 & fy25. Phase 2 after we start selling products from phase 1
- 1 more capex. Adjoining plot we have bought. Freezer capacity. State of art cold storage
- Brownfield is faster to ramp. 12-18 m to set up Greenfield project
- 30% debt. 70% from equity.
- Teleric foods markets soul brand
- Accotera , patanjali contract is for 5 years
- Process in research: sales team in all markets. They go to market.daily. Get feedback from distributor
- Middle East brands camil, aeroplane growing at 20% every year
- Looking at acquisitions and have evaluated middle East too
- 700 store , 400 store in uk for large retailers. Launch in 450 stores, 170 stores
- Standalone 25% cagr, 15% cagr in distribution, consol 20% cagr
Disclaimer: Studying, have a tracking position
hii Sahil bhai
One Question
If we look at their segmental revenue they have one segment of distribution business which is earning just around 6-7% margins whereas their other processed food business is earning 25% plus
So why is the management wasting time and money in low margin business??
They have answered that while distribution of other brands products like patanjali and uniliver they are able to penetrate their brands also …so my question was how sustainable is this strategy also don’t you think that capital and energy can be deployed in increasing our own brands ???
Also what do u think would be the margins of distribution business going forward
Management has said that right now business is in investment mode and fixed costs are very high once sales increase there would be an increase in margins so do u think there is any chance of operating leverage playing out in near future ?? ???
I think the reasoning for still continuing with the distribution business despite the lean margins is to build network of distributors and retailers and gain shelf space using established brands for future sale of their own products.
You’re right about the margins, they are likely to remain low (maybe 8-12%) even after the investment phase matures.
Its very difficult to get connections, unless you have a proper thread to hold on.
I think management s doing right thing in going with distribution. With existing brands like panjali and HUL u will also get ur shelf space. Moreover if u go alone with u r own products logistics and other cost also increase.
In this distribution business u shouldn’t see profit margin alone. How do u multiply u r sales keeping margin constant is utmost important.
ADF is already doing it. So no issue is there. They are in right track i think.
Concall Notes - Feb 2024
Revenue Growth:
Impacted by the Red Sea crisis towards the end of the quarter
Investing in brand building and profitable products for long-term growth
New products launched under the Ashoka brand, including frozen desserts and sauces
Financial Performance:
EBITDA margins improved year-on-year
Driven by cost reduction and sales mix
Benefited from the PLI scheme, with expected benefits to continue over the next few years
Market Focus:
Accelerating growth in the Indian market
Distribution business in the U.S. is a key market for the company
Investments in warehousing capabilities
Sales and Marketing:
Leveraging e-commerce channel for growth
Focus on performance marketing and feedback loop for product development
Expansion Plans:
Plans for expanding capacity and greenfield projects
Maintaining a debt-free balance sheet
Long-Term Growth Strategies:
On track to achieve revenue targets and maintain margins
Focus on long-term growth strategies
Our flagship brand, Ashoka, is growing at a CAGR of upwards of 30%. Our products
and manufacturers both at our Nadiad and Nasik plants, which have a combined capacity of
28,000 metric tons.
We also have a branded foods agency business for distribution of select FMCG products. These
are renowned brands, including Lipton, Brooke Bond Red Label, Taj Mahal and Knorr Soup.
This substantially broadens our offering and enhances our store presence in overseas countries.
Feb 2024 concall
combination of our own brands as well as our agency-backed business backed by our
manufacturing strength has contributed to healthy EBITDA margins in the range of 20%
powered by a debt-free balance sheet. We continue to make investments in our brand and our
manufacturing capabilities for long-term groth.
Coming to the business update. We had a satisfactory growth as well as healthy margins over
the past nine months as we focused on brand building and investing in profitable products. We
saw stable demand for both our processed foods as well as the agency distribution business. Our
Q3 revenue growth could have been better. However, the Red Sea crisis impacted sales
shipments towards the end of the quarter.
We initiated several new plans to accelerate our long-term growth. The Board approval for
investment in Telluric Foods will enable us to accelerate our India business growth. Further, the
merger of our subsidiaries, ADF Foods and Telluric Foods will enable us to achieve substantial
synergies, including efficient capital utilization, flexibility in business operations and cost
rationalization.
. For the
nine months that ended on December 31, 2023, we recorded revenues from operations worth
INR 285.2 crores, an 11.8% increase from the same period last year. Our EBITDA was INR
70.2 crores, a 44.6% increase Y-o-Y.
We managed to expand the EBITDA margin by 560 basis points, reaching 24.6%. We see this
as a tangible outcome of our continuous focus on investing in our brands and innovating in our
product portfolio. Our PAT was INR 54.3 crores, a 36.8% increase from the previous year, with
a PAT margin of 19.1%, an improvement of 350 basis points from the last year.
Now let us look at the quarterly figures. In Q3 of financial year 2024, we saw revenues from
operations side to INR 103.2 crores. This marked a 3.5% Y-on-Y growth and a 6% Q-on-Q
increase. Our EBITDA for this quarter was INR 26.4 crores, a Y-on-Y increase of 2.7% and Qon-Q increase of 16.6%, while our EBITDA margin was 25.6%.
As Sumer mentioned, our Q3 revenues could have been better. However, as sales shipments
were somewhat impacted by the crisis in the Red Sea towards end of the quarter. This led to a
marginal impact on the revenues as well as our EBITDA and both grew at a slower pace on a Yon-Y basis. PAT for the quarter was INR 20.3 crores, a 5.4% increase Y-on-Y, 14.4% increase
Q-on-Q. Our PAT margin for this quarter stood at 19.6%, an improvement of 30 basis points on
the previous year.
Moving on to console performance. For the nine months ended 31st December 2023, revenue
from operations was INR 366.7 crores, a 12.1% increase Y-on-Y. EBITDA was INR 70.6 crores,
an increase of 30.4% Y-on-Y. EBITDA margin stood at 19.3%, expanding by 270 basis points
Y-on-Y. Profit after tax was INR 48.8 crores, up 22.6% Y-on-Y with a PAT margin of 13.3%,
an increase of 110 basis points on a yearly basis.
Coming to the quarterly performance, our revenue from operations for Q3 FY’24 was INR 129.7
crores, an increase of 5.2% Y-on-Y and 4% increase from the last quarter. Our EBITDA for Q3
FY’24 was INR 27 crores, recording a small decrease of 0.4% Y-on-Y with an increase of 23.8%
from the previous quarter. Our EBITDA margin stood at 20
Our PAT for the quarter was INR 19.1 crores, marking a Y-on-Y increase of 3% and quarteron-quarter increase of 27.9%. For Q3 FY’24, the PAT margin stood at 14.7%. Our capex for
nine months period ended December '23 was INR 3.5 crores in debottlenecking and another INR
3.5 crores in cold storage project. Our balance sheet continues to remain debt-free as of date.
The Board has approved INR 13 crores in optionally convertible redeemable preference shares
investment in our subsidiary, Telluric Foods India Limited. This will downstream to Telluric
Foods Limited, TFL, a step-down wholly-owned subsidiary of the company by TFIL. The paid
monies will be used to support the brand building and working capital requirement of TFL.
Also, the Board approved transfer of ADF’s entire equity investment in its wholly-owned
subsidiary, ADF Foods India Limited, to its step-down wholly-owned subsidiary, which is
Telluric Foods Limited at fair market value to be determined.
Post this, a merger is proposed between the company’s subsidiaries, ADF Foods India Limited,
which is a transferor company and Telluric Foods Limited, the transferee company. This
proposed merger is already approved in principle by the Board. As highlighted by Sumer, the
merger is expected to generate substantial cost synergies as well as greater financial strength and
flexibility.
Overall, we continue to judiciously invest in our manufacturing capabilities as well as our brandbuilding exercise in order to focus on increasing our margin profile as well as deliver greater
returns in the long term.
, there is a good growth which has happened over Q2 numbers in Q3 when you
look at the distribution business. We are also looking at some additional, we have talked to a
couple of companies, and we will share some details as and when any transactions happen, and
we will start selling those products.
The main EBITDA growth which has happened, of course, the margin profile is better when you
look at the product mix which we have. Our frozen share is increasing overall sale. Second,
when you look at the Y-on-Y EBITDA growth in nine months, there was higher freight cost,
which we are seeing in the last financial year and that was substantially impacting our bottom
line. However, in the current year, first nine months, the freight cost was lower. Towards end of,
of course, Q3, the freight cost have also started going up. And we will see now how that will
shape up in Q4.
The court order and price jump of 17%. What so interesting does market see from this order? can anyone brief
what court order?i think the price jumped due to Reliance Commerical Finance Limited buying into ADF
Alleged contravention of Section 196 of the Companies Act, 2013 read with clause (e) of Part
– 1 of the Schedule V of the Companies Act,2013 by the Company and its Officers in Default.
A penalty under Section 456 of the Companies Act, 2013 is imposed on the Company and
Officers in Default for violation of Section 196 read with Schedule V of the Companies Act,2013 as follows:
- ADF Foods Limited – Rs. 2,00,000.
- For four Officers in Default – Rs. 50,000 each
Company has received an order of adjudication of penalty of Rs. 4,00,000/- (Rupees Four Lakh Only), from the Registrar of Companies ROC
Companies (ROC) - Gujarat and Adjudicating Officer, under Section 454(3) of the Companies
Act, 2013 read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014 for violation of provisions of Section 196 read with clause (e) of Part I of Schedule V of the Companies Act, 2013.