In manorama industries anyone tell why the inventory buildup on balance sheet is rising which is leading to negative operating cash flow.
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it’s the procurement of Raw Materials. Since they are very seasonal in nature. few months of procurement is for entire year.
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From my observations and what I could understand from the Q4 FY25 call, of why inventory is elevated, which is directly linked to the negative operating cash flow in FY25.
Seasonal raw material procurement – Their key inputs, shea, mango, sal seeds, etc., are only harvested in specific seasons. The company must purchase and store enough raw material to cover production for the entire year.
Capacity ramp-up: The new 25,000 TPA fractionation plant commissioned in Q2 FY25 is still ramping; management stocked raw material in anticipation of higher FY26 output, so inventory is sized to support the 1,050 cr FY26 revenue target.
Composition of inventory: As of Mar’25, Raw materials, finished goods, plus by-products are approx 70% of annual revenue, which looks high on FY25’s sales base but is more proportionate to FY26 guidance.
Working capital cycle still at peak: Management admits FY25 saw peak working capital and expects a gradual reduction to 120–140 days in FY26.
Link to negative operating cash flow:
The bulk purchase of seasonal raw material increases inventory and ties up cash, which flows out in advance of sales.
Since much of the FY25 inventory is intended for FY26 sales, it has not yet been monetized into receivables/cash.
Until utilization of the new capacity catches up and sales convert the inventory to cash, operating cash flow will remain pressured.
Management’s plan:
Run down inventory as FY26 production ramps, aligning purchases with sales growth.
Target 120–140 inventory days in FY26 vs 150 in FY25.
Maintain export receivables around 30 days through cash against docs/advance terms to avoid further WC stretch.
Disclosure: No buy/sell recommendation, and I am still new to research and reading transcripts, so my observation may be limited or incorrect. Please conduct your due diligence before taking any investment decisions.
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Basis this analysis what I trying to make out is u did calculation of inventory on revenue where 70 percent of revenue that needs to be converted to cash is still tied up with inventory.
Basis that we are getting working capital cycle days to 301 days and management has guided to maintain 140 days of working capital cycle.
For it to maintain 140 days this year the working capital has to stay at 402 cr. As of FY25 the working capital tied up is 637 cr.
But now the question is this year also they have brought inventory. We need to closely track there capacity utilisation. As per the concall there are adding capacity and were at 65 percent utilisation. Also need to keep a check on debt.
Also for full year sales guidance the growth pace has slowed down compared to FY25. As I could understand that the base is becoming bigger.
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Yes the pace of growth has reduced from 69% FY25 to 36% FY26 guidance, which is exactly why the stock is rangebound since the results/call.
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The high inventory cycle problem cannot be solved. Till the time the company keeps growing sales it will have negative cash flow from operations which is basically a poor business.
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Some of it can be mitigated using Advance from customers. But they need to change their business model.
Since they have repeated orders from exiting customers.
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Cocoa prices near it’s lowest.
What could be the effect on Manorama industries? Manorama may have to reduces it’s selling price and revenue guidance may not be met.
Going forward the revenue may only be volume based.
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Good 2Q call from Manorama, management seems super bullish on the Business and Growth going forward. Sharing my notes from the call-
- revised annual revenue guidance for FY26, upwards from INR 1,050 crores to INR 1,150 crores
- growth in H1 was driven by a superior mix of value-added products, optimized utilization of expanded fractionation facilities and consistent demand from leading international clients in the chocolate, confectionery and cosmetic industrial sectors.
- focus on value added products has helped maintain healthy margins and strong growth
- value added products contributed 70-75% of sales which includes CBE, stearin and some value-added product
- acquired land adjacent to existing birkoni facality to support upcoming capacity expansion
- new ventures in West Africa and Latin America for increased global footprint
- some details on these ventures
- subsidiary in West Africa to strengthen the procurement of key raw materials like shea nuts (backward integration) and also signed an MOU with government of Burkina Faso for setting up a processing facility
- Coming to LATAM, entered into an agreement with Dekel in Brazil to utilize their processing facilities for manufacturing of specialty fats, intended for that regional market ( management sees a huge growth opportunity in this market)
- signed a MOU with government of Chhattisgarh for potential investment in future planned CapEx projects
- scheduled plant maintenance in 3Q26 to expand fractionation capacity from 40,000 metric tonnes annually to 52,000 metric tonnes annually, operational by 4Q26
- Plant utilization for H1 was 80-85%
- Total capex for upcoming projects will be approximately 450cr ( planning the mode for financing this capex - equity raise, debt and accruals)
- Export share in revenue is at 58% and domestic at 42%
- top 3 customers includes Mondelez, MiRo, Nestle, Hershey’s
- top 10 customers contribute around 40% of revenue
- There’s always a debete around the pricing of cocoa butter and demand for CBE: CBE has different functional and structural properties compared to cocoa, this is why they provide better stability, good texture, good finishing lines to the confectionary and chocolates.
- scope of further working capital & inventory cycle improvement ( management targetting 75 days of working capital over next 2 years)
- Tapping new markets, entering new geographies to expand market share and new clients
- Long Term growth drivers:
- backward and forward integrations projects that are undergoing
- geographic expansion with 8 subsidaries in the regions like West Africa, Latin America, Brazil
- incremental capex ( expanding 30% capacity next year)
- Expanding product portfolio
- contracts with customers are usually 8-10 months locked in, so not seeing any downward pricing pressures
- globally there are very few companies into manufacturing of CBE, given the complexities involved
- in sal and mango, company is the leading supplier in the world
- On 52,000 tonnes, 100% capacity utilization, revenue potential of around INR 1,800 crores, INR 2,000 crores
disclaimer - tracking
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Hi Abhay,
The overseas ventures in Burkina Faso and Brazil can be game changer if executed well. Logistics cost will get significantly optimized if seeds are processed at the source of the collection itself.
However, did management give further clarity on the economics where in if the processing facilities of Dekel is utilised, how the revenue will be recorded, will there be revenue sharing or the plant and machinery would be leased to Manorama or any other arrangement?
All in all tremendous growth recorded.
Disc -Invested
As I understand, Manorama is working in the Cocoa Butter Equivalent (CBE) segment. A few international companies operating in this space include Bunge’s Coberine, Cargill, AAK, Wilmar International, Fuji Oil etc.
Few Qs.
Market for Manorama industry/ or percentage of Market share?
Global CBE / cocoa-butter-equivalent market size ~USD 1.2–1.5 billion in 2024.Growing consumer demand for lactose-free, non-dairy products encourages the use of CB alternatives in bakery goods, chocolate, and confectionery are expected to boost sales to USD 1572.69 million by 2031.
How much of this growth is sustainable?” (given CBE mimics texture but lacks complex flavours); In the EU, the Chocolate Directive (Directive 2000/36/EC) permits only certain vegetable fats as CBEs and limits their addition to a maximum of 5% in “chocolate” (and requires labelling). This caps how much substitution mainstream chocolate can legally contain in some markets. Similar standards of identity and labelling expectations exist in other regions (FDA standards & labeling). That regulatory cap is a structural limiter in those markets.
More over Price volatility of cocoa and demand growth in mass-market confectionery push manufacturers toward cost-stable CBEs.
Will Technological improvements in terms of taste can lead to increase share of CBE growth.
I think a significant portion of short-to-medium-term growth is sustainable, but there are structural limits.
“Alternatives to CBE apart from Shea, Mango- If it can replace Cocoa Butter , is this a fast changing field”?
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I have done some basic match
In last 9 year
Company’ Total Net Profit is 276 crore and CFO is -233 crore
and In last 9 years there has been only 3 years where CFO is positive, is it ok to have this financial I understand company is in high growth phase
Any idea how the Working Capital Analysis (in days) is calculated in the Investor Presentation?
The cap of 5% is correctly mentioned but given that the product has the term “Chocolate” mentioned specifically on it. This upper cap is not applicable if there is no mention of the term “Chocolate” on the product.
Recently, i bought 5 star to verify (although CBE proportion is miniscule here as compared to exotic ones), but i found that nowhere the term “Chocolate” was quoted on the product, instead they mentioned “Sugar Confectionary”.
I think regarding the replacement of cocoa butter with CBE, every chocolate has its own recipe and it is not easy to change the recipe frequently. If a company has altered the recipe by replacing cocoa butter with CBE, then it is highly unlikely that they will again make changes in the recipe (given CBE is also cheaper than cocoa butter and adds extra shelf life to the products) unless they found another cheaper and reliable alternative.
I agree that CBE does not exactly replicate the flavours and aroma of original cocoa butter but many global players have replaced cocoa butter with CBE in their recipe (could be due to cost efficiency) and the demand is increasing steadily. Had the replication been so much inferior, they wouldn’t replace original cocoa butter with CBE.
Recently at a conference, management even stated that given the current capacity they have, only one client is enough to book all the capacity which states the demand-supply scenario in the market.
Would like to get corrected in case i am wrong.
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