ADF Foods Ltd
NSE:ADFFOODS
ADF Foods Ltd
NSE:ADFFOODS
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Ladies and gentlemen, good day. And welcome to the ADF Foods Limited Q3 and 9 Months FY '25 Earnings Conference Call.
[Operator Instructions] I now hand the conference over to Mr. Ravi Udeshi from EY. Thank you.
And over to you, sir.
Thank you, Steve. And good morning, everyone. We welcome you to the Q3 and 9 Months FY '25 Earning Conference Call of ADF Foods Limited.
To take us through the results and to answer your questions, we have with us the top management of ADF Foods Limited, represented by Mr. Sumer Thakkar, the promoter and also the general manager, sales and strategy; and Mr. Shardul Doshi, the Chief Financial Officer. We will start the call with an overview of the business and the current business update by Mr. Sumer Thakkar, and then Mr. Shardul Doshi will give his comments on the financials. As usual, the standard safe harbor clause applies while we start the call.
With that said, I now hand over the call to Sumer.
Over to you, Sumer.
Thanks, Ravi. Hi, good morning, everyone.
Coming to the quarter gone by. Our consolidated revenues grew by 13.8% to INR 147.5 crores on a year-on-year basis. This is driven by secular demand across all our brands. We sustained EBITDA margins in the high teens despite ongoing investments in brand development and strengthening of our management teams. In addition to this, we faced increases in raw material prices and freight costs. However, stringent cost control measures, process efficiencies and the rupee depreciation helped minimize the margin impact.
Our strategy to broaden the reach of our India-focused Soul brand is advancing as scheduled. We've established a presence in the quick commerce market. And additionally, we've also expanded into select modern trade outlets of Nature's Basket, Reliance Fresh, Haiko, Food Square, Dorabjee's and DMart in the Mumbai and Pune region. Our cold storage facility in Nadiad has become operational in the current quarter. This enhances our supply chain capabilities with respect to finished goods storage. And the facility is now geared to optimize resources, better planning and more timely order fulfillment.
Overall, our core business continues to grow at a consistent pace. And our investments in ADF Soul and Truly Indian should start generating momentum over the medium to long term. The expansion of our Surat greenfield facility to support both new and existing frozen food lines is actively underway, and we anticipate it to begin operations by the second half of FY '26. We're confident that our ongoing investments will enable our brands and private label businesses to significantly scale in the future. Overall, we remain committed to achieving strong and sustainable financial growth.
I now hand over to Shardul, our CFO, who will comment on the financials.
Thank you, Sumer. And good morning, everyone.
I'll first share the stand-alone performance. In Q3 FY '25, we saw revenues from operations at INR 121.1 crores. This marked a 17.3% Y-on-Y growth and 3.6% Q-on-Q decrease. Our EBITDA for this quarter was INR 25.5 crores. It's a Y-on-Y decrease of 3.6% and Q-on-Q decrease of 8%, while our EBITDA margins was at 21%. EBITDA margins decreased 460 bps on Y-on-Y basis and by 100 bps on Q-on-Q basis. The reason for the said decrease have been stated by Sumer in his speech.
PAT for the quarter was INR 20.2 crores, 0.4% decrease Y-on-Y and 5.5% decrease Q-on-Q. Our PAT margin for the quarter stood at 16.7%.
Coming to the 9-month FY '25 performance. Our revenues from operations were at INR 343.8 crores, up 20.6% Y-on-Y. EBITDA was INR 25.9 crores (sic) [ INR 75.9 crores ], registering an increase of 8.2% Y-on-Y. EBITDA margin was 22.1%, a decrease of 250 bps on Y-on-Y basis.
PAT was INR 58.7 crores, up 8% Y-on-Y, with a PAT margin of 17.1%.
Moving on to the consolidated performance. Our revenues from operations for Q3 FY '25 was at INR 147.5 crores, an increase of 13.8% Y-on-Y and 8.6% decrease from the last quarter.
Our EBITDA for Q3 FY '25 was INR 26.4 crores, recording a decrease of 2.2% Y-on-Y and a decrease of 4.7% from the previous quarter. Our EBITDA margin stood at 17.9%, a decrease of 290 basis points on a yearly basis. The reason has already been explained by Sumer in his speech. We expect our investment in brand building and strengthening management bandwidth will drive continued growth for all our brands and businesses.
Our PAT for the quarter was INR 18.8 crores, marking a Y-on-Y decrease of 1.8% and Q-on-Q decrease of 4.6%. For Q3 FY '25, PAT margin stood at 12.7%.
For the 9 months ended December 31, 2024, consolidated revenues from operations were at INR 430.5 crores, up 17.4% Y-on-Y. And EBITDA was INR 73.7 crores, a growth of 4.3% Y-on-Y. The EBITDA margin stood at 17.1%, a decrease of 220 bps Y-on-Y. PAT was INR 52.8 crores, up 8.3% Y-on-Y, with a PAT margin of 12.3%.
All our CapEx plans are on schedule. Our CapEx spend for 9 months FY '25 were at around 22 crores. Our cold storage facility at Nadiad became operational in the current quarter. Our Surat greenfield facility expansion is well on schedule. We expect that greenfield project to commission by H2 FY '26.
Our balance sheet continues to remain debt free as on date, and we are sitting on a cash balance of INR 143 crores. Overall, we continue to judiciously invest in our manufacturing capabilities as well as our brand-building exercise in order to focus on delivering greater returns in the long term.
With this, I now request Ravi to open the floor for question-and-answers. Thank you.
[Operator Instructions] The first question is from the line of Azharuddin from Sameeksha Capital.
Am I audible?
Yes, yes, yes. Please go ahead.
Yes. So there are multiple questions from my side. First, sir, we are making investment in ADF U.K. limited, right, so can you please throw some color on that? I mean, what -- where are we planning to use this money?
The voice is not very clear...
Sir, can you please use your handset and speak, Mr. Azharuddin?
Okay. It's good now...
Yes, sir.
Yes. Sorry, yes. So we are making investment in ADF U.K. limited, right, so can you please throw some color on that? And where are we planning to use this money?
So this money, we'll onward invest it into our U.S. businesses. There are a few things happening there. We need to shore up working capital because the demand is increasing for the Unilever product. We can see that happening. And we're also investing on to Truly Indian brand into that market, so we will have to shore up the working capital there. And this is enabling resolution which we have passed, and then we will transfer money as and when it is required.
Okay, okay. And...
And just to add. We've made some...
Yes. Go ahead.
Sorry. I mean just to add. We made some strategic changes in our distribution in both the U.K. market and the U.S. market. And in the next couple of quarters, we're seeing enhancements in demand, so just to fulfill that, this is more a working capital infusion.
Okay, yes. And why did distribution revenue experience a sudden fall on Q-o-Q basis?
Yes. So [ you remember ], in fact, in the last call also, I had said that there are certain carryforward. In the June quarter, there were certain container-related issues in terms of availability, so when you look at both stand-alone as well as distribution business, they have not grown. Because there were certain carryforward from the Q1 into Q2. And also what happens is because distributors stock up goods due to Diwali season. They had done it, so you had seen a jump in Q2. And hence, there is a drop in Q3, which is a follow-on effect, but I think we are very -- we are seeing good growth happening into this segment in few next quarters to come in, so I don't see this as an issue actually.
[ Okay ]. And [indiscernible] margin and revenue going into FY '26. Are we expecting margins to increase due to freight rate rationalization?
The freight is something which is uncontrollable expense for us, but saying this, when we look at the Jan month or -- even in the December month, we had seen month-on-month decrease in December. And it has further reduced in the month of Jan, so hopefully, freight should come down going forward. If Red Sea issue is also resolved, freight will drastically come down, I think, after Trump has come in now.
[Operator Instructions] The next question is from the line of [ Arbit Jain ], an individual investor.
Am I audible?
Yes.
Am I audible?
Yes, sir, you are.
Yes.
My question is on the distribution business side. As we are doing pretty great in the food processing business, but -- when it comes to the distribution business, it has been very volatile, so how do we see the distribution business going ahead, as it is causing a drag in our overall business?
Sumer, do you want to take...
So like -- you see the volatility is more on the supply side of things. Demand continues to remain robust. And in terms of why we got into the distribution business, in the first place, to help strengthen our own brands, that continues to remain. And it also helps bring down operating costs. So once the supply chain is resolved, this business will continue to generate positive returns in the near to long term.
Even if you see returns [indiscernible] business, they have been very robust in the current financial year.
Okay, okay. And my other question is that the -- we have some issues related to the post-acquisition issues. So does are resolve, or not.
Sorry. Can you just repeat that question? Which -- are you referring to Vibrant?
Sir, in the distribution business, the -- we have some post-acquisition issues on one of the player in that segment, so my question is on that. That [ ITC ] has given some products like tea and all to other distributors, so...
So I think you're referring to Vibrant, which used to be our 70% company. And in the last quarter, it became 100% company. Yes, the performance is not up to mark. And hence, we have completely bought over the stake. And this company actually has been really helpful for overall business of ADF. In this market where it operates, we -- the -- our share used to be like, say, 1 million, 1.5 million. It's already at 5 million, which is the sales routed through this entity, so it's been really good in terms of strategy, but even on a stand-alone basis, this company has to make money. And they're all working towards it. Hence, we acquired the 100% stake so that then we can do all strategies which we wanted -- which we want to implement over there.
[Operator Instructions] The next question is from the line of Kuber Chauhan from Anand Rathi.
I have a couple of questions over here. Actually, I joined the call late, so can you explain, what were the reasons of our sequential dip in our top line business? And number two, have you seen any kind of more acceptance of our Truly Indian brand in U.S.? Actually -- ideally, you mentioned about 1,300 new stores were there which we penetrated, so the -- and the third question is, in last con call, you told that Soul brand will be placed in modern trade channel as well. So have it -- so it has been placed, or it's still remaining.
Shardul, do you want to get the first question? I'll answer two and three.
Yes, okay. So in fact, Kuber, I have -- we just -- I had covered this in the opening remark, but just to give you a perspective here: In Q2 -- rather, in Q1, in the month of June, there were container availability issues. And hence, there were certain sales which -- actually they were carried forward from Q1 to Q2, both on the distribution as well as on the processed food segment. This is something which we had mentioned in our call also, when we saw a significant jump in Q2. Also what happens is, towards Diwali, the distributors start stocking up the goods before the Diwali; and that's how you see a jump in Q2. We are not really -- we are seeing good demand for our products across all segments even on the distribution side. And we are hoping these numbers will be better going forward.
Yes, Kuber. So on the second question, for Truly Indian. We remain at the 1,300-store mark. I mean it's still early days. It's not even been 6 months, but we ran certain promotions in the last quarter. And we saw good traction in secondary sales that we saw a huge bump up, but like I mentioned, it's still early days. But we feel fairly confident the 1,300 stores will start generating revenue in Q1 and Q2 next year. And we also are looking increase this number in the short term. With regards to Soul, we have entered modern trade. So we've entered Nature's Basket. So we're doing it regionally, first, but starting with Mumbai and Pune. And then we'll expand further West. So we've entered Reliance, Nature's Basket, DMart, Haiko and Dorabjee's in Mumbai and Pune.
Okay, okay. And can you provide some ballpark guidance for the next year? Because the international markets are a bit shaky. So how we are looking forward. And how and what strategies we are adopting to mitigate it and to protect our margins.
So in the next financial year, we see that Truly Indian and Soul will start contributing in a better way than the current year because of all the things which have happened with both these brands in terms of successful listings across the stores as well as on the online platforms. Ashoka also has been giving us good growth. And we are also simultaneously seeing that, when we are approaching our big retailers for Truly Indian, there is a private label business also which is coming into us. So we see good growth happening on all these segments in the next financial year.
Okay. And have we listed our SKUs on Amazon?
Yes, we have. So we are on -- sorry. Is this Amazon India?
Yes.
We are on Amazon India. We're on Amazon U.S. We do Amazon EU, and we're just starting in the U.K. as well.
So have we increased our SKUs? Or the existing ones are -- only been there.
Again I'm not sure which market you're referring to, but...
[ All the ] markets, sir.
ADF all in India, it's across -- I mean we have all our SKUs listed, apart from frozen which is a new line.
Okay. So we have listed frozen, right?
Not at the moment. We've just launched frozen. It's gone into modern trade this month, but yes, we do have plans on getting into quick commerce and e-commerce.
The next question is from the line of Kumar Saurabh from Scientific Investing.
I have 2, 3 questions. So first, on Truly Indian and Soul, what are their latest monthly revenue run rates? That is one. And this 9 months, how much they have contributed to the losses, in terms of percentage or absolute.
And what is the revenue level at which it will break even? If you can connect all 3 things for Truly Indian and Soul.
So Truly Indian has a run rate in U.S. at around -- will, I think, do around 1 million in the current financial year, all in put together. And additionally, whatever we are doing in Germany, I think we should be at around 20-odd crores for Truly Indian, while if you look at Soul, the current run rate is around INR 70-odd lakhs on a monthly basis.
Okay, okay. And together combined, have they contributed to losses at EBITDA level?
Yes. Because we are in an investment mode in both -- for both these brands, right? So...
So like what percentage of total EBITDA they have eaten up...
So EBITDA at Soul will be at around, say, 150% when it comes to the top line. This includes all the marketing spend, the people costs, what we have employed there, while Truly Indian will be around, say, 30-odd -- 30% to 40%.
Okay. And at what revenue level you expect them to break even at EBITDA level.
See. Truly Indian and Soul both are high-margin business. So as soon as we are able to reduce the marketing spend there, both these brands will become breakeven, like they will start breaking even.
Any tentative time line? I'm not looking for exact time but maybe 6- to 12-month window or 1 to 2 years, like, where you're expecting that this would happen.
So Soul should take another 12-odd months for us to break even, while Truly Indian, maybe 6 to 8 months.
Okay, great. And my last question is on the margin, like, if you compare December to December. The margins have dipped. And you have given reasons like freight, but we are also investing. We have built a leadership team. So if you can -- for the difference of, whatever, 3%, 4% margin gap, if you can provide the details what has impacted, how much percentage of margin.
So freight itself was around 3%, had a 3% impact in terms of our margin. And marketing spend will be around, say, 1.5%. And your cost of goods, the raw material will be around 1.5%. So that's broadly the breakup. And of course, the overall EBITDA will not add up, but there are savings which we have done because of the -- on other expenses. Then the fixed costs get apportioned over the higher term.
Okay. And my last question, on the distribution side of business. Like I'm not bothered about the quarterly fluctuations, but can we say at the annual level, 12-month level, given -- last quarter, things changed. And the hope was now this business will continue to do well, so if we keep the quarterly fluctuations aside, can we be assured that on a yearly level things will be good on the distribution side from here on?
So it will be. In fact...
If we get continued supply -- sorry, Shardul. Go ahead.
No, no. Go ahead, Sumer.
So I was saying, once the supply chain issues are resolved and if we get continued supply of goods, we're fairly confident this business can generate on a steady state anywhere between $12 million to $14 million annually.
The next question is from the line of Ravi Naredi from Naredi Investments.
Sir, you have nice management, debt free; doing hard work by management to Patanjali agency, doing good agency work of Hindustan Unilever. In spite of so many efforts you are doing of expansion in capacity, warehouse in U.S.A., PLI from government of India, we are at same stage in 9 -- last 9 quarters from December '22. Since last 9 quarters, we are at same figure in bottom line, so will you give some hope you -- what is going on? Where we want to go.
So in fact, except this quarter, there has been quarter-on-quarter and Y-on-Y growth which we have seen both on our top line and bottom line. I'm not sure what you're referring, but even top line, we have been growing at around 17% to 20% year-on-year, so I think we can -- I'm not sure when you are saying, 9 quarters, we have been stagnant, but saying this: The plans are in place. As you are aware, Ashoka has been growing in double digit for us. Truly Indian and Soul, there is an investment which is happening and will start giving us a good contribution. And even private label will become a bigger business for us, so that's what we are expecting to happen in the year to follow. Even on the margin side, as I explained, freight has come down. Your dollar rate has improved, so hopefully, even margin-wise, we should be better off despite our investments which we are doing on marketing as well as manpower. So it -- I think we are seeing that, I think, next financial year, we will have a much better number compared to what we have right now.
That is okay, but in December '22, we have 19 crore at the bottom line; and today, also 19 crore. So just I have asked. You gave INR 1,000 crore top line target for financial year '27. So many point to ask whether at INR 1,000 crore our margin will be same, increase or likely to decrease. That commentary, we need to be -- need from you.
Yes. As I explained, in fact, so many things we are doing in terms of investment on our brand; as well as we can see costs coming down, which is main important is the freight. RM is, of course, still high. And the foreign exchange rate is also favoring us, so margin profile should also be better for us going forward.
The next question is from the line of [ Sumit from Add Equity ].
So sir, you had given a guidance of INR 1,000 crore revenue by FY '27. So are we sticking to that guidance?
Yes.
Okay, yes. And what kind of blended margins do you expect broadly? Or can you give us a range?
We have always been saying we will be in high teens when it comes to the EBITDA margins, so we should be in a position to achieve that.
The next question is from the line of [ Ashish Agarwal, an individual investor ].
I had 2 questions. So basically I mean the -- our main business is in the -- in U.S.A., whether we take Ashoka or Truly Indian. I mean major part of the revenue comes from U.S. Now based on the tariffs that are anticipated or coming up, what is the plan to safeguard our margins? That's the question number one. And second question is basically you said that in Soul we have launched frozen food category in last month. I think January, this quarter. So what are the various products that we have launched? And how many SKUs we have launched in the frozen category. That's it. Those are all the questions.
So if you look at the -- I think, tariff, Indian government is working with U.S. government to see how this will work, but anyway, regardless, whenever it happens, it will happen for the entire industry. It's not only -- like we will be the only one who will be impacted. We are already paying duties as such. It's not that we are not paying duty in U.S. We'll have to see how much incremental duties will come in, but if it is happening for the industry, I think most of us will pass it on to the customer because -- anyway, our -- the pricing of our products, they are in all single-digit dollar number, so it will not really impact as such when it comes to the market. It may slightly had an impact, but we don't see any major impacts happening. We are waiting to see how things are, anyway, developing on this front. And we will talk about it once we have a complete clarity on this aspect.
And just to add to that. So I mean the way we safeguarded ourselves a couple of years ago as well when freight costs went up. Our brands have very strong brand equities, so we are able to pass on price increases if need be. As far as your second question as well...
So pricing -- yes, yes.
Go ahead. So yes. So last month, we launched a range of frozen breads.. So these include soft parathas, kulchas, naans; and a few snacks like paneer tikka roll, various samosas. We are doing the frozen launch in 2 phases, but it's mostly spread across breads and snacks. And over the next 3 months, it will be a range of about 15 SKUs.
Okay. And it's launched as a pilot in some cities? Or across our modern trade and e-commerce.
So [ we've done marketing ] across quick commerce, so Zepto, Instamart; as well as few modern -- few select modern trade outlets in Mumbai and Pune.
[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for their closing comments.
Thank you, everyone, for joining in. Thanks.
Thank you.
Thank you. On behalf of ADF Foods Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.