Release Date: May 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- LT Foods Ltd (BOM:532783, Financial) achieved a robust 12% year-on-year revenue growth, driven by strong performance in its three key segments: Basmati and other specialty rice, organic food and ingredients, and ready-to-eat and ready-to-cook products.
- The company's market share in India stands at 30.1%, with an off-take volume growth of 11% for FY24, outperforming the category growth of 8.9%.
- LT Foods Ltd's brand 'Royal' in the US grew by 20.6%, and 'Golden Star' grew by 30.8%, significantly outpacing category growth rates.
- In Europe, the company achieved an 11% year-on-year revenue growth by focusing on key accounts and branded business, while in the Middle East, revenue grew by 42%, with a premium segment market share of 6.7% in the UAE.
- The company's food business has grown six times since FY20 and is expected to grow at a CAGR of 33%-35%, driven by increased consumer distribution penetration and new product launches.
Negative Points
- Despite the improvement in gross margins over the years, operating margins have remained relatively flat, primarily due to increased trade and forwarding charges.
- The company's free cash flow still has significant room for improvement, largely due to high inventory days.
- LT Foods Ltd faced challenges in its organic business due to anti-dumping duties, which impacted revenue despite efforts to cover the shortfall.
- The ready-to-eat and ready-to-cook segment is currently not profitable, with an EBITDA margin of -1%, and is expected to break even only at a revenue size of INR 370-400 crores.
- The company anticipates a marginal impact on margins due to the Red Sea freight issue and investments in building digital capabilities.
Q & A Highlights
Q: Over the years, our gross margins have expanded, but our operating margins remain flat. Is this due to changes in sales terms or other reasons?
A: The improvement in gross margins has been offset by increased trade and forwarding charges. Additionally, disruptions like COVID and Red Sea freight issues have impacted operating costs. However, we have seen a 2% improvement in EBITDA margins over the past five years.
Q: Can you provide more details on the CapEx spent over the last few years?
A: CapEx has been directed towards capacity increases, maintenance, and green energy initiatives like solar and biofuel generation. We have also invested in warehousing and expanded our ready-to-eat (RTE) facilities in the USA.
Q: What is the outlook for free cash flow improvement?
A: We don't see significant improvements in the working capital cycle, but as our Jasmine Rice and value-added businesses grow, the mix will change, leading to better cash flows. Our working capital days have already reduced from 232 to 188 days over the years.
Q: How are you planning to grow your retail presence and distribution?
A: In India, we are present in 140,000 outlets and see significant opportunities in general trade. We are working on increasing our distribution footprint.
Q: What factors impacted export realizations this year, and what is the outlook for the export market?
A: We are optimistic about demand in both international and Indian markets. The realization impact was due to higher sourcing costs, but we expect continued double-digit growth in exports.
Q: Can you explain the margin expansion at the EBITDA level?
A: The margin expansion is due to operational efficiencies and reduced freight costs. We expect these improvements to be sustainable.
Q: What is the break-even point for the ready-to-eat (RTE) business, and when do you expect it to be profitable?
A: The RTE business will break even at around INR 370 crores in revenue, which we expect to achieve in the next two years. Post break-even, we anticipate EBITDA margins in the range of 8-10%.
Q: How do you manage price fluctuations in the rice business?
A: We do not engage in trading or speculation. Our inventory is for branded products, and strong brand presence helps us maintain margins despite price fluctuations.
Q: What is your dividend distribution policy?
A: Our policy is to distribute 10-20% of consolidated profits as dividends. This year, we declared a total dividend of INR 1.5 per share, which is around 8.5-9% of profits.
Q: What are your plans for future acquisitions?
A: We continuously evaluate both organic and inorganic growth opportunities. While there is nothing definite at the moment, we remain open to potential acquisitions that align with our strategic goals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
