Release Date: November 03, 2023
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Prataap Snacks Ltd (BOM:540724, Financial) reported a 12% increase in sales on a quarter-to-quarter basis despite challenging macroeconomic conditions.
- The company achieved its highest ever quarterly EBITDA of INR 38 crores, demonstrating improved profitability.
- EBITDA margin improved to 8.8% in Q2 FY '24, marking a 400 basis points increase year-on-year.
- The Namkeen category showed strong growth, reflecting the success of strategic initiatives to increase its revenue share.
- Prataap Snacks Ltd (BOM:540724) maintained a strong balance sheet with an improved cash position of INR 97.5 crores and continued to be debt-free on a net basis.
Negative Points
- Sales declined by 4.2% year-on-year in Q2 FY '24, indicating challenges in maintaining top-line growth.
- The rural market and lower-income urban segments faced significant demand pressure due to inflation, impacting overall sales.
- Increased competitive intensity from localized players has been noted, affecting market share and sales growth.
- The company is not confident about achieving the PLI incentives for the current fiscal year due to the challenging demand environment.
- The J&K plant's commercial operations have been delayed, now expected to start by January 2024, which may impact short-term growth plans.
Q & A Highlights
Q: Can you provide more details on the current demand environment and expectations for the near term?
A: We have been seeing pressure on demand, especially in rural markets and lower-income urban areas due to rising costs and inflation. However, we are optimistic about medium and long-term prospects as inflation decreases. We are also leveraging technology like Salesforce automation to drive sales growth. We expect H2 to be better than H1 with sustained operating margins. - Amit Kumat, CEO
Q: How has the competitive intensity in core markets affected your performance?
A: The overall market is growing, but the decrease in raw material prices has led to increased competition from smaller players. This heightened competition has impacted market share for many big players, including us. However, we believe the competitive intensity has peaked and should stabilize. - Amit Kumat, CEO
Q: With the growth coming back, can we expect double-digit margins soon?
A: Yes, we anticipate benefiting from operating leverage, which will positively impact the bottom line. We are guiding for double-digit EBITDA margins. - Sumit Sharma, CFO
Q: What is the outlook for PLI incentives, and do you expect to achieve them in FY '25?
A: We are targeting PLI incentives for next year. We are conservative in accounting for these incentives and will only accrue them at the end of the year once eligibility is confirmed. - Sumit Sharma, CFO
Q: How do you see the Namkeen category evolving in the next 2-3 years?
A: Namkeen is a focus area for us, currently contributing 16% to our revenue. We see significant growth potential and aim to increase its share to 20-23% in the coming years. - Sumit Sharma, CFO
Q: What are your plans for expanding distribution and increasing touchpoints?
A: We currently reach around 2 million outlets and plan to increase this by 5-7% annually. We are also focusing on increasing the presence of Namkeen and other products in existing outlets. - Amit Kumat, CEO
Q: What has been the impact of cost optimization measures on EBITDA margins?
A: We have achieved significant savings through cost optimization, including a 3% reduction in channel costs and improvements in production efficiency. These measures have helped us sustain and improve our EBITDA margins. - Amit Kumat, CEO
Q: How are you addressing the challenges in the rural market and lower-income urban segments?
A: We are optimistic about gradual recovery in these segments. We are using technology to drive sales growth and expect H2 to be better than H1. We are also focusing on increasing our market reach and product availability. - Sumit Sharma, CFO
Q: What are your plans for increasing ad and marketing spends?
A: Our marketing spend for H1 FY '24 was around 1.25% of revenue. We plan to maintain this level for the rest of the year and increase it next year to invest in brand building, given the sustained improvement in EBITDA margins. - Sumit Sharma, CFO
Q: How do you plan to compete with larger players in the Namkeen category?
A: We are leveraging our extensive distribution network and focusing on increasing the presence of Namkeen in existing outlets. We believe there is significant headroom for growth in this category. - Amit Kumat, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
