ADF Foods — Q3 FY25 earnings call

So, like you mentioned, 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 brand, that continues to remain. And it also helps bring down our operating costs.

Analyst questioned the volatility of the distribution business, and management clarified its strategic role in brand strengthening and cost reduction, indicating it's not a drag but a volatile component.

Asked by Arpit Jain

I think you are 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, our share used to be like, say, $1 million and $1.5 million, it's already at $5 million which is the sales routed through this entity.

Analyst inquired about post-acquisition issues with Vibrant; management confirmed 100% acquisition and highlighted its significant contribution to sales growth, clarifying its strategic value despite initial performance concerns.

Asked by Arpit Jain

So in fact, Kuber, 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 Diwali and that's how you see a jump in Q2. 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.

Analyst questioned the Q-o-Q revenue decline; management attributed it to supply chain issues in prior quarters leading to sales carry-forward and pre-Diwali stocking, explaining it as a timing effect rather than a demand issue.

Asked by Kuber Chauhan

So SOUL should take another 12-odd months for us to breakeven, while Truly Indian maybe six to eight months.

Analyst sought clarity on profitability timelines for new brands; management provided specific breakeven periods, indicating the expected return on investment for these strategic initiatives.

Asked by Kumar Saurabh

So freight itself 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.

Analyst asked for a detailed explanation of margin compression; management provided a specific percentage breakdown of factors like freight, marketing, and raw material costs, offering transparency on cost pressures.

Asked by Kumar Saurabh

So if you look at, I think, Indian government is working with U.S. government to see how this will work. But anyways, 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 will 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, 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.

Analyst raised concerns about potential US tariffs; management indicated that while it's an industry-wide issue, they expect to pass on costs due to strong brand equity, mitigating significant impact on their margins.

Asked by Ashish Agrawal

And just to add to that, I mean, the way we safeguarded ourselves a couple years ago when freight cost went up, our brands have very strong brand equity, so we are able to pass on price increases if need be. As for your second question on SOUL, last month we launched a frozen bread, so this includes stuffed parathas, kulchas, naans, and a few snacks like paneer pakoras, various samosas. We are doing the frozen lunch in two phases, but it's mostly spread across breads and snacks, and over the next three months, it will be a range of about 15 SKUs.

Analyst inquired about the new SOUL frozen food range; management provided specific product categories and the planned SKU count, detailing the expansion into this new segment.

Asked by Ashish Agrawal