Chaman Lal Setia Exports Limited — Q3 FY25 earnings call

Call held 11 Feb 2025

Management summary

Chamanlal Setia reported strong volume growth in Q3 FY25, up 22% QoQ, supported by new packaging capacity coming online soon. While profitability was impacted by a ₹5-6 crore inventory loss due to falling Basmati prices, the company maintains a healthy capital structure with internal funding for expansion and an unhedged currency strategy. Management is focused on scaling up revenue to ₹500 crores quarterly and ₹2,000 crores annually, leveraging new customer acquisitions and improved operational efficiency.

Highlights

  • Q3 FY25 volume increased by 22% QoQ, demonstrating strong quantitative business growth.

  • 9M FY25 volume increased by 14% YoY, indicating sustained growth over the longer term.

  • Four new packaging units (3 in Karnal, 1 in Gandhidham) are being added, with two expected to be operational within a month, enhancing packaging speed and delivery.

  • Expansion is fully funded through internal accruals, with no new debt taken for this purpose.

  • Company has a reasonable working capital and sufficient funds, with only ₹57 crores availed from a sanctioned ₹300 crore HDFC Bank facility.

Concerns

  • Profitability in Q3 FY25 was relatively lower compared to the corresponding quarter of 2023, despite being higher than the preceding quarter.

  • Incurred an inventory loss of ₹5-6 crores due to a 10-15% fall in Basmati prices, impacting valuation.

  • Operating margins fluctuate between 8-15% due to demand-supply dynamics and competitive pricing, especially when acquiring new customers.

  • Freight costs remain volatile, with some routes experiencing significant increases (e.g., $500 to $2,400).

Key financials

3 periods

Headline

  • Inventory Loss
    ₹5.5 Cr
  • Operating Margin Range
    8-12 %
  • Export Margin Range
    10-15 %

Q3

  • Volume Growth
    22%
    QoQ +22%

9M

  • Volume Growth
    14%
    YoY +14%

What they filed

Q1 FY27: revenue up 12.7%, net profit up 45.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue369 395 368 307 273 −26%431 +9%428 +16%346 +13%
EBITDA36 40 33 29 24 −33%51 +28%52 +58%44 +52%
Net profit27 29 25 22 19 −30%36 +24%38 +52%32 +45%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex Capex disclosed entirely through internal accruals without debt
    • Adding three new packaging plants in Karnal and one in Gandhidham
    It is all internal. We have not taken any debt for this expansion. It's almost ready. All the expansion we have done.
  • Debt Debt disclosed
    • New borrowing Availed ₹57 crores from a sanctioned ₹300 crore facility from HDFC Bank ₹57 Cr
    Even the borrowing from HDFC Bank, which is Rs. 300 crores sanctioned, our availment is, as per a statement I got on 10th yesterday, it's Rs. 57 crores.
  • Liquidity Undrawn ₹243 Cr Company has reasonable working capital and sufficient funds, with an unavailed credit facility of ₹243 crores from HDFC Bank.
    So we have sufficient funds. No issue. A company buys always, I have told in the past also, cash discount of 2% - 2.5%.

Guidance & targets

Sales

  • Quarterly Sales Sales · soon · Medium confidence ₹500 crores

    From ₹400 crores today

    I think Rs. 500 crores will come soon. The first thing is that this Rs. 400 crores barrier should be broken and we should reach Rs. 500 crores soon.

    — Rajeev Setia, Joint Managing Director

Turnover

  • Annual Turnover Turnover · Medium confidence ₹2,000 crores
    Target is that we achieve a turnover of Rs. 2,000 crores, achieve revenue first of all.

    — Ankit Setia, Executive Director

Capacity

  • New Packaging Units Operationalization Capacity · 15-20 days or maximum one month · High confidence Operational

    From Under trial today

    And in another 15 - 20 days or maximum one month we'll go with the commercial production.

    — Ankit Setia, Executive Director

Profitability

  • Operating Profit Margin Profitability · as new buyers settle · Medium confidence Increase

    From 8-12% today

    So our profitability generally is between 8%, 12%, our margins. So I would say that we are trying to bulk up right now, and once those buyers will be settled the profitability part also will go up with them.

    — Ankit Setia, Executive Director

Market Share

  • Basmati Export Market Share Market Share · Low confidence Increase from 15%

    From 15% today

    India's Basmati exports is around 4 million tons which is highly profitable; lucrative markets, which is at least around 1 million tons. Right now we are only enjoying 15% fruit. So there is still a lot of scope, as far as expansion is concerned.

    — Ankit Setia, Executive Director

What to watch in Q4 FY25

New Packaging Units Operationalization

Within 1 month
Current Under trial, 2 units about to be operational
Target All 4 new units commercially operational

Why it matters

Successful operationalization of new packaging capacity is crucial for increasing packaging speed, improving delivery times, and supporting volume growth targets.

Two of the plants are about to get operational. As we are talking, they are under trials... in another 15 - 20 days or maximum one month we'll go with the commercial production.

Risks & concerns

  • Inventory Valuation Impact

    high

    A 10-15% fall in Basmati prices resulted in an inventory loss of ₹5-6 crores in Q3 FY25.

    Management acknowledged

  • Receivables Risk in Iran Market

    high

    The company avoids the Iran market due to known issues with delayed payments and high receivables risk, despite its large demand.

    Management company avoids

  • Basmati Price Volatility

    medium

    The Basmati business is subject to volatile commodity prices, which can impact profitability and inventory valuation. Prices fell 10-15% in the current season but are now rising.

    Management acknowledged

  • Freight Cost Volatility

    medium

    Freight costs are volatile, with significant increases observed on some routes (e.g., $500 to $2,400), impacting export costs.

    Management acknowledged

  • Domestic Market Competition

    medium

    The domestic market faces intense competition, making it challenging to achieve significant profitability compared to exports.

    Management acknowledged

  • Unhedged Currency Exposure

    medium

    The company maintains an unhedged currency position, believing it benefits from rupee weakening, but this exposes it to potential adverse forex movements.

    Management strategic decision

Q&A highlights

8 direct
Status of export restrictions and MEP on rice Direct
Mr. Mihir, all kind of restrictions are removed, be it parboiled rice export with the duty, the ban of non-Basmati rice and MEP of Basmati. All these obstacles I would call them are removed. So business is as usual which used to be in the past.

Clarifies the removal of all government restrictions on rice exports, indicating a return to normal market conditions.

Asked by Mihir

Timeline for Mundra expansion and commercial production Direct
That plant is also right now in trial run. Plant is complete, machinery is complete. Everything is done, trials are going on. And in another 15 - 20 days or maximum one month we'll go with the commercial production.

Provides a specific timeline for the new Mundra plant to become commercially operational, which will contribute to increased capacity.

Asked by Mihir

View on Basmati supplies and pricing post-harvest Direct
The Basmati prices were in the current season they were low by 10% to 15%. If you compare with the last year preceding year, the prices were very, very attractive. But despite very attractive prices we because you get the best quality in the season only and we went for the -- I mean quite large buying and again the prices came down. They were very low but suddenly again there was another fall which hit our profitability also... But now again prices are going up you know.

Offers insight into the recent volatility and current upward trend in Basmati prices, which directly impacts raw material costs and inventory valuation.

Asked by Mihir

Peak sales potential after new packaging units are operational Direct
I think Rs. 500 crores will come soon. The first thing is that this Rs. 400 crores barrier should be broken and we should reach Rs. 500 crores soon.

Sets a clear aspirational target for quarterly sales post-expansion, indicating the expected revenue uplift from new capacity.

Asked by Ishmohit Arora

Reasons for fluctuation in Operating Profit Margin Direct
See, the rice business is a demand and supply business. In this, sometimes your margin is 8%, sometimes it is 15%, 12%. Sometimes you have to increase your business, to put a new customer, you sometimes have to reduce your margin.

Explains the inherent volatility in operating margins due to the commodity nature of rice and strategic pricing for customer acquisition.

Asked by Jatin

Quantification of inventory loss in Q3 FY25 Direct
Actually I will explain it to you. The company has stock of around 1,500 plus December end, Rs. 15 crores approximately So some portion 15% to 20% is there in which the prices went up and the price we got very good prices and the prices went down 10% - 15% went down so Rs. 5 - 6 crores were lost.

Provides a specific financial impact of price volatility on inventory valuation for the quarter, quantifying the loss at ₹5-6 crores.

Asked by Navneet

Company's currency hedging strategy Direct
Your company has not even a single dollar hedged. We are open. We knew it is going to weaken. So the company is gaining on that.

Reveals a strategic decision to remain unhedged on currency, indicating management's view on rupee depreciation and its potential benefit to the company.

Asked by Praveen Sharma

Market opportunity and competitive landscape for Basmati exports Direct
So India's Basmati exports is around 4 million tons which is highly profitable; lucrative markets, which is at least around 1 million tons. Right now we are only enjoying 15% fruit. So there is still a lot of scope, as far as expansion is concerned. Secondly what you are saying that plant takes 3 months that can attract competition, so plant means my company has at least 50 years of experience that's why I am telling you 3 months. That's why I am telling you that it takes less money. If there is a competitor maybe he can't set it so soon or with less money.

Provides context on the significant untapped potential in Basmati exports and management's confidence in their experience as a competitive advantage for rapid capacity expansion.

Asked by Nikhil Joseph

2 min read 6 chapters

Detailed narrative

Q3 FY25 Operational Performance and Volume Growth

Chamanlal Setia reported a strong operational quarter with quantitative business volume increasing by 22% quarter-on-quarter in Q3 FY25. For the nine-month period, volume growth stood at 14% year-on-year. This growth was partly driven by an additional 6,000 tons in volumes compared to the previous quarter. Management noted that while revenue performance was very good, profitability was relatively lower year-on-year for Q3 FY25, though it improved compared to the preceding quarter.

Capacity Expansion and Operational Readiness

The company is significantly expanding its packaging capacity by adding four new plants: three in Karnal and one in Gandhidham. These new units are larger and feature fully automatic machines, aiming for higher productivity. Two of these plants are currently under trial and are expected to commence commercial production within the next 15-30 days. This expansion is entirely funded through internal accruals, with no new debt incurred, reflecting a strong financial position.

Market Dynamics, Pricing Strategy, and Inventory Impact

Basmati prices experienced a 10-15% decline during the current season compared to the previous year, which led to an inventory valuation loss of ₹5-6 crores for the company in Q3 FY25. However, prices have recently started to increase again. The company's operating margins typically fluctuate between 8-12%, with export margins ranging from 10-15%. Management noted that competitive pricing is sometimes necessary to acquire new customers, impacting margins in the short term.

Export Growth, Customer Acquisition, and Market Potential

Chamanlal Setia is actively expanding its export business, participating in major exhibitions like Gulfood to attract new customers. The company has successfully added new buyers, including 2 in Sri Lanka and 3 in Morocco. India's Basmati export market is estimated at 4 million tons, with lucrative segments accounting for 1 million tons. The company currently holds about 15% of this lucrative market, indicating significant scope for further expansion.

Capital Structure and Currency Management

The company maintains a robust capital structure with reasonable working capital and sufficient funds. From a sanctioned HDFC Bank facility of ₹300 crores, only ₹57 crores have been availed. Strategically, the company has chosen not to hedge any foreign currency exposure, believing it benefits from the weakening rupee. Management stated that this unhedged position has historically been advantageous in 8 out of 10 cases over the past 30 years.

Future Outlook and Growth Targets

Management is targeting to break the ₹400 crore quarterly sales barrier and reach ₹500 crores soon, supported by the new packaging units. The long-term goal is to achieve an annual turnover of ₹2,000 crores. The company also aims to improve profitability as new customers become established. There are plans to explore packaged foods and ready-to-eat segments in the long term, leveraging existing customer relationships.

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