Foods & Inns Limited — Q3 FY25 earnings call

Call held 6 Feb 2025

Management summary

Foods & Inns reported a mixed Q3 FY25 with strong export tonnage growth and full utilization of new capacities, but domestic demand remained slow, and forex MTM losses impacted profitability. Management expressed optimism for Q4 and future growth, driven by new product initiatives, capacity expansions, and a long-term revenue target of INR1,700 crores by FY27.

Highlights

  • Export shipment backlog of Q1 and Q2 was cleared, resulting in tonnage growth.

  • New tomato processing plant is running at full capacity utilization since December, expected to more than double revenue from this sector.

  • New pastry line is doing very well, with capacity set to double by the end of February 2025.

  • Frozen business is expanding with new client additions and incremental business from existing clients.

  • Spray drying expanded capacity is at full utilization since December.

Concerns

  • Domestic call-offs continued to be slow in Q3 FY25, though picking up in late December.

  • INR4.2 crores of forex MTM losses impacted EBITDA margins and other expenses in the quarter.

  • Increased finance cost, with INR2.5 crores of extra capex-related interest cost hitting the P&L from new Greenfield and non-PLI capacities.

Key financials

  1. Inventory ₹600 Cr
  2. Forex MTM Loss ₹4.2 Cr
  3. Gross Margin (9 months) 41%
  4. Prior Year Gross Margin (9 months) 32%
  5. DDP Shipment Expense ₹7.5 Cr

What they filed

Q1 FY27: revenue down 33.3%, net profit down 46.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue169 189 397 236 193 +14%150 −21%289 −27%157 −33%
EBITDA24 19 48 26 18 −25%17 −9%40 −17%20 −20%
Net profit11 1 23 7 1 −94%0 −46%19 −16%4 −46%
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 preferential allotment funds used for working capital and capex
    • Doubling tomato processing capacity
    • New pastry line capacity doubling
    • Expanded spray drying capacity
    • PLI-related capacity expansion
    • Non-PLI capex
    So the first question was with respect to the preferential allotment usage of money. So it was all for the working capital that we have actually used and the capex that we have actually done. So I mean, we have expanded capacities under the PLI. That's a public information, which is actually available. And apart from the PLI also, we have doubled our tomato capacity. So all the money has actually gone in for the capex as well as the incremental working capital, which is actually required.
  • Debt Debt disclosed
    Around INR360 crores of working capital debt is what we have and around INR70 crores of long-term debt.
  • M&A Kusum Spices Acquisition · Integrated

    Entry into spices market, leveraging sourcing skills, and aiming for branded space.

    Acquired at INR16-17 crores turnover, targeted to grow to INR100 crores.

    Shubham, the scale of the business was around INR16 crores, INR17 crores of turnover when we acquired this business. So the room for us to grow even to INR100 crores is quite easy even without too much of geographical expansion, to be very honest.
  • M&A Pectin JV Joint venture · Integrated

    Creating wealth from mango waste, complete synergies with existing operations.

    Started commercial production, numbers expected by Q4 end.

    With respect to the Pectin JV, we have already started commercial production. And this quarter end -- by this quarter -- I mean, Q4 end, you should actually see some numbers on that.

Guidance & targets

Revenue

  • Top line for Q4 FY25 Revenue · Q4 FY25 · High confidence around INR350 crores
    So, are we confident of that achieving that top line or in tonnage, comes around about 42,000 odd tons? Yes.

    — Anand Krishnan

  • Revenue from tomato processing Revenue · FY25 and FY26 · High confidence more than double last year's revenue
    So as of today, whatever crop projections are there, if that's going to come, then definitely, we expect that it can be double of last year with the mix of this year and less -- I mean, some of the sales will come in this financial year and balance will come in the next financial year. So, we are expecting to produce till April. If so, then we are expecting more than double revenue from this sector.

    — Moloy Saha

  • Kusum Spices business turnover Revenue · initially · High confidence INR100 crores
    So the room for us to grow even to INR100 crores is quite easy even without too much of geographical expansion, to be very honest.

    — Anand Krishnan

  • Overall Revenue Revenue · by FY27 · High confidence INR1,700-odd crores
    Narendra, there is a public number that we have spoken of over FY '27 internally, what we want to actually achieve. So, we have guided for around INR1,700-odd crores by FY '27.

    — Anand Krishnan

Volume

  • Tonnage for Q4 FY25 Volume · Q4 FY25 · High confidence around 42,000 odd tons
    So, are we confident of that achieving that top line or in tonnage, comes around about 42,000 odd tons? Yes.

    — Anand Krishnan

Capacity

  • Pastry line capacity Capacity · by end of February 2025 · High confidence doubling
    Our new pastry line is doing very well. We will start the commercial production of two more lines in this vertical, which will result in doubling of capacity by the end of this month.

    — Anand Krishnan

Other

  • Traction in Tetra Recart Other · FY26 · Medium confidence garner traction
    Tetra Recart product development, along with product testing with brands as per the requirement is going on, which should help us garner traction in Tetra Recart in FY '26.

    — Anand Krishnan

Profitability

  • EBITDA Margin Profitability · ongoing · High confidence improvement
    You can see that the EBITDA improvement is always if you see last few quarters, there's EBITDA improvement. So we are targeting that and we are quite positive that, that is going to improve. And that shows that our focus on margin improvement is on.

    — Milan Dalal

What to watch in Q4 FY25

Domestic Demand Recovery

next quarter
Current Slow in Q3, picking up late December/early Q4
Target Continued strong domestic demand

Why it matters

Domestic demand is a key driver for overall revenue growth and was a concern in Q3.

However, the domestic call offs continued to be slow in Q3. The silver lining is that the rapid calls offs we started witnessing in the last week of December, which continued into the first month of Q4 as well.

Risks & concerns

  • Forex MTM losses

    medium

    INR4.2 crores of forex MTM losses impacted EBITDA margins and other expenses in Q3 FY25, though noted as notional.

    Management acknowledged

  • Slow domestic call-offs

    medium

    Domestic call-offs were slow in Q3 FY25, impacting performance, but showed signs of picking up in late December and early Q4.

    Management acknowledged

  • Increased finance cost

    medium

    Finance costs have risen due to new Greenfield and non-PLI capex becoming operational, with INR2.5 crores of extra capex-related interest cost hitting the P&L.

    Management acknowledged

Q&A highlights

6 direct
Inventory level as of December end and its composition Partial
Around INR600 crores. Correct. That's right. That's also because we have built up inventories in the tomato business, right. As in our newer capacity in tomato is fully running at capacity since December. So, we have added to that and some bit of guava has also been added.

Provides insight into the company's working capital position and inventory build-up related to new capacities.

Asked by Koustubh Shaha

Explanation of MTM (Mark-to-Market) forex losses Direct
Koustubh, it's MTM loss. So basically, whatever was the closing rate as of December based on that, you have to account it as per accounting standard... Correct. So basically, it's a notional loss that is there. So we had our forward positions, which were actually booked, which were against the confirmed orders that we actually have. And as of December, whatever was the rupee depreciation over and above the hedged rate is what the MTM loss is. But having said that, it's notional in nature.

Clarifies the nature of the INR4.2 crores MTM loss, indicating it's a notional accounting adjustment rather than a realized cash loss.

Asked by Koustubh Shaha

Factors affecting realization per ton Partial
It is basically a lot of things -- sorry, Moloy here. A few things structured for any sales. This is basically what is the terms of the sales. Sometimes we sell ex-factory, some contracts may be CIF basis, some contracts will be a duty delivered. So you need to go each and every sale to understand -- I mean, to give a proper answer. So it's a mix.

Explains why a simple per-ton realization calculation can be misleading due to varying sales terms (ex-factory, CIF, DDP), providing context for revenue figures.

Asked by Koustubh Shaha

Confidence in domestic off-take and Q4 growth prospects Direct
Yes, we have a good visibility so far. In fact, I'll suggest that if you can read today's newspaper Times of India, where it is in the first page it is mentioned that April hit came in February itself. Though this may not be a good scenario for the crop, specifically vegetables, but for the juice industry or beverage industry. This is a good scenario because if there's an early summer, then the consumption in India on the beverage industry for both juice as well as carbonated drink is generally increased.

Highlights management's bullish outlook on domestic demand for Q4 FY25, driven by early summer and increased beverage consumption.

Asked by Bhargav

Strategy and growth for Kusum Spices business Direct
Shubham, the scale of the business was around INR16 crores, INR17 crores of turnover when we acquired this business. So the room for us to grow even to INR100 crores is quite easy even without too much of geographical expansion, to be very honest. I completely agree with you that it is region-specific in India. But in the export markets, it's not so. So, we are also present in the export markets, and we also hope to scale there.

Addresses concerns about the sub-scale nature of the acquisition and outlines a clear strategy for growth in both domestic and export markets, targeting INR100 crores.

Asked by Shubham Biswal

Status of PLI benefits and claim for FY24 Direct
Yes, PLI benefits. So with respect to FY '24 is what we have actually filed a claim for as of December of 2024. And as we speak today, also, there was a query which was actually asked by the ministry, and we are responding to that. So the last year, the experience was that by end of March is when we actually received -- the claim for FY '23. Hopefully, we are on track to receive this year's claim as well as in for FY '24.

Provides an update on the progress of receiving PLI benefits, a significant government incentive for the food processing sector.

Asked by Arnav Sakhuja

Usage of preferential allotment funds and reasons for increased finance cost Direct
So the first question was with respect to the preferential allotment usage of money. So it was all for the working capital that we have actually used and the capex that we have actually done. So I mean, we have expanded capacities under the PLI... With respect to the increasing finance cost, two things need to be kept in mind. One, the Greenfield capacity that we actually I mean, had to complete by 31st of March 2024 as per the PLI has already commenced. And also the other non-PLI capex that we actually did has also come in. So the interest cost, which used to actually hit the balance sheet earlier because of non-commencement has now started hitting the P&L.

Clarifies the deployment of preferential allotment funds for working capital and capex, and explains the increase in finance costs due to new capacities becoming operational.

Asked by Amit Gori

Company's plan for debt reduction Direct
Our plan is to increase the business and to increase our margin. That's our broad-based plan. So the debt -- I mean, this is a working capital-intensive business. So, that needs to be kept into context. Once we grow scale, maybe our cash flow from operations might help us to reduce the debt. But having said that, our first intention is to actually grow scale.

Outlines the company's strategy to manage its debt through business growth and margin improvement, acknowledging the working capital-intensive nature of the business.

Asked by Amit Gori

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance and Domestic Demand

Foods & Inns experienced slow domestic call-offs in Q3 FY25, although a silver lining emerged with rapid call-offs starting in late December and continuing into Q4. Export shipment backlogs from Q1 and Q2 were cleared, contributing to tonnage growth. The company reported INR4.2 crores in forex MTM losses, which impacted EBITDA margins and other expenses for the quarter, though these were noted as notional.

Capacity Expansion and Utilization

The company has significantly expanded its tomato processing capacity, which has been running at full utilization since December. This expansion is expected to more than double revenue from the tomato sector compared to last year. Additionally, the new pastry line is performing well, with plans to double its capacity by the end of February 2025, and the spray drying expanded capacity has also reached full utilization since December.

New Product Development and Market Traction

Foods & Inns is actively pursuing new product development, particularly in Tetra Recart packaging. Product testing with brands is ongoing, with the aim of garnering traction in FY26 for products offering a shelf life of up to two years without preservatives. The company is also leveraging its own brands and a master chef collaboration to launch new products in the retail market.

Kusum Spices Business Strategy and Growth

The Kusum Spices business, acquired with a turnover of INR16-17 crores, is targeted to grow to INR100 crores. The strategy involves dual expansion: geographical expansion in the domestic retail market, starting with Mumbai and extending to Goa and Hyderabad, and penetration into export markets with pesticide-residue-free products, which requires contract farming and a longer development cycle.

Capital Structure and Finance Costs

The company's capital structure includes approximately INR360 crores in working capital debt and INR70 crores in long-term debt. Finance costs have increased, with INR2.5 crores of extra capex-related interest cost hitting the P&L from new Greenfield and non-PLI capex that became operational. Funds from a preferential allotment were utilized for both working capital and capex requirements.

Long-Term Outlook and Margin Focus

Foods & Inns has an internal target to achieve INR1,700-odd crores in revenue by FY27, supported by ongoing capacity expansions. Management emphasized a cost-plus business model and a continuous focus on improving EBITDA margins, noting that recent quarters have shown improvement. The company aims to reduce debt by scaling the business and enhancing profitability.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Fast Moving Consumer Goods earnings calls