Bikaji Foods International Limited analyst Q&A

Thank you very much. We'll now begin the question -and-answer session. The first question is from the line of Abneesh Roy, from Nuvama Institutional Equities. Please go ahead.

Yes, congrats on a good set of numbers. My first question is on 9-months, given quarterly numbers will be volatile based on the festivals. So if I see your 9-month region -wise performance, Eastern India is much slower than the rest of the three regions, growing at 9% versus the rest of the region growing at 15% to 39%. Even in Q3, Eastern region is the slowest. So my question is, is this because of El Nino impacting Eastern region more, or is it because of some market share loss in Eastern India? Could you elaborate if category-wise, Eastern India is facing any issue in t erms of Western snacks, sweets, or ethnic snacks, from a 9-month perspective? Q3, please leave, because in festival, everything will do well. So that will mask any issue. So on nine months, if you could elaborate on category -wise in Eastern India, what is the issue? What is the situation?

Yes, Abneesh, thanks. Thanks for the question. So first of all, I would once again want to clarify on South and West markets. So they're heavily, the role of gifting and sweets is very high on that stuff. And it has worked extremely well. Talking about East, not too specific to your question. So two impacts. One is if you look at, there was some, Bihar, we felt a little bit of a slowdown there. And that's what is resulting. And I think you will see in the coming up quarter, those corrections coming up in place. So that's the reason why that has come down. Whereas if we look at the North-East parts of the country, we are well on track in terms of, across categories, growth are in line. But yes, Bihar is a very, very large market for us. So any change, any shift, brings these numbers down.

So one follow up on Bihar, your large size is the issue or because of the monsoon in Bihar being more this time, that is the issue? Or there is a competitive scenario change in Bihar?

No, I think you've already picked the answer to that question. Yes. If you look at this, there was early and delayed monsoons. If you look at, all the vectors or parameters, what it speaks about, the GDP slowdown, and also the monsoon. And in fact, which has brought down the rural consumption. So there was, what we see, based on our market visits, feedback, and the data, what we get. There is also some dullness in the categor ies, which seems to be now picking up. As we know, in the last two, t hree weeks is what we've started seeing the recovery, and things are falling back.

My second question is on family packs. You seem to have done well, in 9 months YoY, there is an increase. So I wanted to understand what is driving this, because this should be a better gross margin business versus your impulse packs? Second related question is in terms of e-commerce plus modern trade. A lot of other FMCG companies, obviously they are in different other FMCG segments. Their modern trade plus e-commerce, including quick commerce, is now 20% to 30% of their revenue. For you, what is the number and what was it say two years back?

So one is that, if you talk about our kind of a business, 20 % to 30% is most unlikely kind of a number, because this is more of a distributive product. No, it's actually business per se, if you talk about is about 60% to 70% is INR 5 and INR 10 pack, and which is not on e-com. So e-com normally sees the large or multiple pack. So that's one. And I'm talking about our contribution. So it's about 8% business, which comes from modern trade and e -com put together. And if we look at on a YTD basis, just the e-com business is about 2%.

And what's driving family packs being higher YoY? Is that conscious strategy or because it will be better gross margin, right?

No. So when we speak about family pack, so what happens is, wh ile we know these numbers are there. But if you look at, two of our categories are only in family pack, and which contributes to about 20% of our overall business. So this is papad, wherein, it's all family pack. And also the second category is sweets. And knowing others, if we talk about, which is about, frozen or gifting and all that stuff. So they only have family pack. As I said, gifting sweets did very well. Papad is at 8.8% growth. So this has helped these numbers grow. But going forward, eventually you will see this number will be around 55%, 56% only, because our distribution would be riding on the small pack only.

And that could dilute margins?

See, we covered it. So it's a mix match of that stuff. So now if something dilutes, so something gives back to us as well.

Okay. Understood. Thanks a lot. That's all from my side.

Thank you. Next question is from the line of Gaurav Jogani from Axis Capital. Please go ahead.

Thank you for the opportunity, sir. So my first question is with regards to the margin guidance that you have given 13%. I'm assuming that is X of PLI, the 13% margin guidance?

Of course, yes, because till now also we are at 13.3% YTD EBITDA. So it cannot be including PLI. So PLI, income has not been recorded yet. It will be recorded in fourth quarter.

Yes. So I mean, the full year guidance is 13 %. So that is 13 % and the PLI would be over and above that?

Yes.

And how about the guidance for the next FY25 per se, given that now most of the benefits from the RM is in base, and we have also taken some (inaudible) that were given to the clients. So what possible margins can we expect in FY25? At least…

From next year's perspective, FY25, our major focus will be on volume push. Our target is to be at least a volume of close to 16 % to 18% volume. So that's what we are targeting from volume growth perspective. From EBITDA perspective, of course, we want to grow EBITDA because as and when we utilize our capacity, it will bring a lot of efficiency across each line cost level. So, of course, we want to grow gross margin EBITDA every year, year-on-year.

So any guidance that you would like to share in terms of the gross EBITDA margins for next year?

So basically, from EBITDA level, of course, we want to be at least 0.5% above compared to last year, FY25. That's what we are targeting.

EBITDA margins?

Yes.

Okay. And so the next question is with regards to the growth, both in the Papad and Western snacks. So Western snacks, while we're increasing the capacity, I think the growth there is only 10% odd number. So any specific reason for that one? And also in the core market, the growth, has been only 12% odd. So, anything on that front, how are you looking at longer term? Though there will be short term, you know, effect because of the Diwali festival coming in, but on a longer term growth numbers on this?

Yes. So I'll take this question one. I think there are two set of questions. So I'll start with the latter one first. So core markets, if you look at notes, so what we spoke about, that Bihar is one of our core market, and hugely rural dominance. And now if we see, how the country or how the geography is performed. So within now the across country, if you look at, so there has been a slowdown in rural, and which has been witnessed, which has resulted our Bihar market the category slow down. And that's the one of the reason that no, why is that our performance is little subdued in core markets. That's one. Second is also, let me tell you, papad is very strong, in this Bihar market. And papad got also slightly impacted, because we, one of our USP is the handmade papad. And because of, prolonged monsoons, production of papad was a major, major issue, because you don't get time to dry it up and all that stuff. And so therefore, we could not meet the demand, what it was in the market. And that has resulted, even more badly, the Bihar market. Going forward, what we see is we see complete recovery of Bihar market, because a lot of work, which has gone behind, and is a very important market for us. We shall bounce back there. Now to your first question on the Western snacks. So Western snacks, if you look at, so quarter three, no more of festivity, more of focus on, on rest of the stuff. Western snacks, you know, get slightly defocused, but within Western snacks, if we slice it into 2 parts, one is the chips. Second is the other extruded part. So we've done pretty well on the chips part. It is on the extruded part, wherein the performance has not been as good. And the reason for this has been that we are in the process of some rebranding, some rejuvenating the product. So that's what has taken this hit. This quarter four, again you will see these numbers turning around on this.

And so my last question is with regards to the frozen plant that has very recently come up. So what kind of benefits can we see with this plant coming up, both in terms of revenue growth and margins?

See, it's just got commissioned in the last quarter and last month of last quarter. What is now undergoing is the lots of trials which are going, we have hired some best of the chefs, these culinary guys are there. So we are doing some lot of innovative stuff, which is more focused for the export market and eventually would come to a domestic market. But this process to settle down would take at least a couple of quarters. For now, what we'll do is that we have been into frozen business exports and which we will start producing it. In terms of revenue, what we see is that in another two -three years time, this would be generating about INR 200 crores kind of a top line. And in terms of margin, so margin would be in line with what we are getting. So this will not be a value of margin eroding kind of a category. In terms of high margins, certain products, going forward, I mean, too early to comment now, but yes, we'll also look at, focus on some premium product, which would help us add value in terms of our EBITDA margins.

So just one last bit on the margin bit we understand that there has been some inflationary impact on the gross margin bit over this quarter. So how do you see the margins ahead? Have you taken rollbacks, the gramage hike that we are giving, or have we taken any price cuts to adjust for this? How are we tackling the RM inflation in the chana and the other RMs?

So basically you see, so basically across all key raw materials, so largely new crop had come in, in December and Jan. So largely new crop has came in, normally price is normally done in key crop time. So we are not taking any price increase, or any consumer pack reduce. So that's what we need to continue at least for next two, three months. That's what we are targeting on. And gross margin percentage, of course, our target for the full year of support, 32%. And we are on track on this. So we normally take, we normally focus on that. If it's, we don't have 32%, of course, we'll, we'll again take back our consumer pack, consumer promo offer, which we've given close to four, five months back. That's what, but we are on track on this, and we are taking tight control on a gross margin in EBITDA.

Okay, so thank you for answering my question. And that's all for me.

Thank you.

Thank you. Next question is from the line of Percy Panthaki, from India Infoline. Please go ahead.

Hi, sir. Just one more question on your gross margin. Sequentially, it has gone down close to about 150 basis points. If I look at the information you have given on each commodity, and what is the impact to the revenue on a sequential basis, like some of them are 0.37 negative and 0.19 positive and so on. So if I add that up, that is coming only to approximately 40 bps negative, which is much lesser than the drop in your gross margin. So what explains the remaining drop in the gross margin?

So basically, these are two, four, five commodit ies, but there are, then sharp increase in spices, which is impacted as overall. So RM and PM, overall impact was close to 0.9%. And that is 0.3, 0.4% was due to product mix due to some schemes, which were given in third quarter. So overall, the overall impact was close to 1.4%, but 0.9% was key due to RM and PM cost.

Understood. Understood. And regarding your PLI benefit, once it starts, once you start recognizing it, approximately on a quarterly run rate or a yearly run rate basis, what is it going to be as a percentage of your revenue on an ongoing basis?

So basically, it's not on percentage of revenue, it's fixed revenue, which we'll get from government. So it's a INR 261 crores of subsidy, which we'll get till FY27. And till FY24, this year, we'll book close to INR 95 crores of PLI income.

FY25 next year?

So FY25 next year, it will be close to INR 47 crores -INR48 crores rupees.

Okay. So that will translate to about 2% of sales, right?

That's right.

So basically, if you are saying that 13% is what you are clocking without any PLI benefit, and you don't see any drop in this 13% number next year, then with the PLI, your margin should be around that 15% mark. Is that understanding correct?

So see, that's the target. That's the target we are taking on. But Yes, of course, all the key players, be it Haldiram, be it all key players, will get PLI income. So of course, something we need to pass on, but our target is to be at least at this level. Because from next year onward, once all the companies will be sure that they will get PLI, of course, this will be part of overall income. And this will be part of strategy to how they can im prove more on business, more on volume growth. That's where all companies will focus on.

Right. Coming to your focus states, can you give some data here in terms of in the focus states, what is the number of distributors and the number of outlets you reach today? And how does it compare versus a year or something some point of time ago?

So basically, the focus market has done extremely well. So we have put a lot of our sales team into focus state. We have started CFAs at the focus market, new distributor appointments. A lot of work is going on. It's in the development phase. So of course, currently we are at a very low market share level. We are at number 4, number 5 there, maybe in the snacks category. We want to be at number 2 there, at least in all focus markets in the next three-four years, that's a target we are taking on. But it's too early to tell on, because we are very small in all the key focus markets.

Right. No. I was just asking about if you can give some idea. How do we as analysts track your input metrics into these states? So the input metrics that I can think of is the number of distributors and the number of outlets. So if you can help us understand how they have improved over the next one year, that gives u s more confidence in understanding that if the inputs are in place, then the outputs will also start coming through.

Yes. So let me take this question. So one is, more than distributor, what is critical is to see the touch point on that, that where are we reaching directly on that stuff? Now, CFA s what we have done, distributors, super stockists, sub distributors are the means to reach to these outlets , right? Now, talking about our distribution in these states, if we look at, so we are covering over 80,000 outlets now in these focus states, which if we look back when we started our journey, we were even less than 35,000 kind of stuff. So we have over doubled our reach of outlets in these focus markets. And you will see that going forward, most of the growth outlet increase would come from the focus markets. So that's the input metric , and which is what is resulting in the delivery, the numbers what we spoke about is the because through put in focus market would be the last mile. Because once we are established brand, that's when the game will be around throughput. Today, it's about reaching more stores and getting that output.

So sir, this 80,000 is the direct coverage, right?

Yes, correct.

It's the direct, right? Not the total would be higher than that.

Of course.

Right. And any kind of targets you can share, let's say a couple of years down the line, this 80,000 will become what number?

So, see, this year we'll close our direct reach to 2.5 lakh outlets, right? At the overall level, if I speak about in two years from now, which is FY25 and by end of FY26. So March FY26, our direct reach would be around 4 lakh outlets. That's the number what we are looking at, right? And there if you look at this number, the 80,000 what I'm talking, is in this 4 lakh outlets, it will be about 1.6 lakh outlets. 1.5 lakh plus would be from focus states only.

Okay. Very helpful. Thanks and all the best. That's all from me.

Thank you. Next question is from Vikrant Kashyap from BOB Capital Markets. Please go ahead.

Hi, good afternoon. Just a follow up question on Western Snacks. So you have guided for 11% revenue contribution from FY25, but if you see last two quarters, the growth has been sub 8%, 9%. And if you look at the run rate historically also, how would we consider that you will reach 11% by FY25? 9 months is again 8%.

See, one of course, if you look at the Western Snacks, the very small contribution to our business and now the focus or the key contributors has been the ethnic snacks. And then in last two quarters, if we particularly speak about is gifting and sweets. So yes, now Western Snacks took a slight backseat, but within Western, if we look at chips has done well, so which is at about 17%-18% volume growth, that's the number we are at. It is snacks, which has done well, primarily in on account of that we are into rebranding phase. So that's where, some stock issues, some liquidation of old pack and all. So I think that's purely internal. What we have said, we will stay with it and you'l l see in the coming quarter, this, the Western Snack story will get corrected.

Okay. So you stand by your guidance numbers?

Yes, very right.

Okay. So you have, so previously mentioned that you are focusing on improving contribution from high margin products that will again drive your gross margins, also EBITDA margins. So which are these products? And can you also share category wise or margin profile?

So basically there are 5 -6 products that are having gross margins from our, from Bikaji and where we are focusing on. We started our journey when it was close to 10% -11% of overall business shares. Currently it's reached, it is close to 13.2% , 13.3% overall, 13.5%. So overall, that's a big reach and our target is to take this to 18%. Overall, compared to overall gross margin in India, gross margin level, they are at least close to 3% to 5% higher than average, average EBITDA, average gross margin of Namkeen's and Bhujia overall.

Okay. And one question on your product launches. Also in last 9 months, could you please share what are your new product launches and how much they are contributing to revenue? And also you can, if you can share competitive numbers, say two, three, what was that number?

So I think there have been many launches, tweaking with the products and all. I think one which we can talk about, and we are glad to talk, is about Paneer Bhujia. So this is a variant of this, and this has done extremely well across market. In fact, we ran out of the production capacity. I think in last couple of months is what we have tried to build this capacity, and we are now producing it beyond Bikaner market as well. So Guwahati is one other place where we have started its production . In Patna, it will come up. That's one of the successful NPD which has come up now in recent times.

Okay. One question on market share data. So during your filings, you had shares of market share numbers category wise, can you share what have been the improvements over there since listing, in each of the category and or in key categories?

So, see we are yet to get this data from Nielsen, right? And now we have shared our internal numbers, the growth, what we have, delivered. I think what we read and what we are, which is that the public domain is that this ethnic snacks category is growing at about 10% kind of a growth. And we are ahead of that stuff. So which clearly speaks about that there is certainly a share gain. However, you know, very soon or maybe in some time we'll be able as we get this data from Nielsen, we'll be able to share these exact numbers, to you in that case.

Okay. So just last question on exports. So, small base, we have seen growth this quarter and the 9 months also. And we have also increased our ad expense on exports market. So what are the, what kind of growth you are seeing in exports and what are the pr oducts that is driving that growth? And also if you can talk about geographies as well?

So, I think I'll answer one by one. So, one is the products if you speak about, so frozen is the largest contribution, amongst the exports product portfolio, right? And, till now, preparing it from outside, since we were not producing this stuff, now that with our capability and in couple of quarters, now this will be up and running in full -fledged stuff. So I think frozen category would witness the highest growth, right? That's one. Second is, is in terms of, geographies you're talking about, so U.S. now within highest Indian diaspora now would be our focus market. Besides U.S., it will be the other markets, such as the Middle East, which does well for us. But no, it is not just few markets, we export to over 25 countries around the globe and we are seeing no positive response across. Internally to build our capabilities, we have strengthened our export team. In terms of growth expectation, we expect about 25% growth, in next few years in these exports market.

Okay, so just continuing on the exports, what is our distribution model there? And what are the retail stores, if you can highlight key names where we have that partnership with them? And second question on export, what is the margin profile? Is it simila r to consolidated one or it is higher?

Okay, so Vikrant, now how it works is, I'll tell you, it's a mix of both. So it is, a trading model also, wherein, we have one distributor for the country and that's how exports market work and behave. And this is true for most of the companies, barring fe w. So we have this one that, for entire country, we have one, which is a quasi CFA kind of a stuff for the country. He will, in turn, have his distribution network and do that stuff. I'm sure you're aware of that know in the national market, there's no MRP regime like India, wherein there is a fixed price. So each store would be selling at a different price. Distributor could be selling at a different price. So it's a cost plus, plus m odel abroad, right? So this is how it works. But yes, now we talk about, say Dubai UAE, that's where, we are trying to get into distribution model, wherein, we will be catering, servicing these outlets kind of a stuff. So this would be a different structure. While in rest of the places, the salesmen are on the distributor's payroll. We add, to the distributor and then all cost is theirs. That's how it works. In terms of margin. So as I said, it's a cost plus, plus model. So we give them X factory and we built in a margin, which is in line with our overall company's EBITDA margin kind of thing. That's how it works.

Thank you. Thank you, sir, for answering my question. Wish you best of luck.

Thank you.

Thank you. Next question is from the line of Rupali, an individual investor. Please go ahead.

Yes. First of all, congratulations for your good set of numbers. I would like to understand which kind of products are gaining momentum in the US and UAE market? What you have stepped in?

Yes. So as I said, Frozen is the one. If you look at TG, the customer is the Indian diaspora, right? That's one. For us, if we talk about, it is more of, it's more of the frozen part, right? Wherein, these are, let's say, samosas, kulchas, the variety of that stuff. Also, I would want to bring to your notice that it is not that the market is not big. There are lots of exporters from India which are doing it, but maybe not as organized. I think the opportunity, what we see for ourselves to emerge as a large and a major player there. But we can get back on, maybe on a one -on-one call, more detailed discussion around what is that we do in this stuff. But this is frozen for us. Opportunity -wise, yes, there's Indian ethnic snacks, which is also doing well. And for now, we are very, very small. So I don't think that now our role is to grow the category. Our role is just to eat into, the share where the unorganized or the small players are there in these markets.

So you'll be competing with Indian players only in the different region, is it?

Yes, yes, exactly.

Okay, understood. Thank you.

Thank you very much. Next question is from the line of Priyank Chheda from Vallum Capital Advisors. Please go ahead.

Yes. Hi, sir. I just wanted to cross-check. Have you booked any PLI income in this quarter? And the numbers that you alluded to the receivers that you will be witnessing in FY'24, '25, '26, if you can repeat that number again in terms of PLI?

No, no. So we have not booked PLI income as of now. So we'll book PLI income in last quarter of this year once we complete all the capex commitments.

And the expected amount is around INR30 crores, correct, if I'm wrong?

For FY, so we'll book three years of PLI income, FY22, '23, and '24. So the amount will be close to INR95 - INR96 crores close to this.

Okay. This will be a cumulative income for the three years?

Yes, it will be part of other operating income. For three.

Other operating income. And then for the subsequent year, it will be around INR45 crores per annum, right?

Yes.

Okay. Okay. So my next question is on the ethnic snacks as a category. Now, despite the increase in the distribution reach in the core market and the focused market, and given the Q3 was a festive season, what explains the ethnic snacks as a revenue in ter ms of absolute sales has remained flat?

Can you please elaborate or clarify the question again?

So my question is on the ethnic snacks, quarter on quarter, we have seen sequentially the revenue sales has remained flat, right? So given the festive quarter, this sales should have grown at a much faster pace, right?

No, so if you look at it in terms of growth, so YoY growth, if we look at, you know, on ethnic snacks is 15.36%. So I don't know where this flat number, I mean, perhaps

I'm referring to a sequential quarter because YoY, the comparison becomes distorted because of the festive season moving in the previous quarter? So I'm just keeping a benchmark on the sequential basis?

Understood. Apologies, you know, for this thing. So let me tell you, you know, there's always, you know, if you see quarter two is high in terms of consumption, so there's a seasonality impact, right? And which is what it is. So therefore it's always good to have a like to like, you know, look on this stuff.

Got it. And, one more data keeping question, advertisements expenses was 3% in this quarter, correct?

Yes.

2% to 3%.

See, this is the heaviest of all, so quarter two, quarter three is where most of us spend, goes in. So yes, this quarter, it was, it was high.

And what would be the same number for the YTD?

So overall YTD, our target is to be at around close to 2%.

2% and this would be the similar, similar cost for full year, right?

Right.

Got it. All right. Thank you.

Thank you very much. As there are no further questions, I will now hand the conference over to the management for closing comments.

Thank you once again to all the investors and the organizers for this call. Hope we were able to answer any of the queries which came up, but we'll be glad to connect, you know, one -on-one and just in case if there are any of the leftovers. Thanks once again for all your support and cooperation.

Thank you very much. On behalf of S-Ancial Technologies Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.