ADF Foods has acquired land for a new facility; it will be operational in the next 18 months: Shardul Doshi, CFO

Shardul Doshi, Chief Financial Officer, ADF Foods, talks about Q4FY21 performance, Q4FY21 numbers, the impact of lockdown, new facility at Surat, new product among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: How has the quarter been for the company? 

A: ADF Foods has always focused on profitable growth. In FY21, our top line stood at Rs 375 crore, which is 27% YoY growth, EBITDA has been of Rs 74 crore and PAT is Rs 50 crore, which is 18% growth. The margins are in line with what we expect and we are earning a margin of around 18-20%. The company is debt-free today and for growth, we have cash reserves of Rs 81 crore. When it comes to business, then we track our business in four segments and they are food business, which is our patient company and is engaged in manufacturing and exporting the Indian ethnic foods. In frozen foods, we operate in the chutney and pickles segment and we have four brands in it namely Ashoka, Truly Indian, Camel and Aeroplane. Last year, we saw growth in every product and brands.

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In this particular segment, we did a business worth Rs 235 crore last year, which was almost 22% growth over the previous year. Our second segment is 100% US subsidiary PJ’s and Nates, which sells Mexican food and meat substitute products. We make them in the US and sell them there. This business has also provided a top-line earning of Rs 56 crore last year. The third segment is agency distribution in which on the basis of our distribution strength, we sell complementary products of other principles.

In this business, we have seen tremendous growth and last we did a top line of Rs 31 crore, while in FY21, we did a top line of Rs 73 crore. The fourth segment is the Indian business and going forward, we want to focus on it and we have not got a lot of time to focus on it. In view of the demand for our products, we have taken a plant on rent in this quarter due to which we have added a capacity of 2,000 metric tonnes. The plant has been operational since March, which will help us in revenue growth next year. At the same time, we have also announced a CapEx and also announced our own warehouses to increase the distribution strength that will be developed in the US and the UK. S,o, we will have a focus on growth, profitability and we will continue to walk on these lines.

Q: Has lockdown has any impact on demand, especially on the ready-to-eat products. What trend have you seen in the first quarter of FY22? Also, tell us about the capacity utilisation and what is your overall outlook for business in FY22 and what is going to be the picture of margin?

A: We fall under the essential services, so, the lockdown does not have a huge impact on the production. Of course, it has an impact in terms of labour availability and raw material procurement. In the last one to two months, we have seen that container availability has been problematic. These are the issues and our team is doing good work on them, they are focused on growth. Even during the last year’s lockdown, we managed our production well and supply continued in the market. There is not much effect on the demand, in fact, our markets, the US and the UK are open and our restaurant business among others will also start there, which didn’t happen last year and individual demand will also continue. As far as price hike is concerned, generally in the food processing industry, we can pass on it. So, it does not have a long term impact. When there is a price hike then it has an impact on every company and mostly, we can pass on it.

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Q: Recently, the company has started Commercial production of Frozen Breads, Snacks and Ready Eat products at the new manufacturing facility at Surat. This facility was taken on lease, can you tell us why it was taken on lease, and are you planning any CapEx in Gujarat or any other place to increase capacity? 

A: Today, we are seeing that we are not able to meet the demand, this is why we have taken this factory on rent. With this, there is a 2,000 metric tonnes capacity addition. The factory has been commissioned in March itself and its benefits will be seen next year. We have also announced a new CapEx because the demand has been increasing and we will focus on ensuring good distribution in this market and meet the demand. So, under the new CapEx, we are acquiring land in Gujarat itself and set-up a plant in two phases. In the first phase, complete building, utility and first phase machinery will be installed at an investment of Rs 60 crore and the plant will be operational in the next 18-24 months. So, the facility has been taken on rent till this happens. At the new facility, in the first phase, around 10,000 metric tonnes capacity addition will be made.

Q: During the year, the company has launched many new products like frozen vegetables - red chilli, chopped methi leaves, coconut slices, Gobi 65, Hot & Sour etc. How has been the response towards these launches and what is the new product launch pipeline?

A: We are supposed to keep innovating new products and this is the need for the business. We have to introduce new products and bring those to the market. Generally, when a customer sees a new product on the racks, he picks it up. At the same time, it also encourages the demand for the good existing products. So, we will continue innovating new products and we will continue to launch new products in the market. In fact, next year, we are planning to introduce meat products to supply within this market.

Q: The promoters have continuously reduced their stake in the company from around 34.95% in June 2020 to 31.42% - a decline of 3.5%. What is the reason for this? 

A: Warrants have been issued to the existing promoters who have control and their stakes will be made next year. Overall promoters’ stake will go up from 31% to 36% and the money will come back to the company, which will be used for the further CapEx. Right now, we don’t need a debt but going forward, we will see if there is a need for the debt then we will go for it but it is not required at present.