AWL — earnings call

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Prepared remarks

“Adani Wilmar Limited

Moderator · Conference Operator

MR. KARAN BHUWANIA – ICICI SECURITIES LIMITED

For

ai healthy growing natijon Adani Wilmar Limited August 02, 2023

Moderator · Conference Operator

Ladies and gentlemen, good day, and welcome to Adani Wilmar Limited Earnings Conference Call for Q1 FY '24 hosted by ICICI Securities Limited.

As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone.

Please note that this conference is being recorded.

I now hand the conference over to Mr. Karan Bhuwania from ICICI Securities.

Thank you, and over to you, sir.

Karan Bhuwania

Hi, good afternoon, everyone.

It's our pleasure at I-Sec to host Q1 FY '24 results conference call of Adani Wilmar.

The management is today represented by Mr. Angshu Mallick, who's the Chief Executive Officer and Managing Director; Mr. Shrikant Kanhere, Chief Financial Officer; and Mr. Saumin Sheth, Chief Operating Officer.

I'll now hand the call to -- hand the call over to the management for their opening remarks, post that which we can open for Q&A session.

Over to you, sir.

Thank you.

wilmar · For a healthy growing nation

For a healthy growing nation Adani Wilmar Limited August 02, 2023 working on is now close to at 22,000+ towns, which we have covered till now.

Last quarter, this number was close to 13,000+ towns.

So in this particular quarter, we have added 6,000 to 7,000 towns.

Rural saliency now is a little more than what we used to see earlier.

From 30%, it's now going up to 31%.

So, if you look at from FY '20 to quarter 1 '24, it's 2x kind of a jump in terms of direct reach outlet, and we are closely working on ensuring that how can we take this direct reach from presently a little more than 600,000 outlets to 1 million outlets.

Rural coverage town, if you compare from FY '20 to Q1 '24, it's more than 6x improvement.

On market share, we maintained our leadership in edible oil with 19.5% market share with the follower sitting quite below us at 13.8% and the rest of the competitors are actually within the range of 5% to 6% of market share.

Wheat flour, we remain the #2 player in the country with a market share now of 5%, from 4.9% to 5%, which is again up 10 basis points in a year's time.

Rice, our market share went down for the Fortune brand from 7.9% to 5.9%.

This is something which is a cause of concern for us, and we are working very closely to see that in which markets is this impact which have come to us.

I think as we go forward, we will have a definitive plan to ensure that we go back to the level of the market share which we used to have a year back.

There are some new products which we launched in this quarter.

We are the first company – the first national company, rather, I would say, to launch a whole wheat (grain) under the Fortune brand.

We launched 4 varieties of wheat -- whole wheat under the Fortune brand.

And the numbers are quite encouraging for us.

The response which we have got so far from the consumers is quite good, and we hope that we will grow this basket to a respectable level by the time we speak to you next year.

As we said earlier, the HoReCa focus continues, and we have launched a product called Ozel, which is a cleaning agent, which can be used by the restaurants and hotels for cleaning their linens and cleaning their floor and utensils.

I think this product has also been received very well by the consumers.

Our D2C focus remains.

Fortune Mart is now present -- we have presence in 26 cities with 33 outlets, more than INR2,300 of average order value, which is quite encouraging.

Sales is also growing steadily from Q1 '22 to Q1 '24, 10x kind of growth, which we have been able to register in Fortune Mart.

Similarly, when we talk about the Fortune Online, which is an online D2C initiative, we are there right now in 25 cities with 64,000-plus downloads, 38,600-plus orders in FY '23 and average order value of more than INR1,000.

And this also, within a year's time, we have been able to showcase a growth of 15x.

Supply chain updates.

Now we are present -- continue to be present at 90 depots with more than 2 million square feet of depot storage under our company.

Now we are basically moving slowly to the multimodal kind of a dispatch situation where more than 18% of our dispatches are through a multimodal logistic in terms of railway, which is also something which we are driving as an ESG initiative.

Direct dispatches are quite encouraging, 57% of our dispatches are now directly to the consumer (distributors) instead of going into the depot.

And we have been driving

For a healthy growing nation Adani Wilmar Limited August 02, 2023 that how can we increase the CNG portfolio in terms of our dispatches.

So we have now close to 5% of our dispatches which are through a green fuel, that is CNG.

We have launched a new Kohinoor campaign.

For the benefit of all those who have joined the call, we have uploaded the TVC, it can be played by you all offline.

We'll skip this for the moment.

On the marketing activities, our Soyabean Campaign and all the other campaigns continued in Q1, including Sunflower Oil Campaign.

We continue our digital marketing for Fortune Atta as well as for the Mustard Oil Campaign.

We have had targeted activities for Rice Bran Oil and various activities across India depending upon the regional preferences.

On the ESG, we continue to focus on our ESG initiatives.

We have now more than 9 plants -- all major 9 plants have got a zero liquid discharge.

On green energy, successfully, we have implemented solar power in our 8 plants out of 23 plants.

And our palm oil traceability continues to be more than 90%, which is traceable till mills, for the quarter.

And as far as the recyclable packaging is concerned, we continue to have more than 98% of our packing material as recyclable.

Update on our IPO Projects are running on time.

Whatever we had envisaged in our prospectus, which was filed at the time of IPO, we are running all the projects as per the schedule.

All projects should get delivered by end of FY '24 or FY '25, and that's where these projects will start contributing to the top line and bottom line of the company.

Coming to the result highlights, the edible oil, food FMCG and industry essential, our pie of food is steadily increasing in terms of volume.

In fact, it has now reached to the level of 18% in terms of value, it is 16% of overall revenue, whereas 60% has been -- 59% is being contributed by edible oil.

As far as the numbers are concerned, which is what everybody is interested to understand, our revenue went down by 12%.

It is basically a function of edible oil -- steep decline in the edible oil prices.

And in our business, as we said earlier also, our revenues are impacted due to inflationary pressure.

So that's the reason why the revenues went down in spite of the fact that we have been able to showcase a very encouraging volume growth of 25% and for any food FMCG, growth of 25% on volume is quite significant, and we are very happy to say that all our segments, whether it is the food, whether it's oil, or whether it's the industry essential, have been able to showcase a good growth in this quarter.

The gross profit has gone down by 21%.

So in absolute terms, the gross margin has gone down by close to INR300 crores.

This basically happened due to basically high-priced inventory, which was there in our hand due to the falling edible oil prices.

And besides that, the major reason was the disalignment of hedges with the physical market in India.

So all our hedges, which we have done on the exchanges didn't move in tandem with the physical market in India.

So the vice-versa gain and loss, which ideally has to happen between the hedge and physical market, didn't happen in this quarter.

It's a onetime phenomenon, which we see

For a healthy growing nation Adani Wilmar Limited August 02, 2023 because market, we have never seen such kind of phenomena earlier.

We hope that as we go forward, this should not be the case in quarter 2 and quarter 3.

Similarly, when you look at an EBITDA, PBT and PAT, they have been in tandem with what we have been able -- not able to showcase in the gross margin.

So we have a – gross margin degrowth of INR 300 crores and similar fall we can see in EBITDA, PBT and PAT.

So whatever has been lost at a gross margin level has been flowed down to the PBT and PAT.

On standalone, numbers looks little better.

We have less loss as compared to the consolidated because unfortunately, in this quarter, besides AWL, our subsidiaries and joint ventures also posted loss more or less because of the similar reasons which we faced in the quarter 1.

On segments, as I said, the entire loss and not-so-good performance is on account of edible oil.

Food kept growing.

I think when you look at the segment results of the food, it is steadily growing, steadily improving the volumes and also steadily improving its profit.

So food profits went up from INR 10 crores in Q1 FY '23 to INR 38 crores, which is quite encouraging.

And as we go forward, I think this should keep improving.

As far as edible oil is concerned, as I said earlier also, it's more to do with the disalignment of hedges and the high-priced inventory, which was in our hand, which should be seen as a onetime event for us.

And as we go forward, we should be able to post better numbers from here.

This slide, I think I have already explained, inventory loss and disalignment in the hedges.

Besides that, there was a slight disadvantageous position that continued for us in the case of TRQ, which now is no more.

I think TRQ quota was discontinued after the June '23.

On the outlook, I think we are quite bullish on the trends which we have been able to showcase in the quarter 1.

And therefore, given that the edible oil prices have already cooled off in a level -- below $1,000 a ton, and the festive season is on our head, I think from here, demand should be very good.

Industry is also showing the similar trend.

Edible oil has gone up by 5% in terms of industry.

Similarly, wheat flour industry has grown by 12%.

Basmati rice has grown by 9%.

So these all are indications that what we can expect in quarter 2 in terms of volume as well as revenue.

So this is all from my side, a very brief presentation, which I gave.

Now I request the moderator to open the floor for question and answer.

We would be happy to take on the questions.

For a healthy growing nation Adani Wilmar Limited August 02, 2023 we saw in quarter 1 is very, very unusual that the exchanges moved in a different tandem than the physical markets in India.

This ideally should not be the case as we move forward in quarter 2 and quarter 3.

Having said that, today, sitting at this point of time, you can't actually forecast anything because today, the world has become so dynamic that you never know what is going to happen tomorrow.

But this disalignment kind of things, I think, should get resolved as we go in quarter 2 and further in quarter 3.

Abneesh Roy

So a few follow-up questions there.

So of course, you are the largest player here with 19.5% market share.

A lot of regional players who have even wafer thin margin.

So if you are making a 1% EBITDA margin for the full quarter, what would be your sense of margins which local payers are making?

I understand for every player, the inventory levels will be different.

But you are the expert in terms of the inventory, commodity understanding, much higher sourcing advantage, etcetera.

So would regional players also would have actually made losses, given you have made 1% EBITDA margin?

wilmar · For a healthy growing nation

For a healthy growing nation Adani Wilmar Limited August 02, 2023 brand will continue to garner more and more strength.

And after the advertisement, I'm sure everything will be much better.

Third is that, Fortune has its own distribution and the distributors who are handling Fortune brand Basmati rice in the major towns and Kohinoor rice own distributors.

But below 1-lakh population towns, we have common distribution so that we can use the strengths of these distributors, and that is where we have combined the both Fortune and Kohinoor.

So we have used our strengths wherever it is required.

And wherever we don't want to bite into each other's market share, we have created separate distribution.

Put together, I think next 2, 3 years, you would find surely -- double-digit is surely a thing that -- we are confident that we will reach more than that.

But a strong double-digit is what we are looking at Kohinoor and Fortune put together.

Abneesh Roy

So one last follow-up there in terms of positioning in terms of regions and in terms of giving brand support to both Kohinoor and Adani in Basmati.

What will be your strategy medium, long term?

I'm not asking for near term.

Will you see how is the response to the new branding activity on Kohinoor market share?

Will that be something you will consider or you have already formalized what will be the strategy in terms of brand support to both?

Angshu Mallick

See, historically, Kohinoor has been very strong in South and West.

Say, for example, Gujarat, surely one of the largest selling Basmati rice brand.

So West and South, we will continue to push and garner more and more share.

Fortune is more strong in East and North.

So we will see how we can use each other's strengths and get the market.

Moderator · Conference Operator

Next question is from the line of Karan from ICICI Securities.

Karan Bhuwania

Yes.

So firstly, on competitive intensity.

So we saw the market leader HUL, I think there's some regional players, as you say, inflation has receded off, a lot of regional players are coming up, and they're growing faster than, say, nationals players, right?

So any trend as you've seen, has the competitive intensity from the regional players or smaller players has increased?

And we have gained a decent amount of market share for the last couple of years, right?

So do we see any risk to lose market share gains, given that some of these regional players or smaller players will come back?

wilmar · For a healthy growing nation

For a healthy growing nation Adani Wilmar Limited August 02, 2023 Third is in rice -- Basmati rice.

I don't see any other new local brand coming up because it's an all India business that you have to do.

And sitting in one part of the country, I don't think all India rice can be sold like that.

So 3 good brands in the nation.

I think that is what will continue.

Karan Bhuwania

Just to follow up on that, then you're saying that a lot of regional players are facing some issues because of the price situation could lead to some losses.

So are there any opportunities that you are seeing for acquiring any particular brand or any particular facility, if you see any opportunity?

If you can comment on that.

Moderator · Conference Operator

The next question is from the line of Latika Chopra from JPMorgan and Chase.

Latika Chopra

So the first question was, is it possible for you to quantify the impact on profitability due to these hedge losses?

And is it right to assume that these are basically stepping in your COGS line?

wilmar · For a healthy growing nation

For a healthy growing nation Adani Wilmar Limited August 02, 2023

Latika Chopra

All right.

The second question was on volume growth expectations for edible oil and food business for FY '24.

The first quarter, a 25% volume growth plus for edible oil.

It seems the base will also start coming up in coming quarters.

So is it right to assume that growth rates will normalize to low double-digit levels in the upcoming quarters?

Angshu Mallick

Yes.

Latika, you are right, the last year first quarter because of the very high prices, the volumes were low.

Going forward, I don't think this kind of strong double-digit will remain.

However, let me tell you, India imported almost 22% more oil during the period from November to June this year versus last year.

That's an indication that India has started consuming more because of the lower prices.

Now if this is true, then I'm sure that by end of the year, if not 25%, but at least in the range of around 12% to 15% should be an average India growth story as well as ours, I think so.

Latika Chopra

Sure.

And food I noticed last year, it was I think a 35% plus volume growth year for you.

And I saw you talking about some share losses in rice in the quarter.

And for this quarter, the volume growth was, I think, 20%, 21%.

So do you think this will accelerate in the coming quarters?

And also, if you can talk about any new capacities that are coming up to rest of FY '24 and even FY '25, which could help you to push up some skews on the food business?

And of course, any interesting thoughts on the rice portfolio?

What really led [inaudible 0:32:20] caused by localized, regional competition?

Is it very geography-specific?

Any color on all of this would be helpful.

Angshu Mallick

See, this quarter, we have grown at 21% over last year, same quarter, but the major loss was in the export of non-Basmati rice that we did last year, April, May, June, and it was very good because we had a lot of exports to China.

Now we couldn't do that because of the broken Basmati not allowed -- non-Basmati not allowed plus white rice also with 20% duty it reduced.

Now of course, it is banned.

This year, now onwards, till '25 -- FY '25, we have Gohana plant coming up, which will add 600 ton daily capacity that is paddy to rice.

So about 15,000 tons paddy per month, we will do.

Plus we have around 10,000 tons of rice to rice line we are putting up.

That will be ready by next year, not this October, but surely October, November '24, that is what we are targeting.

Apart from that, in Gohana, we are putting a 200-ton Chakki Atta mill along with 300 tons of flour mill.

So that 500 tons per day will also come up around early '25.

And we are also planning 1 or 2 more places.

So I think overall, the food, our own captive infra is increasing.

Plus as you know, we also take some units on tolling (lease) where we run the unit and that is what we are doing for continuing with the expansion plan.

So overall, overall, we are confident of continuing with the expansion.

Yes, little setback on the rice that we'll make up through our wheat flour.

Latika Chopra

So you think this 21% in Q1 should improve in the coming quarters?

Angshu Mallick

Yes, surely.

wilmar · For a healthy growing nation

For a healthy growing nation Adani Wilmar Limited August 02, 2023

Latika Chopra

Okay.

And the third thing I wanted to check one on -- I understand edible oil prices are fairly volatile, always difficult to call out.

But as you stand today, if you look at the realizations that you did for edible oils in Q1, do you think that's the bottom or you think it could further come down in Q2?

Moderator · Conference Operator

Next question is from the line of Vishal from Yes Securities.

Vishal

Yes.

Just 1 question from my side.

In edible oils, wanted your view on how consumers have responded to sharp correction in MRPs.

So are they buying in bigger quantities or are they limiting their purchase, hoping for further correction or stabilize the MRPs?

Angshu Mallick

Good question, Vishal.

This is -- we are seeing increased purchase of 5-liter and 15-liter.

Normally 5-liter is a barometer, where when consumers buy 5-liter means their comfort levels have come back.

We are seeing now that share is increasing.

In between last year, if you ask me,

wilmar · For a healthy growing nation

For a healthy growing nation Adani Wilmar Limited August 02, 2023 pouch share was more, but now the rigid-pack 5-liter and 15-liter is increasing, indicating that these prices are now at comfortable levels.

Vishal

Okay.

So -- because this quarter would have been a -- second quarter or it's been already 3, 4 months of stabilized prices at MRP level.

So would that have benefited this particular quarter in terms of higher volumes as you have mentioned that 5-liter packs have gone up sharply?

So would there be any benefit in this quarter from that front?

Angshu Mallick

I think consumers have seen the MRP coming off, prices coming off.

So that has increased that consumption.

Otherwise, 25% increase in branded pack edible oil for the largest player is an indication that consumers are consuming higher quantity.

That is one.

Two, reduced MRP is giving them the benefit.

And going forward, if this type of MRPs continue, then surely, this festival season, the consumption is going to be much better than last year.

Moderator · Conference Operator

Next question is from the line of Kuldeep Gangwar from ASK Investment Managers.

Kuldeep Gangwar

I don't know if you have already responded this thing in an earlier question asked.

Sir, like you mentioned, high cost inventory and the cost of hedging combined had a close to INR300 crores impact on the gross profit.

So is it fair to assume that if the prices remain stable where they are, edible oil, and these issues do not, say, play out in future, so 3%-plus operating margin or EBITDA margin for next 9 months, it's a reasonable expectation or on high side?

wilmar · For a healthy growing nation

For a healthy growing nation Adani Wilmar Limited August 02, 2023 22% of the growth.

But as we go forward and since the consumption is picking up and demand is picking up, ideally, it should be in the range of anywhere between high -- not high, but close to 30%.

Kuldeep Gangwar

30% revenue growth, you're saying, right?

Moderator · Conference Operator

Next follow-up question is from the line of Karan Bhuwania from ICICI Securities.

Karan Bhuwania

Just one follow-up question in terms of direct reach.

So we have seen a significant increase in our direct reach as compared to FY '20 and the rural coverage town has also increased.

So what are the benefits that we expect out of this increased direct reach?

Do we see a significant improvement in throughput per outlet?

And if you could quantify what would that be -- what that would be.

Angshu Mallick

See, one of the reason -- means one of the output of this increased reach and increased rural distribution has been the very high growth in the packed edible oils now.

This is not necessarily only because edible oil prices have come down, so the consumption has increased.

Our reach has surely increased today.

We have gone into direct reach of 600,000 outlets.

So earlier, it was in the range of around 5.5, 5.6.

So that 30,000, 40,000 outlets added in this quarter, more than 7,000, 8,000 towns -- rural towns added this quarter, then we added some more depots.

So all this put together has pushed our distribution much better.

Direct dispatches have increased 57% almost.

So that has helped us to reach the direct consumer and passing the freight benefit to make it much more competitive.

Like that, we have been trying to push the sales.

All this put together, that is the distribution efforts, have surely yielded results.

Karan Bhuwania

And a follow-up on that, would this direct reach actually benefit the Food & FMCG businesses because we'll be able to place new product launches and multiple product launches that we're doing in Food & FMCG food visibility?

Angshu Mallick

Yes, you are very right because when you are reaching directly, then we have an option to push all the products.

And 1 lakh and below -- all our distributors are common.

So it gives them a lot of strength when they go to the outlet to sell either sugar or dal or rice or besan or atta, whatever

wilmar · For a healthy growing nation

For a healthy growing nation Adani Wilmar Limited August 02, 2023 it is.

So he has multiple products.

A retailer generally wants at least 1 or 2 more products.

So surely, the reach helps in direct penetration.

And we have seen that in Kohinoor where from 35,000 outlets, we are now at around 50,000 outlets -- 55,000 outlets.

So that has helped us to increase our penetration and reach.

Karan Bhuwania

And what would be your plans to increase this direct reach to what levels?

From 600,000 outlets to -- what is the plan for next year or, say, next couple of years?

Angshu Mallick

Three years target is 1 million.

So we are -- year by year, we will increase the number of outlets.

So it will take at least 3 years minimum.

Moderator · Conference Operator

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

Thank you very much.

On behalf of ICICI Securities Limited, that concludes this conference.

Thank you for joining us.

You may now disconnect your lines.

Thank you.

wilmar · For a healthy growing nation

For a healthy growing nation

Questions and answers

Moderator · Conference Operator

The first question is from the line of Abneesh Roy from Nuvama Institutional Equities.

Abneesh Roy

My first question is on normal margins, when do you see your -- pre this very high inflation and then very high deflation, when do you see that kind of normal margins coming back?

Do you see that happening in H2?

Or still it will be somewhere in between, say, Q1 and the normal margins?