ADF Foods Ltd
NSE:ADFFOODS
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ADF Foods Ltd
Earnings Call Analysis
Summary
Q3-2024
The company has recently commissioned freezer warehousing capabilities in its largest market, the U.S., to maintain stock and address distribution costs across different regions. They are projecting a strong Q4 with an expected INR 120 crores in the processed food segment, keeping them on track for the 17%-18% growth guidance. In India, their e-commerce strategy is leveraging both cost-effectiveness and direct feedback to scale the business. With month-on-month growth of about 15%, the company is targeting INR 100 crores in revenue from e-commerce in three years.
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Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference Call for ADF Foods Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Ravi Udeshi from EY. Thank you, and over to you, sir.
Thank you, Manu, and good evening, everyone. We welcome you to the Q3 and Nine Months FY '24 Earnings Conference Call of ADF Foods Limited. To take us through the results and to answer your questions, we have with us the top management from ADF Foods represented by Mr. Sumer Thakkar, General Manager, Sales and Strategy, who is part of the promoter family; and Mr. Shardul Doshi, the Chief Financial Officer. We will start the call with an overview of the business and current business update by Mr. Sumer Thakkar, and then Mr. Shardul Doshi will give his comments on the financials.
As usual, the standard safe harbor clause applies as we start the call.
With that said, I now hand over the call to Sumer. Over to you, Sumer.
Good afternoon, everyone. Let me first give you an overview of the company followed by business update. ADF Foods is a leading consumer-focused company and a leader in prepared ethnic food. We manufacture, distribute and market South Asian food, both in India as well as globally in over 55 countries. We have 8 distinctive brands in our portfolio, each catering to a certain demographic and have a strong consumer following. These brands cater to the South Asian diaspora, global mainstream as well as domestic consumers. Our flagship brand, Ashoka, is growing at a CAGR of upwards of 30%. Our products and manufacturers both in our Nadiad and Nasik plants, which have a combined capacity of 28,000 metric tonnes.
We also have a branded foods agency business for distribution of select FMCG products. These are renowned brands, including Lipton, Brooke Bond Red Label, Taj Mahal and Knorr Soup. This substantially building the offering and enhances our store presence in overseas countries. This combination of our own brands as well as our agency-backed business backed by our manufacturing strength has contributed to healthy EBITDA margin in the range of 20% powered by a debt-free balance sheet. We continue to make investments in our brand and our manufacturing capabilities for long-term growth.
Coming to the business update. We had a satisfactory growth as well as healthy margins over the past 9 months as we focused on brand building and investing in profitable products. We saw stable demand for both our processed foods as well as the agency distribution business. Our Q3 revenue growth could have been better. However, the Red Sea crisis impacted sales shipments towards the end of the quarter.
We initiated several new plans to accelerate our long-term growth. The Board approval for investment in Telluric Foods will enable us to accelerate our India growth -- our India business growth. Further, the merger of our subsidiaries, ADF Foods and Telluric Foods will enable us to achieve substantial synergies, including efficient capital utilization, flexibility in business operations and cost rationalization.
We continue to witness healthy demand for our products. And in order to support the same, we launched several new products under our flagship brand, Ashoka. These were across various categories, including frozen desserts, canned sweets and Indo-Chinese sauces. Overall, we expect all of the above initiatives to enhance our growth and increase our profitability as well over the long term.
I now hand over to our CFO, Shardul Doshi, for his comments on the financials.
Thank you, Sumer. Good evening, everyone. I'll first share the standalone performance. For the 9 months that ended on December 31, 2023, we recorded revenues from operations were INR 285.2 crore, an 11.8% increase from the same period last year. Our EBITDA was INR 70.2 crores, up 44.6% increased by [indiscernible] . We managed to expand the EBITDA margin by 560 basis points, reaching 24.6%. We see this as a tangible outcome of our continuous focus on investing in our brands and innovation and innovating in our product portfolio. Our PAT was INR 54.3 crores, a 36.8% increase from the previous year, with a PAT margin of 19.1%, an improvement of 350 basis points from the last year.
Now let us look at the quarterly figures. In Q3 of financial year 2024, we saw revenues from operations side to INR 103.2 crores. This marked a 3.5% Y-on-Y growth and a 6% Q-on-Q increase. Our EBITDA for this quarter was INR 26.4 crores, a Y-on-Y increase of 2.7% and Q-on-Q increase of 16.6%, while our EBITDA margin was 25.6%. As Sumer mentioned, our Q3 revenues could have been better. However, as sales shipments were somehow -- somewhat impacted by the crisis in the Red Sea towards end of the quarter. This led to a marginal impact on the revenues as well as our EBITDA and both grew at a slower pace on a Y-on-Y basis. PAT for the quarter was INR 20.3 crores, a 5.4% increase Y-on-Y, 14.4% increase Q-on-Q. Our PAT margin for this quarter stood at 19.6%, an improvement of 30 basis points on the previous year.
Moving on to consol performance. For the 9 months ended 31st December 2023, revenue from operations was INR 366.7 crores, a 12.1% increase Y-on-Y. EBITDA was INR 70.6 crores, an increase of 30.4% Y-on-Y. EBITDA margin stood at 19.3%, expanding by 270 basis points Y-on-Y. Profit after tax was INR 48.8 crores, up 22.6% Y-on-Y with a PAT margin of 13.3%, an increase of 110 basis points on a yearly basis.
Coming to the quarterly performance, our revenue from operations for Q3 FY '24 was INR 129.7 crores, an increase of 5.2% Y-on-Y and 4% increase from the last quarter. Our EBITDA for Q3 FY '24 was INR 27 crores, recording a small decrease of 0.4% Y-on-Y with an increase of 23.8% from the previous quarter. Our EBITDA margin stood at 20.8%. Our PAT for the quarter was INR 19.1 crores, marking a Y-on-Y increase of 3% and quarter-on-quarter increase of 27.9%. For Q3 FY '24, the PAT margin stood at 14.7%. Our CapEx for 9 months period ended December '23 was INR 3.5 crores in debottlenecking and another INR 3.5 crores in cold storage project. Our balance sheet continues to remain debt-free as of date.
The Board has approved INR 13 crores in optionally convertible redeemable preference shares investment in our subsidiary, Telluric Foods (India) Limited. This will down-stream to Telluric Foods Limited, TFL, a stepdown wholly owned subsidiary of the company by TFIL. The paid monies will be used to support the brand building and working capital requirement of TFL. Also, the Board approved transfer of ADF's entire equity investment in its wholly owned subsidiary, ADF Foods (India) Limited, to its stepdown wholly owned subsidiary, which is Telluric Foods Limited at fair market value to be determined. [ Both this merger ] is proposed between the company's subsidiaries, ADF Foods (India) Limited, which is a transferor company and Telluric Foods Limited, the transferee company. This proposed merger is already approved in principle by the Board. As highlighted by Sumer, the merger is expected to generate substantial cost synergies as well as greater financial strength and flexibility.
Overall, we continue to judiciously invest in our manufacturing capabilities as well as our brand-building exercise in order to focus on increasing our margin profile as well as deliver greater returns in the long term.
With this, I now request Ravi to open the floor for the Q&A.
[Operator Instructions] We have our first question from the line of Faisal Hawa, an individual investor.
So sir, there is not much progress on the distribution business that we have because I think that Unilever sold some [indiscernible].
[indiscernible].
Hello?
Go ahead.
So Unilever sold off their business to another company and even patently, we are not doing well. So are we giving up on this? Or are we in talks with more companies to really expand this because this is almost like an additional business, which goes directly almost to the bottom line for us.
So the distribution business, in fact, as we had pointed out in the last quarter, there were certain issues which we faced on the succession issues and the handover happened from Unilever [ to be too distant ], which is where the business has moved. The entire business, they have moved. However seeing this, a lot of these issues have been resolved in this quarter. There are still some issues which are -- which they are still facing in terms of supplying it to us. But our growth, there is a good growth which has happened over Q2 numbers in Q3 when you look at the distribution business.
We are also looking at some additional -- we have talked to a couple of companies, and we will share some details as and when any transactions happen, and we will start selling those products.
And sir, second question is that -- hello, can you hear me?
Yes.
So second question is that how are we doing on our tie-ups with Costco and Walmart, which we are pursuing for a very long time?
So on the supermarket business, it's still a work in progress. So for Costco and Walmart, that's under Truly Indian, which we plan on launching next fiscal year. But supermarkets as a whole, we made some progress. In fact, yesterday, we got listed in 700 outlets in the U.K. with one of the -- in fact the largest supermarket in the U.K.
So is it Tesco?
Yes, that's correct.
Okay. So 700 supermarkets at one go we will be now getting access to?
Yes, but it's just a few SKUs. It's only 3 SKUs.
But we'll be having access to all the 700 stores of Tesco?
That's correct. Yes.
Okay. So that itself could lead to a lot of quarter-on-quarter growth from here on?
Yes. So we're hoping at least $1 million in the upcoming financial year.
Okay. And sir, can you give some light on what has led to this huge EBITDA margin increase for us?
The main EBITDA growth which has happened, of course, the margin profile is better when you look at the product mix which we have. Our program share is increasing overall sale.
Second, when you look at the Y-on-Y EBITDA growth in 9 months, there is -- there was higher freight cost, which we are seeing in the last financial year and they were substantially impacting our bottom line. However, in the current year, first 9 months, the freight cost was [ down ]. Towards end of, of course, Q3, the freight cost have also started going up. And we will see now how that will shape up in Q4.
We have our next question from the line of Rishi Maheshwari from AKSA Capital.
This is to understand, you had earlier projected to grow between 15% to 20%. And at that point in time, this looked comfortable, given the kind of market size that we have, the penetration that we have, the product that we have and the expansion on the geographical side that we were approaching at. While I look at the 9 months numbers, today, they're at about 12%, 13% kind of growth. I believe that we may fall short of our target. What is your view on this in terms of revenue?
So towards the end of the last quarter, we faced that freight issue. So the container availability where that wasn't really -- that became a question, and we lost some significant sales in last 15 days of December. However, now that those issues have been resolved, the freight cost could have gone up, but containers are available and those orders have actually come into the fourth quarter. So hopefully, we will still be able to meet our targets, which we have mentioned.
In terms of expected numbers, I think we still stand committed to the higher growth in our top line. We have done everything which is required to do that. Our manufacturing capacity, we have increased. We have installed our freezer in U.S. That's in the warehouse. There is investment in people which have happened. There is investment in our Indian business also, which we have done. So everything is in place now. And there is, of course, good order book also for the fourth quarter. So for the year as well as going forward, we expect to meet our numbers, which we have been seeing in the past.
Sure. Will you be able to let me know what is the contribution of Ashoka within the third quarter numbers?
Ashoka will be in the range of 55% to 60% of our standalone business.
Sure, 55% to 60%. Sure. The other part was to understand Nate's and PJ's. Has that -- what -- is there any update over there?
No. So nothing is there. I mean we did identify facility last quarter but it didn't meet our quality requirement. And we still continue to leverage that relationship. So this is, as you know, was mainly sold to supermarkets. So we hope to leverage that relationship and now introduce Truly Indian within those same supermarkets where the manufacturing is actually in our control.
I see. Sure, sure, sure. So as of now, we shouldn't build any -- are there any expenses on -- with relation to Nate's and PJ's that we were incurring earlier?
We are still incurring, the company is still in existence, and there is a legal case which is going on. Other fixed cost has significantly reduced. So last year, we had almost INR 5 crores of losses from that entity. That's down to half of what we have in the current year.
So while we will not have any revenue from there, will we continue to have these expenses on board in the next year as well?
No. I think significant fixed cost is already reduced. It's just the legal cost, which is still we are incurring. And hopefully, we will have -- get results of the -- I think we will finish with our legal case and that will also stop in the next financial year.
Your movement, your transition in U.K. supermarket, Tesco, I think is very appreciable. Congratulations on that. Is this 3 SKUs just a pilot product? And therefore, should we assume that gradually, we will have a lot of our SKUs if this pilot happens to be successful?
It's actually a prominent listing. In pilot, they roll out to fewer stores because this is across the board. We're hoping it's [ augmented ] listing and then, of course, they'll decide based on secondary sales.
And what is the potential that you see? I understand you're looking at $1 million perhaps next year. But what is the potential going in the next 3,4 years from, say, Tesco? This is a virgin contract, is that right?
Sorry, what was that?
This is a first time contract with Tesco, is that right?
We used to sell in Tesco many years ago. But yes, we just got back in. And in terms of potential, it's hard to say, but we are estimating at least $1 million in the first year. I mean if you remember, a couple of quarters back, we got listed in Morrisons and B&M. And that next financial year should again move up with the full $1 million, but it's hard to say until we actually see secondary sales.
Sure. What is the expected CapEx for this year?
So there is -- on the cold storage, we have another commitment of INR 11 crores. So we will finish that project by April of the current year and the freezer cold storage will be up [ in the next ]. So that's total INR 15 crores spending we would have done by then.
And in terms of normal CapEx, there is nothing significant now till March. And the next financial year, again, I think will incur another INR 3 crores, INR 4 crores for the normal CapEx.
INR 3 crores, INR 4 crores more than your normal CapEx.
No. INR 3 crores, INR 4 crores of normal CapEx in the next financial year.
In FY '25?
Yes.
So in FY '25, normal CapEx will only be about INR 4 crores.
I'm not talking about the greenfield. I'm just talking about our existing clients here.
And any greenfield CapEx that you've already envisaged?
So greenfield will be around INR 60 crores to be spent over 15 months starting from April. Yes.
15 months. All right.
[Operator Instructions] We have our next question from the line of Devanshu Sampat from Avendus Wealth.
So a few questions. Can you tell me what was the freight cost this year -- this quarter, sorry, as a percentage of sales?
It's around 7%.
7%. Okay. And sir, you also mentioned that you're seeing these rates go up now. So I mean, in terms of your expectation, do you see this as a percentage of sales going up to a double-digit figure anytime soon?
No. So what's going to happen, I think after last increase in the freight cost, which we had seen, a lot of contracts we have moved to the FOB. And what's going to happen is it will still impact us maybe and our profit impact can be around 200 bps. But when we look at the overall sales increase, which we are expecting with the fixed cost apportionment overall, I think we should be in a position to maintain our EBITDA margin.
Okay. And just to clarify, you're saying this percentage of sales is on a standalone, right, or consol number, that 7%?
Standalone.
7%, okay. And so when it comes to Ashoka, do you think -- are we on track or as per expectation, do you think you can maintain this 30% run rate this year and next year as well? So I mean that would essentially translate to INR 350 crores plus kind of a number for FY '25. So are we on track to do that?
Hopefully, we should be in a position to maintain. Our Ashoka revenue this year is expected to be around INR 260 crores to INR 270 crores.
But it will still be a 30% growth expected this year.
Around 25%, yes.
[Operator Instructions] We have our next question from the line of [ Tushar Khurana ], an individual investor. As we are unable to connect with Mr. [ Tushar ], we will go on to the next question. We have our next question from the line of [ Saurabh Trivedi ], an individual investor.
[ Saurabh Trivedi ] here. I have been with the company since last 4 to 5 years. Sir, I have a question regarding our freight charges. The sea issue is going on since last more or less 24 months. So what are we planning about that big cost?
So like [indiscernible] we're trying to mitigate the freight impact as much as we can by moving all our contracts from CNS to FOB assuming the freight will be to the customer's account.
Okay. And sir, how are we planning with India market because we have very big plans for India, I suppose, because we are not any which way working on that thing. So what can we expect as an investor and as a customer of Soul brand?
So in India, we are hoping to achieve a revenue of about INR 100 crores in the next 3 years. So it's been about 8 months since we launched. We're just in the process of building our team. We just appointed a India head. Right now, our product portfolio is mainly pickles and chutneys. And in terms of market, we only sell on e-commerce. So our own website as well as Amazon, Big-kart, bigbasket, and we just got listed on quick commerce through [ 3D]. And in the next 3 years, we hope to roll out modern trade and general trade both, but in a very phased manner and quarter-on-quarter expand our product portfolio.
Sir, what are our target audience for Soul brand? Are we targeting to the upper class, middle class or which type of audience?
So urban India, so I would say more upper middle class.
Upper middle class. Okay. And sir, what are our future plans, which are product collecting for Soul brand because as an India-specific, this is my personal study, that people -- a whole country, I'm speaking about, the whole country, are going for higher quality and higher piece of product, right? So we are moving towards premium products. So what are we looking up to?
Right. So we hope to be in that premium space. In terms of dollar portfolio, I mean Ashoka and ADF has a wide extensive range of around $600 to $700, which we have access to because all the manufacturing is made in-house. So depending on the Indian market and depending on what's doing well and where we see optimal competition, we'll plan it out accordingly.
Yes, we hope to be in the premium space.
[Operator Instructions] We have our next question from the line of [ Tushar Khurana ], an individual investor.
Am I audible now?
Yes, sir.
Okay. So sir, I have a question on ADF Soul again. So may I know what is the current turnover for ADF Soul right now? And how much cash are we burning?
So right now, the revenue run rate is at about 40 lakh, 45 lakh a month, approximately INR 5 crores annually. And in terms of burn of the cash flow. So this year, as you are aware, we have committed INR 5 crores for brand building exercise, which we're doing. Also just on the number, monthly, we are almost doing at around 15-odd percent in last 2 months. So -- and that, we are confident that the run rate going forward will keep increasing for our products and we will be launching some of the new product changes also in the next financial year. So that's something which we have planned for the Soul.
Okay. Okay. And sir, if I come to your other Soul offerings that we have right now with phasing of Capital Foods. Could there be a like-to-like comparison in terms of the offering that Ching's has been offering and what we are foraying into? Am I getting it correctly?
So as it stands, the product range is only pickles and chutneys, which I believe Ching's doesn't do. But moving forward, I mean, Ashoka, we do have a wide range of Indo-Chinese sauces and we're also launching [ noodle ], which is somewhat similar to Ching's product range. And I mean, depending on the market size, we will pick our categories accordingly.
Okay. And then sir, on the branding side of ADF Soul, what are the steps that we're taking?
So right now, I mean, our presence is only on e-commerce. So we do a lot of social media, a lot of performance marketing. But because it's mainly online, that's pretty much all we do in terms of marketing.
We have our next question from the line of Faisal Hawa, an individual investor.
Sir, what is the capacity utilization of all our plants at this point of time? And if we increase the capacity utilization by at least 10 percentage points, what would be the kind of effect that it could have on our EBITDA and also [ ROCD, ROE ]? That's one.
And second is, can you give an example of like 1 or 2 very key pivots that you have made in the last 9 to 10 months when you have [ booked ] one strategy and having seen it not work, you have pivoted to some other strategies, if at all that has happened?
Can you just repeat your last question?
Can you give an example of 1 or 2 pivots that we have made on strategy once we have seen that one strategy has not worked?
[indiscernible]
Not all.
Nothing in the last time, whatever.
Capacity is 28,000 metric tonnes. And this is an overall capacity at Nasik and Nadiad, both put together. Depending on product lines, the capacities are utilized from 60% to 80%. And of course, we have -- wherever required now, we have done the debottlenecking.
What we clearly see that for the next 1.5 years, our existing plant will take care of our expanded capacity requirements. And by then, our greenfield also will be operational.
So in terms of the additional CapEx, I just mentioned, we have done INR 3.5 crores in the current year on a debottlenecking and we have spent another INR 3.5 crores from the cold storage project, which we have at Nadiad, another INR 11 crores I've committed for it. So this will all get over by April of the current year. And in the next financial year, we'll have a greenfield spending, which is almost INR 60 crores.
And in terms of strategy, which is dividend work actually only thing which we think some of this -- I think there is nothing as such. I think we are all currently working on our strategy where we are increasing capacity on both production as well as on the distribution side. We have increased -- I think we have invested in our people. So now there is a brand team, which is for Ashoka, Truly Indian and Soul that's been created and they're all working on their product lines to expand the market share. I think maybe this question, we can look at it after 2, 3 quarters from now.
[Operator Instructions] We have a follow-up question from Devanshu Sampat from Avendus Wealth.
Yes, sir. So two more queries. One is this update on ekaterra supply chain, right? You said most of it is done, but you think at least in your discussions, do you think by 4Q, where all of the issues can be resolved and we can go back to INR 100 crores distribution business for FY '25? Or can it possibly be more if you are getting more products from them?
So what initially happened is the lead time for production went up from the 8 to 10 weeks that we were used to when Unilever was in charge to about 4 months, 4 to 4.5 months. So entire forecasting and planning, a little disruptive. We're still facing some issues, but we are confident next financial year [ should be back ].
Okay. So the INR 100 crores number, which was what we have seen in FY '23, can we get a sense? Can you benchmark that and give me a sense on how it will be next year?
Yes. I think one of the issues, supply chain issues are behind us and also a couple of more [ sensical designer ], I think we should be in a position to achieve it.
Okay. Okay. So that we'll be required to add more principles. Okay. And second query I just had was on your Truly Indian listings. In the sense, I think earlier you had mentioned that we're looking at something possibly next fiscal, so I would assume after the current quarter. So are we on track? Can you give a sense on what are the discussions? And if so, when can these be contributing to revenue?
Yes. So we're still on track for next financial year. I mean these things take a very long period of time. Tesco, for example, we were in discussions with for 8 to 10 months. But hopefully, we'll have something by next financial year. The interviews are still going on.
[Operator Instructions] We have our next question from the line of Richa from Equitymaster.
My question is, again, on margin, I think you shared something about the freight rates impact and the product mix, but still it's a substantial improvement both sequentially and year-on-year. So my question was like assuming that freight rates don't go up and normalize, do we expect this 17%, 27% kind of margins to be maintained in future?
Yes. On the stand-alone, we should be in a position to maintain the -- actually, even on the consol, whatever you are seeing, it should be in a position to maintain.
We have our next question from the line of [indiscernible] from Anand Rathi.
Am I audible?
Yes, sir, please go ahead.
Just wanted to know that you said the CapEx for INR 11 crores, right, for FY '25?
No. I said INR 11 crores CapEx is always committed and close to it, which that goes to you become [indiscernible] of the current year. So this is actually in next 4 months, we will incur.
Okay. So okay. And you said the greenfield plant for Soul, it will cost around INR 16 crores, right?
6-0, 6-0.
6-0, 6-0. Okay, okay. And I just wanted to clarify that, will it be in the phased manner? Or will it be in the one short also?
Actually, INR 60 crores is for the Phase 1 only. So that can become as big as Nadiad for us, and there will be further phases which will come post that.
Okay. Okay. And any incremental debt we are planning for this?
Not really. We are sitting on cash of INR 140 crores. For greenfield, we will take some loan because there is a grant which is available from the central government, which we have to run it through the lender. So we will borrow some money for it. But otherwise, there is no debt requirement assets particularly.
And how is the demand looking for next financial year as the Red Sea issue crisis which is going on? And apart from that as well, how do you see the export market and also the Indian markets? That would be my last question.
So demand continues to be robust. The Red Sea issue is more a supply issue than a demand issue. But no, we're seeing good traction in all our new launches as well as our existing products.
We have our next question from the line of V.P. Rajesh from Banyan Capital Advisors.
I'm just new to the company, so just to understand some basic stuff.
Sorry to interrupt, sir. Can you please come closer to the phone?
I am close to the phone. Is it any better?
No, sir. You are sounding very distant.
Okay. Well, I can come back in the queue if this is not clear. Hello?
Sorry for the inconvenience. We have lost the management line. Please stay connected. We will get back with the management line.
[Technical Difficulty]
Ladies and gentlemen, we have the line for management reconnected.
Am I audible now? Can I go ahead?
Yes, please.
Yes. So as I was saying, I'm new to the company, so I just wanted to understand some basic stuff. Ashoka brand has grown by 30% CAGR over the last 2 years as just shown in the deck. But if you look at the overall business on the processed foods segment side, the growth is much lower. So what is the reason that the rest of the brands are not growing as much as Ashoka is growing? Is it just because they are not well established? If you can just give some color around that, that would be helpful.
Okay. As part of processed food, there is some -- we used to have almost 30% to 35% share from B2B and private label. Now all our businesses are actually in terms of value, they have grown over the previous year. However, when we look at the percentage growth over -- in each of this, Ashoka has grown faster than everything else. While B2B and private label, in absolute or in percentage terms to the total turnover, they have reduced. So that share which used to be 30% plus is now down to around 20% to 22% for that. So that is something which has -- that's the explanation to your question.
Understood. And then in terms of our business that is coming from the U.S., what is the percentage of the processed food segment?
So we don't give the country-wise breakup, but U.S. is at the top-most market in terms of the market share. Large part of our sales of processed food come from the U.S. business. And in fact, most of the distribution business is in the U.S.
So in terms of your ethnic products market in the U.S., what would you say is your market share roughly?
So we don't actually have any data to market share. But I'd say in the U.S., we'd be in the top 3 ethnic food brand.
Okay. And what is the purpose of having this distribution business in the U.S.? How does this add value to your processed segment? Because given the margins, I would think you would want to focus more on the brand. So if you can just give some color as to why we had this business as well.
So I'll start with more -- so one is cost synergies in terms of actually last mile delivery. And two, it gives us more influence with the retailer as we have a wider product offering. In fact, since we signed on with Unilever, Ashoka brand also grew in tandem. So we found that partnering with a good company with complementary products actually helps grow our own brand as well.
We have our next question from the line of Rusmik Oza from 9 Rays EquiResearch.
Sir, 9 months EBITDA margins have moved up from last year, 16.6% to this year, 19.3%. Just wanted to know, is there any buildup of PLI scheme benefits that is reflected in the EBITDA margins? Or if you can indirectly give us what kind of amount we could receive this year in terms of PLI benefits?
No, no, PLI is not a contributor to the EBITDA margin increase, which in fact we have seen. That's primarily because of the cost reduction, which has happened and a better sales mix.
Okay. And if you can give us some guidance or understanding what kind of PLI benefits we're getting in FY '24, '25, '26, right across the next 3 years?
So we will get PLI up to FY '27, total sanction [ INR 262 crores ]. So that is an amount which will get spread over the 5 years from FY '23 to FY '27.
Okay. '23 to '27. And between '23 and '24, how much we could have realized booked so that we can know the balance for the next 3 years?
But until now, we would have booked last financial year and the current 9 months, we would have booked around INR 10.5 crores to INR 11 crores of PLI income.
Okay. Okay. And any guidance -- how much out of the balance, how much will be coming next year in FY '25?
Around INR 9-odd crores.
We have our next question from the line of [ Caron Garg from Garg Advisors ].
Two questions. One question is that like would there be any safety stock, let's say, in export geographies? I mean I think you mentioned that on the key reasons where we lost some growth was because of the shipments not happening. So since we have warehouses, so doesn't that help us in meeting the customer demand? That is my first question.
So warehouse, in fact, this is one reason why we have now built our warehousing capabilities in our largest market in the U.S. The freezer capacity wasn't really available. It's been -- it just became commissioned from the month of -- in fact, last month of like November, December, in fact commissioned for us. Going forward, in fact, there'll be stocks, which we will maintain in our warehouse. But however, what happens is, again, this is one region in U.S. where we can stock. I think the rest of the U.S. if it's through the distributors, we have to do it.
So for distributors, for those distributors, can we stock at that warehouse that we will be delivering? Or is it too expensive?
So we do that as well for the entire East Coast, but to bring it from the East Coast to the West Coast or even the center of the U.S., it becomes too expensive. I mean sea freight is cheaper than your inland cost.
Okay. Makes sense. So secondly, I think you just said that we are on track of that 17%, 18% guidance that you have given. So let's say, in 9 months, we have done INR 300 crores in processed food segment. I think last year, it was INR 362 crores. But are we saying that we will be able to do like INR 120-odd crores in the processed food segment for Q4?
Yes. That's what we meant actually.
Okay. And sir, the last question is on e-commerce. I think you just said that for India, we are focusing on e-commerce channel. I mean what I understand is on e-commerce channels, I mean if it's quite costly to get the shelf space and to maintain the inventory -- I mean, depending on the model that you are working with, let's say, Amazon or Flipkart or whatever e-commerce channel they are using. What is the cost that we incur there? And what is -- I just want to understand the strategy there in e-commerce. How are we entering into the e-commerce segment? And how are we planning to grow our business in that channel?
You're right, it is expensive, but it's still fairly less expensive as compared to modern trade and general trade. And the another advantage of e-commerce is we get firsthand feedback both on secondary sales, demographic, what's working, what's not working. And in terms of expense which performance marketing, which is your digital ads and warehousing cost, which is still, again, cheaper on e-commerce as compared to modern trade and general trade.
Okay. So let's say, if you are in connection with Flipkart, I mean you're selling with Flipkart, so Flipkart might comment that this particular pickle is not selling or this is -- I mean, this is the type of pickle which actually sells in the market. So basically, you take that feedback and try to produce a pickle which actually sells in the market. I mean is my understanding correct, that's why you're using the feedback loop there?
Yes, those make sense, yes.
Great. Great. So sir, like the scale-up that you are saying, I mean, it is 40 less. I mean what we have seen is that in case of e-commerce, the scale-ups have been like massive, like if you want to scale up in 2, 3 years, you can tactically go like 50, 70, 80 if you had a small base of, let's say, INR 1 crore. I mean are we giving conservative targets? Or like what's the difference there because it doesn't make sense? I mean the scale-up seems to be slow when there will be some strategies, I'm trying to understand that.
So if you look at our past 3 to 4 months, we've been growing at about 15% month-on-month, which is a fairly [indiscernible] in our opinion. And in terms of targets, we're looking at INR 100 crores in 3 years. There's a lot of brands haven't been able to do, especially in a complex landscape like India.
Okay. That makes sense. I mean that's something I wanted to understand because e-commerce grows very fast, right? I think the INR 500 crore is something we can grow very fast. And then beyond that, it becomes a bit problematic.
We have our next question from the line of Rusmik Oza from 9 Rays EquiResearch.
I had a follow-on question on the same PLI scheme. So you clarified that you would be booking INR 11 crores between '23, '24, INR 9 crores in '25, that takes to INR 20 crores. That means out of the balance INR 62 crores, does it mean that we're going to book almost INR 42 crores of PLI between '26 and '27 in that 2 fiscal years? That's my first question.
And second is what are the conditions, I believe it is based on creating brand globally. So are we meeting the required norms for getting this PLI benefit?
So what we do is I think we are not booking the entire PLI eligibility in accounts [indiscernible] the money is received. So hence, that's a number which we -- you asked me about the accounting, how much we will be accounting. But in terms of ramp-up, PLI, the way it works is year-on-year, it will keep going up. So in the last financial year because it's also depending on the sales growth, which the company will be achieving. The conditions for PLI for us is we get the reimbursement of the marketing spend, which we are doing in the overseas market, 3% of the top or 50% of the spend, whichever is less is what we get it back from the government.
Okay. Okay, okay. So maybe what could be the run rate which could come in FY '26 and then FY '27, just to get a ballpark figure?
Run rate in terms of?
The PLI benefit, like you mentioned would maybe book around INR 9 crores in FY '25. What would be...
[ That consists of ] INR 15 crores, INR 16 crores and then to INR 20 crores, right? And I think that's how it is.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to management for closing comments.
Yes. Thank you all of you to attend our con call and hear our thoughts on this. Thank you.
Thank you.
On behalf of ADF Foods Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.