ADF Foods Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Revenue up 13.3%, margins squeezed: Consolidated revenue hit INR 590 crores, but EBITDA margin fell 350 bps YoY to 16.7% as raw material, labor and freight costs bit, and INR 15 crores of brand investment hit the P&L.
• Brand investment is the margin story: Nearly INR 15 crores spent on Truly Indian and ADF Soul directly reduced bottom line by that amount; management frames it as building future strong brands, with positive returns only after about 3 years.
• Truly Indian quadrupled, Soul disappointed: Truly Indian grew 4x on a small base and is expected to grow upwards of 100% this year in the US; ADF Soul reached only INR 6 crores, underperformed, and strategy is now more cautious.
• Distribution business turning a corner: Years of stagnation may end as ADF becomes nationwide US distributor for Lipton teas, with transition issues from the Unilever divestiture now resolved and full supplies expected this year.
• What to watch next quarter: Whether Ashoka US returns to mid-teens growth after sales team and distribution fixes, whether raw material cost relief actually flows to margins, and whether Truly Indian sustains its triple-digit growth trajectory.

Revenue Growth & Brand Performance

• Consolidated top line: INR 590 crores, 13.3% YoY growth; stand-alone revenue INR 478.4 crores, 15.5% YoY.
• Ashoka brand: Steady growth on a high base, performed well in all markets except the US, where flat growth resulted from needed changes in sales team and distribution structure; corrections are now complete and mid-teens growth is expected this year.
• Truly Indian brand: Fourfold top-line increase this financial year vs last year on a small base; now in 1,400 stores with new retail chains including Safeway and Albertsons added; undergoing brand refresh with new vibrant visual identity and contemporary street-style appearance; expecting upwards of 100% growth in the US this year.
• ADF Soul brand: Achieved only INR 6 crores top line, underperformed against expectations; frozen range launched in February in select modern trade stores; team reorganized and strategy made more cautious to reduce cash burn; 3-year guidance of INR 50-75 crores as Indian market will still take time.
• Distribution business: Stagnant for several years but now holds nationwide US distribution rights for Lipton teas after adding West Coast; transition issues from Unilever to Ekaterra resolved, supplies improved significantly in last 6 months, and full supplies are expected this year.
• Australia: New team established to strengthen Ashoka narrative; confident of 40-50% growth this year with new listings expected in the next month.

Bimal Thakkar: "We continue to remain committed behind both these brands because we believe both these brands are going to be our future strong brands for India as well as for the US mainstream market."

Margin Walk & Cost Pressures

• Consolidated EBITDA margin: Fell to 16.7%, a 350 bps YoY decline. Stand-alone EBITDA margin at 22%, down 260 bps YoY.
• Cost drivers: Raw material inflation reduced gross profit margin by 1.25%, labor cost impact was 1%, and incremental freight costs added 1.4%; partially offset by better cost management and product mix.
• Brand investment impact: Nearly INR 15 crores invested in Truly Indian and ADF Soul was the main reason for EBITDA reduction; management stated bottom line would have been higher by that amount without these investments.
• Cost pass-through limitation: Management acknowledged that to some extent they were not able to pass rising costs to buyers.
• Q4 stand-alone margin: 21.7%, down 300 bps YoY but up 70 bps QoQ, suggesting sequential stabilization.
• Q4 consolidated margin: 15.5%, down 28.1% YoY and 6.5% QoQ.
• New brand economics: These brands carry very high gross margins but require heavy investment; positive returns expected only after about 3 years.

Bimal Thakkar: "If we wouldn't have done that, your bottom line would have increased by a further INR 15 crores. So these investments are being done for the future."

US Market: Tariffs, Cold Chain & Mainstream Push

• Tariff impact: 10% US tariff applicable from end of month; management plans to share the 10% across all channel partners and has seen no pushback yet.
• Ashoka US reset: Flat growth only in the US market due to needed changes in sales team and distribution structure; corrections have been made and mid-teens growth is expected this year.
• Truly Indian US acceleration: Grew about 4x last year on a small base; expecting upwards of 100% growth this year; expanded sales team and added retail chains including Safeway and Albertsons.
• Cold chain model: No plans to replicate the US cold chain model in other markets yet; management wants to exploit the US fully first, with more distribution centers possible, before considering Australia or UK.
• Mainstream market ambition: Hope to get new accounts this year for certain mainstream large clients for both Truly Indian and Ashoka brands.
• US growth confidence: Confident of growing in high teens or upwards of 20%.

Bimal Thakkar: "But just now, we just want to focus on the US market because we have opportunities of having more distribution centers in the US itself. So, until we exploit the US fully, we don't want to move elsewhere at the moment."

Capacity Expansion & Compliance

• Surat greenfield facility: Expansion actively underway; anticipate beginning operations by second half of FY '26; INR 100 crores plan undertaken with brownfield expansions of approximately INR 50 crores.
• Nadiad facility GPCB notice: Received notice from GPCB; took corrective action and received 3 months extension; factory remained operational with no shutdown for even a single day; management hopes to comply with all requirements within the extension period.
• Capex funding: Adequate cash flows available; nominal debt taken only for government subsidies; otherwise funded through internal accruals.
• US subsidiaries investment: \$2.5 million invested for working capital in ADF Foods USA (Truly Indian brand company) and Vibrant Foods (distribution company).

International Markets & Trade Developments

• UK FTA benefit: Zero duty now on products that previously carried up to 10-12% duty; this is a cost saving for the company with no plan to pass on benefits as price reductions.
• Tesco expansion: New products listing from July onwards; 3 or 4 new products added; expanded to another 100-odd stores.
• Australia growth: Confident of 40-50% growth this year; new team established to strengthen Ashoka narrative; new listings expected in the next month.
• Distribution business UK presence: Enhanced distribution rights and UK presence expected to support steady growth pace going forward.

Bimal Thakkar: "We don't intend to pass on any of those benefits as yet, at least that's not what the plan is."

New Brands: Strategy & Timeline

• Truly Indian trajectory: Fourfold growth last year on a small base; expecting upwards of 100% growth this year in the US; brand refresh underway with new vibrant visual identity; products now in 1,400 stores.
• ADF Soul reset: Underperformed with INR 6 crores top line; team reorganized; frozen range launched in February in select modern trade stores; strategy now more cautious to reduce cash burn; focus on e-commerce, quick commerce and modern trade in select cities, expanding over next 3 years.
• Investment continuity: Similar brand investment of approximately INR 15 crores planned for next year across Truly Indian and Soul.
• Profitability timeline: These brands carry very high gross margins but will start seeing positive returns only after about 3 years due to the investment required to build them.
• Soul 3-year guidance: INR 50 crores to INR 75 crores; management acknowledges the Indian market will still take time.

Bimal Thakkar: "These brands are in terms of gross margins, very high contributors. But because of the investment required to build these brands, you will start only seeing positive returns for these brands after about 3 years."

Guidance & Commitments

Key Metrics