AWL Agri Business Ltd Q1 FY2024 Concall Summary

Key Takeaways

• A brutal edible oil quarter, framed as one-time: Gross profit fell ~INR 300 crores, wiping out EBITDA and PAT, driven by high-priced inventory in a falling market and an unprecedented hedge-physical market disalignment. Management calls it a one-time phenomenon that should resolve in Q2/Q3.
• Volume story is intact, even accelerating: Branded edible oil volumes grew 25% and food segment profit jumped from INR 10 cr to INR 38 cr, powered by direct reach expansion past 600,000 outlets and falling consumer prices that shifted buying toward larger packs.
• Kohinoor integration is working: Distribution has scaled to 55,000 outlets by leveraging AWL's 1,500+ edible oil distributors in rural markets, and the first new TVC in 4-5 years is now live. Combined Kohinoor-Fortune Basmati market share is targeted at a strong double-digit within 2-3 years.
• The margin recovery bet is conditional: Management says INR 3,500-4,000/ton EBITDA is achievable if the hedge disalignment does not recur, but declined to forecast a timeline for returning to pre-crisis margins, citing a dynamic world.
• What to watch next quarter: Whether the hedge disalignment actually resolves, edible oil volume growth sustains above 12-15%, and food segment profit continues its upward trajectory into the festive season.

The Edible Oil Shock: What Happened and Why It Is Called One-Time

• Two simultaneous hits: High-priced inventory was caught in a steep edible oil price decline, while exchange hedges moved out of sync with the physical market in India, a phenomenon management says it has never seen before. Together they destroyed ~INR 300 crores of gross profit.
• Full flow-through: The gross margin loss dropped entirely to EBITDA, PBT and PAT, leaving the quarter with negligible profitability. Standalone numbers looked marginally better only because subsidiaries and JVs also posted losses for similar reasons.
• TRQ amplified the pain: A tariff-rate quota was active in Q1 (ended June '23) and created a slight disadvantageous position; this headwind is now gone and will not repeat.
• External shocks compounded it: The Ukraine war, US inflation and hiking cycle, and a 50% Argentine soybean crop loss all fed the price volatility that set up the inventory and hedge mismatch.

Mallick: "It's a onetime phenomenon, which we see 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."

Volume Growth and the Consumer Recovery Signal

• 25% branded volume growth: Even as revenue fell 12% on price, consumers bought significantly more edible oil, with the share of rigid 5-liter and 15-liter packs rising, a barometer management uses to signal that prices have reached comfortable levels.
• Food segment quietly profitable: Food profit rose from INR 10 cr to INR 38 cr, growing steadily in both volume and profit even as edible oil absorbed all the quarter's damage.
• Festive season setup: If current MRPs hold, management expects festival season consumption to be much better than last year, with edible oil volume growth settling in a 12-15% range for the full year.
• Food FMCG acceleration expected: Q1 food volume grew 21% despite a major loss in non-Basmati rice exports due to government bans; management expects this growth rate to improve in coming quarters, with volume growth ideally reaching 25-30%.

Distribution: The Structural Growth Engine

• Direct reach crossed 600,000 outlets: 30,000-40,000 outlets were added this quarter alone, plus 6,000-7,000 rural towns and additional depots. The three-year target is 0.1 crore outlets.
• Multi-product leverage: Direct reach lets AWL push multiple products to the same retailer, who typically wants 1-2 additional products. This is visible in Kohinoor, which has scaled from 35,000 to 50,000-55,000 outlets by riding edible oil distribution in smaller towns.
• Dual distribution for Basmati: Fortune and Kohinoor maintain separate distributors in major towns to avoid cannibalizing each other's market share, but share common distribution in towns below 1-lakh population to pool strengths.
• Regional competitive moat widening: Price volatility and hedging complexity make it difficult for smaller regional players to operate profitably, while AWL's scale and direct reach keep widening the gap. In wheat flour, strengthening wheat prices are squeezing regional brands further.

Kohinoor and the Basmati Ambition

• Distribution unlock: After acquiring Kohinoor from McCormick, AWL gained 125 distributors and then layered on its own 1,500+ edible oil distributors in rural markets, pushing the brand to 55,000 outlets and 3.7% market share.
• First advertising in years: A new Kohinoor TVC launched this quarter, the brand's first advertisement in 4-5 years, as McCormick had not advertised in its last three years of ownership.
• Combined market share target: Management is confident of reaching a strong double-digit market share for Kohinoor and Fortune Basmati combined within 2-3 years, leveraging Fortune's strength in East and North and Kohinoor's in South and West.
• King's and Raag Gold: King's is now the third-largest soyabean brand in India, and Raag Gold is the second-largest palm oil brand, building a multi-brand portfolio beneath the flagship Fortune franchise.

Margins: The Conditional Recovery

• The INR 3,500-4,000/ton EBITDA anchor: Management stated this range is achievable if the hedge-physical market disalignment does not continue, offering investors a baseline to measure normalization against.
• No timeline for pre-crisis margins: When asked directly when margins would return to pre-inflation/deflation levels, management declined to forecast, citing a dynamic world where "you never know what is going to happen tomorrow."
• Interest cost stable despite rate hikes: While benchmark rates rose, edible oil prices fell sharply, compressing working capital needs and keeping absolute interest cost roughly flat, a dynamic expected to continue in coming quarters.
• Commodity price comfort is selective: Sugar and edible oil prices are comfortable at pre-COVID levels ($800-900/ton), but wheat and rice remain tight, and toor pulses may face restrictions.

Mallick: "This disalignment kind of things, I think, should get resolved as we go forward. 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."

New Products and the Food FMCG Build-Out

• Fortune whole wheat grains: AWL launched four varieties of whole wheat grain under the Fortune brand, claiming to be the first national company to do so, with a goal to grow the basket to a respectable level by next year.
• Ozel for HoReCa: A new cleaning agent brand targeting restaurants and hotels for linens, floors and utensils, extending the institutional channel beyond edible oil and rice.
• IPO projects on track: All projects are running on time per the prospectus schedule and will be delivered by end of FY24 or FY25, at which point they begin contributing to top and bottom line.
• ESG infrastructure building: Nine major plants now have zero liquid discharge, solar power is in 8 of 23 plants, palm oil traceability exceeds 90%, and over 98% of packaging is recyclable.

Guidance & Commitments

Key Metrics