Manorama Industries Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Revenue up 19.6% YoY, guidance raised: Q1 FY25 revenue hit INR 133 crores, with exports contributing 73%. Full-year guidance was upgraded to INR 750 crores plus.
• New capacity online, no Q1 contribution: A 25,000 MT fractionation plant was commissioned on July 1, doubling total capacity to 40,000 MT. It contributed zero revenue this quarter, so the growth is entirely organic.
• CBE pricing power emerges: A global demand surge pushed CBE average selling prices 10% to 15% higher YoY, a tailwind that should strengthen as the new plant ramps up.
• Margin expansion story intact: EBITDA surged 43.6% with margins reaching 20%, driven by operating leverage and economies of scale. Management sees a path to 22% in FY25, with full benefits landing in FY26.
• What to watch next quarter: The ramp-up pace of the new 25,000 MT plant (guided to 60%-70% utilization) and whether CBE pricing strength holds through the peak procurement season.

New Capacity & Utilization Ramp

• Plant commissioned on schedule: The 25,000 MT fractionation plant started operations on July 1, 2024, taking total capacity to 40,000 MT. The existing plant ran at 95%-100% utilization in Q1, so all incremental growth now depends on the new line.
• Ramp-up trajectory: Management expects 60%-70% utilization of the new capacity in the coming quarter, 50%-70% for the full FY25, and 80%-85% in FY26. Optimum utilization is targeted by the end of FY27, though the company sees potential to reach it by FY26 and will update as quarters progress.
• Revenue potential at peak: At full utilization, the new expansion alone is expected to generate INR 600-800 crores in revenue, effectively doubling the company's top-line from current levels.
• Volume-led growth: Last year's growth was entirely volume-driven, and the new plant's utilization benefit will only start showing in coming quarters. Most of the growth continues to come from volume, not price.

Ashish Saraf: "It is very difficult. It is not impossible but it is not possible also. There are three major sides to it. One is the procurement side... Second, the key part is the production facilities... And the third biggest side is the customer base because all this Chocolate is a very, very delicate product."

Product Mix & CBE Opportunity

• Value-added shift underway: Value-added products (CBE plus stearin) currently make up 50%-60% of production. The company aims to increase CBE's wallet share to 20%-30% this fiscal year and to 50% in FY26, with combined value-added products reaching around 70%.
• CBE pricing tailwind: Average CBE prices jumped 10%-15% YoY due to a global demand surge. Management is booking capacity at significantly better rates than last year, and the strength is tied to CBE's own value chain rather than cocoa price volatility.
• CBE volume expectation: The company expects to produce around 5,000 MT of CBE in the current season.
• New product launches: Milco Cream, Milcoa R, and Milcoa E were recently launched, targeting the bakery fats market, HoReCa, and edible industries going forward.
• By-product advantage: All by-products from production are sold domestically into bakery and HoReCa markets, resulting in zero wastage and a competitive cost advantage against global players who lack this outlet.

Ekta Soni: "Of course, you have seen all the global situations regarding the products of Cocoa Butter Equivalent that is rising surge in demand. So, of course, we are booking it our capacity at a much good rate compared to what we have booked in the last year. So, on average, we can take on a jump of around 10% to 15%."

Margin Trajectory & Profitability Drivers

• Q1 margin expansion: EBITDA margin improved to 20% in Q1 FY25 from 17% in FY24, driven by economies of scale in sourcing, backward integration, seamless operations, and operating leverage where fixed overheads do not rise in line with revenue.
• FY25 margin guidance: Management expects margins to gravitate toward 22% in FY25, with a guided range of 20%-22%. Full benefits of the current expansion will be reflected in FY26, and the margin trajectory is expected to keep moving upward.
• Freight cost pass-through: Container freight costs have nearly doubled to certain markets due to the Red Sea crisis, but African imports are not directly supply-impacted. Most of the freight cost increases have been passed on to customers through product pricing.
• Interest cost structure: Around INR 8.5 crores in interest cost is applied for working capital and raw material procurement. The company is debt-free with surplus cash FDR of INR 95 crores, which will be deployed for coming working capital needs. Net debt of around INR 250 crores is purely for raw material procurement.

Competitive Moat & Customer Base

• Unique raw material basket: Manorama is the only company globally that processes specialty fats from sal, shea, and mango kernel in one basket, while the majority of players are predominantly shea-based. The company describes itself as a tailoring operation that customizes specialty fats to each product's requirements worldwide.
• Procurement moat: Raw materials are collected as wasted seeds from forest floors by millions of forest dwellers, then upgraded to food-grade products through scientific techniques. This fragmented, labor-intensive procurement network is extremely difficult to replicate.
• Customer stickiness: It takes two to three years for any new player to onboard a client. Over the last three years, Manorama has worked with multiple clients to develop application-specific products, and the customer base has expanded from a few major clients to more than 80 global clients across the US, Europe, Russia, Middle East, and Turkey.
• Global demand backdrop: The global exotic butter and fat industry is growing at 7% per annum, with no new capacity added globally in recent years and newer applications increasing demand.

Ashish Saraf: "We are the only company in the world which has all these exotic fats in one basket. We are a tailoring company which tailors the needs of the specialty fats as per the requirements of each product all over the world."

Balance Sheet & Strategic Position

• Debt-free ambition: The company has a clear intention to become 100% debt-free within the next three to four years. Current net debt of around INR 250 crores is working capital for raw material procurement, with INR 95 crores in surplus FDR available for upcoming requirements.
• Inventory build underway: Inventory levels are rising and will continue to do so for three quarters, consistent with the procurement cycle for the new plant's raw material needs.
• Subsidiary network expanding: New subsidiaries have been incorporated in Australia, Russia, and the Middle East. West Africa subsidiaries handle shea nut procurement, while the Russia subsidiary serves local small companies.
• R&D credibility: The Milcoa R&D Centre holds a DSIR certificate from the Government of India's Department of Scientific Research, and is led by Dr. Krish Bhaggan, a world-class scientist. The company has accrued over 100 national and international awards and numerous certifications in research, innovation, quality, sustainable procurement, and ESG.
• Future projects in pipeline: A couple of projects are in the planning and feasibility stage, and will be brought to the board for approval when ready. No timeline was committed.

Ashish Saraf: "Manorama is a visionary company which procures the wasted seeds from the floor of the forest, then uses scientific techniques and world-class technology to upgrade it to food-grade products which the children of all over the world consume. And we are proud to convert our wasted products into wealth."

Guidance & Commitments

Key Metrics