Manorama Industries Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Record quarter, margin upgrade: Operational performance hit an all-time high, and management lifted its full-year EBITDA margin guidance to 23%–25% from 20%–22%, citing multiple unexhausted levers.
• New capacity is ramping on track: The 25,000 MT fractionation plant, commissioned in July 2024, reached 50%–60% utilization in Q3, in line with the FY25 target of 60%–70%.
• Strategic footprint is expanding fast: Seven new subsidiaries were created in West Africa and the UAE to secure raw material sourcing, and a Brazil entity opens the door to Latin American clients.
• The next growth cycle is being planned now: The board approved evaluation of forward integration into chocolates and backward integration into solvent extraction and shea crushing, targeting a sub-3-year payback.
• What to watch next quarter: FY26 revenue guidance, the detailed financial plan for new projects, and whether the ESOP provision recurs.

Quarterly Performance & Margin Walk

• Highest-ever operational performance: Driven by robust market demand for specialty butters and fats, plus higher volumes from the newly commercialized fractionation facility.
• Volume growth: Q3 volume grew approximately 5% quarter-on-quarter, with new plant utilization improving from 40%–45% in Q2 to 50%–60% in Q3.
• Margin expansion drivers: Reduced cost of production improved gross margin, supported by operational efficiency, 5%–10% volume growth, and realization benefits for products.
• Value-added mix steady: Stearin and CBE consistently represent around 55% of the product mix, a ratio that is inherent to the production process itself.
• Employee cost spike is non-operational: The increase was driven entirely by an ESOP provision of INR7.68 crores for the quarter (INR11.50 crores for nine months); underlying employee cost was unchanged.
• Finance cost rose on working capital: Higher working capital utilization reflected seasonal shea nut procurement in Q3.
• Operating leverage still building: The company is already getting leverage benefit and expects continued improvement as capacity utilization rises toward the FY26 target of 75%–80%.

Ekta Soni: "So, what guidance we had given earlier was, of course, 20% to 22% on our previous concalls and everything. So, now we are more confident of graduating more towards 23% to 25% of EBITDA margin on EBITDA level."

CBE Pricing & Demand Dynamics

• CBE pricing is contractually stable: Contracts are signed for 9 to 12 months with fixed pricing and volumes, so price realization changes do not happen every quarter.
• CBE demand is not directly linked to cocoa butter prices: CBE enjoys relative pricing stability due to a diversified raw material base, contractual pricing models, and consistent demand from chocolate manufacturers, owing to functional interchangeability.
• Pricing outlook is upward: Management expects to increase CBE prices further going forward, toward a range of \$6–\$7 per kg, driven by the worldwide market situation.
• CBE wallet share on track: The guided 30% wallet share for the current financial year is being met.
• Contract renewals phase in price benefits: Because contracts with different clients expire at different times, the benefit from higher cocoa butter prices feeds through gradually rather than in a single quarter.

Ashish Saraf: "The world is addicted to cocoa. So, these grindings and all these have got nothing to do with the demand. They are related to more to the other factors. As far as CBE is concerned, we are not directly linked to cocoa butter prices due to the functional interchangeability."

Capacity Expansion & New Plant Ramp-Up

• Fractionation capacity tripled: Total capacity expanded from 15,000 to 40,000 metric tons, with the 25,000 MT addition commissioned in July 2024.
• Ramp-up is on guidance: The new plant reached 50%–60% utilization in Q3, and management reiterated that FY25 utilization will be 60%–70%, calling the ramp "very well in line" with prior guidance.
• FY26 utilization target set: The company expects 75%–80% utilization of the new fractionation plant in FY26.
• No active stabilization challenges: Management stated there are no active challenges in stabilizing the plant, noting that highly technical plants simply take time to reach full utilization.
• Volume growth trajectory: Management described a 15%–20% quarterly growth rate in both quantity and input, though this was framed as a general run-rate statement rather than a specific Q3-over-Q2 figure.

Ekta Soni: "The plant are highly technical plants. So it takes its own time in getting the utilization done for the capacity. So earlier also, we had mentioned that the year FY '25 utilization will be around 60% to 70% for our new plant. So, we are very well in line what we have guided."

Strategic Initiatives: Subsidiaries & New Projects

• Seven new subsidiaries created: Six in West Africa to secure shea nut sourcing, and one in the UAE to secure sourcing and attract new clients from the MENA region.
• Brazil subsidiary opens Latin America: A new entity was established in Brazil to cater to local clients, marking entry into a new geographic market.
• Forward and backward integration under evaluation: The board approved further evaluation of four to five projects over a 2-to-5-year horizon: forward integration into cocoa butter alternatives and industrial/compound chocolates, plus backward integration via a solvent extraction plant in Chhattisgarh and a shea crushing facility in Burkina Faso.
• Backward integration economics: The India solvent extraction plant would replace an outsourced facility where the company is currently losing money; the Burkina Faso plant would crush shea nuts locally and import butter instead of seeds.
• Capex discipline: Projects are prioritized with a payback period of less than three years, though management did not provide ROE or other financial parameter thresholds when asked.
• Project timeline: Each project typically takes 12–15 months post-board approval and execution start; a further deep dive is possible by March 2025, with detailed financial plans to follow.
• Funding approach: The company will assess the need for debt or dilution based on healthy internal cash flows and will decide on phasing once detailed financial plans are approved by the board.

Guidance & Commitments

Key Metrics