Modi Naturals Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Ethanol order anchors near-term growth: A confirmed ₹300 cr order for the upcoming sugar year, plus a 180 KLPD capacity expansion starting construction in Q3, sets a visible growth path for the newly added ethanol division.
• Bulk division headwinds have bottomed: Government price restrictions and import duty cuts caused inventory losses that management calls a "one-time thing"; margins are expected to normalize to a 5-6% steady state as fresh crops arrive in H2.
• Consumer business is stable but investing: Revenue held flat YoY despite a 40-50% drop in oil prices over two years, as volumes improved. Ad spending is now ramping back up after being cut during the ethanol investment phase, which will pressure near-term margins.
• First-ever guidance sets a high bar: Management guided FY25 consolidated revenue of ₹700 cr (75% YoY growth) and PAT of ₹30 cr, implying a significant H2 ramp across all three divisions.
• What to watch next quarter: Execution on the ethanol capacity build, the pace of Bulk division margin recovery as the new crop season begins, and whether increased Consumer ad spend translates to volume growth.

Ethanol: The New Growth Engine

• Confirmed order de-risks FY25: A ₹300 cr order for 41,600 kL was secured from multiple OMCs for the ethanol sugar year starting November 2024, providing revenue visibility for the next twelve months.
• Capacity expansion underway: Engineering work for an additional 180 KLPD is complete; construction begins in Q3 FY25, with the new plant expected online by H2 FY26. Total capacity will reach 310 KLPD.
• Growth trajectory extends into FY27: The expanded capacity coming online in H2 FY26 provides growth for that year, with the full-year benefit of the new plant realized in FY27.
• Margins are seasonal but steady: The long-term target is 12% EBITDA margin. Q1 and Q2 are weaker because the crop is not available; Q3 and Q4 see margin uplift when the crop arrives, so the annual average could be slightly higher.
• Funding plan is not yet decided: Of the ~₹100 cr expansion cost, roughly ₹50 cr will come from internal accruals; the balance via debt or equity remains undecided.

Akshay Modi: "Receiving this order not only reinforces our reputation as a reliable supplier, but also inspires us to push beyond our limits in pursuit of sustainable growth."

Bulk Division: A Margin Recovery Story

• The damage was exceptional: Government-imposed price restrictions on edible oils and reduced import duties caused inventory losses that management describes as unprecedented: "We have probably never witnessed this in our lifetimes."
• That cycle has bottomed: Prices have stabilized, supply chains are normalizing, and favorable rainfall with fresh crop arrivals is creating a more conducive trading environment.
• Steady-state margin is 5-6% EBITDA: Management expects the division to return to this range, with H2 performance improving as the new season begins. The first half is traditionally softer.
• Import duty hike is a tailwind: The recent duty increase on soft oils (palm, soybean, sunflower) has pushed prices higher, reversing trading margins from negative back to positive. Higher price points also incentivize more raw material into processing for oil rather than alternative uses.
• Legacy business decision is deferred: Management says it is "too soon" to decide on winding up or spinning off the Bulk division; a call will be taken "as and when."

Akshay Modi: "Yes like I said, that's a one-time thing. We have probably never witnessed this in our lifetimes. So, that is stabilized. And moving forward, it should be able to contribute."

Consumer Branded Division: Profitable, Cautious, Now Investing

• Profitable from day one: The Consumer business has been profitable since its inception in FY12, reflecting what management calls a philosophy of "extreme caution and careful analysis" in decision-making.
• Revenue held flat despite commodity deflation: Oil prices fell 40-50% over the last two years, but revenue was maintained because volumes improved. Ad spends were reduced during the ethanol investment phase and are now being increased.
• Ad spend is ramping back up: Increased advertising and promotional expenditure is in line with strategy and will pressure near-term Consumer division EBITDA, which already declined in Q2 for this reason.
• Quick commerce is a material channel: Quick commerce now contributes almost 15% of the Consumer top line and is growing very fast.
• New categories are being seeded: Launches include Oleev Kitchen (Pasta, Peanut Butter, Super Soup), Pipo popcorn, roasted peanuts, and Jynx powdered ready-to-mix drinks, all leveraging the existing premium grocery outlet channel.
• Competitive position is strengthening: The company is the third-largest premium oil brand in India and is "inching very close" to the second spot. A brand ambassador deal covering both oil and pasta will be announced shortly.

Akshay Modi: "Our business has been profitable from the very beginning, which underscores our commitment to sound strategies and prudent management. We will continue to uphold this philosophy as we move forward, ensuring sustainable growth and long-term success in a competitive market."

Guidance & Financial Commitments

• FY25 is the first guided year: Management provided consolidated and segment-level guidance on the company's inaugural earnings call, with quarterly calls to be a regular occurrence going forward.
• The implied H2 ramp is steep: Consolidated FY25 revenue of ₹700 cr compares to a ~₹400 cr base, implying 75% growth. The ethanol division alone is guided to ₹275 cr, with the ₹300 cr order providing cover.
• Margin guidance by division: Bulk Oil steady-state EBITDA margin is pegged at 5-6%; Ethanol at 10-12% near-to-medium term; Consumer margins were not quantified but will face near-term pressure from increased ad spend.
• Data gaps remain: Management declined to share volume data, A&P spend as a percentage of revenue, and working capital requirements for ethanol, saying they would "get back" on these.

Guidance & Commitments

Key Metrics