Foods & Inns Ltd

Food & Inns looks like a very interesting business, given the large downstream investments and tailwinds in the sector. Company’s diversification into Pectin (high gross margin & an import substitute) and focus on B2C is looking promising. However, not sure why they’re planning to get into Mini-QSR, plant-based meat etc.

I attended their 2022 AGM. Some notes from it:

• Profitability unaffected by mango prices → passed on to customers.

• Demand from Europe remains very strong (unaffected by the Russia-Ukraine crisis) and is higher than the current capacity.

• Tomato pulp → China has the largest market share but there is a shift towards domestic sourcing.

• Guava pulp → market growing substantially. Lots of upstream capacities.

• Intend to put F&I mango pulp on retail shelves in the next few years.

• 2 years ago, exports contributed to 70% of revenues. However due to higher container prices and fungible capacities at F&I, the domestic market had higher revenue share this year.

• Pectin is a high gross margin business → only conversion cost (electricity cost). Earlier had to incur a cost to dispose of the waste.

• Very briefly mentioned about plans in plant-based products (plant-based meat?)

• They are testing waters with the mini-QSR (which they described as something between street food and QSR). Ticket size between Rs. 100-150. Looking at 100 sq. ft outlets serving ready-to-eat food.

• One shareholder asked them to elaborate on the frequent insider trades/invocation of pledge recently and the CFO denied this. (Strange, because there have been a few filings about insider trades and invocation of pledge, recently. Wondering why would they want to deny this?)

• Debt-equity → will always keep it under 2x.

• Looking to take ROCE over 20% over the next few years.

• Succession planning – No such plans but looking at talent acquisition.

• Tetra Recart – Advanced trials with MNCs. Packaging for consumer products.

• Continuing to see strong growth in the domestic market. Coke and Pepsi are growing 22% and targeting a doubling of capacity in the next 4 years (because a shift towards packaged food/beverage is gaining momentum?). F&I are also planning capex in line with this.

• Competitors aren’t faring well (which explains gain in market share this year) – Capricorn in NCLT and Jain Irrigation facing some issues too.

• Kusum Masala – Plan to convert to a private limited company. Will also focus on the domestic market, but projecting more growth in exports. Plan to make this a sizable business in the next few years. (does the fact that they’re focussing on exports imply that they’ll be focussing more on higher margin blended spice mix?)

• Tetra Recart – Is an advanced solution compared to Tetra Pak – cost-efficient, space-saving and eco-friendly.

• Expanding cold room capacity – Increasing efficiency and cost-saving in the frozen food business.

• Tetra Recart (Rs. 35-40 crores) and Pectin (Rs. 15 crores) – I am not sure if these are capex or revenue figures.

• This year’s revenue growth attributed to three reasons – growth in the Indian beverage Industry, competition operating at a low-level and “tied-up” contract manufacturing.

• India currently imports 95% of its pectin requirement and it is majorly from China. The landed cost of imported pectin from China is Rs. 1200-Rs. 1400/kg, while it’s Rs. 750-900 for F&I (I am not sure if this figure is based on actual production cost or an estimate of cost, but sounds quite encouraging either ways).

• Pepsi, Mala and Mapro have approved lab test results for Pectin. They see a large use case.

• First putting up a 150 MT pectin plant in Chittoor.

• See an opportunity to expand in other mango growing countries. Also looking to manufacture Pectin using Banana peels.