Chatha Foods Ltd’s management had two Analysts/Investors meetings in the month of April. Below are the notes for the same:

Business:

• For contract manufacturing, logistics is handled by the QSR client
• Own brands have higher margins and is currently 10% of the total revenue
• CFL has a tie up with a company called Jyoti International for logistics of its own brands
• On an average 5 months are required from product development to final on boarding of customer
• FY24 Veg segment volume: ~300 MT

Product Realizations:

• Veg: INR 220-230/Kg
• Non Veg: INR 300-330/Kg
• Plant based: 450-500/Kg

Customers:

• Associated with Subway and Domino’s for more than half a decade
• Dominos & Subways contributed to 70% of the revenue in FY24
• Management claims 90% of Subway’s chicken requirements are met by them
• Taco Bell and Burger King were recently added as their customers
• Already producing two products for Haldiram. In talks to further expand their portfolio.

Manufacturing Facility:

• CFL has one manufacturing facility situated in Mohali. It has two units both operating 2 shifts
• 80% is the maximum utilization that the company can achieve
• Veg and plant based capacities are fungible

IPO:

• CFL came out with an IPO of INR 34 crores which was entirely a fresh issue of 59.62 lakh shares.
• IPO proceeds are mainly going to be used to set up a new manufacturing facility for vegetarian business
• New plant is expected to be commissioned by March 2025
• In the new facility, company will be putting up frozen to fry line for own brands and exports, ready to eat line for both frozen and ready to eat products like dals, rajma, paneer gravies, Indian breads like naan, kulcha, Malabari, paratha and also spring rolls

Distribution Network:

• Own brands, which sells under “Chatha Foods” are distributed through a network of 29 distributors across 32 cities in India which caters to 126 mid segment & standalone small QSR brands.
• Looking to add 40 more distributors in Q4FY23 in the North India

Contracts:

• General/quantity contracts are for 2-3 years
• Price contracts are renewed every year

Management Guidance:

• No intent of venturing into B2C business
• Chicken business is expected to grow at 5-10%
• Veg will not be a single digit growth story. Expected to grow more than the chicken business.
• Expects 40% of the revenue to come from own brands in 2 years. Currently present only in Punjab, Chandigarh and Delhi NCR. Trying to go pan-India by end of this year

This is where we sorely need some scuttle butt volunteer . Company communication is limited …

Malolan

As per the mgt, no impact at all considering the market size is huge.

So, the opportunity itself is huge. So, currently if you look at the total capacities in the organized
sector, they are not capable to fulfill the entire requirement. So, every battery manufacturer, just
because he has to comply with the new regulations, would have to find solutions. So, part of it
is going to come from contract manufacturing with companies like us, organized recycler. And
part of it is going to come by their own internal capacities. So, I think because the opportunity
itself is so huge that even if their capacities come, it will not overall impact growth that we have
envisaged for the next 4, 5 years.

While the results were rightfully off vs. the estimates which is leading to the correction as well, Change is Govt will bring in complete uncertainty in the entire theme of green energy. While the transition still has to happen globally, the vision of current govt and the pace of execution has far higher confidence vs. a change. Personally i take help from technical factors during such times in terms of price volume.

If you see – 650 is a strong resistance now and we are moving closer to the support of the trendline – Around 520-530. The stock should spend some time between 520-650. Hopefully it reverses from here and makes a new high post June 4th