Foods & Inns' Disappointing Q1: Is a Major Turnaround Brewing in Tomatoes and Pastries?

Foods & Inns Ltd. (FOODSIN) just reported its Q1 FY25 numbers, and on the surface, it looks like a quarter hit by a perfect storm. Export shipments got stuck, raw material prices went wild, and key domestic clients faced operational hiccups. But digging deeper into the management’s commentary reveals a company navigating these headwinds while planting seeds for significant future growth.

Is this a temporary blip or a sign of deeper issues? Let’s break down the quarter and see what’s really cooking at Foods & Inns.

Executive Summary: A Tale of Two Stories

The headline story for Q1 is one of significant challenges. The company faced a triple whammy:

1. Export Logjam 🚢: Severe container shortages and skyrocketing freight costs led to a deferment of ₹11 crores in high-margin export sales, with another ₹10-12 crores in potential business lost.
2. Raw Material Mayhem 🥭: A 25% lower mango crop in the South and a near-doubling of Totapuri mango prices squeezed the processing volumes.
3. Domestic Dip: A targeted 20% domestic volume growth ended up at a mere 5-6% due to unforeseen client-side issues.

However, the second, more forward-looking story is far more promising. Management is executing a strategic pivot with aggressive capacity expansions in high-potential areas:

• Tomato Processing 🍅: Capacity is being more than doubled to capture the burgeoning domestic B2B market.
• New Pastry Line 🥐: A new, high-margin business vertical is performing “extremely well,” with plans to scale up from one to ten production lines.
• Pectin Project: A new value-added product from mango waste is set for commercial launch, promising future revenue streams.

The quarter was undeniably weak, but the underlying strategic moves suggest the company is building a more resilient and diversified business for the long haul.

Navigating the Export Storm

For an export-heavy business like Foods & Inns, the global shipping crisis hit hard. Management detailed how vessels were skipping Indian ports for more lucrative China-U.S. routes, where freight rates were 3-4 times higher.

Management Outlook: The management expects the shipping situation to normalize post-September and aims to clear the backlog from Q3 onwards.

Analyst View: This aligns with the broader economic context of global uncertainties impacting export-linked sectors. While the Q1 numbers are impacted, the revenue is deferred, not lost entirely. The key monitorable here is the speed at which they can clear this backlog in Q2 and Q3.

Sales & Realizations: A Muted Quarter

The deferment of high-value exports and lower processing volumes led to a muted top line. The blended realization per kg dropped from ₹105 in Q1 last year to ₹88 this quarter.

However, this isn’t as alarming as it sounds. Management clarified that their business model is a “pass-through” for raw material costs. The sales in Q1 reflected inventory made from last year’s lower-priced raw materials. This indicates that while the top line may fluctuate with raw material prices, the company’s profitability is more dependent on processing volumes and operational efficiency.

Despite the weak Q1, management boldly reconfirmed their long-term guidance of hitting a ₹1,600-1,800 crore top line by FY28/FY29—effectively doubling sales from current levels. This confidence stems from their strategic growth projects.

The Growth Engines: Beyond Mango Pulp

The real story this quarter wasn’t about the legacy business; it was about the new growth verticals the company is aggressively building.

1. The Tomato Bet 🍅

Foods & Inns is doubling down on its tomato processing business, and for good reason. With Chinese tomato imports dwindling post-COVID, a large B2B market has opened up in India.

• Capacity Expansion: More than doubling capacity, with the new plant set to commission in October 2024.
• Market Opportunity: The company mentioned missing out on a potential ₹150 crore order last year due to capacity constraints, highlighting the scale of the demand.
• Future Focus: They are also working with seed companies and farmers on contract farming to improve the quality (lycopene and color) for export markets like Russia and the UK.

This is a smart move to de-risk from the volatility of the mango business and tap into a strong domestic theme.

2. The Pastry Power-Up 🥐

Perhaps the most exciting development is the new pastry line, which makes outer coverings for products like samosas and spring rolls.

• Stellar Performance: Management described its performance as “extremely well” with strong global demand and limited competition.
• Aggressive Scale-Up: After the success of the first line (installed in March), two more are on order (expected by Nov), with plans for five more after that.
• Revenue Potential: With 10 lines, this business could potentially generate over ₹100 crores in high-margin sales.

This venture diversifies the product portfolio into a value-added segment with strong margin potential, catering to both export and domestic markets.

3. Pectin & Tetra Recart

• Pectin Project: The plant, which converts mango peels into pectin (a food additive), is set for commercial production in late August. While revenue ramp-up will be gradual (client approvals take time), it represents a promising “waste-to-wealth” revenue stream starting early 2025.
• Tetra Recart: This segment remains a work in progress, with traction from major brands yet to materialize. It’s a long-gestation play, and we should expect more concrete updates only by the end of FY25.

Financial Health: Prudent and Focused

In a tough quarter, the management’s focus on financial discipline is reassuring.

• Debt Reduction: A key priority for the company. The lower mango processing this season, while impacting the top line, will naturally reduce working capital needs and help deleverage the balance sheet.
• Growth CapEx: The investments in the tomato and pastry lines are funded and are clearly for future growth, which is exactly what investors want to see.

A notable point was the promoter, Mr. Milan Dalal, increasing his stake via an open offer. The stated purpose was to bring global B2C expert Mr. Ray Simkins onto the promoter group, signaling a clear strategic intent to strengthen the company’s global consumer-facing business. This is a strong vote of confidence from the inside.

Final Takeaway: A Turnaround in the Making?

Classifying Foods & Inns right now is tricky. It’s not a fast grower based on Q1, but it’s certainly not a slow grower in terms of ambition. The company appears to be a strategic turnaround candidate, weathering cyclical and external headwinds while making smart, aggressive investments in new growth areas.

The quarter’s results were poor, no doubt. But they were caused by external factors that are expected to normalize. The real test for the management will be execution on their growth projects.

Key things to watch in the coming quarters:

1. Shipping Normalization: Can they clear the export backlog in Q2/Q3?
2. Tomato Ramp-Up: How quickly can the new capacity be utilized and contribute to the top line from Q3 onwards?
3. Pastry Line Performance: Will the new lines come on stream as planned and deliver on their high-margin promise?

For now, Foods & Inns is a story of “jam today, more jam tomorrow.” The jam today was a bit sour, but the recipe for tomorrow’s jam—with a mix of tomatoes, pastries, and pectin—looks far more appetizing. Investors will need patience, but the strategic direction appears sound.

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