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Apex Frozen Foods Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤23rd Feb 26

Summary : Apex Frozen Foods reported strong Q3 FY'26 growth driven by EU sales and improved realizations, with management expressing optimism for future revenue and margin expansion due to U.S. tariff reductions, EU FTA, and new market diversification, despite rising raw material costs and increased antidumping duties.

Management Perspective positive : Management expressed confidence in achieving higher revenues and margins due to tariff reductions and market diversification. They stated, 'very confident with regard to utilization and growing our volumes' and 'structurally positive' trade developments. They also noted 'positive momentum among the farmers' due to tariff removals.

Concall Report Analysis & Insights

Business Overview

  1. Q3 FY'26 net revenue grew 15% year-on-year to INR264 crores.
  2. Growth was driven by higher shrimp sales to the European Union and improved average realizations.
  3. EBITDA increased 147% year-on-year to INR17 crores, with a 6.5% margin.
  4. 9M FY'26 net revenue stood at INR761 crores, up 23% year-on-year, with PAT at INR31 crores.
  5. Non-U.S. export business expanded from 37% in 9M FY'24 to 51% in 9M FY'26.

Future Growth Prospects

  1. Expect higher revenues, targeting INR1,200+ crores in 2 years, due to tariff relaxations.
  2. U.S. tariff reduction to 25% (from 50%) effective February 7, 2026, to support volumes.
  3. Proposed India-EU FTA for tariff reductions is a structurally positive development.
  4. Targeting capacity utilization increase to 50% by FY'27 from current 33-35%.
  5. Developing new markets like Russia and Australia, expecting sales to start by Q1 FY'27.

Management Insights

  1. Diversification across geographies remains a key focus to reduce single-region dependence.
  2. Strengthening fundamentals, reinforcing balance sheet, reducing debt, and disciplined cost control are priorities.
  3. Confident in sustaining present EBITDA levels (7-10%) and achieving higher margins with increased ready-to-eat volumes.
  4. Working capital days are maintained low, and ForEx risks are covered via forward contracts.
  5. Supporting farmers through hatcheries and other means ensures stable supply for the company.

Signs of Skepticism

  1. Revenue guidance of INR1,200+ crores in 2 years seems ambitious, pending full clarity on FTA benefits.
  2. The impact of rising farmgate prices on future margins is acknowledged but not fully quantified.
  3. Clarity on EU non-tariff barrier relaxation is still awaited, which could affect market access.
  4. No clear picture on U.S. inventory levels and consumption rates post-holiday season.

Risk Factors

  1. Raw material farmgate prices are witnessing an uptick and are currently higher.
  2. U.S. tariff realignments may impact realizations in the near term.
  3. Increased antidumping duty from 1.35% to 3.5% will be effective prospectively.
  4. Global uncertainties and disease-related issues previously dampened farmer sentiment.
  5. Competition from Ecuador and Vietnam remains a factor in global markets.

Good To Know

  1. Q3 FY'26 sales volumes declined 5% YoY to 2,754 metric tons; U.S. sales declined 12% YoY.
  2. Lower raw material prices (INR327/kilo vs INR374/kilo last year) aided profitability in Q3.
  3. 9M FY'26 U.S. revenue share was 49%, with INR390 crores, impacted by tariffs.
  4. Total working capital days are currently at 108 as of September, with debt reduction efforts ongoing.
  5. Freight charges have been at lowest levels compared to pandemic times.

Key Drivers

  1. US tariff reduction boosts export volumes.
  2. India-EU FTA to open new markets.
  3. New markets (Russia, Australia) to add growth.
  4. Increased ready-to-eat product demand.

Key Analyst Discussions

Competitive Environment

  1. Ecuador is the number one shrimp producing nation, with higher FOB pricing.
  2. India aims for a level playing field against competitors like Ecuador and Vietnam with tariff reductions.
  3. Customers are looking to buy from India due to consistency and reliability.
  4. Vietnam faces potential higher antidumping duty rates, which could impact its competitiveness.

Market Trends & Consumer Behavior

  1. Hatchery operations are going well, indicating positive farmer sentiment for stocking.
  2. Stocking was delayed due to cold temperatures but is now improving with better weather.
  3. Global shrimp demand is expected to grow due to nutritionist guidance promoting white meat.
  4. Lent season typically shifts consumer preference towards white meat in U.S. and Europe.
  5. Some farmers are switching to Black Tiger shrimp, but Vannamei supply remains stable overall.

Financial Highlights

  1. Management expects INR1,200+ crores revenue in 2 years due to tariff reductions.
  2. EBITDA margins are expected to be sustainable at 7-10%, potentially higher with ready-to-eat growth.
  3. Tariff component for 9 months was INR86 crores, INR46 crores for Q3.
  4. U.S. realization will reduce with lower tariffs, offsetting tariff expenditure.
  5. Short-term debt significantly decreased from INR140 crores to INR40 crores due to prompt receivables and new customer terms.

Product Composition

  1. Ready-to-eat product orders are growing, with an uptick expected from EU customers post-FTA.
  2. Ready-to-eat capacity utilization is currently around 11%, with significant headroom for growth.
  3. Vannamei production is growing in other states, including inland aquaculture, offsetting some Black Tiger shifts.

Strategic Considerations

  1. Diversification into different markets insulates the company from specific market issues.
  2. Company is focused on growing ready-to-eat volumes irrespective of FTA timelines.
  3. Capacity utilization is planned to increase to 50% by FY'27.
  4. New markets like Russia and Australia are expected to boost volumes in FY'27.
  5. Maintaining strong farmer relationships ensures a stable supply chain.