Ladies and gentlemen, good day and welcome to the Business Update Conference Call of LT Foods, hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Meet Jain from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.
Thank you. Good morning, everyone. A very warm welcome to LT Foods Business Update call hosted by Motilal Oswal Financial Services Limited. On the call today, we have the management team being represented by Mr. Ashwani Kumar Arora, MD and CEO, Mr. Rohan Grover, CEO, Organic Business, Mr. Sachin Gupta, CFO, Ms. Monika Chawla Jaggia, Chief Corporate Development Officer. We'll begin the call with a brief talk from the management team. Thereafter, we will open the floor for Q&A sessions. I will now like to hand over the call to Mr. Ashwani Kumar Arora for the opening remarks. Thank you, and over to you, sir.
Thank you, Meet. On behalf of the management and LT Foods team, I would like to thank you all for joining us today at such a short notice. I warmly welcome you all to the conference call to discuss the recent preliminary notice received by our fellow subsidiary company, Ecopure Specialties Limited. Ecopure is the organic arm of the company. The key products of our organic portfolio include rice, pulses, soybean seeds, millets, nuts, flour, extruded oil, etc. The organic business contributes 11% of total revenue of LT Foods. As of financial year 2025, LT Foods' consolidated total revenue is INR 8,770 crore, wherein organic business revenue is INR 933 crore. Soybean is one of the products exported to the USA, with a revenue of INR 47 crore as of financial year 2025. This comprises only 0.5% of LT's consolidated revenue.
We are taking all necessary recourse available to us under U.S. law, and we are very positive of the positive outcome. Further, I would like to reiterate that we don't foresee any material financial impact on the cash flow or future earnings of the businesses. I will now invite Rohan Grover, our CEO of the Organic Business, to take you through in detail. Thank you.
Thank you, Mr. Rohan.
Hello, everyone. Good morning. Happy to give you an update. In 2021, the U.S. Department of Commerce imposed a countervailing duty, CVD, on imports of organic soybean meal from India, primarily to protect the U.S. domestic producers. As a process, they usually choose top one or two exporters to represent the case. The chosen mandatory Indian respondent received a 9.57% duty, and all others, including Ecopure Specialities, fell under the same rate. After reviewing the respondent's data, who got 9.57% duty, which showed significant subsidies they have got due to their SEZ operations, we consulted legal experts and concluded that we could reduce the duty to around 3% by volunteering as a respondent. This would have allowed us to be in a very strong competitive position in the U.S. organic soybean market.
We filed our voluntary response for the 2023 review period, covering shipments worth about $100 million. In the process, we submitted data for various group companies as required. Unfortunately, due to misinterpretation and non-appreciation of the facts on record, the DOC has imposed an adverse facts available. We would like to emphasize this is only a preliminary finding and not final. A final result is due in December 2025, and we now have an opportunity to represent our case and correct these misunderstandings. The CVD applies only to the 2023 period. Future sales for 2024 and 2025 will be reviewed separately. In terms of our exposure, like Mr. Rohan has said, organic soybean contributes roughly about 5% of the organic business and less than 1% of the LT Foods business, with a margin of about 4% to 5%, so the net impact is very low.
The financial impact, if we have to come out of the business, is low, and it is limited to about 4%-5%, and we are confident to offset it through our product introduction and growth into the U.S. and European market and diversifying our international sourcing and moving our soybean operations to our Uganda operations, which could take over part of this business depending on the crop. We have engaged top U.S. legal counsels, who are confident that the Department of Commerce interpretation can be effectively challenged. To sum up, we do not see a material impact on our ongoing or future business, and we are committed to resolving this matter decisively in the right way. Thank you.
Now we can take up any questions.
Yes, sir. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Shivam Mittal from KPMS. Please go ahead.
Hello.
Yes, yes, please.
Yeah, thank you so much, sir, for the opportunity. So just want to know, so 47 crore is the number which is soybean export to U.S. for FY 2025. Is that correct?
Yes.
And similar situation, sir, is earlier also. So we set up facility in Uganda. So how this will impact? I mean, we have facility in Uganda as well.
Sure. We have two facilities for processing soybean, one in India and one in Uganda. It depends from where we are competitive. So we keep using the facility of Uganda and India. Hope that answers your question or?
Any financial impact. We have CVD from India, and I guess Uganda facility is not. CVD is not applicable on that facility.
No, CVD is not applicable on the Uganda facility. It is only from the export from India.
Okay, so sir, in terms of situation, in terms of Iran, so what is the impact on LT Foods' export number?
As an LT Foods, we don't deal with Iran, so we don't have any business with Iran, so we have no impact on LT Foods' business.
Okay, and any impact on trade post?
No, no, not yet. Yesterday, we checked with all the shipping lines. Only it has impact on the Jebel Ali port, where we don't have much exposure. So no, still time, we don't see any impact here.
Okay. Thank you so much.
Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of Abhishek Maheshwari from SkyRidge Wealth Management. Please go ahead.
Hi, team. Good morning. Thank you for this call.
Good morning.
I have a question only related to the order which has come out. From what we see, the countervailing duty on sales pertaining to period January to December 2023 amounting to INR 50 crore and 340%. Okay. Does this mean that the notices for 50 crore into 3.4, that is INR 170 crore? And as far as the FY 25 sales are concerned, 2024 and 2025, are we to assume that this preliminary duty of 340% will be on retrospective basis?
No, this is only for the year 2023 and not to any business on 2024 or 2025. Rohan can explain it further. It is up to us if we wanted to. Yeah, yeah. Sorry?
Oh, no. Should I repeat my question?
Yeah. So what I have understood your question, this is only this duty, which is, again, I'm re-emphasizing, this is a provisional preliminary only on year 2023 sale, which is INR 50 crore, and not applicable to any sales in year 2024 or year 2025.
Understood. So essentially, the demand is for INR 50 crore worth of sales and 340% preliminary notice, which comes to around INR 170 crore. So the impact is pretty material, right? So I mean, are we going to be doing some kind of provisioning? Is it too soon to make any kind of?
It is too soon. It is too soon. It's a preliminary. We are going to file the reply in the next week, and then we have 120 days to revert back. We are very confident. We don't feel anything.
Understood. And one last thing. This is not an LT Foods specific issue, right? This is an industry specific issue.
No, this is Rohan will explain the process, how it works. So as of now, for soybean, it's only LT specific. Rohan, can you explain?
Yeah. So countervailing duty is imposed on the industry as such. The Department of Commerce were able to review other companies or the mandatory respondents, and they give for every company a countervailing duty based on if they are getting any subsidies or not. In our case, they could not review the information, and that's why they have given an AFA, which is 340%. But after the review, they will come up to an Ecopure Specialities pertaining countervailing duty. So the general CVD is for the industry, but this percentage is tied for every company.
Okay. Understood. Understood. Okay. Thank you for the clarification, and all the best. I hope the resolution comes out in your favor. Thank you.
Thank you.
Thank you, Abhishek.
The next question is from the line of Vishwendra Singh from Prudent Equity. Please go ahead.
Hi. Good morning, team. Am I audible?
Yeah, yeah. Very audible. Thank you.
Yes, sir. So I have two questions. So yesterday, ET reported that domestic basmati rice prices have declined INR 4-INR 5 per kg due to this Middle East turmoil. So if this situation persists, do you see any margin reduction for current financial year?
No. We don't see. This is a regular thing. Because of Iran, the market is a little depressed, but being a very strong brand and what we see, the competitive landscape, we are hopeful that that will not impact any margin of LT Foods.
Okay. Noted. And also, I had another question, and this is from the annual report. So if you can bear with this question. So I looked upon the other income section, and it reported that we have sort of inventory management fees from one of our companies based in the US. So can you shed some light on that? What is that part, and how is it calculated for us?
So actually, there is another income that we charge to one of our associate companies in the U.S. So that is the Golden Star. So once it gets consolidated, this year, it will be getting consolidated, and there will be line-by-line consolidation. So this other income, there will be no other income this year, and it will be getting in the normal course of the business. So this is the income which the company charges from the associate company. That is shown in the other income.
Okay, so for FY 2026, other income came somewhere around INR 88.5 crore. What was the quantum from inventory management fees, if you can share it?
Almost INR 500 million was from this aspect.
Okay. And can we expect regular sums in the next few years?
No, no. That will be getting consolidated. We won't be charging to our standalone, so there will be elimination, and it will be getting consolidated. So there will be no other income as such once it gets consolidated.
So it will be ending in FY 2026, am I right?
Yes, yes, yes. You are right.
Okay. Okay. Sure. Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Gaurav Somani from Korman Capital. Please go ahead.
Yeah. Thank you for the opportunity. Sir, you said this is a company-specific issue. Just wanted to understand how are the other exporters doing in terms of duty structure when they're exporting to the U.S.?
Rohan, can you take the question?
Yes, please. So usually, how the process works is the U.S. Department of Commerce selects top one or top two exporters from the country and gives a countervailing duty, which then applies to all others. In this case, there were three companies. Two of them were the mandatory respondents, and we filed ourselves as a voluntary respondent. So the other two have already got reduced countervailing duty, and our data could not get reviewed. So all others would fall under the category of the countervailing duty, which the other two companies had got. So this is the average of the two companies which are the mandatory respondents. The entire industry gets the countervailing duty.
Okay. So just wanted to understand this countervailing duty on soybean exports. Does that have any impact on other lines of business in terms of the understanding which the U.S. Department has for other organic businesses which we import? Are there any such confusion in terms of duty structure at the moment?
No, no. It is pertaining to that single No. It is pertaining to only that code of organic soybean and has no impact on any other product that we export to the U.S.
I understand that. My question is more in terms of because of the current tariff regime which is coming into the picture as well, right? Are there any product lines which we have where such confusion might still persist?
See, that would remain.
Yeah. Take on, Rohan. Yeah.
See, that would remain as of course. That is unclear on how the India and U.S. tariffs will fall into place. So we're very hopeful that should fall into the space. India has a very strong edge or strong competitive edge in the organic market when it comes to the U.S. consumption. So whatever that comes in, we will find ourselves in that competitive edge compared to other countries, and we are hopeful we will find our way in.
Just to add on, whatever the duty structure under this so that will be passed on to the customer when this 10% duty came, and we passed on to the customer. That will not be a challenge to the margin.
Sir, as per the last call, my understanding was you said you left off the duty given the price benefit we have because of price reduction in Basmati.
Yes, yes, you are right. Yes, you are right. But as Ashwani ji told, this is in the case of organic. So not on the basis of the Basmati and the specialty. In the Basmati and specialty, this year, we had input cost reduction. So that will be the duty effect has been absorbed by the raw material cost.
Got it. Got it. So one last question. So yesterday, there was this news article which said that 1 lakh tons worth of stocks are stuck at Indian ports because of this Iran conflict. So are we also facing that issue in terms of exporting our material, or is that all okay?
No, no, no. It is not impacting LT Foods. LT Foods doesn't have any exposure in Iran.
Not the exposure because the sea lanes are impacted. The goods are probably not being exported from the ports. Does that impact?
Yeah. No, no. That is stuck up because Iran war, and the shippers are not shipping to Iran because of not getting their insurance. So we are not exporting to Iran. So our shipments are smooth, regular going.
Okay. Great. Great. Thank you, sir.
Thank you. The next question is from the line of Jolyon from Amiral Gestion . Please go ahead.
Sir, I missed the first part of the call. Could you quantify the impact of the CVD again on our business? And I heard that there will also be investigation for the 2024 and 2025 calendar year. So could you also quantify the impact? Should the CVD be imposed on these two calendar years as well, please?
So I will again tell that whatever the impact has been is only on the sales of 2023 and not 2024, 2025. And this is a preliminary notice, and we will get the final outcome in the next 120 or 130 days. I hope that answers.
So we are following the prelim to the notice. And then in the next 120 or 130 days, they will probably review the prelim and give a final outcome, which in this case might be 0% is what I'm hearing. Is this correct?
Rohan, are you taking this question?
Yes. So countervailing duty is something that the country imposes when there are subsidies that an exporter or an exporting country has. In our case, our fundamentals are strong. We are very sure we don't have any subsidies. We, unfortunately, could not get reviewed. So once we will get reviewed, we are very hopeful we will be able to bring down our current countervailing duty of 9.57% to much lower. That should give us significant edge as well. So it all depends on how we are talking to them and representing and how they are taking our representation in. So we are not that far able to quantify anything, and we do represent our case, and they will review our data, and we will get it and over it.
Okay. From 340% to 9.75% is our expectation.
No, 9.57% is the current countervailing duty. The 340% is usually the companies get when they do not publish or do not share their information with the Department of Commerce. That's an AFA. In our case, when 9.57% duty was applicable, we filed a response to reduce the duty from 9.57%, and our expectation was to make it close to 3%. So we will be able to reduce it once our data gets reviewed.
Okay. So can you just clarify? So once data gets reviewed, you'll be reduced from 340%, which is what they're imposing right now, to 3%. Am I correct?
Yes, that's our expectation. Yes, that's the expectation.
Okay. And the current impact of this 340% ruling is on INR 50 crore of revenue?
Yes, on the sales what we have done in year 2023.
Okay. Got it. Thank you so much.
Thank you.
Thank you.
Thank you. The next question is from the line of Rahul Agarwal from Bandhan Mutual Fund. Please go ahead.
Yes, Rahul.
Sorry to interrupt, sir. The current participant has been disconnected. We will move on to the next question. It's from the line of Yash from Aut Ventures. Please go ahead.
Yeah. Good morning, sir.
Good morning, Yash.
Yeah. So I actually wanted to know that the CVD you said is applicable only on the 2023 sales and not on 2024 and 2025 sales. So what about the sales that we will be doing in FY 2026? Is CVD applicable on that sales of 340%?
So Rohan, can you take up this question? Yeah.
Yes. So there is a period of review that the Department of Commerce uses. We were reviewed on 2023. There are still 2024 and 2025 remaining, and 2026 would come much after that. We would have a clear position, as Mr. Rohan has said, by end, when we do the position of 2023. So whatever will be the duty that will be decided will be applicable in 2026 on this. And if whatever the duty that would come up, our material impact on this business is lower, and we can easily move this business to any other locations or Uganda for this particular instance.
Okay. So in case if we are going to export organic soybean today to U.S., then what is the duty that will be applicable to us then? Is it 340% or some other duty?
No, we are currently exporting to the U.S. already, and we are paying 9.57% duty as it is for the entire industry today.
Okay. Okay, sir, and sir, you just mentioned that the revenue from organic soybean was INR 47 crores. So this is for the year FY 25 or FY 23?
25.
Okay. All right. And what was the revenue from it in FY 2023?
50 crore.
Okay. All right. Thank you, sir.
Thank you. Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to the management for their closing comments.
Thank you so much. Thank you.
Thank you.
Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.