DFM Foods Q4 and FY14 Annual Results Conference

Call
May, 2014

MANAGEMENT: MR. ROHAN JAIN EXECUTIVE DIRECTOR.

MR. RAJIV RAINA CHIEF OPERATING OFFICER, DFM
FOODS LIMITED.
MR. RAJIV BHAMBRI CFO.
MODERATOR: MR. RAGHAVENDRA JAIPURIA ANALYST, PERFECT
RELATIONS

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Moderator

Ladies and gentlemen good day and welcome to the Quarterly Investor Relations Conference
Call of DFM Foods Limited. As a reminder all participant lines will be in the listen-only mode.
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 * then 0
on your touchtone phone. Please note that this conference is being recorded. I now hand the
conference over to Mr. Raghavendra Jaipuria from Perfect Relations. Thank you and over to you
Mr. Jaipuria.

Raghavendra Jaipuria

Thank you, good morning everyone and welcome to DFM Foods Q4 and FY14 Annual Results
Conference Call. Today we have with us Mr. Rohan Jain Executive Director, Mr. Rajiv Raina
- COO and Mr. Rajiv Bhambri CFO to address the call. Before we start I would like to mention
that in todays conference call some statements might be forward-looking in nature. Now, I would
request Mr. Raina to make his opening remarks thank you and over to you.

Rajiv Raina

Thank you Raghvendra. Thank you for joining us on DFM Foods results conference call. I hope
you have all received and reviewed our results presentation.
As you all know ours is a seasonal business with quarter two and quarter three being strongest
with respect to sales. Quarter one is the leanest quarter with school being closed for most of the
period and summer being at its peak resulting in disposable income being diverted from snack
foods to cold drinks and ice creams. Quarter four also shows a slight deep in sales on account of
winter holidays in the northern region which happens to be a key market.
Coming to our quarterly performance this quarter saw total sales increased by 11% to Rs.63.1
crores on a corresponding basis, so quarterly sales saw a dip due to seasonality. Gross profit
margin was slightly down at 36.1% because of cost pressures witnessed for edible oil and
packaging. Internally, we are taking cost rationalization measures which has helped us curtail
cost escalation. Noteworthy is the reduction in laminate size which came into effect starting
February. Our operating profit was at Rs.4.5 crores but the margin of 7.1% was muted due to
increase in employee cost, higher ad spend and sales return pertaining to Krunchoids. Prudent
use of capital and debt repayment helped us to reduce our interest cost by 18% which stood at
1.9 crores for the quarter. PAT of Rs.0.5 crores for the quarter was negatively impacted by one
time exceptional item of 2.4 crores due to change in accounting policy for amortization of
trademark.
Now, coming to our annual result total sales registered a growth of 17% and stood at 263.3 crores.
This growth is attributable to both the existing markets and new regions where we expanded our
distribution reach. Our gross margin during the year improved by 60 basis points and stood at
37.3%. The higher raw and packing material cost were more than neutralized by way of both
grammage reduction and cost saving measures undertaking during the year. The EBITDA margin
increased by 7.7% to 22.6 crores but for lower as a percentage of sales. This was on account of
a higher share of East Zone to total sales which pushed up both employee cost owing to
recruitment as well as delivery expenses. Also during the year we launched a new product
Krunchoids for which we undertook an ad campaign because of which other expenses increased.

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The increase expense for the whole year were down as well by 10% to Rs.8.5 crores our PAT
increased by 12.5% to Rs.7.1 crores impacted by the onetime extraordinary item. For this year
we declared dividend of Rs.2.5 per share.
Coming to our main brands CRAX has performed as per our expectation. The brand continues
to grow in its strong market and also been received extremely well in the new markets we have
entered. This quarter we started distributing in Orissa, Jharkhand, and Bihar and increased our
presence further in West Bengal. The positive impact of which will be visible in the coming
quarters. As you all know we have consolidated our distribution in the Western markets but it is
noteworthy to see an uptick in the growth in the last two quarters. We believe this growth will
sustain in the future as well and we hope to see greater traction from this market. We continue to
focus and expand NATKHATs presence in the northern markets for which we have improved
its distribution. This quarter for the first time we introduced the Rs.5 pack for the product in
February which has been well received in the market. We are hopeful of sustained growth in the
coming quarters from this product.
On our recent launch of Krunchoids, results for this particular product has been below
expectation, we are relooking at the marketing strategy based on the feedback and research
conducted and hopefully by next quarter we will see some progress for this brand as well. We at
DFM Foods believe that there is still some pain left with respect to the overall economic condition
but our approach will be to focus on widening the distribution network and simultaneously
increase our visibility and outlet servicing. We continue to explore new opportunities by
developing new and innovative products and brands that will meet customer expectation.
Now, I would request the moderator to open the floor for Q&A thank you.
Moderator

Thank you very much sir. Ladies and gentleman, we will now begin with the question and answer
session. The first question is from the line of Aniruddha Joshi from Anand Rathi. Please go ahead.

Aniruddha Joshi

Just two three questions from my side. Can you indicate the volume growth per se in this quarter
and volume growth in FY14 as well?

Rohan Jain

See the overall growth for the year has been 17% because there is no price change that has really
impacted our top line the price changes are being in the form of grammage reduction which has
only reduced our cost, so its all in volume which is 17% year-on-year for the quarter our sales
were 63 crores as against 70 crores in the previous quarter as mentioned in the opening remarks
the fall is on account of ring sales being lower seasonally in the north zone.

Aniruddha Joshi

And in terms of price hike are we looking at taking any price hikes considering the rising cost
pressures as you mentioned about packaging material as well as the palm oil.

Rohan Jain

See if you look at our overall gross margins for the year we have actually improved our gross
margins as compared to last year however, we are doing the evaluation for the coming year and
given that there are further pressures of laminates and oils there is a possibility of price change

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which could be affected again in the form of grammage reduction but this is something under
evaluation.
Aniruddha Joshi

Okay and right now the grammage is like 16 grams right?

Rohan Jain

Thats right.

Aniruddha Joshi

Now, after the money has come from DFM, what is the plan with the excess cash on the balance
sheet of DFM Foods?

Rohan Jain

See as of now we have used the cash and invested it in current investments so that we get an
interest on that. As far as capital expansion goes that is something which is depending on when
the capital expansion takes place, if part of the cash is required for margin money then that can
be used, as of now it has been invested in current investments which yield a certain rate of
interest.

Aniruddha Joshi

Has the company received the entire loans and advances given to Delhi Flour Mills now or still
something is pending?

Rohan Jain

As of March 31st all has been repaid.

Aniruddha Joshi

And lastly on the Krunchoids you indicated that the performance was slightly weaker, so any key
reason why the performance is lower than the companys expectations?

Rohan Jain

We are evaluating the same, there are several issues which could impact this in terms of, it could
have been our marketing strategy, some taste acceptance or various reasons that may have
impacted the performance of Krunchoids. We are in the process of evaluating that and we have
also sort of commissioned a research with an independent agency to sort of better understanding
where some of the lapses could have come about.

Aniruddha Joshi

What is the status with the Krunchoids is it, are you still selling the product or it is off the shelf
now?

Rohan Jain

The outlet base on which Krunchoids is being sold is obviously diminished during the quarter as
sales have fallen, the percentage of outlet selling Krunchoids is apparently low, therefore we
have to now consider what should be our strategy going forward.

Aniruddha Joshi

Can we see lower ad spend probably in FY15 considering last year was we had seen the launch
expenses of Krunchoids?

Rohan Jain

Thats right, the advertising expenses are likely to be lower in the next year even though we will
increase the advertising expenditure on rings. Because of the launch expenditure on Krunchoids
this year which is not likely to be the next year, advertising expenditure is likely to go down.

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Aniruddha Joshi

Okay, I mean lastly in terms of distribution network what was the final outlets count at the end
of March and what is the plan for FY15 to add how many number of outlets?

Rohan Jain

We are working on a plan, outlet expansion is a continuous focus we are still working on the plan
for FY15. During the quarter we have primarily added outlets in Bihar, Jharkhand and Orissa
thats been the major area of outlet expansion during the quarter.

Aniruddha Joshi

What will be total retail account direct plus indirect?

Rohan Jain

Well we dont have any account of indirect retail outlet because that service to the wholesale
channel. What we track is our direct coverage which is the number of outlets that we catered
directly through our distribution network. So that is in the region of 2,20,000 retail outlets.

Aniruddha Joshi

2,20,000?

Rohan Jain

Right.

Moderator

Thank you. The next question is from the line of Raunak Agarwal from Catamaran. Please go
ahead.

Raunak Agarwal

I have two questions. What is the sales mix for the full year in terms of Namkeen corn rings and
wheat puffs, thats question number one? And for Namkeen what is the product innovation that
DFM has done?

Rohan Jain

Okay so as far as the sales mix goes rings still constitutes the largest share which is about 80%,
NATKHAT is little over 5% of turnover and the balance around 13% comes from Namkeens.
Krunchoids for this year was around 3%.

Raunak Agarwal

Another question is on innovation given that Namkeen is a very competitive industry with few
large players, in terms of tastes packaging has DFM done any specific innovations in the last one
to two years?

Rohan Jain

Thats an interesting question, as far as Namkeen is concerned as you rightly put it its a very
competitive environment, in the sense that Namkeens are similar across brands, the product
offerings are very similarly unlike in the case of rings where we have completely differentiated
product then for what is out there. So, the traditional Namkeen segment is much more
commoditized in the sense that the products are similar which makes it more of a challenge to
sort of differentiate. We have looked to add some variants over the last few years which we have
done but in terms of pushing the Namkeen sales I think there is scope to do more in terms of
looking at other product offerings or whether its packaging and or even considering marketing
of Namkeens.

Raunak Agarwal

One more question you said you reached 2.2 lakh outlets through your distributors, out of that if
I just see the Namkeen distribution how many outlet this Namkeen product be?

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Rohan Jain

It varies from product to product because within Namkeens we have different price points, there
is a two rupee pack as well as going up to Rs.35 300 gram pack, so it varies and this is something
we dont monitor on a very regular basis but product to product category its different it maybe
in the region of 40% to 50% is the number of outlets that could stock Namkeens.

Raunak Agarwal

My last question how many distributor sir?

Rohan Jain

If you look at distributors in our focused towns which is basically towns above the population of
1 lakhs we have about 700 to 800 odd distributors, I dont know the exact number and if you
look at across the territories including all the smaller towns we are closed to 1000 distributors.

Raunak Agarwal

And what was this number last year 700 800 how many distributors were there last year as of
March?

Rohan Jain

To get back to you but on that number I think whats critical is for you to understand is that, the
distributor number is not the most critical number, reason being for example if we look at a
consolidation where we say we want to upgrade our distributors from slightly smaller distributors
to slightly financially stronger and bigger distributors you would see the number of distributors
actually being impacted negatively. Whats more relevant is the outlet counter which is a direct
measure of our distribution expansion.

Raunak Agarwal

This is very helpful thank you so much.

Moderator

Thank you. Next question is from the line of Percy Panthaki from IIFL. Please go ahead.

Percy Panthaki

Just wanted to understand your medium term strategy in terms of top line as well as bottom line,
in terms of top line you said corn rings are around 80% of your sales currently, three years down
the line what proportion do you see and what other products do you see coming up to fill up to
strengthen your portfolio and secondly just wanted to understand margin levers or drivers, so
currently whatever margins you are making around 8% what is your target margins over the next
three years and how do you plan to achieve them which line items will give you the delta?

Rohan Jain

Basically if you look at top line as you said ring is 80% now its difficult to say what these
percentages will be and how they will change over the next three years its very long period we
will in the coming year which is FY15 we will focus on increasing our share of the NATKHAT
brands as mentioned in the opening remarks we have launched the NATKHAT Rs.5 pack which
is earlier it was only being sold in the Namkeen Rs.2 pack so with the coming of the Rs.5 pack
and with plans of introducing additional variance we hope to increase our share of the
NATKHAT brand. In terms of newer product, this is a focus areas of the company. Krunchoids
are something which still needs to be explored but whether that irrespective of how much
contribution we get from Krunchoids the company will continue to work on new product
development which over the next three years we hope that we will be launching newer products
which will definitely add to the overall top line and strengthen our product portfolio. Your
question on the bottom line, we have seen margins if you look at our EBITDA margin as pointed

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out in the opening remarks our sales have increased by 17% but our EBITDA has only increased
by 7.7% so there has been a decline in the EBITDA margins. Now, couple of things that have
impacted this as we said is one of them is our employee costs have increased. Now, as you know
that we are in the mode of expansion and in this as a result we need to invest in creating the
organizational capacity to be able to cope up with this expansion. Accordingly, there is an
increase in employee costs at a rate which initially is faster than increase in the sales and because
I have to put the organizational capacity in first which sort of affects my EBITDA margin. As
we improve our overall turnover and increase our sales within the Eastern zone, within the
Western zone and even within North zone we will find that our overhead cost in terms of
employee costs will keep coming down as a percentage of sales which is what will further impact
positively the EBITDA margin. Also our media expense will get amortized over a larger volume
which will impact our EBITDA margin positively. In this year we have also spent a lot of money
on Krunchoids, marketing money spent on Krunchoids as a percentage of sales its in excess of
50% again because it was a launch of a new product, so if we adjust for that we will see that our
EBITDA margins will improve going forward.
Percy Panthaki

But all the drivers that you have mentioned it seems at least in the short to medium term they
could actually be headwinds so given your size you will still continue to launch new products
which will require ad spends, again given your size I think your expansion program will continue
for a couple of years more so all these things maybe the leverage you are talking about you could
get after two to three years but in the next couple of years your margins could still be under
pressure is that assessment correct.

Rohan Jain

I think we could see an improvement sooner than that, you are right that these expansion
measures and new products will continue but we could revisit our marketing strategy when it
comes to new products. Should it be a big bang approach vis--vis a seeding approach, its also
so thats something to be thought about. In terms of our employee cost, if you look at for example
I didnt mentioned earlier our factory overheads, I mean one of the reasons why our employee
costs have gone up is on account of the zonal expansion, the other reason why employee cost
have gone up is because of the new capacity the Greater Noida facility which we commissioned
in 2011 which sort of doubled our manufacturing overheads. Now, we are still running at a
percentage utilization which is in the region of 75% to 78%. If we look at growth coming in next
year and if we are able to increase that utilization again even the factory overheads will keep
reducing as a percentage of our turnover which should continuously lead to improvement in
margins year-on-year but we could expect some improvement coming in the next year as well.

Percy Panthaki

And if you can give some color on the top line your full year sales growth was 17 but this quarter
is 11 so is it just because of some macroeconomic slowdown that the 17 to 11 delta has happened
or the seasonality which you mentioned actually should not matter on a Y-o-Y basis.

Rohan Jain

Its important question but I think this year what we have seen is that the seasonality impact has
been more than usual, in the sense that I mean if you recall January continued to be very cold
and the cold lasted through February, reports suggested that this February was amongst the
coldest February in 60 years in the North zone so the cold has continued through Jan and Feb,

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so we didnt see the same kind of revival in February as we normally see and as a result the 17%
year-on-year was muted to 11% quarter-on-quarter.
Percy Panthaki

So, going ahead 15% to 17% band is what you will be happy with?

Rohan Jain

Well, being happy is slightly subjective statement and without being sort of very specific on the
number, in the past if you look at our growth we have been growing at a much more rapid rate
of growth. Now, we understand that the market gaps are perhaps lesser than what they were and
more importantly I think we have also been impacted by the slow economic conditions. We will
continue to strive for higher growth rates we hope to target growth rates higher than this but it is
subject to macroeconomic conditions to some degree even though we will continue to do our best
efforts in terms of our distribution expansion, innovative marketing, increased retail penetration
and growth of an introduction of new products whether its variants or whether its new products
altogether.

Percy Panthaki

If I may squeeze in one last question. I just wanted to understand the capital intensity in your
business, just for example if you put up 50 crores plant at full capacity what kind of sales can
that generate so just wanted to get an idea at full capacity if you put a plant today for every Rs.100
that you put a CAPEX what kind of sales you can get?

Rohan Jain

I mean broadly speaking I think lets say about 40 crore investment could give us more than 100
crores of revenue.

Percy Panthaki

Thats it from me thanks and all the best.

Moderator

Thank you. The next question is from the line of Prachi Kodikal from Bay Capital. Please go
ahead.

Prachi Kodikal

Do we have a sense of the market share that we hold for each of the products?

Rohan Jain

See its difficult to track it unless we buy external data such as that provided by AC Neilsen
which sometimes is a little suspect but it seems to suggest that in the extrusion category its in
excess of 10% it varies from state to state and region to region.

Prachi Kodikal

Alright and predominantly since you are present in the North, do you think there is still more
room for press penetration in that market.

Rohan Jain

Yes we think so I mean while we have sort of covered most of the cities and old cities in excess
of 50,000 population has been covered by us in the Northern zone there are still smaller cities
and rural areas which one can penetrate. In addition, there is also within the areas within the
larger cities that we do operate in there is still always scope for further retail penetration so while
we cover all areas and all parts of the city geographically there is still scope in terms of the
number of outlets that we can work to penetrate within the towns that we service also.

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Prachi Kodikal

Okay but are we working on towards increasing the penetration or whats the company strategy
in that?

Rohan Jain

Yes we are, over the last few years we have continuously opened towns in smaller towns and we
will continue to do that in this year as well and further we will also look at increasing our
penetration in existing Northern markets where we are already are operational.

Moderator

Thank you. Next question is from the line of Shilpi Taparia from Anand Rathi. Please go ahead.

Shilpi Taparia

Just wanted to know what are the CAPEX plans for the next two years?

Rohan Jain

CAPEX plans will depend on how the sales grow over the next year and as and when we are able
to reach a conclusion we will definitely be communicating that on the call?

Moderator

Thank you. The next question is from the line of Karl K who is an Individual Investor. Please go
ahead.

Karl K

I just would like to know about the competitive scenario in the West as well as the Eastern zones
that you have expanded recently I mean would it be fair to say that East is growing faster than
the West for you?

Rohan Jain

Well, I mean the Eastern zone was started in 2012 September so last year FY14 has been the first
full year of operation that we have witnessed in the Eastern zone and therefore the growth rate
of the East zone will be very significant this year thats because of the full year effect coming in.
Comparative environment in the West seems to be a little more intense than it is in the East.
There seem to be lot more regional players in the West than they are in the East, the competitive
landscape of the East is a little cleaner than that of the West, it is dominated more by the MNC
players over the large Indian companies whether its ITC or Frito Lay, but basically I think its
still early to say in terms of how the growth will come about relatively between West and East.
West seems to have now sort of stabilized in terms of sales because of initially when you launch
a product there is lot of trials then there are some people who stay with you and others dont, you
set a sort of distribution expansion and then consolidation so lot of things have been happening
in the West zone and I mean last year the states have been by and large stable with the Q3 and
Q4 numbers being improved but we have hoped that that will continue in the coming year. East
zone will be largely driven by the expansion that we still have to sort of undertake in the states
of Bihar, Jharkhand and Orissa which have only barely been started. So, Eastern growth will be
driven largely by expansion and there could be a catch up as far as the East zone relative to the
West zone is concerned.

Karl K

Alright and just my second question is regarding this Krunchoids, how exactly is the target
market for Krunchoids different from CRAX corn rings? Who exactly are you targeting with
Krunchoids?

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Rohan Jain

The target growth is attended to be a slightly older kid, while we dont want to alienate the
younger child from consuming it, the focus would be on 10 to 14 year old child as oppose to
CRAX corn rings which is focused more on 6 to 10.

Karl K

So, the pack of Krunchoids then wont have a toy right which you would normally give to?

Rohan Jain

We dont offer a toy in Krunchoids instead we offer 25 grams of product unlike in CRAX corn
rings where we offer 16 grams along with the toy.

Karl K

But arent you worried about some sort of cannibalization happening then, there was one product
is competing against another one?

Rohan Jain

To some degree it may happen but given that we are sort of competing in slightly different or
targeting a slightly different TG which is older to whom quantity is more important than say gift,
whereas on the younger side we are giving a gift which is more important and its a very large
quantities are not important because they have a small appetite so in some sense they are catering
to different needs and different consumption segments so well cannibalization can happen we
dont expect it to be very large. Alternatively, having said that if there is a cannibalization its
something we dont really need to be very worried about because our gross margins are similar
in both product categories.

Karl K

And just one last question regarding your CRAX corn rings I mean do you have any data on who
is actually the buyer of the product, while the consumer is the kid, is it the mother who is buying
or is it the kid and should we focus advertising more on the mother or more on the kid as such?

Rohan Jain

Interesting question we had a couple of years ago undertaken a research using the Indian Market
Research Bureau (IMRB) where we also asked this question in terms of who is the consumer and
who is the buyer and what we sort of understood is that its only for the four, five and six years
old kids, lets say four to eight, under the eight year old kids where they are sometimes
accompanied by the mother or the mother buys it for them but by and large seven years upward
we find that children start to make their own choices and eight years upward definitely we are
looking at children buying themselves. The other thing in terms of your question on the
advertising and should be the advertising to mothers I think while the mother may actually end
up buying it, I think the decision of what to buy in some way they still dictated by the child who
will push his mother to say I want CRAX.

Karl K

Right so it is still coming from the kid as such.

Rohan Jain

Right so the mother is only a means to executing the purchase she is not necessarily the decision
maker, the only thing that the mother may endorse, the mothers role is limited to either
endorsement or approval or sort of rejection where its a fat product or the fact that okay its
something which is healthy its made of corn you can eat it thats the kind of role that a mother
plays.

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Karl K

And just my last question. What exactly is your debt repayment schedule I mean what would be
the debt servicing going forward in terms of interest as well as principal payment?

Rohan Jain

We will be repaying 12 crores per annum.

Karl K

Alright thanks a lot thats all from my side.

Moderator

Thank you. The next question is from the line of Aman Batra from Goldman Sachs. Please go
ahead.

Aman Batra

Just continuation of the question that previous participant asked. What is the total debt in the
company?

Rohan Jain

Rs.41 crores as on date.

Aman Batra

And the second question was that if you look at the last two three years financials the expansion
into new products lets say Krunchoids or new territories like Eastern or the Western market
seems to be coming marginally at the expense of your margins, so EBITDA margins have come
off a bit over the last couple of years so how do you see that going forward, are your expansions
margin dilutive and how do you tend to maintain these margins at the current levels?

Rohan Jain

As we said the reason one, one of the reason is okay as we expand to other areas what happens
is that there are couple of things that impact the margin as we expand or three things lets say
that impacts. As we expand to new areas we first have to create the organizational capacity to be
able to service those areas, so the manpower cost actually comes first and sales follow. Now, for
example I need one zonal manager in the East whether it was sale of 50 crores or 100 crores so
as we keep increasing our turnover our employee costs will keep coming down as a percentage
of sales and therefore the margins which initially will be impacted will keep improving. The
other thing which is impacting margins as we go to the other zones is that delivery expenses. We
are continuing as of now we are servicing the other zones by selling our product or just matching
our products from the Northern zone, our factories are both in the North. So, as a result the
primary freight expenses from here till the zone are naturally much higher if we have to transport
goods to the Eastern zone or the Western zone as oppose to what they were and you were selling
only in the north zone. Now this is a temporary phenomenon, till such time that we take a decision
to set up capacity in other zones, so in the medium to longer term perspective when we have
capacities coming up in other zones thats something which will go away in the higher freight
cost. Our strategy has been deliberate on this core because we have felt that it would be a safer
and risk mitigation strategy where we sacrifice short term, we sort of pay higher cost in the short
run in terms of freight build market, build base and then set up capacity rather than adopting a
strategy where we first invest 50 crores or 40 crores and then hope to sell so thats on that side.
In terms of also as we entered in to newer markets we are forced to offer distributors slightly
higher margins, they dont know us, they dont know our company our sales volumes are lower
as the sales grow their returns increase and as a result that gives us an opportunity to increase our
billing prices to the distributors and therefore curtail their margins. So as turnover grows, all

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these benefits of scale shall continue to come which will therefore improve our margins. On the
new product side as we said the launch of Krunchoids where we have gone top heavy in terms of
advertising has impacted margins, sales have been lower than expectation whereas we have spent
adequate marketing money, so that will always happen if you launch a product with a big bang
approach where you top heavy advertising but sales dont meet expectation and that is something
that can happen. But not necessarily that something will happen in every product launch.
Aman Batra

Last question from my side. It seems to be dramatic working capital improvement and it seems
to be negative at this point of time, I am assuming that the positive working capital earlier was
because of the loans and advances to Delhi Flour Mills so is this the characteristics of the business
that you will have negative working capital and in your sense what kind of number of days its
sustainable at?

Rohan Jain

I think what we have seen in Q4 is something that we can hope to maintain going forward because
given that we have the loans and advances that are being repaid now this is something, I mean I
think negative working capital or something because that we can maintain because all our sales
are made on advance basis whereas for all our raw materials we have over 25 to 30-day credit
period so given that maintaining a negative working capital should be something which we can
maintain going forward.

Moderator

Thank you. The next question is from the line Aniruddha Joshi from Anand Rathi. Please go
ahead.

Aniruddha Joshi

Just two three follow up questions. What is the tax rate that we can see for FY15 or FY16 or
company will have full tax rate?

Rohan Jain

33% I think.

Aniruddha Joshi

And are we planning to come out with any new plant to save taxes or something like that?

Rohan Jain

We are not going to come up with the plant Aniruddhaji we are not going to come up with the
plant to save taxes, we are going to come up with the plant to grow our sales if thats the need I
mean I dont, our CAPEX plan would be dependent on our sales so and depending on where their
CAPEX plant would be located whether that would be in a zone where we get some benefits or
not is something which is very premature.

Aniruddha Joshi

I mean I guess one to two quarters where you had indicated about starting a new plant either in
West or East so can you give any guidance on that or still not yet finalize?

Rohan Jain

Still it is premature it is something as I said which is on the radar, we understand that as our sales
grow in the West and East and North and as a capacity. See as I mentioned our capacity utilization
is currently 75% to 78% so unless we sort of hit little bit higher numbers which will be determined
by the sales response that we see in FY15, up until that time it will be little premature and whether
the plant when actually be set up, well it will be set up in the Western zone or whether it will be
set up in Central India or whether it will be in the Eastern zone of the country these are things

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which we will have to evaluate depending on the sales response in the different zones as we move
forward during this financial year.
Moderator

The next question is from the line of Ishit Kaur from Karma Capital. Please go ahead.

Ishit Kaur

Just wanted to understand the strategy of the company in terms of product launches, rings has
been predominately the highest contribution in sales of 80% - 85% since the past for many years
so is it the company is actually looking for a big bang launch maybe in the next year or in the
next two years in order to reduce the dependence on rings or probably to garner higher market
share in the snacks market.

Rohan Jain

See the dependence on rings doesnt really worry us before I come to response in terms of our
strategy for new products our dependence on rings is something which doesnt worry us. There
are several companies which are made on the strength of one brand whether you look at Coca
Cola or whether you look at Colgate, its one brand which sort of drives overall business so thats
something that doesnt worry us because CRAX rings is very strongly positioned for the kids
between the age of 4 to 12 which serves their need in terms of fun, masti, gift, product, taste and
we have a niche and very strong mindshare and market share within that age group so that is
something which in some ways is the strength and something we dont need to worry about. On
the other hand new product introduction is clearly an avenue for expansion, I mean if we want to
target growth rates higher than what we have seen in the last year then clearly we also need to
work on new product introductions and we will continue to do that. Now, what shape and form
they will take what sort of strategy whether it would be often people there is one way that we
want a product which can sort of cross sales of rings that may or may not be possible and its
also not necessary I mean if you have basket of products which can together contribute to
turnover as much as ring does that also works, we will look at products in different areas whether
its Namkeens, whether its the extrusion space or completely new areas of technology. We will
continue to focus on new products because thats what we believe as you rightly pointed out it is
a key driver of growth for us, but what shape and form and how will they actually come about
when they would be launch, what contribution they will sort of add is a little difficult to say at
this point.

Ishit Kaur

Is there any new product launch likely in the next 6 to 12 months?

Rohan Jain

We could look at some variant introductions within one of our existing brands whether its
NATKHAT because as we have mentioned we have already launched NATKHAT Rs.5 and we
can also look at some variant introductions in rings and or Namkeens. In terms of a new brand I
dont see that happening within the next 6 to 12 months.

Ishit Kaur

And in terms of distribution you said you had 2.2 lakh outlets if we could have a breakup in terms
of reaching wise North, West and East broadly if not the accurate number?

Rohan Jain

Well about 60% or 50% plus comes from the Northern zone of the country, East is the smallest
because there is still maximum room for expansion in the East.

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Ishit Kaur

Okay so any target the company has in terms of rating a particular number of outlets in the next
12 months or something?

Rohan Jain

We are working on our plans and we hope to grow it, we dont have a final number yet.

Ishit Kaur

Because I guess if they do not have good product launch in next 6 to 12 months distribution lead
growth is what isnt the company would be looking out for thats the reason why I asked this
question if we have some kind of target in terms of increasing our outlets?

Rohan Jain

Thats right, no we are working on that target we will definitely look to increase outlets and
distribution lead growth will definitely add, we will be one of the major drivers in the coming
year at the same time same outlet sales have also increased. If you look at our growth patterns
over the last few years or even last year its not as though 17% growth has come from either new
products I mean Krunchoids had only contributed 2.5% turnover or nearly 3%, if you look at
distribution expansion maybe 25% of our growth has come from distribution expansion in East
Zone but the balance growth has also come from existing markets, so given that we are in a
product category which is growing where its an aspirational product category, its a category
which is increasing urbanization, increasing consumerism. I think we can expect growth to come
not just by way of distribution expansion which of course will be major driver but also same
market sales and same outlet sales will continue to increase as we improve, as the category grows
and as we put efforts into innovative marketing to gain market share as well.

Ishit Kaur

And whats the kind of CAPEX that we have done for FY14?

Rohan Jain

There is nothing major in terms of capacity expansion, capital expenditure has been mostly
routine, in terms of slight upgradation within the factories. There has been some of the work
which was left over from the Greater Noida facility that we had set up, which some of the things
that have been sort of left over which were completed but nothing that has really lead to enhanced
capacity.

Ishit Kaur

And in terms of setting up that facility in Greater Noida what was the CAPEX for it?

Rohan Jain

In the region of Rs.80 crores.

Ishit Kaur

And that was last year or this year?

Rohan Jain

It was commissioned in 2011 so the FY12 is when it was actually commissioned.

Moderator

Thank you. As there are no further questions I now hand the conference over to the management
for their closing comments.

Rajiv Raina

I would like to thank everybody for participating in this conference. We hope that the next
financial year will be positive, thank you.

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Moderator

Thank you very much members of the management. Ladies and gentlemen on behalf of DFM
Foods Limited that concludes this conference. Thank you for joining us and you may now
disconnect your lines.

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