Dear investors, good day and welcome to the earnings conference call of SKM
Egg Products Export India Limited for the second quarter of FY26-27 hosted by
NSDL.
As a reminder, all participant lines will remain and listen only more during the
management presentation. This will be followed by a Q&A question and answer
session during which participants will have the opportunity to ask questions to
the management.
Should you require any assistance during the conference call or wish to ask a
question during the Q&A session, please use the raise hand feature and the
operator shall assist you. Please note that this conference call is being recorded.
I am Sameer from NSDL. I am pleased to welcome the management team of the
company. We would like to welcome
Mr. SKM Shri Shivakumar, Chairman and Managing Director
Mr. S K Sharathram, Executive Director, and
Mr. K S Venkatachalapathy, Chief Financial Officer.
I would now hand over the call to Mr. SKM Shri Shivakumar, Chairman and
Managing Director of the company, for his opening remarks. Thank you, and
over to you, sir.
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
Good afternoon, shareholders. I'm happy to meet you all again after this quarter
results. Our CFO wants to give an introduction to today's Q&A session. Over to
you.
Mr. K S Venkatachalapathy (Chief Financial Officer)
Thank you, sir. Hello, dear, my dear shareholders. Before commence the today's
con call, we would like to take a moment to acknowledge and appreciate our
chairman and managing director for his continued commitment to learning and
organizational development.
In this regard, I want to communicate to you all that our CMD has recently
enriched his knowledge and leadership perspectives through his participation in
entrepreneurship and management programs at Harvard Business School, both
in India and in the United States recently. Our CMDs progressively bringing
these learnings into the organization and translating them into our company's
day-to-day management and operations.
We are confident that the knowledge and the global perspectives gained by our
CMD will help us strengthen our strategic thinking, encourage innovation,
improve operational effectiveness, and identify new opportunities for
sustainable growth of your company. our CMD's initiative and willingness to
learn at this stage of his career.
On behalf of board and the entire organization, we extend our sincere
appreciation and congratulations to our CMD for his initiative and willingness
to learn at this stage for his career and providing an important for taking our
company to next phase of growth and development in future.
We once again on behalf of shareholders. I wish him continued success and
hope that his example of lifelong learning will inspire all of us to continuously
improve, innovate, and strive of excellence. Thank you so much for your
patience hearing my starting note about the CMD's program. Now let us move
to the con call section. Thank you, shareholders.
Moderator
So, thank you so much. So, with your permission, can we go ahead with the
Q&A?
Mr. K S Venkatachalapathy (Chief Financial Officer)
Sir, before that, we want to share some of the slides what we shared in our
meeting.
Moderator
Sure, sir. Tech support Can you provide Cohost access to CFO. presenter
access to CFO. Yes, sir, you can able to share now.
Mr. K S Venkatachalapathy (Chief Financial Officer)
Are you able to view the slides?
Moderator
Sir, sir, you can share the slides, then only the participants can able to view.
Yeah, you can click on the third option, share. Hi, yeah. So, you go to that,
yeah, go to the presentation mode, then you can view full screen. So, yeah, it's
fine now, sir. You can continue.
Mr. K S Venkatachalapathy (Chief Financial Officer)
I hope all the shareholders are able to view. Dear Shareholder This is the
snapshot of our quarterly performance. Overall, comparing to last six months
of, say, six months of the last year and six months of current year, your
company has maintained the same performance almost turnover as turnover is
around 363 crores as against 380 crores in last year.
EBITDA is 6744 crores in the same, both the periods. with PBT and the PAT
also the same 54 crores and 40 crores respectively during the six months period
comparatively last year and current year. Comparing to quarterly results, the
sales is improved from 179 crore to 184 crore, but because of increase in feed
raw material cost under this one, EBITDA is come down to 28 crores from 38
crores in between last two quarters.
Then our profit before tax is at around 22 crores during the quarter, against 32
crores in the last sequential quarter and the last quarter of the same year.
Profit after tax is around 16 crores during this current quarter, against 24
crores in Q1 and 24 crores in Q2 last year. This is the snapshot of our total
financial results.
Quarterly performance turnover is 363 crore and the profit after tax is
maintained at 40 crore comparatively last year the same results and the
quarterly results what I explained to you can see from the slides. This is a
snapshot and details have been already uploaded in the stock changes which
all the shadow builders should have viewed. Thank you.
Boardroom
Now we move on to questions.
Moderator
Thank you so much. Thank you.
Ladies and gentlemen, now we would like to go ahead with the Q&A session. We
will request the people in the attendees to please raise their hands so that your
queries can be raised and hence can be answered accordingly. Sir, can we go
ahead with the first person, sir?
Boardroom
Please.
Moderator
Sure, sir.
The first person with the hand raised, we have Meherwan Kotwal.
Mr. Meherwan Kotwal
Can you hear me?
Moderator
Yes, sir.
Mr. Meherwan Kotwal
Hi. Good afternoon, and thank you for taking my question. My first question,
I've got a couple of questions. So how are realizations looking for the next six
months?
There is a little bit of oversupply in the US market on account of, I think,
excessive egg production. So, what is our outlook on realizations for the next six
months to a year probably as compared to where we stand today and what were
our realizations for this particular quarter? And I think at the beginning of the
year, we had said that we will for this year see large part growth coming in from
domestic sales.
So, if you could just throw some light as to how our shell egg business also has
been progressing over the first six months and what would our expectations be
for the entire year. And third thing, I think we have been hit a lot by this
unexpected increase in RN cost. So do we have any offsets against this in terms
of whether we could be getting some kind of price increase or escalation from
our customers and yeah basically our view on what to expect on margins and
growth going forward.
Thank you.
Boardroom
Thank you for the question.
Yes of course, the US is able to offer cheaper but we have seen this impact in
Japan that we had to reduce our prices. But overall, the pressure has not been
on elsewhere.
Overall, our realizations have been quite far because Japan is only a portion of
our overall business on the full-length and geo photo side. So up to now, there
has been no big impact on the realizations because of US supply position?
That's number one question that I have answered. The second average
realization you see in quarter is actually about 700 rupees, but it depends on if
we are selling which product combination has gone in that quarter highly. So,
we don't see a very big correction in the average realization going forward for
the next six months and in terms of domestic market, it is still consistent.
The grading operation will come into play only in the next financial year. Any
substantial growth we can expect only in the next financial year. Still, we are
following the old branding strategy. So, after all the equipment for grading and
will be in place by April next year, we will be relaunching new strategy for
growth, which we are currently under discussion and the business model is
being discussed.
So, you can expect in the next six months a continuity of the past six months
with a small margin improvement as usual. Otherwise, you could get a more
aggressive growth path from the next year.
Mr. Meherwan Kotwal
So, do we have any targets for numbers as of now?
Boardroom
No, we don't have. But because the entire business model is being worked out,
so I can't give you any numbers on top line. But the objective is to do, currently
we are selling around 1 1/2 lakh eggs in the paranoid egg segment. We have
our targets to reach 5 lakhs in two, three years.
Mr. Meherwan Kotwal
Two, three.
Boardroom
Three years, 5 lakhs egg a day. It can become more aggressive because we are
still in brainstorming stage should we only attack the premium segment or
should we do a mass exercise? So, we're still strategizing business modeling is
being under discussion. So, hopefully we'll be able to give a better view after
three months’ time. January, February, we'll come up this discussion.
Mr. Meherwan Kotwal
Right. So, thank you so much.
Moderator
Thank you so much for answering that one. Going ahead with the next person
with the hand raised is Mr. Venkatesh.
Mr. Venkatesh
Hi, sir, good morning. How are you, sir?
Alright, sir.
Two questions One is the realizations for this quarter in terms of profits have
come down due to raw materials. Do you expect this to continue for the next
two quarters? And what are your plans for the next year?
Because when we had the last on calls, you said the 100-crore profitability is
something that you would like to maintain for the next year as we are seeing.
So, we just wanted your thoughts on it.
Boardroom
Yes, we are very confident of repeating 100 plus this year.
Regarding raw material cost increase, we are now considering import of soya
and so on Hopefully we'll be able to bring down considerably or to some extent
the raw material cost increase by import substitution for soya mainly and there
was a sudden spurred in the local feed ingredient prices.
So, we have taken a view to import and it becomes feasible to import the one of
the major ingredient’s soya. So, we are doing all that within our scope to reduce
the raw material cost. But one question I think the previous was whether we
can pass on this to our customer.
No International prices are decided by international competition, not on our
cost structure. But we are very good, very well positioned because of our
backward integration to face the challenges in the market. So, I hope I have
answered both your questions.
Mr. Venkatesh
So, thank you so much.
Moderator
Sir, thank you so much Going ahead, we have with this Mr. Mahesh Atal. Mr.
Mahesh, let's go ahead with your question, sir.
Mr. Mahesh Atal
Yeah, am I audible?
Moderator
Yes, sir.
Mr. Mahesh Atal
Firstly, many congratulations to you on completion of your course at Harvard.
Hope that helps our company for the next length of growth.
So, my question is more on the gross margin, sir. I guess there was in this
quarter there a lot of increase in the egg prices. So, what led to, you know, what
was the gross margin reduction and when do you think that we'll be able to
pass on all the raw material inflation that you have seen in this quarter?
With a lag of how many quarters you expect that this can be passed on? How is
the market taking this thing? I mean, how exactly you'll be able to pass on this?
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
No, I think I answered partially this question in the previous answer. Egg
production cost has no correlation to international selling prices. International
selling price is determined by what is being offered by Europe on egg white
powder and US or your powder and other place coming from Ukraine, South
America, Mexico.
So international prices are not determined by our cost of production of eggs in
India because we are a very small player in India as a whole and it's a very
small player in international market. So, our costs cannot influence the market
prices. Of course, we are doing all that is possible to reduce the production cost
of egg by import substitution and by improving efficiency.
On this front and a strategic view, when we have completed the 28th, by
September 28th, 2.4 million birds in production, I think with the efficiency and
better management, strategically we are very well protected to control our egg
production costs. Of course, we cannot guarantee what could be included in
prices going forward, but strategic investment is in place to keep our company
best managed on the cost of rate.
Moderator
Sir, thank you. The next questions would be raised by Mr. Murugesan.
Mr. Murugesan
Thank you for this opportunity. This is one more shareholder-friendly action by
the management of SKM.
Sir, is the US-Iran war affecting us either in way of logistic cause or increase in
lead time, etc.? During your AGM, our sample has been approved by South
Korea and South Korea is a big market. Any further progress?
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
Yes, we have been approved by.
Mr. Murugesan
I'm not finished. The status of these environment EC sets and other
expansions. What is our competitive advantage visa-vis other international
competitors?
Sir, one small request. See, the result was published only around 1230, 1240 in
the website from 1130 onwards, I was sitting in front of the laptop and seeing.
See, immediately, it's like very hot. If you can give some two hours and held this
conquer in the afternoon, it will not only help the shareholders, help your own
people also. And in fact, I sent a message to the company secretary also a
couple of days back.
Thank you, sir.
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
Okay. Of course, all these wars are not helping us in freight costs, especially
the direct impact is flight cost. But on the other hand, if you look at the rupee
depreciation is a positive. So, if you look at it, of course, the freight costs have
gone up after the Ukraine war itself, Ukraine-Russia war, the freight costs have
been increasing.
Overall, I think it is not a bad very bad thing in terms of except I told you last
quarter we last quarter AGM I told you the impact of the war we had to ship
some shipments before quarter Q1. So, we don't see any big hurdle.
I think the cost of flight has gone up but in terms of demand creation, water
has not really impacted us. Of course, sea freight costs have improved, has
increased. So that's the answer to the first question.
South Korea, I'm happy to share that we've been approved by two customers,
but the trial shipment, bigger sample has gone for trials. So, hopefully in the
next quarter, October to December, we'll be getting our first order.
EC rearing house progress. Our project is scheduled to be completed by
September 28th. The first rearing house of this second phase is to be completed
in next two weeks.
I was there only two days ago to review and inspect everything. There is about a
week delay as per target. But in two weeks’ time we will be completing the first
ready house. If all shareholders interested, we can share the pictures of the
images of the images progress. If you'd like to see them all, then just quickly
run through them.
Moderator
Thank you so much, sir.
Mr. K S Venkatachalapathy (Chief Financial Officer)
Just a minute, sir. Sir, are you able to view?
Moderator
Yes, sir, the shared screen is visible to everybody, sir.
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
So, this is the fast EC rearing house under completion. This is the house which
will be completed in two weeks’ time and November 15th onwards we are
looking to place chicks in this. So, we have actually put in the first house.
The second house is getting ready which will be completed in another maximum
two months’ time. So, this is the internal view of the erection that is going on.
This is the second rearing house that is under. Construction. This is internal
erection of the 2nd house.
This is the 3rd house. There is a construction 4th house, 5th house, the 505lakh meter capacity underground sump for water storage. It is ok power house
that is required.
Now this is the layer, first layer shed that is really required for this phase,
which is under development, single key products. So, this is also work in
progress.
This is the second EC house, layer house. And there we are under demolition,
just there we are under demolition. The rest are only pictures of demolition.
So, for your understanding, the entire project is as per plan is actually this cost
house is delayed by a week, but we will make this up. The project will be
commissioned by September 100% on full capacity. And happy to share that
the board has also approved a term loan of nearly 300 crores, 200 from State
Bank. 100 crores from Access Bank. So, we will be signing the documents next
week.
Thank you.
Moderator
Thank you so much, sir. Thank you. Ladies and gentlemen, the next person to
be joining us would be Mr. Saurabh Dole. Mr. Saurabh, let's go ahead with your
questions, sir. Mr. Saurabh. Mr. Saurabh, can we go ahead with your
questions, please?
Mr. Saurabh Dole
Yeah, yeah, yeah Can you hear me now?
Moderator
Yes, sir.
Mr. Saurabh Dole
Yeah, good afternoon, sir Thank you so much for doing the call. Just one
question regarding the feed price escalations that you saw during the quarter.
Can you walk us through a bit on what exactly is the feed policy at the
company? Meaning how many suppliers do you have? What kind of minimum
guarantees do you do? At what point do you do? And what are the price
escalations that you have to absorb?
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
See this is these are all commodities so you can't fix a price in a in a contract.
So, you can only buy and talk about ensuring the price. So normal inventory
level for certain ingredients sub one week for certain ingredients is 15 days and
then for certain ingredients, it can go up to three months when we see a price
advantage. So, there is a strategy to have control over the raw material cost, but
we can't pick them with the contract.
If you want to take a position on any one ingredient, the only way is you have to
buy any stock. So, in that perspective, we are considering importing soya that
will be required for us for six months. It is under discussion; we maybe will be
implemented in another week or two.
Mr. Saurabh Dole
Sure, sir and I think a number of suppliers also do not help in any way.
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
I agree commodity. So, we have multiple suppliers who will supply to our
quality and we have a quality acceptance protocol before we make the payment.
So, some advance will be given and then after quality it can be rejected or some
It depends on what type of deviation from our spec, we handle it subsequently.
There are many suppliers, so we don't have any steady, it depends on who's
able to offer or what and our volumes are big, so there are many suppliers. Of
course, there is a supplier rating and so on which the procurement division is
following. So, it's not like that, okay, if you say X supplier, then we have 4.for
suppliers who are outside our own production system.
That we buy based on NECC reference points. But in terms of raw material, it's
very difficult to say we might have at one point in time 20 suppliers and at one
point in time only 10 suppliers. But our quality assurance protocols are very
stringent compared to the industry and our procurement division is doing
well.to very high quality spec, we are able to buy at market prices Of course,
backed by strong payment conditions.
Mr. Saurabh Dole
Sir thanks very much.
Moderator
Thank you, Saurav. Going ahead, I believe Mr. Venkatesh has a follow-up
question.
Mr. Venkatesh
So, can you give me some idea of SKM Universal's growth for the next year or
two? And then the 2nd question is FY27 or FY28, what could be a possible
guidance from you in terms of revenue and profit growth?
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
As far as the SKM Universal market is concerned, today the board has passed a
resolution to merge the company. with our company. So by April next year, this
will become universal company will cease to exist. It will be only as our listed
company will handle all the operations. But until then, it is 100% owned by our
company.
And as I said previously, the business plan to scale up that business will
happen only from the next financial year. But overall, I would like to highlight
that apart from the 2.4 million birds under our own production, we are also
expanding our capacity from the current 7,000 tons to 10,000 plus tons with
an overall investment of 180 crores, which will come into effect maybe by
second-half of next year. But real sales increment could happen from 28, 29
onwards. And I cannot give you what will be our top line, bottom line and all
that.
I think that is too early to say and we are not obliged to say that also we may be
misleading the shadow with us on my expectation and it could be different. But
I definitely think our company is in a very high growth market, huge
investments both on protecting the bottom line as well as growth in the top line.
Mr. Venkatesh
Thank you, sir.
Moderator
So, thank you for answering that one, sir. Next, we have Mr. Madhur Rathi to
go on with the next queries. Mr. Rathi, let me thank you.
Mr. Madhur Rathi
Yes, so thank you for the opportunity. Sir, firstly, I wanted to understand
regarding the 17 1/2 crore goodwill that has come in our books during this
quarter. So, what is this related to?
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
I think CFO was the best test.
Mr. K S Venkatachalapathy (Chief Financial Officer)
You know, you gave some shares.
This is a purely a purchase of entire shares from sister company, private limited
company for UMC that is going to be merged during the year. And from 14 & 27
onwards, the entire UMC operations will be handled by a product company.
That is a something.5, it's not a good will, it's a purchase cost of shares, entire
shares.
Mr. Madhur Rathi
Got it and Sir, what were the volumes during this quarter and H1? Pardon.
What were the volumes of egg powder and liquid during this quarter as well as
in H1FI27?
Mr. K S Venkatachalapathy (Chief Financial Officer)
Production, yes. See powder sales is around 1625 metric tons during this
quarter and last quarter is 1831 metric tons. Half year 3457 metric tons and
4289 metric tons previously.
Mr. Madhur Rathi
Got it. And sir, just one suggestion, sir, if you can just upload a investor
presentation to uh the stock exchanges so that we can ask you we can't we just
these volume numbers uh you can like we can get it from there that would be
very helpful sir thank you so much on all.
Mr. K S Venkatachalapathy (Chief Financial Officer)
Okay we will do that we will do.
Moderator
So, thank you going ahead the next person to be joining us with the queries
would be Pramukh Kabra. Sir, we can proceed. Mr. Pramuk Kabra, let's have
your questions, please. Mr. Kabra. Sir, I think he's not responding. We'll move
on to the next one. We have Mr. Sam with a follow-up question. Mr. Sam, let's
go ahead.
Mr. Sam
Good afternoon, sir. So, my question is considering the increase in the raw
material cost which you mentioned, and as well as softening of international
prices. What is the profitability guidance for the next two quarters? Will it be
more than 16 crores reported in this quarter? Will it be less or will it be more?
What is your projection of profits for the next two quarters? Thank you.
Board Room
I don't know whether SEBI will allow me to say all these things. First question,
of course, there is an expectation in my mind. And I already mentioned a
ballpark figure that we will do 100 crores plus for sure. Beyond this, I can't give
you what is our planning expectation for every quarter. I don't think that is
allowed by SEBI guidance. I'm sorry if I may be wrong, but that's my current
understanding.
Mr. Sam
Okay, sir. Thank you.
Board Room
Generally, companies do give forward projections or guidance for the year. I
don't know. That's what I'm saying. I'm not sure. That's what I'm saying. It's
very difficult for an export-oriented company where markets are changing. It's
not a B2C or a domestic market-driven entity. So, there are so many variables.
We expect something to happen, but that could be a plus or minus move. So, I
don't want to give an information which may be acting in your favor or against
you. So, I want to go by just by giving performance of every quarter to the
shareholders, of course, explaining the future growth potential and what we are
doing to protect the principal efforts we will be able to communicate, not the
expectation of every quarter. I hope we understand it's also coming from our
business environment.
Moderator
Sir, thank you. Next, we have Mr. Murugaitsan with another question.
Mr. Murugaitsan
Actually, one of the questions was missed I asked, what is our competitive
advantage vis-a-vis our foreign competitors? Then I have a couple of questions
more. Are we buying ingredients like soy and making our own feed? Just please
confirm. Then we though companies generating good cash flow, the dividend is
very less. Please consider the That's the AGM. Third, actually, I wanted to
congratulate Dr. SK Mailandan on conferment of Padma Bhushan because in
the AGM many of us could not speak. So, I want to congratulate him for
conferment of Padma Bhushan and wish him good health and long life. Thank
you.
Board Room
Yeah, thank you for your wishes to my father and Padma Bhushan. wishes to
him. And with respect to soya raw material imports, OK, raw material import,
yes, whenever there is an opportunity to import at a cheaper price, we will be
doing.
Currently, we are expecting to import at least 10% cheaper than what we have,
which is an important ingredient but in terms of dividend, you know, our
company is in a high investment mode. In fact, I was asked, trying to ask the
other way around the shareholders, can I hold invest dividend a little bit lower
for the next two, three years until the investment phase is over? But my initial
thinking is like that, uh, which was with our companies in a heavy investment
mode, we totally about 450 crore debt. we will have.
So nevertheless, investment mode and return on dividends is not to be
compromised. So, we will try to maintain the 25% even during the high
investment phase and the debt period.
Moderator
So, thank you for answering that one. Next, we have Mr. Venkatesh with
another question.
Mr. Venkatesh (Speaker Shareholder)
Sir, I wanted to check with you on the project expansion in terms of the birds.
Can you give me a little more detail on when the first phase will be
commissioned and when the whole thing will come into operations? One is on
the project. Second one is if you can give me an idea on the egg price trend in
India and international. In your experience, what could it be over the next year?
These 2 things.
Board Room
So, we in the new state-of-the-art poultry farm we did a trial investment of
400,000 layers after studying that for nearly one and a half years after food
completion we what we expected efficiencies was established. So, whatever we
were planning to achieve in terms of efficiency improvement We have validated
that with the trial investment of 100,000 birds. And now that is completed long
back. The second phase is what we are starting now for 20 lakh birds. So,
which would be completed by 28th September. So, and what are the anyone's
expansion birds, air price trend?
Throughout the world after the birth, sorry, after the corona, then everybody is
expecting to increase the protein consumption in their diet. So, whether it is in
raw egg form or ingredient form, if you look at it in a holistic view, protein
demand is going up, whether it is egg or egg products, higher demand for
protein is always there. Of course, in India also the same situation. The
consumption of eggs is going up quite rapidly. So, we could see an increase in
market price for shell eggs in India. And that is why I think we are really bullish
about our domestic egg sales in the future.
That is one of the main reasons we're entering because the faster production to
market price I anticipate considerable gap in cost of production to market
realization. So, there's a positive news for the domestic egg front. But of course,
for the egg processing side, yes, if we are buying eggs from outside, this is a
very big concern. But when this project is completed, all our egg requirement be
100% produced by us.
So, it is What market price is doing is not important for us as an overall impact
on the financials of the company will be the financial impact on the cost side
will come from what the agriculture imports like corn, soya, all our feed
ingredients will play. That will play a major role, not the market price for shell
eggs. Market price for shell eggs is going to be positive for us.
Moderator
So, thank you. I believe Mr. Venkatesh still has a follow-up question on this
one. Yes, Mr. Venkatesh.
Mr. Venkatesh
Yes, sir. Domestic, we are very excited about the plans, I think, because you've
been planning this for many years and I think finally you think the market is
ready for branded eggs.
So, do you think in two- or three-years’ time this could be a substantial part of
your turnover, the domestic egg sales?
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
Hopefully, we have been considering this for more than five years now and in
fact, because of the waiting, our company has been a little bit late into this
investment. Nevertheless, compared to the two, three strong players already
present, our company is fundamentally positioned very strongly in terms of cost
structure and in terms of the interests and reliability the company can offer to
the consumers. So, you are right, the next two, three, five years’ time, this
would become important revenue stream.
As I said to some other question, we are still brainstorming whether to which
product segment, market segment, premium segment, mid segment, low end
segment. Yeah, there is a lot of debate and discussion internally, which should
be a target audience, whether we go after the high value premium products or
we'll be there in all spaces or we'll do a mass marketing. It's still a lot of
ideations is going on.
Hopefully In the next three months' time, we will be able to firm up that. But for
sure, it will become an important portfolio for the company in the future.
Moderator
So, thank you so much for answering that one. The next question would be
raised by Mr. Soham.
Mr. Soham
Hello. Am I audible?
Moderator
Yes, sir.
Mr. Soham
Thank you for providing me this opportunity to ask the question. I just have a
query. The management has outlined the 300 crores of. Bank debt for the
ongoing 400 crores of Capex while sitting on a cash of 167 crores. So why not
utilize the larger share of these liquid reserves to reduce the debt and avoid
finance cost?
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
I think CFO will be a better bet while we are borrowing so much.
Mr. K S Venkatachalapathy (Chief Financial Officer)
See, our industry is a seasonal industry and we want to keep a minimum of
around 100 crores in our hands in order to and to go over our cost of funds is
very cheaper. It is only a 5% as compared to banks offer of six by 8.25 because
of So, interest subsidy, interest sub tension 3% is there. So, we are borrowing
only low-cost funds even if we so that whatever the result we are having, we can
earn more than 5% from the banks.
That is the ideology of borrowing funds instead of spending entire Capex in my
own funds.
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
I will say that is based on costing. I would like to additionally say in order to
make your sales projections and going forward, the growth plan, you need
surplus funds to facilitate ideas to make things happen.
So, to be cash surplus in a growth phase is an important criterion than the risk
that we have on having a bigger loan. And as Far we explained, it is not high
cost of funds. It we are having interest submission of 3%, which is about
5.25%.
I think this scenario is a very good money that is available for us. Our surplus
funds, we learn much more than this 5.25%. The finance division has a target
to go beyond 10% on this. So, we are doing pretty well with the surplus funds.
So do not think that this is ideal. It is equal to product we use to get the, we are
also having targets to go. Make good investments to make a bigger return on
this free cash.
Mr. Soham (Speaker Shareholder)
Okay, sir. That's it from my side. Thank you for answering that question.
Mr. K S Venkatachalapathy (Chief Financial Officer)
Thank you, Mr. Soham. Yeah, next.
Moderator
Sure, sir. We have Mr. Meherwan Kotwal with another question.
Mr. Meherwan Kotwal
So, thank you for taking my question again.
So, in our discussion, I heard that I think we've approved our expansion for the
dry powder unit to 10,000 tons. So, will this also be entitled to the interest
subvention that we are getting for the other pieces of our business? And
roughly how much Capex are we looking at for expanding our capacity from
7,000 to 10,000? And this new expansion, is it in some way superior to the
capabilities and capacities that we have at the moment? So that was my
question on the expansion project that is announced and second thing is, as
we've been saying that we'll be filling up the current units as we scale up
operations with respect to our EC farms, which are getting developed.
So, the question from me for there was that are we going to start seeing benefits
coming in a staggered manner or will all the benefits of this planned expansion
emerge only after September 28th? So those two were my questions. Thank you.
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
The first question is no; we don't have interest sub mention on investment in
egg processing. It’s only investment back initiative only for the farm. So that 3%
subvention will not apply for the auto capital capacity expansion. That's the
first part and of course, the farm investment is, as it comes into production, we
will see it supporting the auto apply. The entire project will be completed by 28
September, which means the full benefit will be in place by September 28th.
However, in the meantime, as the eggs come into production, it will add to our
water bind. Then on the powder expansion side, I think we could consider three
to five years of filling this capacity. And the investment is about 180 crores,
backed by margin of 30 crores and about 150 crores term load at 8.25% as of
now.
The next question that you asked me is, yes, we are already having, there are
some improvements in the equipment that we are buying, because what we
bought in the past is not the same that is available now. But in functionality
wise, there is not a very big change.
Of course, efficiencies will be slightly better than the past, because newer
investments will be. cost of production can become lower, primarily because
there is a little bit slight improvement in the efficiency. Overall, the capacity
when it goes from 7,000 to 10,000 tons, the fixed overheads impact on our
costs will benefit from the bottom. That will also happen gradually over a period
of time.
Mr. Meherwan Kotwal (Speaker Shareholder)
Right, sir. Thank you. And sir, finally, we are looking at a much better secondhalf with respect to our profitability based on our discussion. So, do we expect
realizations to be much better in second-half versus what we've delivered in the
first half?
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
It'll be around 700 plus.
Mr. Meherwan Kotwal
It should be around 700 plus, but the volumes will be a little bit better. Thank
you so much, sir. All the best.
Mr. K S Venkatachalapathy (Chief Financial Officer)
Thank you. The next shareholder, if any, please.
Moderator
Sir, at the moment, we do not have any hands raised for further questions, sir.
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
Okay, can I do the concluding remarks then, moderator?
Moderator
Sure, sir.
Mr. SKM Shri Shivakumar (Chairman and Managing Director)
Thank you, shareholders, for spending your time. Of course, the observation of
giving you enough time to study the uploaded results and come back to me is
well taken. Unfortunately, I had to press this in the morning itself. Last year we
did it in the second-half because I had another important schedule this
afternoon.
So, from next year onwards we will have the investor presentation or next
quarter onwards also uploaded along with the results and it will give sufficient
time. We'll meet in the afternoon to do the question answer session. Thank you
for your understanding. And I hope we have done justice to all your questions.
If you have any specifics still further to be clarified, you are most welcome to
write to us and we will reply to you. Your company is in a very high growth path
and we are expecting a good and bright future in the next three to five years.
Thank you so much.
Mr. K S Venkatachalapathy (Chief Financial Officer)
Can we close?
Moderator
Yes, Sir.
Mr. K S Venkatachalapathy (Chief Financial Officer)
Thank you.
