APEX - Apex Frozen Foods Limited Share Price

Management's outlook for Apex Frozen Foods, as discussed in the Q1 FY26 earnings call, centers on diversification and adaptability in the face of market uncertainties.

Key forward-looking points highlighted include:

1. Geographical Diversification: The management has made significant strides in reducing dependency on the U.S. market, with non-U.S. business accounting for 45% of total revenue in Q1 FY26, up from 30% two years ago. Furthermore, sales from the EU (excluding the U.K.) represented 39% of total sales for the quarter, reflecting a growth of 22% year-on-year and 37% quarter-on-quarter.

2. New Facility and Product Expansion: The company's second facility has finally received EU listing approval, enabling access to the European market for ready-to-eat (RTE) products, which are anticipated to enhance overall sales and product mix. The share of RTE products stood at 15% in Q1 FY26.

3. Financial Performance: For Q1 FY26, the company reported a net revenue increase of 39% year-on-year to INR 258 crores, alongside a gross profit increase of 47% year-on-year to INR 85 crores. The EBITDA grew 66% year-on-year to INR 18 crores, and profit after tax surged 139% year-on-year to INR 9 crores.

4. Supply Chain and Market Risks: Management expressed caution due to global trade uncertainties stemming from U.S. tariff announcements, indicating a potential moderation in U.S. demand. While some customers have absorbed initial tariffs, the additional 25% penal tariffs may lead to order reductions.

5. Focus on Cost Management: The management remains focused on sustaining margins while navigating cost pressures, due to fluctuations in farm gate prices and overall supply uncertainty, which they expect may last until the end of 2025.

Overall, the management aims to strengthen the company's positioning by diversifying revenue streams and maintaining a robust operational framework amidst varying market conditions.

1. Question: "So regarding uncertainty in tariffs, how do you see India's position with the 25% tariff at least if 50% is not realized? What is the update from the customers regarding which tariff they will absorb?"

   Answer: Most customers are willing to absorb the initial 10% tariff and the announced 25% tariff. Some orders have already adjusted for the 25% increase. While certain clients will absorb an additional 25% due to holiday commitments, many others are hesitant, requesting a pause in shipments due to uncertainty. Orders and production are on hold pending clearer guidance from the U.S. government.

2. Question: "When can we expect new shipments to Europe from the new facility undergoing inspection?"

   Answer: The EU listing has been approved, with final paperwork pending. We expect to start securing orders for ready-to-eat products this month, translating those into sales by next month. Shipment timelines are contingent on processing and order execution.

3. Question: "What is the trend for farm gate prices, and how do you predict supply issues?"

   Answer: Farm gate prices experienced an uptick due to lower supply from distressed harvests. The tariffs impose additional pressures, potentially affecting supply as farmers may become conservative. We anticipate some improvement in supply around October or November if overall conditions stabilize but face uncertainties from diseases and weather issues.

4. Question: "What will be the impact of shifting shipments to the non-U.S. market on transportation costs and margins?"

   Answer: Transportation costs to Europe are expected to be considerably lower than to the U.S., reducing overall freight expenses. As we pivot towards expanding our non-U.S. sales, our margins may improve, but we will need to manage operational costs effectively amidst these market changes.

5. Question: "What types of government support are expected for the shrimp industry from the authorities?"

   Answer: Proposals for various support mechanisms, including freight assistance and reimbursing indirect taxes, are under consideration by the Ministry of Commerce and Finance. While no concrete confirmation has yet been provided, we believe the government is evaluating these options seriously.

6. Question: "What are our margin expectations for the upcoming quarters?"

   Answer: Margin expectations are uncertain due to the volatile tariff environment and evolving supply conditions. While we aim to maintain current margins by managing costs effectively, we anticipate potential fluctuations based on market dynamics.