CLSEL - Chaman Lal Setia Exports Ltd. Share Price

Management Outlook and Major Points:

Outlook:
Management remains optimistic, focusing on expanding production capacity and export markets. The recent removal of export restrictions on non-Basmati rice (excluding parboiled) and Basmati MEP (Minimum Export Price) has normalized trade, enabling business growth. The company aims to scale quarterly revenue to Rs.500 crore (from ~Rs.400 crore) with new packaging plants in Karnal and Gandhidham (3-4 units) expected to become operational within 15"“30 days, improving delivery timelines. Iran's recent rice orders (145,000 tons) signal price recovery, though CLSEL avoids Iran due to payment risks. Long-term plans include exploring ready-to-eat products and leveraging a diversified customer base across 94 countries.

Key Highlights:

1. Operational Expansion:

   • New plants (Karnal, Gandhidham, Mundra) undergoing trials; Mundra to start commercial production in ~1 month.
   • Capacity additions to boost volumes, targeting 6,000+ tons/quarter growth.

2. Export Focus:

   • Volumes rose 22% YoY (Q3) and 14% (9M FY25).
   • Exploring new markets (Morocco, Sri Lanka) while prioritizing Basmati over non-Basmati for higher margins.
   • 15% revenue from branded exports (39"“40 countries); 85% from private-label packaging.

3. Margin Dynamics:

   • Margins (8"“12%) impacted by competitive pricing for new customers but expected to stabilize with scale.
   • No forex hedging; rupee depreciation benefits realizations.

4. Market Trends:

   • Basmati prices dropped 10"“15% YoY but rebounded recently (Rs.2"“3/kg).
   • Iran's demand influences volatility; CLSEL avoids Iran due to payment delays.

5. Financial Health:

   • No debt for expansion; internal accruals fund growth.
   • Inventory valuation adjustments (mark-to-market) led to temporary profit pressure.

Growth Drivers: Gulfood exhibition participation, automatic packaging tech, and customer diversification to mitigate risks.

Question: In November 2024, the government removed the ban on non-Basmati rice excluding parboiled rice. Can you update us on the current status of export restrictions and MEP on Basmati and non-Basmati rice, and how does this impact overall competitive dynamics and pricing?
Answer: All export restrictions, including MEP on Basmati and non-Basmati rice, have been lifted, restoring normal business conditions. The earlier restrictions were likely election-driven to stabilize domestic prices.

Question: What is the current status of the Mundra expansion, and when can we see it start contributing to revenue?
Answer: The Mundra plant is undergoing trial runs, with machinery and construction complete. Commercial production is expected within 15"“20 days or up to a month.

Question: Post the current harvesting season, what's your view on overall supplies and pricing of Basmati?
Answer: Basmati prices were 10"“15% lower this season compared to last year. However, recent Iran demand (1,45,000 tons) has driven prices up by Rs.2"“3/kg, signaling potential market recovery.

Question: Can you guide us on plans to scale up the branded business and export growth in new markets?
Answer: Participation in global exhibitions like Gulfood strengthens customer ties. New packaging units (3 in Karnal, 1 in Gandhidham) will enhance capacity, addressing delivery delays. Focus remains on fulfilling existing orders before expanding to new markets.

Question: What is the peak sales potential post new packaging units becoming operational?
Answer: Quarterly revenue is expected to surpass Rs.400 crore and reach Rs.500 crore soon, with tonnage growth visible in the next quarter.

Question: Why have operating margins declined despite lower rice prices?
Answer: Margins were impacted by competitive pricing to onboard new customers (e.g., in Sri Lanka and Morocco). Profitability (typically 8"“12%) will improve as these relationships stabilize.

Question: When will the new packaging units be fully operational, and how will they impact capacity?
Answer: Units are under trials, with teething issues being resolved. Full operation is expected in 15"“30 days. Each unit can generate Rs.50"“75 crore annually, aiding the push toward Rs.500 crore quarterly revenue.

Question: Are further price corrections expected in Basmati?
Answer: Prices rebounded recently due to Iran's demand. Volatility remains, but supply shortages for seasonal varieties may limit downside.

Question: Is debt funding the expansion, or is it internal?
Answer: Expansion is funded via internal accruals. Working capital and limited utilization of HDFC's Rs.300 crore loan facility (Rs.57 crore drawn) ensure financial flexibility.

Question: What is the revenue split between branded and private-label sales?
Answer: Branded exports account for ~15% of revenue, with higher margins (10"“15%) compared to price-competitive domestic markets. Private label dominates due to scalability.

Question: How does inventory valuation impact profitability amid price fluctuations?
Answer: Inventory marked to market saw a notional loss of Rs.5"“6 crore due to seasonal price drops. However, strategic stockpiling of high-quality, season-specific rice ensures supply continuity despite volatility.

Question: What is the company's exposure to currency risk?
Answer: No forex hedging; open positions benefit from rupee depreciation. Export pricing factors in a Rs.1"“2 buffer against exchange rate fluctuations.

Question: What is the long-term growth strategy for branded and ready-to-eat products?
Answer: Focus remains on expanding packaging capacity. Ready-to-eat products are under development, with samples tested and launches planned post-stabilization of current units.

Question: How does competition from Pakistan affect pricing?
Answer: Pakistan's weaker currency creates pricing pressure, but India's larger Basmati production (75"“80% global share) and quality focus mitigate risks.

Question: What is the market size and target share for Basmati exports?
Answer: India's Basmati exports total ~4 million tons annually. The company aims to scale its 15% share via capacity expansion and operational efficiency.