Thank you, Bilal. Good evening, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products Q2 FY 2022 earnings conference call. From the company side, we have with us Mr. Challa Srishant, Managing Director, and Mr. Praveen Jaipuriar, CEO of Continental Coffee, who is also appointed as CEO of CCL Products in today's Board meeting with effect from 29th of October 2021. We also have with us Mr. V Lakshmi Narayana, CFO, Mr. P.S. Rao, Consultant Company Secretary, and Ms. Sridevi Dasari, Company Secretary on the call. Without further ado, I would like to hand over the call to Mr. Srishant for his opening comments, and then we'll open the floor for Q&A. Thank you, and over to you, sir.
Yeah, thank you for the introduction. The group has achieved a turnover of INR 336.83 crores for the second quarter of 2021-2022, as compared to INR 322.22 crores for the corresponding quarter of the previous year. The net profit is INR 49.34 crores as against INR 47.46 crores for the corresponding quarter of the previous year. The EBITDA is INR 82.5 crores, and profit before tax is INR 64.78 crores. For the half year, the group has achieved a turnover of INR 663.06 crores as compared to INR 611.48 crores for the corresponding period of the previous year.
The net profit is INR 93.19 crores as against INR 85.95 crores for the corresponding period of the previous year. The EBITDA is INR 154.59 crores, and the profit before tax is INR 118.52 crores. A couple of other points that I would like to mention is as our expansion in Vietnam the equipment installation and the commissioning has been completed. We are trying to balance our order book as well as the trials that we need to do to fully commission the new line. With this, our enhanced capacity will also be available. Right now we've achieved a part of the enhanced capacity. By next quarter three, we should be able to get the entire capacity online.
As we have already informed last time, we did the plant shutdown also in Vietnam, in spite of which we were able to still have a growth in quarter two compared to last year. Apart from this, there are two other changes that I would like to mention. This is personnel changes. One, Mr. K.V.L.N. Sarma, our COO, has resigned from the company, and he has transitioned everything, whatever he was doing, to Mr. Praveen Jaipuriar, who's now been appointed as CEO of CCL Products. We can open up the floor for questions now.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may please press star and two. Participants are requested to use handset while asking a question. To ask a question, you may please press star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have a first question from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Yeah. Thank you so much, sir, for the opportunity. Yeah, I have a couple of questions. One, you know, after, let's say, the first half, you know, top line growth is roughly about 8.5 %, would you still retain your guidance of about 15% growth in net sales that you have been highlighting for some time? You know, how much of it could come in, let's say, in the fourth quarter of this year from the expanded Vietnam, you know, operations? That's question number one. Second question is that in terms of EBITDA, you know, would our EBITDA on per unit basis would be stable despite the fact that, you know, coffee prices would have gone up in this particular, you know, quarter?
The third question is on our, you know, export market, both in the European supermarket, you know, space where we are looking at some bit of expansion and the new, you know, client that we have signed up in U.S., one of the large, you know, instant coffee player? Yo u know, what's the expansion in some of these, geographies, incrementally?
Okay. The first question, with regards to the guidance, actually there's a slight revision on the guidance. Earlier we had given a guidance of 10%-15%. Now we can confidently say that we will be significantly more than 15% for this financial year.
Okay. That guidance is now driven by, you know, you have been highlighting stronger order book for?
Sir, the line got dropped. We'll move on to the next group.
Yeah. Maybe I can just continue answering the questions. As far as the order book is concerned, yes, we do have a stronger order book, and quarter three and quarter four is typically the peak quarters for us. That's one of the main reasons why we wanted to complete all the expansion by quarter two itself, so that we have that additional capacity available to execute the rest of the orders. Yeah, that's one of the reasons why we are increasing the guidance given. Because of the green coffee prices which are going up, there could be a disproportionate increase in top line, which we'll start seeing from quarter four onwards. That's another point which I just wanted to highlight.
As far as our absolute margins are concerned, they're again on track where they're going to remain constant. After quarter four onwards, we'll start seeing a more increase in top line because of the green coffee prices impact. One more point that was asked earlier was about the customers in the U.S. Yes, that business is going well and there could be an opportunity in the near future where we could secure the primary supplier position also for this customer. It's a positive sign for us.
Thank you very much, sir. A reminder to the participant, to ask a question, you may please press star then one. The next question from the line of Akhil Parekh from Elara Capital. Please go ahead.
Hi, Srishant. Good evening. Congratulations on a decent set of numbers. First question on India operations side. We have seen a significant increase in the raw prices and you just alluded that the impact will be seen in Q4, but has not there been any change in the product mix give that we have expecting that the utilization rate will improve in coming quarters? But it looks like probably the growth is only driven by volume in India, and there has not been much change in the mix or early price realization?
Actually this is a good point that you pointed out but if you look at the numbers a little bit more closely, one yes our FD volumes have increased which is why the margin also has improved in this quarter. The reason why it is not getting reflected fully is because the MEIS that we got last year was about INR 8.5 crores and quarter two of this year was zero. And the licenses were stopped as everyone is aware for quite sometime and just towards the last week of month. They started getting released so we will be selling the license on quarter three and quarter four onwards. Last year quarter three and quarter four the licenses were zero. We had only sold the licenses in quarter one and two. This year quarter one we sold the licenses and quarter two there was zero sale.
So that itself you can seen almost INR 8.5 crores coming in from licenses itself.
Okay. And how much were expected since the total MEIS benefit for the entire year? How much it was in the last few quarters?
We are expecting another INR 15 crores approximately of licenses. We already received about INR 6 crores or INR 7 crores in quarter one. In quarter three and four we are expecting around INR 15 crores.
Coming to utilization rate would not be able to highlight how it is in India?
India utilization was actually good, we are almost as around of 90% now.
Okay. That is what FBCS?
FD.
How was freight rate?
Freight rate also it is similar rate this year. We are operating at more or peak capacity in all the units it will be crossing 90%. That's one of the main reasons why we need to get this new additional capacity online as quickly as possible.
Got you. On Vietnam front, how is the situation now? Because last quarter we had some impact because of the rising COVID cases and kind of military level lockdowns. Has the situation improved now in Vietnam?
Well, Vietnam, the situation, there are some new cases, COVID cases that have come up closer to the factory also now. Fortunately, the government is being very vigilant over there. We are also taking the necessary steps to ensure that we provide accommodation for the employees within the premises itself. Because we have a completely full order book, we cannot afford to default on our commitments. We've ensured that all the raw material is there with us. The main issue right now is manpower. One major advantage that we have in Vietnam is that it's a fully automated plant. With minimum manpower, we are able to run the plant over there. Because it's mainly bulk production, it's not a big issue for us in Vietnam.
The dispatches are kind of normal and has not been impacted. Is that correct?
Yes. The dispatches are more or less normal, and small delays here and there will be there, and freight issues are still there. We have to live with that.
Okay. Maybe if Praveen can highlight in terms of the branded business. How it has done in second quarter?
I think Praveen can answer that.
Hi, Akhil. The domestic branded business, we continued a good run in quarter two also. First half, you know, we have grown by almost 40%. This year, if you remove the army operations, because this year we didn't get that contract. If you remove that, without that, we are growing at almost 45%-46%. We are on track with our growth projections. First half, we did a top line of approximately INR 85 crores.
Should we expect to touch INR 200 crore for the entire year or it will be short of that?
You know, really, as we had informed during the first quarter call that you know, there was two months of disturbance, which led to. In the first quarter, because of low basis last year, we were expecting, in fact, even higher growth than 45%. That disturbance kind of you know, lingered this year as well. In fact, this year was a little more impactful. We lost out a little bit there. Some of our expansion plans, which was to begin much earlier than we had had anticipated. Expansion, when I say our distribution expansion beyond south states, that got a little delayed. So that has led to a little bit of a you know, a setback.
Having said so, we are, you know, we are poised to do a good number in quarter three and quarter four. I'll not be able to exactly pinpoint whether we'll be able to exactly touch INR 200 crores. Yes, we are gunning for it. You know, it could be INR 5- INR 10 crores here or there, that's it. Yes, we are on track for that kind of a number.
Okay. The profitability-wise, we should expect that it will be contributing this year.
You know, like, Akhil, last year we had said that we had broken even. We would have. This year also, things have been going good only. As you know, coffee prices have increased a little. Because we are in consumer market, taking up price increases are not so easy, and it does have a lag effect as well. Therefore, there will be a little impact on margin, but that does not, you know, impact us very differently. As we had guided last time as well, that even for this year, whatever profits we are making, we'll try and, you know, plow back into our distribution expansion and brand building activities. Most of it is on track and there is no major, you know, hiccups. Yeah, these are certain aspects which I thought I'll bring to your notice.
Sure. Just one last question, before I get back in queue.
Akhil, would you like to join back the queue?
Okay, sure. No problem.
Thank you very much.
Thank you.
A reminder for the participant to ask a question, you may please press star then one. The next question is from the line of Rahul Maheshwary from Ambit Asset Management. Please go ahead.
Yeah. Good evening, to the team. Am I audible?
Yes. Hello.
A couple of questions. As you had guided in last quarter that once Vietnam's capacity of 3,500 tons, which you said on the opening remarks, will commission by quarter three. And you said that within next two months, the doubling of Vietnam's capacity plan would be laid out by the management. Can you give further high visibility on Vietnam's CapEx for next 1 year-2 years? How the ramp-up of the capacity for doubling will take place? And related to U.S., as you said that 2-3 major clients were in the pipeline. What is the status there? A nd what kind of out of the overall capacity currently we have reached to service U.S. and where we are targeting ?
Yeah. As far as the further doubling of Vietnam capacity is concerned, we've already initiated that process, and it's expected to be completed in a year's time. Hopefully by quarter two of next financial year, we should be up and running, provided there are no last-minute surprises because of COVID or any other reason. With that capacity, we should be able to cater to these new customers that we are now talking to. At this point in time, we do not have that kind of capacity to cater to the requirements if they give us a large order. We actually pre-sold all the coffee for this year, and we've started selling for next financial year now itself. That's kind of an exceptional situation for us. As of now, the capacity is a bit tight, even with this current 3,000 tons enhancement.
Srishant, can you highlight the sense of confidence you're getting to doubling the capacity, whether the market size expanding or you're gaining the share from the peers which is there because of the better quality and the different types of the coffee which you can provide at an appropriate time? Can you give further color that what is driving such confidence to gain the growth at such a high rapid rate? Also, Srishant, can you highlight some, as in last quarter you said about the new products, value-added products which were contributing currently during the quarter, what was the status? And how the pipeline is building for the new innovative products?
Okay. There's a lot of questions combined in one. As far as confidence about why we are going in for this kind of aggressive expansion is concerned. One, if you notice that within India, the domestic market, we've been doing exceedingly well. Currently by being present in hardly what, four states, we are gaining a good market share. Once we start going on a pan-India basis more aggressively, that capacity needs to be freed up in India. In order to do that, we need to shift some of the bulk production to Vietnam. That's what we've done in the past, and that's what we need to do in the future as well. That is one thing that is giving us confidence.
Second, yes, the market is also growing at a rate of around 2.5% or so, the instant coffee market. We are growing a little bit disproportionate to the market, mainly because the kind of product mix that we have to offer, there is no other company in the world that can offer this. The entire range of products from the most economical to the most premium products we can provide from our factories. That kind of flexibility nobody is offering in the market today. Because we have the technical know-how to do this, we are able to customize based on any customer's requirements. Because of the advantage of economies of scale, we are able to be a little bit more aggressive in the market than anybody else.
Just to intro for more than the Indian market, the global peers which you are supplying to the U.S., European supermarkets or even to Russia or Turkey, over there, whether you're gaining the market share from the peers who are supplying to those markets?
Those markets. We are already supplying to the major players in most of these markets. In Europe, we are actually supplying to a lot of repackers and resellers. Supermarket business, we've created a good foothold with some supermarkets and consistently for the last three years we've been supplying to them, and we got the contract for next year as well. We are expanding into some new supermarkets as well. Breaking into a supermarket chain is actually a very cumbersome process and you need to show a certain track record and all that. Now that we have that track record, it's becoming a little more easy for us to get listed as one of the priority suppliers. Going forward, we're expecting more of small parts to come in the near future.
Okay. Can you throw some light on the value-added products and the innovative pipeline which is there, which last time you said one product about the cold brew where demands from 10 countries were coming and you were not able to supply. Is there what kind of R&D and what kind of innovative pipeline can you witness, if you give an insight on that?
Yeah. We started supplying this cold brew to Trader Joe's initially. We created this product category, and we were pleasantly surprised at the kind of response we got for this particular product. That volume has been consistently growing with us. Now looking at Trader Joe's. There's a couple of large retailers in the U.S. who've now approached us saying that they want us to do something similar for them. We have to now create a different product. We can't give the same taste profile. We're in the process of creating some different products for them. Now, seeing the success in the U.S., there are European, Chinese, as well as Russian supermarkets who have expressed interest saying that they want to introduce cold brew in their supermarkets as well in their own private label.
Because none of the big brands are doing this, the supermarkets are getting a name of being innovative, thanks to us. That's a very big plus point for us. Yes, this is one of the products that we have. There are a lot of other products that we are constantly working on as well, but it might be a little too premature to talk about it at this point in time.
Sure. Thank you very much. Anyone who wishes to ask any question, may please press star and one. The next question is from the line of Himanshu Nayyar from YES SECURITIES . Please go ahead.
Yeah. Hi, Srishant. Good evening and all the best wishes to Praveen for his new role.
Thanks. Thanks, Himanshu.
Thanks. Firstly, just a clarification on the Vietnam base. By doubling capacity, you mean doubling from the earlier 10,000 or doubling from the now expanded 13,500 tons?
Doubling from 13,500.
The cost of that would be around INR 10 million or?
$20 million.
$20 million. Understood. What's the status on this packing and agglomeration unit that we were coming up with in India? If you can highlight if we have more visibility on how much our small pack? I mean, as a percentage of sales can be post the commissioning, because that was supposed to be an important margin driver for us?
Yeah. The new facility is actually completed now. In fact, tomorrow we have the inspection with the factory inspector. We've already initiated the shifting of packing lines as well. That process will be completed in quarter three. By the end of the quarter, we're doing it in a phase-wise manner so as not to impact our existing commitments. Once that is completed, we'll be operating from the new EOU unit, fully.
Can we go, say, in the next couple of years once we fully utilize this?
Yeah. We can go for small packs up to even 20,000 tons by adding equipment. Initially we are putting that equipment in place for maybe around 10,000 tons-12,000 tons. As and when there's a requirement, we keep adding that equipment over there. It depends on what the customers are looking for. It's not possible to utilize a particular equipment 100% for the whole year. We have to always have additional packing capacity in place so that we can cater to those orders when they come in the peak period.
One question for Praveen on the domestic business. You talked about the top-line growth. Just wanted to understand how are things shaping up on the gross margin and pack front, if you can share some numbers, because with the current inflation, I think gross margins could be under pressure right now?
Yes. As I had, you know, when Akhil had asked this question, I did inform that, gross margins are under pressure because, you know, we being, challenger brands, for us, price, increases are a little bit difficult because we have to follow the leaders. Neither from Nestlé nor from Unilever the price increases have taken place. You know, these are generally in consumer market, these are, you know, short-term, impacts that will happen because over a period of time, if the coffee prices don't drop, then, we all will take price increases. It should even out in the long run. A couple of quarters could be impacted. Since we are growing at a healthy rate, we are growing, the top line is growing at 40%-45%.
Really right now, the bottom-line impacts are not very apparent. Also, as we are growing, what is happening is that most of the growth is being driven by brands where the realization is better than the bulk business and the private label that we do in India, they are pretty much steady. They are not growing as much as what the brands are growing. That also helps to kind of, you know, balance out any price increase, the bean price, green coffee price increases. We are well, you know, covered on that front. There's no major cause of worry. We are right now, you know, focusing a lot on how to grow top lines and how can we expand.
As we were speaking earlier that we need to now expand into you know more geographies beyond south because in south we are now slowly established ourselves as a strong number three player. Now we are taking things in the other markets. We are all focusing on investing our resources in expansion.
Okay. We are not expecting a significant loss for the year as a whole, are we? Or is it just a marginal loss?
No, no, we are not expecting any significant loss for the year.
Understood. Just one final question. On the working capital side, I believe with this high inflation, we at least optically will see a higher number on the inventory side of things. Is there any way we can reduce the working capital cycle? Or will we see an increase only both on the inventory side and receivables as well, which we're increasing because of our U.S. expansion?
This is V Lakshmi Narayana here, CFO. I would like to clarify your question. Yes, working capital requirement is due to the increase in GC prices. Our requirement has gone up, but we should be able to avail the available limits. We should be able to manage apart from the operational cash flow, n umber one. Number two is that we are focusing more on improving upon the receivables, and we have reduced the receivables outstanding majorly from earlier level to now, which will help us to maintain our working capital requirements and very much intact.
I understand. All right. That's all from me. Thanks and all the best to you, and wishing the team a very happy Diwali.
Thank you.
Thank you. Wish you the same.
Thank you very much. The next question is from the line of Richard D'Souza from SBI Mutual Fund. Please go ahead.
Good evening, sir. Hello.
Yeah.
Yeah. Good evening. Yeah.
Yeah. Hi, good evening. You can go ahead, please.
Yeah. I just wanted to understand about the logistics situation. Has it eased up, or how is the container shortage and other things going on?
The logistics, actually it's not as bad as it was earlier. Things are slightly improving with respect to the availability, but prices are still much higher, and prices have gone up even for the importing of green coffee.
Okay.
There is going to be a negative impact because of that. Even the export containers, the prices have still gone up. They're expecting the same thing to continue for the next couple of months at least. There's not much of a change there.
Would it be fair to assume that most of our exports from the Vietnam plant are on CIF basis or how is it? Do we bear the cost of the shipping or?
No, we have a combination. There are a few customers that we do have rate contracts with. For those we are executing as far as possible with the old rates itself. If there is an urgency and the customer wants to pull up a container shipment, then we are passing on those costs to the maximum extent possible, or we're kind of partly sharing those costs as well.
Okay. On import of green beans, basically, just wanted to understand from where we import from?
Pardon?
On import of green beans, that is the raw material.
Yeah.
From which countries or which regions do we import? From Vietnam?
We are importing from multiple places. From Africa, we are importing from Ivory Coast, Uganda. We are importing from Indonesia and from Vietnam.
Okay.
These are the main regions that we're getting it from.
Would it be possible for you to share the Brazilian situation, h as it improved? And do you expect the coffee prices to go down in the future, or do you expect it to remain true?
Actually, no, we are not expecting the prices to go down anytime in the near future. In fact, Brazil crop has been drastically impacted. They're saying that the next two years there's going to be a shortfall compared to what was there in the previous year. That's one of the main reasons why coffee from Brazil also has become much more expensive right now. Going forward, even in other countries like Colombia and even in Vietnam for that matter, there is a slight reduction in production. That's one of the reasons why we are expecting the prices to, in fact, go up a little bit more in the future.
Okay. That means even Robusta is facing some supply problems?
Pardon?
Even Robusta coffee is facing some supply problems. That is, Vietnam is primarily Robusta, if I'm not mistaken?
Vietnam is mainly Robusta. Actually both, in both locations we're doing around 90%-95% of Robusta. It's only a small extent of Arabica that we use for our production. For instant coffee across the world, it's primarily Robusta.
Robusta. Okay. Would it be possible for you to share what could be the volume growth, approximately in both Vietnam and India? Or is this mostly pricing growth which has happened?
Volume numbers is something that we stopped sharing a couple of years ago because that becomes detrimental to the company.
Okay.
Yeah. On an approximate average basis, I can say will be like a 15% minimum volume growth compared to the previous year.
Okay.
Again, top line will be growing a little bit more than 15% because of the green coffee pricing.
Okay. One last question from me. Do you think in the near future, over the next three, four years or five years, you would introduce your own brands in the developed market?
We're actually doing it already. In a small way. We just started in about a couple of months ago.
Oh.
Just marketing it. We are not highlighting it anywhere because it's just seeding the market, seeing the response, like how we did it for India initially. We want to first understand the ground level, what are the challenges that we're going to face and everything. Then, later on we're laying the foundation so that the future we can focus on these markets. Keeping that objective in mind, I think that's one of the reasons why we've requested Praveen to do this transition from CCPL to CCL.
Yeah, I thought so that's why I asked. Yeah.
Yeah.
That's good to hear, sir. You know, earlier in one case, when we expanded our product offering, we had a backlash with one of the customers backing out of orders. When we enter into this market with our own brand, we don't expect that kind of a delay or?
Actually, funnily, just today we found out that the same customer who backed out in 1997, we're going to be supplying to them in one of the markets in the near future.
Okay.
Very big coincidence that today only I found this out, and you're asking the same question.
Okay. Do you think there is space for somebody like us in the international market? Because the volumes are humongous there.
Definitely. In fact, our biggest strength that we can bring to the table is variety. The fact is we are able to go to a supermarket and say that, "Okay, we are not going to be competing against you and the products that you have. We want to expand your portfolio of offering with products that are not existing in your portfolio." That is what people are finding interesting. The fact that we have been already supplying to the supermarkets, we already have an established track record, so they understand what we are capable of. They're willing to partner with us and give us an opportunity.
Okay. Okay.
One good thing is, if they have a strong brand. Right now there are only two strong brands which are there in the market.
Yes.
They definitely need a third player so that they can hard bargain with the first two.
Yeah, hard bargaining is possible.
There's a vested interest in these supermarkets.
Okay. Right. Good to hear, sir. Good to hear all these things. Yeah. Thank you and wish you all the best. Maybe I'll come later in for other questions.
Sure. Yeah.
Thank you very much, sir. The next question is from the line of Janakiraman from Franklin Templeton Mutual Fund. Please go ahead.
Hi, Srishant. Good evening.
Yeah, good evening.
Did you upgrade the volume estimate for this year in the beginning of this call?
Yes. We said that earlier the estimate given was between 10%-15%, and we've confirmed that it will definitely be above 15% as far as volumes are concerned. The top line might grow a little bit more, disproportionately because of the green coffee price increase.
Okay. Where does this higher demand for CCL come from? The market growth itself, has it improved or is it due to your own initiatives?
Well, across the board, various countries we are introducing our products and new territories that we are entering into as well. With existing customers also we've been able to increase volumes. All these things put together is helping us grow. One of the main reasons why there are certain customers who've been with us for more than 15 years, 20 years is because partnering with us they've been able to grow volumes substantially. I think in fact in the domestic market itself, I can give a best example of Reliance. The reason why they partnered with us is because they felt that the product was better accepted, and the second they transitioned to us they've been seeing a substantial growth in private label volumes. That's a similar experience that we've noticed from our customers in different parts of the world.
Okay. The fact that you have opted to go in for an ambitious capacity expansion in Vietnam, so does it mean that your visibility for volume growth over the next 2 years-3 years is a bit better than what it was a year back?
Yes. One, we have already been running out of capacity, so we definitely need to add that capacity. We're quite confident that we'll be able to fill this capacity also in the next couple of years. That's the main reason for this expansion.
Okay. Thanks, Srishant. All the best.
Yeah. Thank you.
Thank you very much. The next question is from the line of Amit Zade from Antique Stock Broking. Please go ahead.
Yeah. Hi, Mr. Srishant, sir. Thanks for the opportunity. My first question. Most of the questions are answered, but on first half performance, sir, revenue has grown almost 8%. Considering a low base of last year and the fact that the FDC plant was largely not operational in the first half, is it fair to assume what explains the lower top line growth compared on a low base, sir?
Actually, last year we had, I mean, if you look at it on an annualized basis, we had a 10% top line growth last year. The green coffee was quite stable last year. In the first half, as of now, we have a 10.97% increase in volumes. Actually sales value will be 10.34%. Keeping what we are estimating for quarter two, for quarter three and four, we are very confident that we will be crossing that 15%.
Got it, sir. Sir, one more question. I read some articles wherein it was saying that EOUs and SEZs were eligible for RoDTEP benefits. Any status on that, sir?
I don't think we got any clarity on that yet. Lakshmi Narayana, did we-?
Yeah.
Get any?
Actually, if you look at it, gentleman, a week back the government, the Ministry of Commerce, they set up a committee to review the remission of RoDTEP exercise relating to the EOUs and SEZs. Yet to hear any outcome.
Okay. Got it. Thanks for the opportunity and best wishes for the first issue. Thank you.
Thank you very much. The next question is from the line of Dhiral Shah from Phillip Capital. Please go ahead.
Good evening, sir, and thanks for the opportunity. Sir, for this Vietnam plant, which we have done brownfield expansion, so maybe Q4 we would be utilizing that facility?
Actually, we've already started utilizing from Q2 itself. It's just that, we haven't been able to fully utilize it or commission it 100% because we still have to do some trials. Unfortunately, we haven't been able to do the trials because of the current order book position. There's a lot of pressure from our existing customers to keep delivering based on the schedules that we have given. Anytime there is a free slot available, we are taking up trials. That's the main issue.
For the full year FY 2023, do we expect maybe, you know, full utilization since we have a, you know, stronger order book in hand?
Yeah. I think we've already lost half the year, no? In the second half.
No, I'm talking about FY 2023, next year.
Oh, yeah, next year. Definitely. Next year, in fact, because this additional capacity will come online, we should in fact be crossing the current 13,500 tons as well.
Okay. Next year a 15%+ kind of a volume growth, is it possible?
Next year? Very difficult to tell right now, but again, I think it's safer for me to say 10%-15% and then, you know, update once we are at least halfway down the year.
Okay. The value growth would be again higher, right?
Yeah. revenue will definitely be higher.
Okay. Sir, any plan for expanding the freeze-dried capacity because we are running at full capacity?
Freeze-dried we're not planning right now because there are two new or three new plants which are coming online in the next year. We didn't want to come online at the same time and put a lot of additional pressure in the market. We wanted to see how things pan out. That's why we are focusing on maybe products that give us better realization with freeze-dried. We wanted to focus mainly on the spray dried sales, at least for the next one year. Once this expansion is completed, we'll consider the freeze-dried expansion as well.
Better realization than freeze-dried, and which are the product under spray-dried which is giving higher margin to you?
Again, we have a very, very wide range of products, ranging from cold brews, which are extremely premium, to premix products. It is very difficult for me to pinpoint and say that just this one product is going to give high margins.
Okay. Sir, what is the contribution of small pack and agglomerated coffee in the overall pie?
Agglomerated coffee, we're doing at least, I mean, about 20% of our spray-dried is being agglomerated today. 20%-30% of our spray-dried is being agglomerated today.
In the small pack?
Yeah. Some of it is in small packs as well, but we are also doing bulk agglomerated.
Okay. This incremental expansion, will it be purely from the internal accrual?
Actually, Lakshmi Narayana, we are planning a term loan also or?
Yeah. For the Vietnam operations, we are planning a combination of debt and equity. This is likely to cost the overall project around $20 million. We may go for 1/3 and 2/3 equity, our contribution and balance will be term loan.
Sorry, pardon. How much, sir? I didn't get it clear.
$20 million it is likely to cost. That will be the expansion, doubling the capacity. We may go for 1/3 of the total, around $6 million we go for, we contribute internal accrual and the balance, $14 million, sorry. $14 million we go for the borrow.
Okay. Okay. Sir, lastly, any revenue loss due to the container shortage in Q2? Because our top line growth was just mere 4%, that's why?
The MEIS wasn't there in quarter two. That's also one of the reasons for the reduction. There was actually. If you look at volume-wise, there's almost a 13% increase in volume. That became 4% because of the MEIS reduction.
Okay. Got your point, sir. Thank you.
Thank you very much. The next question is from the line of Yogansh Jeswani from Mittal Analytics. Please go ahead.
Hi, sir. Thanks for the opportunity. Am I audible?
Yeah.
Yeah. Thanks for the opportunity, sir. A lot of the questions have been already answered. Just one clarification or rather guidance from you. In the past, we have been doing between 22%-24% kind of operating margin for a full year basis. Now that we are, you know, putting up more small packs will be coming in, and then there's the benefit of brownfield expansion like Vietnam and all. Going forward, do we see our margin profile changing from 20%-24% kind of level to 27%-30% kind of levels on a sustainable basis?
It should actually be reducing more because the green coffee cost will be higher. We work on a per kg basis, so our margins will remain the same. Our profitability will remain the same. Because the green coffee is higher, the EBITDA margin should technically actually come down.
Okay. Understood, sir. Secondly, sir, with the additional Vietnam capacity of say 3,500 tons and then the doubling of capacity, what kind of incremental revenue can this new capacity bring?
I'm sorry, I didn't get you.
I'm saying, with the increased 3,500 tons of Vietnam capacity and then a further doubling of capacity, so what kind of incremental fee sales can Vietnam do?
What kind of incremental sale can Vietnam bring?
Yes, with the two new CapEx is the INR 3,500 and then a further INR 10,000.
Yeah. For the second half of this year we'll be utilizing that additional capacity fully. Even next year that entire capacity will be utilized. We should be getting that doubled capacity also coming online. Part of that will get utilized next financial year as well.
Understood. Sir, what is the asset turn like for this CapEx? For the $20 million, what kind of asset turn do we expect?
Within one year it'll be completed. Actually we're planning on doing this in like mainly this one phase we'll be doing mostly around 90%-95% of the expansion will be completed. There's a little bit of line balancing that we can further do, which will be done maybe about a year down the line, a year or two down the line.
Okay. Understood, sir. Sir, I think in the beginning, number was shared regarding the branded domestic business and result on that. Can you help provide that please?
Yeah, the number that I shared was approximately INR 85 crores for the domestic market. In the first half, which is a growth of approximately 39%. On the branded side, the growth is almost 40%- 44%, 45%.
44%-45% for first half?
Yeah.
Got it. Yeah. That's it from my side, sir. Thank you, and best of luck.
Thank you very much. The next question is from the line of Harsh Sheth from HDFC Securities. Please go ahead.
Yeah. Thanks for the opportunity. Just couple of questions, sir.
Sir, your voice is not audible.
Am I audible now?
Yeah.
Yeah. Just couple of questions, sir. With Russia again entering lockdown, you know, how is the scenario here particularly for high margin freeze-dried coffee? Sir, also if you could help us understand, you know, the economics of small packs in current economic scenario of, you know, sharp inflation. Would customers prefer bulks over, you know, packs, as they look to remain competitive, or how is it, sir?
In Russia, we haven't actually seen any change as of now. Our customers are still taking the coffee as per the schedules that have been given. There's not much of a change over there, at least at this point in time. As far as bulk versus small pack is concerned, in most of these countries, wherever we are supplying our small packs to, the cost of producing locally is significantly higher. Even if you factor in higher freight costs and everything else, it's still working out to be cheaper for them to buy from us rather than doing it locally in that particular territory.
Understood, sir. Lastly, in the branded coffee space domestically, I mean, you know, recently we have seen quite a few venture capitalist-backed startups, you know, entering the coffee space over the past few months or so. Wanted to understand, you know, what is the outlook here? I mean, what could be the opportunity size, and how do we plan to take on the competition, you know, with regards to distribution, product launches, marketing, et cetera? If you could throw some light.
Actually, I think you'll be surprised to know that, almost all the startups that are there, we are or will be supplying to them, in the near future. It's good that they're expanding the market and, we are part of that expansion. Anyone who wants to get into the premium space, they have understood very clearly that they have no choice but to come to us. We are working with a lot of these startups as well. It's been a very interesting, learning experience, to see what they're doing, the kind of valuations that they're getting. It's quite interesting to see that.
Understood. Over a longer period of time, I mean, we would like to introduce or we would like to have a higher buy-in of own products, right? Because that would be margin accretive.
Yeah, of course. That's why we have our own CCPL team.
Right.
We're focusing on volumes right now. We've created a lot of niche products. We've created our own shopping cart, our e-commerce website. We've done a lot at our end, and we have the ability to keep introducing new products. Once we have this and the distribution network that we are building, that can be used to introduce multiple products as well in the future.
Understood, sir. Thanks. That's all from my end, sir. Thanks for all the rest.
Thank you very much. That was the last question for today. I would now like to hand the conference over to Mr. Abhishek Navalgund for closing comments. Over to you, sir.
Hello. I would just like to thank the management and all the participants for joining in. Now I'll hand over the call to Srishant, sir, for his closing comments. Over to you, sir. Thank you.
Yeah. Thank you all for joining this call, and hope we've been able to answer the questions. Looking forward to talking again in the next conference call. Thank you.
Thank you very much. Participants, on behalf of.