Ladies and gentlemen, good day, and welcome to the CCL Products (India) Limited Q3 FY24 earnings conference call, hosted by Nirmal Bang Institutional Equities. As a reminder, all participants' lines will be in the listen only mode, and 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Nawalgund from Nirmal Bang Institutional Equities. Thank you, and over to you, sir.
Thank you, Manuja. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited Q3 FY24 earnings conference call. The management is represented by Mr. Challa Srishant, Managing Director, Mr. Pravin Jaipuriar, CEO, Mr. B. Mohan Krishna, Executive Director, Mr. V. Lakshmi Narayana, CFO, Ms. Sridevi Dasari, Company Secretary, and Mr. P. S. Rao, Consultant Company Secretary. Without further ado, I would like to hand over the call to Pravin sir for his opening comments, and then we'll open the floor for question and answers. Thank you, and over to you, sir.
Thank you, Abhishek. Good morning, everyone, and wish you all a very happy 2024. As far as the performance of the group is concerned, the group has achieved a turnover of INR 664.48 crore for the third quarter of 2023, 2024, as compared to INR 535.3 crore for the corresponding quarter in the previous year. The net profit stands at INR 63.29 crore, as against 73.06 crore for the corresponding quarter of the previous year. The EBITDA is INR 112 crore, and the profit before tax is INR 66.69 crore.
As far as the nine months YTD performance is concerned, the year-to-date turnover has been INR 1,926.98 crores, as compared to INR 1,551.13 crores last year. The EBITDA for the nine-month period, in this year, stands at INR 329.38 crores as against INR 287.64 crores for 2022-23. The PBT for the nine months period stands at INR 205.82 crores, as compared to INR 110 crores last year, and the net profit for the nine-month period stands at INR 184 crores, which is, as compared to last year is INR 183.59 crores. There are two updates which I would like to give it to you.
In this quarter, during the last 10 days of the month in December, we faced issues pertaining to Red Sea, which meant that a lot of containers which were ready to be shipped could not be shipped because the liners were not taking containers because of the Red Sea issue. That led to deferment of sales from, you know, December to January. The quantity was almost 800 metric tons, which is reflecting in the balance sheet. And since most of you wouldn't have it, that is, probably you wouldn't have noticed it. But that's one issue that we faced, which impacted the performance in the last month.
Also there is an update on the insurance that we had claimed for the breakdown in the Vietnam unit, and we have filed the insurance with the insurance company. As we had informed earlier, it's almost 5% of the bottom line. As far as the claim is concerned, if we get the claim this year, then it gets reflected. Otherwise, we'll wait for the claim to come and then we'll accordingly inform all of you. So that is the update from our side, and I open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Yeah, thank you so much, sir. I hope I'm audible.
Yes.
Yeah, yeah. Yeah.
Yeah. A couple of questions from my side. One, you mentioned about roughly about 800 tons of material, which could not be shipped. That roughly probably translate to about INR 40-odd crores of turnover?
Yeah, yeah, yeah, around 45.
I think for gross margin, the full amount would have impacted our EBITDA number also.
Absolutely.
Right. Second is on, you know, in the last quarter when this breakdown of equipment had happened. What we had highlighted is that, you know, some push over of volume from quarter two to quarter three. Now, even if I adjust for this about 800 tons, that push over of that volume, ideally should have helped us, you know, achieve a fairly strong volume growth in this quarter, which is probably not visible. So, you know, what explains that?
Okay. So there was no push over from quarter two to quarter three. If you remember what we had explained in the last quarter because of the breakdown in Vietnam, we had said that we would try and kind of, you know, be a little more aggressive in this quarter to make up for the volume as much as possible. But, you know, that was not so. You know, if you see this quarter, you will see that we are at around 14% volume growth. And if this 800 tons would have come, this would have gone up to approximately 20-21%, and we could have made up a little bit in this quarter. But, you know, there was back-to-back issues that happened in both the quarters.
Otherwise, you know, things would have been better as far as numbers are concerned. But having said so, even in spite of you know, the Red Sea issue, we did manage a 14% volume growth, and we expect all of that to get translated in quarter four. And hopefully, as far as the top-line guidance is concerned, there won't be any change in terms of our, in terms of, terms of our growth trajectory. Probably, yes, this 5% of you know, profit loss that we probably were you know, got impacted because of the breakdown, that could lead to certain kind of a you know, profit re-guidance. But that will again depend on you know, on the claims, et cetera. So broadly, the guidance remains the same.
Yes, this impact, we will be able to know only by the end of the quarter.
Okay. Connected question is that, you know, let's say this Red Sea problem persists and, you know, we have to use a different route, who bears the expenses?
So, Kashyap, as far as the issue, we generally have two kinds of contracts. For the FOB contract, of course, the buyer bears the expense. There are certain contracts, approximately, you know, 30% of our contracts are CIF contracts, so of course, that expenses will be borne by us, and that impact could lead to a little bit of, you know, compression in the EBITDA margins.
Okay, okay. Some bookkeeping question: Can you give the gross debt, as well as, the inventory receivable and payable numbers for the quarter? Can you share that?
I'll just ask, ask CFO to read them.
Sure.
The debt as of now, it is around INR 1,300 crore.
Okay.
Okay, and the receivables are around 60 days, and the payables are
Sorry, I can't hear you clearly.
No, sorry, payables are around 60 days, and receivables are at 15 days.
Okay. Including this additional inventory of about, let's say, INR 40 crore-INR 50 crore, what would be the inventory number?
Inventory was almost around finished goods, if we take it around INR 130 crore.
Sorry, I can't... I didn't get you.
INR 130 crore. INR 130 crore.
Additional versus previous quarter.
Yeah. Total as on 31st December, which would have been less by selling it off, that 800 tons, which is maybe around INR 35 crores less, we may be ended, we might have ended around INR 102 crores.
102 days, right? Not, not crores.
INR 102 crore, by selling it off, another 800 tons, which we are supposed to-
Okay. Sorry, I'm getting a bit confused. So can you give me exact inventory number on balance sheet as on thirty-first of December?
It is 30. On finished goods, it was INR 135 crore.
Okay. And, other inventory, raw material as well as finished goods?
Raw material, we have almost around, group level, around INR 400 crore.
Okay. Okay, got it. Yeah. Sorry, that's it from my side. Thank you.
Okay.
Thank you very much. The next question is from the line of Amol Rao from Kitara Capital. Please go ahead.
Good morning, gentlemen. So, so just, I mean, couple of questions on the outward freight side. Now, as the previous participant asked, that we might incur some additional expenses for the freight for our CIF contracts.
Yes.
Does the export time also elongated? So should that reflect a little bit in our receivables also? Because they're going to take a longer route, right? So...
Yeah. So it's more four to five days. It's not, really, you know, really major changing. Yes, but there will be a little bit of, delay. So, 5 days of more delay, this will take more to CIF of goods, that could be, that could impact a little bit. So these are little impact we are not seeing at a larger level, things will change, drastically for us.
Okay. And sir, another question, which is, has larger scope. There is no deferral of demand, right? The demand remains intact, it's just meeting that demand that is taking a little bit longer from our side, right?
Yeah. There isn't any issue with the demand. And the demand remains intact, and it looks like there is in fact a more pent-up demand, which is getting reflected in the coffee prices as well. So we are not seeing any part of issue with the demand side. That's been more of our, you know, supply constraints that we have been telling you, otherwise demand is enough.
... So if I may just squeeze in one more question. So the last time we spoke in December, I mean, you alluded to coffee prices being at three-decade highs. I mean, what's the sense you're getting on the Vietnam crop? I mean, are the prices still elevated in anticipation of the poor rains, or I mean, anything you're seeing on that, anything that you could help us with, you know, on that one?
Yeah. So in fact, since the time we last spoke, the coffee prices have gone up, quite, quite a bit. It is almost at an all-time high, and unexpectedly high, because nobody expected these kind of prices. So yes, there are two things. One is, as we spoke earlier, the demand remains robust. There is a huge demand of coffee, coffee, which remains intact. But yes, there are issues in terms of the supplies because of probably, you know, poor output of the crop, or at least there is a perception that there are poor output and there are fund guys playing into this. The coffee farmers are wanting to hold stock, because everybody is, you know, in a more of a, you know, of a trajectory mode. So all that is leading to high coffee prices.
Future outlook, you know, all our outlook has gone wrong for the last few years, so very difficult to predict which way it will turn around. Probably takes a trigger to, you know, turn things around. But as of now, in the short term, we don't see any sort of, you know, price indication that which side it will go. It looks like it will remain at these levels for some time.
In the middle of all this chaos, our business model remains intact, that is, we book the coffee back-to-back when we get our order, right?
Yeah, yeah.
We don't
Yeah, there is no change in our business model. We kind of book back-to-back, and we don't kind of you know buy coffee unless we have orders.
Got it. And, sir, on the expansion side, are we on track with our expansion in India, which is basically gonna come in probably in October, November of this year?
No, no, no. India expansion was in October, November. It was March. So that is, that is on track. The Vietnam expansion was July, September quarter. That is also on track.
That is on track.
We are on track for both the expansions.
All right, sir. Thank you so much, and wish you all the best.
Thank you.
Thank you very much. The next question is from the line of Shirish Pardesi from Centrum Broking. Please go ahead.
Hi, sir. Good afternoon. Thanks for the opportunity. I have a few questions. You mentioned that 14% volume growth. Can you break that growth for India and Vietnam? And a second question is that if you could talk something about India branded business and the institutional part of the business and modern trade. So maybe segmental, what kind of growth you have seen in the quarter?
Right. Right. So, first of all, answering your first question, India volume growth was, in fact, we declined, because if you remember last year, we were doing third-party buying and all that, and also activate the, the deferment that happened at the end of the month. So there was almost a 10% or ten odd percent decline. And Vietnam capacity is almost at a, you know, almost at a 40%-50% upside because of the new capacity and the aggressive selling that we are doing. So this is the breakup of these two segments. As far as India domestic business is concerned, India domestic business for the nine months, we almost did approximately INR 235 crores, INR 230-235 crores. Out of this, the branded business itself is approximately INR 145 crores.
If you remember, for the last year, we had done full year of INR 150 crores of branded business. We were able to touch in nine months. Projection-wise, this year, we are looking to touch the INR 200 crores mark for the brand alone, and INR 320 crores or so for the full domestic business. As far as channel growth, I think most of the channels are growing at the same momentum. The brand currently is on a 40%-50% kind of a growth momentum after a bit of correction in quarter one, quarter two. And we are seeing this kind of momentum happening from all the channels, both all GT, MT, as well as e-commerce. So that's been an all-round growth for us.
I think, last time you mentioned that our touchpoints is somewhere around 1.2 lakh, and 80% is residing in South.
Mm-hmm.
Any update, as of December, how it is panning out?
Yeah. So, you know, every quarter, we kind of add around 50,000 outlets that we are continuing to do. And we are now kind of, you know. Last time we have given an update that we are now aggressively trying to expand in other parts of the geography beyond South. So as of now, today, in almost all 10 lakh-plus population towns, we have our distributors set up. So that expansion we are taking, and we are building on some of the other, you know, other brands. So in South, we sell Continental Xtra. We are building Speciale in other parts of the country. So all that is happening, and it's been an all-round kind of a growth happening. So in South, we are trying to penetrate deeper.
So we are now probably touching almost all towns above 50,000. So that's been our strategy, go deeper in South and kind of expand to key geographies in North and key towns, because in other parts of India, coffee is a very emerging phenomenon. So that expansion is an ongoing process, and we are taking it slow.
Okay. My second last question on the U.K. acquisition, Percol. Any update at this time, which is, you can quantify how it is panning out?
...So, you know, in terms of numbers, we are probably, we look to very, in fact, you know, there was a period of changeover and which happens in any acquisition. So from July onwards, we started taking things onto us, and then we started reworking on the product, the packaging, and, and all the promotions with our UK partners. And, you know, we took around 4-5 months to kind of, you know, stitch everything together. We are now good to relaunch March end, and we are looking to relaunch with our new packaging, new product and new strategy at all stores in UK. So this year's numbers will not be much. It'll be approximately, you know, INR 15 crore or so.
But then after March relaunch, we'll be able to update that how the relaunch has been, you know, appreciated in the market going forward. But, yeah, a lot of work happened during this interim time in terms of relaunching the whole proposition in the market.
My last question on margin front, we have been able to hold on between 40%-41% gross margin, while the EBITDA has been little on the lower side. So in the medium term, what are the pain points where do you think... I mean, you touched upon the coffee is still looking inflationary, but is there any margin room for growth for us, and how we should look at the next year margin?
So, you know, like last time we had pointed out, there is no apparent or very, you know, very distinct reasonable kind of a deviation that we are looking at margins, because there are two, three factors or four factors that will play out. One is definitely the product mix. So if you would have seen our product mix, for the current expansion and the expansion which is coming in India, will be on the spray-dried side, and spray-dried you earn little less margin than the freeze-dried side. Then what will happen is next year, September onwards, October onwards, the freeze-dried capacity will come, so that will improve the margin.
On the other side, we are also trying to focus a lot more on small packs, which helps us give better margins, where we are looking at specialty coffee which will help us. So we know there are a lot of factors which are going to play around. There's some factors which will pull up the margins, and some factors which will bring down the margin. So on an overall consolidated levels, we don't see much of a change in the margin that is going to happen in the near future.
But yes, going forward, once things get stabilized, once your mixes get stabilized, once some of our initiatives regarding, you know, small packs, specialty coffee, they all start coming into the, into play, then we probably will start seeing, you know, improvement in margins as well.
Thank you. Thank you, sir. Wonderful, and all the best to you.
Thank you.
Thank you. Next question is from the line of Akshay Chheda, from Canara Robeco Mutual Fund. Please go ahead.
Yeah, sir. So thank you for the opportunity. Sir, two questions. First question is, sir, you said that 14% volume growth, but EBITDA growth is only 10%. What is, what explains the 4% gap? Because ideally, we keep guiding that the EBITDA and the volume growth should go in hand in hand. So, sir?
So, Akshay, actually, it's EBITDA growth is, if I'm not wrong, around 11%. Yeah. And it's 14%, so there has been a 3% drop. As I mentioned a while ago, the 3% drop is because in our volume mix, we did, you know, let's say, selling at Vietnam, because not every product basically the same kind of margin. So what we did was, in, because we wanted to fill capacities and make up for the, you know, losses that we had in quarter two, we did some low margins contract as well in Vietnam, which led to a little bit of a squeeze in margin, which you can see in terms of 2%-3%.
But in overall scheme of things, if you see YTD, there isn't much of a difference. We are actually, you know, there is 12%-13% growth in volumes and 15% growth in EBITDA. So we are probably, you know, at a YTD level, we, we are, we are in track. And as I always have said that, you know, at a quarterly level, these mix changes and all that could come into play, and therefore, you may see some variations. But on an annual basis, our guidance remains intact. Volume growth and the EBITDA growth will be always in track.
Okay. Sir, second question is, sir, if we see the second and the third quarter, so at least the EBITDA growth was around 13% and 10%.
Right.
On the annual guidance, does that 18%-20% volume growth still hold true, or, sir, we'll have to curtail that to some extent? Because at least the second and third quarter, we are lagging a little bit.
Yeah. Yeah. We are lagging, but actually couple of things. One is that, volume growth, we are pretty confident that we'll be able to get to that 18%-20%. In terms of EBITDA, because of that, you know, that loss in quarter two at Vietnam.
Mm-hmm. Yeah.
Subsequently, when we are trying to cover up, obviously, as we see in quarter three, there is a very little stress on margins because we want to aggressively cover the top line. So there could be certain, you know, drop because we may not get the insurance claim this year, it may happen later. But probably if we were to get that insurance claim, that guidance of 18%-20% remains intact, both for volume as well as for EBITDA.
Okay, sir. This was very helpful, sir. Thank you.
Thank you very much. The next question is from the line of Abhilasha Satale from Quantum AMC. Please go ahead.
Yeah, thank you for taking my question. So I have one question in terms of working capital. So, can you just throw some light, what is the impact of Red Sea issue on our overall working capital in the near term? You can just give, you know, approx, the numbers in terms of, how much, you are seeing the impact. And then, secondly, as our Vietnam capacity stabilizes, what kind of working capital outlook we are seeing for that? Because, you know, in the last 7 or 2 years, we have seen some increase in working capital, maybe because of the different issues. But as we stabilize all our capacities, what are the working capital days, you know, what we would be comfortable with?
This is my first question. Thanks.
Yeah. If you look at it, the kind of revenue growth and the volume of the production that is happening, we have aligned with the enhancement of the working capital facility in India by INR 1 crore. Whereby now, the earlier INR 400 crore working capital loan, it is likely to increase to INR 600 crore in India. Regarding the Ngon Coffee Vietnam, wherein the new capacity has come into operation, earlier we had almost around $15 million working capital exposure. Now it is going up to almost around $45 million, which we have necessary arrangements have been taken care. As a whole, if you look at it, the working capital is likely to be from earlier INR 600 crore, which has gone up to INR 1,000 crore.
Okay. So, okay. So, are we seeing, you know, are we taking any measure to bring it down, as our capacity this facility stabilizes? So over next two years or so, maybe, you know, in percentage of revenue and all, where do we, where would we like to, or what is our target to stabilize our working capital at?
So now we are at the peak level. It is likely to go up another INR 200 crore maximum by next year, but post that it is, the free cash flows are going to be available, then we keep reducing it.
Okay. Okay, thank you. My second question is, what is our burn on branded segment in 9 months, FY 2024? Can you give some roadmap towards profitability for the segment?
Can you just repeat? Your voice is little. Yeah, it's not very clear.
Okay. Yeah. Is it better now?
Yeah, yeah, much better now.
Yeah.
Yeah, yeah.
Okay. So, my second question is, like, how much is burn on branded segment in nine months, FY 2024? And, can you give some, you know, roadmap towards profitability for the branded segment?
Okay. So first and foremost, there is no burn there, because last year itself we had indicated that we have broken even. And probably from this year, we will be at 5%-6% of 5%-6% EBITDA level, which will keep increasing as we go along. But yeah, the fundamental principle here will be that we'll try and invest as much as possible back into the brand, because we really don't kind of you know want to slow down the momentum at this stage. And the brand has got that momentum and is getting into that threshold levels of being a you know fairly largest brand. This year, we are looking to end the year at just the brand brand segment at INR 200 crore.
So that's a very, very big milestone because there are not many brands who kind of have achieved this kind of a milestone in this short period. So we really want to keep up the momentum, keep interest in back into the brand. But yes, 5%-6% of our EBITDA is definitely there right now, and we will see how we can improve it, but with the thing that we really want to right now be invested in brand building.
Sure, sure. I appreciate, but I think at PAT level, we would be, we would still be burning, if I'm not wrong.
No. So, you know, after so there isn't much of a interest in PBT. There is no this thing, the brand demerger has happened, so there aren't any you know loans to be serviced or there is, it's not asset this thing. So there isn't any depreciation or anything. So there is not much of difference between an EBITDA levels and a PBT levels. So except for the vending machines that we buy, which probably have a little bit of depreciation and interest, but those are very, very, very less in number, so there won't be much of it. EBITDA levels would be at around, let's say 5%-6%, but PBT could be at around 2%-3%.
PAT will not be getting impacted so much. Therefore, there isn't any burn even at the PAT level also.
Okay. Sure. Thank you. Thanks.
Thank you very much. The next question is from the line of Ankit Kanodia from SmartSync Services. Please go ahead.
Thank you, thank you for taking my question. Apologies if these questions have already been answered in your script. My first question is related to the tax outlook. Suddenly we have seen a very big drop in taxation this quarter. Can you throw some light on that?
Oh, yeah, if you take it standalone, we are falling under MAT because of the carry forward MAT credit, the effective tax rate it is in India is working out 7.4%. And as you know that in Vietnam, it is tax free, corporate tax is completely exempted. There we would see that a drop in the overall effective tax rate. And as I informed earlier also, the effective tax rate at group level, it is around 10%-12%. Thank you so much, sir. That, that is it from my side.
Thank you very much. The next question is from the line of Senthil Manikandan K from iThought PMS. Please go ahead.
Good morning, sir. Thanks for the opportunity. My first question is with respect to the vending machine business. So if you can just share what's the broad strategy over the next 3-5 years in building this business in the domestic market?
So, vending business, we approximately today have 4,000 vending machines that are operational across the country. And, we are looking to build aggressively. See, this is a very, you know, it's a, it's a tricky business as well, because vending machines, everybody in the market wants you to put, you know, without any cost, and then they might end up also buying from somebody else once they get the machine. Because, obviously there will be local players and traders who probably offer at a very dirt cheap rate and things like that. So that is why we have been very careful on this front, not to go overboard. Today, we are making sure that it's a self-sustaining model. In 6-7- months, most of our vending machines kind of pay back for themselves.
So, keeping all this in mind with the new approach, we are looking to scale it, scale it up and... but in a more sustainable manner. In terms of the business, that it will generate, of course, you know, we're looking to build up a business out of vending itself to INR 100 crore kind of a business in the next, 3-5- years. Today, it could be around INR 20-25 crore or so. But, but yeah, that, that's been our plan and that's been our strategy as far as, vending is concerned.
In fact, last time we had also kind of apprised all of you that there is this whole out-of-home consumption that we want to tap into and drive this whole out-of-home consumption a lot more deeper. There are certain experiments that we have been doing. We have been you know opening kiosks. We are about to open some cafes as well and do the proof of concept of you know penetration driving as far as the cafe concept is concerned. So all that work is happening as far as the out-of-home consumption is to be given.
Okay. Thanks. Second, is a related question on the domestic market. In terms of our presence in the coffee retail chain. So of late, we have seen that, a lot of startups like Third Wave Coffee or, they're making a good presence in the market. So what's our presence and strategy in this layer of business?
So, you know, I'll just give you a brief listing background. As far as all the coffee startups today, if you see the India ecosystem, as far as coffee consumption is concerned, probably a large part of it is driven by us. So a lot of these coffee D2C brands and these startups you see, whether it is brand or whether it is the chains, we are doing a lot of back-end work with them to drive, because our, our whole concept has been that how could we drive a lot more coffee consumption in this tea-drinking country, yeah? So that's one. Second, second is in terms of our presence. If you see, our presence far outweighs all the brands, in fact, together. Most of these D2C brands are probably in the range of INR 25 crore or so.
We are probably will be reaching INR 200 crore this fiscal year. So you can kind of, you know, compare the kind of presence we have. So if you come to, you know, south of India, and if you start going to retail outlet, you'll see that our presence is as a very strong number three brand in most of the retail outlet. And there are certain pockets where we are, you know, seen as a number two brand. So that is the kind of, you know, presence and visibility that we have been able to achieve. Yes, the next milestone would be to get this kind of presence and visibility in the north, east, and west markets as well, for which the work has started.
There are a lot of outlets where we are now fairly visible in these zones as well. So that's a brief outlook of our presence in the retail market.
Okay, sir. Yeah, thanks for the, that's it from my side.
Thank you very much. The next question is from the line of VP Rajesh from Banyan Capital. Please go ahead.
Hi, thanks for the opportunity. Just a clarification, when you're talking about INR 200 crore of brand revenues this year, does that include your vending machine business also? Or if not, then, yeah, you know, what-
It includes branding, because all the vending machines is a branded, this means we all sell under the brand, so that is part of the brand. Bulk and private label is outside this.
Okay. And, out of 200, how much will the vending machine business be by the end of the year?
Approximately INR 20-25 crore would be that. The rest of it would be products.
Okay. And then in terms of the products that you were describing, that you are the number two or number three in most of the southern part of the country. So my question is that how is the competitor, the leader or the number two player reacting on the ground to your surgence in those particular markets? You know, are they trying to dislodge you by discounting, or what's going on, if you can just give some commentary on that side?
So, you know, we are fighting against, you know, the top two multinationals of not the country, but of the globe. And obviously, their listing would be to very, to be aggressive. They hate to lose market shares. But, you know, what we are doing is we are constantly focusing a lot on consumer off-takes. Because once the off-takes starts happening, you know, it becomes really difficult for you to be, even if you are very aggressive in terms of doing channel discounts and, maybe consumer discounts. Once you are building loyalty for your consumers, what happens is that, that ability for your competition to kind of bring you down, that much reduces. So that is why we are doing a lot of activities in terms of building, consumer loyalty.
We are doing a lot of ATL activity, combined with a lot of sampling that we do on ground, which is making, you know, a huge consumer base for us. In fact, one of our largest selling packs will be 200-gram packs, which is, not the largest selling pack of the category. So that gives us an indication that we are building a very strong consumer base, and that is helping us ward off all the competitive pressures that may be coming from the competition. But yes, competition has been reactive. They are doing a lot of things, but yeah, consumer is the thing that we are focusing on, and we are. We think that we are doing the right thing.
As long as the consumers are picking up your brand, I don't think so any of the pressures would kind of, you know, work.
Got it. And then just a quick follow-up on the online side. How would you rank yourself, and you know, who are the, sort of, what is the market share that you would ascribe to ourselves vis-a-vis these two large players or other D2C brands that we were talking about earlier?
No, no. Come again. On which side did you say? Online side.
On the online channels, yes.
Yeah, yeah, yeah. So of course, you know, online channels, again, we are very, very, very sustainable on that. Today, if you, if you see the online channel, there are two sets of products that sell. There is one set of products which sell because there is an offline equity that is getting built for the brand. So that, that, if you see, the large players and including us, which is, Nestlé, Unilever and Continental, I can count it now in the same basket, our online sales are largely dependent on the offline equity that we are building. But if you see the D2C brands, their online sales are largely from the, from the, you know, huge amount of money that they have to spend online itself.
So therefore, you see it is becoming a very, very tough for each of these brands to sustain the online sales itself. And if you were to kind of, you know, search for the ROC data for some of these D2C brands, you will yourself see the kind of losses these brands end up making. So, you know, anyways, I don't want to go into that side, but that's been our strength. We have been very strong on online, but the good part is that, you know, I spend INR 1 to get INR 3 revenue in online, whereas most of the D2C brands, if you see the D2C ecosystem, their ratios have been upwards of 1, which means that the profitability really gets reduced. So that's been our strategy. We'll be very, very...
We are very focused on online. Today, almost 10% of our sales, which is approximately, you know, out of INR 200 crore, INR 20-INR 25 crore is coming online, which is equivalent to some of the large D2C players who are much talked about in the market. But yeah, the only difference is that we don't go tom-tomming about it, and the second thing is that we, we are building it very, very, very, very sustainably.
No, that's, that's wonderful. Thank you for all the commentary. Just one follow-up. Do you have any market share data on the online side, like, where would you stack up among the top five or top ten players?
Very difficult to get the online market share data because-
Okay.
Because, yeah. But our sense is that, you know, from whatever talks that we do to the, with the category managers of the online space, we probably would be close to around somewhere my sense is that 8%-10% would be our share in the online space that we are into.
Great. Thank you so much, and have a good day.
Thank you.
Thank you very much. The next question is from the line of Bhargav from Ambit Asset Management. Please go ahead.
Yeah, good morning, management, and thanks for the opportunity. My first question is, is it possible to share what is the gross margin in advertising spends in the branded business?
You know, on a broad level, the gross margins would be in the range of... So the domestic market, we, if we look at it as a whole, it's approximately 30%. The brands would be five to seven percent higher. And our advertising to sales spends is roughly around eight to ten percent as of now. So, so that, that's the, that's the ratio on the advertising spends. Yeah.
Okay. And as you scale up your branded business, is there a plan to sort of separately list also that entity? Because essentially, now that it is part of the B2B business, it may not get fully valued, but one scalable, is there a plan? And, and if there is a plan, at what level would you be looking to execute that plan?
... So as of now, we want to kind of, you know, in fact, you know, there was, it was under a separate subsidiary which we kind of demerging back to the parent company, because the leverages are much better, for us to drive when you are doing it from the parent company. So we really want to go, go very, very strong on this, on this segment, kind of build this segment over a period of time. As a vision for the company, we have already kind of earmarked that CCL going forward, next, you know, 5 years, 10 years, 15 years, should, should kind of transform itself into a, into a true blue FMCG company with a lot of brands, you know, getting launched and lot of brands getting sold.
So that's, that's our vision, and we want to kind of translate this vision from the parent company itself. So that's, that will be our strategy. So in the short and medium term, I don't see any, any such kind of an effort from our side.
Sir, in terms of debt, we have a debt of about INR 1,000 crore on the balance sheet. When do you plan to become debt-free?
It will take around, you know, three years or four years from now to completely become debt free. But, you know, that's a little, it's a hypothetical question, because, you know, as we move along, as the growths are coming, we really don't know when the next expansion is going to come. But if suppose we were not to expand and there is no new CapEx that is going to come our way, it will by 2028 or 2029, which is now 4 years, 4 years from now, we should be debt free.
Sir, lastly, what would be the share of China in our overall revenue pie, and do you think that number can significantly grow from here on?
Very negligible right now. Very minute quantities we sell right now, but last time, we had indicated to you that we are kind of partnering with one of our old associates, and we are building that market. So that market right now is in the seeding phase. So right now there aren't any significant volumes that are coming, but we expect these things to pick up, as we move along, and we'll keep you updated as the volumes pick up from that geography.
Okay, sir. Thank you, and all the very best.
Thank you.
Thank you very much. The next question is from the line of Dhruv Bakhai from RSPN Ventures. Please go ahead.
Hello. Thank you for taking my question. So can you throw some light on quarter-on-quarter and year-on-year figures of the EBITDA per ton and the overall capacity utilization that you are going to be able to achieve?
I'm sorry, I'm not able to hear you clearly. Can you just repeat?
The quarter-on-quarter and year-on-year figures for EBITDA per ton and the overall capacity utilization that you have been able to achieve.
So EBITDA per ton, you know, it remains exactly the same as before. There is a little drop in quarter three because we were selling a little aggressively. But, you know, as we had explained earlier, that the spray-dried EBITDA per ton is approximately 90-100, and the freeze-dried is around 130-135. So that remains intact. As far as capacity utilization is concerned, the India capacity is fully utilized. And when we say utilized, you know, obviously it won't be 100% of the rated capacity. It will be at closer to 90% or so because of the changeover, because of the kind of blends that you are doing. So India capacity is fully utilized. Vietnam is also, you know, last quarter we did the optimum utilization of the capacity.
There are, you know, it's a new capacity, there are certain line balancing and all that that is pending. But, you know, barring that, we did optimize it fully, the Vietnam capacity as well.
Okay. Sir, one more question. What are your CapEx plans for financial year 2025 and 2026? Financial.
There's no new CapEx that is there. Already we have announced CapEx. There is a $50 million interest in in Vietnam and another, which is the freeze-dried facility, which is already on. And when I say on, the setting of the plant is on, it will be operational from next financial year, quarter two. And the India facility, the spray-dried of 16,000 tons, that's also close to $50 million dollar CapEx. So that is also, you know, ongoing project, and by this year end, by March end, we should be operational.
Okay. Thank you so much, sir.
Thank you very much. The next question is from the line of Rohan Gupta from Nuvama. Please go ahead.
Yeah, hi, sir, good morning, and thanks for the opportunity. So a couple of questions from my side, sir. First is on the pressure which we have faced on Vietnam with the aggressive pricing you mentioned, which has impacted our margins. This was a one-off, it was just a one-off, or we see that in our focus on driving the capacity utilization at Vietnam plant to full utilization, we may keep on seeing this kind of margin pressure even going ahead as well. That is one. And second, sir, across the globally, which are the markets you see that U.S. and Europe are still facing pressure, where we are not able to push the materials significantly?
So first thing is that, yeah, there is a bit of a margin drop because of our aggressive selling. One-off is a, you know, that terminology may not be exactly right, but yes, it is very short term, because once you start building clients and when you start building businesses after you have done your or fill your capacity or optimized your capacity, then you can start kind of, you know, improving on your margins. So because, you know, the more the utilization I get into my pricing becomes even better because my overheads and all that gets, you know, distributed through a larger volume. So that's, it's a short-term thing, and definitely the margins will catch up. If you see the YTD number, the margins are completely intact.
It's only in this quarter that we saw a little bit of a stress. Then, coming to which markets has been a challenge, I don't see that any markets have been a challenge for us. It's more that we don't have the capacity or we didn't have the capacity to expand to some of the markets. We would have it expand, expanded America. North America is doing well for us. Africa, small packs, we are doing well. In Europe, we are doing well. Even Russia and CIS countries, we are doing well. So I don't see any, and as we, we discussed and I updated you, Far East, which is including, China, we are seeding the, seeds right now, and hopefully we'll start seeing the volumes, coming there.
But it was never a question of demand or our ability. We see more of our capacity issues that led to, you know, not touching some of these markets, but we are okay to kind of good to go once the capacity is now there.
Sir, second question is on our margins instead. I mentioned roughly 90-100, and freeze-dried, roughly 130-135. I think that we were earlier focusing on with our small packs divisions are doing very well. We were looking at $1.5-$2 margins.
Yeah.
-on an overall basis of the company. So when you think that we will be reaching to those, $1.5-$2 kind of margins on an overall company basis?
We will actually, you know, the exact timing is very difficult because, you know, a lot of work is going on, small packs. What happened is that, you know, if you see the pre-COVID time, our small pack ratios really increased to almost 24%-25%. Then COVID happened, and the small packs really declined, and then we focused more on bulk packs. It was almost, you know, work starting from scratch, post-COVID. So now we are back, you know, to approximately 18%-20% of small packs as we speak. Once we get into a level of around, you know, 30% or so, then we start seeing the real value flowing into the balance sheet, sorry, the P&L.
But as I was telling a few minutes ago, is that, in the near short term and in the medium term, there are other things which are also playing out. So what is happening is that our spray-dried capacity is going up, the mix is changing, so we are selling more of spray-dried, which has lower margins. Once the freeze-dried comes, then the margins will again start improving. So all this, so there will be certain pluses, there will be certain minuses, that will play out, and therefore, in the short term, we don't see much of a much of a improvement in margins per se. But what we are definitely seeing is that because of our aggressive top line and volume growth, the driving of EBITDA numbers will be through this volume growth.
Yeah, and then subsequently, when the next phase comes, we will start driving improvement in margins, and then you will see a lot more improvement in margins. And then, we will see how it goes, because, next couple of years, we are very, very focused, and we will drive all our, EBITDAs and profits through higher volume growth.
Okay. So the commissioning of this spray-dried by end of this year will probably may pull down the margin a little bit, but then once again, freeze-dried commissioning in FY 25 may pull up the margin.
Correct.
For next two years at least, we are going to see the volume that growth only rather than any margin expansion.
Absolutely. Absolutely.
Sir, just coming on the domestic business, if you can just share some numbers that the retail sales, sorry if I missed it out, but the retail sales number from the different channels in the current quarter and the nine months, sir.
So basically nine months, I'll share because that will give you a better picture. So the domestic business in the nine months is INR 130-135 crores, out of which INR 120 crores is approximately the retail, the branded business, yeah? And we are looking to end the year, the domestic business at around INR 320 odd crores. And the brand business will be around INR 200 crores. So that is the yearly outlook for the brand business, you know.
So any idea, if you can just share, that, in our retail brand at INR 200 crore, what kind of market share we may have at, at that number?
You know, right now we are very small, so our, when you pick it up, there are errors and all that picking up. But if I see our market share in the south market, which is like 65%-70% of the coffee market, we have the data with us, so I can share a bit of that with you, is approximately 3.5%. Yeah. And at an All India level, I try to translate this because I don't have the numbers. So it could be around 2.5%. But definitely there are pockets where we have done, you know, really well. So our market share in, let's say, in AP Telangana would be closer to 8%-10%, Karnataka would be around 5%-6%.
Tamil Nadu would be around 3%-4%. That's a little brief on our market share.
Thank you, sir. And just one last bit, and I may come back on the follow-up question. You mentioned that on the debt number, that if you don't go for any further CapEx from here, excluding this-
Mm-hmm.
50 + 50 million dollar commissioning in over the next eight months to nine months. If you don't go, then you are going to repay... I mean, your company will be debt-free in next 4 years, right? So-
Right.
that doesn't include the growth, which you will be doing with the volume lead and the working capital requirement, or that includes that and including the working capital will be debt free?
No, this is term loan, long-term debt is concerned, is completely debt free by 2029, with the schedule of repayment. And working capital also, you'll have some ease in working capital as well, because the free cash flows are going to flow into it.
Okay. So even you are saying that, actually, from the current growth plans, you can be debt free, including working capital. I mean, short-term, long-term, both?
Not debt free. It's not a debt free. There is some easiness there from the current level.
Okay.
So long-term debt, it's going to be, definitely, it's going to be debt-free on account of long-term.
Okay. Okay. That's it from my side. Thank you so much, sir.
Thank you very much. The next question is from the line of Rakesh Wadhwani from Monarch AIF. Please go ahead.
Hi, sir. Good morning to the team. One question with respect to the standalone business: we witnessed some volume decline in Q1 or Q3, but there's a gross profit increase. Any reason for that?
So, you know, there are some better margin business that happened in this quarter. There was a bit more of small packs that led to, kind of, you know, better efficiency. Therefore, that drop in profit is not there, in spite of drop in volume. Yeah.
Okay. Okay. And so, again, that EBITDA margin has come, EBITDA growth has come down. Is it because of the shift, or delay in the packaging shipping? Because the gross profit has been grown to 70%, and the EBITDA growth is only is negative, but is negative. So is it because products were manufactured, but they couldn't be shipped? Is that understanding correct?
As I mentioned in my opening remarks, there was approximately 800 tons of product which we could not ship because of the Red Sea, the Red Sea issue, and during the end week of December. Unfortunately, the Red Sea issue happened at a time when the quarter was ending. So that led to, you know, loss in business. So that impacted our P&L.
Okay. Then last question from my side, sir, regarding the debt, regarding the debt. So you mentioned if there is a no expansion plans in the coming year, for the next 1-2 years, then the debt, long-term debt will be zero by FY 2028 or FY 2025. But, I just want to know, if we expand also, the number, the amount of cash flow that will be generating will be sufficient for us to, to fund the CapEx on that. Is my understanding correct?
Very difficult to comment right now because there are working capital, there will be working capital debt and things like that, so volume will increase. So we'll have to see the situation at the point of time when we are expanding, that will that debt get, you know, serviced through our internal cash flow approvals or not?
Okay. The reason I'm saying, because over the time now, as a coffee price are at a peak, in a 2-3-year cycle, the prices will also come down in the coming year. May not be doing FY 2025, FY 2026, but they will surely come down. My understanding, so that's why I'm asking.
Yeah, yeah, absolutely. So if the coffee prices and all that, they come down significantly, then, you know, the situation will change. Free cash flows will be far higher, to not in the, you know, far higher in the sense it won't be, it would be, it would be sufficient to not only kind of meet the working capital requirement, but also kind of fund some, CapEx also. So yeah, absolutely, you are right. If that happens, therefore, the reason we are not commenting is because we really don't know how these factors are going to kind of pan out in the, in the next two, three years. Really, at that moment, how things are will determine, how are we going to fund the CapEx, if at all we decide to.
Yes, sir. And sir, any, can you tell us about-
Can you please rejoin the queue? I request you.
Sure, sure. Thank you. Thank you, sir.
The next question is from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Yeah, question pertaining to your debt. You know, the interest cost has gone up from about INR 11 crore to INR 23-24 crore, you know, in last four quarters. I would... You know, one question is that, you know, how much is cost of, you know, borrowing risen by? And the connected question is that, you know, much of this borrowing would be for an expansion also. Is, is, how much of, even further CapEx, you know, interest cost has been capitalized in last, 12 months or so?
If you look at it, at Vietnam, the expanded capacity has been completed in March 2023, whereby the loan of $20 million which we have taken for that facility, the interest has been accounted for in the current financial year. That is one of the reasons.
Okay
increase in the rate of interest.
Okay
... The absolute value of the interest. And the second is to see that the increase in the total overall working capital borrowings has also increased with the volume of the business that is gone up, number two. Number three is the rate of interest also is changing. As we all know, that it's most of the exposed to borrowing are linked with SOFR. SOFR it's not yet eased out. And because of these three reasons, so there is an increase in the overall interest cost.
... How much is capitalized this year?
This year is nothing, because capacity has been completed last year itself, which this year is totally accounted in the revenue.
Okay. Okay. Got it, sir. Thank you.
Thank you very much. The next question is from the line of VP Rajesh from Banyan Capital. Please go ahead.
Yeah, hi. Thanks for the opportunity again. Just this INR 200 crore domestic business that we were talking about, in the next, let's say five years, where do you think this business could be?
Yeah. So, you know, we are trying to aggressively grow the business. Last time we said on an annualized level for the next three, four, five years, we are looking anywhere 30%-40% growth, maybe even more. So, that's the kind of trajectory we want to maintain. So, you know, with that, this thing, we are looking to kind of, you know, double every two years or so from here on. But, definitely as we go along, once the bases get built, you are getting bigger, the kind of growth that you are having now also becomes challenging to maintain. But yeah, we will be INR 200 crore this year. We'd like to double it in the next two years or so.
So that's the kind of trajectory we would like to maintain. But, you know, this is very difficult to put, you know, these are... I always say that these are you know, very challenging questions itself, because, it's a very nascent business for us. You know, come to think of it, we probably were never into FMCG business five years ago, yeah? So,
Right.
A company which has gone into FMCG business and has kind of attained this kind of scale itself has been a great trajectory. The kind of things that we are wanting to do, you know, we did explain not only products, we are trying to expand geographies. We want to see that can we launch it in some other parts of the world. Percol we acquired, we are looking to get into retail. So there's lots happening. Really, you know, of course, some of it will work, some of it may not work. We'll have to change track and trajectory. So all that will happen.
So, you know, to get to a number is something which is very difficult to say, but can we get to a momentum and keep driving this momentum so that we, we kind of, you know, see these kind of aggressive growths? Yes, we are committed towards that, and not only in terms of our intent, but in, also in terms of resources. That is why I keep saying that, you know, next, couple of years, we are not intending to improve on EBITDA margins that the brands earn, but plow back everything back into the brand to grow this business.
Understood. And just last question on the B2B side. You know, do you potentially see yourself acquiring some other converters out there globally, or the idea is always to put your capacities and growth through that route over the next two, three years, you know, while your greenfield capacities are coming up?
Yeah. So, you know, it's a little different question, ifs and buts kind of a question, because, you know, acquiring capacity is not an issue. There are, you know, there are offers that keep coming our way. But if you remember-
Right.
When we talk about our competitive edge in the market, one of the biggest edge that we kind of enjoy is our ability to do different kinds of blends, different kinds of products. And if you have noticed, we have always said that we build our capacity to our advantage in a way that it is very customizable. So that, you know, so, so we really don't... While there are offers, we really don't want to acquire a setup which is very fixated in terms of its output, and then, you know, diminishes our ability to be that much more nimble-footed in the market. Also, the position matters a lot, that are we in a zone which helps us to kind of, you know...
So today, one of our other advantages are that we can import coffee from anywhere and export anywhere. So, so those things kind of, you know, help to our advantage, and therefore, we would like to maintain that advantage. So therefore, it's like an if and but. If something right comes our way and we are looking to kind of, you know, it fits into our scheme of things, we won't be averse to it. But, going the way we have gone till now, it looks like, you know, the principle would be to kind of build our own capacity going forward.
Got it. Thank you very much.
Thank you very much. In the interest of time, that will be the last question. I will now like to hand the conference over to management for closing comments.
Thank you all for attending the conference, and we look forward to meet you again in the next quarter. And thank you, Nirmal Bang, for, you know, arranging this conference. Thank you, everyone.
On behalf of Nirmal Bang Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.