Ladies and gentlemen, good day, and welcome to the CCL Products (India) Limited Q1 FY25 Conference Call, hosted by Nirmal Bang Equities Limited. As a reminder, all participant 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 Navalgund from Nirmal Bang Equities. Thank you, and over to you, sir.
Thank you, Shlok. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited 1Q FY25 Earnings Conference Call. The management is represented by Mr. Challa Srishant, Managing Director, Mr. Praveen Jaipuriar, CEO, Mr. V Mohanakrishna, Executive Director, Mr. V Laxmi Narayana, CFO, and Ms. Sridevi Dasari , Company Secretary. Without further ado, I would like to hand over the call to Praveen, sir, for his opening comments. Post which we'll open the floor for Q&A. Thank you, and over to you, sir.
Thank you, Abhishek. I welcome you all to this conference call. I will briefly summarize the quarter one performance for all of you, and then we can open the floor for questions. The group has achieved a turnover of INR 773 crores for the first quarter as compared to INR 664.9 crores for the corresponding quarter of the previous year. This is 18% growth. The net profit stands at INR 71.4 crores as against INR 60.71 crores for the corresponding quarter of previous year. This is also an 18% growth. The EBITDA is INR 131.6 crores, and the profit before tax is INR 187.18 crores.
The EBITDA growth when compared to the similar quarter previous year is 23%, and the PBT growth is around 25.5%. The domestic market continues to take strong performance and achieved a gross turnover of INR 90.5 crores, out of which the brand sales were approximately INR 65 crores, and balance INR 30 crores was bulk and private label. We have almost completed and started the launch for the Percol in new packaging and the new product. The new product is now available on the shelves, and we are now closely monitoring it. Subsequently, we are now doing marketing activities behind it, and we are looking forward to building the brand in the market.
That's a broad and a brief summary of the results. I open the floor for questions now.
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 touch-tone phone. 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 Rakesh Wadhwani from Monarch AIF. Please go ahead. Mr. Rakesh?
Hello, am I audible?
Yes, sir, you're audible.
Hi, team. Thank you for the opportunity, and congratulations for the great set of numbers. So first question with regard to the other expenses, other expenses as well as the depreciation. Depreciation, we have witnessed a very minor growth or the increase in the other expenses as well as the depreciation has come down. Any reason for that? Whereas the revenue and the volume has increased by 15%-16%, whereas the other expenses have remained constant. Any reason or one of the reason, as well as depreciation, which was INR 31 crore last year, has come to INR 23 crore.
Good evening, this is Laxmi Narayana here. Depreciation in quarter four of the last year, we have revised our earlier depreciation policy towards the vending machine. As I mentioned, the life period of 10 years, we have reduced it to the three years, and it made a provision for INR 8.16 crores, which is an additional depreciation, which causes the observation value to worsen, the reduction from Q1 now.
Mr. Rakesh?
Yeah. So, second question with respect to the debt. Can you please tell us the amount of gross debt at the end of Q1 and that bifurcation of that, what is the, like, debt for the working capital and debt for the CapEx?
This is essentially the increase in debt from March 2024, from INR 1,624- INR 1,885. It's really on account of increasing working capital. It has gone up from INR 1,000- INR 1,200 crore towards the working capital debt increase.
Okay. So, 1,200, so just I'm re-confirming the point, INR 1,200 crore is the gross debt. Can you just bifurcate the debt for the working capital as well as the CapEx?
No. It's INR 1,200 crore is the working capital debt, and 675 crore is the term loan debt. Total as at June, it was INR 1,885 crore. As we earlier, working capital net of 1,000 crore and six point, almost around 700 crore, which is around 60 crore. So 1,620 crore of 31st March 2024 has gone up to INR 1,885 crore.
Okay. Okay. Sir, one last question from my side. So can you talk about the volume growth in this particular quarter? And how are the clients that are retailers across the globe taking—as they started taking the coffee inventory back? Because in the last con call, we talked about that the global retailers are running on a very thin inventory levels because the coffee prices have increased. Any update on that? Thank you.
So Rakesh, I'll answer the second one first. No, there hasn't been, you know, an increase in the inventory that the clients are building up, because still the coffee prices are at pretty high levels. So that phenomena hasn't started yet. So that's one. The second thing you asked about volume growth. We are experiencing last quarter around 15%-16% volume growth, which is in line with the guidance that we have been giving. Despite, you know, headwinds, we were able to maintain these kind of growths.
Thank you, sir. That was very helpful. Best wishes always. Thank you.
Thank you.
Thank you. The next question is on the line of Aashish Upganlawar from InvesQ PMS. Please go ahead.
Yeah. Sir, just wanted to understand your thought process on how the scenario for coffee prices is shaping up, I mean, regarding the crop situation around the world, the demand side, and et cetera?
So this one is a little tough. You know, as we had discussed in the last con call as well, things have been very volatile, and therefore, the predictability of coffee prices are really, you know, it become very, very difficult. So what has happened is that Brazil, and last time we had discussed that, Brazil seems to be having a good crops. It had a good crop. But simultaneously, there were, you know, news and the market suggested that Vietnam has been El Niño effect, and we had certain crop shortages. So the prices continued to be very high in Vietnam, which meant that any correction that was probably expected, or let's say, good correction did not happen.
So there was a correction in Brazil, but the prices remained high because the availability and the prices in Vietnam were pretty high. So net-net, you know, things haven't improved drastically. And to add to the, you know, complexities, there has been volatility around. So that's the situation right now, and as we have been telling, most of the predictions for all the market pundits have gone wrong. So we really don't want to kind of give a prediction that how the prices will pan out. But having said so, as we have always maintained, that some of the trigger points are generally the harvesting season.
The next harvesting season for Vietnam and some of the other countries, like India also, will happen now in November, December. That's the point of time when we will see how things pan out, but that's the situation right now as far as the coffee prices are concerned.
The next points to watch out would be in probably November, and get the data.
Yeah. Yeah, yeah.
Okay. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, Praveen, and team, good morning. Thank you for the opportunity. two, three questions. Can you break down the volume India and Vietnam? And the second question is that, if you can break the spray-dried and FDC volume?
So you please, I'll give you a little broad idea, but, let's say that India will be closer to, you know, nine, 10%, than Vietnam will be a little higher, because that's where the capacities were added last year, and that's the capacity that is working. So that is the growth we've seen between... Just give me a second, I'll tell you, the console level, what you see behind you. So let's say I don't spell out the exact numbers, but almost, 20%, so 25% of the total volumes will be freeze-dried .
Okay. Second one, follow up on this. What is the capacity utilization in India and Vietnam at this time?
India was minus the food and beverages. So food and beverages, although we started in March, but there the utilization, a lot of stabilization is happening. So while there is a certain change that is happening, but the capacity utilization is very, not very high, so it will not, it will not be more than 5%-10% of the capacity. Rest of the capacity we are running almost full. And Vietnam would be, you know, the earlier line, first line is running at full capacity, the second one probably at around, 50% of the capacity.
Okay. Could you spell out some idea on the India branded and domestic business, how it is panning out, what number we have got in quarter one?
Yeah. So, in my brief, as I mentioned, we, the business, the India business was approximately INR 95 crore. This is growing at an overall level of around 40% right now. Out of this, the branded business is INR 65 crore, and that business is growing, branded in the retail business. That is growing at around, you know, almost 45%-50%. So that's a little brief. The brands are doing well. We are expanding, you know, the distribution network. We are also expanding most of the channels, right from rural trade to e-commerce. We are now getting pretty strong on quick commerce.
So yeah, on all fronts, we are trying to be aggressive and see how we can keep driving this kind of an aggressive growth.
Do you think this year we will be higher of, close to about INR 300 crore, what target we were estimating? The reason why I'm asking, because we have done a lot of, activation on ground, so maybe if you can help me to get better quality to understand what kind of, vending machines we have put in and what is the distribution at this point of time.
Yeah. So, you know, yes, 300 is the number that we are looking at, which will mean that we almost see 50% growth over last year. So that's, that's a number that we are running, and this is only for retail. At an overall level, we will, the India business should cross INR 400 crore. And yes, there is a lot of ground, activation we are doing, both on the demand generation side and the distribution side. And there's a lot of, you know, while we do so, there's always, as you know, in FMCG business, it will be an evolution of, the distribution as well. So there has also been. Last time, we spoke about how, you know, we are not only strengthening distribution in terms of number, but also in terms of quality.
We are now getting, you know, more and more, and it's a better quality distribution network. When I say so, which means that the quality of distributors and the strength of distributors is also increasing by the day. And hopefully, by this end year, our direct distribution should touch 130,000 outlets. And we are also hoping to drive a lot of indirect distribution through wholesale, which means that we probably, in effect, will be touching around 150,000 outlets. So that's the plan on distribution. And we continue to, you know, press upon the demand generation activities, right from ATL to BTL. All that is happening. We are trying to see are there any other sub-segments that we could enter. And yeah, so all that goes with that.
That's really helpful. Just last question on the margin. Though prices are elevated and we have seen a gross margin is declined, and also it had the effect on the EBITDA, could you spell out, if the long-term contracts are now getting revised at the higher price, or, what is it that we should look forward for next two, three quarters, how the margin will pan out?
So I'll just, you know, I'll just correct the understanding little bit here. The margins never contracted. Optically, it gets contracted because, you know, we would work on a per kilo EBITDA margin, which means that if the crop coffee prices go up, in relation to top line, the margins will look, you know, depleted, but that's not the case. Our per kilo, or let's say, per finished margins are intact, and that's the guidance we always give, that our EBITDA growth will be in line with our volume growth.
This quarter, what has happened is that if you're seeing around 23%-24% EBITDA growth and our margin growth is 15%-16%, there has been a little expansion because this quarter we had certain contracts which were a little higher value contract and more margin contract. So we saw some benefit of that, and therefore you'll see a margin improvement or, let's say, per kilo margin improvement that we witnessed in this quarter. Now, coming back to this question that are the long-term contracts getting revised? As of now, we are not seeing so much of you know, revival of long-term contracts because the coffee prices are still high.
But yes, it seems that, you know, as it happens in any commodity, once the commodity sees a peak pricing, there is a period of confusion, and then things start settling down. So we are seeing those kind of settlements happening, and we are now seeing some revival, but I would not be too, you know, committal about this fact that a revival has happened. So we'll wait for one or two more quarters to see how things pan out.
Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Akhil Parekh from B&K Securities. Please go ahead.
Hi, thanks for the opportunity. Praveen, so my first question is on the coffee prices. If I look, Y-O-Y, it has almost gone up by 60%, robusta coffee prices, while Q-O-Q, it has gone up by 25%. And, at the same time, we are saying our volumes have grown by 15, 16% on a Y-O-Y basis, while sales growth is at 18%. So I'm not kind of understanding it. So is it like we have seen a cut in the pricing, in this quarter than previous? Has the product deteriorated?
So, Akhil, you know, there is no cut in pricing as such. You know our model, we do back to back. So a lot of this quarter's contract is actually, you know, contracts which we had done previously. So, you know, it will be unfair to compare with current prices. So while the current prices could have gone up by 30%, 40%, maybe 50% , but that really is not the right indicator because the contract that we delivered is probably, let's say, last year's pricing contract. So in effect, you know, there is not only lag of maybe a lag of one, one and a half years also that may come into play. Yeah. So that is why, you know, that comparison is not a, not a right comparison, I would say.
Okay. So do you still maintain that 15%-18% volume growth guidance for current year, given that we have already done 15%, 16% done this?
Sorry, your voice is getting a little smashed. Can you?
Do we maintain the volume growth guidance of 15%-16% for this year?
You know, if you remember last quarter, we had given a little broader guidance. This times are considering the volatility in prices with the 10%-20%, landed at 15% but we would like to guard ourselves and say that we still maintain 10%-20%. I would not be committed at this point of time, because as I was telling you earlier, also, long-term contract revival is still not, you know, it's not strongly back. We are still, you know, most of the clients are, are into hand-to-mouth kind of a situation. So the orders are really coming, you know, not in a long term, but in very, very short term manner. So we don't have so much of visibility for me to be committed about this.
Therefore, I will keep maintaining the guidance of 10%-20% as of now.
Sure. And on the EBITDA per kg , right, do you still maintain that you had less than 110 basis points kind of guidance for next few years? And do you see a change, because capacity is going to come now on stream, in great time. So can we expect improvement on that side?
Again, not really because as we have been telling you, there are a lot of things that can play out. This quarter, we got some improvement, largely because of high-value contracts, and there are more small packs that we did. But, coming quarters, there are some volume contracts, some low-margin businesses that come our way. So we would like to maintain the guidance that, you know, most of our EBITDA growth will be driven by volume growth and not really by margin improvement. After maybe, 1.5 years or two years or so, I think that's the time we will start improving the margin profile as such. And again, it's not an overnight thing we have started.
We have always told that we are working towards it, more of small packs, more of branded business, more of high specialty coffee. So all that will happen gradually, but the visible effect you start seeing more like in let's say 1.5-2 years.
Okay. How much will the small packs as a percentage of total sales or total units?
So broadly, it is at 20%, Akhil. But yeah, there has been an improvement, because small packs is also about, you know, the our own brand business. So overall, the small pack contribution is improving. Still at a 20%-25% level, but yeah, we are seeing improvement on this front.
Okay. Great job. I will cover this with you.
Thank you.
Thank you. The next question is from the line of Rahul Maheshwari from Ambit Asset Management. Please go ahead.
Hello. Hi, Praveen.
Hi.
Just, I had one question, that can you give some color on the clients addition that has been taking place, in the what kind of clients addition and in terms of the wallet share that has been taking place from the existing clients? And just adjacent to that, the U.S. capacity was running at an annualized, U.S., as a geography, was running at 8,000-10,000 per ton, where that as a market has been reached for us. These are my two questions. Thanks.
So, you know, this one is quite granular thing that you asked. Probably we'll have to go a little deeper here. I'm not sure that I'll give you a lot of color on this. But, yes, see, that's an endeavor that keeps happening. We are wanting to increase the wallet share with our clients, and I always maintain that that's only not the, just the only thing that we go on. There are things like new client addition. It's a leaking bucket. There always will be new clients, and there will be clients who will be dropping off from the roster as well. So all these things are happening. The net effect is what you are seeing as growth numbers. So all that things, there are certain clients where we have increased our wallet share.
There are certain clients where we have probably decreased our wallet share as well. It's a continuous process. I think, it's more like, you know, my net, when I say leaking bucket, my entry should be more than my exit. So that's the, that's the endeavor that we all work upon. So, so yeah, that's, that-
Praveen, but just can you give some qualitative about how the value-added share has gone up? I'm not talking in just one quarter basis, but if you can give us some direction that earlier it was in low single digit, where it has reached?
Yeah.
And where you aspire to go in terms of wallet share, that would be very helpful.
Right. I'll tell you. So, you know, generally, first I'll talk about wallet share, and then I'll pick it, break it up for you in terms of value-added products. Yeah. So value wallet share, you know, generally a client will also. They also de-risk their business, so they will not let a supplier's wallet share go beyond, let's say, 35%-40%. Yeah? So there are clients where we are working on the highest levels of 35% or 40% of the wallet share. There are a lot of clients where we are only at, let's say, 5%-10% of the wallet share. So our endeavor is to kind of, you know, get into more of a 20%-25% wallet share for those clients. As I told you, we're always gonna look out of new clients.
So that's the endeavor on the wallet share, you know, aspect. Now, coming to value-added. So let's say there are two types of things which are value-added for us. One is the value-added coffee, which could be specialty coffee, and the second thing is the small pack, where we earn more margins. So these are things which will help us improve our margin structure. We are encouraged to keep hiking the proportions for them. Just to give a little example, and I'm giving a longer period example, because then it gives you an idea where we were and where we are going to. Let's say 4-5 years, our small pack contribution was in the single digits, probably 5%-10%. Now it has reached to 20%-25%.
So that explains the, you know, effort that we have put in to make sure that we do more and more of, you know, small packs. And that's the reason we have put a facility, which is helping us do more and more small packs for our clients. Coming to specialized coffee, you know, three, four years ago, it was maybe not even 1% of our portfolio. Today, it is more than 5% of our portfolio. And sometimes you also have a combination of, specialty coffee being packed in a small pack, so that is the, you know, that is the sweetest spot for us because that gives you the best of margin. So we are doing some of those stuff as well.
So yeah, that's in brief, you know, how we what our endeavors and how our margins are looking.
Also, can you give some highlight on the, I don't want specific names, but number of customers that are being added or what you aspire in an any per annum basis, because generally it takes, as you mentioned, 2-3 years to crack a particular customer. So any pipeline or anything which you want to give direction, that would be helpful.
So on a very, very broad basis, in any year, we would add 10-15 clients, new clients, yeah. Maybe 4-5 clients will drop off also. But these are not permanent dropoffs, these are dropoffs could be temporary. But that's the kind of thing that we maintain. And, you know, our endeavor is just not, as you know, adding clients is not the only aspect, because I could go ahead today and offer some, you know, dirt cheap prices and add 50 clients. That's something that we can do anytime. But that's not what we want to do is add qualitative clients which are, which are of high quality.
Not necessarily, it does not necessarily mean that I only want clients with high margin business, but it means that clients who are long, who are going to stay with us long term, who are, who have got some spending in the market. Clients who are looking to build brands for themselves, because mostly, the clients who are building it for their brands are much more stickier business than traders. So these are the things that we keep in mind to when we are, you know, onboarding client, and that's been our endeavor.
Your view on U.S., how the capacity is. It was earlier question only.
So, yeah, yeah. So I think there's some confusion. It was not 8-10 thousand that we have ever spoken about. It was 4-5 thousand, and that is growing by, you know, the rate of 15% volume over year-on-year. The U.S. market is also challenging. You know, what happens is that right now, the Brazilian prices are much lower than Vietnamese prices. There was a time when things were inverted. At that time, we had a little more advantage, so driving volumes was easier. But today, that it's that much more tougher to drive volumes there because Brazilian suppliers are having an edge, at least in terms of well, not much of procurement edge, because we can also procure from there, but they do have logistical edge that they have on us.
You know, these are, these are difficult times for us to penetrate more than what we have penetrated. But yeah, the endeavor is to keep, you know, nibbling away and seeing that are there any avenues of growth that we can embark upon.
Thank you. Thanks.
Thank you. The next question is from the line of Akul Broachwala from Avendus Investment Managers. Please go ahead.
Yeah. Hi, management. Thanks for the opportunity. First is on, as you mentioned in your opening comments, that, you know, this quarter kind of reflects, the pent-up demand that was, kind of there after since many quarters. So do you think that, this, at least the near-term pent-up demand is kind of, already catered to, and now customers will only probably wait for prices to go down further?
Yeah, no, so I think it's not pent-up demand. I think what we should see it like this, this is more, you know, near-term demand. So what is happening is that most of the customers or clients are wanting to feed their near-term demands and are not committal about long-term, you know, contracts. And the reason is exactly the coffee prices, because the coffee prices are at high, and at high prices, everybody wants to wait and watch. But, you know, everybody is hoping, and this hope has been there for last one and a half years because when the coffee prices reached $2,500 levels, people thought that this is the peak. Then it did not stop there. It went to $3,000, $3,500, $4,000.
So what is happening is that at every interval, people are expecting that there will be a correction. And therefore, what they do is that they only, you know, give commitment for their short-term needs. And that's what is happening right now. And that's in the market scenario. Now, when this will invert, we really don't know, because still at this point, at this point also, everybody is expecting that at some point the coffee prices will correct. So people are in a wait-and-watch mode still. So let us see how things pan out in the future.
Got it. And, you know, like, in terms of the debt, so are we already at the peak debt level, like, of this INR 1,865 crores, or do you still expect, based on your volume growth, the debt to further inch up from, even from these levels?
So if we continue the current volume growth, even at current static positions, the debt level will go up. There is no doubt about that. We're looking to end the year at around INR 2,200 crores from INR 1,800 crores.
Okay. And, another thing.
Let's say if the prices do drop after November, December, then this would come back by INR 200 crore, come down by INR 200 crore.
Got it. In the previous call, you did mention that, you know, you was looking to refinance that at, probably lower cost. Has that already been through or, maybe you're still evaluating that?
No, so we are still under review. There are a lot of, you know, background working that has to be done. So we are, we are constantly reviewing it because what is happening is that the interest rate scenario also across the world is changing by the minute. Yeah, so, while we speak, there should be certain, interest advantage you may get in some country, but, you know, the next day you see things, inverting, and we are seeing how the world market is behaving. So that's been, a added challenge to, kind of take a call on that. So we're still working on that, and nothing of, as of now, is, is formed out.
Got it. Just finally, some bookkeeping questions. This depreciation for Q1 you like, do you expect this kind of number to now be the, you know, quarterly run rate for the coming quarters, or, there will be some more volatility?
We're working hard towards it, but I maintain the guidance of 10%-20%, and we'll stay with that, because as I told you, the long-term contracts are a little difficult to come by. They're still short term, so we talk quarter-on-quarter and yes, the endeavor would be maintain this kind of a run rate. But yeah, I'll still not, you know, give a firm guidance of this run rate.
Okay. And the tax rate for the full year?
I'm sorry, did you ask tax rate?
Yeah, I just wanted to check your guidance for tax rate for the full year.
Oh, 13%-14%, I think, at a consolidated.
Okay, got it. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Parth Agarwal from Bastion Research. Please go ahead.
Hi, thank you for the opportunity. My first question is that since you have already launched the coffee brands in Europe, so I just wanted to understand what is your strategy to gain the market share in that region?
So, we have launched it in the U.K. market. Now, the strategy is very simple. This brand that we had bought there, Percol, has been known as a brand which cares for the environment. It was for the environment-friendly, you know, audience who cares for the environment, certified coffee and things like that. So we are building upon that proposition, and what we are also doing is trying to. So right now, what has happened is that, you know, U.K. market is largely modern retail. So our endeavor is to get it listed, because what had happened in the past 3-4 years, this brand had got delisted from a lot of chains. So our first endeavor is to make sure that we get the listings.
The first proof of pudding would be that in the stores that we are listed, once the offtake improves, then it gives us time to go to other chains and say that, "Look here, things are improving upon us." And that will happen because of our efforts that we are doing in both ATL and BTL. So we are looking to, you know, do social media awareness building, some localized activity, awareness building, which will help us gain traction for the brand. We are also looking to tap into some of the newer formats there, so there are things like coffee bags and all that, which are gaining traction as a format in markets like U.K. So we have already launched that, launched the formats, Percol formats in coffee bags.
Now, that is something that we are also looking to push forward. So all of this, we are trying to do to make sure that we gain the momentum that this brand had, a few years ago.
Got it. So all the manufacturing that is happening for this brand is from India, right? And be exported from here.
All the instant coffee is happening from India. All the roast and ground, like I talked about the coffee bags and all, which is, roast and ground format, which we are doing third-party manufacturing in U.K. itself.
Ah, okay. And also, can you help me understand the Swiss subsidiary business? So I understand that it's an agglomeration plant, and that you have positioned it as an agglomeration plant in Switzerland. But, what is the purpose that's solving there, and why can't we directly export it from India or Vietnam?
So various purposes, it solves. The biggest purpose that it solves, it helps us to be nimble-footed in the market, because if you see Europe is, you know, there's very small countries, there are a lot of small clients who are there, who want coffee, you know, their demands could be immediate in nature. And when you are, you know, trying to fulfill those kind of demands, it becomes very difficult to export from India and, you know, fulfill those demands. So these kind of arrangements helps us, you know, service these demands and grow our business. And these are very profitable business because these come from, you know, chain of supermarkets. These could come from small brand owners.
These businesses, while they are small in nature, aggregate. They aggregate into a good profitable business. So that's the reason it helps us to be there in Zurich.
Got it. The current capacity there is about 300 metric tons for agglomeration, right?
That's only in agglomeration capacity. So anyways, that's not a processing unit. So anyways, the base product goes from India only. And depending on the client's requirement, if somebody requires agglomerated product, we agglomerate and give it there.
Hmm. Got it. And just one final question. So, I understand Continental Coffee Private Limited, that's fully and successfully here, is into food and beverage business. Can you just detail out what exactly does that business do currently?
So basically, what we did was, last year, if you remember, we demerged the beverage business back to the parent company, and we said that that entity will be only used for our retail, retail, endeavor. So we already were running, you know, our Continental Coffee kiosks at certain places like, metro station and a couple of them at colleges. Now we have evolved that format, and we are doing it with a full-fledged cafe. We just opened a couple of them in the last month, at Hyderabad. We'll do a POC. If we feel that that concept is working for us, then we will, kind of look forward to expand it. How will we expand it? Where would the capital come from?
All that questions we'll answer once we understand the proof of concept.
Got it. That's all from myself. Thank you.
Thank you. The next question is from the line of Bhargav from Ambit Capital . Please go ahead.
Yeah, good morning, team, and thank you for the opportunity. Sir, any comments on market share, given that we managed 13% volume growth in a tough market?
You know, this one is a tough one because generally market share, there's no syndicated data that comes, telling you what is the global market share that you have. And capacities on a regular basis are getting added, get deleted, and things like that. But, you know, when we triangulate, because we have said that at, when we were at, you know, 44,000 or let's say around 40,000 metric tons, we probably were at around 6%-7% of, 6%-7% market share, in the world B2B market, yeah? The addressable B2B market.
Then we said since the market is growing by 2%-3%, and we probably are looking to grow at 17%-18% at a CAGR level for next 3-4 years, our guesstimation was that we probably will end up at around 12%-13% by 2027-2028 kind of number by 2027-2028. So that's the scenario right now. But these again are, you know, you'll have to take these numbers with a pinch of salt, because these are all triangulated data and not any syndicated data that we have with us upon.
Sir, on the share of freeze-dried, you mentioned 25%. So, can this increase post your 5,000-ton capacity getting added in the second half?
Probably not. There are two things. In terms of capacity, while that 6,000 tons is added, we also got an Indian spray-dried capacity of 15,000 tons, which is not added. So probably it remains in the same proportion. But while I say so, this is on the capacity front, a lot will also depend on the market demand front. So let's say if the demand for freeze-dried increases, then probably the proportions would increase. But difficult to comment just because of the capacity, I don't think so that should be the drive for our base number.
In terms of price hikes, is it fair to say from 2Q onwards we would have taken price hikes as well compared to 1Q?
So our price hikes are generally related to the green coffee prices, because we work on cost-plus model. So it will really depend on the green coffee prices, how they move, and that will actually determine price hikes for us.
Okay. And, last question is on the profitability for the branded business. Is it possible to share?
No, so I, yes, of course, we last time itself we said that we had broken even, and we probably will be looking to get to 7%-8% EBITDA margins for the branded business.
In this year?
This year, yeah.
Okay. Great, sir. Thank you and all the best.
Thank you. The next question is on the line of Devanshu Sampat from Avendus Capital Private Limited. Please go ahead.
Yeah, hi, good morning. This is Anirudh here and Devanshu. Have two questions. One is, as far as EUDR compliance is concerned, could you tell us what proportion of the coffee that you're getting would be compliant, and then is that a risk, as far as continuity is concerned post-December? And is there a chance that these regulations may also be pushed back, if some color can be provided? And, the second one is that, in terms of timeline of the new capacity startup in Vietnam, we are on track on September, October? I just wanted to clarify that.
Okay. Yeah, so yeah, we are on track. September, October, we should be up and running. That's on the capacity. On the EUDR, I think, there are three, four angles to it. One is that, you know, Indian coffee, which is generally shade-grown and is grown in the jungles and all that, we are fully compliant with EUDR. Second thing is this is largely for the commodity itself, green coffee. Instant coffee does not kind of come under this ambit. So I don't think so there is any... Right now, as of now, there is no risk that we see on this front.
Right. Thank you. Just one follow-up question. Sorry, one more data point, actually. What would be your current cost of debt, both working capital, more importantly, the incremental working capital debt is, what is the average cost currently, please?
In June it was around 6% average cost of funds towards working capital, and it is likely to go up to 8.25% from this quarter.
Sorry, you said 8.25%?
8.25% is the current cost of funds towards working capital. That is from July onwards.
Okay. From July onwards, it's 8.25% on the entire working capital debt of INR 1,200-odd crores.
Right. Yes, you are right.
This INR 1,200, you know, is benchmarked to when you mentioned that this debt could go up a little bit towards the end of the year. This is assuming coffee prices remaining at about $4,000, or at what level, broadly?
It is somewhere around INR 3,600-INR 4,200.
INR 3,600-INR 4,200. Thank you very much. Very clear. Thank you.
Thank you. The next question is on the line of Disha Giria from Ashika Institutional Equities. Please go ahead.
Hi, team. I just wanted to understand more about the branded business in India. So you did mention that there was a 40%-45%, 40%-50% increase in the branded revenue, and what would be the volume growth for the same? And also, how do you see, like, the coffee prices are volatile. For the B2B business, we have a cost plus model, but how do you see it in the B2C business?
So, yeah, just two things. One is that, you asked about volume growth, which is, approximately, 30% or so, that we are achieving for the retail, branded business in India. And coming to the second part, you know, you know, how FMCG works. There are different pricing things. Here we can't work on cost plus. Generally, because we are a fighter, we are a competitor to the larger or really established player, we maintain a pricing index of the market. So, so that's how we, how we increase prices, and we are seeing 30% or so price increases. But again, there are a lot of challenges here because you can't increase prices on every pack. There are certain packs which are more, price elastic, so you can increase more prices there.
There are certain small packs, from the very small packs to, like, you know, the coinage packs, as we call them. They become, their price increases are very difficult. So we'll have to, we work on, you know, driving more and more efficiencies to keep or maintain the margins there. That's how the pricing decisions are taken in the retail B2C business.
So the Continental brand is, I believe, catered to more to the southern part of India, where I think they are ranked second or third. So, do you plan to expand this brand within India further?
Yeah, absolutely. So you're right. We started with South India. A lot of our efforts are here. We have gained quite a bit of traction here, and now we are expanding to other parts of India as well. So in fact, the work has already started both in terms of driving distribution and also generating demand. So there are key markets and we are typical in the rest of India, it is a far more urban product than what is in South India. South India, the penetrations are much higher. So we are looking to penetrate first the, you know, 5 lakh plus population town, and those towns where we feel that the coffee consumption is higher than the others. So a lot of work has already started, both in terms of the building and distribution expansion.
Today, as we speak, we already are covering approximately 1,000-1,200 outlets in metro towns like Delhi, Mumbai, and 500-600 outlets each in the second tier towns like Lucknow or Chandigarh, Indore, Pune. So that's how we are expanding the rest of India.
All right. Thank you. That is it.
Thank you. The next question is from the line of Lokesh Manik from Vallum Capital. Please go ahead.
Yeah. Hi, good morning, team. My question was on the inventory days, which have, you know, historically hovered around 90-120 days, which has shot up to about 180 days for two years now, past two years. And this is, you know, having an implication on the interest cost, which has shot up significantly. So, any comments on how we are planning to manage this inventory and bring it back down to 120 days, given that we are not, you know, compensated by the end consumer for the days that we are holding the inventory in our contract pricing?
A couple of things here. You know, a lot of our inventory management is dependent on the market scenario, and why do I say so? Because if you see in the last few quarters, our buying from sources like Brazil increased because there the prices are, you know, lower than the Vietnamese coffee prices. So which means that it adds to the logistics timeline, and therefore, your inventory, or let's say the working capital cycle, goes up. Now, you are right, it adds to the pressure of finances in terms of, you know, interest cost and all that. But having said, so this is our model. So in the sense, because I'm getting it at a lower price from Brazil, I am able to earn margins and I'm able to sell as well.
So that is something which is, probably, unavoidable. The only thing that I would like to mention here is that all this inventory buildup, or let's say, even the increases are happening, it is for confirmed contracts. So all the working capital that we utilize, not a single penny is utilized for inventory buildup. So these are all confirmed contracts. Yes, it adds to the pressure, but on the other hand, it also adds to my, operating margins as well. So whether you see it from this angle or that angle, it actually works out to be the same. Because if I were to kind of, you know, squeeze the, payment cycles and all that, I would end up having lower margins. So I think, net-net, that's a balance that we try to maintain.
Now, when do we see this improving? Of course, since our operations are here in India and Vietnam, we see this improving if, if some coffee prices soften. So that is something that we will expect to happen by Q4 or so. So till then, we'll have to stay put with these kind of working capital cycles.
Fair enough point, but, you know, our contract durations are reducing, like you mentioned earlier. We're not getting long-term contracts. So scenario then, shouldn't we see, you know, a fall in the working capital cycle because you have, you know, you're buying this linked to the contract that you receive on the day, the raw material purchases?
Not really, because if I get long-term contract and I buy coffee, I don't keep inventory with me. So it is a staggered, when I bought today, but dispatches are staggered, so that's how the market, markets work. So I don't necessarily build more or less inventories because of the short-term or the long-term contracts.
Okay, understood. Understood. That's it from my side. Thank you so much.
Thank you. The next question is from the line of Bhavya Sonawala from Samaasa Capital. Please go ahead.
Hello, thank you for the opportunity, sir. Am I audible?
Yeah, Bhavya, you are audible.
Yeah. Just a few questions. In our current Continental Coffee portfolio, just wanted to understand, do you see any new product additions going ahead? Or will you keep it the same and kind of focus on increasing distribution?
So yeah, right now, so we are focused on largely on distribution, because if you see our share among handlers are, you know, this, that's pretty much higher than the average shares in the market, which means that there is a demand which I need to fulfill. So the distribution expansion is our key focus right now, and we'll keep building on it. The thing is that we, ourselves, you know, if you see our portfolio, we probably have a portfolio which is larger than larger than the leaders in the market. So we have always been accused of not giving enough focus on some of these brands. So we'd rather you know keep focusing on the brands that we already have.
So I don't see a major addition right now, but yes, in the background, we keep working on things. We are seeing if there are something, some trends emerging, that we could capture in the future, especially in the premium segment, in the specialty coffee segment. So we are keeping a watch, doing some product development, concept development. Let's see how they, how they pan out, but nothing in the immediate future.
Okay. Understood. Makes sense. Just last question. On your overall business, is it possible to give kind of a breakup based on volume in the top three or top five geographies that we supply to, if that's possible?
Yeah. So, I'll give you a broad indication. Let's say, out of our total business, approximately everything put together, 40% comes from the Asian markets. Yeah. And then, around 20%-25% from East European markets. There is another 15% or so from the West European and the U.K. market. Another 10%-15% from the U.S. markets, and the balance is spread between South America, Africa and Australia and New Zealand. So that's a broad, you know, concept. We are pretty well spread out in terms of geography.
Understood. Just a follow-up. I want to ask you, in the last 3-5 years, has there been a particular geography that you have seen growth, kind of, you know, surpass other geographies?
It's not the past. Yes, there are geographies like, North American geography, we have seen in growth, it used to be very small there. Now we are, we are substantially big there. So that's a geography that has done well for us. We are already very good at Eastern European countries. We're now looking forward to see if we could strengthen our presence in the East Asian, Southeast Asia, India, we are very strong, but we are wanting to build our strength in the Southeast Asian countries. So this is how we are, you know, seeing the geographies for us.
That's understood, sir. Thank you so much, and all the best.
Thank you. The next question is from the line of Omkar Arora from Eraya Capital. Please go ahead.
Hi. Good morning, sir. Thank you for the opportunity, and congratulations on a good set of results. So my only question is, coffee prices, they have been on an upward trajectory for a long time now. So do you see smaller players getting stuck in this space, and do you see this, as a company see this as an opportunity for consolidation in this space, especially at a time when we are increasing our capacity by so much?
So actually, yeah. You know, at an overall level, very specifically, I will not have a huge indication on this. Generally, it happens that whenever the commodity prices are at such high levels, there will be consolidation because it becomes so difficult, you know, all of all of us are stressed about our balance sheet, come to think about the smaller players. So they find it even more difficult. And we are seeing certain within, in these scenarios, we also start getting calls for, you know, acquisitions and mergers, for smaller players. So there is a trend that is, that is seen, and sometimes it does work for, you know, as an advantage for the larger players.
We are seeing this trend that this, it should happen, and not just because of higher coffee prices, but because of the scales and the economies of scales that set in, the larger players will get consolidated over a period of time. Apart from that, there is also a trend that, you know, 20 years ago you would have seen that, the brand owners and the manufacturers were the same guys. Now, people are kind of, there's so much of segregation that has started to happen. The brand owners are getting separated from the manufacturers. So all that will lead to, lead to, you know, aggregation, and that should help larger companies. So that's... Yeah, you're right, that's a trend we have seen. But how much of that has happened? Difficult to comment.
Okay, sir. Thank you.
Thank you. The next question is from the line of Richa from Equitymaster. Please go ahead.
Sir, thank you for the opportunity. My question is, when we are planning to set up FDC capacity in Vietnam, I think the commentary was that, you know, there was committed capacities built and, you know, there was high demand. Has this scenario changed, and does it change your outlook for what the ramp-up and off-take could be like? And what is the CapEx likely to be incurred this year? And the related question is: what is the delta between realization margin for FDC and spray-dried coffee?
So I'll just answer the first question, and I'll ask CFO to answer the CapEx question that you asked. So yes, there is a certain amount of underwriting that happens in certain cases, and that helps us to decide our capacity. So that scenario hasn't changed, so that remains intact, and there is no change in outlook on that front. Now, as far as CapEx is concerned,
Fifteen million.
Fifteen million?
This year. No, total it was scheduled about INR 15 million, total implementation of the project cost. It's predominantly that part of the loan has been arrived in half financial year itself. And we have incurred almost around INR 47 million so far, and the balance is going to be incurred in another couple of months. And by September end, we are going to complete the project and start production.
Okay. And sir, will you also comment about the delta in realization and margin for FDC and spray-dried, right?
There is no delta realization, the spray-dried margins, as we have told earlier, approximately 30%-40% higher than the spray-dried margins. That will remain intact, so there won't be... Now, how does the proportion change as a group? We'll have to see, because if the proportion changes from here, then probably at a group level, we'll see better margins. But if the proportion remains intact, and our sense is that it will remain intact, because we build capacities in spray-dried, we have built capacities in spray-dried as well. So I don't see much of a change in trend that is going to happen. So our overall margins guidance remains same for the next couple of years.
Okay. And sir, once we are done with this CapEx, we will have around 75,000-76,000 tons kind of capacity. What is the maintenance CapEx going likely to look like?
So we don't have another. So maintenance, there will be spares and maintenance that is there, which comes as a regular expenses. I don't see a significant CapEx there for maintenance that is going to happen.
Okay. Okay, thank you, and all the best.
Thank you. The next question is from the line of Romit Nagpal from Terrapolis Asset Private Limited. Please go ahead.
Hi, good morning. Just wanted to check, there's been a lower depreciation this quarter compared to the previous quarter. Any particular reason for that?
No, so actually, this is not lower depreciation. Previous quarter was abnormally high because we had, you know, changed the life cycle of our vending machine when the domestic business was merged into the parent company. So from a 10-year, we went to 3 years, which led to 8 years of higher depreciation last year, the last quarter.
Okay.
If you see previous quarters, it will be very similar to this quarter.
Thanks. Given that we work on a cost-plus model, and I've been tracking the company for years, and given the current quarter that's gone by assuming some fluctuations, because you mentioned earlier regarding short-term demand and not really long-term contracts, does a PBT in the range of INR 320 -INR 350 crore for the year sound reasonable?
PBT of INR 320 -INR 350 crore sounds reasonable as of now.
Okay.
But, yeah, we'll build upon that, you know, probably next quarter, we'll have a little better picture, because things are still volatile.
Given that the tax rate is moved up in, what tax rate should we assume for the year?
At a consortium level, around 14%, 13.5%-14%.
You had a 20% increase in top line. How much of this is driven by increased volumes?
Around 15% in volumes.
Okay. Thanks a lot. That was all.
Thank you. Ladies and gentlemen, due to time constraints, this was the last question for today's conference call.
I would now like to hand the conference over to the management for closing comments.
I thank you all for joining the conference with us. We look forward to interacting again the next quarter. Thank you all. Thank you, Abhishek and Nirmal Bang for also doing this quarter. Thank you.
Thank you, sir. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.