Ladies and gentlemen, good day and welcome to the CCL Products (India) Limited Q2 FY 2025 earnings conference call hosted by Nirmal Bang Equities Pvt Ltd. 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 touch-tone 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, Del. Hello everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited 2Q FY 2025 earnings conference call. The management is represented by Mr. Challa Srishant, Managing Director, Mr. Praveen Jaipuriar, CEO, Mr. B. Mohan Krishna, Executive Director, Mr. V. Lakshminarayana (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 will open the floor for Q&A. Thank you, and over to you, sir.
Thank you, Abhishek, and thank you for arranging this call. I welcome you all to this conference call, and I wish you all a very happy festivities. Now, I will quickly read out our results, and then post which we can open the floor for questions. The group has achieved a turnover of INR 738.2 crores for the second quarter of 2024-2025, as compared to INR 607.57 crores for the same corresponding quarter last year, which is almost a 21.5% increase. The net profit stands at INR 73.95 crores, as against INR 60.86 crores for the same period last year, which is again almost a 21.5% increase. The EBITDA is at INR 137.6 crores, almost a 24.3% increase over last year's same period. The profit before taxes is INR 7.3 crores. As far as the half-yearly figure goes, the group has achieved a turnover of INR 1,511.49 crores for the full half, as compared to INR 1,262.5 crores for the corresponding half, which is almost 20% growth.
The net profit stands at INR 145.4 crores, as against INR 121 crores for the corresponding half of previous year, which is almost again a 19.6% growth. The EBITDA is at INR 269.2 crores, almost a 24% growth, and profit before taxes is INR 174.49 crores. The domestic business also showed strong growth momentum, and it achieved a gross turnover of INR 200 crores in the first half, almost INR 105 crores in the quarter two, out of which the branded sales in the first half was INR 135 crores and almost INR 70 crores in quarter two. That's a brief of our performance for quarter two and H1. I now invite you all for questions.
Thank you. 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 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 [Dinesh Karya] from Antique Stock Broking. Please go ahead.
Yes, thank you for the opportunity. So, firstly, if you can just help us with the capital utilization for the quarter and volume growth, that would be great.
So, you know, without going into very details of volume, which is what we do not share, but if you back-calculate, we always have maintained that the volume growths are generally in line with the operational profit growth, which is EBITDA growth. However, you know, if I were to give you a little color on this, the volume growth, EBITDA growth is largely due to volume and some bit of better margin business that we did. So, the volume growth this time has been closer to, you know, high single digit or closer to 10% or so. And the EBITDA growth, if you see, it is closer to 21%-22%. So, that's the thing. In terms of capacity utilization, it remains very similar to last quarter. We are almost the already set capacity, which was already there, we are almost utilizing 100%.
The new capacity probably is at lows, or let's say the [audio distortion] capacity in India would be closer to 10%-12% utilization. The extended capacity that we had put in Vietnam, the line two, which made it to 30,000, that would be closer to around the new line. The earlier line is in full capacity. The new line could be at around 40%-50% utilization. So, that's on the utilization and the volume growths and the EBITDA growths.
So, and what is the target for the full year? Like, 10% was the growth for this year in terms of volume, 16% was in the last quarter. So, for full year, what kind of volume growth are we expecting?
Considering the, you know, we have told you that last couple of quarters, or our quarters, considering that there is so much of volatility in green coffee prices, the contracts have been very, very short-term. We are maintaining that guidance of 10-20%. We don't want to change that at this point of time. That's how the trajectory looks like for the balance of the year.
So, next is on the CapEx, so Vietnam FDC line. When do we expect it to commercialize? And any future CapEx plans for India or on the FDC side in FY 2026?
No CapEx plan. We are already good on capacity for the next 3-4 years. It's only after that we will figure out whether we need more capacity expansion. So, no new CapExes. The Vietnam FDC, we are right now in the trial phases. As you know, whenever we put up a line, a lot of trials, certification, you know, blend matching, all that work happens. So, hopefully, we are looking to kind of, you know, do all of that, complete all of that by this quarter. And subsequently, we can look forward to commercialize and start selling from that unit.
Sir, just one bookkeeping question. So, the India line had commercialized in FY 2024 fourth quarter, right?
Right.
It was around INR 400 crores of CapEx.
Right.
So, why is the capital work in progress as of second half at around INR 730 crore? If the Vietnam capex, pending capex, is only $50 million, then why is the capital work in progress so high as of second half?
No, it is the total. It is around INR 400 to INR 300, and sorry, INR 400 crores in India, and almost around INR 375 crores in Vietnam, which is total around INR 775 crores. So, again, it is with some of the equipment, fragment equipment, which are not essential to us, and also some of the admin block and all those expenditures is still going on, which are not really relevant to the operations, production operations, which is still going on. But reasonably, you could see that around INR 750 crores is the CWIP that we are seeing it.
So, INR 400 crores pertains to India, but India, we have already commercialized. So, if you have got capitalized by now, if you could just reiterate, I didn't get why is the INR 400 crores still in CWIP if the plant has commercialized?
No, because if you see that, then it is in the trial operations. We can't capitalize. Once we are done with that, trial operations are done, and when we move on to the above to declare the commercial operation phase, that is the time that we go for capitalization.
Okay, so by end of FY 2025, can we expect, sorry, by end of FY 2026, can we expect a INR 2,600 crores of gross block? Is that understanding correct?
Yes, yes, you are right. It will be there. INR 800 crores gross block is going to be increased at compound level.
Sure, perfect. I just have one last question. If you can just share your outlook on coffee prices, how is it moving? How do we expect it to go in the next six months? And that would be the last question from my end. Thank you.
So, you know, coffee prices, again, as we have been telling for the last couple of quarters, it's become very difficult to predict because most of the predictions, per se, have been not holding true. But our sense is that, you know, you would have seen last couple of months there has been some softening across, and the Vietnam crop is slated to arrive in December. So, only after that arrives, we'll get a little sense that what are the stable levels that it will settle at. So, we'll be able to give a better picture. But looks like that, you know, it may not increase much from here. Probably it will either stay at this level or soften up a little bit and stay there for some time till we start getting both, you know, good crops from Brazil and Vietnam, where it could then again soften up. But right now, it looks like it will hold up at these levels for some time.
Sir, that's it. Do you expect when it softens, it goes back to INR 2,000- INR 2,500 levels, or by softening, you mean $3,000- $3,500 levels?
No, sir, right now, none of them. So, right now, when I'm talking about softening, we're saying that from INR 4,500 or INR 4,400, maybe at around INR 4,000 levels, it could, or INR 3,800 levels, it could soften up. INR 2,000 levels, I don't see it, you know, settling at that price anytime in near future or mid future. It's only, you know, maybe in long term, if there is some oversupply and all that, it may come down. Unlikely, unlikely that it goes down to that levels.
Perfect. Thank you so much, sir, and all the best for the future.
Thank you.
Thank you. The next question is from the line of Akul Broachwala from Avendus Investment Managers. Please go ahead.
Yeah, hi. Thanks for the opportunity. So, you know, just wanted your thoughts around, you know, the volume growth that you are kind of witnessing. First of all, like, is it, you know, driven by spot orders, or are you actually seeing some sort of build-up in the order book, you know, over and above three, four months? Is that the case that's happening?
Yeah, so, in fact, you know, most of our, if you were to see our profile generally from the past, most of our things are long-term contracts. A lot of our distinct was the execution in these quarters, last couple of quarters, has been result of the earlier long-term contracts that we have been getting. Yes, there is a mix of spot orders, but a lot of transactional or, let's say, opportunistic sales is something that we are purposefully not been concentrating much on, considering the fact that there is a strong amount of competitiveness that is getting built around. There are a lot of Brazilian players who are offering coffee because the Brazilian crop was good. They have had the advantage when it comes to these opportunistic buys and the bottom of the pyramid sales.
That's something that we have purposefully not concentrated and not got into that price, you know, war or so. And that's the reason the volume growths are a little lesser than what it used to be four, five quarters ago. But at the same time, because we are concentrating on better margin business and more brand owners and more small packs, more margin profiles seem to have improved, and that is the reason why we've got such good EBITDA results. That's the situation right now. After December, when the prices settle down a bit, there are a little bit of, you know, forward indication that how the prices settle down. And then that's the time we probably will be getting a lot of long-term contracts. That is our expectation as of now.
We'll be able to give you more firm confirmations maybe in the next quarter that how did prices pan out and how did we pan out in terms of our ability to get more long-term contracts. But as of now, the market does remain volatile. There are ups and downs, which is making people also, you know, wait and watch more. But, you know, come to think of it, we have been able to kind of be pretty good on both top line and bottom line. Considering that, you know, in most of the calls, you would have heard us saying that a large chunk of our business is with our, you know, established clients, long-term partners, although they may be giving us short-term contracts, but these are people who have been with us for a long time. So, that story continues and that narrative continues.
Understood. And, you know, like, for the new capacities that we have, what sort of plan are we kind of targeting? Like, are we approaching new geographies, new set of customers, or basically are we just trying to, again, look back into our existing set of customers and probably gain further volunteers? So, you know, some understanding around the new capacities that we have, how we are planning to tie those capacities over the next two, three years?
Yeah, so we are actually doing both of it. One is with our existing customers, we are looking at, you know, entering into more long-term contracts. How can we make sure? Because, you know, last time also, people have also learned a lesson because the coffee prices have been rising. They haven't come down. A lot of people lost out because they didn't go for long-term contracts. So, this time we are telling them that the situation probably, once they see a little stability, they should go for long-term contracts. So, we're also helping them, you know, get that confidence. So, hopefully, we'll be getting a lot more long-term and large volume contracts in the future. Having said so, we are also very aggressively looking at new markets. We had already indicated that we are targeting new geographies like China and all that.
Our efforts, you know, are continuing in that direction. And we have already started seeing green shoots emerging. Some volumes have started coming in, and we are hopeful to build those volumes going forward. So, the capacity utilization will be a combination of both the factors driving the existing customers and, you know, building new customers and geographies as well.
Got it. And just, you know, final bit from my side. So, as you were mentioning that there has been some competition from Brazil as well. So, given that, you know, Robusta coffee prices have been at this level for a while now, do you expect that, you know, there is some sort of downtrading happening with Arabica as well because of such kind of pricing scenario that's there?
Yes, so because what happens is that, you know, so let's not use this word downtrading because generally Arabica was upgrading all the time, but you know, considering that the prices of both of them have kind of shot up, and generally, you know, for short periods of time, you could see a little bit of an up and down in relation to each other, but what happens is that over a period of time, both of them, the intake increases for both of them because there is a certain amount of replaceability that does come in, so while there could be a lag with the intake for both of them moves in a similar direction.
So, there may not be a downtrading, but yeah, the thing is that sometimes geographically when you see, you know, two years ago when Vietnam was very competitive against Brazil, there were shifts towards that kind of a crop. And vice versa could have happened and has happened to an extent when now Brazilian crop is much more, you know, competitive. So, these cyclical things do keep on happening. We are, as a business, geared up for all of that, considering, and we have told you this before as well, we also have the ability to buy from any geography that we can, just that there is a little bit of a lag in logistics that could be there. But considering our freedom to buy from wherever we are, we are pretty confident to keep driving good results in the future also.
Great. That's it from my side. Thank you, and we wish all the best to you .
Thank you.
Thank you. The next question is from the line of Rakesh from Nine Rivers Capital. Please go ahead.
Hi, sir. Hello, Audible?
Yeah, you're audible.
Oh, hi, sir. Thank you very much for the opportunity. So, first question with respect to the growth and EBITDA. So, this quarter, growth and EBITDA is 24% over the last quarter same time. And you alluded the volume growth was around 10%-11% in this quarter. So, the remaining growth has come due to operating leverage?
As I told in my, you know, as an answer to one of the earlier questions, we have concentrated more on, you know, more profitable clients, the clients who are brand owners, clients who are more looking for, you know, better coffee blends and things like that, which is more of, you know, shift towards more of, you know, these better coffee or, let's say, high margin coffee rather than anything else. Considering that, you know, some of the other geographies have become more competitive, we purposefully were not too keen to take the low margin contracts because, you know, over a long period of time, it erodes margin for us if we were to downgrade the prices.
So, that's something we always have maintained that 20%, 25% of our volumes at all the time, you know, opportunistic volumes where traders and these coffee buyers are buying who are looking for, you know, the low margin, low value coffee. So, that is the reason why you see or why you have seen a good margin improvement or margin profile improvement this quarter.
Thanks for that answer. Sir, with respect to the debt, we have a gross debt of INR 1,974 crores. Can you bifurcate debt for the working capital and for the CapEx?
INR 1,300 crores will be around the working capital, and the balance will be CapEx.
Okay. Okay. And sir, last question from my side. With respect to the global coffee prices, there are a couple of publications that come up with the articles or the thesis on the coffee prices. They are alluding the coffee prices are not going to come down for at least next to one to two years because of the global economic because of the environmental changes happening. The crop production has come down in Brazil as well as in Vietnam. That has led, and in Vietnam also, a few farmers have shifted from coffee to other foods, which are more profitable. So, your thoughts on that, do you believe I know you alluded in your previous answer, previous answer that the coffee price are not going to go up. Do you think the coffee price is going to come down in the next one year, or it will remain here?
So, you know, considering the interest around this commodity from various quarters, there are a lot of news that keeps coming. So, you know, I don't particularly agree. Yes, three years ago, probably Brazil did experience a little bit of a contraction in their output. But last year, we have seen very good output coming from Brazil. Even the next year, indications are good because the flowering has been good. There has been indication that probably Vietnam crop could be affected. But really, you know, it's difficult to gauge the on-ground situation because multiple kinds of news that comes in. It's only when the crops come in, the flow of the crop comes in the market, one is able to gauge the situation. But considering that, you know, what has happened is that everything boils down to the end consumption, yeah?
So, most of the time, if you see most of the commodity play, when the prices go up very high, the consumption tends to get affected, and therefore it leads to a cyclical drop as well. Yeah, we have seen it in other commodities like edible oils or pulses. When you see very high prices, you know, there is a consumption impact, and then what happens is that in the next cycle, it also comes down. But interestingly, it's good news and bad news because the coffee consumption at the end consumer, we haven't seen much of an impact globally. So, globally, we all know that this category is pretty sticky. So, what it means is that there has been no consumption drop, and everything therefore boils down to mostly supply. And if the supply is affected, then we see these changes.
Yes, for the next one year or so, I don't personally see much of a reduction. I see that the coffee prices could hold at the levels that they are at, maybe a couple of hundred dollars here or there. But yeah, the key thing for us is that as long as there is stability, you know, we feel more comfortable because then the customers are also a little more less anxious and they are ready to give more long-term contracts. That's my view as of now.
Thanks for the detailed answer. One last question which I had made. So, with respect to the B2C business, that is Continental Coffee, we have seen the company has done lots of branding promotion in the Hyderabad market, sponsoring a few malls or opening new kiosks in the Hyderabad market. So, I just wanted to understand what is the kind of advertising we are doing for this business and how is the profitability going on this business? EBITDA and PAT, if you can talk about, like, how is the profitability shaping on this business?
Yeah, so first and foremost, yes, you are seeing a lot of, you know, visibility for the brand, and just not for the Hyderabad market. We're also doing a lot in other markets as well, and we are now, as the season approaches, we'll do a lot of activity in the non-South market as well. So, we are continuing to drive the brand because the brand is in a growth momentum. You know, you have seen the results of all other companies. Most of them have seen muted, you know, results. But amidst that, our growth momentum continues to be very good. We're almost value-wise close to 50% growth has happened in the first half itself, which is a very good momentum that we are in.
Therefore, we want to keep investing back into the brand so that the brand can achieve a sizable, you know, sizable chunk of the branded business of category of coffee in India. That's been our plan. While the profitability continues to improve, we probably last year ended with around 5%- 6%, you know, EBITDA margin, which will improve this year. The guiding principle has been that we will keep investing back into the brand as much as possible. Right now, we don't want to milk it considering the momentum that it is into.
Okay, sir. Thank you very much. And best wishes. Thank you.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants, please limit your questions to two per participant. The next question is from the line of Yash from Stallion Asset. Please go ahead.
Hi, thank you for the opportunity. Sir, I'm just a bit new to your company. So, I wanted to understand that is there a large margin differential between short-term contracts and long-term contracts?
I don't think so. That's the way to define it because the better way to define is that there could be margin difference in the type of coffee and the value additions that we do. So, for example, a bulk-based straight right coffee could be lowest in the ladder. But let's say if I were to pack this coffee in a small pack, then I could be earning 20%, 30% more margin onto it. Suppose the straight becomes agglo, then I may add another 4%, 5% I can get margin. Similarly, if it is freeze-dried, we all know freeze-dried anywhere earns anything between 30%-50% margin higher than the straight . So, it's a lot of factors, you know, determine this thing. There are times when even in short-term contracts, we end up earning good margins because people are in desperate need of coffee.
But the other way around is also true because short-term contracts a lot of times are opportunistic contracts. People are looking for quick, you know, buys and opportunistic buys, and whoever gives them very good rates, they probably end up buying from them. So, it's a combination of, I don't think so, a generic rule could apply here. But a more generic rule, as I told you, is the type of coffee and the value additions that we are able to get or give determines the margin profile of ours.
Right. Right. Correct. So, you know, I mean, one of the things that I just from a market perspective is that, you know, a lot of the consumer-facing consumer-oriented businesses normally dictated very high valuation multiples. And one of the issues with our business is that, you know, the ROCE have been averaged about 15% for the past few years, right? And if margin is not the lever to improve ROCE, the only lever you will have is your asset turns. So, is it just from a management perspective, are there any sort of levers that you have to improve the ROCE going ahead?
Yeah. So, you know, if you were to track our ROCE for a longest period of time, you'll see patterns emerging. Whenever we end up, you know, doing capacity expansion, which wherein we deploy a good amount of CapEx, you'll see that during those cycles, the ROCE come down, and they probably peak when we are closer to higher capacity utilization. So, that's the cycle. And considering that we are a B2B company, the nature of our business is to supply coffee to the end clients. It will always mean that we probably will be a little more CapEx-heavy during cycles. So, that is the trend that is going to continue. But having said so, that's our business model, and that's how we have built our business.
But the good thing about the business, the B2B business, is that unlike some of the other B2B businesses, this is pretty sticky in nature. It's quite close, although, you know, valuation-wise and in terms of perception, we probably get clubbed with B2B companies and their kind of multiples and all. But if you see our, you know, the client profile, the way we have been, although we are a B2B company, we have been instrumental in building blends and brands for the clients. And therefore, what it means is that it's just not supplying coffee, but we are long-term partners to them.
We have people who have been sticking with us for the last 30 years or so. So, there is a relatively high sense of stickiness that is there in spite of us being B2B. Having said so, we also do realize that, you know, when you have your own brands, they give you a larger or a higher terminal value for your business, which means that you get much better multiples. And keeping all of that in mind, we also have started building our own B2C vertical.
Right now, it looks small when you compare it with our B2B business, but come to think of it, in good five, six years' time, last year we ended the branded business at INR 200 crores, and this year we probably will be closing at around INR 300 crores, which is a very significant build-up for our B2C segment because even, you know, most of the fancy B2C companies who kind of, you know, talk a lot about themselves also are not able to scale the kind of way we have done it. So, and going forward, we are looking to build this up further. We are investing back. We are very now confident that we will be able to build the B2C vertical aggressively.
Progressively going forward, we'll see that we'll build a block which will be much higher terminal value and the brand multiples that you can get on a brand. So, you know, that's our thought from our end. It's not that we want to replace one set of things with others, but the fact is that, yes, we have very strong B2B verticals. We have built a very strong business, very sticky clientele, and at the same time, we are building a lot on the retail part on the B2C side, and this will help us realize much better potential going forward.
Sure. Sure. Got it. Thank you.
Thank you. The next question is from the line of Kunal Ochiramani from Kitara Capital. Please go ahead.
Sir, so there was, in early September, two months back, there was a typhoon in Vietnam and some drought-like situation in Brazil. So, I just had a question on supply side. If there are so many global challenges, how does this help CCL, and to what extent, and how prolonged this benefit was obtained by CCL?
So, you know, there will be global challenges. They're not going to go away, and the climatic changes are here to stay. We all know, and it is just not coffee. We have seen that there have been cyclical disruptions in most of the commodities. Coffee is no this thing. It is not, you know, insulated from these. So, there are news, there will be news that there will be droughts, there will be cyclones, there will be frost, there will be El Niño effect. All that is there, and that's the reason we have seen such spiraling high prices in coffee and the volatile, you know, prices that have creeped in. So, that's something that is here to stay. As far as CCL is concerned, you know, we do our business model is such that we do cost-plus pricing, which really doesn't affect our margins or our business.
As long as the consumption is good, and I told in, you know, as an answer to one of the questions that the good news is that we haven't seen much of an impact in consumption. So, the consumption remains intact. People are still drinking coffee, and that means that, you know, there will be demand of coffee. Yes, these fluctuations create a little bit of an anxiety in the market, a little bit of tentativeness in the market from the buyers because nobody wants to lose after buying at high prices. So, therefore, what we have said is that in times of these, what happens is that there is a little bit of tentativeness that builds on our side also because the customers are not willing to commit for long term. But come to think of it, we have seen these cycles many number of times.
We have seen recession. We have seen war, COVID, and if you see our performance, they have all been, you know, during these trying times also, we have been able to manage all of this very well. The day we see some impact in consumption pattern, that's the time when we will be a little worried, but as of now, we're not too worried on that front in terms of fluctuating prices.
My question was, do we benefit? So, I guess.
No, we don't benefit. We don't benefit because we do cost-plus pricing, so we don't benefit of any because we don't do speculative buying, so we don't do benefit. The day we take an order, we buy the coffee. So, whether it is at a high price or a low price, we really don't benefit out of this.
But does it benefit in terms of volume if not the price?
Volume, you know, volume is the result of a little more stability in the coffee prices. So, volumes will come as long as there is stability in the market. The volumes will come. Yes, we sometimes benefit because we are situated in India and in Vietnam. Let's say if the Indian Vietnamese coffee price or the Indonesian coffee prices are much more competitive than, let's say, a Brazilian coffee, then what would happen is that we would end up benefiting.
Last two years ago, when the cost situation had come in Brazil and the Brazil coffee prices are higher, then we did benefit at that point of time. And that's the reason that point of time we were pretty close to 20% volume growth, and we continued that for many, many quarters. So, yes, in that sense, we benefit, but largely, you know, at an overall level, in a long-term perspective, we really don't benefit or not benefit because of these fluctuating prices.
Understood. Thank you so much.
Thank you. The next question is from the line of Lokesh Manik from Vallum Capital. Please go ahead.
Yeah. Hi. Good afternoon. Very happy to answer. Best question was on.
Sorry to interrupt, Mr. Lokesh. Could you come a bit closer to your handset?
Yeah. Is this better now?
Yes, sir.
Yeah. My first question was on the interest expense. By when do we expect it to taper off? It's been on an increasing trend for a while now. So, any strategy on that front, either in terms of new product introduction to pass on the cost to the customer? Just some light on that.
As you know, that's one of the interest-related properties is already in capital work in progress, and it is going to be capitalized, number one. Number two is that when the new two facilities are going to be onboarded maybe in the fourth quarter, that's where actually the interest element is also going to be reduced further because volume of the business is going to be increased further, and we will not see the impact of interest element when the higher volume of the operations.
Understood. My second question is on the blends. As per my last understanding, it was at around 250. We had a portfolio of 250 blends. So, has that increased over the years in the last few years?
So, you know, whenever we actually not 250. If you were to look at our library, we are probably close to 1,000 blends, yeah? But this is all because every time a new customer would come to us, we would end up developing a new blend for him because everybody wants a new blend or a new type of coffee to be launched. Nobody wants to do a 100% B2B product. So, that's the reason, and sometimes we also, you know, have to keep doing our R&D depending on where the coffee prices are more competitive or which is more advantageous to us.
We also end up doing a lot of R&D to make sure that the same output could be delivered with different types of coffee as input, yeah? So, that makes, and therefore we end up in a situation where we probably have so many blends. So, every time a new customer comes, it's an ongoing process. We keep doing this all the time for both the reasons. So, it's an ongoing process, and we keep developing new brands all the time.
Okay. Last, just another question, just an update. If you can throw some light on the smaller pilot projects like, you know, the FNB side or the two-in-one in Europe or the, you know, the cold brew in the U.S., so, or any other project that I'm missing out on, where are we, at what stage are we, and how are we scaling? These three, four areas, if you can throw some light on it, it would be great.
Okay. So, let me start with the U.K. acquisitions. First of all, it's been, you know, we just completed most of our transition three, four months ago, wherein we took over from the previous company, Löfbergs. So, you know, acquisitions do take a lot of time and energy in terms of various kinds of transition, whether it is compliance or statutory or ownership, and therefore thereafter listing in the various modern retail and all that. So, all that we have completed, and the good news is that we have started slowly relisting many of the chains in the U.K. where we had lost out in the last few years. So, that's a process that is going on. We are now looking to drive, you know, more and more sales there. We have started doing some ATL activities there.
Last month, we, you know, did some outdoor visibility for Percol in the U.K. So, the brand building also has started there. So, that looks well and on track on what we had planned to do with Percol. And once we stabilize in the U.K. and we believe that the growth momentum is back, we will see how we can expand into other geographies in and around the U.K. as well. So, that's a little update on Percol as far as cold brew and all that is concerned. We continue to, you know, do good business there. The volumes are increasing there, so that is there. We are also developing other blends for other people. A lot of work keeps happening. So, these are some of the other smaller initiatives that we had or we have taken, and that's a little update on that side.
Yes, FNB. FNB, if you can just throw some light on FNB. Are they domestic or exports?
No, you're talking about FNB as in the plant?
Plant-based, yeah.
Yeah. So, that's, see, we only have launched it in the Indian market. Again, that category, if you see, is in very nascent stages. Most of the guys have been trying to figure out what is the right mix that will help elevate that category because this is a very new concept, especially in a country like India. So, we continue to do a little business there. We are also targeting a lot of HoReCa segment because you know that food first establishes itself a lot outside home before you have seen how Chinese food or even so for that matter, in developing economies, even coffee, the trend is that first it happens outside home and then it comes inside home. So, we are targeting a lot of hotels. We have done a lot of deals, but even in those hotels, it remains to be a niche segment.
We are also expanding our portfolio that how can we infuse protein in day-to-day snacks. So, that's something that we are working on. Hopefully, we'll be out with a lot of new variants going forward. So, that's the update on FNB. Once we have got some volumes going for us, then we will see if we want to enter into some of the other markets abroad, but right now, our focus will be India only.
Great. That's it from my side. Thank you so much, [Foreign language] .
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, and congratulations on a very strong set of numbers. My question on the domestic business and the branded business, have we taken price cuts in the last couple of weeks? Because if I recollect, sometime around September, we had hiked the prices by 21%, but now, at least on Amazon, I see the product prices have been slashed back to previous levels.
Sorry, I didn't get the second half. The first half, I'll try and answer Akhil, is that no, we haven't taken any price cuts. In fact, there have been more price increases than price cuts. Yes, there are certain SKUs where price increases are a little difficult, like the price point SKUs of INR 5, INR 10, INR 2. That's something that we cannot take price increases on. And I didn't get the second part of your question.
Yeah. So, if you're running at 200 grams of fat, which we get on Amazon, that's where the prices had increased from INR 360 to some INR 440. But now, if I look at it, it has gone back from INR 450 to INR 360.
No. So, what happens is that there are times when you run, especially during festive times and all that, there will be a very heightened level of promotions that need to be run on these channels. And you know how competitive these channels are sometimes. A lot during, especially festive times, Diwali time and Dussehra time, you know, these channels, Flipkart, Amazon, most of them drive a lot of festive sales through deep discounts. So, we also end up doing it. But it's not price cuts. These are, you know, for a few days during festive times, you'll see certain price cuts that are happening. But there has been MRP increases all the time because of the coffee prices.
Sir, just a clarification on the domestic business. You highlighted in the opening remarks, if you can please reiterate how much we did in first half and how much we did in the second quarter, and same for the branded sales also?
So, you know, like for example, second quarter, we did around 105 crores of business in domestic. Out of it, 70 crores would be pure branded business, which means in the first half, we have closed around 135-140 crores of branded business and 200 crores of the domestic sales. And for the year, we are looking to, for the branded business, close to 300 crores. We'll see how this quarter and next quarter goes because the first half momentum was pretty good. We are almost like 50% growth over last year. So, that's a good set of numbers that we got, and we are continuing to build the brand from various angles in the domestic market.
Sure. Sure. How are we doing in terms of the retail touchpoints? And if I recollect, we have reached around one and a half lakh touchpoints. Is that target for next month?
Retail point of view, outlets. Okay.
Outlets, yeah.
Yeah, yeah. So, we are right now, right now, directly by the end of this year, we probably will be. This is only general trade. We will be directly servicing around 130,000 or so number of outlets. You add another 5,000, 6,000 of modern trade. And then, of course, there are these other things like we target, like the tea shops and all that, which we take it as a separate segment. So, that would be another 3,000, 4,000 touchpoints. And then, of course, there are other platforms like the quick commerce and the modern e-commerce and all that. So, yes, that's the number in terms of our distribution. We are looking forward to drive deeper distribution in south because now, in the cities, we are doing pretty well. Now, we need to drive into other tier two and tier three towns.
So, that's the task and challenge that we have taken. And in the non-south, we are now continuing to drive a lot of our distribution in the main cities. But we are keeping it restricted because that's something that we will not be able to do a very widespread distribution. There, the depth of distribution will matter for us because, again, those towns, coffee consumption is also concentrated, and a lot of consumption is now happening through quick commerce and e-commerce. So, that's something that we'll keep focusing on.
Okay. Good. That's all from my side, and best wishes for coming forward.
Thank you. Thank you.
Thank you. The next question is from the line of Akanksha Gupta from Solidarity Investment Managers. Please go ahead.
Hi. Am I audible?
Yeah, you are.
Yeah. So, in the last couple of con calls, we have always maintained that our EBITDA growth will be largely driven by the volume growth, and there won't be much margin improvement on that front. So, how do I look at the EBITDA growth of this quarter of 25% odd? Because this contains some volume growth and some margin expansion as well. So.
Right. Right.
Yeah. So, is it because of high-value contracts in this particular quarter, and you expect it to normalize over the year? Or is it that we are seeing some growth in the EBITDA per kg as well, structurally?
Right.
So, yeah, could you just throw some color on that, how should we look at the EBITDA per kg and the margin expansion over here?
Okay. So, you know, Akanksha, what we do is when we give guidance, generally, these are long-term guidances. There will be certain fluctuations in quarters, each quarter. So, let me clarify two, three things. One is, first and foremost, is that, yes, considering that the market has become very competitive, considering the various, you know, supply challenges that have crept in, and that's what I explained in my few answers before. Because of that, we ended up doing more value contracts and better value contracts, more brand owners and all that. So, that has helped us.
There is also an element of, you know, RoDTEP, which is approximately INR 5-6 crores of RoDTEP, which is a substitution of MEIS that we used to get. If you see, if I combine all of them, volume growth, better value contracts, more, you know, brand owners coming in, and this RoDTEP, all of that put together has helped us improve our margin this quarter.
Do you think over the year, it will normalize to the 110 EBITDA per kg level, or would this be a good base going forward as well?
No. So, Akanksha, I told you very clearly last time also, and most of our con calls, we say that because it also depends on many things. It's just not one angle. The other thing that it depends on is the mix of our products. So, considering that there could be more, so suppose, let's say, I start doing a lot more volume going forward, and I start getting into long-term contracts which I spoke about, and these are spray-dried and all that, then what will happen is that my margins will slightly come down. So, it may not be at the levels that it is today. And that's the reason we had always, on a long-term guidance, that probably for two years, when we spoke last time, that for next one and a half, two years, we are looking at a similar margin profile.
I don't want to kind of, you know, preempt and say that it will be better, although we are trying all the time to better our margins every day because not only through, you know, better contracts, more high-value products, more small packs, premiumization of coffee, building some efficiencies in our operations, so all that work is always happening, but sometimes it's very difficult because the mixes could change. I could be doing more of spray dry. That could, at an overall level, bring down my, you know, EBITDA per kilo.
And that's the reason we have given this guidance, that it will be more or less stable for the next one to two years. Thereafter, probably when we are utilizing our current, you know, expanded capacity to almost 50%-60% level, that's the time when we start building more efficiencies and getting into more higher-value contracts because these will stabilize, and then I will get better margins.
Okay. Okay. I understood. Just wanted to confirm that. Thank you.
Thank you. The next question is from the line of Aashish Upganlawar from InvesQ PMS . Please go ahead.
Yes. Thank you so much. Most of the questions and the answers have already been given. Sir, on the raw material scenario, what basically I understand is that the crop has not been good in Brazil, Vietnam this year also. And prices probably, would you say that those have peaked now? I mean, or is there any other disruption that is there, or maybe some other event that one needs to track around there?
So, my sense is that, you know, it has peaked. It has softened a little bit in the last month or so, and it should stay at these levels, is my personal sense, yeah. We will keep getting these news that things are not good, that there's climate issues and all that. But largely, I have a feeling that they should stay at this level. And I'm looking forward to certain stability after, may not be price reduction, but at least stability creeping in after December.
Okay. And that doesn't maybe solve the issues on the working capital that we have with the elevated coffee prices. Maybe helps the end as such in terms of profit growth somewhere. So, is there any other lever? Because I think in the initial part of the call, you said that some value addition has helped in terms of per kg realization of the EBITDA for us. Are there any other mitigation measures to elevate the profitability so that ROCE actually improves? Because working capital solely depends on coffee prices, actually.
Yeah. So, we are actually working on a lot of fronts, just not, you know, higher-value contracts as I told, but also other things like, can I do more small packs? Can I build more efficiencies in operations and things like that? But considering that the coffee prices are going to remain at this level, there is not much change that I'm foreseeing in the near future as far as working capital is concerned. But the good part is that, and which is what we have always maintained, that, you know, all our working capital is for contracted business. These are not for inventory building. So, I only buy coffee if I have contracted a business or financed a business. So, that is why we're not overly worried. Yes, the things will look much, much better if the coffee prices were to soften.
Okay. And what is the percentage of softening you would have seen in terms of price drop lately? Is it material or is it small?
We don't see much of a drop. See, actually, what happens if you see long-term cycles of supply chain of coffee, you know, the two big segments, which are the South American and the Southeast Asian segments, both of them, you know, in years when they get good crops, then we see that there will be a softening of prices. But as long as one of them keeps reporting, you know, climate vagaries and therefore short supplies, the prices tend to be on the higher side. Having said so, coffee is also one crop, unlike most of the other commodities where the harvest cycles are low. Most of the agri commodities, you'll see six months to nine months of agri cycle. Coffee has three to four years because once you sow a coffee plant, it starts flowering after three to four years.
It seems that, and we have seen two years of price hikes. And we have got certain reports that there has been acreage increase and all that in certain parts of Brazil and Vietnam. And therefore, what happens is that post three years, again, you will start seeing some more supplies, and therefore, things will start softening up. And that's the reason I really don't want to comment on any short-term or mid-term prices. I don't see it softening very, very much. Yes, a couple of hundred dollars euro there could be the variation. In the long term, yes. Because of these changes, we would expect that there will be a certain amount of softening. But again, nothing to comment, and I'll be definitive about it.
All right. Thank you so much, sir.
Thank you. The next question is from the line of Deepak from Sundaram Mutual Fund. Please go ahead.
Yeah. Thank you. Sir, my first question is regarding the capacity. So, you earlier pointed out that the Indian capacity is going through some trial runs. I just wanted to understand the 16,000 ton capacity and the new freeze-dried capacity of Vietnam. In which quarter do you plan to kind of commercialize it? And once we commercialize it, how much time does it take for us to achieve peak utilization level?
So, you know, Vietnam freeze-dried will be next quarter only because trials take a lot of time. There are certifications, trials, matching of blend, all that thing happens. So, the business starts coming in subsequent quarter only. And generally, our capacity utilization plan is that at least for the freeze-dried, because we have good orders and all that, first year could be anywhere around. Generally, first year, our thumb rule is 30%-35%, but we could be looking at 40% or 45% in the first year of the freeze-dried capacity. Coming back to India, the India plant should start operations maybe a month from now because all that trial and all that, most of it is now over.
The certifications are also on their way. And as soon as they come this quarter onwards, we'll start seeing by the end of this quarter, utilization start happening. And again, the thumb rule will be 30, 60, 80. So that's the thumb rule for three years that we build around. Generally, you will get a peak capacity of 85-90 against the rated capacity because of the blend and the changes and the, you know, CIPs that you do.
The utilization level you're talking about, it will be similar for both freeze-dried as well as spray-dried, right? That you're talking about?
Yeah. At maximum. Yeah. Maximum is what I'm talking about.
Okay. Sir, second question will be more related to bookkeeping. So, when I was looking at your other expenses, you know, in Q4, it was around INR 150 crore. Now, since two quarters, it is sequentially declining. Right now, it is at INR 116 crore. And primarily, it was driven by your standalone business, right? The Indian business. So, I just want to understand, I mean, do we expect this number to go down, or was Q4 an aberration, and now it is more at a normalized level?
Okay. You know, some of it is the other expenses, if you see. A little bit of it is because of forex differences with the currency fluctuation. So, there are some gains here. So, probably you will see something in between what you seen earlier and what we are at now. Not very dramatic changes. But it won't be like the extreme of that and the low of this.
Okay, so we would see a YoY growth, but not at extreme of what we saw in Q4.
Right.
Okay. Thank you so much, sir.
Thank you. The next question is from the line of [Veetha] from Equitymaster. Please go ahead.
Sir, thank you for the opportunity. Sir, I think in the earlier call, you had mentioned that, you know, earlier, the tightness used to happen for six to eight months has come to two to three months because of, you know, higher prices. Let's say if the Vietnam crop harvest is not good. So, I mean, like you said, you know, there is perhaps there will be some visibility on the stability and not volatility. So, do you have any sense for clients if they would be willing to increase the contract length or the tie-up duration, or is it likely to stay in two to three months range even if the prices are where they are?
So, you know, as I told earlier, I think after December, once the picture is clear, I am hoping that a lot of clients will now revert back to long-term because the general consensus that has built around the globe is that there won't be significant softening from here. Unless until some other forces creep in and there is something new that we come across. But considering the current situation, there won't be huge softening. So, therefore, we are expecting that, you know, post December, January, we should start seeing a little longer term. I won't say that it will go back to nine months, a year, a year and a half, but a little longer term than what we are seeing right now could come back. But we'll have to wait and watch and see how things pan out. If it remains to be as volatile as it is right now, then the situation could continue.
Okay. Sir, my second question is, like you said, you know, there are two major regions, South America and Southeast Asia. So, I know that you can source it from anywhere, but at a practical level, considering that, you know, you also cater to plants, and, you know, there could be some shift in the blend based on where you are sourcing from, how difficult and fast and as well you can be, you know, if this differences in both the regions grows up?
So, yes, it is a little more challenging because the guy sitting in Brazil has an access to the crops very quickly. We do have to import, and therefore it means that it lags with the logistics time. But generally, if you see most of the times, and that's the reason I was talking about blends, we have that expertise to make sure that we create an output from different things, different types of coffee. And we do maintain inventory because it's a rolling business for us. So, there are inventory. So, we can turn it around very quickly. But yes, I can't deny that, you know, it is a little more challenging to get the green beans from Brazil. But it's not that we don't do it.
We often do it, and we currently are also doing, which means that, yes, technically, we are at a little disadvantage in terms of the logistics time, but we are not at a fairly very strong disadvantage like the Brazilian guys would be if, you know, Vietnam were to soften because they don't allow import of coffee. But we are not saddled with those kind of problems.
Okay. And sir, what is the current cost of debt, and do you expect it to increase or moderate going forward?
Since we have completed all the projects, and going forward, the free cash flow is getting added to the operations, and definitely, it is going to reduce further.
Okay. But in percentage terms, like I think you in the earlier call, you said it's likely to work to 8% from perhaps 6%. So, where is it currently?
No, currently, it's also the same prices. As you know, that RBI did not change any rate profile in their monetary policy. So, unless the rates are being softened from the RBI end, we don't see that any reduction in the rate of interest circumstance.
Okay. Okay. Thank you very much.
Thank you. Next question is from the line of Tushar Agarded from Kamakhya Wealth Management. Please go ahead.
Yeah. Hello. Good afternoon, sir. Thank you for the question. You talked about your B2C business. You started a pilot project in Hyderabad for a coffee chain. What are your thoughts on, you know, opening it pan-India? And how do you see your B2C business in the next five years in terms of percentage contribution to the revenue?
Okay. First, the cafes, we just opened a couple of them, two new cafes and one kiosk kind of a thing, which is a grab-and-go kind of a thing in Hyderabad. Right now, we don't intend to expand very quickly. We want to see because we had already indicated that we want to understand which model is working for us and what is the kind of, you know, kind of profile that we want to build for the café. We will keep building this. Once we are convinced that, yes, this is a model that is going to work in the future, that's the time we'll think of expansion. That's the update on that front. As far as B2C business, you're saying five years down the line, what will be the percentage of B2B business? I don't think so.
That would be the right way to look at it because that's not what we are looking at. The reason being is that we are, one, we are driving the B2B business equally aggressively, considering that our market shares are still single-digit in the global market in the B2B setup. We are very confident that we will be able to drive aggressively that business as well. And here in the B2C segment also, we are driving very aggressively. So, yes, it is being driven that faster than the B2B business. But, you know, very difficult to comment that what percentage it will be out of that. What we are seeing on a standalone basis, I told you that this year, we probably the branded business could be close to INR 300 crores.
We probably will be looking to double it in maybe three years' time or maybe three and a half years' time or four years' time. So, that's the plan that we have right now. We are taking it step by step, you know, never, ever when, even when we started, while we gave a certain indication, we were not very, we just don't want to commit to some numbers and then say that how do we do that. But we want to take it step by step, and that's what has worked for us. So, right now, the going is good, and we want to continue to drive it.
Okay. And to understand the operating leverage part, so considering capacity post the recent expansion, what sort of revenue you can achieve considering, I also understand the product view also in the question, if you consider the average product net over the years which you have seen, what would be the max revenue potential of the capacity post the recent expansion?
So, you know, last year, like when we were around 37,000 tons, and we took all these expansions, which would have meant that we would have gone to 75,000-77,000 metric tons. So, you can see the volume is doubled. I don't want to comment on the price because price is different. The value on the top line is dependent on the coffee prices because we do cost-plus model. So, what it means is that we were looking to double the capacity in four, five years' time. So, that is what we will, the trajectory will stay upon. And resulting to what will be the top line will all depend on the coffee prices.
Sir, considering that, what would be the revenue potential I'm asking?
No, so that is what I'm saying. The revenue potential is dependent on the coffee prices because our model is cost-plus model. I told you we were at 37,000 tons last year when we started, when the new capacities came in. We had given a guidance that we probably will be looking at 15%-20% volume growth, which means that in four years' time or maybe four and a half, five years' time, we probably will double the capacity, which means that we'll be closer to 70,000 metric tons in four years counting last year. That is our potential, and that is when we will see how do we want to, do we want to take up further expansion and on that. Value, I can't comment because let's say tomorrow the coffee prices were to drop to INR 2,000 level, the value could be very different than what it is at INR 4,000 level.
Sir, my last question. If you consider the value-added segment, the freeze-dried and the flavored coffee, in percentage terms in B2B, what would be the?
So, we don't do flavored coffee in B2B segment. Yeah. Flavored coffee is a very small segment, not only across the globe, but in India also. And if I were to take freeze-dried, it will be around 25% of our capacity.
Okay. Sir, other value-added coffees like the, setting aside the freeze-dried, there is also some value-added if I'm not mistaken?
Yeah. Yeah. So, depends, like let's say if I would take the top of the pyramid, which is the 5%, that will be, you know, the premium coffees and the value-added coffee, which gives us, you know, higher margin profile and the premium profile to us. So, that will be another 5%-7% of our total business.
Okay. So, more or less 30%-40% is value-added, if my understanding is correct?
Yeah. If you consider freeze-dried. But a lot of times, freeze-dried is considered also as a base product in market like Russia and all that. And then that becomes the base product. So, yeah, it really depends on which lens you are looking at.
Sir, no, so that was helpful. All the best, sir.
Thank you. Thank you.
Thank you. The next question is from the line of Anirudh Gangahar from Avendus Wealth Management. Please go ahead.
Thank you and good afternoon. Two questions from my side. Firstly, there was some insurance coverage money for the capacity that was lost earlier. Has that been received? If you can just help clarify that. And second question was, you know, the EU deforestation regulation. Any update on the implementation and preparedness that is required from our side for anything in terms of sales to the European nations? Those are the two questions.
Yeah. Relating to the issue, as you know, that they will take a good amount of time, and our request towards the business interruption law, as well, we have placed with them, and it is under process. Definitely, it will take some more time, and coming to the deforestation, so EUDR, you know, we all know that it has been postponed as of now for a year because it requires; it's worthwhile, the intent is right. The whole implementation has its own challenges because of the certification and all that you have to get. The first indication is that, you know, the commodities are part of it. When I say commodity, it means that green coffee. The value addition that you do, and then when you make it instant coffee, that probably the final product may not be part of it as of now.
But having said so, you know, we are working with our suppliers, the growers, the associations to make sure that these are all complied because it's more of an industry challenge rather than a particular, you know, challenge for corporate. So, we are working for that, and as and when it comes, we should be ready for that.
Thank you. Thank you very much.
Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of our Q&A session. I would now like to hand the conference over to the management for closing comments.
Thank you all for joining us, and thank you, Nirmal Bang, for arranging this call and once again, I wish you all happy festivities and best of luck. Thank you.
Thank you. On behalf of Nirmal Bang Equities, that concludes this conference. Thanks for joining us, and you may now disconnect your lines.