Ladies and gentlemen, good day, and welcome to the Q4 and FY25 earnings conference call of CCL Products (India) Ltd., hosted by Antique Stock Broking 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 *, then 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking Ltd. Thank you, and over to you, sir.
Thank you. On behalf of Antique Stock Broking Ltd, warm welcome to all the participants on the 4Q FY25 earnings call of CCL Products (India) Ltd. From the management, we have Mr. Challa Srishant, Managing Director; Mr. B. Mohan Krishna, Executive Director; Mr. Praveen Jaipuriar, CEO; Mr. Chaithanya Agasthyaraju, CFO; Ms. Sridevi Dasari, Company Secretary on the call. Without any delay, I would like to hand over the call to Mr. Jaipuriar for opening remarks, post which we will open the floor for Q&A. Thank you, and over to Praveen.
Yes. Thank you, Manish. Good morning, everyone. Let me now give you a brief overview of our performance. For the quarter and the year gone by, the group has achieved a turnover of INR 839.65 crores for the fourth quarter of 2024-2025, as compared to INR 730.87 crores for the corresponding quarter of the previous year. The net profit stands at INR 101.87 crores, as against INR 65.22 crores for the corresponding quarter. The EBITDA is INR 167.09 crores, and the profit before tax is INR 105.88 crores.
Coming to the full-year performance, the group has achieved a turnover of INR 3,114.2 crores, which is a milestone number of crossing INR 3,000 crores that the group has achieved, as compared to INR 2,660.02 crores for the corresponding previous year. The net profit stands at INR 310.34 crores, as against INR 250 crores for the corresponding previous year.
The EBITDA stands at INR 563.55 crores, and the profit before tax is INR 352.25 crores. Coming on to the domestic business, the business achieved a gross turnover of INR 440 crores, out of which the brand sales were approximately INR 300 crores. We are looking to drive similar and aggressive growth in the coming quarters and years. We also have completed the expansion at Ngon Coffee Company Limited, our subsidiary in Vietnam. I now open the floor for questions.
Thank you very much. We will now begin the Q&A session. Anyone who wishes to ask a question may press * and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press * and 2. 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 Charisha Shyam Sukha from Accenture Growth Partner. Please go ahead.
Hi, sir. I would like to know, like, our future growth is coming present and future growth, which will be coming from domestic and also coming from international markets. What would be the drivers, like, in domestic markets [audio distortion] of the investment in your view?
I couldn't hear you properly, but what I understand is that you are trying to, ask us that, will our future growth come from domestic markets or export markets? Is that true?
Yeah, that is the first question.
Yeah. What was the second one? If you could repeat because your line was very disturbed.
Yeah. So second question is, like, how do you see the coffee penetration increasing year-on-year in both domestic and international markets?
Okay. So, coming to your first question, you see we are not, it's not that we are dependent on one vertical for growth. We are driving aggressive growth on both verticals, which is the exports, B2B, and private label, and also domestic. Domestic also includes our own brand and B2B and private label. So we are treating each vertical as growth drivers for us, and we have strategies to make sure that the growths are, you know, all-around growth rather than depending on one vertical or the other vertical. The second question is about the coffee penetration that you are asking about?
You see, if you see the world into, and if you were to divide the world into two parts, the more developed economies like the European economies and the American economies, we don't see much of category penetration being driven here because, you know, these economies are mature economies, and coffee is very well penetrated here. Every single individual drinks coffee. But yes, in developing economies like India, China, Middle East, here, and these economies have been largely, you know, non-coffee-drinking economies. Here, we see that the category will be getting penetrated over a period of time, and these are the economies we foresee that will be driving coffee consumption in the coming decades.
Got it. Could you please tell me, like, how much would be the CAGR growth year-on-year in these developing markets? Also, the bifurcation between our domestic and international markets?
I told you, if you see the numbers, out of the total turnover that we achieved, which was close to INR 3,000 crore, approximately the domestic market is contributing to INR 440- INR 430 crore. That is the bifurcation between these two markets. As far as CAGR figures are concerned, for the company, we have already and have been giving a guidance that our profitability, because that is a matrix that we want all of us to kind of concentrate on, that will kind of grow between 15%-20% year-on-year basis.
Yes, there will be fluctuations here or there, but at a long-term-ish level, if you were to see, we have given a guidance to grow between these levels. Now, yes, there will be, you know, higher growth driven by certain segments which are smaller as of now, like the domestic branded segments will continue to drive growth at a higher level. These are certain colors to the various, you know, verticals that we are operating in. What are the growth expectations from these verticals? I do not know if you were also wanting to understand the category growth.
As I told you earlier, the mature economies like, and these are category, not our growth. The mature economies like Europe and the U.S., they are fairly, you know, flattened out as far as growth is concerned. Yes, economies like developing economies like India and China will be driving, as far as the category is concerned, looks like they will be driving the all-digit growth for the coming years.
You mean to say that our growth in international markets would be coming from China and the Middle East, particularly because to...
No, I think you're getting a little, a little muddled up here. Our growth, yes, it will come from China and the Middle East, but we are also, while the categories are stagnant in markets like Europe and America, we are also looking to make sure that our growths continue to come from these places because here we would look forward to gain market share, yeah? There our growth will be driven by market share. In some of the economies, our growth will be driven by the category growth itself. Yes, it will be a mix of, you know, strategies in various markets that we are looking to update.
Got it. Thank you very much. One last thing. Last time, we were much focused on the rising coffee prices. Do you see that, you know, do you see that tension gone, or is it still continuing?
No, the tension is still there. In fact, you know, when we say focus, focus was not there. What we always maintain is we are a costless company. And being a costless company, there is literally no tension on coffee prices. What we want is that the coffee prices be stable at whatever levels they are. Our tension was more from choppy fluctuations that were there in coffee, weak coffee prices. They still continue. We hope, and even then, while the coffee prices were choppy, the only concern that we kind of have is that is it leading to any consumption drops?
As long as the consumptions are holding up, we are good to go, because as long as people are drinking coffee, we are fine with it at whatever levels they are, the coffee prices are. The only thing is that, you know, when the coffee prices are choppy, the clients become a little more, you know, short-sighted. They say that they would not want to go for long-term contracts because if they were to go for long-term contracts, if the coffee prices were to fall, they would feel pressures on their markets. So the contracts become smaller. That pressure still remains. The coffee prices are still high, and they're still choppy as of now.
You know, we are seeing some signs of stability in the last two, three months. The coffee prices have kind of been stable as of now. Now the Brazil crop is around the corner. We will get to know more about how things, you know, fare when the crop comes in, the flow of crop comes in. We'll get to see that how things are shaping up. We probably will be, you know, better off after a month or so to understand how the local coffee prices have been shaping up.
In B2B, we have costless model, but in B2C, will we be able to penetrate because of the coffee price increasing?
Yeah. We also, in B2C, if you see, we take price increases, especially on the larger packs. Yes, the smaller packs become a little challenging. Again, we do a lot of internal exercise of making sure that we drive optimization at different levels, you know, redoing the blends, etc., to make sure that our profitability is maintained. B2B and B2C also, we are very small right now, so we are continuing to drive aggressive growth there as well. We are maintaining margins on that vertical as well.
Ma'am, we request you to rejoin the queue for follow-up questions. Thank you. The next question is from the line of Digant Haria from GreenEdge Wealth. Please go ahead.
Yeah, hi. Thanks for the opportunity. So I was invested in tracking your company in the last decade. You know, at that point of time, you know, we used to have, you know, working capital as percentage of sales would be around 30-35%. We were more or less a debt-free company, you know, maybe INR 200-300 crore of debt. You know, I did not track it for the last three, four years, but I recently restarted it.
So I just wanted to know that, you know, what has led to this situation where, you know, working capital has gone up to 45% of our revenue consistently for the last four years. Plus, we have, you know, reached a borrowing figure of close to INR 1,800-1,900 crore. Is it just the coffee price cycle, or is it that, you know, in the B2B coffee segment, we have become 7-8% of the entire world market, and now we are finding it difficult to maintain those economics? Any highlight on this would be great.
Yeah, a couple of things here, yeah? I'm sure I don't exactly, you said last decade, but last decade also there would have been fluctuations. I really don't know which exact period you would have seen us as debt-free. But, the fact of...
15-20, yeah,
15-20. Yeah, 15-20.
Yeah. If you say 15-20, the coffee prices at that time were $1,000, yeah? Let's say, even if I will plug in 10-15% of volume growth also, my debt should not have gone to the levels that it has gone now. The single most, you know, contributing reason has been the prices. From that $ 1,000 that used to be there in, between 2015 to 2020, it is now $ 5,000, yeah? For the same amount of coffee itself, I will have to, I'll have to kind of spend five times more money, yeah? If you compare with that, then you'll see that the debt levels haven't increased five times, yeah? That's the single most contributing factor.
I don't think so it is because we have reached 7-8%, that we are finding it difficult for more, to get more, customers. That's not the reason why our debts have increased. That is there. Suddenly, you know, with coffee prices at the levels that they are today and with the shortages that are being cited all across, it suddenly becomes a seller's market as far as the commodity traders. When it is a seller's market, what happens is that your payment cycles also get a little bit squeezed because you have to procure coffee then and there and make sure that you secure that coffee. For that purpose also, suppose the situation was opposite.
Today, what happens is that if I'm buying coffee from an aggregator or a farmer, I would, and in a rising coffee prices, I would like to secure it then and there. Versus a situation where it, which is opposite, when the coffee prices slide, what will happen is that I'll be in a different scenario where I could say that, yes, I'll buy your coffee now, but pay you in future, he'll be very happy about it, yeah? Because he's getting a rate which is higher, which he knows in the future is going to go down.
All of these factors have added to the stress on working capital. The working capital out of INR 1,800 would be around INR 1,150 or something like that. The rest is, you know, long-term loans. This long-term loans is for capacity expansion, which is necessary. If you said that you have tracked it, every six, seven years, we would see that our, you know, investment in capacity expansion goes up, which leads to higher debt levels at that point of time. I
n that cycle, let's say from next three, four years from now, you'll see the debt levels, you know, again coming back and sliding back to the low levels because not only our repayment of long-term debts would have happened, but also if, say, you know, we get aided by lower coffee prices, it will have a double impact on our loan profile with the lower holding costs for the green coffee that we are holding.
Yeah, these are the reasons for increased debt. As I have been telling many times, the working capital debt for us mostly is for confirmed contracts. Again, that is not a cause of worry because it is not that we are speculatively buying coffee or increasing inventory, and because of that, my working capital is going up.
Right, right. Perfect. Thank you so much for that detailed answer. My second question then would be that, you know, if the coffee prices remain stable for one or two years, maybe our, you know, working capital naturally comes down because the market will be more accepting of these, you know, slightly shorter payment cycles. Is that a correct assumption?
Yeah, yeah, absolutely. Not only stability, you're right. Even that is why in my previous, you know, answer, I was mentioning that stability is very important for us because then what happens is that your cycles become longer, your buy selling cycles become longer, you get longer-term contracts. The moment you get longer-term contracts, you also will plan your value and the supply chain management much more efficiently. All of this will add up to this thing.
It is but natural that, you know, maybe now or six months later, see, one crop comes now, which is the Indonesian and the Brazilian crop, and one, the other set of crops comes in December time. One of these times, you know, and while we have been saying this for the last, we have said this for the last year as well, this does not, this did not happen. I'm sure there are, there will be times when the supply will get regularized, and we'll see softening of prices as well.
Right, right. Okay, okay, okay. Last question, if I can squeeze, like, you know, in the last decade, you know, we always used to say that, you know, we gain market share via, you know, putting better blends and delivering coffee on time. The same has been the story for the last four, five years as well. Like, you know, we have, you know, how much have we innovated on the number of blends and, you know, number of new markets? Any, any such color, if you can give, you know, that will be the last thing from my side.
No, absolutely. I think there is a, multiple, approaches to our growth trajectory. Yes, we gained market share, through innovations and through, you know, more, better blends and things like that. That continues to be our forte. That is why we keep getting, newer clients as well. It is kind of, you know, probably since you said that you have restarted following, maybe you have not, heard us for the last two, three years. If you would have, then you would have realized that there are a lot of new markets, new products that we have launched, things like, you know, Instant Cold Brew, or a Microground Coffee, or a new blend.
All of these have been our, you know, ability, to keep gaining market share and drive penetrations in markets where we are not so strong. This will continue, from our side. We'll keep doing this all the time. New blends, I don't have the numbers right now, but probably in between 15-20, when you are tracking, we would have had maybe 500-600 blends in our library. Today, we have 1,000. That probably speaks of the fact that every day is a day when we kind of, you know, develop something new for some client or the other.
That was a very heartfelt thank you. All the best. Thank you, thank you.
Thank you.
Thank you.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your question to two per participant. The next question is from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead.
Thank you. Hi, Praveen sir. Congratulations on excellent set of numbers this quarter. A few questions from my side. One is, as you know, if, if and all, mother if coffee prices go down from here, do you think our end clients will, maybe wait out a few quarters or a few months to let the coffee prices bottom out? And that could be a quarter or two maybe for us of some volatility in volumes.
Thanks, Lokesh. You know, it will all depend on how much because, you know, ultimately, our end clients are also serving consumers and customers. They will have to maintain certain, you know, stock levels to make sure that they do not run out of stock. I do not think people will wait to bottom out because bottom out is something that nobody knows where it will bottom out. That is a thing. Yes, they may continue to work on razor-thin inventory levels, which they are anyways currently working on. That trend may be there. Yeah, I do not think beyond the point they can delay their orders.
The same trend that we are seeing, 10-15% growth, during this time, you think given the category sticky, this will continue, [Foreign Language] It won't fall off, basically?
Yeah, this will, sir. This will.
Okay. Another question on tariff differential. If at all there is a 10% tariff, let's say, does it give way to Brazil or does it give way to local manufacturers in the U.S. to gain some big market share?
U.S. doesn't have a lot of local manufacturers. They either depend on Mexico, Brazil, or the Asian countries like India and Vietnam. I don't think they have any internal edge over the other countries. Now, coming to other countries, I think as of now, tariffs are a level playing field. Nobody knows what's going to happen in the future because the U.S. administration has been very, very unpredictable. If you were to pick up signs, you would have seen that probably India and Vietnam, both the countries, are one of the best placed countries to kind of finalize trade deals.
In fact, U.S. themselves have said that India is one of the first countries where they're going to finalize the trade deals. These are positive signs. Vietnam, we all know that the delegation is already, was in the U.S., and they have kind of slashed all the import duties from U.S. to zero, which is an indication of the fact that they are also wanting the status quo to be restored. You know, we are pretty much well placed to kind of cater to the demand in both these places. I do not see, as of now, any sort of, you know, disadvantages for us. Yeah, we'll hold our breath till we get to hear finally from them.
Perfect. Sir, one question on this side. Your gross profit growth has been 19%, but EBITDA growth has been higher at 38%. Fundamentally, when you negotiate a contract, is it basically gross spreads? I mean, because EBITDA, when you come to EBITDA, fixed overage is in company's hand, right? How to manage. Is it gross spread that you negotiate on? Is that something we monitor to monitor the volume growth apart from the product changes?
Fundamentally, we would like to protect the EBITDA growth. Therefore, a large portion of the expenses are built into the, you know, the margin calculation that we do. We do make sure that all the expenses are also built into the costs when we are doing the final negotiations and the price negotiations.
Thank you, sir. I request you to rejoin the queue for follow-up questions. The next question is from the line of Swayam Ranab hat from Pinpoint Capital. Please go ahead.
Yes, sir. Good morning, sir. My question is, like, sir, can you please tell me about the demand scenario that we are seeing from B2C segment? Are we, like, seeing any sort of challenges over there?
You know, considering we are a very new player here, there are numerous challenges. The biggest challenge is to fight, you know, two big players in the market. Yes, of late, what we have also seen is that because India is a very price-sensitive market, and with the kind of price increases that the category has taken in the last few quarters, we are looking and we are experiencing certain stresses in the demand.
I believe these are, you know, short-term stresses because the amount of consumption that is being given, especially the out-of-home players and the cafes, I think fundamentally in the long run, we see a huge demand that is going to kind of, you know, creep into economies like India, which is looking as of now that the nation is partly converting from a tea-drinking nation to a coffee-drinking nation.
Long-term demand, this thing we are not very bothered about. Yes, in the short term, there are some category stresses, but we are very small as of now. We will continue to aggressively drive it because our main efforts will be towards gaining as much of market share as we can.
Got it, sir. My last question is, what are the key strategies that we are following to grow our overall business going further?
It's a multi-pronged strategy. We are looking to make sure that we increase our proportion of, you know, private label consumers who generally are, end consumers because these are consumers, not consumers, customers, sorry. These are customers who stay for you, with you for very long periods of time. That's one strategy that we are working on. The next strategy that we are working on is to penetrate newer markets. We have been talking about this. B2B, we all know, takes a bit of time to convert customers, because a lot goes behind converting customers. It's not just price. It's the type of coffee, the blend.
They must be convinced about not only the price, the blend, but also our value chain system that we are geared for delivering the demands of their demand in turn. All of this plays a role. New geography expansion is also something that we are working on. We have been starting to get, you know, results from markets like China, Taiwan. These are new geographies that we'll build on. Add to it, we are also looking to increase our footprints in the Middle East and the African markets, going forward.
Yes, in the domestic markets and the branded segment, we are continuing to drive share gains through distribution expansion, and through new geographies and more penetration, driving more and more sales in the quick farm and the e-com space. You know, it's a multi-pronged strategy, differently played for different, you know, geographies, different segment of our, different customer of ours. Yes, these are a few of the nuggets that I've given you that is what we are adopting to grow our sales.
Thank you so much, sir, and all the best for your future.
Thank you.
Thank you. The next question is from the line of Rajesh from AlfAccurate Advisors. Please go ahead.
Good afternoon, sir. Just wanted to understand, you know, two important things. One is, you know, do you see that in terms of the, you know, the coffee prices, let's assume the prices stabilize, whether any of the, from our side, the shipment, whether is there any preponderance in this quarter? That is the first question. The second question, if I look at the freight cost, which has gone up significantly due to, you know, these tensions and geopolitical issues, how is it behaving now, and do you expect a stabilization in the same?
So, you know, there wasn't any preponderance per se, yeah? We didn't see any of those trends coming in. As far as freight costs are concerned, we still, you know, it's very difficult to comment. There was a quarter when we thought that now things are very stabilized in the Red Sea zone. You know, we come to hear that yesterday there was a bombing at Yemen ports and all that. It is very difficult to comment right now where things will go forward. Then again, you know, when Trump had decided tariffs and all that, suddenly there was a slump for a few days. Then again, it went back.
It remains to be a little uncertain at this point of time. We would hope that over a period of time, these things settle down and, you know, sometimes directly, if you compare freight charges, sometimes it also does not give you the right picture because a lot of times, you know, we have a mixture of FOB and CIF contracts. Sometimes it gets, you know, this thing in the above column of revenue and, you know, cost. It is a little difficult to kind of actually also compare like to like, and a direct comparison may not always give you the right scenario.
I see. You know, from your EBITDA per kg perspective, the debt remains quite constant, right? You know, like FY2025, and when you look at going forward, as you focus a little bit more on the mix, do you see any scope for improvement in EBITDA per kg?
No, EBITDA per kg, this is a little tricky question. We have seen EBITDA per kg improvement this year because we concentrated a lot on, you know, end customers. We have the mix changed. We concentrated a lot. See, what has happened also is that because of these high coffee prices, you know, there is a lot of churn that is happening internally as well in terms of, you know, newer coffee blends getting developed. Even customers are, because nobody is wanting to increase prices so much.
There is, you know, what we call it, at all times when the prices go at such high levels, not just coffee, any commodity or any sector that you see, there are a lot of internal churn in terms of more efficiency building. Happens. All of that, we see has taken, has been a part to increase the EBITDA per kilo. Some of it will probably continue. The rest of it, how the volume mix is going to change, we never know. Tomorrow, let's say the coffee prices go down and we kind of get a low margin business as well into our portfolio to be added.
Maybe, you know, the mix could change and the EBITDA per kilo may, you know, come down. There are a lot of ifs and buts that are at play. There are a lot of parameters that are at play. Therefore, we give a guidance that at an overall level, we have given a guidance that our EBITDA growth at an absolute level will be at 15%-20%. There will be times where we will drive this through more of volume growth. There will be times when we will drive it through better EBITDA per kilos.
Yeah, that's been our, that's been our overall guidance therefore. If you look at, you know, this quarter that, okay, EBITDA per kilo has gone up significantly, will it continue? It's a question that is very difficult to answer. Yes, what is certain is that we will continue to drive our EBITDA, absolute EBITDA growth between 15%-20% year-on-year.
Sorry for, I joined a little late, five minutes late this call. I don't know if this question is already asked.
Sir, we request you to rejoin the queue for follow-up questions, sir. Thank you.
Okay.
The next question is from the line of Kashyap Jhaveri from Emkay Investment Manager. Please go ahead.
Yeah, thank you so much for the opportunity and congratulations for amazing set of numbers. Just wanted to check one, what was the broad range of volume growth in quarter four and, consequently for the full year? Second, if I look at the difference between consolidated and standalone numbers this quarter, there is a very sharp rise in subsidiary profitability.
So, whether it was Vietnam, the granulation unit in Europe, or whether this was the retail or branded sales that drove that profitability. The third question is, you know, on Vietnam, you know, there is likely probably tariffs of a very high number, though it's been postponed now, but with 100% customs duty on coffee imports in India and likelihood of tariffs on Vietnam, you know, how can we juggle the production for various geographies? These are the three questions that I have.
Yeah. So Kashyap, as far as volume, let me give you a broad idea. The volume growth was closer to, you know, 10%-ish kind of, for the full year. Now coming to the second part, the subsidiary profits were higher. Yes, it was not that, CCSA because that is a very small, you know, in terms of revenue, it is a much smaller subsidiary. Yes, profitability is much higher at NCL and not really with the granulation unit at CCSA.
NCL, the profitability is higher. That profitability is on two accounts, as I already mentioned, that probably the customer profile, the efficiencies, all of this had an improvement. Also, at a net level, Vietnam is a tax-free thing, so you get to see more profits there. That is the reason there. The third thing you asked was about, what was the question? Tariff.
Tariff.
Yeah, yeah. So, yeah. Yeah, yeah. Tariffs, you know, again, I was just mentioning, as an answer to one previous question, that we believe, again, tariffs, once 90 days are over, we really do not know because things have been very unpredictable. The signals are much more positive for both the places, Vietnam and India. Vietnam has already kind of made all imports as zero tax from the US, urging them to go back to status quo. I am sure there will be some settlement there.
India also, we are seeing certain positive signals when the US declared that India would be one of the first countries where they would, you know, confirm the tariff deals. Just because India has 100% tariff on coffee, I do not think it affects India-US coffee trade because the US neither grows coffee nor produces coffee, yeah? I do not think so. It's unlike cars where, you know, the U.S. has been very adamant that you put 100% tax on cars of mine, but I put 0% tax for your car. That's not fair. In coffee, there is no reason for any kind of, you know, conflict because they are neither growing coffee nor they are making coffee. India doesn't import coffee at all from the U.S.
I don't think that will be a point of contention. We feel that both the places will be positive. The other thing is that considering the way our plants are configured, the way our, you know, blends are configured, we have the option of, even if, let's say, out of these two countries, one becomes a little unfavorable, we have the option to supply from the other country. We have that flexibility. Now, it's quite unlikely that both these countries will become unfavorable for the U.S., yeah? That is something that we are not too worried at this point of time. Having said so, that unpredictability about the U.S. government stays, we really will have to see when the time comes.
Okay. Just utilization level? That is the last question. Both places.
Utilization generally, see, at, so we generally break it down between two sets of things because the expansion has been at a staggered level. The earlier capacity, the existing capacity, we are almost running 100%. The newer capacities last year because they came at different points of time, but on a yearly basis, if you see, there was 10-15% utilization of the newer capacities. The extended capacity of Vietnam, we just announced. We will see in the next quarter how the utilization happens.
Sure. That's it from my side. Thank you so much.
Thank you. Participant, it is requested to limit your questions to two per participant. The next question is from the line of Prateek Poddar from Bandhan AMC. Please go ahead.
Yes, hi sir. Thanks for the opportunity and congratulations on a great set of numbers. Sir, I had just one question. I know this question has been asked, but just on inventories, as a proportion of sales, or let's say when we look at other companies which use input and convert that into final products, whenever they see a price increase, we don't see them increasing their inventory levels or, you know, the inventory in terms of number of days as a percentage of sales increasing. Can you help me understand why is it particular or why is it only in our case that when coffee prices rise, that you, that the inventory levels go up far, far higher than input to sales?
Two things here. Yeah, I think that's a very valid question. Two things here. One is that, you know, our buying happens from multiple sources, yeah? The multiple sources are sources like Vietnam, Indonesia, Brazil. Now, Vietnam and Indonesia are much closer to our manufacturing units. Suppose you were to buy from Vietnam or Indonesia, probably you build 15-20 days of transit time. If you're buying from Brazil, then you probably have to build in 60 days of transit time. Last year, if you see, a lot of our buying was also from Brazil because there the prices were much more favorable.
That adds to your holding cost of inventory. Second is that a lot of our buying happens at the ground level from the, you know, local aggregators, from the local farmers. Now, in the rising price scenario, it so happens that the chances of default become much higher, yeah? Today, let's say if the price is $100 and I contract it at $100 and I don't secure it right away, the chances are that tomorrow when the prices are going to $150, the guy could come back and say, you know, there were some mismatches in inventory, he didn't calculate it properly, blah, blah, blah, and he would tend to default.
You can't go to court cases with these small time sellers. What you end up doing is kind of, you say that, secure the coffee. Therefore, these two tendencies, you know, increase the holding cost of inventory for us. The opposite will happen when the prices are sliding down. If the prices are sliding down, I would have paid him at a higher price, but he would be very happy to hold it for me because, let's say, two months down the line, the prices would have slid another 15%-20%. He would be very happy saying that, you don't worry, I'll hold it for you. I'm holding it. You know, these are the challenges that come into picture, and that's the reason you will see a higher inventory holding.
Could you describe the inventory to finished goods? How much would be finished goods? Is it possible for you to call out?
Finished goods won't be much because generally the finished goods have everything is against order. As in, like, when the order comes, maybe finished goods will be, let's say, 15 days of stock, not more than that, 15 or 20 days of stock, yeah? Inventory could be three months, around three months of stock. Green coffee inventory, sorry.
Just last question, the supply chain, right? Because this has obviously been the case, you've been here in this industry for 20 years. You would have your own supply chain, right? You would know who's trustworthy and who is not. I mean, in the past 20 years, that kind of knowledge or on-ground insights would be there, right, in terms of on the alternate relationship business. I find it a bit difficult that, you know, I agree that there is this tendency for someone to make profits on the side, I mean, have opportunistic profits, but then it is the relationship forever, right? Is this still something which is widely practiced in the industry?
It does not happen 100% of the time. You're right. We are now 30 years in the industry. We practically know every supplier, every aggregator. Having said so, for 60%-70% of our purchase, which is generally from large houses like the Olams and the Ecoms of the world, we do not face those kinds of challenges because these are pretty professional organizations. What the balance is, is at a very local level. While we know these people, that in fact adds to the thing because, you know, this guy comes with a sulcum face and says that, you know, he has a miscalculation on inventory.
I really cannot go after him, putting up cases and all that. Yes, it is not that 100% of my stock is there, but this little 30% probably adds to certain days of your inventory, yeah? We do not want to take chances. Because we have done the contract, we cannot, in fact, our model is very simple. The day we finalize the contract, the same day we go and buy coffee. It is an added pressure for us also because if I even leave for 10 days and the coffee prices would have fluctuated, then I am in a tight spot.
It is my, you know, desperation to make sure that I secure the coffee on the same day that adds to that level of this thing that I need to secure. Even if he may not default or do things bad for me, I need to make my security improve.
You need to keep six. Sorry, last question, and maybe we can take it offline. You need to keep six months of inventory or let's say cycle is less than three months, right, from processing?
There is no six months of inventory. Where did you calculate six months of inventory?
That's anyways, I think we'll take this offline. This will be...
Yeah, there's no six months of inventory at all.
Sure.
Thank you.
Okay, thanks.
The next question is from the line of Avinash Rao from Nuvama. Please go ahead.
Yeah, thanks. Two quick questions. One is in terms of price tag in the B2C coffee India, how much has the industry taken and how much you would have taken last one year?
Avinash, probably on the larger packs, 30-35% industry has taken. We have also taken similar price increases, but yeah, the smaller packs like the single-serve sachets and the 5, 10 rupee pack, that remains same. There has been certain gramage reduction and some reblending that would have happened, but yeah, that's about it. So 30-35% industry has taken the price increase. We have also done that.
Sure. The second and the follow-up question essentially, in tea, we have seen downgrading and downgrading. From larger packs, smaller packs are being bought in the B2C, and customers are also shifting to newer brands, weaker, cheaper brands. In coffee, would you have seen similar phenomena in India B2C?
In coffee, that sensitivity is a little lower because while tea is very hugely penetrated and goes to all kinds of consumers, coffee is a little more concentrated towards more A class and B class. Also, it is a very urban phenomena. The price elasticity is actually better there than the commodity like tea, which is very price elastic and very sensitive to price increases. Yes, and the other thing is that, you know, coffee in North India and coffee in South India, they are consumed very differently.
In South India, anyways, the small pack used to contribute approximately 65% of the business, yeah? That remains to be true even today. In North, the phenomena of small packs is much lesser. It is largely a large pack market up and above 50 grams. So there, you know, as I was telling in my earlier answer as well, in the last quarter, Nielsen has reported certain volume stresses, but it's not very significant.
We'll wait and watch because a lot of price increases have happened in the last three months or four months or so. I think this quarter, next quarter, we will see how the category numbers are. It isn't so much drastic as it would have happened in some of the other more penetrated categories.
Thanks. That's all from my side. Thank you.
Thank you. We'll take our next question from Vivek Tulshyan from New Mark Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity. If I look at the coffee prices, whatever data we get on the, on the global side, it seems like coffee prices have gone up almost 60-70% in the last one year. Whereas if I look at our contribution, growth from realization is only 6-7% because, you know, the rest of it is volume growth. So, will it be fair to say that, you know, even if coffee prices start to correct because these contracts are, are coming with the lag, we will continue to see, you know, growth in terms of realization for the next few years before it starts kind of tapering off?
Yeah. Of course, it will all depend how quickly or how slowly the prices go down. First and foremost, let me just come to the first observation that you had. I don't think so. The price increases have been 70% in one year, 60-70%. Last one year has been largely, I think, 20% or 30% or so, but with a lot of ups and downs, yeah? There were times when, for example, when Trump announced tariffs, the coffee prices fell by 10%, yeah? These kind of fluctuations have happened in the last year. It will depend.
A lot will depend on our, you know, revenue trajectory on how much or at what times we have done our contracts. A lot of times, a lot of our contracts get closed on the days of drops, yeah? Because everybody is on a wait and watch these days. The moment there is a drop, we would see a lot of confirmation. Very difficult to predict the price in, you know, advantages that we may get to see once the prices either stabilize or cool off. It will depend on various factors.
That is the reason I think that because that is something that is not fundamental to our, you know, performance. That is the reason we always say that, you know, EBITDA growth is something that should be tracked for our metrics, because whatever the price fluctuations are, whatever long-term, short-term contracts we get, all ten and done in a longish period of time, we are committed to delivering that 15%-20% EBITDA CAGR. That is where we stand.
Got it. The second question was, you know, if the coffee prices remain at the current level, then given our investment has increased because, you know, the coffee prices have gone up and our inventory holding is at a higher price, do we also renegotiate on our, you know, whatever EBITDA per kg that we would be charging the clients? And does that also start showing up in higher EBITDA per kg going forward?
No, no, no. We are a cost-plus and a back-to-back, you know, consistent company. We do cost-plus pricing and we do back-to-back buying. Therefore, what it means is that both at the back end or at the front end, we do not renegotiate. We do not renegotiate for, you know, any contract that would have been done at a certain price if the coffee prices have fallen. So give me at a lower price. That is not what we do, or that is not even the industry practice as well.
Secondly, once the contract is over, I do not think the clients even renegotiate with us for lower cost because we would have bought the coffee at the time of the contract at the price that we had mentioned at that point of time. That is not there. Again, now, once the coffee prices fall, yes, the new contract is liable for new negotiations. There will be negotiations with the new prices, or at the time of finalizing the contract, there will be new negotiations. We will see how it takes place.
At a blended level, at an overall level, bottom line level, we try and see how well, how can we protect our EBITDA per kg. That's our endeavor when we kind of, you know, give our prices or work our, you know, cost prices and things like that.
All right. Just the last question.
I'll request you to rejoin the queue for follow-up questions. Thank you.
Okay. Thank you.
The next question is from the line of Prakash Goel from Kedaara Capital. Please go ahead.
Yeah, thank you so much for the opportunity. I mean, I want you to understand, like, you know, we were working back the numbers, that, like, you know, you have, close to 7% price realization growth. Hello? Am I audible?
Yeah, please go on. Please go on.
Yeah. If you are doing the same thing with the inventory as well, there's a good amount of jump in the volume of the inventory that you had at the end of the year.
Yeah.
Is that correct? Like, you know, how to think about it? Like, you know, how much volume extra you are owning at the end of the year?
Yeah. It again depends on, and we'll kind of work it out separately, probably to give a little more granular answer. At a broad level, the inventory this year probably has gone up because of the fact that a lot of us buying from Brazil, which takes a lot more logistics time to reach us. You own the inventory the moment you buy these stocks, yeah? Therefore, there will be some inventory increases during the year. It's just not because of volume increase. It's also because of these logistics issues and all.
It would be also helpful to understand, like, you know, your EBITDA margin jump is very significant in Q4. What has led to this? Like, you know, any specific reason? Because say when there will be a fall, people would like to understand what went right in Q4 and what went wrong in Q1.
Yeah, yeah.
It might be appropriate for you to share the details so that we can plot that trajectory for the company?
Yeah, yeah. I'll share certain details beyond which it becomes detrimental for us. The details are, again, it has followed in Q4, we had a very high proportion of, you know, high margin contracts, yeah? A lot of end customers, which we had talked about in the last four quarterly updates that we are working on, a lot of them. A lot of these contracts happened to be high margin contracts. If you also see the volume trajectory for the last three years, it has been a lot, you know, closer to 20%-22%.
This year, it's closer to 10%, which means that 10% trajectory drop is also because of the fact that we did not, you know, do a lot of low margin contracts. Suddenly, the per kg EBITDA profile kind of, you know, increased a lot. These are the reasons in quarter four. Now, going forward again, one could, that's the reason I kind of, you know, have been harping on this and telling us that, while we should understand the per kilo EBITDA, this should not be a measure to keep tracking because let's say if the per kg EBITDA has jumped, do we think that this will constantly stay here? Probably not, but it will depend on a lot of things.
The profiles are, what new customer acquisitions are we doing at what price, what margins, and all those things will come into play. Therefore, at an absolute level, we say that, okay, how are we growing our EBITDA at the absolute level? That is the guidance giving that 15%-20% because we also know that there will be times where we will drag low margin business as well.
Higher volumes with lower margin business, what would mean is that it will lower down my EBITDA per kilo, but it will still keep me in that bracket of 15%-20%, you know, EBITDA growth. That is the matrix we try and track and see over a period of time that is it moving in that direction or not.
Basically, you are saying that if you are going 20% volume, you can have a very much flattest YoY, EBITDA margin per kg. Unfortunately, unfortunately, we track or we try to track everything possible.
Yeah, yeah.
Obviously, some of these numbers may not match, quarter-on-quarter or year-on-year.
Correct.
There is no benefit of currency or price by virtue of price movement. It is more just because of the particular contract.
Yeah, yeah. Because there is price movement, as we are doing back-to-back, we do not kind of get any benefit of the price movement.
is no benefit of currency also as well.
Currency, see, we buying dollars, getting dollars. Most of it is negated over a period of time. There is not any, you know, significant gain here or there. These are all built-in bases, you know? There will be certain things here, and I cannot say it is zero because it is not that zero. There is a margin difference that we get. On that, there will be certain differences that may crop up. These are not significant to drive our, you know, or to change our performance that we are seeing.
Perfect. Perfect. Have a...
Thank you, sir. The next question is from the line of Bhargav from Ambit Asset Management. Please go ahead.
Yeah, good morning, sir. Congratulations on the good share of numbers. Sir, my first question is that, assuming that the volume growth is flattish, say for next year, and if the raw material prices fall by about 10%, then what can be the reduction in your working capital loan, which is obviously correlated to your inventory, just on a broader basis?
Yeah. So yeah, in order to do a calculation here, but on a broader basis, very simple, no, if I don't grow volume and the prices will come down by 10%, my need for working capital will come down by 10%. It's considering if we are holding the same inventory. But let's say, for example.
In a falling price environment, obviously, your inventory days will also reduce, right? I mean...
Absolutely. The cost of holding the inventory and the total inventory will also come down. Also, like I just told in the last answer to the last question, that let's say it also depends where the prices are falling, which origin is better suited. Let's say, for example, in a scenario where the Vietnamese coffee prices become much more favorable and they fall, then my inventory days will become even lower because I have more ability to do just-in-time buying.
Let's say in Vietnam, we used to buy coffee from Vietnam, which changed last year because we started buying coffee from Brazil, from Vietnam. All the way from Brazil, the coffee was coming to Vietnam. There are a couple of more factors which lead to our inventory, you know, holding stocks and the valuation both put together.
Would it be possible to share what would be the share of Brazilian raw material in your overall inventory mix? Is it fair to say it's been the highest this year?
Yeah, it has been the highest this year. Exact number probably offline we'll be able to share with you.
Sure. Lastly, sir, in terms of trends, in the event the coffee prices fall, obviously, it's difficult to highlight, but do you see fall more in Brazil relative to Vietnam, or how should we think about it?
No, sorry, I couldn't hear your last part.
No, I'm saying the fall in the coffee prices could be more in Vietnam or in Brazil, sir, in your opinion?
No, we really don't know because, you know, as I told you, the Brazil stock comes now. Really, we'll have to see that, how the flow is. Let's say the flow is very good because Vietnam crop comes in November, December. That's the time we get to know about Vietnam crop. Now we'll get to know about Brazil crop in another 20-25 days time. It'll just start flowing in the next four, five days. It'll start happening.
In the next 15-20 days, 30 days, you get to see how the flow is and how the demands are and how the picks are. That will determine the price range for the Brazilian crop. Difficult to predict which one will be lower or both will be higher, God knows.
In the event, sir, that if the reciprocal tariff on Vietnam is higher than in Brazil, do you think that the Vietnam coffee prices could fall more because the sourcing will reduce from Vietnam or nothing to do with that?
No, see, yes, it will, it should because if the Vietnam tariffs in other countries, and especially the U.S., become higher, then there should be a thing in Vietnam. This looks far-fetched as of now because the fact of the matter is that Vietnamese have been most proactive to go there and sit there and tell that, okay, and in fact, they are one of the first ones to announce that we are announcing zero tariffs on all American imports. We do not see that situation arising. Yes, if it does arise, the Vietnamese coffee crop will come down. The prices, sorry.
Thank you, sir. We request you to rejoin the queue for follow-up questions. The next question is from the line of Nirav Sawai from Abacus. Please go ahead.
Hi, sir. My question is on the long-term contract side. We had been facing a lot of challenges there, would understand when the coffee prices were rising. Have we seen any normalization there?
Not much there because they still are at high levels and at choppy levels. We have not seen normalization there. Still, people are, because, you know, as and when, while the prices have been a little more stable in the last two, three months, the thing is that people would wait for these crop cycles. They will wait for another 20-30 days to see how crops have come in Brazil and then probably would want to confirm contract. What happens is that next two, three months, they would, so everybody is in a little wait and watch. I have not seen much of a change in that scenario.
Would it be able to, would it be possible to quantify, you know, the revenue which has come from long-term contract in this quarter?
Generally, see, that's not a, that's very difficult to say. Now, we must divide two things here. Now, when I say long-term contract versus long-term customers, yeah, so these are, it's not that you're not getting long-term contract and therefore my long-term customers have gone away. The long-term customers are always there with me. They are the ones who are giving me short-term contracts. As we have spoken about this before as well, my long-term customer profile will be approximately 60-70%, yeah?
These are my long-term customers who buy from me always. The only thing is that instead of saying that, okay, the next one year quantity is this much, they would say that, no, let me buy only for three months. That's the percentage and the profile of my long-term, short-term, you know, customers. Now, out of that long-term customers, how much was long-term contract is something that I'll have to see, calculate, and come back to you. This is a better way to look at it. Are the long-term buyers intact with me or not?
Right, right. And, sir, in terms of small tech contribution, how has it been for the quarter and the entire year?
Entire year, now we have crossed around 20%. That is the increase. We were at around 18% or so, 17-18% last year. This is constantly inching up. Hopefully, we are kind of planning to inch it up another 2-3%. Let's see how things go this year.
Thank you, sir. Ladies and gentlemen, this was our last question for today. I would now like to hand the conference over to the management for closing comments.
Yeah. Thank you all for joining us for this conference call, and sorry, and thank you, Manish, and your team for organizing this. We'll look forward to meet you again next quarter.
Thank you. On behalf of Antique Stock Broking Limited, that concludes this conference. Thank you for joining.