Ladies and gentlemen, good day and welcome to the CCL Products (India) Limited Q1 FY 2023 Results Conference Call hosted by Nirmal Bang Equities Private Limited. As a reminder, all participants lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone telephone. 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, Cathy. Good evening, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited 1Q FY 2023 Earnings Conference Call. Management is represented by Mr. Challa Srishant, Managing Director, Mr. Praveen Jaipuriar, CEO, Mr. V. Lakshmi Narayana, CFO, Ms. Sridevi Dasari, Company Secretary, and Mr. P. S. Rao, Consultant Company Secretary on the call. Without further ado, I would like to hand over the call to Mr. Praveen for his opening comments, and we'll open the floor for question and answers to you, sir. Thank you, and over to you, sir.
Thank you, Abhishek, and welcome all to this conference call. The group has achieved a turnover of INR 509.51 crores for the first quarter of 2022/2023, as compared to INR 326.23 crores for the corresponding quarter of the previous year. The net profit stands at INR 52.74 crores as against INR 43.85 crores for the corresponding quarter of the previous year. The EBITDA is at INR 88.77 crores, and the profit before tax is INR 66.64 crores. I welcome you all for the question and answer session. Please feel free to ask any questions you'd like.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to mute their lines while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Thank you. The first question is from the line of Tejas Shah from Avendus Spark. Please go ahead.
What is the ROC and ROE of your company in this quarter? Can you give some guidance on the volume as well as revenue growth for FY 2023 and next?
Yeah. Thank you, ma'am. This is V. Lakshmi Narayana here. For ROCE, return on capital employed, it was 16% for this quarter. Hello?
Yes, I can hear you, sir.
Yeah. Return on capital employed, it was 16%. The return on equity-
ROE?
Returns on equity, it is at 17%.
Okay. Any guidance you can give for FY 2023 and next on volume as well as value growth?
You know, the volume growths that we got this quarter was approximately 25%. That's the guidance for the full year as well. We are looking to end the year at somewhere between 20%-25% volume growth. There will be approximately 10%-15% upside on the price, which means that we will end up the year at close to 40% value growth.
Thank you, sir.
Thank you. Reminder to all the participants, to ask a question, you may please press star and one on your touchtone telephone. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Yeah. Hi, sir. Thank you for taking my question. A couple of things. Firstly, just confirming our capacity numbers. As of FY 2022, we were at 38,500 tons, right? By FY 2023 end, given the Vietnam capacity expansion, we are expecting 55,000 tons. Is that right?
Yeah. Absolutely right.
Yes. The additional 16,000 tons that we have seen got approval for, when do we expect this to commission?
We are looking to commission it in the last quarter of this year.
Okay.
Vietnam capacity. Yeah.
Broadly at the same time our Vietnam capacity will come on stream.
No, no. Okay. This I was talking about Vietnam capacity.
No, no. I'm talking about the.
If you're talking.
Yeah.
Yeah. The new capacity will be one year later, which is FY 2024.
FY 2024.
FY 2024. Yeah.
All right. Got it. A question on similar lines. What I wanted to understand is if I look at previous history over last five to seven years, broadly till FY 2021, we have broadly around 30,000-35,000 tons capacity over for last four to five years previous to that. If I see from FY 2022 onwards, we are now increasing our capacity to more than 70,000 tons. It's like doubling up our capacity after, you know, period of wherein we didn't expand our capacity. What is giving us the confidence of increasing such a large step of increasing the capacity?
This is actually, you know, the confidence is coming from three, four fronts. One is that, you know, constantly our domestic market has been growing very, you know, on a steady pace. Last three, four years if you see, we had started to see the domestic market. We were not very sure in what direction the growth will go to and what kind of capacity we'll require. Now we are, you know, confident that we have achieved a certain turnover, we have achieved a certain volume, and this volume is expected to grow by 30%-40% in the next three, four years. That is giving us confidence that we will require new capacity.
Also, in the international market, we have been able to secure a lot of new businesses across the geographies, and that has again given us a lot of confidence that we will be able to or we will be requiring these kind of enhanced capacity in the future. As we are growing, what is happening is that you know, our ability to offer or be competitive in the international market also is becoming very, very strong, and that is helping us gain new businesses. All of them put together, we are very confident that we will be requiring these kind of capacities going forward.
Right. How much of our capacity currently would be, you know, being utilized for the domestic branded business? How, what kind of number that should be on the expanded capacity couple of years down the line? A broad idea would suffice. You know, 5%, 10%, whatever.
Currently we are at 10%. Going forward, you know, the 10% capacity is likely to double in three years, yeah, for domestic market. It is going to double in three years. Let's say I'm just giving you a ballpark number.
Right.
Approximately 4,000 metric tons is what we are looking at right now, which will kind of double in two to three years. Which means that with the new capacity that we have announced, half of that will be immediately taken up by the domestic market itself. That is the kind of, you know, numbers that we are looking at, and therefore we are very keen to expand the capacity.
Just to get my thoughts. What you're saying at the moment, 10% of the capacity will be used for domestic. Going ahead also you're saying on the expanded say 70,000-ton capacity, it would be roughly around 10% only, are you saying? Or it will like go to
We'll be almost doubling it, you know, in the next two and a half years.
Okay. Got it.
The volumes also will double. Yeah. It will be in the same percentage, maybe 10%, it will move up to 12% or 13%.
Okay.
As I was telling you, that's not the only reason. The other reason is that we are also getting new export orders, new clients, and therefore we are looking to fill up the rest of the capacity with the export business.
Okay. Lastly, just a clarification. When you say, you know, we have grown our volume by 25% this quarter, but as I see our profits have only grown by about 20%. The remaining 5% delta is largely because of the domestic volume growth, which obviously don't contribute a lot to the profit, or this 25% volume growth is entirely due to this?
No, no. Couple, two, three points are there. One is of course the domestic market, which right now we are investing that to promote the brand and all. Second is that couple of percentage points here and there probably will be because of other input cost increase. If you look at from volume 25%, and if you look at EBITDA is at 23%.
Okay.
They are like, you know, very close to each other. A lot of price increases we have been able to mitigate through efficiencies in the system.
Mm-hmm.
That difference is not much actually, 25% versus 23%.
Okay. This 25% volume growth guidance for FY-
Mr. Agrawal may be requested to please rejoin the queue for follow-ups. We have other participants waiting in the queue.
Oh, okay.
Thank you.
Thank you. Thank you.
The next question is from the line of Richard D'Souza from SBI Mutual Fund. Please go ahead. Richard D'Souza, your line is unmuted. Please go ahead with your question. As there is no response from the current participant, we move to the next question from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Two questions from my side. One, when you mentioned that, you know, this year the volume growth could be significantly higher because of the price, you know, increase, can it lead to ROC dilution because, you know, we will have, you know, higher working capital requirement? That's one. Second is clarification on your working. On, on the domestic side, you mentioned that today domestic is about 10% of the volume, and next three years you expect it to double to about 4,000 tons. But at 10% today itself, it should be about, you know, slightly less than 3,000 or slightly more than 3,000 tons already, right? So doubling would mean about 6,000 tons. Is that, is that math correct?
I think today it is at approximately 4,000 tons. Doubling would mean 8,000 tons.
That 4,000 tons was number as of today?
As of today, yeah.
Okay. On the ROC side, because of working capital, any comments over there?
Look, sir, you know that the working capital is in play.
If it will be, let's say, about 40%-45%, then it means that, you know, working capital requirement will also be slightly larger.
Yeah. The working capital requirement is likely to enhance almost by 50%, which, we have taken the precautions to enhance the requirement.
It could be slightly, you know, sort of detrimental to our, you know, ROC number, unless, you know, we are going to reduce the number of days, of working capital.
No, actually, if you look at it on ROI basis, my stocks are approximately around 150%. It will not have a major impact on our profitability, even despite our increase in working capital requirement.
Sir, what I'm saying is that, say, your you know, EBITDA growth because of the volume growth is, you know, we look at usually EBITDA per ton or EBITDA per kg. EBITDA growth would be roughly about anywhere between 20%-25% or slightly higher. You know, in terms of working capital, like you said, the expansion would be almost about 50%, which means, I mean, it's just a mathematical equation, but it could be ROC degrading.
It will not be because we will work it out on the credit period which we are offering to our buyers.
Yeah.
Which will take care of my any additional burden is going to be there with increased volume of working capital.
versus sales growth, can we expect working capital growth to be lower than the sales growth? Is that possible?
It is not exactly. If you look at it, the revenue growth, which we are expecting around 20%-25%, and the on realization basis, which is going to be somewhere around in between 15%-20%, definitely it will be less than the sales growth.
Okay. Yeah, that's it from my side. I'll come back in the queue. I have a few more questions. Well, I'll come back in the queue. Thank you.
Thank you. The next question is from the line of Richard D'Souza from SBI Mutual Fund. Please go ahead.
Yeah, good evening. Am I audible now?
Yes. Yes, you are. Yes.
Thank you. Sir, just wanted to understand, one is on the green bean cost, then how much would it have gone up by, and how much have we passed it on to the consumers?
You know, at a point to point level, it has actually gone up in the last one to one and half years by almost 50%.
Yeah.
50%-60%. Whenever we do a contract, what we do is we pass on everything to the customer.
Mm-hmm.
We don't absorb the price increases in the green coffee.
Okay.
That's the reason you are seeing such, you know, almost 20%-25% upside on the value growth versus the volume growth.
Okay. Is this the first quarter when this increased bean prices hit us?
You know, I'll tell you what. If you would have tracked our you know performance and what we have been telling the market is that a lot of our contracts are long-term contracts. Yeah?
Yeah. Yeah.
Even if I would have started, let's say the price started increasing in last one year.
Mm-hmm.
In the last one year, I have been actually executing a lot of contract, which probably I did two years ago.
Yeah.
Much of price increases you did not see in the last few quarters. Maybe 4%-5% that was there in the last quarter or so.
Okay.
Now that last year's contract has started, you know, getting executed.
Mm-hmm.
We are seeing this kind of a price increase.
Okay.
Yeah.
Just one more question on this. If you look at the consolidated performance, the standalone and the subsidiaries performance, your raw material cost as a percentage of sales has gone up by approximately 8%-10%. That means we haven't passed on the complete escalation in raw material prices. Am I right to understand that?
Raw material. Come again, I missed kind of anything you said. Raw material cost.
Sir, I was saying that the raw material cost as a percentage of net sales has gone up by about 8%-10% on your consolidated level and standalone and also on subsidiaries level. Am I right to understand that we haven't been able to pass on the complete increase in prices, or is it because of your business model that, I mean, we see that difference?
No, no. In fact, you know, we completely pass on everything, but what happens is that a lot of my contracts will be, you know, average of some of the things that I've done in the past.
Okay.
Therefore, you will not see it in full effect in the P&L itself.
Okay.
If you average out, you know, see if you were to average out three to four quarter results, you will start to see that how our model works actually, yeah. Sometimes it happens that, you know, we will get more value growth. Sometimes it may also happen that we will not get the value growth, we'll only get volume, this thing, and in spite of that, our profits would increase. That kind of a play happens and therefore, we always tell the market that please see the performance in a little longer period of time.
Okay. No, I was seeing the trend over past four, five quarters, so that is the discussion. Maybe I'll come back later on this. The second question is on your other expenses, and especially, the logistics and packaging costs. How are these, those behaved in the quarter gone by? Because logistics costs seem to be coming down, the shipping rates seem to be coming down.
Yeah. Some of them, there has been a little bit of a downtrend. However, it is still more expensive than, you know, the pre-COVID or the pre-Russia-Ukraine war.
Okay.
That is an impact that we have to take care or take into account.
Okay.
Yeah.
Yeah, thanks a lot. Maybe I'll come back later.
Yeah, sure.
Thank you. The next question is from the line of Vidit Shah from IIFL Securities. Please go ahead.
Hi. Good evening, and thank you for taking my question. My first question was on this new CapEx that the board has approved. You said this will be up by the fourth quarter FY 2024. Is this right?
Yeah.
Okay. What is the ROC that we can expect on this? Would it be similar along the lines of 16% that we're doing right now, or could it be higher or lower?
The ROE is expected around those 20% on this new facility.
Okay. Like, why would this ROE be higher than what the company is currently doing? I mean, is there any efficiency built into this new plant or anything like that?
It will be an upgraded technology which we are going to implement under the new facility because our existing facilities are age-old and a lot of technology development has been happening. Due to that, we look for some optimization of the efficiency levels.
Okay. Understood. My second question was, in your earlier remarks, actually you mentioned that you're getting more competitive in the international market and thus winning orders. Could you just shed some light on, like, why and how the company is getting more competitive versus, let's say, Brazilian competitors or other competitors as well?
You know, a lot of these companies, let's say the Brazilian this thing. Now Brazil it has become a little non-competitive, especially in the European market because of the, you know, various reasons, the Brazilian coffee prices, the freight costs and things like that. We have been able to win some of those accounts, and that is leading to better performance for us. Also, if you start increasing the volumes, we actually are seeing, as our CFO pointed out, the new facility and what we are doing in Vietnam now with the expansion that we did last year and we are going to do. These are all leading to better economies of scale and therefore our efficiencies are improving and we are getting better and better in terms of our competitiveness in the international market.
Okay. Understood. One last point on if you could share the capacity utilizations during 1Q for the domestic freeze-dried, spray-dried and the Vietnam unit as well, if possible.
You know, on paper it would be 85%, but 85% is actually full utilization. We are full to the brim and utilizing every bit of it.
Oh, this is across the three units, is it Vietnam, Chittoor and Duggirala?
Yes. All across three units, we are running at full capacity.
Would it be fair to assume that from these levels the growth will only come, sequentially only once 4Q or the Vietnam unit is commissioned in 4Q? Versus 1Q, 2Q and 3Q could potentially be flat.
Q2 and Q3, you know, our Vietnam capacity started to the extended one. See, from Vietnam we went from 9% to 13.5%, which is like third quarter last year. Yeah.
Yeah.
Q1, Q2, that 3.5% will come to us, which will give us growth. From Q4 onwards, we'll get that additional you know 16,000 annual capacity from Vietnam. That will drive growth for the next three, four quarters. Just to add a little you know thing to you, we are also in the last two quarters we have ended up outsourcing coffee as well from a lot of smaller players. Yeah. That has also added to our capacity. In fact, yeah, so the generic products that we supply to some of our clients who use very generic products, we are taking from you know smaller suppliers, and we are fulfilling that demand.
In fact, when we are expanding the capacity, certain portion of our actual utilization, we are already building it up in the next two, three quarters.
Okay. Understood. Thank you so much for taking my questions and all of that.
Thank you. The next question is from the line of Atul Parakh from Centrum Broking. Please go ahead.
Hi. Thanks for the opportunity, and congratulations on a very healthy
Excuse me, Mr. Parakh. We're unable to hear you clearly. Can you speak a little closer to the phone? It's not audible.
Better now?
Yeah, this is better. Thank you.
Okay. Yeah. Congratulations on a very good set of numbers, especially on the sales side. My first question is on the margins, they're at 70%-odd. So you clarified a bit that, you know, the entire impact of increase in price realization which will be felt across the next three to four quarters. Is there a factor that a conscious decision is being made by the company to kind of aggressively grow on sales front, probably, sacrificing margins a bit this year?
You know, just to correct you, I don't think we have sacrificed the margin. Actually, the margin that you are seeing reduction, which is, at 17% that you said-
Mm-hmm.
Only because of the, you know. It's an optical thing because you are measuring it against the top line, which has got 20%-25% price increase. If you peg it at volume, our volume growth are 25% and our EBITDA growth is 23%, perfectly in line with our volume growth. As we always say, our per kg EBITDA wouldn't have changed at all. We are not sacrificing margins at all. It's not like we are, you know, growing volumes at the cost of sacrificing margins. It only appears to be lower because you've got a price advantage. The price advantage is giving you 55% top line growth. On that top line, the percentage of EBITDA looks to be lower.
In terms of per kg EBITDA, in terms of your growth in EBITDA, it's exactly in line with the volumes.
Sure. Got it. Okay. Got it. Second on the branded business, if you can quantify, like, what kind of numbers you clocked for the quarter and what we are expecting for the entire year.
We in the first quarter clocked domestic sales INR 50 crore, out of which almost 70% is branded business. This grew by almost 55% when we compare to the last year's same quarter. On the share front, we have been constantly gaining shares. We are looking to expand distribution, as I had mentioned in the last call. We are looking to now expand the distribution beyond south and looking to make our presence felt in other markets as well, beginning with large towns first, and then we'll penetrate into tier two towns. That is the scenario. We are growing at a very healthy pace and on track for whatever we had set our objectives on.
Okay. Just on the domestic, if I just, you know, kind of, at INR 50 Cr run rate, it comes at INR 200 crore probably for the year, which is broadly in line with last year, right? Wouldn't that be correct?
Yeah. You know, these first two quarters are lean quarters because of seasonality. In India, you know, coffee consumption is pretty high during the second half. Almost first half will contribute. In fact, first quarter will contribute to 15%-20% of the sales only.
Should we maintain a 30%-35% growth level for the entire year?
Yeah, definitely. Definitely we'll maintain that 30%-40% growth level for the year.
Okay. Sir, anything on the plant-based proteins, like, what are the steps we are taking now for next one year or so?
Really nothing new from what we announced because it's only been a month since we announced our entry. We are just, as we had mentioned last time, that we will target to launch only in the test launch in fact in three cities. That's what we have done. Today we are just placing the product. Because it's a frozen product, it has to be carefully placed in only those outlets where you have these kind of infrastructure. We are just placing the product, trying to do a lot of sampling and see what are the consumer responses. There'll be a lot of learnings as we go along in terms of our product development, concept, pricing. All that.
I mean, it's almost like a learning phase for us. There aren't any, you know, new things to share on this front at this moment.
Okay. Got it, sir. Thanks a lot, and best luck for coming quarters.
Thank you.
Thank you. The next question is from the line of Himanshu Nayyar from Systematix. Please go ahead.
Yeah. Hi, sir. Good after-
Yes, I'll go ahead.
Good afternoon. Thanks for taking my question. Sir, firstly, on the recently set up packing and agglomeration unit, just wanted to understand what sort of utilization ramp up we have seen on that side in terms of small pack volumes.
You know, on the small pack unit almost 30% is getting utilized by the domestic market itself. Out of the 12,000 tons capacity that we had put, 3,000-4,000 is being utilized by the domestic market, which is almost 25%-30%, and another 20% by the international market. As of now we have 50%-55% of utilization for the small pack unit.
Understood. Secondly, sir, on our overall CapEx, if you can just, I mean, guide us once again. What's the, I mean, including the ongoing Vietnam plant and the new announcement. FY 2023 and 2024, what sort of CapEx overall are we looking at?
FY 2023, as we stated earlier, the expansion has been scheduled with $30 million investment, out of which $10 million we are contributing from our internal accruals. Coming to the 2023/2024, which we are proposing to take up the new greenfield project, which may cost somewhere around INR 300-INR 315 crores. Our contribution may be somewhere around INR 100-INR 125 crores. All put together, if you look at it, around INR 190-INR 200 crores is our contribution on 2022/2023 and 2023/2024.
Maybe a slightly higher amount of debt as well, which you'll be taking up, right?
Yes. The new facility which we are planning to take up, which has the debt component also.
Got it. Sir, final question is on the India business. You talked about the top line, but can you share something on the profitability front as well? I know we are reinvesting back in the business, but along with growth, are we able to, I mean, any numbers that you can share on the sort of drain that it is on our overall financials in terms of loss, or is it gone completely?
Sorry, are you able to hear? Hello?
Yes, we can hear you, sir.
On the domestic front, yeah, we maintain the fact that we are plowing back all the money back to the business, especially because this is now this year we are going to take major distribution expansion initiatives. There won't be any drain per se as because we are looking to break even, like what we did last year. This year also we'll be looking to break even. There isn't any drain per se on the company side.
What sort of gross margin should we be making in this business, sir? If you can share that number.
See, typically on the branded side, we would be nearing to anything between 30%-35%. Bulk side will be closer to, you know, 20%.
Okay. Got it, sir. That's all I had today. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Bhavesh Chauhan from IDBI Capital. Please go ahead.
My question is on supplies from Russia to Europe or and even globally. How has that impacted the supplies globally and are we benefiting out of it?
Yes, the supplies which were affected in the last quarter, January and March quarter, is now seems to be easing up. Now we have liners who are taking supplies to Russia and Ukraine both. There isn't any issue right now that we are seeing in the market.
Sir, my question was actually supplies from Russia to global markets. If that is being cut off, which we are seeing in some of the sectors, are we seeing in coffee exports as well that Russia, because of sanctions, is not able to supply to many of the developed countries, so are we benefiting out of that?
No, not really. We're not benefiting out of that. As I told you, we are benefiting more from, you know, our more, you know, competitive, competitiveness in the market. It's not that Russia is not able to supply, therefore we are. Because Russia mostly is a more of a consumer of coffee rather than supplier of the coffee.
Okay. Sir, that's it from me. Thank you.
Thank you. The next question is from the line of M. Srinivasa Rao from Healthcare Global Enterprises. Please go ahead. Mr. Rao, your line is unmuted. Please go on with your question.
My question got already been answered. Thank you.
Thank you, sir. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Hi, sir, thanks for the opportunity again. Sir, again, something on similar lines what Atul was asking on the working capital. What I'm trying to understand over here is, let's say for example, the coffee prices is maintained up by, you know, 50% odd. For the same amount of volume that we do, I think our revenue number is higher. Wouldn't we be investing more in terms of, you know, inventory value and in terms of, you know, the debtors that are standing outside. Right? Wanted to understand, you know, in such a scenario where, you know, coffee prices are very high for the same amount, same number of volume, our investment into working capital will be higher.
That will mean a higher debt, and then that might stress our, you know, balance sheet for the, in terms of, ROC calculation or something, you know, interest cost as well. Can you throw some light on that? You know, how it affects our business from that perspective.
Yeah. As you rightly said, the working capital requirement will be increased in line with the increase in volume of revenue. Here it is not exactly in the same percentage of revenue growth, the working capital also will increase. It will not. Because we will have a different approach to reduce the credit period and which will help us to minimize the working capital utilization. At the same time, it will not have a complete impact of interest burden because we utilize the working capital under the export finance only, which is very competitive in terms of the rupee funding.
Okay. What is the cost of borrowing on that?
Export finance, it will cost net to net. It is around 2%.
Sorry, I didn't get.
It is at 2%.
2%?
Yeah.
Any expectation in terms of, you know, on this high coffee prices, you know, the prices reducing over next, you know, this year also any idea in that front? Or do you expect it to sustain such high levels going forward as well?
As of now, we don't see any, you know, trend, which tells us that there'll be a reduction in prices. It looks to be stabilizing at this level, but really it depends on many factors. A lot of countries, the crop will come in around December, so we'll have to wait and watch and see what happens after December. Till December, which is, really short term, we are not seeing, any decline.
Right. Lastly, sir, on recently there has been this fluctuation on the euro versus dollar. Are we impacted on that front due to currency fluctuations to an extent?
Hello? Hello?
Lakshmi, can you just address that question? I think he's asked question on dollar versus euro.
There is no impact because if you look at it, my predominant almost 99% of my business is in US dollar. It will not have an impact on our operations at all.
Okay. 99% of our business is US dollar.
Yes.
Okay. Got it, got it. That is helpful. Thank you.
Thank you. The next question is from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Yes, sir. Three questions from my side. One, what is the gross debt as of June 30, and what is the cost? Second is, if I heard you clearly, then the CIS countries or let's say Russia and, you know, surrounding countries, volume growth would have been same as what it was for the overall growth. Third question is that in terms of new client addition and ramp up, in U.S. and Europe, you know, what's the update over there? These are the three questions.
Hold on.
Hello?
The participant is muted.
Yeah. I'm here.
Can you hear my questions?
Yeah, yeah. We can hear you, sir.
Regarding the debt on 30th of June, it was INR 160 crore is the total long-term debt. We have the working capital based on utilization, which is around INR 225 crore. All put together it is around INR 400 crore is the total debt, working capital as well as the term loan.
The cost?
Cost will vary from facility to facility. On average it is worked out around 5%.
Okay. If I heard you correctly, then CIS or let's say Russia and around country growth would have been same as the overall volume growth this quarter?
Yeah.
The last question is in terms of, you know, in U.S., which we had, you know, in last about 18 months, what's been the ramp up? Also in Europe, if you can give some highlight as if there's any new client addition over there also.
Any ramp up in U.S. or in Europe, new clients.
In Europe, our usual growth is there. Year-on-year we are growing the volumes over there. The same pace of growth is continuing. We are getting into more of small packs and all also in the U.S. market right now. As far as Europe is concerned, we've added, with our existing supermarket itself, we've increased volumes almost sevenfold. Going forward, we are in the process adding some more supermarkets as well. The Europe business also is expected to grow.
Yes, sir. I'm done. Thank you.
Thank you. The next question is from the line of, Ritu Modi from IIFL AMC. Please go ahead.
Sorry, I joined a bit late, so apologies if I'm being repetitive in the question. Just wanted to understand the margin compression that we've seen on a YoY basis, despite the very strong growth in terms of volumes that we're seeing. Is it only to do with the coffee price volatility that we're seeing or are there some other reasons as well?
Fundamentally, one should understand that our business model for the last 25 years has been a very simple model. We work on a fixed margin basis. No matter what the green coffee price is, our margins remain constant, which is why our per kg realization also has been constant. In the current situation also our per kg realization is still the same. The volume increase, as in the value increase that we are seeing is because of the raw material. If you calculate on a percentage basis, yes, there will be a reduction. This guidance we have projected more than a year ago. We made it very clear that because there is a substantial increase in green coffee prices, on a percentage basis the EBITDA margin appears to come down.
Though in reality on a per kg basis there is no variation. The fact that the EBITDA growth and the bottom line growth is also proportional to each other will give you a clear indication that there is a volume growth, acknowledged. Same volume growth is there.
Understood. If I again understand this correctly, in FY 2022 we did see on our per kg or a spread basis, we did see tapering off versus what we had in FY 2022, given the fact that freeze-dried was a lower component as such. Is that trend continuing even now or are we seeing some improvement in the spread versus FY 2022 levels, average FY 2022 levels?
FY 2022 and FY 2023, whatever we are producing will be the exact same volume. The only difference that has come up or the exception that came up is the Russia war was declared in March, which has resulted in deferment of contracts from the last week of March to the first week of April. Because of that, the booking of the contracts gets transitioned from the previous financial year to the current financial year. That is the only change that is there. There is no other change.
Yeah, I understand that, but I'm just talking in terms of the spreads that we talk about, like the per kg EBITDA. FY 2022 did see a decline in the per kg EBITDA because of the mix, really being more towards spray-dried.
Yes.
Is that still continuing? Basically in 1Q, is the spread similar to what we had in FY 2022 as well?
Yeah, no, the spread was getting corrected in this year because of the simple reason that the dispatches are taking place normally. Last quarter, I mean the previous quarter, as in quarter four of last financial year, because of that deferment and because freeze-dried is a higher margin product, we saw that impact temporarily.
Understood. Okay. Secondly, this with the new plant, which is likely to come through in the fourth quarter, is any change in our volume guidance, per se, because of this new plant that we are likely to put through and which will start contributing probably in 1Q of FY 2025, from a longer-term volume guidance perspective?
The earlier guidance that we had given was 15%-20% assuming the existing capacities. Now, since this existing expansion is on track, we are hoping that we should come closer to a 20%-25% volume increase for the current financial year. Value-wise, it will be significantly higher. It will be 15% plus. I'm talking about on a volume basis, on an EBITDA basis, on a bottom line basis. It'll be in the range of maybe 20%-25%.
Understood. Okay. Sorry, my last question is also on the small pack capacity, because, I heard, you all said it is being operated at almost 55% utilization. Would it be right to assume that as and when the utilization level of this, keeps on improving, we're going to be seeing an improvement in, the EBITDA per kg as well, you know, of, from our entire company perspective?
Yeah, there will be an improvement in utilization for both the domestic. Domestically itself will improve by 30%-40% the volume that we are growing. We are also looking to add new clients, you know, especially for small packs. We are looking to, you know, fill up this capacity very fast.
Understood. Thanks. I'll just join back in case I have any further questions. Thanks. Over.
Thank you.
Thank you. The next question is from the line of Himanshu from YES Securities. Please go ahead.
Yeah, hello, sir. Good evening. These are two questions. With these new order wins and the ramp-up in CapEx that we are doing, would this allow us to increase the proportion of higher value-added products category, and as a result, allow us to, you know, move towards our intended EBITDA per kg target of INR 125-INR 130? Would it not be right for us to expect the same given that the saliency of the spray-dried would be on the rise?
Yeah. You know, we do intend to move towards that, and that will even be aggressively targeting small packs. As and when small pack goes up, the EBITDA per kg will definitely start improving from here. The last two, three years, we also had seen a higher EBITDA because of, you know, the fact that our freeze-dried volumes increased more in proportion to our spray-dried volume, which has not been the case in the last year and maybe a couple of years going forward as well. Because, you know, there is not just one factor pulling up or pulling down. There are multiple factors playing into it. We are very confident that with the higher proportion of small packs that we are targeting going forward, our EBITDA should improve.
Sure. Okay. Can you give me a sense of your client and geography concentration right now, and given the outlook and the order book that you have with the new order wins, how do you envisage this to change once your ongoing CapEx comes on stream entirely, so FY 2024 onwards, if you can give a sense of that?
As of now, there's not much of a change. There's no overdependence on any one particular geography or territory. We are spread out across the world. Right now we are in about 100 different countries. Going forward also, there could be some marginal changes here and there from one country to another. We're not foreseeing any significant variation as such. There's no overdependence on any one country that we foresee going forward.
Sure, sure. Just a last question from my side and also an observation that I made here in Mumbai. It seems that in the branded business, you know, there are obviously the company is going aggressive when it comes to the smaller packs, right? To obviously induce more and more trials. Can you give a sense on how the mix is between smaller packs or trial packs versus the larger packs that we're seeing in domestic markets?
Okay. You know, domestic market right now. The domestic market, you know, the international market, when we talk about small packs, it is actually, you know, the 200-g jars and cans and things like that. In domestic market, the scenario is completely different. Here when we say small packs, we really mean single-serve sachets or maybe, you know, three, four-use sachets, which is INR 10 and below price point. As of now, because our distribution is largely, you know, when you start your distribution, it is from the top of outlets, so you are distributing first in the larger outlets. Therefore, our proportion of larger packs is higher as of now, which is like almost 70% and 30% is our proportion of the smaller packs, which is INR 10 and below SKUs.
Got it. Got it.
Yeah.
Okay. Thank you, sir, and wish you all the very best.
Thank you.
Thank you. The next question is from the line of Himanshu Nayyar from Systematix. Please go ahead.
Yeah, sorry. I mean, thanks for another opportunity. Just a clarification. On the new CapEx which we have planned, I mean, is the land cost also included in this? Because INR 320 for a 16,000-ton capacity for a greenfield looks on the lower side.
INR 320 crores is at top. I mean, it's for everything. It's a greenfield project. No, actually, land portion, we've already bought the land under PPL. We'll be leasing out this to the new company and then setting it up. Land cost is not included in this.
Okay. That is already with the company, you're saying?
Yes, it's already there. We bought this 100 acres of land in Chittoor district.
Mm-hmm.
That's where we're planning on doing this expansion.
Okay. Just one final question, I think, I mean, if you can address this. I mean, we are seeing all incremental capacity addition only in spray-dried coffee. So is it that, I mean, the competitive intensity is quite limited here and there is some amount of down trading or consumers don't want to spend too much on the premium side, that's why there's more demand for spray-dried? I mean, is that the reason or it's more about demand supply dynamics for freeze-dried and spray-dried? Whether going forward also you expect that spray-dried would be the dominant variant going forward?
Well, I can give you clarity for the next one year at least how things are. Right now with the green coffee prices, last year it was around 1,300 levels. Today it's at 2,000 levels. There's a substantial increase in raw material commodity prices from last year to now. This has resulted in a trend where people are preferring spray over freeze because they don't have that kind of spending capacity. I mean, raw materials itself has gone up so much, and when it comes to the final branded product, the difference is significantly larger. That's one main reason why that the demand for freeze-dried hasn't really increased that much. That said, two years ago when things were looking up for freeze-dried, several companies have already bought the equipment. They've actually completed the installation.
They've come online either in last year or current year, or they will be coming online next year as well. Now, the thing with freeze-dried coffee is you need to have a cold room with - 60 degrees temperature. Based on running that plant, you have to run the plant, you have to take orders, whether you get lower margin or higher margin becomes secondary after a certain point. If you need to run the plant efficiently, you have to secure orders. Which is why we foresee that some of these new players are going to find it very difficult to sustain, and it could lead to a price war. Which is why we are not confident at this point in time to go in for freeze-dried expansion. We do have the infrastructure in place. We can easily go in for expansion.
If we decide to go in for expansion, it will be only if we have that confidence that the certain customers who are partnering with us are committing to certain volumes. Otherwise, it doesn't make sense for us to look at freeze-dried expansion at this point in time.
Got it. Just one final question then in this regard only. Our EBITDA per ton or per kg that we make, as you were talking about, how different it is for, on an average basis, say, for freeze-dried and spray-dried, just to get an impact on the overall number that we do.
In freeze-dried, as of now, we have only vanilla type products, means certain limited qualities that we are selling. Your margins are more or less uniform over there. Spray-dried is a completely different animal. With certain spray-dried products, we have 5x the margin of that of freeze-dried. 5x I'm talking about. There are several other products which will be maybe one tenth of what we are earning in freeze-dried. The range is huge in spray-dried.
For our current portfolio, it should not have too much of a negative impact. That's what I can sort of take away.
Yes. Not too much of a negative impact for us.
Got it. That's it. Thanks for answering my questions, Challa Srishant. Thank you.
Thank you. The next question is from the line of Jenish Karia from Antique Stock Broking Limited. Please go ahead.
Yes, thank you for the opportunity. Sir, you mentioned that volume growth for the quarter was 25%. Can you just break it up into India volumes and Vietnam volumes and, further down to SD and FD volumes?
No, we'll not be able to, you know, break and give you volume. You know, we generally don't share so much of volume data. Just for you to understand that how the profits have moved, in line with volume, we shared this data with you.
Okay, no problem. Thank you.
So.
Thank you. The next question is from the line of Manish Mahawar from Antique Stock Broking. Please go ahead. Manish Mahawar, your line is unmuted. Please go ahead.
Yeah. Good evening, everyone. I'm audible?
Yes.
Yeah. Yeah. In terms of guidance, Srishant and Praveen, you have guided to maybe 15%-20% to 20%-25%, and you elaborate the reason you are coming up with the CapEx in our view only. In terms of a customer perspective, wanted to know, have you got any new customers signed up? Because I think opening remarks, Praveen has highlighted, I think we have got some few new customers. Can you throw some light on our customer base?
No, we can't say, you know, names and tell you the exact everything. You know, beyond the thing that we told you that we are getting. It's not just about now, it has been our endeavor always, and that's how we have operated that how can we get new customers and how it can we improve volumes for our current customers. That's been our model. That's how we have been working, and that's how we, you know, keep working in the future as well. The reason why I said the new customers is because of the fact that, you know, somebody had asked that what gives us confidence to fill up this all new capacity.
That's the reason I said that because we are getting new customers as well, we are very confident that from the existing customers and from the new customers and domestic markets, all put together, we are very confident to fill up this capacity. Therefore we are, you know, so aggressively building up capacity.
No, Praveen, I am asking because a few months back, I think we have given a 15%-20% volume growth guidance, now 20%-25%, and our project timelines are remaining same, right? I wanted to guess what has changed the last three months we have given the guidance. That's the perspective.
Okay. The simple perspective, as I told you in answer to one more query, I had mentioned that, you know, we have started actually outsourcing coffee, some of the generic products. That, you know, we did not had, we were not anticipating this two quarters ago. Now that we are doing it, actually this has given a little bump in the Q1 and Q2 as well, which means that, you know, therefore we are upping this, you know, number. That's the reason I am seeing that, you know, in fact, more confident that from day one, when the capacity gets enhanced, we'll be up and running to fill that capacity.
Okay. Understood. In terms of the CapEx perspective, in Tirupati, just wanted to know if suppose land will be included to the CapEx number, so the CapEx should be around INR 400-INR 450 crores, if the land will be included. Why I'm asking 16,000 sq ft of a plant, your CapEx looks low. That is, that's why I want to understand.
Manish, that is one of the USPs that we have with respect to the technology. As you are already aware, we don't give our factory building to any one manufacturer on an OEM basis. All the other companies might be doing that, but for us, we build things ourselves. There are certain equipment that we build ourselves. There are certain procurements. We buy equipment from almost 8 or 9 different countries. We have the integration in-house. The way we know how to build factories very efficiently. That is one of our biggest strengths basically.
Okay. Any reason we have not done the CapEx in Chittoor? I think we have Chittoor extra land as well. We wanted to keep that for FD purpose in the future.
For FD?
No, no. Between the Chittoor, I think we have extra land as well, right? In the Chittoor plant.
No, no. That's why we are setting up this unit, no?
It's the same land bank, right? It's the same land bank you have, right?
No, no. EOU blessed in one area. The EOU-II unit is there, no? Next to the EOU-II unit, we are setting this up.
Okay. That's clear. I'm glad to hear. Okay. That's fine. Thank you. Yeah. Thanks and all the best.
Thank you.
Thanks.
Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for their closing comments. Over to you, sir.
Yeah. Thank you everyone for joining us. We look forward to meet you all in the next call.
Thank you, members of the management. Ladies and gentlemen, on behalf of Nirmal Bang Equities, that concludes this conference call. Thank you for joining us. You may now disconnect your line.