Ladies and gentlemen, good morning. Wel come to the Q3 FY 2023 earnings conference call of CCL Products (India) Limited, hosted by Nirmal Bang Institutional Equities Private Limited. As a reminder, all participant lines will be in the listen only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Navalgund from Nirmal Bang Equities. Thank you, over to you, sir.
Thank you, Michelle. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited Q3 FY 2023 earnings conference call. The management is represented by Mr. Challa Srishant, Managing Director, Mr. Praveen Jaipuriar, CEO, Mr. B. Mohan Krishna, Executive Director, Mr. V. Lakshmi Narayana, our CFO, Ms. Sridevi Dasari, Company Secretary, and Mr. P.S. Rao, Consultants Company Secretary. Without further ado, I would like to hand over the call to Mr. Praveen for his opening comments. We'll open the floor for question and answers. Thank you. Over to you, sir.
Thank you, Abhishek. Th ank you, team Nirmal Bang, for arranging this call. I wish all the participants a very happy new year. As far as the quarter results are concerned, here are the highlights. The group has achieved a turnover of INR 535 crore for the third quarter of 2022/2023 as compared to INR 423 crore for the corresponding quarter of the previous year. The net profit stands at INR 73 crore as against INR 58.47 crore for the corresponding quarter of the previous year. The EBITDA is INR 101 crore, and profit before tax is INR 70 crore. These are the major highlights. We already announced our expansion for the FD plant at Vietnam. I open the floor for questions.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead.
Thanks. Congratulations, sir. I had a question on the new FD capacity and wanted to understand the unit economics there. What if INR 100 per kg is our EBITDA, what is the kind of spread that we fetch usually on the FD side?
Generally, you know, the FD per kg EBITDA will be anywhere, you know, 30%-40% higher than the straight line EBITDA. That is what we'll expect from this.
Sir, sorry to interrupt. Sir, your voice broke actually. Can you please repeat your last line?
Is it audible now?
Yes, sir. Please proceed.
Yeah. What I was saying is that generally the FD side EBITDA will be anywhere between 30%-40% higher than the straight line EBITDA. That is what we'll expect from the new line in Vietnam as well when it's expansion.
Okay. Given the numbers, which were posted on the exchange, the investment, the CapEx that we incur on this is usually higher.
Mr. Maru, I would request you to come closer to your headphones and re-speak. We are not able to hear you clearly.
Am I audible now?
Yes, please proceed.
Yeah. Also given the CapEx number that you have mentioned on the exchange, is it fair to assume that usually CapEx for the FD capacity is somewhere between 4.5x, 4x-4.5 x higher over than compared to the straight line one?
4x - 4.5 x higher than-
Higher.
Okay. Yeah. Okay. We have to do the math. I hadn't seen the number this way. Yeah, you're saying for 16,000 tons, we had announced around 30 million, and this is for 6,000 tons, which is 1/3 . Check. I think you've done the math right. It will be that many times higher.
For the overall 32,000 capacity, the profit comes as INR 15 crore per 1,000 tons. For this one, it is above INR 70 crore, right? From ROCE point of view, at optimum capacity utilization, maybe the ROCE for this one will be half approx, like 15%-20% compared to approx 30% that we are seeing at optimum capacity for the Spray-Dried one , right?
1.4 versus 1.9. No, Lakshmi? 1.5?
1.5.
1.5 ROCE versus 1.9. It is not half of it. It is approximately 40% lower than that.
Understood. Understood.
Yeah. Yeah.
Sure, sir. Sure, sir. So, are we seeing any demand visibility on this side? What is the timeline as such? Last question from my side.
[audio distortion] quarter three of 2024/2025 is where we will, is the timeline we are looking for commissioning. We had, you know, freeze-dried, the previous calls also we had indicated that only when we get, you know, fair bit of confidence that the volumes are, you know,
I'm sorry to interrupt, sir. Your voice is breaking. Can you please repeat the last line?
Okay. The what I was trying to say is that Freeze-Dried, as we have been informing in our earlier calls as well, because one, it is an expensive CapEx, and second that, you know, the plant needs some time to get the confidence of our orders, which we are now because we've been talking to some of our associates who have kind of given us this confidence to, you know, get these quantities for this expansion of Freeze-Dried.
Sure, sir. Sure, sir. From numbers point of view, utilization would be the same like you had highlighted earlier, 30%, 55% and 80% in the first, second and third years respectively? Is that what you meant, right?
Right. As I was telling you, we have already got a lot of, you know, confirmations from some of our distributors. It'll be closer to 50%-60% in the first year itself.
Wonderful. All right, sir. Thank you.
Thank you.
Thank you.
We have the next question from the line of Baidik Sarkar from Unifi Capital. Please go ahead.
Gentlemen, good morning and thanks for the opportunity, wishing you all a great year ahead. A quick few questions. You know, how should we understand the lag in correlation between your headline revenue growth this quarter and EBITDA growth? Was there an inventory markdown that we've momentarily taken? You know, how should we understand that? Secondly, I understand the trail runs to a new capacity in Vietnam has started , when do you think we'll move into commercial dispatch mode? What's the timeline for the utilization we're looking here?
Okay. you know, your voice was a little unclear. I think, what I understood is what you're asking is about a little more insight on our top- line and bottom line number for the quarter.
That's right.
You're asking, yeah, when do we start, you know, selling commercially from the expanded capacity of Vietnam. Is that right?
That's right , Praveen . Thank you.
Right. You know, the, as you have seen our top- line growth is 26.5% at a group level. Th is is backed by around very low single-digit volume growth. The reason behind is that we had announced earlier also that we are taking a shutdown, in our India plant and we were doing trials at Vietnam. We knew that, there'll be a volume [audio distortion]
I'm sorry to interrupt, sir. Your voice is breaking.
Is it okay now?
Yes, sir. Please repeat.
Sorry. Yeah. What I was saying is that, you know, the top- line value growth is 26.5%, which is on top of around low- single- digit volume growth. The reason for this is that we had, you know, already announced shutdown in our India plant, a maintenance shutdown for 20 days, and that led to lower production and therefore lower sales, volume sales. In Vietnam we were doing, you know, pre-commercial trials. That also took away some days of ours in terms of production capacity. That's the reason the volume growth was [audio distortion]. You know, the commercial sales for Vietnam capacity has already started. We had already informed that this quarter we'll be doing commercial sales from the Vietnam capacity. That's the reason we stay on our guidance of 20%-25% volume growth because this quarter we'll get that additional capacity sales.
Thanks. That was so helpful. Your line was a little patchy, so I think I caught only part of it. You know, can you please flesh out some of your thinking behind the new CapEx really? You know, you didn't answer the two questions completely. You know, if you could just, you know, flesh out in a, you know, elaborate manner. Is there a disruption in the supply side that we can take advantage of in the Freeze-Dried side? Is this driven by one of our buyer relationships which really giving us the confidence in entering this fashion mode again? What's the thought process here?
Yeah. This is Srishant here. I think maybe I should explain this a little bit more in detail. See, normally the indication is something that we will take up maybe a year later, and that was the original plan. What happened is about three months ago itself, our existing Freeze-Dried capacity got full sourced at FY 2024. Our existing customers itself have been asking us for some additional volumes which we have not been able to provide. We've been in discussions with, you know, with customers.
I'm sorry to interrupt, sir. What I'll do is I'll just put it to [Dan]. I would request all the participants to stay connected while I try to reconnect the management now. Okay. Thank you.
Okay.
Ladies and gentlemen, the line with the management has been reconnected. Please proceed, sir.
Yeah. What I was trying to say earlier was that Freeze-Dried is something that we were actually planning on taking up about a year later. But what happened is, three months ago itself, our existing Freeze-Dried capacity got completely booked till FY 2024. Recently we've added a couple of new customers who've been giving us their projections for the next couple of years. One of these customers specifically came and told us that, if we are willing to set up a new line, they're willing to give us a commitment for five years and piping for 50% of the capacity. Once we got that commitment from the customer, that's when we took it to the board and we said that we'll go for that expansion. We have a fair amount of visibility for this new expanded capacity with a commitment from an existing customer, one of the newly added customers.
That's very heartening to know, Srishant. Congrats to you on that commitment. It's good to know and thanks for clearing this out from our perspective. If I could just end with one last question. What's the status of the India project? Are we on track for a 15-month launch from here on? How should we imagine that coming in?
Yes. We are on track for that. By March of 2024, we should be up and running in India.
Sure. Thanks, Srishant. I mean, just one last thing from me. What's the status of the domestic branded business? Any comments on how that's shaping up? FY 2024, should we eventually look at a breakeven in that business or should we write off the business?
On an MIS basis, we already broke even last year itself. That's in fact, that's one of the reasons why we were going ahead with this demerger as well, because it didn't make any sense for us to separate these two entities due to transfer pricing issues. We have to show profit in one entity and loss in another, actually giving a bit of a misleading information to the market. The fact that we've broken even last year, from this year onwards we are going. It will be profitable and growing.
Sure. Thanks, and my best wishes for [CCL] .
Thank you. We have the next question from the line of Shrikrishna from JM Financial. Please go ahead.
Hi, sir. First of all, congratulations for a good quarter. My question is, any indication on capacities in Vietnam for the coming quarter? Like, what are your plans? Any indication on that before we wrap up?
For Vietnam, I mean, last quarter we were actually. We started the commissioning part. We started taking up some trials and all. Now in Q4 that commissioning will be completed.
Okay. Okay. All right. What do you think about the capacities? Like, any, like, what would be your expansion plan like? Have you planned anything like that?
Vietnam within this quarter we will become 30,000 tons of SD capacity in Vietnam.
Okay.
That additional 6,000 will come in next year. Next calendar year.
Okay. Understood. Thank you so much, and all the best.
Thank you. A reminder to all participants, anyone who wishes to ask a question may press star and one now. We have the next question from the line of Kashyap Javeri from Emkay Investment Managers . Please go ahead.
Yeah. Thank you so much, sir. Am I audible?
Yeah
Congratulations for great numbers for FY 2023. I have three questions. The first one is, you know, you mentioned that one of our new customers has given, you know, specific commitment for 50% of the FD capacity in Vietnam. Having said that, have the underlying, you know, factors changed generally for the market? Because in last quarter, what you were mentioning is that the whole FDC side of the business is in overcapacity, and people are finding it little difficult to, you know, sort of, you know, feed up their, you know, expansions. Have the underlying factors changed, and this is one which is specific to us?
Actually, that's a very good question. One small correction I have to give actually. The capacity commitment has not been given for Vietnam specifically. The capacity commitment has been given to the organization-
Okay.
50% of the expanded capacity they want us to supply.
Okay.
The FD scenario has not changed in the world at all. Earlier also we were always operating in the bulk space. Now that a new EOU-II facility has come online and small parcels have come online, the customer I'm referring to is actually a small pack customer who's given us this commitment. We will be executing that from India and some of the bulk portion which we're currently doing in India, we're planning on transitioning that to Vietnam.
Okay. Is that the particular reason why, you know, this plant is being put up instead of an extension of the existing FDC plant here in India itself?
Yes. Most of our existing customers, especially after the Russia situation, have come to us asking for options of territorial de-risking. Today, right now we're in a position where India and Vietnam have both taken a similar stand with respect to the Russia-Ukraine war.
Mm-hmm.
What if the stands were different? It would have been a bigger risk for our customers that be in Russia or in Europe or in other parts of the world.
Mm.
Most of the customers across the world now, as part of their systems, processes, and policies, they want multiple origin suppliers to be onboarded. If we as a company can offer from two different locations, automatically we go to the top of the list.
Yeah. Okay. Second question is on, you know, again, from our previous conference calls, what we recall is that on the working capital side, there were two issues. One was that obviously the raw material prices were higher, which means that, you know, as an absolute number, the working capital might higher. Secondly that, you know, because of the shipping routes not working properly, there was higher inventory which was also getting built up. Any of these problems have gotten sorted out now? The second question is that when we take up this $50 billion expansion, and that issue on the working capital also is, you know, if not sustained, then by FY 2025, what would our gross debt number be? Would it be crossing a four-digit number on, let's say, INR 1,000 crore, INR 1,100 crore number?
it's likely to be around INR 1,085 crore.
Mm-hmm.
Which includes, Freeze-Dried expansion, everything put together.
Okay.
Okay? As you were asking, see, yes, these two changes have taken place. One, freight rates have started easing up and the supplies are becoming much more stable now, which is why slowly we are completing on our inventory levels also coming down. In fact, one of the things you would have noticed also is that, though we did a plant shutdown, there has been a similar in fact a similar amount of dispatches, if not maybe slightly more in quarter three also.
Mm-hmm.
Same way, even, the working capital cycle is coming down because of this and the ship, I mean, the transport costs are also coming down. Obviously that means that working capital cycle also will ease up a little bit going forward. Actually the green coffee prices also have come down from the 2,300 levels to right now around 1,900, same as 1,700. Now they've stabilized more or less at the 1,900 levels. Going forward in the second half of this year, we're expecting a further drop in raw material prices because of Brazil crop and all that . Once this happens, automatically that working capital also, the requirement will reduce.
Right. Last question from my side. Now, with the 6,000 tons announcement, you know, we would be reaching now, to almost, 7 6,000, 77,000 tons of capacity. Beyond FY 2025, you know, how much growth should one, you know, look at? Is there still scope for us to grow at a significant digit or even beyond that? Or we would be a fair size of the total market, you know, for us to, you know, then have a slightly moderated growth?
To be very frank, at this point in time, it is difficult for us to give a projection beyond three years.
Mm-hmm.
Our fair understanding of the market is quite simple. End of the day, with the economies of scale and our current positioning where we are, we are present across the world. We've established ourselves as reliable partners for customers across the world. We carry some value-added product that gives us a lot more credibility in market, which is also one reason why we have been getting, not only existing customers, new customers are also coming on board and the volumes are very rigid. There are certain markets which we haven't even started tapping into. Again, because we were running at peak capacity till now.
Our idea is we've already started developing partners in different territories, and depending on how things are, if we are able to ramp up our volumes and as the utilization comes to the levels which we're projecting for the next three years, we will look at setting up maybe another unit outside India and Vietnam.
Okay.
There are a couple of options which we are looking at. That again, at least for two to three years, we won't be acting on that because creating a market first, there's a couple of customers that have given us offers saying they want to partner with us. Lots of options are always there on the table. We haven't decided or concluded on anything right now. We'll first grow the market, create a volume base separately, and then we'll take a call if we have to set up a unit.
Okay. Thank you so much, sir. That's it from my side. All the best.
Thank you.
Thank you. We have the next question from the line of Manoj Gori from Equirus Securities . Please go ahead.
Good morning, team. Thanks for the opportunity. My question here would be, so rightly said, like, we have been adding new capacities very aggressively. I just want to understand, if you look at. You talked about some new territories and new markets. Can you please highlight what would be the total percentage of the instant coffee, these markets would be having today? Just within the addressable market for yourself.
Today, the total instant coffee market size is about 900,000 tons. This is growing at a pace of about 2.5% year-on-year.
Yes, sir.
Market leader obviously is Nestlé. They've been in this industry for more than 100 years. After Nestlé, in private label, we are the largest manufacturers in the world. Now with these capacities, the next second, I mean, the second private label manufacturer will be about half our capacity, half our existing capacity.
Right. My question was like you just stated about getting into new markets. What would be the size of this market? Probably this would be a new opportunity for us. Just want to understand the bottom of this market.
Yeah.
And the scale of opportunity.
If you talk about actually globally coffee, which is being spread across the world, your developed countries are the main consumers. These developed countries, there's already a lot of suppliers, competition and all that. There are several other countries which are there which have high import duties, restrictions, and because there are no manufacturers locally, all these countries, people are actually paying these duties, taxes and selling it in those local markets. Our idea was if we can actually create a base set of customers in these markets, then it will be justified for us to explore the option of setting up a manufacturing unit. Which is why we're talking to existing brand owners and packagers in these markets who are already buying large volumes.
Right.
If we address this market in the future, it could be a market of maybe even 100,000 tons.
Right. initially we would be supplying from India and Vietnam.
Yes.
Probably once we get that confidence, we would be setting up new capacities.
Exactly. Again, we don't want to take any risk or chances. Unless there is a 100% clear addressable market, we will never take a chance of going in for that expansion. We've always been conservative. How we are being conservative, I know everyone thinks that we're going into aggressive expansion, but from our side we are still being very conservative with whatever we are telling because.
Right.
We don't want to take any unnecessary risk.
Sure. Secondly, if you look at, I mean, you said your new commitments are coming from your existing clients as well. When the instant coffee market is growing roughly around 2.5%, why your clients would be growing at such aggressive, aggressively? Probably they are changing their suppliers and they have more confidence in you, accordingly, you would be having a larger wallet share.
The answer is actually quite simple. Till now our company, we've always been at the absolute bottom of the pyramid with bulk purchasing, basic products. Even if we're doing premium products, we are able to do it at a particular price point, which nobody else can actually come close to. From that, we are changing the entire image of the company. After we got into FMCG products, after we started getting into our own brand and a range of products that we've introduced, even our customers who've seen these products are surprised with the entire range that we have. Now they have that confidence that we've been able to take on the big guys even in India.
Now they have that much more confidence that we can support them in their respective territories, which is why they are coming on board, coming to us. They want to not only work with us, they want to partner with us. After seeing what we have done and also realizing that other companies which are based in, say, Europe, especially with this current situation that is there with energy prices going through the roof and multiple other issues coming up and lot of disruptions being there, they've understood that they need great partners who will be with them throughout. Here we are one of the very few companies that can offer complete solutions. For example, the largest manufacturing country for instant coffee today is still Brazil. The volumes that Brazil does, it's still the largest.
All the Brazilian manufacturers are restricted to use only local raw materials to create products. For us, there is no such restriction. We can buy raw materials from anywhere in the world, in India and in Vietnam. Our range of products will be much wider than what Brazil can offer. If you look at economies of scale, yes, Brazil will be competitive. Once you restrict yourself to only one raw material, 60%- 70% of your product cost depends on the raw material, you are restricting your world a lot. Because the flexibility is what we can provide, we started focusing on that as our strength. Now that we did do small pack and we are state-of-the-art facilities in place, that is giving even customers the confidence.
Customers who thought you will never get these types of qualities anywhere else in the world except Europe, these customers are shocked to find that we have all the requisite certifications. We have all the systems in place. We are doing innovation and R&D constantly. They're surprised that we are doing so much, which is why normally any customers will try us out.
Mm-hmm.
They tried us out last year. They've seen the quality and services and surprised. They're extremely happy, which is why they've given us these kinds of commitments. We are actually in a way, going up that value chain. As we are going up that value chain, it's giving us that much more confidence that we can keep growing in a very sustainable way.
Right. We don't have a commitment, but at least we have a lot of confidence that we'll be able to scale up the utilization rates with the new capacity that we would be adding over the next couple of years?
Actually we have a commitment. It's not only confidence.
Yeah. Yeah.
We have a written commitment from the customer, otherwise we said that we are not going to go ahead.
Right.
After the integration committee only we made the announcement.
Right. For Spray-Dried we have a lot of confidence. We are scaling up.
We have confidence.
Yeah.
With the customers and we know what they're doing, so we were running short of capacity. Our domestic brands are growing. We needed to free up capacity in India also. Strategically, we think we have to achieve the growth rate that we had in mind. We had to take a chance. We had to go and do that expansion. From day one, we are now still running at, I mean, as soon as the company suggested, we also submitted samples to customers. They already started taking approvals also for the new line. That gives us the confidence that whatever numbers we have given, we'll at least stick to that.
Right. From fourth quarter onwards, should we expect like the outsourcing would reduce significantly given Vietnam capacity has started its commercial operations?
Yes, it will. There are a couple of contracts which are still there and, next, five months together. From April onwards, we are hoping it will become zero. As of now, we are still outsourcing a little bit because we already have some commitments and some overbookings and all that. To streamline all that, this quarter also there will be some outsourcing that we will be doing.
Right.
Stabilized and everything has to be done in Vietnam, that will also take some time.
Right. On the Freeze-Dried capacity commitment which we have got from one of the client, so there the margins would be normal as compared to the current volumes, right? Of Freeze-Dried.
It's actually because it's small pack, it's a little better.
Okay.
Again, whatever assumption we take for Vietnam, we look at Vietnam as a complete standalone unit by itself. We're not assuming those additional margins will come in, which is why if anyone asks for a ROCE and all that, we'll just take the most conservative numbers. We will not assume that some additional margins will be attributable to that entity.
Right. Right. Last question,
I'm sorry to interrupt. Sir, I would request you to please rejoin the queue.
Sure.
There are many other participants who are waiting for their turn.
Sure.
Thank you, sir.
Thanks, sir, and wish you all the best.
Yes. Thank you.
We have the next question from the line of Richard D'Souza from SBI Mutual Fund. Please go ahead.
Yeah. Good morning, sir.
Yes, good morning.
Just two questions from my side. What is these new customers who are coming in, and then could you give a color on them, so whether they are established brands or superstores or some departmental stores?
They're actually through one of our existing customers, through sub-customers, I should say. One is an established brand by itself, and another is a big supermarket chain.
Okay. Could you give me the overall picture, Srishant . Could you share what will your presence be among the top 10 consumers of coffee, whether they be brands or whether they be coffee chains or superstores? How much space do you think you have to grow?
Pardon?
Sir, this is... I'm sorry to interrupt. Sir, your voice is muffled. Can you please use your handset to ask the question?
Yeah. I'm sorry.
Thank you.
I was asking that, for special product, what will be your presence among the top 10 consumers of coffee?
Across the world or just talking about India?
Across the world. We are talking about the world.
Apart from Nestlé, whom we are not selling directly to, I think we might be selling indirectly to them. Apart from that, I think almost all the top brands, we are only supplying to. JD is number two in the world. They're our customers. Public information. Strauss is one of our partners for almost 20-odd years. Yeah. Several other customers that would be in the U.S., in U.K., Russia. All the top brands are there. Some of them I can't actually name because of our confidential agreements. Most of these things are there in the public domain also.
Okay.
Within India also, virtually all the partners we are working with. Anyone who's doing coffee, instant coffee especially, there's some connection or the other with us. It could be Sleepy Owl or the Blue Tokai or Rage Coffee, Reliance, Spencer's, Big Bazaar , Private Labels, all of them we are working with.
Good to hear that. How many distributors basically, and then if you take 50-50s [audio distortion]?
I cannot hear you clearly.
Just a moment. Can you hear me now, sir?
Yeah, yeah.
Yeah. Sorry about that. I was asking that now that we are present with most of the top consumers, when we reach our estimated target specifically of 75,000-80,000 over the next three years, what further after that? Because that 75,000-80,000 maybe will be about 7%-8% of the global instant coffee market. How do we envisage growth after that?
One of the things that we've made clear from day one is, we would, we are endeavoring to transition into an FMCG company. We are actively working on, improving our brand presence not only in India, we are looking at, outside India as well. We have a roadmap, planned out, and we are ensuring that we will go to only areas or territories where there is no conflict with our existing customers. A lot of these distributors who've been in the business for several years, they've also expressed interest of placing our products, in those respective countries.
The partners that we've developed, including supermarkets, because of the private label connections we have with them, they've also agreed to place products that are not competing with them directly. We do have a roadmap, planned out, and the next two to three years we're going to do this seeding, and we'll get the result after three years.
Okay. Okay. Okay. One last question from me is on the China market. What is your approach going forward?
China is already supplying to the China market from Vietnam directly. Going forward also we, I mean, we're seriously addressing this market. It's, you know, one of the fastest growing markets, I'd say, for coffee.
Yeah. Could be one of the largest also going ahead?
It is already one of the largest, I'd say. Other countries at least there's a degrowth. Here there's a substantial growth. They buy everything, right? From the cheapest quality to the most expensive quality. It's a very, very wide ranged market and very complex also.
Okay. Could you share the state on, how large is the market right now in China for instant coffee or coffee orders?
Last estimate I saw was 50,000 tons is the capacity or is the consumption taking place, right, 50,000 tons-55,000 tons.
Okay. Okay. Okay, Srishant. Thank you. Thanks a lot to both you and Praveen for the results.
Ladies and gentlemen, if you're using a speakerphone, please pick up your handset while asking your question. This is required to ensure optimum audio quality. Thank you. We have the next question from the line of Akhil Parekh from Centrum Broking. Please go ahead.
Yeah. Thanks for the opportunity. My first question is on the Vithanam FDC plant. I couldn't get the timeline when it will be commercialized, and how are we planning to fund the expansion?
Okay. Vietnam FDC plant will be up and running by FY 2024 to FY 2025, Q3.
3Q, FY 2025?
Yeah.
December 2024 kind of thing.
Yeah. December quarter, in quarter three. Whether December, October or November will have to wait a little bit. The cost of the project is about $50 million. Around $35 million we're looking at as of now.
Okay. Okay. Looking from the previous expansions and the targets we had given for FDC, would it be fair to assume that probably INR 350-odd crore would be peak utilization for this capacity.
INR 350- odd crore would be peak utilization for what?
Sales. Peak sales from the capacity.
From this capacity, yeah.
Yeah.
Again, depends on the raw material prices and all these other factors as well. Assuming, about INR 350 crore is, with current levels, around INR 360 crore is the number.
Okay. Okay. Can you just throw some light on the private label business in terms of the phase where we have reached and, are we on line to achieve the target of 200 million+ of the topline in FY 2023?
Private label business, yeah?
Yeah, the continental coffee brand.
Domestic business.
Domestic brand.
Yeah. Yeah. Sorry. Business continues to grow. This quarter was a little, you know, when compared to the 30%-35% growth that we're achieving. This is a little less growth because we have very safe price increases doing some, you know, putting some stricter financial controls also. You know, YTD growth are intact. We're growing at around 25%. INR 200 crore is what we were looking to achieve. It could be INR 10, INR 20 crore here or there, but in that range we will kind of just like achieve the numbers.
Okay. This is pure.
Like we had said earlier, there could be, you know, INR 10, INR 15 crore up here or there because we are fixing a lot of things in the market. The growth momentum, the growth, the market share gains, all that, is continuing on the same momentum as we were doing.
Sure. Sure. this INR 200 crore is pure domestic, pure brand business, right? 70% would be a brand?
No. Actual we'll do approximately INR 250 crore, out of which INR 70 crore is private label and around INR 175-INR 180 crore. Pure brand business.
Lastly, what's the total debt position right now and the plans of repayment of the debt in the next one, two years?
Sorry, just repeat that.
Total debt position. Total debt position as of.
Total debt position.
Yeah. The plans of repayment.
Yeah. India it was INR 146 crore term loan as of now, and working capital was around INR 420 crore. Our Vietnam, it was $20 million as their term debt, and $15 million is the working capital. It's $35 million is at Vietnam, and here it is around $20 million term debt and around $15 million working capital.
Okay. Of course, obviously this new FDC capacity expansion, another $35 million of debt will be added, right?
Yes. To [audio distortion]
Correct. Plans of repayment of the debt?
It was scheduled to be paid in four years from commencement of operations. That is from December 2025, the repayment for the FD facility starts
Okay. December 2025.
Yeah. 2024 we scheduled, Q3 of 2025 we scheduled it to commence operations. One year is the moratorium. That is December 2025 it commences. From there it goes four years we scheduled the repayment period.
Sure. Sure. Sorry, lastly the cost structure because of this new FDC?
It's too early. It's, I think it is linked with SOFR . SOFR plus, somewhere around, the charge it will vary from bank to bank. Closer to the financial closure we'll be able to come out with it. It will increase all the USD loans with SOFR as you all know.
Okay. Okay. That's all from my side. Unless we should.
Thank you. We have the next question from the line of Amar Maurya from Alpha Accurate Advisors. Please go ahead.
Hello. Hello. Am I audible?
Yes, sir.
Yeah.
Please proceed.
Yeah. sir, thanks a lot for the opportunity. Majority of my questions had been answer. One just clarification. You indicated that this quarter, t he volumes were down because of some issues in India as well as in Vietnam. Are you saying that year-over-year volume would have de-grown?
No, it wouldn't have de-grown. We were low- single- digit is what I mentioned. It's not a de- growth at all. There's no issue. It was a planned shutdown that we took.
I know. I know.
We announced also, and the next quarter because of our enhanced capacity we will catch up with that issue.
Okay. Basically, despite, let's say, you know, low- single- digit kind of a volume growth, EBITDA, overall EBITDA, absolute EBITDA had been, you know, pretty decent, INR 107 crore. Basically, are you saying that then the EBITDA per kg or the realization has improved significantly versus, let's say, the year-over-year?
EBITDA also grew in the same line. The volume grew by single digits. The EBITDA also grew by single digits quarter if you see. There wasn't any change per kilo of EBITDA. It remained the same. Both volume and EBITDA we have always maintained will grow at the same levels.
EBITDA growth, if I'm not wrong, EBITDA growth is around, let's say, 13%.
No. EBITDA growth is around 8%.
Okay.
8%. 8.5% or something like that. Volume growth is, you know, I told you, to low- single- digit. Pretty much both are in line, absolutely in line. That's what we kind of explained that, you know, our EBITDA growth will actually more or less follow the volume growth.
EBITDA growth will more or less follow the volume growth. Okay.
Yes.
Perfect. Thank you.
Thank you. We have the next question from the line of Zubin Pruseth from Ambit Investment Advisors . Please go ahead.
Am I audible?
Sir, there is some background noise. Yes.
Yeah. Sir, I'm sorry, I joined a little late. I just wanted to know for this quarter, what are the utilization levels for Vietnam as well as India, sir? I think so I missed that part when you were asking.
You know, if I had to initially we announced that there was a shutdown at our India plant. Because of trials at Vietnam plants, we lost a few days of the production. That way, if you see our capacity utilization would be around 75% or so. Generally, which is at 85%, 90% because that's the maximum you can go to. That was the, you know, capacity utilization for this quarter. That is of course an aberration because of the shutdown which we had taken.
Right, sir. Sir, if you could just help me with the breakup for Vietnam at least. India, okay, we had shutdown, but for Vietnam.
Vietnam also we had, you know, The commissioning is happening for the new line, no? Additional 16,000 ton capacity line that we have commissioned. Because of that commissioning there is line alignment and all the other things, the alignment which is to be done, which, you know, which will be shut down for around five, six days constantly as well. That is also the volume that we lost. There also the capacity utilization for the current capacity would be at 80%.
Okay. Okay, sir.
Mm-hmm.
That's it, sir. I just wanted to know that. Thanks, sir.
Okay.
Thank you. We have the next question from the line of Rohan Gupta from Nuvama Wealth Management. Please go ahead.
Hi sir. Good morning, and thanks for the opportunity. Question is on our long-term growth potential. As we by FY 2025 probably we will see 65,000-75,000 tons capacity up and running. That will be close to 7%-8% of the world global market. You mentioned that by that time probably the second-largest player will be almost half of our capacity. We will be having a fair larger market share globally, though it will be in a global context, it may be only 7%-8%.
Do you see, sir, that this global market will keep on relying more and more on outsourcing and the market will be getting more and more consolidated in hands of larger player like you, so you can gain more market share and drive the further economies of scale and geographical distribution that you have mentioned that is working in favor for you right now the most? How the market will change, sir, after FY 2025 with some indication?
Coffee market for instant coffee traditionally, apart from, one or two big companies, having their own manufacturing, almost all other companies have realized that brand is where the money really is. They've always been outsourcing. Nobody wants the headache of manufacturing products, creating new products. We just look for the right partner who will create these products. We have positioned ourselves as the right partner for most of these people. It could. Take for example, a few days ago we get this news [audio distortion] are doing really well. Immediately we start getting inquiries from five, six other companies who are interested in introducing their own products. Obviously it doesn't make sense for them to set up their own manufacturing unit.
Benchmarking companies like Blue Tokai, they want to get into the space. They approach a company like us and buy the product. We're one of the only companies that can offer the entire range of products that will actually distinguish themselves from the existing people who are already there in the market. We're creating so many new products in our portfolio
Yes, we can actually offer a wide range of products to customers. We really don't see that changing anytime soon in the international market also. There is a possibility that if a brand is extremely successful, if they feel that the subsidies are getting threatened, they may want to acquire existing factories or want to have their own manufacturing. Till date, we've not seen that happen. We've seen brands with manufacturing selling their manufacturing units or shutting down the manufacturing units because they feel it's easier, much more economical and safer to just procure from existing manufacturers. That is what we see in the global context now.
Sir, you have also mentioned that you have recently got customer confidence or assurance for the lifting almost 50% of the additional capacity which you'll be creating at Vietnam. This is the new customers which you have acquired or this is from the existing set of customers itself which you have got?
As you know, we have partners in different regions. Our partner in one of these regions has acquired two new customers on our behalf. The commitment that we got is from our existing customer, whom we've had a relationship for more than 25 years. The new customer that has acquired, they've given a back-to-back commitment, which is what has been passed on to us automatically.
Okay. Basically, this is coming through a distributor with whom you are already or a partner with. This he has got a new customer.
Yes. It's actually Basically, I wouldn't call this person as a distributor, I'd say partner, because we are genuinely also partnering with this person, with this company. Whoever they've acquired as a customer is basically our customer, whom we have helped them acquire. This is being for multiple reasons, it's being routed through this distributor and partner. They are our first investor here.
Right.
I'm sorry to interrupt, sir. I would request you to please rejoin the queue. There are many other participants. Thank you. We have the next question from the line of Himanshu Nayyar from Systematix Group. Please go ahead.
Hi, thanks for taking my question. Just to understand this quarter a bit better, there's been a sharp jump we have seen in depreciation and interest, and there's been a negative tax number. If you can just explain it, whether this is on account of commissioning of the new Vietnam CapEx or there is a working capital increase element to this as well. Specifically the sharp jump in interest cost for the quarter.
Let's start here. As I explained to you, this is because of working capital utilization has gone up from the previous level. Also, as we all know, the interest, it has been increased for the last almost, as we all witnessed, RBI from 4% repo rate , has gone up to 6.5%, which has reflected in interest rates that are being extended to the bank. Because of the increases and the volume of working capital increase, the interest cost, even finance cost has gone up. Second is, the capitalization of the new under tracking facility has been created in the month of September. Due to that, additional depreciation has come in place.
Okay. On the tax side, if you can explain, I mean, is there any one-off adjustment here?
No. yeah, this is, having specialized, matching facilities, we can claim, we are eligible to claim the additional depreciation, whereby the tax assessed on the MAT rate against [audio distortion] account for the MAT rate, combining the nine month operations, the reflection can be seen that the MAT is more compared with the PBT level.
So, FY 2024, can you guide us broadly what should be a blended tax rate that we should be building in, sir?
It is likely to be somewhere around 18%. For 2023 financial year, we are likely to end up at 18% tax rate and next year we have the MAT credit, we are likely to end up around 22%.
And second and final question would be your medium term volume growth outlook is well understood. But would you want to give any guidance for FY 2024 as such? Because from where I see it given that outsourcing will go down to zero as you said, which will get replaced by new volumes from Vietnam and earlier we had talked about the 50% utilization so that means about 8000 tons. So net-net are we looking at only 5000 tons incremental volume in FY 2024, its about 12%-13% volume growth, is that a fair estimate?
As a group, we've already given an indication for the next, I think remaining this year, 15%-20% volume growth will be there. This year we've actually enhanced that 15%-20% to 20%-22% because of certain plans that we've been coming in from the market. Our initial plan, as I think everyone is already aware, we were looking at doubling our top line, bottom line within four years from what we had told at the beginning of this financial year. As of now we are fully on track for achieving that objective, hopefully a little sooner. I think, as of now we can definitely commit to a 15%-20% volume growth for next year. And we already have commitments in place for about 70% of our target. We have balanced 30% that we have to put in place. During the year, if something changes, we'll obviously keep updating everyone as well.
Understood. Understood.
All right.
Thank you. That's all from me and all the best to you.
Thank you.
Thank you. We have the next question from the line of Vidit Shah from IIFL Securities. Please go ahead.
Hello, sir. thanks. Am I audible?
Yes.
Okay, good. My first question was just a carry forward of from the previous participant. We have Vietnam facilities coming up, and I'm guessing most of this 15%-20% growth would come from that company. Wouldn't the tax rate go down given that Vietnam is at zero tax? Are we starting to see this in Vietnam now?
No, no. I think what Mr. Narayana was giving you was the tax rate for India. If you look at the actual blended tax, it will come down further. You are right, there is still zero tax in Vietnam for us. Even the new facilities will still come under the zero tax as of now. Yeah, the blended tax rate will definitely come down.
Got it. Could you just shed some light on the major difference in cost of production between India and Vietnam? Are they similar? Because we've typically observed that we make better margins in manufacturing out of Vietnam versus India. Is that true and, you know, why is that?
Essentially, if you look at conversion costs, it's more or less comparable between India and Vietnam because electricity, labor, electricity, power, fuel, everything else is comparable. There is a slight advantage that we get in Vietnam because of availability of local raw material and the lack of additional transport cost of bringing it to India. In India we are currently not growing sufficient coffee to cater to the requirement that is there, which is why we're still dependent on imports in India. Vietnam has a substantial amount of raw material.
Vietnam is the largest robusta grower in the world, the second-largest coffee grower in the world. Because you don't have to spend the extra amount of transport, automatically that becomes a cost saving. In the past, in fact, when the transport costs were increasing dramatically, naturally our margins in Vietnam also were significantly higher because that cost was not there.
Got it. Sir, just some timelines on this.
Mr. Shah, I'm sorry to interrupt, sir. I would request you to please raise your hand again.
Okay, thank you.
Thank you. We have the next question from the line of Amol Rao from Kitara Capital . Please go ahead.
Good morning, sir. CapEx in Vietnam at our existing facility at Vietnam or is it a new greenfield?
The same facility.
It's on the same facility.
Yeah.
Do capital costs get lower because we have utilities in place, do we have infrastructure which does contribute to slightly lower setting up cost?
Not really, because, as in the facilities which are common are like office facilities, canteen and all. Also, we have to increase our staff base because the number of people will increase. Freeze-drying is something which needs a little bit more of technical know-how. Our plan, our planning is going to be completely different from what it was for spray-drying. There will, we've factored in all those additional costs, which is why the project cost also is what it is right now. There's no here to interact, in terms of cost savings is going to be there. When we built the SD plant also we've optimized it for the people who are there, for everything. We've optimized everything over there. This, you'll have to factor in all the costs.
Okay. Thank you. Very helpful. Wish you all the best.
Thank you.
Thank you. We have the next question from the line of Sameer Deshpande from Fair Deal Investments . Please go ahead.
Hello. Good morning. We have good results in this quarter. In nine months you mentioned that blended tax rate will be lower. Actually what will be the blended tax rate for the current year as well as next year?
Blended tax rate is likely to be around 12%.
How much?
This will continue even to next year also.
Can you repeat? I couldn't hear.
Tax rate it is at 12%.
Okay.
Yeah, when we get into the FD 56,000 ton, it is likely to go further down.
Okay. That will be quite good because it... Again.
Yeah. Yeah. This city also is going to be conflicted in next year operations. You see the section of the tax base because it will grow much further. It's at 12% level also.
Around 12%.
Yeah.
Regarding this working capital, I think it was mentioned, but can you give me the capital gross debt and net debt as of today?
Working capital at India it was around INR 450 crore.
Okay.
If you term that it was INR 145 crore as of now, it means that INR 595- INR 600 crore almost working capital as well as the complex India. In Vietnam it was $35 million. $20 million is the complex and $15 million is working capital, right? $35 million. It's almost around INR 300 crore. So in Vietnam INR 300, in India it's INR 600 crore, so INR 900 crore, the total debt, term loan as well as the working capital.
Okay. Net debt would be around INR 800.
No, this is debt as of today .
Okay. Thank you and all the best.
Thank you. We have the next question from the line of Devanshu Sampat from YES Securities. Please go ahead. This is Sampat. I have unmuted your line. Kindly proceed with your question. As the current participant is not answering, we move on to the next participant. The question is from the line of Rakesh Wadhwani from Monarch EIF . Please go ahead.
Hi, sir. Thank you for the opportunity. Coming to the debt part, as the green coffee prices are coming down, there will be a lesser debt, lesser working capital debt in the coming years. Is my understanding correct?
Not really because the volume of the operations led to consolidation level, it increased to 30,000 tons capacity, the expanded capacity like coming, come on board in next financial year. It is likely to add some maybe little extent. Because the capacity is from 13,500 tons-30,000 tons it goes, right? 16,500 tons capacity is getting added. Fortunately, even leaving out the causal unaccountable green coffee prices, because of the volume so there is a likely little amount of increase will be there.
Okay. What is the blended rate of interest that we are paying on the debt?
In India it's from term loans to working capital. Working capital, as we all know that there is an increase in the interest rates there. It is running around 6%-6.5% . In Vietnam the rate is linked with so far. As we all know that so far is sitting around 4.6%. Plus the present value is working out around 6.5% there as well.
Okay. Okay. I have one last question from my side. When we look at our growth, it is higher than the overall instant coffee growth globally. You said new customers are coming aboard, the customers are increasing the quantity with us, so they're more confident. Just wanted to understand two things from my side. What is leading more customer to us? Is it because of the cost that we are able to provide them, or is it because of the variety that you mentioned in the call? Who are the customers? Is it brand people are more coming to you or the retail chains are coming up or new startups are coming up? Which, where, in which customer category are we facing more growth? Is it the branded or the distributor or the new startups? Thank you.
It's actually growth across all quarters. When the new customers basically it's nothing, it's more than price. It is the range of products and quality that we are able to offer. The ability to give them all different options.
Okay.
We already have our R&D and everything in place, it's easier for us to supply or give customers what they want. For any other manufacturer normally they'll have standard vanilla type products only for different brands. Here we're talking about having more than 1,000 different products in our portfolio. Each product being unique in nature, we are able to give a customer any quality that they need for any market that they need. Because of prior experience, we know what products work in which market. There are certain products which absolutely cannot work in certain markets at all. All that know-how is helping our customers build sustainable and sustainable brands in that particular region.
Sir, with respect to growth from the customer type, is it a constant, is it same from all the customer or there are particular customer like startups or the retail chains are doing more or is it same?
Startups, number of startups might increase, but the volumes will be very, very, very small. The actual volumes will always be coming from either existing customers, who are decreasing their market share or it will come from new players who are existing brands that want to transition from existing suppliers over to us.
Okay. Okay, sir. That was very helpful. Thank you.
Thank you. We have the next question from the line of Devanshu Sampat from YES Securities. Please go ahead.
Yeah, hi, good morning. Am I audible?
Yes, please proceed.
Yeah. There's two questions. One is on the freight rates. Have they normalized for us? Have they normalized for us at all through higher, or, you know, can we expect some savings going ahead?
They're already normalized now in, especially in this quarter.
Okay.
It's come back to the previous levels.
Okay. Secondly, now with the new FD facility addition, you know, which is obviously a higher value item, and as you mentioned, the commitment for small packs also has been given to the customer. You know there'll be a high utilization of the same. Can you give a sense of kind of EBITDA per kg number now you're working with? Because earlier you mentioned that because of higher, you know, Spray-Dried mix, numbers should not change much. Now is there any number that you're working with for FY 2025, FY 2026, maybe some color on that?
FY 2024, 2025, once that line comes online, 2025, 2026 onwards, definitely we're expecting an improvement in the per kg blend realizations. To be frank, it's very early for us to tell at this point in time what that number is likely to be. There are too many moving parts as of now. Even, like one of the clarifications I've given earlier is the commitment we have from our customer is for 50% of the expanded capacity that we will put online. They're not saying that they want to come only one particular origin or region or anything like that. A good possibility for that volume will be coming from India as well. Some of the other products which are produced in India will be transitioned to Vietnam.
If you want to look at it on a standalone basis, Vietnam unit as a standalone unit, then, we can factor in the additional margins that we'll be getting into that unit. That's why whatever the numbers, whatever ROCE and whatever calculations we are taking, we are always taking the worst-case scenario and then challenging it.
Okay, got it. Thank you and wishing you all the very best.
Yeah. Thank you.
Thank you. We have the next question from the line of Kashyap Javeri from MJ Investments. Please go ahead.
Yeah. Hello. Thank you so much for taking my question. There's just one question from my side. In one of your comments you mentioned that total market for instant coffee is about 900,000 tons. Nestlé, which is growing at about 2.5%, just wanted to check within that 900,000 tons and 2.5% growth, would Nestlé be growing faster than that number or slower than that number?
To be frank, we don't have that kind of data. I know that in certain markets there has been de-growth for them as well, along with all the other brands. In some markets they're in fact having a double-digit growth also. That kind of information is actually kept confidential. It's because Nestlé as a president across multiple countries , it's really difficult for us to really comment on what exactly they are doing.
Okay.
The 2.5% growth I said is not Nestlé growth. I said is the overall instant coffee market growth.
Mm-hmm.
Since they have almost 50% of the market, we cannot immediately talk to-.
Okay.
them about it.
Okay. Okay.
Even if they are talking to them. The 50% share of the market, we won't be significantly above or below it.
Okay. Okay. Okay. Okay, yeah, that's it from my side. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
I just want to thank all the participants, and, yeah, looking forward to talking to all of you again next quarter.
Thank you. On behalf of Nirmal Bang Equities's strategic press conference, thank you for joining us, and you may now disconnect your lines.