Ladies and gentlemen, good day, and welcome to the CCL Products (India) Limited fourth quarter FY 2023 results conference call hosted by Nirmal Bang Equities Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then Zero on a touch-tone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. Abhishek Navalgund from Nirmal Bang Equities. Thank you, and over to you, sir.
Thank you. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited Q4 and Financial Year 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, CFO, Ms. Sridevi Dasari, Company Secretary, and Mr. P.S. Rao, Consultant Company Secretary. Without further ado, I would like to hand over the call to Mr. Praveen for his opening comments, and then we open the floor for question and answer. Thank you, and over to you, sir.
Thank you, Abhishek, and good morning to everybody. Thank you Nirmal Bang Equities for arranging this call, and thank you to all the participants for joining us for this call. I'll briefly read out the results and post which, we'll open the floor for question and answer. As far as quarter four is concerned, the group has achieved a turnover of INR 520 crore for the fourth quarter of 2022/2023 as compared to INR 376.22 crore for the corresponding quarter of the previous year. The net profit stands at INR 85.29 crores as against INR rupees 52.69 crore for the corresponding quarter of the previous year. The EBITDA is INR rupees 115.47 crore, and profit before tax is rupees 94.7 crore.
When we come to the yearly performance on a year-to-year basis, the group has achieved a turnover of INR 2,071.21 crore, so we crossed a milestone of INR 2,000 crore this year, as compared to INR 1,462 crore for the corresponding previous year. The net profit stands at INR 268.87 crore as against INR 204.35 crore for the corresponding previous year. The EBITDA is INR 403 crores, and the profit before tax is INR 305 crore. That was a brief snapshot of the results. I open the floor for question and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press Star and Two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Yeah. Thank you so much, sir, and, you know, congratulations for really great set of numbers. My first question is on, you know, cash flow. Now after, you know, probably two or three years now, we have seen, you know, inventories, you know, coming under control, at operating cash flow level also this has generated a great amount of cash for us. You know, does this now, do you expect this to continue as we go forward? Like you have been highlighting for quite some time, the overall working capital conversion, sorry, cash conversion, the cycle continues to get tighter.
This is Lakshmi here. To answer to your question, the cash flow statement, if you look at it, the best part of our operating cash flows were being used to generate the required working capital. The amount of volume of the business that we were able to achieve within the current financial year almost around 45% growth in terms of the revenue, which proportionately increases the working capital utilization also, and as well as deployment of the maintenance of the working capital changes. Going forward, what are the remaining free cash flows that are going to be available, we are putting it to the ongoing projects and the pre-contract capacities are built.
You know, where we had this issues on inventory side because first, the, you know, Russia-Ukraine war and, you know, then the coffee prices shooting up. Now that the global sourcing lines are sort of more free and the coffee prices have also, you know, come down, ideally, the inventory number should not or rather should remain under control.
The Ukraine-Russia war, it has no impact on the green coffee prices. If you look at it, globally, the green coffee prices are moving upward as of now. The volumes are remain intact due to the increase in the GC price, the green coffee prices, which could makes us to invest more into the operating cash flows into the working capital and the inventories to build up. If you look at the inventories, we don't carry much of the finished goods inventories. We carry the green coffee inventories to take care of any uncertainties into the availability of the product.
Last question is, what is the number of customers that we added this year? New customers.
you know, it's customer expansion is an ongoing process. Every, you know, every day, every month, every quarter, we add the customers. There are some customers who would drop off. Very difficult to kind of, you know, give this number because every quarter, every month these numbers would vary. There are, you know, in every segment we have been on, so maybe geographies we add customers. Sometimes we add customers which are absolutely new. Sometimes we add customers who were previously with us, probably would have dropped off at some stage and again get re-added. That's an ongoing process, Kashyap, and we keep adding new customers all the time.
As we have only maintained for many calls, that if you see there are 50%, 60% of our volumes comes from the existing customers, and the rest of the volumes probably come from, you know, either adding new customers or adding new volume to the existing customers, things like that. That is the, you know, answer from our side.
Okay. You said 70% of the revenues from existing customers and balance should be new customers.
50%-60% from the existing customers and the balance keeps coming from addition. You know, because it's always a, you know, leaking bucket wherein some people will drop off, new people will come in. That's the nature of the business.
Okay. Just one more question. Can you give a break up of the revenue in terms of Europe, CIS, U.S., India and rest of the world?
You know, if I were to tell you, broadly, CIS countries contribute almost to 20%-25% of our, you know, volumes. Europe is anywhere between 12%-15%. That's the break up between CIS and EU. Domestic market included, Asia becomes the largest because a large part of it also goes to domestic market. That's the break up. North America is almost, you know, I mean, 12%-14%. That is North America. If you add up all of these, you'll see that, you know, adds up to 100%. That's the broad break up of the geographies that we operate in.
Right. Thank you so much. I have more questions, but I'll come back on that.
Sure. Sure.
Thank you. Our next question is from the line of Amar Maurya from AlfAccurate Advisors. Please go ahead.
If you can give us a broad, you know, understanding about how had been our volume growth in this quarter and how was the volume growth for the year, and what would be the expectation for the next year in terms of the volume growth, given that, you know, a couple of capacities will be also coming up?
You know, volume growth for the quarter and the year beyond stood at a very, you know, consistent level. We had earlier indicated that we will end the year at around between 20%-25%. We ended close to, you know, a little above 20% volume growth. We got another 20% value clip. If you see our annual turnover growth is around 40%, 41%. The guidance for the next year is also very close to this. We are looking to grow the volumes at around maybe 20% or so, a couple of percentages here or there. That's the guidance we are giving.
This year probably we may not get such a higher clip on the prices because prices, base prices are also pretty high. A lot will depend on how coffee prices move during the year. As we go along, we'll be able to give you sharper guidance on the value growth. Broad volume of guidance is close to 20% for the next year as well.
Okay. Okay. What would be volume growth for this quarter, sir? Around.
This quarter also we are similar. As I told you, because all four quarters were very similar volume growths between 20%-25%. This quarter also the volume growth was close to 20%.
Sir, this Vietnam capacity of 16,000 metric ton, how do we expect the utilization for FY 2024, the new capacity which is coming?
You know, we already started utilizing the new capacity. For the year, if you see the guidance is almost 50% of the new capacity, will be utilized in the current year.
Okay. Perfect, sir. Secondly, next year, one more capacity for Vietnam will also come, right? Another 16,000, correct? No, no.
No, no. By this year end probably, there is one more SD capacity in India, which is 16,000 tons. Next year, next financial year, by quarter two, we will have a freeze-dried capacity in Vietnam, which is close to 5,500 metric tons.
Correct. Okay. Okay. That CapEx basically broadly remain on the track, right?
Yeah, yeah.
We don't see it. Okay. Perfect, sir. Thank you.
Thank you. Thank you.
Thank you. Our next question is from the line of Vidit from IIFL Securities. Please go ahead.
Hi. Thanks for taking my question. Could you just share the capacity utilization that we achieved in the Vietnam capacity in 4Q when it was commissioned? 'Cause it looks like a lot of the growth this quarter has come from Vietnam or from the subsidiary business. Just wanted to get a sense of what has driven this growth in EBITDA, you know, ex Standalone EBITDA.
You're right. A lot, you know, the additional capacity that we got this quarter was because of the expansion that we did in Vietnam. We could utilize certain capacity from Vietnam itself. That is why we got robust growth on this quarter. Which meant that, you know, the EBITDA percentages, the profit at from the NCL unit was very robust this quarter, which added to our, you know, company's growth profile. This was all projected. We had factored all of this in when we had projected a, you know, annual 20% or so volume growth. This was because we knew that the commissioning would happen by the last quarter.
All this growth was factored in. That had led to or driven, a lot of growth for us, in the last quarter.
Okay. What is the capacity utilization across both the countries in India and Vietnam?
If I were to, you know, remove the new capacity because it's only half of the quarter that we used the new capacity, so exact capacity utilization, it would be a wrong picture. Let me, let me break it up. The previous capacity, so that was almost, you know, 100% utilized. When I say 100%, obviously it is not a 100% rated, but we generally would operate between 85% or 90% or so because of the various blends that we use, range over and things like that. Almost all of the capacity was used, the previous capacity was utilized.
This year, from the new capacity, which is 16,000 tons we added in Vietnam, we are looking to utilize 50% capacity out of that 16,000. Another 8,000 or so should get added, and that is what will drive the 20% or so volume growth that we have been talking about for the next year, or I must say, sorry, current year.
. And, in terms of, you know, just overall demand, you know, freeze-dried demand has been under pressure. Do we see this trend changing anytime soon or, you know, these volumes of freeze-dried, freeze-dried and margins continue to be under pressure actually?
I don't think the demand was under pressure ever because, you know, we operate mostly the clients whom we give to because we are doing instant coffee. The large part of consumption of instant coffee is in-home consumption. We haven't seen any contraction in demand. Even during COVID period, we did not see any, you know, contraction of demand. While out-of-home consumption did undergo through a stress, but in-home consumption was always intact. We haven't seen any, you know, contraction in demand. Yes, when the coffee prices went up for a short period of time, freeze-dried, because everything, the prices, you know, went up. There was a little down trading from freeze-dried to, let's say, spray dried, at a consumer level, which led to a little, you know, a little pressure.
What happens at the consumer level over a period of time when the price hike happens, at that moment probably there is a little stress. Over a period of time, we all know as consumers, we kind of accept these price increases over a period of time. That's what has probably happened. We are not seeing any contraction in demand even in the freeze-dried as of now. In fact, our freeze-dried capacity is 100% full for the next one and a half years, and we are seeing pressure of demand from that segment as well. We don't see any, you know, any apparent demand contraction going forward. Unless and until something drastic happens. As of now, we are not seeing any demand contraction.
Okay. Just one data point that if you could share on the retail business, what sort of revenue did it in FY 2023, you know, and what are we projecting going forward?
In FY 2023, we, the whole domestic business crossed a turnover of around INR 50 crore. The pure brand out of this was around close to between INR 150 crore-INR 160 crore, and the rest was bulk and private label. That is there. We are looking to continue the growth momentum we're looking to this year also. We are looking to at least drive a growth of around between anything between 30%-40%. That's what we are aiming for this year as well.
Sorry, I didn't get the number of revenue. Did you say INR 280 crore?
INR 250 crore, I said.
INR 250 crore, of which, INR 50 crore-INR 100 crore was the private label, is it?
No, no. Out of which INR 80 crore-INR 90 crore was, you know, private label and bulk.
Okay.
INR 150- INR 160 crores was pure brands.
Okay. Just one last question, if you may allow.
Mr. Vidit, may we request that you return to the question-
I'll get back in queue. Thanks.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference. Please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our next question is from the line of Mayur Patel from IIFL AMC. Please go ahead.
Yeah. Hi, thanks for the opportunity. you know, can you just share some thoughts around how are you seeing the demand supply, you know, which can lead to the change in the coffee prices going forward? Just adding on to it, our business, as you've always explained in the past, is more of a spread business. There's a 20% plus volume growth expected for the next year. Even if the coffee prices, say, decline theoretically by 15%-20%, we should expect spreads to be maintained in our 20% plus EBITDA growth. Is it a fair expectation?
The second part, I'll answer first, which is the EBITDA spread. You know, as we have always maintained, our EBITDA growth is always in line with our volume growth. Even if the coffee prices fall, if our volume grows are, you know, close to 20%, even our EBITDA will grow at 20%. That, you know, that logic always gets maintained. The only difference that comes is in the in the top line, which is the value numbers. It will all depend on what is the kind of prices there, and we'll add or subtract that kind of prices on our volume growth.
Yes.
That's the only variable factor. Otherwise... Sorry.
Yeah. That's all. This is reassuring. The top line, the EBITDA growth is more important than the top line growth, like you rightly explained. On the first part, if you can just help us just for our understanding, how do you see coffee prices going forward based on demand and supply factors?
I'll just ask, yeah, Srishant to fill in here.
Yeah. As far as coffee prices are concerned, this is actually quite complicated because in fact, the pre-previous estimates that were there was that with the new crop that's coming in Brazil, it's a very good crop, in fact the prices should be going down. Instead what happened is in Vietnam, in Indonesia and other locations, Robusta prices, there's a lot of demand for Robusta also which has increased, which has actually driven the prices upward. When the Arabica prices started going up, automatically there's been some transition towards Robusta, which is why the Robusta also is under pressure. In fact, as of now, we are seeing a kind of like an all-time high prices at this point in time.
We are expecting this to slowly soften once the new crops start coming in from Indonesia and then subsequently from other regions as well.
Okay. This is a pretty good, reassuring. Thanks, Srishant. Just one more question if I can squeeze in. We have seen some good improvement in working capital. Are there more legs to this? Should we expect some more improvement in the next working capital cycle going ahead?
Working capital is one thing. Because the prices are going up and fluctuating the way it is, frankly, it becomes a bit premature for us to comment whether there will be an improvement or not. We've always taken strategic calls based on the market fluctuations. There are times where we find it's more economical to procure the raw material and block our working capital if we feel that the prices are still going to shoot up. Because otherwise the kind of prices that we get, whoever is quoting us, they'll add their working capital cost and then quote to us. This is something that it keeps changing from time to time based on how the markets fluctuate.
Thank you very much. All the best.
Thank you.
Thank you. Our next question is from the line of Nirav Savai from Abakkus AMC. Please go ahead.
Hi. My question is regarding the depreciation part. In this quarter, we have seen a depreciation of about INR 10 crore, versus INR 19 crore, in the previous quarter. Has anything changed there?
So in, uh-
There's a lower depreciation, despite, you know, Vietnam facility, which is commercialized operation this quarter.
This is some of the old assets have been completely depreciated, the new capacity that are coming to operation, it has been capitalized on end of March. That's the reason why you could see the reduction in the depreciation in the current financial year. The next financial year, having capitalized that standard capacity, we will see the more depreciation in the 2023-2024.
Okay. This quarter, the new capacity depreciation hasn't come.
This quarter. Quarter one of 2023-2024, new depreciation, new capacity depreciation will come.
Right. The new expansion which we are doing on the India side, that is expected to commercialize operation in first half or it would be in the second half of FY 2025?
The implementation will be scheduled to close it by end March, this March 2024, and the commercial operations begins in the first quarter of 2024-2025.
Okay. Q1 of FY 2025 it will commercialize operations.
Yes.
The new free trade capacity in Vietnam would be also in FY 2025 or it's gonna be in 2026?
It is in quarter two of 2025, 2023. 2024, 2025 we are likely to complete and having completed the schedule to complete the trial operation. Sometime in 2024, 2025 Financial aid end, we may come into commercialization.
By the fourth quarter of FY 2025?
Yeah, fourth quarter of 2025. The real-time difference of FB will be seen in 2025, 2026 onwards.
Okay, sir. You are saying it will commercialize operation on fourth quarter of 2025, but 2026 Q1 onwards, we will see.
Third quarter of 2025 it will be commercialized.
Okay.
The real time, impact of the new FB facility will be seen from 2025, 2026 onwards.
All right. Got it. That's it. Thank you.
Thank you. Our next question is from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead.
Thank you for the opportunity. Congratulations on healthy set of numbers. Just one question from my side. Could you please help EBITDA per kg for the quarter and for the year overall?
Sorry, Lokesh, couldn't hear you. Can you repeat your question?
Hi. Can you please help with the EBITDA per kg for and overall?
Lokesh, EBITDA per kg did not change much from where we spoke last time. If you were to recollect, because our volume growth and EBITDA growth if you see are pretty much in line, exactly, you know, same per kg profits are there. For spray dried it's in the range of, you know, INR 90-INR 100. For the freeze-dried it is INR 130-INR 140. That continues to remain as it is this year as well.
The 34% increase in our EBITDA, year-over-year this quarter means the volume growth was 34%, this quarter?
You know, just don't go by very, very finer these things. There will be some, you know, some variations and variances up and down. If you were to look at a broad sense, like when you see the annual numbers, you will see that. Because in quarter- to- quarter if you do very, you know, myopic comparisons, you'll start seeing these differences because there are certain, you know, delayed supplies or certain delayed shipments. You know, or, you know, mix changing. A lot of these things happen which kind of, you know, affect the EBITDA per kg. It is best to look at from a long-term perspective. If you see the yearly perspective, exactly the same volume growth and EBITDA growths are there. We said 20%-25%.
Closer to 20% for the volume growth, and so is the EBITDA growth for 21%. Yeah.
Sure, sir.
Broadly, Lokesh, this logic works for us most of the times.
Sure, sir. Understood. One more thing on our branded business, which, if I recollect correctly, could be INR 170-INR 175 crore for the year. Where do you expect this to be in like, let's say FY 227 per se from three-year perspective? You see it growing 30%-40%. Does it mean you want it so anywhere around INR 300 crores or so in three years?
I was expecting that you would ask me this year. You kind of stumped me there with a year of 2027. Yeah. Lokesh, as we've been maintaining, at the start of the year, we had projected something close to INR 170, but we were a little short than that, around close to INR 155-INR 160. As you would recollect, we had mentioned that we are taking a lot of, you know, correction of stocks in the market, financial discipline and things like that. We purposefully kind of, you know, held our primary sales this year. Going forward, but in spite of that, the business grew by 25%.
Going forward, we are maintaining that anything between 30%-35% should be our growth projections for the coming years, at least three years or so. However, as we speak, it's a very dynamic business. Consumer business we are just in the building space, so there could be, you know, quarters or years where it would probably, you know, grow at higher levels or at lower levels will depend on a lot of things. The competition is heating up because we've now got a, you know, a decent share in the market. All that will come into play. We'll keep you informed. At a broader level, you are right. We are looking to kind of grow at this pace of 30%-35% for the next two to three years.
Sure, sir. Understood. Thank you so much. All the best.
Thank you, Lokesh.
Thank you. Our next question is from the line of Dhiral from Phillip Capital PCG. Please go ahead.
Yeah, good afternoon, sir. Thanks for the opportunity. This year we have seen a lower effective rate, you know, tax rate for FY 2023. What could be the run rate for FY 2024 and 2025, sir?
For the lower effective tax rate, there is one reason that the new facility which we have created, packaging and agglomeration facility, that capitalized in the current financial year, thereby we could claim the additional depreciation which leads to the fall under the net comparing with the regular tax in the current financial year. The new year, the current financial year, it is likely to fall around effective tax rate of around 25%.
This is despite Vietnam contribution going up, sir, because this year maybe 20% of growth will be coming from Vietnam facility, right?
It is likely the effective tax rate, if you look at it, one unit in India, it was the full tax rate of 34%, and the second unit is exempted and India, Vietnam operations are exempted. Keeping all these in view, we expect the effective tax rate to fall between 22%-25%.
Okay. Sir, if you can give the overall Vietnam revenue, EBITDA and PAT for the year and change for this fiscal and, you know, unit?
It is a significant contribution to the sales from Vietnam, having completed the expanded capacity. Proportionately, the contribution as well, it will go in the consolidation level.
Okay. Sir, if you can give the data, sir, for the Vietnam overall revenue for the year and EBITDA and the PAT?
The current financial you're talking about?
Yes, FY 2023.
FY 2023, we have around 40% of the total revenue. It is coming from Vietnam operation.
Sir, PAT will be?
Pardon? PAT will be around INR 140 crore.
INR 140 crore. Sir, if I see your other expense, in Q4 was higher by 56% on a YOY basis. Any particular reason for that?
There's no much of increase in the Q4. If you look at it, on the Q4, the expenses are INR 118 crore in Q4 versus INR 107 crore of Q3. There's no much of increase in our expenses.
Sir, on a YOY basis, from 75 went up to 118.
Yeah, on YOY basis, if you look at it, the volume growth, it is almost around 20%. If you look at it, INR 310 crore is our expenses for 2021-2022. Now it's INR 428 crore. If you look at it, around 25% growth, volume growth, that, it will compensate it in terms of the increase in other expenses as well.
Okay. Okay. Thank you so much, sir.
There's no disproportionate increase if you look at it.
Thank you. Our next question is from the line of Aejas Lakhani from UNIFI Capital. Please go ahead.
Yeah. Just wanted to understand that the CapEx for next year and, you know, how you're likely to fund it and how should we expect the debt levels to be in FY 2024, given that you're generating strong cash flows as well.
We know that we are going with a new facility for 15,000 metric tons capacity in India, which is likely to cost around INR 400 crore. Out of that, we are contributing around INR 80 crore from our side, and the balance which is going to be raised in the form of the debt funding. This is what you could see the, in the year 2023, 2024.
Okay. From the INR 900 crore of, you know, debt that is outstanding, is it fair to understand that debt should peak out at INR 1,200 crore? Because you're generating significant operating cash flow as well. I would assume that some of it will come in the form of, you know, that as well.
Yeah. You're right.
A peak debt will not be INR 1,200. It could be much lower because you'll compensate it with a mix of your own cash flows.
That's right. Our cash flows also gets contributed in that, and that position can be seen in terms of working capital utilization part.
Got it. Secondly, in terms of, you know, could you quantify any new, you know, orders that larger orders or any order wins that you know, you're expecting in, or is it just the existing customers giving you incremental volumes or anything new on the anvil?
At any point of time, there are five, six clients in the pipeline. As I was telling earlier as well that it's a, we have a setup where almost 50%-60% of our volumes come from regular business, our regular clients. The rest is almost like a leaking bucket where new clients come in and some of them drop off. That's the nature of the business at this point of time, very difficult to share. We generally don't share. These are confidential information about our clients. We are not supposed to share. At any point of time, as I'm telling you, there are five, six client projects in the pipeline. Some of it materializes, some of it doesn't.
It's an ongoing process that keeps on happening.
Got it. Thanks.
Thank you. Our next question is from the line of Rahul Maheshwari from Ambit Asset Management. Please go ahead.
Thank you so much, sir, excellent set of numbers. Two questions. Primarily, can you give some guidance on the premium products which cold brew products, couple of quarters which you had, given the inquiries were strong enough. How much they are contributing such kind of products? Connected to this, again, a small packaging which we commenced 12,500 tons. What is the color? Can you give some color on that? What is the capacity utilization and how much extra premium can we fetch compared to the bulk products which we are selling?
You know, the niche products, as we may call it, things like cold brews or specialty coffee and things like that, which are premium in nature, will almost contribute 5% to 10% of our volumes. Yeah.
On value terms it can be?
Yeah. You know, volume, if volume is 5%-10%, the value could be 10%-15%. It will give us a higher value realization from the others. That is, that is on the niche and the, you know, premium products, as you may call it. As far as our small pack, capacity utilization, see almost, for the full unit, if you were to see 30% of the capacity utilization happens from the domestic market side because domestic market is only small packs here. We have got another rest 20%-25% coming from the international market. Almost 50%-55% capacity utilization is there. This is when I talk about 3 machines, as we have told earlier also, in a...
there are certain SKUs with capacity utilization is pretty high. For example, if I were to take sachets or pouches, there we are almost in some SKUs, 100% capacity utilization. There are certain SKUs probably where the capacity utilization is 20%. As a whole, we are 50%-60%, you know, at 50%, 60% levels of capacity utilization in the new packing unit.
On the export side, how much, value addition, which we are trying to capture through the small packaging, compared to earlier when we were not having the small packaging unit in terms of realization?
No, we were having a small pack facility, but it was, you know, part of the Dugirala facility. We now created a separate unit altogether so that we can have a full-fledged facility which is state of the art to supply to our clients and also help us get new clients. That is there. As far as margins are concerned, you know, you had asked how much does it give you. Almost 10-15% additional margins we get due to this value addition. That was one of the reasons we had set this up because we thought that if we could provide turnkey solutions to our clients, not only it helps the client, but also helps us earn more margins.
Sure. Just a second question. On U.S., last year we completed almost, just correct me if I'm wrong, 8,000 ton type of capacity. In current year, FY 2023, how much capacity or we have added over there and what is the outlook you are, can you give on the U.S. side? Second thing, or any on the sourcing of green coffee apart from Vietnam, and India, Africa is the market where we are looking at off sourcing of raw materials. Thank you.
Okay, two questions. The first thing is, I think that the U.S. numbers are not correct. We, I don't think so we said 8,000 tons. It was close to 4,000 tons- 5,000 tons. That's the volume we are doing in the U.S. market. We are looking to acquire more clients. As and when we get certain, you know, growth here, we'll keep you informed. That's the level. It's almost, you know, 10% to 12% of, 10% to 15% of our business comes from this market. The second question you asked about coffee sourcing from Africa. We already do a lot of coffee sourcing from some of the African countries like Uganda and all. You know, we, as we have told you, we operate on two things.
Where do we get the coffee at the best price? Second is, depends on the client needs. If the client needs a certain type of coffee to be sourced from a certain origin, we continue to do that. For us, there is no, you know, no binding or no this thing that we have to source from here or there. We do source from African markets as well.
Sir, just connected to this, any, when we are diversifying our sourcing mix, any, realization benefit we get, compared to Vietnam and Africa?
No, not really. Not really. If the realization benefit, you know, you can't say. It really depends on the, at that moment when we are doing or finalizing the deal, you know, which is, where is the place where we are getting the coffee from. It also depends. This is a complex thing. It also depends on the blend, what kind of blend the client wants. If the client wants a certain blend and I know that I can only get this blend from a certain type of coffee, very difficult to kind of go and source from somewhere else. It's a complex situation which, you know, two, three things determine where do we source from. One is blend, of course.
The second is, okay, if the blend we have a provision wherein A type of coffee can be replaced by B type of coffee, then we say, okay, which is the best, you know, pricing that we are getting from which source is the best pricing. All of these factors, you know, come into play. It's a complex thing. There, that is where we develop our, you know, competitive edge from others. That's how we'll keep on operating in the future as well.
Thank you so much, sir, and best wishes. Thanks.
Thank you.
Thank you. Our next question is from the line of Himanshu Nayyar from Systematix. Please go ahead.
Yeah. Hi, sir. Congratulations on a good set of numbers. Firstly, just from this quarter perspective, we see significant divergence in performance in the standalone business and console. India and Vietnam seem to be going in very different paths, especially on the margin front and even on the growth front, where growth in standalone looks much higher. Are both these things just on account of base effect, as in base in India, was lower on the revenue side same time last quarter and similarly on margins, or is there anything more to read into that?
Hi, Himanshu. Three, four things here. Vietnam, of course, the thing got commissioned in March, so we had some volumes of that month to give us that, you know, better growth. Base effect a little bit is there. If you remember last year, last to last year, last quarter, there were certain pre-drive volumes which got a little delayed. That's when Russia-Ukraine war had started. That was supposed to be next quarter, so a little bit of base effect in that. The third thing is that, you know, we have been speaking about this, because of higher demand and our constraint in supplying or producing coffee. We had outsourced coffee also. That also, you know, added to our volumes in the last quarter.
All of them put together has given us growth. Therefore, you'll see good growth here in standalone and as well as in CA.
On the margin front also, if you can explain the significant divergence, as in margins are down sharply in its standalone and up sharply in Vietnam.
You know, outsourcing led to reduced margin in standalone. Vietnam, of course, there won't be much of an increase per se. There could be certain things which would have worked in our favor in terms of, you know, the last month's capacity getting added that would have led to better economies of scale and therefore, you know, better margins there. These are the factors which worked in our favor.
Got it.
Not in our favor in standalone.
Got it. Second bit also on the India business, if you can just give us some updates on the profitability of that business, whether we are starting to make money out there? Any updates, if you can share on our new ventures that we were looking at, I mean, entry into foods, the coffee vending machine business or any other updates you would want to share non-coffee, apart from coffee, whatever we were doing?
Quickly. Here, as I was telling a few moments ago, the India business, we did around INR 250 crore. Out of this, the branded business was INR 150-INR 160 crore. This is approximately 25% growth over last year. We continue to kind of put our bets onto the branded business and look to grow at 13%-35% in the next to three years at a CAGR level. That's the expectation. When it comes to entering into new categories, we already are expanding Continental Greenbird. The sales are right now, you know, slow because of the fact that it's a new category. People are yet learning about the category and the concept.
The good thing is there are some certain pockets where we are getting, you know, nice responses, repeat purchases and all. From a three city, we have now already expanded to six, and we're looking to expand into another three, four cities very soon. As far as some of the other categories, right now, we are focusing on coffee and this, the Continental Greenbird. Yes, in the back end, we are working, evaluating, you know, the categories. We are trying to find out are there some gap areas or spaces for us to enter. All that work is happening in the background. Can't share them right now. At an opportune time, we'll let you know that if there is any plan for us to enter into these categories.
Vending, coffee vending business, yes, we are looking to be aggressive. We are always getting, you know, new clients into our fold. There are many clients who are now. We are, you know, installing machines on a pan-India basis, and these are large clients. There are some tech clients where we are installing almost 500 machines, probably one for the same company across their offices in India. That will be a way we will be aggressively pursuing on. That's the little update on the various things that you had asked for.
On the profitability, if you can just comment also.
On the profitability. As we had told earlier, since last year, on an MIS basis, we have been breaking even. The reason I say MIS because earlier we were working on a transfer pricing basis, and that's the reason we are looking to demerge the company to the parent company so that we have more resources to expand the business. If you were to look at MIS business last year itself, we had made a certain level of profit. This year we have made profits. Going forward, we'll keep on making profits.
The thing is that we are not looking to drive a lot of profits and profit generation from this business because it's a branded business and we do feel that another five to 10 years we need to keep on investing on this business. Especially considering that we are looking to not just sell coffee, but expand into other categories. I'm not seeing a lot of, you know, money generation from this setup. Yes, there will be a certain money generation that will keep happening year-on-year.
Final question on a bookkeeping one. If you can just let us know on the current rate of interest on the expanded debt that we'll be sort of paying post the recent hike in interest rates and the rate of depreciation, if you can just give us a run rate going forward?
The rate of interest towards working capital, it has gone up to an effective tax rate of interest from 200% to 6%. Yeah. As we all know that the inflation prices also have been changed, which are increased so far. That also, earlier it was linked with LIBOR. It has gone up to, from almost around 3% to almost to 7% past 10 years or something. As a whole, if you look at it, around 6% rate is effective interest rate as of now on the working capital. The term loan, it is likely to be somewhere around 8%. We likely to work it out for the capacity that we are likely to engage.
Sorry, you said 8% on the term loan?
Yeah. Coming to the depreciation rates, this will be followed as per the company tax and the effective straight line method of depreciation, it works out around 10%.
The current quarter rate should surely increase from the INR 10 crore that we had this quarter, right, sir?
That's right. The quarter one, with at non-coffee, where we have completed the expansion, increased depreciation will come into force from Q1.
Any number you can let us know as to what should be the run rate now, at least for the next few quarters for depreciation?
Depreciation is likely to increase almost around INR seven and a half crores per quarter.
17.5, you mean. 10 plus seven and a half.
INR 7.5 crore.
Understood.
INR 7.5 crore per quarter.
Got it, sir. That's it from me. Thanks. All the best to the team.
Thank you. Our next question is from the line of Devanshu Sampat from Avendus Wealth. Please go ahead.
Yeah. Hello, sir. Good morning. I just had three questions. Sorry, one second. Your comment on the clients dropping off, right, on a regular basis, 30%, 40%, seems to be a fairly higher number, you know, especially for a business where I would presume the clients to be sticky. Is this churn mainly from the, you know, those, the bulk or the middlemen that we were trying to sort of cut out from? Or can you throw a bit more color on this?
Can you just repeat? I didn't get you. You're asking about 30%, 40% churn of the-
You said, our regular clients are around 50%-60%, you know, that we keep getting our business from. The balance, you know, are people who keep dropping off. This would constitute, you know, what, what set of clients? Are these the, unbranded bulks or the middlemen that we were sort of, you know, catered to?
Let me just kind of rephrase it. When we say 40%, 40% is, you know, like new clients coming in. There are certain dropping in. Sometimes with the old clients itself, from where we get the 50% of the business, we may get orders for new new variants or a new product. Somebody who's buying freeze-dried could end up buying spray- dried and things like that. That is the thing. I don't think it's a pretty high number, because if you see any business, probably this is the kind of churn you will have with the new set of people coming in and the old set of people going out.
Generally speaking, the clients who are the brand owners, they generally don't drop off, because what happens is that we have a very particular blend for them. We have a connectivity with them. They are selling it to the to their consumers, so they don't want to risk any product change or any slight deviation in the product. These are pretty, you know, continuous clients. Ladies and gentlemen, the line for the management has dropped. Please stay connected while we reconnect them. The line for the management is reconnected. You can go ahead.
All right.
Hello?
Yes, sir.
Devanshu, can you hear me now?
Yeah, yeah, I can hear you.
Sorry, I didn't realize when the call got disconnected. I'll just kind of repeat the thing that I was saying. What I was saying is that, you know, the brand owners generally are very sticky with us because they are serving to their consumers. They don't want to take a risk. It's the, you know, people who are traders or middlemen who are buying very base product of coffee, very run-of-the-mill stuff, who are looking for price advantages and looking for, you know, cheaper coffee. These are the people who kind of keep adding in, dropping in. We do have a certain amount of business which keeps coming from them as well.
Of course, these are the people, you know, whenever, wherever they get a price advantage, they kind of keep coming and going. That's the reason I said that it's like a leaking bucket. Most of these people, as you rightly pointed, are like traders and are like, you know, middlemen who are just looking for deals. These people are the people who drop off.
Got it. Got it.
They also keep coming back. It's not that they find that when they are getting lucrative pricing from us, they'll keep coming back and going off. You know, that's 20% of our business is like that, and they keep, it keeps happening all the time.
Okay, that's around 20% of the business. You mentioned this 5%-10% share of value addition that we are doing right now. Can you give a sense on how you see this number going up over a two, three-year period, you know, especially with the discussions you're having with the clients right now? Any sense you can give us?
Yes, there are, you know, in our previous call, we had mentioned that we are commissioning a pilot plant, which is a, you know, small plant which can do small quantities. Generally, till now, we haven't been able to do specialty coffee because of the fact that the MOQs were large, and a lot of clients would look for smaller quantities. With this pilot plant in place, we also participated in some of the specialty coffee fairs in U.S., and there has been a lot of positive response. We are looking to kind of increase this premium and the specialized coffee segment for us. Now, this pilot plant or the mini plant will help us, you know, further strengthen our play into this area. There are talks going on.
We have submitted samples with a lot of clients who were looking for such kind of coffee. As and when they keep materializing, we'll keep informing you.
If and when we do get business from this, will it require us to set up additional capacity or we can service them from what we have now?
No, no, no. Generally, you know, when you, I mean, the specialty clients, coffee, seeking clients, they generally are, need coffee in a... Because it's a premium product, it's a specialty product. It's a niche category, so they need it in small quantities. For which we have made a pilot or a mini plant, which has got, you know, we have now got the capability to make coffee from this mini plant.
Okay. Got it. Got it. This is my last question. Just to get a sense over here, what's the key reason that deals, you know, don't go through when, you know, when you are talking to clients right now? Again, I'm asking from a perspective that, you know, given our scale, our cost advantages and the variety we offer. What are the key issue points that come up usually? Is it payment terms? Is it cost related things? Is it sourcing policies of the companies? You know, if you can throw some color on that.
Many reasons. All of them, I mean all of them, there are certain clients. You know, one of the biggest reasons that deals haven't gone through for us has been our inability to supply the capacity constraint, has been one of the big reasons why some deals haven't gone through. For example, we are, you know, freeze-dried. We are full till next one and a half year. Any new inquiry that comes, we have to say no to it. That's one of the reasons. The other reason is, yes, as you rightly pointed out, price is one of the reasons where deals may not go through. Generally these two are the, you know, primary reasons. Payment terms and conditions rarely are reasons because we are exporting and we would do it on an advanced basis.
Those clients also know and they also accept this fact. These are primary two reasons. I don't see any third reason, because as far as our capabilities are concerned, most of the times, we are always sure, and we have done this also, that there is no issue with making a blend of their choice or packing it in the manner that they want to. All that capability is 100% of there with us. Most of the times these are the two reasons why deals won't go through. Large reasons.
What you're saying is this FD is a key reason, and if you're getting a lot of inquiries over here, is that the capacity that we can get it outsourced or it's mainly spray dry that we outsource?
We can, but you know, once you outsource, you know, the margins get contracted. That's the reason we are building a new freeze-dried capacity in Vietnam, which should be up and running by quarter two, quarter three next year. That will help us kind of, you know, augment our the demand that has been there in the market.
Thank you. Mr. Devanshu, may we request that you return to the question queue for follow-up questions. Our next question is from the line of Rushabh Doshi from Nirmiti Investment Advisors LLP. Please go ahead.
Yeah. Hi. Congrats on a great set of numbers. You know, I just have a broad question. Like, I guess the instant coffee market is around $14 billion. You can correct me if I'm wrong.
Mr. Rushabh, may we request you to use the handset?
Yeah. Sorry. I just had a broad question. Like, I guess the instant coffee market is around $14 billion. I just wanted to understand what is the value addition percentage for, you know, companies like us which are in the processing space? Let's say if the difference between instant coffee retail price and the price at which beans are procured is 100, how much percentage would our value addition be in the total supply chain?
Okay. You know, very broadly, I'll put when you procure green coffee, no? After procurement of green coffee, there are large two costs, or let's say three costs to it. One is the conversion cost. You know, out of a kg of bean you will get a, let's say a 400 g or 375 g or 425 g, depending on the kind of bean you are using and the blend that you are going to make. That is the output. Generally on that green you get this 40%-45% kind of yield. Then you add to it the processing cost of it.
You are, you know, making the whole, you know, process, the bean go through the whole process to come to an instant coffee. Add packaging cost to it and then logistics cost to it. Then you sell it to the brand owners who probably have the, you know, depending on what kind of brand they are selling, they are, you know, they have the ability to, or the strength of the brand. They will price it, maybe, you know, anywhere between 20%, 30%, 40%, 50%, 60%, 70%, maybe sometimes 100% higher than what they buy at. That's the broad value chain that I can explain to you in terms of how, you know, the pricing value chain works in a coffee market.
Okay. For the domestic market, like, how large would the instant coffee market be, or what would our market share be for the branded?
If you take the whole of India, the instant coffee market is around INR 2,500 crore. Yeah. We are doing around, INR 150-INR 60 crore. That is, our market, share. Around 5% or so is our market share.
Okay. Sure. Yeah. That's all from my end. Thank you.
Thank you. Our next question is from the line of Amar Maurya from AlfAccurate Advisors. Please go ahead.
Yeah. Thanks a lot for the opportunity again. Just wanted to understand how should we see the in-interest rate going forward, like, you know, this INR 11 crore run rate which is going on. Should it increase further from here on?
Gentleman, if you look at it, the global market will keep on changing. Nobody should be able to predict how it is going to be. As we are all seeing every month, Fed is acting and everyone is following it up. We really cannot comment upon that where it is, how the interest rates are moving.
This INR 11 crore in near term, do you see is going to increase or decrease?
That's what I told you. No, it all depends on the financial markets are going to reflect upon from time to time.
Okay. I understood that. I'm saying at the current scenario, if, let's say, if everything remains at the stable level, is that a scope from here on to increase or it is gonna remain stable?
It's likely to remain. If it's the rates are going to be unchanged and the rate, the interest volume, absolute volume is remain same. Yeah.
Okay. Okay. Tax rate for next year would be something around 12%, right?
Yeah.
Okay. Perfect, sir.
Thank you. Our next question is from the line of Naitik Mutha from Mahansaria Family Office. Please go ahead.
Hi, congratulations on a great set of numbers. I just wanted to understand, your strategy with respect to, the domestic branded business. I don't see a lot of, INR 1 rupee, INR 2 rupee or INR 10 rupee sachets in terms of coffee, so, nearby. My observation is limited to, Western India. I just wanted to ask, do you actively choose not to do this or we are doing it and I'm not seeing it yet, so?
Yeah. You know, just to give you a little perspective, if you see the Indian coffee market, almost 70% of the market lies in South India. Yeah. One zone almost contributes to 70% of the business.
Mm-hmm.
The rest 30% comes from all the zones put together. Yeah. These zones are pretty, you know, light consumers of coffee because these are tea-drinking consumers, and coffee is not a regular consumption drink, but an off and on consumption drink. What we did is when, four, five years ago, when we were starting our foray into the B2C segment, we concentrated on south of India, because that's where the volume comes from, and we created a distribution setup there. Now that we have got a, you know, foothold in the market and we are seeing that we have got a reasonable market share and there's a traction in the market, we are now extending to other cities.
You know, other city expansion is a challenge in itself because, you know, placement itself is a challenge because you need to reach to these many outlets which are huge in number, and we probably will not have the resource to reach it to so many outlets on our own. The strategy is to go to the, you know, cream layer of outlets, which is to first go to the cream layer of cities and towns, and in these cities and towns, go to the cream layer of outlets. That is how we are going to build our distribution. Again, we are not able...
We will not be able to spend a lot of resource in mass media advertising in North, East and West because it sucks away a lot of money. We'll do a very focused, you know, social media advertising and very, a lot of the brand sales that we are intending to do is from D2C platforms, like our own site, Amazon, Flipkart and BigBasket, et cetera. That's the kind of strategy we are looking to put in place for the rest of the India market. For South market, we continue to build our distribution. Today, we are in around INR 1 lakh, or let's say in South India, we are at 70,000-80,000 outlets.
We are looking to add another 20,000-30,000 this year. That's how we are looking to grow the market in south of India. That's the broad level of, you know, strategy that we will put in place in the coming years.
Right. That's very helpful. Just wanted to ask, we don't do such small sachets as even in South India for that matter, or do we do it?
We are looking to expand the business. You know what happens when a new brand comes into the market, it generally starts from the top. You start from the top, so you're mostly present in the top outlets, the cream layer of outlets, where you sell, you know, large packs, bottle packs and things like that. Now that we are expanding distribution, we are, you know, we'll be expanding into smaller outlets, and therefore our plain sachets and small pack, INR 10 pack, INR 5 pack and things like that, we will increase our play there. We'll also look to wholesale to drive our distribution in these small packs, because a lot of these small packs go through wholesale and indirect distribution. All that work we are intending to do in the coming months and years.
Right. Right. That's very helpful. Thank you. My next question is on the global industry. If you could just lay out what is the size of the global industry for the instant coffee market, where we stand currently, and what is our aspirations at three years and five years down the line?
You know, the global market is, it's a triangulation of data because there's no one set of data which gives you the exact picture. Our understanding is, the global market instant coffee is almost INR 9 lakh metric tons. Yeah. Out of which approximately 50%-60% will be, 50% or so will be by brand owners who have their own captive capacity to feed into. The rest, 50% or so will be left with, you know, the B2B players. Our addressable market is somewhere close to INR 4 lakh-INR 4.5 lakh metric tons, and that is where we stand. If you were to calculate the market share for us, it's close to 7%-8%, you know, maybe a percentage here or there.
That's the broad perspective I can give you on the global market and our standing in the global market.
Right. Any strategy or how do you look at this, three hears, five years down the line? How do you look at ourselves in the global market as a sizable player or how do we think about it?
Yeah. you know, last year when we had put a vision for ourselves and we had put a vision number also, we had said that in four years we are looking to double our volumes. Yeah. The resultant coffee prices will determine what will be our value growth. We are we stuck to that. We are sticking to that projection that we continue to drive, you know, CAGR of approximately 18%-20% volume growth in the four years. one year has already passed, in the next three years this will happen.
you know, if you were to grow at this rate and considering that the world coffee market is growing at single digit, in fact low single digit, we probably will be crossing 10% addressable market share, globally in the next, three, four years. That's where we have set our goals and targets on.
Yeah, sure. That's available. Thank you.
Thank you. Due to time constraint, that was the last question of our question and answer session. I would now like to hand the conference over to the management for closing comments.
Thank you everyone for joining us. Thank you Nirmal Bang for arranging this call. We look forward to meet you again in the next quarter. Thank you.
Thank you. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.