Ladies and gentlemen, good day, and welcome to the CCL Products (India) Limited Q1 FY 2024 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 your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Navalgund from Nirmal Bang Equities. Thank you, and over to you, sir.
Yeah. Thank you, Ryan. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited Q1 FY 2024 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. Lakshminarayanan, CFO; Ms. Srijani Dasari, Company Secretary, and Mr. P.S. Rao, Consultant Company Secretary. Without further ado, I would like to hand over the call to Praveen, sir, for his opening comments, and then we'll open the floor for question and answers. Thank you. Over to you, sir.
Thank you, Abhishek. I welcome you all to this call. Just to give you a small snapshot of the performance in Q1. If we look at the group, the group has achieved a turnover of INR 654.93 crores, which is almost 28.5% growth over last year for the Q1 , as compared to INR 509.28 crores for the corresponding quarter of the previous years. The net profit stands at around INR 60.71, as against INR 52.74, which is the growth of 15.1%. The EBITDA is at INR 106.6 crores, which is also increase of 20%, and profit before tax is INR 69.42 for this quarter.
This is a small snapshot of the performance, and I welcome you, and I open the floor for questions.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on their touchtone 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 comes from the line of Mustafa Arif with Nine Rivers Capital. Please go ahead.
Hi, congratulations on your results, and thank you for the opportunity. I would just like to know, could you please provide us the capacity and the timeline for institution on your, you know, your projects in Krishnampalem and in Tirupati?
Okay. you know, just to add a couple of things here. If you know, last year, March, we added the NCL capacity. From 37,000-38,000 metric ton annual capacity, we moved to around 55,000 tons. Sorry. That plant is fully operational now. The next project, which is the spray dried at Tirupati, that is we are slated to start next year, March, which is like end of this year. Another 16,000 metric tons will be added at that point of time, and that will take us to around 70,000-71,000 metric tons. Subsequently next next year, next financial year, quarter two, which is July, September quarter, we are looking to add another 6,000 metric tons of freeze dried capacity in Vietnam.
That will probably, at a group level, will take us to around 76,000-77,000 metric tons of capacity, both spray dried and freeze dried included.
Thank you. Could you clarify the cost?
Cost at India, it is around INR 400 crores, yeah, the spray dried cost. At Vietnam will also be very similar cost, around $50 million for the freeze-dried capacity.
Great. Thank you. That's all from my end.
Thank you.
Thank you. Our next question comes from the line of Rakesh Wadhwani with Monarch. Please go ahead.
Hi, Chad. Thank you for the opportunity. I just wanted to know, the thought process behind the acquisition that we have done, how we are planning to expand the business, what will be the working capital involved or the CapEx that the firm will be doing for that business? That is first of all from my side.
Okay. Your voice was actually breaking in between, but if I have understood you right, you asked me about the thought process behind the acquisition. If you know, so if you kind of, you know, would have followed us, what we did was five, six years ago, we started to build our own brand, and we launched Continental Coffee in India. After five years of operation, we saw that we have been able to, you know, reasonably create a brand turnover for us, ourselves in India. That's when we kind of, you know, said that we need to take steps forward into our B2C foray, which meant that either we build brands, you know, further strengthen our brands in India-...
launch our brands in other parts of the world, or see if there is some, you know, valuable acquisition that is available. If that is there, it will help us, you know, strengthen our B2C portfolio and our vision to create brands for ourselves. That's when this, you know, acquisition came our way, Percol and Rocket Fuel. These are brands actually, we helped Brian Chapman, who originally started this brand, helped him to create the product profile and launch these brands in the UK market. There was already a connect from our side, as far as these brands were concerned. We thought that it would be a very good opportunity for us to enter into a UK market because this brand is already, you know, already present there.
It has got certain equity there. It will be much easier for us to build this brand, rather than, you know, start from the scratch. That's why we kind of, you know, acquired these brands. As of now, we are working with our partners in UK, which is Sucafina, to, you know, resurrect this brand, relaunch it, and in another, you know, three to four years' time, we are looking to create, you know, probably an INR 100 crore portfolio from these brands in UK. That's the thought process behind the acquisition.
Just wanted to know the revenue from the brand in the last one, two years, what was the revenue they were doing?
Actually, when we bought, the revenue is close to around INR 20 crores, INR 18-20 crores, yeah. That is the revenue that they are doing right now. As I was telling you, in another, you know, 3-5 years, probably, we are looking to scale it up to close to INR 100 crores. Let's see how things, you know, pan out for us in the future.
Just last question from my side. Any reason for not taking the Continental Coffee brand, that is, we sell in the domestic market to the international market? We have already good positioning here, good advertising, good brand image. Reason for not taking the Continental brand there?
Yeah, there's no specific reason. We will take Continental brand to other parts of the world as well. You know, there are certain markets, the very mature markets, especially the European market, the American market, their brand building is a very, very tough exercise. You know, it's very, very resource-consuming. You have to spend a lot to build a brand from the scratch. We weighed our options there, that how do we take it forward? You know, in the long term, probably we could integrate some of these brand into our own brand architecture of Continental. These are all, you know, thought processes that will evolve as we go along, as we see how brands are evolving. Not to say that we don't want to take Continental. We will definitely take Continental as well to a few places outside India as well.
That's it from my side. Thank you. I'll be back. Thank you. Best of luck.
Thank you.
Thank you. Our next question comes from the line of Vidit Shah with IIFL Securities. Please go ahead.
Hi, thanks for taking my question. My first one was around, you know, the margin profile. We saw about 22% console margins, that's fallen to about 16% in 1Q. What's been the key driver? I see that the standalone margins have been somewhat stable, off the standalone business. What's happened in the subsidiaries that has, you know, sort of driven the margins down?
Nothing much, Vidit. Actually, you know, if you see that, we still, you know, like it happened last year also, it looks like the margins have dipped because we are comparing EBITDA to the as a percentage of top line. What is happening is, in both the years, the coffee prices, you know, they are on a rise, and we are getting around 10%-15% higher value for the, for a, like-to-like volume. We still are growing volume at around 18%-20%, which means if you were to see our EBITDA margins per kg of coffee sold remains intact. However, optically, you know, because the coffee prices have gone up and we work on cost-plus model, it looks like the EBITDA margins as a percentage to top line is coming down.
That's nothing, you know, nothing to worry about, because what will happen is that when the coffee prices soften or when they go down, you will see opposite trends. You will see that, you know, the EBITDA margins to top line will start, you know, increasing as well. It is more because of the coffee price, bean price increasing, rather than any efficiency in the operating margins.
Got it. The recently commissioned, you know, capacity in Vietnam, what's the utilization that we are currently operating at?
I'll just break it down into two parts, Vidit. One is, the earlier capacity, which was 13,500 to 14,000. That we are operating at optimum. When I say optimum, it always means around close to 90, 85%-95%, let's say, depending on the kind of product that you are doing. The new capacity, which is around 16,000 tons, that we are operating at 50% capacity as of now.
Okay. Got it. This is likely to go up as the year passes, right?
You know, Vidit, this year we had given a guidance that probably we will, we will, for the full year, we'll get to see, 50% utilization of the new capacity, yeah? Overall, if you add all of them together, probably we'll be at, around, because full of, the thing, so around, 70% odd, of the total capacity at Vietnam, 70%-75%.
Okay, got it. The branded business that we have in India, the B2C business-
Yes.
That is about INR 250 crores of revenue in FY 2023. With the new acquisitions in UK, does the focus shift towards, you know, building that business and this growth profile is likely to slow down in the domestic market, or are we likely to see, you know, 30%-40% growth going forward as well in the domestic business?
Yeah. Vidit, actually, what you said in the second half is right. We are not going to shift any of the focus from one business to the other. Therefore, you know, if you see for the UK business, we have partnered with our longtime partner, Sucafina, who is taking care of a lot of execution for us there. It's only at a strategic level that we are giving our inputs as of now from here. No letup in, you know, push in the domestic business. That will continue to grow at 30%-40%. We'll keep driving it as aggressively as we have been.
Okay. Any pushback that we've seen from customers, from our B2B customers in the UK, given that now we are venturing out in the B2C space out there?
Not really, Vidit. We are actually making sure that we don't kind of, you know, overlap into either, you know, product profiles or territory. That is something we are taking care of, and till now, we haven't seen any sort of any pushback.
Okay, I will get back into you for more, but thanks a lot for these clues.
Sure. Thank you.
Thank you. Our next question comes from the line of Amar Maurya, with AlfAccurate Advisors Private Limited. Please go ahead.
Sir, just if you can, like, you know, I joined the call late. If you can help me understand.
Amar, yeah, I'm sorry to interrupt you there. If you could please use your handset.
Yeah.
The audio is too low.
Is it clear? Hello, can you hear me?
Yes, Amar, please go ahead.
Yeah. Can you help me understand what was the volume growth at an overall level in this quarter?
Around 18%-20%.
Okay. 18%-20%-
Yeah
volume growth.
Yeah.
That means that your EBITDA per ton would have gone down, right? In that case.
No, not really. Not really. If you see, EBITDA growth is also 20% at an overall level. Yeah?
No, I'm talking sequential EBITDA. EBITDA per ton.
No, sequential don't see sequential, you know, because there will be variations in quarter to quarter. There would have been certain things in the last quarter, a type of profile send and all that. That is not a really a good thing to see. I would advise that you see it in a little long periods of time, because, you know, the way the contracts are, you, what happens is that sometimes your higher margin contracts are skewed towards the quarter, sometimes your signal effect makes it getting skewed to certain other quarter. Keeping all that my in mind, I think it's better to see at a long-term perspective. Therefore, you know, to negate the seasonal impact and these quarterly impacts, we generally see at YOY.
If you see that, I think both volume growth and EBITDA are perfectly in line.
Okay. Got that. and secondly, sir, is it like, your Q2 .
Yeah
in terms of your EBITDA per ton, is the best quarter?
No, that we can't say. That again, as I was telling you, just a while away, it will really depend on how the, you know, the orders are scheduled, which quarter, which kind of... You know, in some quarters, suppose I get more of the small pack orders, you know, my EBITDA per kg improve in that quarter, or some quarter, your freeze-dried gets a little more loaded than the other one. All these things will play a role. Difficult to comment. Generally, because of seasonal impact, quarter three and quarter four are generally the a little bigger quarter than the other quarters.
Got that. Got it. Thank you, sir. Thank you.
Thanks.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and one. Our next question comes from the line of Bhavya Sonawala, with Samaasa Capital. Please go ahead.
Yeah, thank you for the opportunity, sir. Am I audible?
Yeah, Bhavya, you're audible.
Yeah. Just one question. I just want to understand, going forward, what kind of opportunity do we have in innovation of new products? I mean, is there some scope for us going forward? Just want to understand on that, those lines.
Yeah, Bhavya, we keep on working on a lot of product innovations, lot of product development. Yeah. We try and keep gauging the market, the trends that are developing in the market. Whether it was, you know, freeze dried at some point of time, whether it was instant cold brew that we developed, and now we are looking to kind of, you know, see if we can do something in specialty coffee. There is a lot of interest around the globe around specialty coffee, specialty instant coffee.
We are working on a lot of projects with a few client of ours to develop the specialty coffee, and that is one of the reasons why we had set up the mini plant, the pilot plant in our premises. That was precisely for this reason that we could do some premium and specialty coffee in small quantities, and, you know, as and when the market demands. A lot of these innovations have been going around. We are doing a lot of work. A lot of details I can't share with you right now, but yes, there is ample and enough work going around all of these.
Okay, that was really helpful. Just I remember three years ago, you had mentioned that cold brew can be a decent opportunity. Any, you know, any thoughts on that?
Yeah, it has been. We have seen a lot of success in instant cold brew. We developed for one client, now we are getting orders from many others as well. That's picking up nice. As I was mentioning to you, right now, we are getting a lot of queries on, you know, specialty coffee, because all the time in any product category, there is a certain trend of moving up the chain, and there's a lot of, you know, interest around these kind of coffees. We are doing a lot of work on that front as well. Cold brew happens to be that innovation has already happened.
It's now more about, you know, us trying to push the product, sell the product, create those success stories for a couple of clients, and then demonstrate to others that this could be a good product for them as well. Yeah, for cold brew, instant cold brew, we will keep trying to penetrate the market, and at the same time, yes, there are product innovations that are going on.
Okay, understood. Just last question, if I may squeeze in. In the domestic market, we have seen a lot of, you know, startups and new age brands come in with in the coffee segment. Trying to understand, how do we work with them? Is it kind of that we go to them with special mixes, or do they come to us having something in mind and we build something for them? How does the business development work at initial stages?
Happens, you know, both ways, Bhavya. Sometimes what happens is that they will come to us, and they would say that they want a certain profile of coffee or they want to do this. They have identified certain, you know, segments, which they want to work on. There are times when they will come back to us, and then there are times when, you know, sometimes people will come to us and say they want to launch something, can we share some product profiles with them or some market understanding?
Work both ways, and that's the reason if you see, for most of these startup guys, we have been, you know, we have been supplying coffee to them and have been the exclusive suppliers to them. Work both ways.
Okay, got it, sir. Thank you so much, and all the best for the future.
Thank you.
Thank you. Our next question comes from the line of Lokesh Maru with Nippon India Mutual Fund. Please go ahead.
Hi. Thank you for the opportunity. Congratulations on healthy set of volume growth, sir. Just wanted one thing on what would be our expected depreciation and interest cost for the year? It was like, let's say depreciation was 22, so is assuming INR 88 crores for the year and assuming INR 60 crores interest cost, is that the right way or may it change?
With regard to this, Lakshman, here, the interest cost, it will be in line with the cost that we incurred for this Q1. It's going to be in a similar way for the remaining Q3 as well.
The same goes for depreciation?
Yes.
Thank you. That's all from my side.
Thank you. Our next question comes from the line of Kashyap Javeri with Emkay Investment Managers. Please go ahead.
Yeah, good morning, sir, and congratulations for a great set of numbers. 2 questions from my side. One, in the brand acquisitions that we have done, what additional investments are we going to do in terms of any working capital? That's question number 1. Second is, what was the gross debt as at the end of 30th of June, in light of the fact that our interest cost quarter-on-quarter has also jumped up by about almost 50%?
I'll just take up the first one, and I'll just ask CFO to give you the details for your second part. On the first part, as far as the investment required, we really won't be requiring any additional working capital investments per se on the acquisitions, because it's an already a running brand. The sales are at around INR 18-20 crores. We are looking to kind of, you know, break even on that business. At best, maybe INR 1 crore here or there probably could be required, which is insignificant, you know, really. There won't be any additional investment that we'll put in into that business. Yeah, I'll ask CFO.
In a question over there, as we go forward, and we look at this inorganic route for the brand business.
Mm-hmm.
should one, what's the strategy there? How much is the cap on what we are going to continue to invest there, if there is any?
You know, difficult to kind of give you a gap or something like that, but as we have been telling you, that see, we entered into brand building business five, six years ago, and what we believe is that we need to, you know, develop this segment, grow aggressively on segment, not only in India, but international markets as well. International market, we had two choices. One is to launch our own brand, and one is to see if there are some valuable acquisitions that is there, because, you know, in some of the mature markets, brand building is an expensive exercise.
Keeping all this in mind, when this acquisition came our way, we thought it's a good, you know, buy for us to start building a brand in U.K. market. That's the reason we went ahead and bought this brand. That is the whole thought process. We haven't put a number to it, that, okay, these are the or these many acquisitions we'll do, or this is the value of acquisitions we'll do. Fundamentally, we were looking to grow organically itself, but since this was a good opportunity that came our way, we thought that it would be a good acquisition that will fit into our scheme of things.
Can this meaningfully add to our debt? See, we are generating about INR 200 crores kind of cash flow a year, and our own manufacturing CapEx requirements are roughly about INR 400 crores, kind of a number each. In light of that, you know, what could be the strategy?
Very, very difficult to say that whether, you know, I would do an acquisition which will add to a debt right now or not. Yes, we will look at the balance sheet, the health of the balance sheet and everything before doing any, you know, big acquisition. I cannot say no to this also, because, you know, this debt will be there for, let's say, next three, four years. Let's say next three, four years later, if something very worthwhile comes in and our debt positions are eased out by that time, by that point of time, there could be a strategy of, you know, doing an acquisition. These are all, you know, these are all things that may come up in the future.
Difficult to comment right now, unless and until... You know, 6 months or 1 year ago, we didn't even think that we would acquire a brand. Yeah. Because the value was good and it was not disturbing the balance sheet, it was in line with our vision, and therefore we went ahead and bought the brand.
Sure. The gross debt number?
Yeah. CFO can just give you that number. Hello, Mr. Lakshminarayanan.
Yeah.
Are you able to hear us?
Oh.
Yeah. Can you give the number?
Yeah, yeah, I can hear you now.
Yeah.
Coming to the debt issue, at the consolidated level, we'll be having a working capital that are for almost around INR 1,000 crores. Around the INR 600 crores, it is going to be at India, and INR 400 crores, it is going to be the subsidiary. That is the working capital side. Coming to the debt component, at the consolidated level, it is going to be at the INR 600 crores. This is what it is going to be on 31st March, 2024.
Sorry, this is as of?
31st March, 2024.
Okay.
At the end of the financial year.
As of today?
As of today, it will be, we have only INR 160 crores is the long-term debt. Around INR 200 crores is the long-term debt, and, around INR 750 crores is the working capital.
Okay. What would be the inventory number, as at the end of the quarter, versus about INR 570?
Inventory number? Yeah, inventory number, we have almost around INR 550 crore.
Okay. It's like stable quarter-on-quarter?
Yes, yes.
Okay, okay. That's it from my side. Thank you so much, sir.
Thank you. Our next question comes from the line of Manoj Gowri with Aquarius Securities. Please go ahead.
Yeah, thanks for the opportunity. Hello, am I audible?
Yeah.
Yeah.
Yeah, yeah, you are audible. Yeah.
Sir, my question here would be, if you look at the healthy volumes that we have been reporting, for a while now. In the current quarter, probably, or probably in FY 2023 as well, what would have been the volume mix with regards to higher wallet share from the older clients? Here, when I say older clients, probably clients which are associated before FY 2021, and probably what would be, the volume mix or probably volume driver, by the new client acquisitions.
Yeah, you know, it's actually a bit of both. There has been volume increase because of the fact that we have been able to sell more to our older clients also, and probably increase our wallet share in their wallet. We also got new clients. Now, it will be, you know, difficult for me to kind of put an exact number to them. Yes, there is a mix of both that has been happening. There is also. You know, what happens is that, it's a continuous process, so there are a lot of new clients that we probably would have developed over the last three, four, five years. Even the volumes with them have grown.
It's kind of, you know, combination of all these three factors that has led to a consistent volume growth over the past few quarters.
Right. Qualitatively, on a softer note or softer aspect, probably, when I look at the company. Obviously, when we are saying about like high teens kind of volume guidance, probably for a few years now.
Mm-hmm.
What would be the driver? Like, what's the pipeline with regards to new client acquisitions? Probably if you look at, what is the scope left from the older clients with regards to higher wallet share. When you look at, obviously, the coffee market is not growing at such an exponential pace.
Mm-hmm.
I just want to understand on the softer aspect, like the quality of volume that we would be driving in the coming years.
Okay, I'll give you a little broad perspective. If you see the, you're absolutely right, the coffee market is growing at a low single-digit. Considering the fact that we are growing at a healthy, double-digit volume growth, it really means that we are actually, you know, gaining shares in the market. Qualitatively, what is helping us gain shares in the market? As I told you, it's like there is a constant acquisition of new clients. There is a constant ability for us to keep supplying more to our old clients, and therefore, increase shares. New clients are also two types. One is that we develop, you know, just let's say, within a period of a year.
There are new clients which probably we have developed over the last 3, 4 years. All of them add to the volume. Let's say, qualitatively, one would ask that what is helping us do this? There are 2, 3 factors which is helping us, you know, gain shares in the market. One is, of course, because as we have, you know, growing big and as we are adding volumes, of course, you know, economies of scale work in our advantage, and therefore, our ability to be very efficient in terms of our cost, that becomes one of the driving factors. The second driving factor is our ability to innovate and be able to give different kinds of products to our clients. That is one more ability.
If you would have kind of, you know, followed our policy, we've always maintained that, we construct our factories in such a way, we have got our R&D, you know, very strong R&D as our backup. All these help us to, you know, gain shares in the market. Just to give you a small, you know, the thing set up, suppose, our old clients. Obviously, a lot of our clients are big into coffee, and they do various kinds of coffee products. If they want a new coffee product to be developed for them, for a new market, let's say, CCL becomes a very obvious choice because of our ability to be able to give the kind of product they want. Yeah.
That's the these are some of the reasons, and of course, our network of our, you know, setups across the globe, our marketing associates. All of these, you know, at a combined level, play a role. Very difficult to say how much percentage one adds to each of these pillars, but yes, as a consolidated thing, when all of these things work, it helps you to get that kind of a working group.
Right, sir. That was very helpful. My second question would be, if you look at probably a few years back, we were very clear that we don't want to get into international market with for branded business. Probably, what led to change of our stance over there and to get into branded business into U.K. market as of now? Probably, would we evaluate other markets as well in the coming years?
Just to kind of, you know, correct the context, but, you know, we never said that we'll never go into the international market. The reason was that at that point of time, we were just beginning to start our own B2C setup, yeah. You know, the whole DNA of a B2C setup, the way the brands are to be, you know, handled and the way brand building happens, it's a completely different ballgame. We were not sure of ourselves that whether we'll be able to do that thing or not. That is why we were not very clear at that point of time, that what route our B2C segment will take.
You know, five years of operation in the Indian market, and we have seen that in these five years, we have become the number three player, and we have created a sustainable business here. That, you know, that led to this thought that if we are doing it in India, why not build our own brands across the globe? Considering that we have a fair bit of knowledge what's happening across the globe as far as coffee is concerned. That's when we said that, okay, whether it is our brands that we may launch in some of the countries across the globe, or if some good acquisitions that come our way, which Percol came our way and we acquired that, we will take that route.
Percol came our way, and we bought that brand, and we thought that U.K. is a good market where we can create our own brand. Coming to your last part of the question, that do we have plans to go to other markets? Yes, we are evaluating as of now, that which are the other markets that we can go into. A lot of thought is being put in, which are good lucrative markets, which segments we can go. Somebody had asked that, you know, whether it is in conflict with our B2B clients. That also, we do evaluate, that we don't kind of, you know, create an overlap with them, with the already existing brands that we supply to.
Keeping all of that in mind, we are, you know, evaluating, and very soon you'll be seeing that we will be kind of, you know, entering some of the markets across the globe with our brands as well.
Sure, sir. One more question, if I may. On the domestic market, obviously, we have done extremely well. Probably, we have, like, there are n number of efforts that we have taken. Where do we stand currently, and probably, what are the untapped areas where we need to focus on going forward? Probably, what would be the target, aspirational target for the branded business, probably from FY 2026, FY 2027 perspective, with regards to sales and EBITDA margin?
Loaded a lot, many things into one, yeah, I'll try and answer them quickly. Domestic market, we continue to apply the pressure. Obviously, once we have created a small base for ourselves, the next set of things is to penetrate the market even further. Like, for example, today, we are presenting in 1 lakh outlet. We are going to probably go to increase it by 30%-40%. Go to around 130,000 to 150,000 outlets this year. That will be, you know, a penetration-driving exercise for us. We are looking to go into many more markets. We have been fairly strong in South....
The other zones are still not as strong, so we kind of build the brand in the other zones as well. As far as, you know, forward, going forward, what it looks like, of course, we are looking to kind of, you know, double this in next 2, 3 years. Let's see how things pan out. Because, you know, this is such a dynamic situation. We are growing. There are a lot of things that are involved in, you know, brand building, right from not only building the brand, but also from a distribution perspective, and things like that. A lot of work is going on, and as we speak, you know, every time we speak something new comes up. There's a lot of action there.
We'll keep updating on that. As far as EBITDA margins are concerned, see, we have broken even last year. Next two, three years, because the kind of aggression that we want to build on and the kind of resources that we want to deploy, we are saying that next two, three years also, we will keep breaking on the EBITDA. Probably not look to milk it right now, but keep investing in brand building. Probably at a later stage when the brand itself is, you know, INR 300-350 crores, that is when we'll start to reevaluate, saying that now do we start, you know, building EBITDA, or we need to, you know, keep investing even more to get aggressive top lines.
All this is that much more dynamic right now, and we'll take it as we go along.
Thanks, sir. This was very helpful. Thanks a lot, and wish you all the best.
Thank you.
Thank you. Our next question comes from the line of Akshay Chheda with Canara Robeco Mutual Fund. Please go ahead.
Yes, sir. Thank you for the opportunity, sir. Two questions. First is that how do you look to ramp up the new facilities that you are going to set up? I mean, the first one is in Vietnam and the second one in India. Would it be at the similar pace, the ones you have done in the past, or would it be a little faster, considering the demand drivers and the demand driver that you spoke in some previous questions? That is the first question. Second is, sir, how is the visibility for the same? These are the two questions. Thank you.
Very simple, you know, first part, we are not looking at, you know, how fast or how slow we did it in past. Forward going, you know, we have given a guidance that for next, 2-3 years, we are looking to drive volumes by, you know, 18%-20%. If you're going to drive volume by 18%-20%, that means that these capacities will be required. In the next, 3-4 years' time, you'll see that this capacity will be probably operating at, between 80%-100%. That is the whole growth objective, and because of that growth objective, we had, we have put the capacity.
That's our guidance, and that is why, the backup for the capacities that have come up.
Okay. order book visibility, if you can put some light, how are you booked?
Order book visibility works like this: Let's say for, let's say, freeze dried. Freeze dried, next almost 1 year, or let's say 1.5 years, we almost sold out. We are booked fully. Spray dried, we generally have, will have varying degrees of visibility. If you look at next 3 months, we have 100% visibility, yeah? Next 6 months, we are approximately at 75% visibility. Next 1 year, we are probably at 50% visibility. That's how, on a rolling basis, it keeps happening, and that's the kind of visibility we generally see. Sometimes, like when there is a higher demand for a certain product type, like a freeze dried, we have a better visibility for next 1.5 years, yeah?
At an overall level, we are seeing this kind of a visibility for ourselves.
When you say this visibility, so is it a confirmed thing?
Yeah. When I say visibility, it is confirmed thing. Yeah.
What happens if the customer doesn't honor it, sir?
No. It's all contracted volumes. It is not, you know, verbal or casual, this thing. These are all, well-contracted, documented, and, this thing. These are not, you know, these are not verbal things or something like that, soft communication. I don't account for any soft communication when I say my next three months visibility is 100%.
Okay, sir. Thank you, sir. This was helpful.
Thank you. Our next question comes from the line of Rohan Gupta with Nuvama. Please go ahead.
Thank you for the opportunity. Sir, couple of questions. First is on our, sir, volume growth guidance. We are still confident about almost double digit, as much as 18%-20% volume growth over the next 3-4 years, and for that we are adequately building the capacities as well. In last 2-3 years, we have seen that definitely in the post-pandemic environment and geopolitical issues, with Russia and Brazil losing the market share, all these things have helped in last 2-3 years to gain the volume growth. Sir, now the world is normalizing and coming back to the earlier level, to the normalcy, with almost the supply chain getting back to the previous level. We are still building a very solid volume growth.
I look at historically, we have never seen a such a volume growth for a longer period, 5-6 years in a row. Just want to understand, what has changed in the global environment that giving us the confidence that we will be continuously able to grow and gain market share globally, significantly, and as far as the volume growth is concerned?
Okay, just on the first part, you know, probably the geopolitical thing, the COVID thing, probably provided some triggers, but they will not be pillars for our volume growth, yeah? The pillars of the volume growth remains the same as I've been mentioning. It's our economies of scale that work in our favor. Yeah. Therefore, it helps you to be competitive in the market. If you see our current volumes, we probably are 8% of the total B2B coffee market, yeah?
When you are at a 1%, you know, market share, you know that and with the kind of abilities that we have, which is about, you know, the strength of volume that we have, we build a lot of economies of scale, the R&D and our ability to give a differentiated coffee and therefore get that competitive edge in the market, our network that we have built over past so many years. All of this put together, you know, gave us that confidence that we probably from an 8% market share, could easily go to 15% market share, yeah?
To fulfill those volume demands of going from 8 to 15, backed on the fact that, you know, our competitive edge in the market, which are multipoled, we were very confident that we will be able to drive such kind of volume growth in the next at least 2 to 3 years.
Sir, we did benefited from the supply restriction from the European market to Russia and gain market there.
Yeah.
We also benefited from the Brazil market losing market share because of the unavailability of coffee.
Yeah
and lower price of their coffee in last two years, two and a half years.
Yeah.
That has really helped us, India, as a country, and we do have a sizable market share, 8% also. That makes us among the leading player globally in this supply chain for the coffee market. I mean, definitely we are aiming 15% market share. That is a very ambitious target, according to me. We are not a small player as far as the global market is concerned and market dynamics are concerned. That's what I wanted to understand.
Yeah.
Is it the customer confidence, customers relying more on us, or we getting to offer them a small, complete back-to-back, complete supply chain, where we are offering them even a small pack solutions and all and everything, is that something changing the business model, which is giving the confidence and also coming from the customer also, that is going to drive this volume growth? That actually was my question.
Yeah. Absolutely. That. You know, when I said that, our ability to be competitive in the market, the edge that we get, it all actually leads to customer confidence, you know. Let's say, during COVID or during geopolitical tension, if that was a trigger, but not everybody, who was situated in, you know, the safer geographies benefited. You know, last year, you know that we kind of, you know, bought coffee from outside and sold it. Which means that the other players were having excess capacity, isn't it? In spite of the fact that they were in a similar situation like us, because they were also in a, in a situation where they could have gained a client.
All of that didn't happen so easily because of the fact that we are able to. Why is the customer confidence very high? The customer confidence is very high because the customer knows that if they have a certain demand, CCL is well poised to commit to that demand and fulfill their demands. All these things. Why CCL is able to commit, fulfill their demands? Because they are very competitive in the market, because they will be able to provide the kind of coffee they want. They will be able to provide small pack, large packs in whatever formats you want. Our ability to deliver anything and everything under the sun gives us that competitive advantage to be, you know, able to gain more and more market share.
You want to say that definitely COVID and geopolitical tension did trigger some increase in volume growth, but now, because the world and the customers have known to our capabilities, the advantage we will continue even in next three to four years in terms of gaining market share?
Yes. Yes.
Sir, irrespective of that, we are now getting vocal about getting into global retail markets as well, where I think that definitely we will be having a conflict of interest. You did touch upon on this part a little bit.
Mm-hmm.
Definitely there will be conflicts of interest in terms of, when we have a retail ambition. Despite that, you see that, there won't be any, re-dialogues or any, complaint from our clients, and because we're getting into the business model of, retail as well as globally, not on just in India?
No, I don't think so. I don't think so, because I told you that we'll be very careful on that front as well. It's not that we are going to tread on somebody's foot, or step on them. Yeah, we have our ambition to build our own brands, to go into retail, and that will continue to focus in a manner that it doesn't conflict, you know, with most of our clients.
Sir, just one more thing.
Yeah. Hello?
Sir, the participant has disconnected his line or has left the question queue. We move on to our next question, which is from the line of Rohan Gupta. Please go ahead. Rohan, you there? Since there is no response, we move on to our next question, which is from the line of Vivek Ganguly with Nine Rivers Capital. Please go ahead.
Thank you for the opportunity. This is regarding the interest and the balance sheet. Historically, you all had an interest rate of about, you know, 3.5%. What is the interest rate that you all are paying now on the outstanding debt? One, and secondly, what is the total outstanding debt as we speak, you know? Q1, and what will it peak at, you know, when the other two new facilities come online? That's all from my side.
Gentlemen, regarding the rate of interest as against the earlier rate of 3%, now, we are witnessing that the rate of interest is going up. Presently, we are paying around 6% is the rate of interest we are paying. Again, it's working capital and then term. Yeah, 6%.
6%, okay.
Yeah. Coming to the debt, as of now, we have a total debt of working capital as well as the term loan at the group level, it is around INR 1,150 crores. When we complete two facilities, one is in India, which is under PCP project deliveries, as well, FC facility in Vietnam, which is with $50 million. The total debt is likely to be around INR 2,000 crores.
2,000?
Yeah. Which includes the working capital, INR 1,050 crores, and the term loan, INR 1,000 crores.
Okay, thank you. That's all from my side.
Thank you. Our next question comes from the line of V.P. Rajesh with Banyan Capital Advisors. Please go ahead.
Hi, thanks for the opportunity. Just a quick follow-up on the 2,000 crore debt number you mentioned. Is it likely to peak out in fiscal year 2025 or even later?
Sorry, not able to hear you properly.
My question was that this INR 2,000 crore of debt, when do you plan to be having this kind of debt? Will it be in fiscal 2025 or in fiscal 2026?
For fiscal 2024, March 2024, it is likely to be working capital plus term loan, it is likely to be around INR 1,750 crores. By year March 2025, it will come down with the additional borrowings to our Non-Coffee Vietnam, it is another INR 300 crores. What I would like to convey is that the 31st March 2024, it was around INR 1,700 crores, and March 2025, it is around INR 2,000 crores.
Okay. March 25, it will get to 2,000 crores, that would be the-
Yes
... peak level of debt, that you have communicated to us.
That's right. You are right.
Okay, understood. My other question was, when both of these capacities are online, let's say 3, 4 years down the road, when you have fully ramped them up, what will be our % of retail revenue in the total revenue?
You know, very, that's a little tight one, because we are kind of taking it both separately. On the retail side, we are saying that we are continuing to grow at 30%- 40%. Considering that the coffee prices have also been growing and we are aggressively growing on the B2B side as well, you know, the resultant percentage is something difficult to difficult to kind of gauge at this point of time, and also probably not a right, you know, matrix at this point of time, because it will all depend on how things go forward from here. Yeah, that's not a number that's not a matrix that we are actually internally looking at. What we are looking at is that in both the segments, how can we grow aggressively?
Right. No, but I'm saying just ballpark, like, for example, if let's say, it was, 20, 30-
No, if the retail, suppose in the next three years, the coffee prices are on the boil and your B2B itself becomes, INR 3,000 and a INR 4,000 crores, and the retail is, INR 600, INR 700, maybe INR 800 crores.
Right.
It's still, you know, at, let's say that is 15%-20%, but really will depend, you know, if the coffee prices soften and that INR 4,000 becomes INR 3,000, and the retail is at INR 1,800. Retail is not led by coffee prices. There, the pricing is very different. It is more, you know, benchmarked with the competition, your price elasticity in the market and things like that. Whereas the B2B is completely, you know, dependent on the coffee prices because of the cost-plus model. Yeah. The resultants could be very different in both these scenarios.
Understood. Thank you. That's, that was very helpful. My other question was that you were talking about your market share, being around 8% or so. Has it been the case that some competitors have, you know, gone bankrupt or moved out of the space, and that's why you are seeing this kind of, superb growth over the last few years?
Uh-
Can you just give a sense of the structure of the industry a bit on the B2B side, that would be helpful.
Yeah. I think that's not the right thing. The competitors haven't gone bankrupt, but what happens is that we'll have two sets of competitors, isn't? There are small competitors and the large ones. Small competitors, obviously, lose out on the, on their ability to service large quantities, their ability to service competitively, and their ability to service on a variety of products, yeah. That is one thing that helps us give that competitive advantage. As far as the large competitors are concerned, again, couple of other things like, you know, our ability to do different types of products.
You know, we have told you, quite a number of times that when we construct our facility, we make sure that, you know, a single machine or a single unit can give me, many kinds of blends, and therefore, our ability to innovate becomes that much more higher. See, a client comes to us with a need, saying that, "I want a certain type of coffee." If you aren't able to deliver that kind of a blend or that kind of a product to him, his confidence in you will go down. That is what CCL builds over a period of time, that confidence and trust amongst, large customers and even the smaller ones, saying that, "Okay, if I were to go to CCL, these guys are going to help me out with the product.
They will be certainly competitive when the pricing is concerned. Of course, to add to it, the kind of network that we have built over the past 25 years does help us in getting new clients or adding more volumes with the already existing clients. All of them combined together, you know, kind of helps us give that competitive advantage.
Understood. Thank you so much. That is all.
Thank you. Our next question comes from the line of Akhil Parekh with Centrum Broking. Please go ahead.
Hi, thanks for the opportunity. I just have one question or other clarification. On the debt part, if I look at last quarter's con call transcript, right, we have categorically mentioned that our debt position at peak level would be INR 1,200 crore, and now we are guiding it for INR 2,000 crore. What has changed, sequentially on a quarter-on-quarter basis that is, leading us to give higher debt guidance? That's all from my side.
Hello. I think,
Hello? Hello.
Yeah, is Lakshminarayan online? He messaged me saying that he's got disconnected. Just can you reconnect with him?
Sir, I'm trying to call him.
Yeah.
Number is not going through. Just give me a moment, sir.
We'll get back to you. I think, sir, Lakshminarayan is not able to connect. We will separately ask Sridevi to connect, you know, separately with him and, you know, address your query.
Sure. No worries. Thank you.
Ladies and gentlemen, we have the line of, Mr. Lakshminarayan connected.
Oh, okay. Akhil, you can go ahead.
No, my question was on the gross debt position, right? Till last quarter, we mentioned that our peak debt levels would be at INR 1,200 crore because of the two capacity expansions which we're doing in India and Vietnam. Now we are guiding for a much higher debt guidance of INR 2,000 crore. What has changed sequentially in last three months? That's my question.
Actually, if you look at it, $35 million, which we are intending to avail funding for our Vietnam operation, which is equivalent to almost INR 300 crores. The second is that increasing the working capital at Vietnam and because of the increase in the capacity from up to 30,000 tons, which calls for additional working capital. Also the increase in the working capital at Indian operations, which counts to by March 2025, the total debt is likely to reach to INR 2,000 crores. That is the reason.
One is almost around INR 400-450 crores is towards working capital, and around INR 300 crores is the term loan that is going to be coming in place in 2024, 2025, which makes the total debt to reach to INR 2,000 crores.
Okay. Okay, this was the same assumptions we had, right? Like last quarter as well. It's quite perplexing actually, why the debt position-
No, working capital, we need to count on the working capital increase and which is coming up now almost around INR 500 crores.
When we reach INR 2,000 crore of debt, what would be the working capital debt and what would be the long-term debt?
It is around INR 1,050 crores. INR 1,000 crores is going to be the long-term debt and INR 1,000 crores is going to be the working capital at the group level.
Okay. Okay, that's all from my side. Thank you.
Thank you. Our next question comes from the line of Dhiral with PhillipCapital. Please go ahead.
Yeah, good afternoon, sir. Thanks for the opportunity. What was the branded revenue business that we did in Q1 FY 2024?
In Q1 this year, we did a total business of around INR 65 crore, out of which around INR 40 crore will be branded business.
Okay. What was the utilization of the domestic facility, spray dried and freeze dried in Q1?
Full.
Okay, 85%-90%.
Yeah. When we say full, actually close to 90%.
Okay. sir, lastly, on the, again, on the debt part, at INR 2,000 crore kind of, you know, debt, what kind of interest outflow, you know, we can consider?
On an average, you can take it at 6%.
Okay, around INR 120 crore.
Yeah. That's March 25, if you look at the end financial year 2025.
Okay. Okay, okay. Got your point, sir. Thank you so much, sir.
Thank you. Our next question comes from the line of Nirav Savai with Abakkus AMC. Please go ahead.
Thanks for the opportunity. My question is regarding this gross margin contraction, which we have seen in subsidiary companies. What has led to it, and how do we see this going forward, particularly on the Vietnam side?
You know, again, at the cost of repeating, this is actually not contraction, because when we do cost-plus model with around 10%-15%, or so higher coffee prices leads to higher top line. If you see our volume growth is, let's say, 18%-20%, our top line is 28%. Yeah. There is at an overall level. What happens is that optically, as a percentage to top line, your EBITDA margin seems to have dropped. If you look at your per kg EBITDA, which is top line growth over EBITDA growth, if you see, both are in line, both are close to 20%, which means that EBITDA per kg is the same that we have been getting over the previous periods.
Okay. Indian operations, we don't see a big change. It is more on the Vietnam operations where, you know.
You know, again.
Contracted more.
There will be, you know, variations because of the kind of products that you did in a quarter or a kind of sales that you did in a quarter. A lot of things goes into it. Very difficult to, you know, threadbare decode it in the sense that did it happen because of lack of efficiencies, or did it happen because of lack of, or, you know, the kind of products that you sold and things like that. What I would say, and therefore, is that at a consolidated level, at a longer period level, if you were to see our volume growth and our EBITDA growth will be in line, meaning that the efficiencies are on track.
Right. Got it. That's it from us, sir. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for joining the call, and thank you, Nirmal Bang, for organizing the call. We look forward to meeting you all after the second quarter. Thank you.
Thank you.
If at all there is any other questions, please, you can reach directly to us. Send an email and we'll be happy to address your queries.
Thank you. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.