Ladies and gentlemen, good day, and welcome to CCL Products (India) Limited Q1 FY2022 Earnings Conference Call hosted by Antique Stock Broking. I would now like to hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you, and over to you, sir.
Thank you, Janice. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of CCL Products. I hope everyone is safe and healthy. From the management, we have Mr. Challa Srishant, Managing Director, Mr. B. Mohan Krishna, Whole Time Director, Mr. K. V. L. N. Sarma , Chief Operating Officer, Mr. V. Lakshmi Narayana, CFO, Mr. P.S. Rao, Consultant Company Secretary, Ms. Sridevi Dasari, Company Secretary, and Mr. Praveen Jaipuriar, CEO, Continental Coffee Private Limited on the call. Without further ado, I would like to hand over the call to Srishant for opening comments, after which we will open the floor for Q&A. Thank you, over to you, Srishant.
Yeah. Thank you, Manish. Good evening, everyone. The group has achieved a turnover of INR 326 crores for the first quarter of 2021/2022, as compared to INR 289 crores for the corresponding quarter of the previous year. The net profit is INR 43.84 crores as against INR 38.48 crores for the corresponding quarter of the previous year. The EBITDA is INR 72.09 crores, and profit before tax is INR 53.74 crores. We can go ahead with all the questions.
Sir, can we open the call for Q&A session now?
Yes, please.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. We take the first question from the line of Kaushal Shah from Dhanki Securities. Please go ahead.
Thank you very much, sir, for the opportunity. Sir, if you can share the first quarter capacity utilization of our FD, the Duggirala and the Vietnam.
No. In Vietnam, there is no freeze-dried capacity. In India, we have the capacity utilization was in the center of about 70%.
This is FD or this is for Duggirala also?
Duggirala and our FD put together. We take FD capacity as a combined capacity only. There is no FD capacity in Vietnam. In India, our first quarter capacity utilization was in the range of about 68%+ or so. You can take approximately 70%.
Right. In Vietnam, sir, what was the number?
Vietnam, there is no freeze-drying.
No, not freeze-dried. Just spray-dried.
Vietnam is operating at 80% utilization.
Right. Sir, in India, the spray-dried division, what was the utilization there?
In India also, in the first quarter, it is about 65%-70%.
All right. Sir, some thoughts on your possible guidance or you had, I think, in the last call indicated that we could possibly be between 12% and 15% volume growth in the current year. Now that about four months have passed, would you like to make some comments on that number, maybe revise it upwards or downwards? How do you see the volumes for the current year?
No. We can give a broadly better figure after the second quarter. Perhaps for the current, we will retain the same figure.
Right. One last question on the CapEx front, I mean, how much have we done? Have we started work already on Vietnam for the expansion and also on the small packs? What is the update there?
Small pack capacity is coming closer. Perhaps we would be going into commercial production somewhere second part of August onwards. Vietnam, the line balancing part is complete. It is yet to be commercialized. We are working on matching the projects that are there on hand. Commercialization has not yet taken place, but the trial runs have been started. On the expansion part, doubling the capacity, in fact, it is still in paperwork, but next month or so, we will start issuing purchase orders and initiate the actual implementation process.
Sure. That's it for now. I'll come back if there's anything. Thank you.
Yes. Thank you, sir.
Thank you. The next question is from the line of Sameer Deshpande from Fairdeal Investments. Please go ahead.
Good afternoon, sir. Congratulations for good results. Actually, I wanted to know, we are getting lot of news about this Brazil crop and the frost there. I think we consume over 90% of Robusta coffee as our raw material. When the prices of this Robusta, other coffees go up, what will be the effect on our operations and our profitability?
Hello.
Hello.
Yes. First, Brazil mainly grows Arabica, and it's 70% Arabica and 30% of Robusta. The maximum area that has been impacted is the Arabica growing region. What is happening is this Arabica coffee has been majorly impacted by f rost. The Robusta prices have not gone up in the same line as the Arabica prices. Robusta prices have also gone up, but not along the same lines as Arabica. Now the gap between Arabica and Robusta is a little higher right now.
I see. We consume maximum Robusta?
Yeah, we consume maximum Robusta. Less than 10% of what we do is with Arabica.
I see. 90% is, mainly we are using the Robusta only. There may not be a big effect on whatever. We can pass it on.
Yes. You see, our nature of business also, as you are already aware, we do on a back-to-back basis. Whatever we sell, we cover the coffee immediately. We get delivered on a staggered basis accordingly.
I see. Okay. That will help us. For the gross margins, in this quarter were around 50% compared to the March quarter of about 58.7%. Is it the seasonal effect? Because last year it was 45%, this year it is 50%.
Yeah.
Now it is around 59.
Yes. This coffee is a seasonal business. Normally, quarter three and quarter four will be significantly better than one and two.
On the export front, we earlier had problems of this container, et cetera, some logistics issues, et cetera. Have they been resolved or they continue to be there?
Actually, the problems are still there. It hasn't been fully resolved. The freight rates are very high. All those issues are still there. In spite of those issues, we are still managing to push through.
Okay. Thank you and all the best.
Yeah. Thank you.
Thank you. We take the next question from the line of Shanti Patel from Shanti Patel Investment. Please go ahead.
Good evening, sir. My question is, taking into consideration all the factors, what will be the return on capital employed and return on equity as on 31st March 2022 and 2023? It is a rough idea. I don't insist on it. That is question number one. Should I go ahead or will you answer and then I ask the question?
Just one question.
Sorry. Yeah.
Return on capital employed, it is 14.72%.
Return on equity?
Pardon? The return on capital employed
Return on equity.
Return on equity is 15.12%.
As on 31st March?
30th June, current quarter ending.
Oh, I see. Current. Do you think it will go up as on 31st March 2022?
It is likely to have slight improvement.
I see. Second question is, what is the difference in the price of Arabica and Robusta two months before and today?
The movement of Robusta in the last two months has been steep. It was about INR 1,300-INR 1,400 two months ago. It has increased to ±INR 1,900 as of now.
Your Robusta?
This is Robusta.
Arabica?
Arabica, the movement has been slightly lesser. It started from around INR 2,300 earlier. INR 2,300 now, and it was about INR 1,600 earlier.
No, the damage is in respect of Arabica, right?
No.
Arabica?
Yeah. The Brazil problem is in Arabica only predominantly.
Correct. It's likely the price will go up as far as that particular item is concerned. Correct?
The probability of going up is very high. Whatever contracts we'll be doing, we'll be doing at this price right now.
Okay. Thank you, sir.
Thank you. Reminder to the participants, if you have a question, please press star then one. The next question is from the line of Manoj Gori from Equirus Securities . Please go ahead.
Yeah, thanks for the opportunity, sir. My question would be that going forward, at least for three to six months, you would be having better visibility in terms of order execution and y ou would have already secured these orders at a lower price. If you look at now, going forward, whatever new orders you would be taking, that would be at higher price. Can you just give some flavor, like when the exact impact of rising coffee prices would be visible in P&L?
Broadly, one thing is when there is an increase in inflationary trend in prices, there will not be too many orders that will be coming in. For us, there will be a visibility of six months clearly. If we are doing orders right now with these prices, the visibility should come somewhere in last quarter, second month or last quarter part of this year.
Is this understanding correct that during Q2 or probably during Q3 as well, the value growth won't be following the current increase in coffee prices, and it should be similar to what we were saying during Q1 of fiscal 2022.
Normally, yes, we should adjust it to some urgent requirements of the customers who may want immediate supplies for replenishment. Generally, that is so, it will not exactly match. There may be some variations because of the immediate requirements of the customers.
Right. This is just for the sake of our investor point of view. That while building any assumptions in those future quarters, should we take any significant value growth apart from volume growth or just on the basis of prices, not on the basis of product mix?
Broadly, if you see, the price increase should not greatly affect our operations either side. Since we will be covering our margins despite increase in prices, so though there is a slight variation-
I do understand your business model, and I completely agree that you cover your raw material prices. It was just only for the sake of whether your top-line performance would be faster.
Yes, top-line part, you can expect that it would go up.
Okay. That should be going on from Q2 onwards to Q3.
That should be somewhere from Q4 onwards.
Okay. Got it, sir. Just normally we work on, like there would be two sets of books that we would be working on, say, EBITDA basis, whereas for most of the clients we are working on EBITDA margin basis. Is that understanding correct?
Your voice is not clear.
I actually meant for few of the clients we would be working on, say, EBITDA per kg basis, whereas for a few clients we would be working on EBITDA margin basis. Most of the clients we are working on margin basis.
Broadly, it will be percentage basis only on a broader perspective. Because of these variations in the coffee prices, we do not exactly go by the margins. We try to cover our EBITDA margins on absolute number basis only.
On absolute number basis. Optically, probably, the margin might come home optically, but there won't be any change in profitability or the volume front.
Correct. If you are comparing on a percentage basis, then it looks like it.
Yes, sir. Got it, sir. Thanks a lot, sir, and wish you all the best.
Thank you.
Thank you. The next question is from the line of Harsh Sheth from HDFC Securities. Please go ahead. Mr. Sheth, I see that your line is unmuted. You may please go ahead with your question. As there is no response from the current participant, we take the next question from the line of Abhijit Akella from IIFL Securities. Please go ahead.
Good afternoon, everyone. Thanks so much for taking my question. Just one clarification first on the gross margin shift that we've seen quarter-on-quarter from March to June. Should we understand that it's largely because of shift in product mix? Is there some other factor? Could it be the higher raw material cost which has been passed through, therefore on a percentage margin, the gross margin looks lower?
No, you are right. It is only variation in the product mix only.
Okay. Is it freeze-dried coming down, sir, mostly, or any other items also shifting around?
Last year, last quarter, there was a mix of freeze-dried, and most of it was only small packs. Small packs requirement will come only towards the third and fourth quarter. In the first quarter, when there is a reduction in small packs, obviously the top line would be lower and gross margin looks like it will come down.
Okay, understood. On the volume performance in the quarter, was it broadly in line with our expectations or were there any sort of hurdles we hit?
No, quarter one was very much in line with the expectations.
Thank you. Okay, great. Just one last thing, sir. Is it possible to broadly give us a sense of year-over-year out of the revenue growth, how much would be roughly price change, if at all, and how much would be volume change?
This is too premature to give it now. We will compare this aspect somewhere around end of third quarter or fourth quarter.
Okay, fine. Thank you so much. Wish you all the best.
Thank you.
Thank you. The next question is from the line of Himanshu from YES Securities. Please go ahead.
Hi, team. Good afternoon, and thanks for the opportunity. First question would be on the India branded business, if we can have some more details as to how we are doing there, and especially with respect to the entry of a new player in that market. How do we see that business and the growth out there going ahead?
On the domestic front, in the first quarter, we grew by almost 50%, 48% to be precise. The growth is on track. We are ourselves a new player in the market. Really, we are not big enough that any new entry or any other new player will affect us because we are ourselves trying to grow. New entries are generally not a threat to us at this stage, at least.
What sort of growth would we be targeting for the year?
We were targeting similar growth. Very difficult to assess in the first quarter because first quarter is the leanest of the quarter, and you know that this quarter was hampered quite a bit by the second wave. Difficult to judge whether a 48% growth is a good enough growth. We could have got more or less. Considering the fact that this quarter was very deeply impacted because of the second wave, I think this is a commendable performance, and we will continue. This is on track with our expectations wherever we wanted to reach.
Understood. Second question for the team would be on the MEIS, the subsidy overdues. I think there was some amount overdue. When are we expecting to realize that? Secondly, any update you can give on the RoDTEP scheme, I mean, whether we know now how much of benefits we can get or nothing at all. Any color on this would be appreciated.
There is no indication on the new scheme being applicable to us and that we will be able to get any benefit out of that. On the MEIS, in the current quarter, we received about INR 6 crores out of the accumulated figure of those INR 28 crores. When we will realize, we do not know. We are making an application. We have made an application, and the licenses have to be cleared.
Okay. Understood, sir. My final question, maybe Srishant could address this. I mean, if you can talk about the performance of some of our new premium products that we were trying in the developed market, especially U.S. Any further updates you can give or how our new premium or value-added products are doing, especially in our key focus markets and any new client breakthroughs, if we've been able to get any?
As far as products are concerned, the new introductions are actually doing quite well. U.S. response has been good and consistent, and the volumes are growing there. Thanks to the track record that we have already built up, now there is a lot of interest that is getting generated in other countries as well. Most of the countries across the world, they just try to copy whatever is being done in the U.S. That interest has started getting generated in Europe as well as in the Asian markets also. We'll be slowly introducing these products in these markets as well.
Any new client additions that you can talk about? Any significant ones, even?
We keep adding new clients all the time. You're asking if there's another major volume client that has been added. Not yet. Right now, we are in the process of transitioning one particular customer. That will take some time.
Understood. Sorry, just one final clarification on this quarter's performance. I believe last few quarters, we were running at a very high, almost full utilization of Vietnam while this has fallen to 80% this time. Just wanted to understand, even in India, the utilization is at 65%-70%. Just wanted to understand whether this is on account of demand issue, where the clients have postponed a few orders, or this is on account of logistics issues where some shipments were stuck. How do we explain this dip in overall utilization levels?
I mean, 80%, 85% is considered to be the optimum utilization figures. In Vietnam, the plant is running to the optimum utilization level only. Coming to India, it depends on the product mix. There are some premium products, there are some other products which will have a lower productivity but better realizations. When we are producing these products, on a volume basis, the number might come down, but on a financial parameter, it will be equivalent. There is no recognizable reduction in utilizations during this quarter, that way.
Okay. Got it, sir. That's it from my side, sir. Thanks and all the best.
Thank you. The next question is from the line of Harsh Sheth from HDFC Securities. Please go ahead.
Good afternoon. Thanks for the opportunity. Just couple of questions, specifically on our U.S. business. On U.S. front with widening gap between Arabica and Robusta prices, coupled with Brazilian suppliers likely to be affected this time, do we sense an opportunity to make quick market share gains over our Brazilian counterparts and developing or establishing our base there?
Actually, yes, we are. In fact, because of the situation which is there in Brazil, there is an opportunity for us to grow further volumes in the U.S., and we are capitalizing on that. This year itself, we are seeing almost a 20%-25% increase in our volumes in the U.S. market alone.
All right. If I'm not wrong, U.S. is 10% of our top line. How do we expect our geographical mix to change going forward? Any comment on that?
More or less, it's going to be the same the way it used to be. Little bit percentage changes here and there will be there. As you rightly said, 10% is what we were doing in the U.S. That may go up by a few percentage points, but that hardly matters.
All right. Sir, if possible, could you please share the breakup between bulk and packaged products for U.S. specifically? I think bulk would be more. Is that right?
Yes. Around 95% is bulk in the U.S., and around 5% is small packs of what we do. Going forward, we are looking at increasing more of small packs in the U.S. That's a more long-term plan that we have to increase the small packs in the U.S.
With economy opening up, how is the institutional business in U.S. faring? Are we seeing a good bit of traction in new order bookings?
Actually, U.S., they really didn't follow the lockdowns like some other countries. The market was open for most of the duration, in fact. Institution sales, all that is more or less the same. Right now, we're just taking advantage of the fact that Brazil, the green coffee prices are going up significantly. There is a demand from customers to transition to alternate options. That's what we are capitalizing on right now.
All right. Just one last question. In last month, or more so specifically last fortnight, have you seen a slowdown in our order booking? Do we expect a slight bit of delay going forward given the super inflation that we're witnessing? Also from a past experience, sir, if you could help us understand how do we expect the broader industry to shape up given the calamity of this sort?
First, we have to understand that when the prices started going up, we've in fact seen the opposite. We've seen panic buying taking place, customers giving us confirmation three, four months before they would normally give a confirmation, because nobody wanted to take a risk. They saw in the last two months the prices were going up and they were not coming down. The news was quite clear that with the frost issue, the prices will remain high and there's going to be a deeper impact in the crop for the next two years. I think more or less in the industry, people are not expecting the prices to go back to the levels that were there last year and the year before that. That's one reason.
During this transition time when the prices were going up, we've seen a phenomenal amount of order confirmations in the last couple of months itself. That's also one of the reasons why we were very confident with our guidance for the year as well.
All right. That was really helpful. That's it for now. I'll join back in queue. Thank you.
Thank you. We take the next question from the line of Amit Zade from Antique Stock Broking. Please go ahead.
Good evening to you, and thanks for the opportunity. My first question was on our CapEx guidance of doubling the capacity in Vietnam. I think we had said that we could start in a couple of months. What could be the timeline of the same, and by when could we complete the doubling of the capacity in Vietnam and the CapEx it would incur? Number one. Second question is there any risk coming from COVID third wave in Vietnam? Because there was some surge in Southeast Asian countries. Is there a risk to Vietnam as such or our operations in Vietnam?
First thing is, we will be starting the implementation of the expansion from around September, October this year, and it should take at least one year henceforth. Next September, October, we can expect that we can complete the expansion part. Secondly, talking about the COVID impact. In fact, as we are speaking there is an impact in COVID in Vietnam, particularly the city which we are in, Buon Ma Thuot City, and in even Cư Kuin District in which our factory is there. We are taking special permission and trying to run the show. If things get worse, we do not know. That we are making a risk assessment and trying to work out alternatives. Even as we are speaking right now also, there are lockdown restrictions in the area in which we are operating. We are trying to maintain the operations as of now.
Okay, got it. Would it be possible for us to source orders from India in case if the case worsens in Vietnam?
In Vietnam, we are in a backward area, and the government also is very keen on running the factories and other establishments. They are giving all kinds of cooperation to enable running the factories. In fact, they have given special permissions for transport of our goods and our incoming material and outgoing material. As also they have permitted specifically our staff, with, of course, due restrictions and due precautions being taken. There is, in fact, more encouragement from the government itself to run the factories. With that kind of support, we are expecting that we should be able to run the factory. Of course, there are a few products which we can interchange between India and Vietnam. In India, we have not gone in for any expansion in the last three, four years, and we are almost at optimum utilization in Indian freeze-dried capacity.
We will make an effort to run the factory at Vietnam with the government's support.
Okay, sir. That was really helpful, sir. Thanks a lot.
Thank you. Reminder to the participants, if you have a question, please press star then one. The next question is from the line of Vivek Tulsian from New Market Capital. Please go ahead.
Just wanted to understand the absolute revenue in the domestic branded business and how much distribution reach has increased in the last three months.
The answer to your first question, what is the business? We almost do INR 30 crores of business in the first quarter. Distribution, see, nothing changed between March and June. As you know, because whole logistics was disrupted during the second wave. We haven't added any distribution as of now. Going forward, we were expecting when the second wave hadn't come, that we would expand a lot in this quarter, but that couldn't happen, and we are now expecting that and hoping that no further big time wave comes so that we can continue our own expansion programs.
Got it. On the MEIS this quarter we received about INR 6 crores. What was the comparable number last year, same quarter?
I think it is INR 7 crores.
Understood.
Comparable figures for the first quarter last year.
Yeah. Got it. Just on the revenue growth number, how much of this would have come from volume growth and was there any realization growth that we saw during the quarter?
In fact, we have not yet clearly demarcated them. The prices are almost on the same lines. There's no major variation on it.
Got it. Thank you so much.
Thank you. The next question is from the line of Devanshu Sampat from YES Securities. Please go ahead.
Yeah. Hello, sir. Good afternoon. Just a few questions. What is the typical mix between the business or volume that you do for the advanced orders and the last-minute spot orders in a typical year?
There will be approximately 65%-35 %.
Okay. Would it be right in saying that the majority of your advanced orders are, I mean, you get towards the end of the calendar year?
Pardon me?
Your orders that you get in advance, do they usually get confirmed around the end of the calendar year?
Yeah. By the calendar year we would know that.
Okay. Given that raw material prices have gone up by as much as 40%, as you just mentioned. Just wanted to get a sense of, if somebody places an order with you right now, how much of a margin on a per kilogram basis do you typically work with or can work with the prices being right now where they are?
We try to maintain our existing margins only. The price variation will be on account of green coffee, the cost only.
No, I understand that, but I think the long-term vision is to touch INR 130-INR 135 per kilogram, if I'm not mistaken.
Yeah, that is over a three and a half year period.
What was the figure that we had averaged in FY 2021?
That was about INR 112 also. See, like an MRP, it cannot be loaded for every customer. Every customer is different for the purpose of price negotiation with reference to the nature of customer, whether he is a manufacturer customer or a trader customer, or also is a volume customer or a small group customer and a small pack customer. Depending on this, we have a small matrix based on which, depending on the customer's profile, we will load these. On an overall perspective, we will try to cover our margin in absolute terms.
Just to clarify, with prices being the way they are right now, you're still targeting something in the range of INR 112-INR 115, or will it be a little bit higher?
No, we should target. No, in an inflationary trend already there is a price increase for the absolute price increase for the customer. I cannot say I will also load extra and take it from him. It may not be possible in that fashion.
Okay. Sir, just last question, if I may. Just to get a broader sense on the coffee processors globally. With the world going through whatever it has in the last one and a half years, can you give me a sense of how the supply side dynamics have changed, or have they not? Have there been suppliers or closed down, or can you give me a sense of what is happening in the ground?
For the logistics issue, we did not experience any disruptions in supplies for the past one and a half years.
I'm asking about coffee processors globally.
Coffee processors globally, I don't think anybody has gone bankrupt during this period. All over the world, the coffee is, including Vietnam, et cetera, the coffee is graded as essential commodity and exempted from any of the disruptions due to lockdowns and other aspects.
Okay. We got that, sir. Thank you so much. Thank you. All the best.
Thank you. The next question is from the line of Naitik from OHM Group . Please go ahead.
Hi. I just wanted to ask your strategy for your domestic retail business, and if you could just tell me any internal targets that you are having for the year in advance?
Our strategy, as we have spelled out many times before, is just like any other FMCG product, we have launched various products, various brands into various categories, instant, R&G and premixes. Those are the three segments we have entered, and we are distributing it largely in the coffee stronghold, which is the southern part of India. That's where our distribution has first begun with. That's in brief our retail strategy. As far as numbers are concerned, we domestic everything put together, which is done private label and our branded business. We had achieved a turnover of approximately INR 150 crores. We were looking at a 25%-30% growth this year. It will all depend on how things go forward, because the first quarter was a little tough, and we'll wait and watch how things pan out in the next couple of months.
Another question is, are you planning for the other regions? Like you just mentioned that focusing on southern regions more, but is there any distribution in other regions like western or eastern?
Yes, of course. As we speak, we have already started distributing at least in the key towns of other regions, which is north, east and west. We are expanding our distribution. As I said earlier, the speed of expansion became a little slower because of the second wave. Hopefully, and we are just hoping that things don't go back from here. We'll be there in almost all key towns here across India very soon.
Right. Also, has it broken even, like you said in the last one?
Sorry, has it?
Have you broken even?
Yeah. Last year we had a marginal loss of around INR 3 crores, INR 4 crores. We are looking to break even. As we had said and told in many of the calls before, even if we break even and we can make profits, we'll plow back into the business so that we can expand, because there is a huge room of expansion going forward. Next two, three years, we are not even looking at generating significant profits.
Right. That's it. Thank you, sir.
Thank you. The next question is from the line of Himanshu from YES Securities. Please go ahead.
Thanks for the follow-up. Just one question. On the doubling of Vietnam capacity, what is the amount of spend that we are looking at? Also in terms of the ongoing CapEx on small packs and the Vietnam brownfield, I think that is more or less done. Any other CapEx? Overall, what would be our CapEx guidance for this year and the next?
This year, packing capacity, we are almost done with the CapEx right now, barring about INR 15 crore-INR 20 crore perhaps. Vietnam CapEx for doubling the capacity will be in the range of about $17 million-$20 million spread over this year and next year. There is nothing on board right now in addition to these two expenditures.
As of now, for next two years, $20 million on Vietnam and about INR 15 crores-INR 20 crores on the small pack. That's about it.
Yeah. There will be some regular technology update expenses that we do. They are all small amounts, but any reckonable CapEx would be on account of these two items only.
Understood, sir. That is all what I wanted to know. Thanks.
Thank you, sir.
Thank you. The next question is from the line of Taha Merchant, an Individual Investor. Please go ahead.
Yeah. Hi. Slightly big picture question. We're seeing extreme weather events due to climate change have intensified, and temperatures are increasing faster than anticipated. With the big impact that climate change has on coffee growing, how much of a risk is this to our business model over the longer term?
Actually, that is a very interesting question because as the climate change is taking place, there are lots of new areas that are also coming under coffee cultivation. Even in developing countries across the world, there is a larger acreage that is coming under coffee cultivation. In countries like Brazil, there are several areas, farms where the plants are more than 50-60 years old. Every year there is a small percentage of farms that you replace the crops as well. When that replacement time is coming, people are doing that replacement at a different altitude so that this impact of weather is minimized. Across the world, everyone is adapting to this climate change. As far as actual demand and supply is concerned, that demand for coffee is consistent around 2.5%-3% year on year. It is still growing.
In developed countries, it's peaked or it's reducing by a small percentage. In developing countries, in several places, there's a double-digit growth as well. Going forward, maybe we can expect the prices to be a little higher to balance out this demand and supply.
Okay. Right. Essentially, with increasing temperatures, the plantation acreage doesn't necessarily go down.
It can go up. Yes, exactly.
Okay. That's it from my side. Thank you.
Thank you. The next question is from the line of Sameer Deshpande from Fairdeal Investments. Please go ahead.
Good afternoon, sir. I would like to know what is the net debt of the company as of quarter?
Pardon. Net?
Net debt of our company. In March, I think we had some working capital loan due to higher inventory. What is the net debt now at the end of this quarter?
Net debt on working capital is about INR 250 crores, and on long-term debt is about INR 178 crores.
That's on an almost INR 120 odd crores in March.
Total. Consolidated INR 250.
Consolidated INR 250.
Consolidated net debt is INR 250 crore, and long-term debt is about INR 178 crore.
Around INR 375 odd crores we have debt.
Actually, yeah.
What is the effective tax rate? In this quarter, I think the tax rate has gone down to 18% only. Overall for the last year it was around 22%. It remains in the range of around 18%-20%?
Obviously, with Vietnam operations going strong, the net rate will come down, because the entire Vietnam profitabilities are tax-free.
Okay. Our tax rate will be around 20% only overall.
Net rate will gradually come down to about 15%.
Okay. Thank you, and all the best.
Thank you. The next question is from the line of Bharat Gupta from Edelweiss Securities . Please go ahead.
Good evening, sir. My question pertains to the utilization levels. During the quarter past, sir, we have seen that our Indian utilization levels are remaining below 70% odd levels. Can you throw some light in order what has been the reasons behind, because earlier, primarily, we were able to do our optimum utilization across our Indian facilities. Why there has been a drop in the overall utilization levels, and do you believe it is primarily because of the COVID phenomena which is going on, or there is some sort of a weakness across the demand?
No, there is no reduction in capacity utilization. Normally, being a seasonal product, the capacity utilization of 80%-83% is considered to be the optimum utilization. Only in some cases, particularly in our Vijayawada plant, since we are producing some specific products which have a lower productivity, the absolute numbers will come down compared to our capacities. If you take the revenue from that and profitability, we would be running at optimum utilization. All our plants that were adjusted to the productivity, all our plants in quarter 1 have run at optimum utilizations.
Thanks for the clarification, sir. A hypothetical question in terms of the coffee prices which we have seen. If the buoyancy in the crop prices pertains, so as you have said that the order inflow in regard to the current market prices, that has been linked to some extent. If this trend continues and the crop prices or the coffee prices remains on the higher sides, do you think that there can be some deferment in terms of the order inflows which you'll be getting throughout the year?
Perhaps it might slow down, but in an inflationary trend, every point is a point of concern. When it has gone up from 1,300 to 1,500, people were expecting a decrease and waited. There was small resistance for taking orders. When it started going to 1,700, they were desperate to close. At every step, they'll be covering the orders, and anyway, we will be covered to the extent of at least six to seven months operations. We will not have a problem in continuing our capacity utilizations.
Sir, in terms of demand, earlier during the last quarter call you mentioned that Russians, the orders which we got from Russia, that has started to normalize. Is the trend similar, like normalcy has returned to the developed market as of now?
Yeah. Broadly, the indications are that they have come to normalization. We are seeing, of course, last year was an aberration, but we are seeing that things are coming back to normal.
Right, sir. Thank you so much. That's it from my side.
Thank you.
Thank you. The next question is from the line of Kuldeep Gangwar from ASK Investment. Please go ahead.
Just one question. If Vietnam tax rate will remain zero for how long a period? I do believe it will be a finite period assumption, right?
No. As things stand today, it is for lifetime because we comply with all conditions stipulated for being a zero tax company for lifetime. Unless some rules are changed at a later date. Right now, it is for lifetime.
15%, which you are saying on the blended basis, it become like a base case tax rate for you in medium term, right?
No. When we are expanding the capacity, the profit generation from India and Vietnam would almost be on the 50/50 basis. Where at one point we have zero tax and at one point at a maximum of 25%, so we will be averaging out at 15% overall.
Yeah. That's a consolidated basis, the 15% tax rate should be the base case assumption, right?
Yeah, that's correct.
The second bit, when the freight rates are moving very fast, who bear the cost of additional freight extension, freight cost?
It depends on the contract that we conclude. If we are concluding an FOB contract, the buyer will, and if we are concluding a CIF contract, we have to bear it.
Okay, sure thing. Thanks a lot.
Welcome.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Manish Mahawar for his closing comments. Over to you, sir.
Yeah, thanks Janice. Yeah, Srishant, I have one question. In terms of the U.S. market particularly, what could be the size of U.S. instant coffee market and how is India's export in terms of volume I'm talking about, and our volume particularly in the entire geography?
The whole of U.S. market will be maybe around 80,000 tons.
Okay. What is India's contribution in the 80,000 ton?
India's contribution in the U.S. will be the largest, and everyone put together maybe around 7 or 8,000 tons maximum.
Okay. What's our share out of that?
I'd say that we're targeting around maybe between 5-6,000 tons in this year.
Okay. Possibly, because as we understand, because of cold brew coffee and the new customer we won last year, I think we are getting good traction in this market, right? How do you see this 5 metric ton-6,000 metric ton of volume in U.S. will be over the next three years, particularly?
That's a bit too premature for me to comment on at this point in time because there are a lot of variable factors that are there. The way things are looking up right now because of the issues which are there in Brazil and all, we should hopefully be able to add some customers in the next year or two itself.
Okay. Understood. Okay. In terms of a new customer, I think we'll not add any new customers in a first quarter from U.S., right?
No, we didn't add any. We've added several new customers, but if you're referring to a large volume customer like what we added last year, we haven't added any new large volume customer like that. Lot of smaller guys, yes, we keep adding on a very regular basis.
Okay. Understood. Okay, sure Srishant, thanks. That's all from my part. Srishant, would you like to make any closing comments?
No, nothing specific. I guess we are just sticking to our guidance of 10%-15% for this year. Yeah, hoping for the best. Thank you.
Thank you very much. On behalf of Antique Stock Broking, that concludes this conference. Thank you all for joining. You may now disconnect your lines.