Analyzing...
Good morning, sir. Thanks for opportunity, so first in terms of the breakage of equipment at Vietnam so if you can share some insights into does it had already happened in the past or is it because of a new supplier that has happened in the expanded capacity some insights on what has happened?
No, I do not think so it is because of the new supplier it has happened once in the past and these are things which are part and parcel of any manufacturing processes that there will be breakdowns, these are not new to us and yes of course it was unexpected but not really new to us. Having said so the reason that we had informed the market because to comply to the regulations that have been put up by SEBI and other government authorities that if there is a material impact that the organization feels that will take place because of these breakdowns one needs to inform so we were over cautious and we wanted to be transparent and that is the reason we informed the market, but it is neither new or it is neither because of any new supplier or anything.
Great thanks sir. Second question is with respect to the domestic B2C segment so in terms of branding I think we are seeing brands in the local Chennai metros so what could what the broad strategy for the branding part of the B2C segment?
So basically the strategy is twofold. What we are doing is we are trying to aggressively gain shares from the existing players and the existing categories where we are trying to grow big,
Page 8 of 18 we started our operations from South India which is a big coffee market and we are now expanding to other cities across the country so in almost all 10 lakh plus population town we are now have our distribution set up and we are slowly trying to capture the not capture let's say but at least gain some market shares in those areas as well so that is one part of the strategy. The other part is that how do we increase the coffee consumption for which we are trying to introduce newer formats like premix coffee which is because India largely is a tea drinking nation and slowly people are adopting coffee so we wanted to make sure that we are able to offer the consumers a lot more choices and lot more ways to drink coffee and that is why we are very gung-ho about this category of premixes because it helps drive that consumption that much more easily so that is one segment which we are focusing a lot which is a very new segment and here we are doing a lot of category driving exercises here it is a new category there are not many players who are playing in the category so here we are promoting amongst youth, the college going guys, the bachelors who probably are looking to not only experiment with coffee but also try various varieties of coffee and that is what we are trying to offer to them. Again coffee it is a food product and food products really have to be driven very differently, you have to drive newer habits so what we do is we engage in a lot of sampling exercise, interaction of the category with the consumer so wherever we get a chance we do a lot of product sampling so that people know interact with the product they get the taste of the product so that is the second part of the strategy that we are taking forward so largely these are the two buckets in which we are operating.
Great Sir thanks. That is, it from my side.
Thank you. Next question is from the line of Rohan Gupta from Nuvama. Please go ahead.
Hi Sir, good morning and thanks for the opportunity. Sir few questions from my side first if you can give some sense in the current quarter the kind of volume growth and the pricing either degrowth or increase on Y-o-Y basis.
So current quarter if you see the volume growth was around 10 to 12% and we got a value growth of 20% so current quarter I am talking about the quarter gone by which is Q2 so on 10 to 12% volume growth we got a value growth of 20% which was largely because of the pricing advantage we got. Largely if I were to pinpoint one thing it was because of small packs the leverage we got on pricing.
Okay and volume growth was slightly muted mainly because of the shutdown at Vietnam.
Page 9 of 18 Yes absolutely. Muted as far as guidance are concerned over 10-12% volume growth in this era itself is quite tough. Against our guidance it got muted because of the breakdown at MCL plant.
Do we see Sir I mean with excess capacities which we have right now over next six months I mean we will be able to still achieve 18% plus kind of volume growth guidance.
So we are trying very hard because of the excess capacity we have a chance to make up so we are aggressively pitching and making sure that we make up for the losses so only time will tell whatever losses that is lost now in the last quarter we will try and make up through additional volumes but yes that time will tell because right now we are in the process of pitching and seeing what can we make up.
Sir how has been the green coffee prices right now. You said that they have started softening and in next couple of months that Vietnam will be setting up the prices right.
So when I said softening, there was a question asked that if the Brazil prices still very high and are we getting newer customers from Brazil to which I said Brazil crops prices have softened because they had a good crop this year as far as Vietnam prices and Indian prices are concerned, we will get to know next month because that is when the crop for both these markets come and that is when you start seeing that what kind of trends will evolve after the new crop comes so as of now they tend to be on the higher side itself.
So, you think that I mean India and Vietnam will see a price upward revision.
I did not say upward revision. I said that we will see the trend once the new crop comes so it could be upward it could be downward suppose if the market believes that the supply of crops has been terribly low there could be an upward trend but if the other trend happens then there could be a downward trend as well.
So as of now we do not have much clue about it.
Because all the clues anybody had in this world about coffee prices have got broken in the last two years so all predictions have gone haywire so really difficult to predict as of now what is happening because as you know a lot of fun guys also are playing into, farmers are holding stocks so there are a lot of things that get played into this whole commodity so it is better to wait and watch and see the trends before rather commenting it speculatively.
Page 10 of 18 Sir another trend which you just mentioned that domestic market coffee consumption is increasing by roughly 20 to 22% and even upward so that is a very positive numbers. I mean if the industry is growing with that number, I mean that is surprising to see because I do not see that the coffee retailers in India, they are growing with that pace so from where we are getting this, I mean confidence that the growth in the coffee industry is roughly 22%.
Okay I will correct a little bit of this thing when I was talking about domestic market growth it was our growth of 20-25% if you see the domestic market there are two segments that operate like any other market. There is an in-home segment and there is an out of home segment. Now the in home segment which is the segment which is the retail segment that you buy coffee and take home and drink coffee that is not growing at a very high pace that is still very low at around 10% or so, so that is not growing very high the growth that is coming is in the out of home segment so what is happening is that there is a lot of coffee consumption that is happening out of home whether it is cafes or at places of work because what has also happened is now that after COVID everybody's back to their places where a lot of out of home consumption happens that is a segment that is growing very fast, but if you see our play either internationally or in domestic market as of now is largely in home segment so the in home segment category growth is not very high but what we believe is that for us because we are aggressively trying to gain market share we will probably be able to grow at a much, much higher pace than what the category of the market is growing.
Okay so you are saying that 20 22% in your context not the industry context. Our context yes.
Sir in retail brand sale you are targeting roughly 200 Crores kind of sales for the FY2024. I mean as pure brand seen only so what is this number you are looking over next three to four years also you are proposing the restructuring with the demerger of the retail business with that context and I mean if you can throw some more light that how you see the retail business going forward in next three to four years and Sir one more thing that last con call you mentioned that you have global ambitions as well to grow your coffee retailing business globally so any strategy formed up there that how much spending we are planning to do in terms of our entry to global markets how much spend we are planning to do over next two to three years.
That is a long one but yes, I will just try and keep it crisp and simple. In the domestic market in the next three, four years we are looking to drive aggressive growth anywhere between 25 to 35% which means that probably in at least for the first three years we would
Page 11 of 18 like to double it from here so that is the kind of ambitions we have and that is what we are aiming for and doing whatever it takes to get to that level so that is what is about the domestic market. As far as international, yes, we have ambition to launch our brand especially considering now that the brand has got some equity in India, we are already getting a lot of queries from markets where Indian diaspora is residing that can we have Continental Coffee here also. In fact even if we have not started anything right now we see lots of instances where our coffee has been imported by some local traders and they have started selling in the local markets so that phenomena started so we felt that it is better that we take it up in a more organized fashion so that is one segment and of course the other segment is segment like UK market where we bought brand from Lofbergs which is Percol, Rocket Fuel so we also want to take that forward and create these segments where you could start seeing 50 to 100 Crores of sales in three, four pockets across the globe. Now as far as what is that we are going to spend see just like domestic market where we have built it step by step and stone by stone that is how we are trying to do in other markets also so our strategy would not be to kind of blast a lot of money in the market and create a lot of hype and then try to get sales, but it will be a step by step sales. We believe that probably in any market that we operate in the first couple of years or let us say by the third year we would like to break even and even in the first couple of years we would not like to lose more than a couple of Crores in trying to build the brand so that is our philosophy and that is how we will take it forward in each of these markets.
Thank you. Next question is from the line of Jenish Karia from Antique Stock Broking.
Thank you for the opportunity so first question is with regards to the capex that we are doing so any colour on what India and Vietnam capex and how much of it is funded through debt.
As we stated earlier the Vietnam expansion is taking place at $50 million out of that 16 million$ is our contribution 34$ million is the debt component. And Sir India capex 16,000 capacity.
India it was the facility which we taking up under CCL Food and Beverages the wholly owned subsidiary which show a project outlay of Rs.400 Crores out of that Rs.320 is the debt component Rs.80 Crores is our component it means around Rs.600 Crores is the debt component and the balance amount it is our internal contribution.
Page 12 of 18 And how much cash out flow has been done till date. We have spent almost around 200 Crores. Combined India and Vietnam both. Yes together.
Okay great Sir secondly if you can just throw some colour on how the small pack mix has improved in this quarter compared to the previous few quarters how has the trend been.
So, the trend is improving and in fact if you see the standalone numbers, you will see that the efficiencies have improved and that is largely because of small pack deliveries so it is in the in the positive direction. If I were to give you percentages in the export business almost in the India business, we were actually if you remember couple of quarters ago post COVID the small packs contribution had come down to 17-18% it has now eased back to slightly above 20% and as we are going forward we are kind of constantly pushing more and more small pack and we are likely to get similar kind of trends going forward as well.
Okay great and Sir on the geographical mix so how much of our export would be to the Middle East Market and how has our US geographical mix improved over the period of time.
Okay let us say US currently is at around 12 to 14% of our sales. Middle East is not very much it will be less than 10%, Middle East and Africa if I were to combine so it is less than 10% close to maybe 5% or so, so that is there. Europe is almost again 15%. Russia and CIS will be around 20-25% and the balance is Asian markets including the domestic market.
Just one last question on the debt that we were guiding last quarter of peak debt of around 1800-2,000 Crores so the coffee prices still remaining at an elevated level although we are expecting Vietnam price announcements next month so any change in outlook on that side.
So just a small correction that Rs.1,800 Crores as not the utilization it was only an approval that we had taken from the board so that we keep our outer limits intact. Utilization if you see for the full year will be close to around Rs.1300-1400 Crores. Once we get to know the coffee prices trends it would change a little bit because the coffee prices go down then I think we will see a reduction in that as well.
Okay that is helpful. I will fall back in the queue for more questions. Thank you so much.
Page 13 of 18 Thank you. Next question is from the line of Abhilasha Satale from Quantum AMC. Please go ahead.
Thank you for giving me opportunity. Sir just the breakup of the capex like how much exactly we will be incurring in this year in 2025 and 2026 if you could just give those numbers and secondly in terms of peak debt because this year, we will be at 1,300 Crores but by the time we complete India capacity how much will our peak debt stand at like what is our target to reach that and what is our deleveraging road map post that.
Indian operations the capex is somewhere around Rs.400 Crores to complete the project which we are going to incur before March whereby we are going to start the operations as well this is Indian operation. Getting into the Vietnam side this project is going to be completed as we stated earlier the mid of next financial year and against the project outlay around 50 million $ we are going to invest around 30 million $ during this year till March and balance 20 million $ we are going to invest into the next financial year so it means the total capex it is somewhere around Rs.650 Crores is going to be at the group level, 700 Crores we are going to invest into the capex at both the facilities.
Right okay fine and the peak debt level like what would it be like by the time we complete our capex because this year we will reach around Rs.1300 Crores and in 2025-2026.
So, 2024-2025 as we said it will be around Rs.800 Crores and 2025-2026 onward it will keep reducing bit further because the repayments are going to start and from 2025-2026 onwards, we can see the reduction in the overall debt so by March 2025 we are likely to be somewhere around Rs.1800 Crores as we stated in our previous call as well.
Sure, okay thank you and Sir just last one on the Continental Coffee like how do we see this business as a percentage of revenue or in terms of absolute how do we see this segment of ours over say next three years, five years what is the outlook how much we want to scale there and how do we see the profitability for this business as we scale up.
Just in one of the previous queries I answered that. This business probably this year we end at around Rs.200 Crores pure brand business and we are looking to aggressively grow this over the next three years which is almost at a rate of 30-35% so that is what our aim and objective is and as far as margins are concerned see currently we have given a guidance of whatever 18-20% for the group at top line and bottom line keeping that guidance in mind we are going to take decisions at what is the kind of investments that we want to do but broadly speaking see the brand is still at a very nascent stage. We are building the brand.
Page 14 of 18 There is a long way to go. There are lot of new geographies to be expanded in so we will not shy away from kind of building it further because brand building is something which is a continuous effort it is not that you do it for four years and then you stop it so that is going to happen and especially in the initial years probably one would want to put more resources now that the brand has got established you know that putting that resource will help us in the long run so in the next couple of years at an EBITDA level we are not looking at a lot of growths at EBITDA level, we are trying to press more and more of top line so that is the broad guidance from our side. My guess is that from the third year from now on we will start seeing a lot of contribution at a EBITDA level from this business but as of now we want to continue plowing back whatever the brand ears into building the brand itself. Sure, thank you.
Thank you. Next question is from the line of Abhishek Navalgund from Nirmal Bang Equities. Please go ahead.
Hi sir so just one question that we have restated our numbers for FY2023 also so particularly on the tax front in FY2023 there has been a downward revision in terms of effective tax rate so the question is basically even if we deliver on the EBITDA side in terms of 20% growth this year because of the below EBITDA items like depreciation and interest our earnings growth would be more or less muted this year so just wanted some clarity on what we did in the FY2023 effective tax rate after the restate.
While restating the financials the carry forward losses of our FMCG division which is amounting to almost around 45 Crores that has been set off against profitability then what happens is that we are already under the MAT and due to this restating of the financials our MAT credit has gone up by almost around 17 Crores so resulting even 2023-2024 as well and 2024-2025 also we are likely to be under the MAT.
Sure, Sir and you said the effective tax rate going forward will be somewhere close to 12% on blended basis right on consol level.
Yes, that is on consol basis it remains 12%.
Sure, and my next question is on capex so I think you have already mentioned this so while we have spent only 2.6 billion so far in 1H we are on track to incur the remaining part right the 650 number which you mentioned so we will see acceleration in the second half there right.
Page 15 of 18 That is right because as far as Indian implementation of the project is concerned, we receiving all the equipment and likely to be completed by March 2024 so as far as both the projects are concerned, we are on track and definitely we will reach as per the schedule to complete the projects.
Sure, and one last one from my side. I mean what sort of outsourcing that you did in this quarter particularly since we had this equipment breakdown so did, we outsource any quantities in second quarter.
No Abhishek very little amount here there just some small thing but nothing substantial nothing like what we did last year.
Very good thank you. That is, it from my side.
Next question is from the line of Jenish Karia from Antique Stock Broking. Please go ahead.
Yes, thank you so much for the follow up. One clarification when we announced India capex in first quarter FY2023 we had guided for a total outflow of 320 Crores which would be funded by around 200 Crores of debt now we are saying that the capex is around 400 Crores funded 320 Crores debt so firstly why the capex amount has gone up what has contributed to it and why have we increased our debt mix in the capex funding so these would be the two questions.
No if you look at it there is no increase in our original destination. Initially we stated it is around 50 million$ for Indian operations and 50 million$ for Vietnam operations and the schedule of implementation that we have planned for Indian operations are to be completed by March 2024 and Vietnam operations are to be completed by mid of next financial year. India submission are well in order.
Because I just going through the transcript there is 320 Crores, but I will take it offline in case there some disconnect from my end.
Thank you. Next question is from the line of Richard Dsouza from SBI Mutual Fund.
Thank you just wanted to ask about China. Last time we believe that we were thinking of sending some consignments or having a tie up with the local partner there so any developments on that front.
Page 16 of 18 Yes, we have had lots of development none on the business as of now because it does take time to see the market and get to the clients. There will be a process of getting the samples right, matching the product expectations and then of course the pricing etc., so yes, a lot of inroads have been made. We have got connected with our local partner there. They have started work on their part so a lot of work on the background is happening but yes it will take a little bit of a time for us to see the results.
Okay so are we tying up with the local partner who has a brand there or how is it.
They earlier were into coffee business. They are right now doing a lot of other things like oat milk and all that but they have a lot of connect in the coffee industry so that is what they will be pushing for us.
Okay second part is that worldwide there is a lot of demand for speciality coffee, and I just wanted to understand how are we placed there and speciality coffee as a percentage of our total volumes what would it be.
So we have replaced very well, last time when we spoke we had spoken about the mini plant and the pilot plant which was set up for the whole purpose of developing speciality coffees we have connected to a lot of clients across the globe, a lot of them have liked our samples and we are in the process, very interestingly I cannot reveal the names right now but even in India we did some features for speciality coffee especially to the high end coffee shops and chains so all that work is happening. As far as the volumes are concerned see the volumes will be very low as of now it is less than maybe 1 or 2% but yes the good thing about this segment is that once we get the first mover advantage to be the preferred supplier of speciality coffee it helps us in the long run and that is what has happened for us in all segments of coffee be freeze dried coffee or microground coffee or let us say the cold brew so all that we were the ones to start it and then over a period of time if the market develops you get the advantage so a lot of work is happening. A lot of clients are being contacted. A lot of positive feedback have happened but yes, the volumes are still very low, but we are okay with that because it is more of a building phase and we all know that even at smaller volumes it will be very high profitably on in terms of profit, it will be high profitable business.
I mean do you have a game plan to take it to about 4 to 5% of your volumes.
Absolutely we are kind of wanting to hit those numbers and yes over a period of time we will see that we will get to that numbers. We have contacted lot many people and they all
Page 17 of 18 have liked the product, and they are all excited about it and the good part it is not just concentrated to one geography but also it is kind of spread out and we getting inquiries from across so we are very hopeful that this will do well for us.
Okay just a question on innovation front. The last time we heard was about cold brew and after that has there been any further innovation which you could talk about them.
Yes so speciality coffee as we are talking about it that is an innovation that is happening because to deliver that profile of speciality coffee in instant coffee itself was challenging because most of the speciality coffee was supposed to be coming from either RNG or roasted beans but the fact that we have been able to create a product profile, it is almost identical to a freshly brewed coffee itself a pretty big innovation and that is the reason why clients across are being very excited about it and the best part is the coffee chain clients being excited tells you that we have been able to come very close to what all of them wanted, so I think that is an innovation that we are keenly looking forward to.
Okay one more question from me on the brands which we acquired in UK could you share any quarterly numbers for that.
I think what happened we acquired it in first quarter actually and since then last quarter was a lot about transitioning how complicated things are when you are transitioning things from one company to other and especially the kind of complexity that it involved in the sense of supplier and then all the chains to be transitioned so a lot of ground work has happened so not much to share when it comes to number but at an annual level we probably will reach around Rs.12 to 15 Crores of sales but that is okay we actually we are looking to relaunch the product with new product formulations with new packaging with new positioning so a lot of that work is happening and probably this year is not the year when we will be talking lot of numbers but more on the new strategy and how do we want to take it forward and it is only from the next year we will start kind of drive this aggressively once our whole strategy is clear, our whole go to market components are in place and that is when we will try and start driving.
Okay sorry one last question reverting back to the China angle by when do you think you will have some good news to report there, or you would have formalized your plan.
We are also eagerly hoping to start listening to good news from that segment but as and when we start getting some firm commitments from that side, we will keep all of you informed.
Page 18 of 18 Okay thank you Sir and all the best.
Thank you. Ladies and gentlemen that was the last question. I now hand the conference over to the management for the closing comments.
Thank you everyone for joining us. Wishing all of you a very happy festivities and we look forward to meet you again next quarter and thank you Antique for arranging this call.
Thank you very much. On behalf of Antique Stock Broking that concludes this conference.
Thank you all for joining us and you may now disconnect your lines.