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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the CCL Products India Limited Q1 FY '23 Results Conference Call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] 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.
Thank you, Kathy. Good evening, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products India Limited 1Q FY '23 Earnings Conference Call. Management is represented by Mr. Challa Srishant, Managing Director; Mr. Praveen Jaipuriar, CEO; Mr. V. Lakshmi Narayana, CFO; Ms. Sridevi Dasari, Company Secretary; and Mr. P.S. Rao, Consultant Company Secretary on the call.
Without further ado, I would like to hand over the call to Mr. Praveen for his opening comments, and we'll open the floor for question and answers, post that. Thank you, and over to you, sir.
Thank you, Abhishek, and welcome all to this conference call. The group has achieved a turnover of INR 509.51 crores for the first quarter of '22, '23 as compared to INR 326.23 crores for the corresponding quarter of the previous year. And the net profit stands at INR 52.74 crores as against INR 43.85 crores for the corresponding quarter of the previous year. The EBITDA is at INR 88.77 crores, and the profit before tax is INR 66.64 crores.
I welcome you all for the question-and-answer session. Please feel free to ask any questions if you like.
[Operator Instructions] The first question is from the line of [indiscernible] from [indiscernible] Company.
So sir, what is the ROC and ROE of our company in this quarter? And can you give some guidance on the volume as well as the revenue growth in -- for FY '23 ended?
This is Lakshmi Narayana here. For RO, return on capital implied, it was 16% for this quarter. Hello?
Yes, I can hear you, sir.
Yes. Return on capital employed, it was 16% and the return on equity, it is at 17%.
Okay. And any guidance you can give for FY '23 on volume as well as value growth?
So the volume growth that we got this quarter was approximately 25%. And that's the guidance for the full year as well. We are looking to end the year at somewhere between 20% to 25% volume growth. And there will be approximately 10% to 15% upside on the price, which means that we will end up the year at close to 40% value growth.
[Operator Instructions] The next question is from the line of Ankush Agarwal from Surge Capital.
A couple of things. Firstly, just confirming our capacity numbers. So FY '22, we were at 38,500 tonnes, right? And by FY '23, given the capacity expansion, we are expecting 55,000 tonnes. Is that right?
Yes, absolutely, right.
And the additional 16,000 tonnes that we have seen for approval for, when do we expect this to commission?
So we are looking to commission it in the last quarter of this year, Vietnam capacity.
Broadly, at the same time, our Vietnam capacity will come on stream.
No, no, okay so I was talking about Vietnam capacity. The new capacity will be 1 year later, which is FY '24, last quarter FY '24. Yes.
Sir, a question on similar lines. So what I wanted to understand is if I look at CCL's history of last 5, 7 years, so already at FY '21 we were broadly around 30,000, 35,000 tonnes capacity for last 4, 5 years previous to that. But if I see from FY '22 onwards, we are now increasing our capacity to more than 70,000 tonnes to reflect doubling of capacity after period of -- wherein we didn't expand our capacity. So what is giving us the confidence of increasing such a large step-up increase in the capacity?
So this is actually -- the confidence is coming from 3, 4 fronts. One is that constantly our domestic market has been growing very -- in a steady pace. And the last 3, 4 years, if you see, we have started to see the domestic market, we were not very sure in which direction the growths will go to and what kind of capacity it will require.
But now we are confident that we have achieved a certain turnover, we have achieved a certain volume, and this volume is expected to grow by 30% to 40% in the next 3, 4 years. So that is giving us confidence that we will require new capacity.
Also in the international market, we have been able to secure a lot of new businesses across the geographies, and that has again given us a lot of confidence that we will be able to -- or we will be requiring these kind of enhanced capacity in the future. And as we are growing, what is happening is that our ability to offer or be competitive in the international market also is becoming very, very strong, and that is helping us gain new businesses.
So all of them put together, we are very confident that we will be requiring these kind of capacities going forward.
Right. So sir, how much of that capacity currently would be -- being utilized for the domestic branded business? And what kind of number that should be on the expanded capacity a couple of years down the line?
So that's a...
[Indiscernible] 5%, 10%, whatever.
So currently, we are at 10%. And -- but going forward, this -- the 10% capacity is likely to double in 3 years, yes, for domestic market. So if it is going to double in 3 years.
So let's say, I'm just giving you a ballpark number, approximately 4,000 metric tonnes we are looking right now at which will -- which will kind of double in 2 to 3 years.
Which means that with the new capacity that we have announced, half of that will be immediately taken up by the domestic market itself. So that is the kind of number that we are looking on. And therefore, we are very keen to expand the capacity.
Just to get [indiscernible]. So what you saying at the moment, 10% of the capacity is being used to domestic. But going ahead also, you're saying on the 70,000 tones capacity, it would be roughly around 10% volume what you see...
We're almost doubling it in the next 2.5 years. So and the volumes also will double. So it will be in the same percentage, maybe 10% it will move up to 12% or 13%. But as I was telling you, that's not the only reason. The other reason is that we are also getting new export orders, new clients. And therefore, we are looking to fill up the rest of the capacity with the export business.
Sir, lastly, just a clarification. So when you say you have grown your volume by 25% this quarter. But I see a profit of only one by about 20%. So the remaining 5% delta is largely because of the domestic volume growth, which obviously don't contribute a lot to the profit, how do this volume growth to the entire B2B?
No, no, couple -- 2, 3 points are there. One is, of course, the domestic market, which right now, we are investing back to promote the brand in all. And second is a couple of percentage points here and there probably will be because of other input cost increase.
But if you look at some volume 25% and if you look at EBITDA, EBITDA is at 23%. So they are like very close to each other. So a lot of price increases that we have been able to mitigate through efficiencies in the system. And therefore, that difference is not much actually 25% versus 23%.
Okay. So this 20%, 25% volume growth...
Mr. Agarwal, may we request you to please rejoin the queue for follow-ups. We have other participants waiting in the queue.
The next question is from the line of Richard D'souza from SBI Mutual Fund.
As there is no response from the current participant, we move to the next question from the line of Kashyap Javeri from Emkay Investment Managers.
Two questions from my side. One, when you mentioned that this year, the value growth could be significantly higher because of the price increase. Can it lead to ROC dilution because we will have higher working capital requirement? That's one.
And second is a clarification on your working -- on the domestic side. You mentioned that today domestic is about 10% of the volume. And next 3 years, you expect it to double to about 4,000 tonnes. But at 10% today itself, it should be about slightly less than -- slightly more than 3,000 tonnes already, right? So doubling would mean about 6,000 tonnes. Is that math correct?
I said today it is at approximately 4,000 tonnes. Doubling would mean 8,000 tonnes.
Okay, sorry. So you -- that 4,000 tonnes was number as of today?
As of today, yes.
Okay. And on the ROC side, because of working capital, any comments over there?
You know that sufficient working capital is in place.
Let's say about 40%, 45%, then it means that the working capital requirement will also be slightly larger.
Yes. The working capital requirement is likely to enhance almost by 50%, which we have taken the precautions to enhance the requirements.
So then it could be slightly, sort of, detrimental to our ROC number unless we are going to reduce the number of days of working capital?
No. Actually, if you take it on ROE basis, my half of funds are approximately around 150%, which will not have a major impact on our profitability, even despite our increase in working capital requirement.
But sir, what I'm saying is that, say, your EBITDA growth because of the volume growth here, because we look at usually EBITDA per tonne or EBITDA per kg, EBITDA growth would be roughly about anywhere between 20% to 25% or slightly higher. But in terms of working capital, like you said, the expansion would be almost about 50%, which means -- I mean, it's just a mathematical equation, but it could be ROC dilutive.
It will not be because, we will work it out on the project period, which we are offering to our buyer. Which will take care of my -- any additional burden is going to be there with increase of volume of working capital.
So versus sales growth, can we expect working capital growth to be lower than the sales growth. Is that possible?
It is not exactly -- if you look at it, the revenue growth which we are expecting around 20%, 25% And we -- on a real utilization basis, which is going to be somewhere around 15% to -- in between 15% to 25%. Definitely, it has to be less than the sales growth.
The next question is from the line of Richard D'souza from SBI Mutual Fund.
So sir, just wanted to understand -- one is on the green bean cost. I mean how much would it have gone up by? And how much have we passed it on to the consumers?
So at a point-to-point level, it has actually gone up in the last 1 to 1.5 years by almost 50%.
50% to 60%.
And whenever we do a contract -- what we do is we pass on everything to the customer. So we don't absorb the price increases in the green coffee. And that's the reason you are seeing such -- almost 20% to 25% upside on the value growth versus the volume growth.
Okay. Okay. So is this the first quarter when this increased bean prices hit us?
So I'll tell you what, if you would have tracked our performance and what we have been telling the market, is that a lot of our contracts are long-term contracts, yes? So even if I would have started -- let's say, the price started increasing in last 1 year, in the last 1 year, I have been actually executing a lot of contract, which probably I did 2 years ago.
So much of price increases you did not see in the last few quarters, maybe 4% to 5% that was there in the last quarter or so. But now that last year's contracts have started getting executed, we are seeing this kind of a price increase.
Okay, okay. Just one more question on this. I mean if you look at the console performance, the standalone and the subsidiaries performance, your raw material cost as a percentage of sales has gone up by about -- approximately about 8% to 10%. So that means we haven't passed on the complete escalation in raw material pricing. Am I right to understand that?
Raw materials -- come again? I'm just kind of missing your point -- you are saying raw material cost has gone by...
Sir, I was saying that the raw material cost as a percentage of net sales has gone up by about 8% to 10%, on your console level, stand-alone and also on subsidiaries level. So am I right to understand that we haven't been able to pass on the complete increase in prices? Or is it because of your business model that I mean we see that difference?
No, no. In fact, we completely passed on everything. But what happens is that a lot of my contracts will be an average of some of the things that I have done in the past. So therefore, we will not see it in full effect in the P&L itself.
But if you average out in the -- if you have to average out 3, 4 quarter results, you will start to see that how our model works actually, yes? So sometimes it happens that we will get more value growth. Sometimes it may also happen that we will not get the value growth. We'll only get volume the same.
And in spite of that, our profits would increase. So that kind of a play happens. And therefore, one, we always tell the market that please see the performance in a little longest period of time.
No, I was seeing the trend over the past 4, 5 quarters. So that is why this question, but maybe I'll come back later on this. The second question is on your other expenses and especially the logistics and packaging costs. So how are those behave in the quarter gone by? Because logistic costs seem to be coming down the shipping rates seem to be coming down.
Yes. So some of them, there has been a little bit of a downtrend. However, it is still more expensive than the pre-COVID or the pre Russia-Ukraine was. So that is an impact that we have to take care, or take into account.
The next question is from the line of Vidit Shah from IIFL Securities.
So my first question was on the -- this new CapEx that we've bought and approved. You said this will be up by the fourth quarter FY '24. Is this right?
Yes.
Okay. And what is the ROC that we can expect on this? Would it be similar in the lines of 16% that we're doing right now? Or could it be higher or lower?
The ROE is expected around 20% on this new facility. .
Okay. And -- like why would this ROE be higher than what the company is currently doing? I mean is there any efficiency built into this new plant or anything like that?
There will be an upgraded technology which we are going to implement under the new facility, because our existing facilities are very old and a lot of technology development has been happened. Due to that, so we look for some optimization of -- for the efficiency levels.
Okay. Understood. Sir, my second question was, so in the opening -- so in your earlier remarks, actually, you mentioned that you're getting more competitive in the international market and thus winning orders. So could you just shed some light on why and how the company is getting more competitive versus, let's say, Brazilian competitors or other competitors?
So a lot of these companies, let's say, the Brazilian [ facility ]. Now Brazil, it has become a little noncompetitive, especially in the European market because of the various reasons, the Brazilian coffee prices, the freight costs and things like that. So we have been able to win some of those accounts, and that is leading to better performance for us.
Also, if you start increasing the volumes, you actually are seeing, as our CFO pointed out, the new facility and what we are doing in Vietnam now with our -- the expanded -- the expansion that we did last year and we are going to do. These are all leading to better economies of scale, and therefore, our efficiencies are improving. And we are getting better and better in terms of our competitors in the international market.
Understood. Sir, just last -- one last point on -- if you could share the capacity utilizations during 1Q for the domestic freeze-dried, spray-dried, and the Vietnam unit as well if possible.
So on paper, it would be 85%, but 85% is actually full utilization. We are full to the brim and utilizing every bit of it.
And this is across the 3 units. Is it Vietnam, Chittoor and Duggirala?
Yes, all across 3 units, we are running at full capacity.
So would it be fair to assume, sir, from these levels, the growth will only come sequentially only once 4Q or the Vietnam unit is commissioned in 4Q. So versus 1Q, 2Q and 3Q could potentially be flat?
No. 2Q and 3Q -- our Vietnam capacity started to -- the extended one. See from Vietnam, we went from 9% to 13.5%, which is like third quarter last year, yes. So Q1, Q2, that 3.5% will come to us, which will give us growth.
And from Q4 onwards, we will get that additional 16,000 annual capacity from Vietnam. So that will drive growth for the next 3, 4 quarters. And just to add a little thing to you, we are also -- in the last 2 quarters, we have ended up outsourcing coffee as well from a lot of smaller players, yes? So that has also added to our capacity. And in fact -- yes. So the generic products that we supply to some of our clients who use very generic products, we are taking from smaller suppliers. And we are fulfilling that demand. So in fact, when we are expanding the capacity, certain portion of our -- actually utilization, we are already building it up in the next 2, 3 quarters.
The next question is from the line of Akhil Parekh from Centrum Broking.
Congratulations, sir, on a very good set of number, especially on the sales front. My first question is on the margins, we are at 70-odd percent. So you clarified a bit that the entire impact of increasing price realizations will be felt across the next 3, 4 quarters. But is there a factor that if conscious decision is being made by the company to kind of aggressively grow on sales front, probably sacrificing margins of the increases?
So just to correct you, I don't think so we have sacrificed the money. Actually, the margin that you are seeing reduction, which is at 17% that you said, is only because of the -- it's an optical thing because you are measuring it against the top line, which has got 20% to 25% of price increase.
So if you peg it at volume, so our volume growths are 25% and our EBITDA growth is 23%, so perfectly in line with our volume growth. So as we always say, our per kg EBITDA wouldn't have changed at all. So we are not sacrificing margins at all. So it's not like we are growing volumes on back of sacrificing margins.
It only appears to be lower because you've got a price advantage. The price advantage is giving you 55% top line growth. So on that top line, the percentage of EBITDA looks to be lower. But in terms of per kg EBITDA, in terms of your growth and EBITDA, it's exactly in line with the volumes.
Sure. Got it. Okay. Got it. And second on the branded business, if you can quantify like what kind of numbers we clocked for the quarter and what we are expecting for the entire year?
So we -- in the first quarter, we clocked the domestic sales clocked INR 50 crores, out of which almost 70% is branded business. And this grew by almost 55% when we compare to the last year same quarter.
So -- and on the share front, we have been constantly gaining shares. We are looking to expand distribution, as I had mentioned in the last call. We are looking to now expand distribution beyond South and looking to make our presence felt in other markets as well, beginning with large towns first, and then we'll penetrate to Tier 2 towns. So that is the scenario. We are growing at a very healthy pace and on track for whatever we had set our objectives on.
As for domestic, if I just kind of [ at 50 year of ] run rate, it comes at INR 200 crore revenue for the year, which is broadly in line with last year, right? Wouldn't that be correct?
Yes. But these first 2 quarters are lean quarters because of seasonality. In India, coffee consumption is pretty high during the second half. So almost first half will contribute. In fact, first quarter will contribute to 15% to 20% of the sales only.
Okay. Okay. So should we maintain the 30%, 35% of a growth level for the entire year?
Yes, yes. Definitely, definitely, we'll maintain that 30% to 40% growth level for the year.
Okay. And sir, anything on the plant-based proteins like what are the steps we are taking off for next 5 year or so?
So really nothing new from what we announced because it's only been a month since we announced our entry. And we have just -- as we had mentioned last time, that is we will target to launch only in the -- test launch in fact, in 3 cities. So that's what we have done.
Today, we are just placing the product because it's a frozen product, it has to be carefully placed in only those outlets where you have this kind of infrastructure. So we are just placing the product, trying to do a lot of sampling and see what are the consumer responses.
There will be a lot of learnings as we go along in terms of our product, product development, concept, pricing. So all that -- so it's almost like a learning phase for us. There aren't any new things to share on this front at this moment.
The next question is from the line of Himanshu Nayyar from Systematix.
Sir, firstly, on the recently set of packing and agglomeration unit, just wanted to understand what sort of utilization ramp up we have seen on that side in terms of small pack volumes?
So on the small pack unit, almost 30% is getting utilized by the domestic market itself, out of the 12,000 tonnes capacity that we had put, 3,000 to 4,000 is being utilized by the domestic market, which is almost 25% to 30%, and another 20% by the international market. So as of now, we are 50% to 55% of utilization for the small pack unit.
Understood, understood. And secondly, sir, on our overall CapEx, if you can just, I mean, guide us once again. So what's -- I mean, including ongoing Vietnam plant and the new announcement. So FY '23 and '24, what sort of CapEx overall are we looking at?
So FY '23, as we stated earlier, the expansion has been scheduled with 30 million yearly investment, out of which 10 million we are contributing from our internal accruals. And coming to the '23, '24 and which we are proposing to take up the new greenfield projects, which may come somewhere around 300 to 350 between and our contribution may be somewhere around INR 100 crores to INR 125 crores. So all put together if you look at it around INR 190 crores, INR 200 crores is our contribution on '22, '23 and '23, '24.
And maybe a slightly higher amount of debt as well, which we'll be taking up, right?
Yes. The new facility, which we are planning to take up, which has that component also.
Got it. Got it. And sir, final question is on the India business. You talked about the top line, but can you share something on the profitability front as well. I know we are reinvesting back in the business. But along with growth, are we able to -- I mean any numbers that you can share on this sort of drill that it is on our overall financials in terms of loss? Or is it going completely?
So as we -- Sorry, are you able to hear? Hello?
Yes. We can hear you, sir.
Yes. Okay. So on the domestic front, yes, we maintain the fact that we are plowing back all the money back to the business, especially because this is now -- this year, we are going to take a major distribution expansion initiatives. So there won't be any drain per se because we are looking to break even like what we did last year. This year also, we'll be looking to break even. So there isn't any drain per se on the company side.
And what sort of gross margin should we be making in this business, if you can share that number?
See, typically, on the branded side, you would be getting to anything between 30%, 35%. And the bulk side will be closer to 20%.
Got it. So that's all I had today. Thank .
The next question is from the line of Bhavesh Chauhan from IDBI Capital.
Sir, my question is on supplies from Russia to Europe and even globally. How has that impacted the supplies globally? And are we benefiting out of it?
So yes, the supplies, which were affected in the last quarter, Jan-March quarter, is now -- seems to be easing up. So now we have liners who are taking supplies to Russia and Ukraine both. So there isn't any issue right now that we are seeing in the market.
Sir, my question was actually supplies from Russia to global markets. So if that has been cut off, which we are seeing in some of the sectors in -- are we seeing in coffee exports as well that Russia -- because of sanctions on Russia is not able to supply to many of the developed countries, so are we benefiting out of that?
No, not really. We're not benefiting out of that. But as I told you, we are benefiting more from our more competitive -- competitiveness in the market. So it's not that Russia is not able to supply. Therefore, we are -- because Russia mostly is more of a consumer of coffee rather than supplier of a coffee.
The next question is from the line of [ M. Srinivasa Rao ] from Healthcare Global Enterprises.
My questions are already answered. Thank you.
Thank you. The next question is from the line of Ankush Agarwal from Surge Capital.
Sir, again, something on similar lines or number of a participants are on the working capital. So what I'm trying to understand over here is, let's say, for example, the corporate business, as you mentioned, are up by 50-odd percent.
So for the same amount of volume that we do, I think our revenue number is higher, wouldn't we be investing more in terms of inventory rather in terms of the data that we are spending outside?
Right, so I wanted to understand in purchase narrow, we mean copier is very high. For the same number of volume, our investment to working capital will be higher, that will be in a higher debt and then that might stress our balance sheet or in terms of ROC calculation or something in the latest quarter as well. So can you throw some light on that, how it affects our business from that perspective?
Yes. As you rightly said, the working capital requirement will be increased in line with the increased volume of revenue. And -- but here, it is not exactly in the same percentage of revenue growth, the working capital will increase to [Indiscernible]. Because we'll -- the receivables credit period, we'll have a decent approach to reduce the credit period and which will help us to minimize the working cap utilization. And at the same time, it will not have a complete impact of interest burden because we utilize the working capital under the export finance only which is very competitive in terms of the rupee funding.
Okay. So what is the cost of [Indiscernible] on that?
Export finance, it will cost net to net, it is around 2%.
Sorry, I didn't get it.
it is at 2%.
2%.
Yes.
So any expectation in terms of on this high profit prices, the price is reducing over next year or so in either, in that month? Or do you expect it to [Indiscernible] going forward?
So as of now, we don't see any trend, which tells us that there will be a reduction in prices. It looks to be stabilizing at this level. But really it depends on many factors. A lot of countries, the crop will come in around December. So we'll have to wait and watch and see what happens after December. But until December, which is really short term, we are not seeing any decline.
Right. Lastly sir, recently, there has been fluctuation on the euro versus dollar. So have we impacted on that front due to currency fluctuations to an extent?
Lakshmi can you guys address that question? I think he asked a question on dollar versus euro.
There is no impact because if you look at it, my predominant, almost 99% of my business is in USD. It will not have any impact on our operations at all.
99% of business is USD.
Yes.
The next question is from the line of Kashyap Javeri from Emkay Investment Managers.
Three questions from my side. One, what is the gross debt as of June 30 and what is the cost. Second is, if I heard you clearly, then the CIS countries are, let's say, Russia and surrounding countries, volume growth would have been same as what it was for the overall growth? And third question is that in terms of new client addition and ramp-up in U.S. and Europe, what's the update over there? So these are the 3 questions.
[Indiscernible].
Yes, sir. You can -- the participant is a muted from your line.
Yes. I'll just answer, yes.
Did you hear my question?
Yes. I did hear you question. Regarding our debt -- regarding the 30th of June, it was INR 160 crores with the total long-term debt, and we have the working capital base on utilization, which is around INR 225 crores.
So all put together, it is around INR 400 crores is the total debt, working capital as well as the term loan.
And the cost?
Actually it will vary from facility to facility on an average, which will work it out around 5%.
Okay. And if I heard you correctly, since the BIS let's say, Russia and around country growth would have been same as the overall volume growth this quarter?
Yes, yes.
Last question is [Indiscernible]. In U.S., which we had in the last about 18 months, what's been the ramp-up? And also in Europe, if you can give some highlight is, is there any new client addition over there also?
Book in the U.S. Any ramp-up in U.S. or in our new clients?
So I mean the U.S., the usual growth is there, year-on-year, we are growing volumes over there. So the same pace of growth is continuing. We are getting into more of smart packs and all also in the U.S. market right now.
As far as Europe is concerned, we've added with our existing supermarkets itself, we've increased volumes almost sevenfold. And going forward, we are in the process of adding some more supermarkets as well. So the Europe business also is expected to grow.
The next question is from the line of Ritu Modi from IIFL AMC.
Yes. Sorry, I joined a bit late, so apologies if I'm being repetitive in the question. Just wanted to understand the margin compression that we've seen on a Y-o-Y basis despite the very strong growth in terms of volumes that we're seeing. So is it only to do with the cost of high volatility that we see or is there [ reduction ] there?
So fundamentally, one should understand that business model, for the last 25 years, has been a very simple model. We work on a fixed margin basis. So no matter what the green coffee price is, our margins remain constant, which is why our per kg realization also has been constant. So in the current situation, also, our per kg realization is still the same.
The volume increase as in the value increase that you are seeing is because of the raw material. And if you calculate on a percentage basis, yes, there will be a reduction. And this guidance we have projected more than a year ago, we made it very clear that because there is a substantial increase in green coffee prices.
On a percentage basis, the EBITDA margin appears to come down. Though in reality, on a per kg basis, there is no variation. The fact that the EBITDA growth and the bottom line growth is also proportionate to each other will give you a clear indication that there is a volume growth accordingly. Same volume growth is there.
Understood. So if -- if I again understand this correctly, in FY '22, we did see on a per kg or a trend basis, we did see tapering off versus what we had in FY '22, given the fact that freeze-dried was a lower component as much. So is that trend continuing even now? Or are we seeing some improvement in the spread versus FY '22 level, average FY '22 levels?
So FY '22 and FY '23, whatever we are producing will be the exact same volume. The only difference that had come up or the exception that came up is, the Russia war was declared in March, which has resulted in deferment of contracts from the last week of March to the first week of April. Because of that, the booking of the contracts get transitioned from the previous financial year to the current financial year. That is the only change that is there. There is no other change.
Yes. I understand that, but I'm just talking in terms of the spreads that we talk about, like the per kg EBITDA . FY '22 did see a decline in the per kg EBITDA because of the mix really being more towards spray-dried. So is that still continuing? Like are we still -- so basically in 1Q? Is the spread similar to what we had in FY '22?
Yes. So, the spread is getting corrected in this year because of the simple reason that the dispatches are taking place normally. Last -- I mean the previous quarters -- in quarter 4 of last financial year, because of that deferment and because freeze-dried is a higher-margin product, we saw that impact temporarily.
Understood. Okay. Secondly, just with the new plant, which is likely to come through in the fourth quarter, is any change in our volume guidance per se, because of this new plant that they're likely to put through and which will start contributing probably in 1Q FY '25 from a longer-term volume guidance perspective?
So the earlier guidance that we had given was 15% to 20%, assuming the existing capacities. But now since this existing expansion is on track, we are hoping that we should come closer to a 20%, 25% volume increase for the current financial year.
Value-wise, it will be significantly higher. It will be 50% plus. But I'm talking about, on a volume basis, on an EBITDA basis, on a bottom line basis. It will be in the range of maybe 20% to 25%.
Understood. Okay. And sorry, my last question is also on the small pack capacity, because I heard you all said it is being operated at almost 55% utilization. So would it be right to assume that as and when the utilization levels of this keeps on improving, you're going to be seeing an improvement in the EBITDA per kg as well or from an entire company perspective?
Yes, there will be an improvement in utilization for both -- domestic itself will improve by the 30%, 40% volume that we are growing. And we're also looking to add new clients, especially for small packs. So we are looking to fill up this capacity very fast.
The next question is from the line of Devanshu from Yes Securities.
Sir, I just had 2 questions. So with these new order wins and the ramp-up in CapEx that we are doing, will this allow us to increase the proportion of higher value-added products category? And as a result, allow us to move towards our intended EBITDA per kg target of 125, 130? Or would it not be right for us to expect the same given that the saliency of the trade drive would be on the rise?
Yes. So we do intend to move towards that, and that's the reason we are aggressively targeting small packs. So as and when small pack goes, or goes up, the EBITDA per kg will definitely start improving from here.
The last 2, 3 years, we also had seen a higher EBITDA because of the fact that our freeze-dried volumes increased more in proportion to our spray-dried volume, which has not been the case in the last year and maybe a couple of years going forward as well.
So that's the whole -- there is not just 1 factor putting up or pulling down. There are multiple factors playing on to it. But we are very confident that with the higher proportion of small packs that we are targeting going forward, our EBITDA should improve.
Sure. Okay. And can you give me a sense of your client and geography concentration right now and given the outlook and the order book that you have with the new order wins, how do you envisage this to change once your ongoing CapEx come downstream entirely. So FY '24 onwards, if you can give a sense of that?
I just know there's not much of a change. There is no overdependence on any 1 particular geography or territory. We are spread out across the world. Right now, we're in about 100 different countries. And going forward also, there could be some marginal changes here and there from 1 country to another. But we're not foreseeing any significant variation as such. There's no overdependence on any 1 country that we foresee going forward.
Sure. So just a last question from my side, also an observation that I made here in Mumbai. So it seems that in the branded business, there are -- obviously, the company is going aggressive when it comes to the smaller pack, right, to, obviously, to induce more and more smaller trials. So can you give us a sense on how the mix is between smaller packs or trial packs versus the larger packs that you are seeing in domestic market?
Okay. So domestic market right now -- so the domestic market, the international market, when we talk about small packs, it is actually the 200-gram jars and cans and things like that.
In domestic market, the scenario is completely different. Here, when we say small packs, we really mean single-serve sachets or maybe 3, 4 use sachets, which is INR 10 and below price point. So as of now, because our distribution is largely -- when you start your distribution, it is from the top of outlets. So you are distributing first in the larger outlets. So therefore, our proportion of larger packs is higher as of now, which is like almost 70%. And 30% is our proportion of the smaller packs, which is INR 10 and below SKs.
The next question is from the line of Himanshu Nayyar from Systematix.
Yes. Sorry. Just a clarification on the new CapEx that we have planned, I mean is the land cost also included in this? Because for INR 320 crores for 16,000 tonne capacity for a greenfield, I mean, it looks on the lower side.
So INR 320 crores is -- it's for everything. It's a greenfield project, so land is...
No. Actually, the land portion, we've already bought the land under CCL. So we'll be leasing out this to the new company and then setting it up. So the land component is not included in numbers.
Okay. So that is already with the company you're saying?
Yes, it's already there. We bought this 100 acres of land in Tirupati District. That's why we're planning on growing this expansion.
Okay. And just one final question. I think, I mean, if you can address this, I mean, we are seeing all incremental capacity addition only in spray-dried coffee. So is it that, I mean, the competitive intensity is quite limited here? And there is some amount of down-trading or consumers don't want to spend too much on the premium side?
That's why there is more demand for spray-dried. I mean is that reason or it's more of -- more about demand supply dynamics for freeze-dried and spray-dried? And whether going forward also, you expect that spray-dried would be the dominant variant going forward.
I can give you clarity for the next 1 year at least how things are -- right now, with the green coffee prices last year, there were 1,300 levels. Today, it's at 2,000 levels. So there is a substantial increase in raw material commodity prices from last year to now.
So this has resulted in a trend where people are preferring spray over freeze because they don't have that kind of spending capacity. As in raw materials itself has gone up so much when it comes to the final branded product, the difference is significantly larger.
So that's one main reason why that the demand for freeze-dried hasn't really increased that much. That said, 2 years ago when things were looking up for freeze-dried, several companies have already bought the equipment. They've actually completed the installation that come online, either in last year or current year, or they will be coming online next year as well.
Now the thing with freeze-dried coffee is, we need to have a cold room with minus 60 degrees temperature. So based on running that plant, you have to run the plant, you have to take orders, whether you get lower margin or higher margin become secondary after a certain point. If you need to run the plant efficiently, you have to secure orders.
Which is why we foresee that some of these new players are going to find it very difficult to sustain and it could lead to a price war, which is why we are not confident at this point in time to go in for freeze-dried expansion. We do have the infrastructure in place. We can easily go in for expansion.
If we decide to go in for expansion, it will be only if we have that confidence that there are certain customers who are partnering with us are committing to certain volumes. Otherwise, it doesn't make sense for us to look at freeze-dried expansion at this point in time.
Got it. And just one final question then in this regard only. So our EBITDA per turn or per kg that we make, as you were talking about how different it is for -- on an average basis, say, for freeze-dried and spray-dried, just to get an impact on the overall number that we do.
In freeze-dried, as of now, we have only [ vanilla-type ] products that need certain limited quality that we are selling. So your margins are more or less uniform over there. Spray-dried is a completely different animal. There are certain spray-dried products, we have 5x the margin of that freeze-dried, 5x I'm talking about. And there are several other products, which will be maybe 1/10 of what we are earning in freeze-dried. So the spread is huge in spray-dried.
So for our current portfolio, it should not make too much of a negative impact, that's what you -- that's what I can sort of take away.
Yes, it's not too much of a negative impact for us.
The next question is from the line of Jenish Karia from Antique Stock Broking Limited.
Sir, you mentioned that volume growth for the quarter was 25%. Can you just break it up into India volumes and Vietnam volumes and further down to SDC and FDC volumes?
No, we'll not be able to break and give some details of volumes. We generally don't share so much of volume data. Just for you to understand that how the profits have moved in line with volumes, we shared this data with you.
The next question is from the line of Manish Mahawar from Antique Stock Broking.
Yes. In terms of guidance, Srishant and Praveen, you upgraded to maybe 15%, 20% to 20%, 25%. And you are the reason of you are coming up with a CapEx in [indiscernible]. In terms of a customer perspective, I wanted to know, have we got any new customer tie up? Because I think in the opening remarks, Praveen has highlighted, I think you have [ gotten ] a few new customers. So can you throw some light on your customer side?
We can't take the names and tell you exactly the same. Beyond the things that we told you that we are getting -- and it's not just about now. It has been our endeavor always. And that's how we have operated, that's how can we get new customers and how we can improve volumes for our current customers.
So that has been our model, that's how we have been working, and that's how we'll keep working in the future as well. The reason why I said that new customers is because of the fact that somebody had asked that what gives us confidence to fill up this odd new capacity, so that's the reason I said that because we are getting new customers as well, we are very confident that from the existing customers and from the new customers and domestic market, all put together, we are very confident to fill up this capacity. And therefore, we are so aggressively building up capacity.
Okay. No, Praveen, I'm asking because a few months back, I think we have given a 15%, 20% volume guidance now 20%, 25%, and our project time lines are remain same, right? so what is -- I wanted to guess what has been the last 3 months we upgraded the guidance? That's the perspective.
Okay. So the simple perspective, as I told you, in 1 more -- to an answer to 1 more query, I had mentioned that we have started actually outsourcing coffee, some of the generic products. And that we did not -- we were not anticipating this 2 quarters ago. But now that we are doing it, actually, this has given a little bump in the Q1 to Q2 as well, which means that, therefore, we are upping this number.
And that's the reason I'm saying that we are, in fact, more confident that from the day 1 when the capacity gets enhanced, we'll be up and running to fill that capacity.
Okay, understood. And in terms of a CapEx perspective in Tirupati, just wanted to know if suppose land will be included to the CapEx number. So the CapEx should be around INR 400 crores, INR 450 crores, if the land will be included. The current because why I'm asking 16% of a plant, your CapEx is low. That's why I wanted to understand.
So that is one of the USPs that we have with respect to the technology, as you are already aware, we don't give a factory building to any 1 manufacturer on an OEM basis. All the other companies might be doing that. But for us, we build things ourselves. There are certain equipments that we build ourselves, there are certain procurements. We buy equipment from almost 8 or 9 different countries. We do the integration in-house. So the way -- we know how to build factories very efficiently. So that is one of our biggest strengths basically.
Okay. And any reason we have not done the CapEx in Chittoor, I think we have Chittoor, I think, extra land as well. We wanted to keep that for FDC purpose in the future.
What LTC?
No, no. Basically in Chittoor, I think we have extra land as well, right? In Chittoor plant?
That's why we're setting up this unit, no?
Same land bank, right? It's the same land bank.
Same land bank that we already have. We have an [indiscernible] in 1 area, the EOU is there, no? The [indiscernible], we are setting this up. [indiscernible]
Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for their closing comments. Over to you, sir.
Yes. Thank you, everyone, for joining us. And we look forward to meet you all in the next call.
Thank you, members of the management. Ladies and gentlemen, on behalf of Nirmal Bang Equities, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.