CCL Products India Ltd
NSE:CCL
Earnings Call Analysis
Q3-2024 Analysis
CCL Products India Ltd
CCL Products India Limited saw a significant rise in turnover, achieving INR 664.48 crores in Q3 FY '24, a notable increase from the INR 535.3 crores reported in the same quarter of the previous year. Despite the increase in revenue, the company's net profit contracted to INR 63.29 crores from INR 73.06 crores in the prior year's corresponding period.
The company's EBITDA was INR 112 crores, with profit before tax (PBT) standing at INR 66.69 crores for the quarter. Over a nine-month period, EBITDA rose to INR 329.38 crores from INR 287.64 crores year-over-year, and the PBT dipped slightly to INR 205.82 crores from INR 210 crores. Meanwhile, the net profit for these nine months barely budged, sitting at INR 184 crores compared to the previous year's INR 183.59 crores, indicating relative stability in profitability despite minor fluctuations.
CCL Products faced logistical challenges related to the Red Sea, which prevented approximately 800 metric tonnes of product from being shipped as scheduled. This issue caused a deferral of sales from December to January, thereby impacting the reported figures for the quarter but expected to contribute to the next one.
An operational breakdown in the company's Vietnam unit led to a pending insurance claim, which is estimated to be about 5% of the bottom line. The timing of this claim's realization will affect the company's financials, potentially within the current year if received timely. The volume growth for the quarter was reported at 14%, but it was projected that if not for the delayed shipments, this could have approached 21%. As for the company's guidance, no significant changes are expected, and the full impact of the recent operational setbacks will become clear by the end of the following quarter.
CCL Products engages in two main types of contracts: Free On Board (FOB) and Cost, Insurance, and Freight (CIF). With FOB contracts covering 70% of operations, the buyer bears additional shipping costs, which shields the company from sudden expense increases due to logistical disruptions. Meanwhile, the remaining 30% are CIF contracts, meaning the company is responsible for extra expenses, which could slightly compress EBITDA margins if alternative shipping routes from the Red Sea situation are costlier.
The company’s debt levels were reported at around INR 1,400 crores. The average receivable collection period was noted to be 60 days, with payables at 15 days, indicating the company’s efficiency in paying its dues while also managing to secure a reasonable turnover time for its receivables. Inventory levels for finished goods stood at INR 130 crores as of December 31st, which could have been reduced if sales were not deferred due to the shipping issue.
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Ladies and gentlemen, good day, and welcome to the CCL Products India Limited Q3 FY '24 Earnings 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, Manuja. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products India Limited 3Q FY '24 Earnings Conference Call. The management is represented by Mr. Challa Srishant, Managing Director; Mr. Praveen Jaipuriar, CEO; Mr. B. Mohan Krishna, Executive Director; Mr. V. Lakshmi Narayana, CFO, Mr. Sridevi Dasari, Company Secretary; and Mr. P.S. Rao, Consultant Company Secretary.
Without further ado, I would like to hand over the call to Praveen sir for his opening comments, and then we'll open the floor for question and answers. Thank you, and over to you, sir.
Thank you, Abhishek. Good morning, everyone, and wish you all a very happy 2024. As far as the performance of the group is concerned, the group has achieved a turnover of INR 664.48 crores for the third quarter of '23, '24 as compared to INR 535.3 crores for the corresponding quarter in the previous year. And the net profit stands at INR 63.29 crores as against INR 73.06 crores for the corresponding quarter of the previous year. The EBITDA is INR 112 crores, and the profit before tax is INR 66.69 crores.
As far as the 9 months YTD performance is concerned, the year-to-date turnover has been INR 26.98 crores as compared to INR 51.13 crores last year. And the EBITDA for the 9-month period in this year stands at INR 329.38 crores as against INR 287.64 crores for '22/'23. The PBT for the 9-month period stands at INR 205.82 crores as compared to INR 210 crores last year. And the net profit for the 9-month period stands at INR 184 crores, which is as compared to last year is INR 183.59 crores.
There are 2 updates, which I would like to give it to you. In this quarter, during the last 10 days of the month in December, we faced issues pertaining to Red Sea, which meant that a lot of containers, which were ready to be shipped could not be shipped because the liners were not taking containers because of the Red Sea issue that led to deferment of sales from December to January. The quantity was almost 800 metric tonnes, which is reflecting in the balance sheet.
And since most of you wouldn't have it, that is probably you wouldn't have noticed it. But that's one issue that we faced, which impacted performance in the last month. And also, there is an update on the insurance that we have claimed for the breakdown in the Vietnam unit, and we have filed the insurance with the insurance company. And as we had informed earlier, it's almost 5% of the bottom line. And as far as the claim is concerned, if we get the claim this year, then it gets reflected. Otherwise, we will wait for the claim to come, and then we'll accordingly inform all of you. So that is the update from our side, and I open the floor for questions.
[Operator Instructions] The first question is from the line of Kashyap Javeri from Emkay Investment Managers.
So a couple of questions from my side. One, you mentioned about roughly about 800 tonnes of material which could not be shipped that roughly probably translate to about INR 40-odd crores of turnover?
Yes, yes, around INR 45 crores, INR 40 crores.
Adjusted for gross margin, the full amount would have impacted our EBITDA number also?
Absolutely.
Right. Second is on, in the last quarter when this breakdown of equipment had happened, what we had highlighted is that some pushover of volume from quarter 2 to quarter 3. Now even if I adjust, there's about 800 tonnes, that pushover of that volume ideally should have helped us achieve a fairly strong volume growth in this quarter, which is probably not visible. So -- but what explains that?
Okay. So there was no pushover from quarter 2 to quarter 3. If you remember what we had explained in the last quarter because of the breakdown in Vietnam, we have said that we would try and kind of be a little more aggressive in this quarter to make up for the volume as much as possible. But there wasn't -- if you see this quarter, you will see that we are at around 14% volume growth. And if this 800 tonnes would have come, this would have gone up to approximately 20%, 21%, and we could have made up a little bit in this quarter, but there was back-to-back issues that happened in both the quarters. Otherwise, things would have been better as far as numbers are concerned. But having said so, even in spite of the Red Sea issue, we did manage a 14% volume growth. And we expect all of that to get translated in quarter 4. And hopefully, as far as the top line guidance is concerned, there won't be any change in terms of our growth trajectory. Probably, yes, this 5% of profit/loss that we probably were got impacted because of the breakdown, that would lead to a certain kind of a profit we guided. But that will again depend on the claims, et cetera. So broadly, the guidance remains the same. Yes, this impact, we will be able to know only by the end of the quarter.
Okay. And a connected question is that, let's say, this Red Sea problem persists and we have to use a different route, who bears the expenses?
So Kashyap as far as we -- so we generally have 2 kinds of contracts. So for the FOB contract, of course, the buyer bears the expense. There are certain contracts, approximately 30% of our contracts are CIF contracts. So of course, that expenses will be borne by us. And that, in fact, could lead to a little bit of a compression in the EBITDA margins.
Okay, okay. And some bookkeeping question. Can you give the gross debt as well as the inventory receivable and payable numbers for the quarter? Can you share that?
I'll just ask our CFO to give you the numbers.
So the debt as of now is around INR 1,400 crores. Okay. And the receivable part is around 60 days and the payables are...
Sir, I can't hear you clearly.
The receivables are around 60 days and payables are at 15 days.
Okay. And including this additional inventory of about, let's say, INR 40 crore, INR 50 crore, what would be the inventory number?
Inventory, it was almost around for finished goods, if we take it around INR 130 crores.
Sorry, I can't -- I didn't you.
INR 130 crores.
Additional versus previous quarter?
Yes. Total as on 31st December, which would have been less by selling it off that 800 tonnes, which is maybe around INR 35 crores less, maybe we might have ended around INR 102 crores.
102 days, right, not...
INR 102 crores by selling it off another 800 tonnes, which we are supposed to dispatch.
Sorry, I'm getting a bit confused. So can you give me exact inventory number on balance sheet as on 31st of December?
On finished report, it was INR 135 crores.
Okay. And other inventory, raw material as well as finished goods?
Raw material, we have almost around -- group level around INR 400 crores.
The next question is from the line of Amol Rao from Kitara Capital.
Sir, just -- I mean, a couple of questions on the outward freight side. Now as the previous participant asked that we might incur some additional expenses for the freight for our CIS contracts. Does the export -- has the export time also elongated, so should that reflect a little bit in our receivables also? Because they want to take a longer route, right? So...
So it's not 4 to 5 days. It's not really needle changing, yes, but there will be a little bit of a delay. So 5 days of more delays, the growth would be a little more, that could impact a little bit. But these are little impacts. We are not showing at a larger level things would change drastically for us.
Okay. And sir, another question, which is -- having larger scope. There is no deferral of demand, right? The demand remains intact, it's just meeting that demand that is taking a little bit longer from our side, right?
Yes, there isn't any issue with the demand and the demand remains intact, and it looks like there is in fact, a more pent-up demand, which is getting reflected in the box sizes as well. So we are not seeing any sort of issues with the demand side. It's been more of our supply constraints that we have internally, otherwise, demand is intact.
Sir, if I may just squeeze in 1 more question. Sir, the last time we spoke in December, I mean, you alluded to coffee prices being at 3 decades highs. I mean what's the sense you're getting on the Vietnam crop? I mean is -- are the prices still elevated in anticipation of the poor rains? Or I mean, anything you're seeing on that? Anything that you could help us on that front.
Yes. So in fact since the time we last spoke, the coffee prices have gone up quite a bit. It is almost at an all-time high and unexpectedly high because nobody expected these kind of prices. So yes, there are 2 things. One is, as we spoke earlier, the demand remains robust. So there is a huge amount of coffee, which remains intact. But yes, there are issues in terms of supplies because of probably poor output of the crop or at least there is a perception that there is poor output and there are fund guys playing into this. The coffee farmers are wanting to hold stock because everybody is more of an upward trajectory mode. So all that is leading to high coffee prices. Future outlook, all our outlook has gone wrong for the last 2 years. So very difficult to predict, which way they could turn around, probably takes a trigger to turn things around. But as of now, in the short term, we don't see any sort of price indication that which side it will go. And it looks like it will remain at these levels for some time.
And in the middle of all this chaos, our business model remains intact. That is we book the coffee back to back when we get our...
Yes. There is no change in our business model. We kind of book back to back, and we don't kind of buy coffee unless and until we have orders.
Got it. And sir, on the expansion side, are we on track with our expansion in India, which is basically going to come in probably in October, November of this year?
No, no, no. India expansion wasn't in October, November. It was March. So that is on track. The Vietnam expansion was July/September quarter, that is also on track. So we are on track for both the expansions.
The next question is from the line of Shirish Pardeshi from Centrum Broking.
I have a few questions. You mentioned that 14% volume growth, can you break that growth for India and Vietnam. And second question is that if you could talk something about India branded business and the institutional part of the business and modern trade. So maybe segmental what kind of growth you have seen in the...
So first of all, answering your first question, the India volume growth were, in fact, declined because if you remember last year, we were doing third-party buying and all that and also add to it, the deferment that happened at the end of the month. So there was almost a 10% -- 10-odd percent decline. And Vietnam capacity is almost at a 40%, 50% upside because of the new capacity with vigorous upselling that we were doing. So this is the breakup of these 2 segments. As far as India domestic business is concerned, India domestic business for the 9 months, we almost did approximately INR 235 crores -- INR 230 crores to INR 235 crores, out of which the branded business itself is approximately INR 145 crores. If you remember for the last year, we had done a full year of INR 150 crores of branded business we were able to touch in 9 months. Projection-wise this year, we are looking to touch the INR 200 crore mark for the brand alone and INR 320 crores or so for the full domestic business. As far as channel growth, I think most of the channels are growing at the same momentum. The brand currently is on a 40%, 50% kind of growth momentum after a bit of correction in quarter 1, quarter 2. And we are seeing this kind of momentum happening from all the channels, both all GT, MT as well as e-commerce. So yes, it's been an all-round growth for us.
And I think last time you mentioned that our touch points is somewhere around 1.2 lakh and 80% is residing in South. So an update as of December, how it is panning out?
No. So every quarter, we kind of add around 2,000, 3,000 outlets that we are continuing to do. And we are now kind of -- last time, we have given an update that we are now aggressively trying to expand in other parts of the geography beyond South. So as of now, today, in almost all plus population town, we have our distributors set up. So that expansion we are taking and we are building on some of the other brands. So in South, we sell Continental Extra. We are building special in other parts of the country.
So all that is happening, and it's indeed all around kind of a growth happening. So in South, we are trying to penetrate deeper. So we are now probably touching almost all towns above 50,000. So that's been our strategy, go deeper in South and kind of expand to key geographies in North and key towns because in other parts of India, coffee is very urbane phenomena. So that expansion is an ongoing process and we have taken steps.
Okay. My second last question on the U.K. acquisition, Lofbergs. Any update at this time, which is you can quantify how it is panning out?
So in terms of numbers, we are probably -- we would see very -- in fact, there was a period of changeover and which happens in any acquisition. So from July onwards, we started taking things on to us and then we started reworking on the product packaging and all the promotions with our U.K. partners.
And we took around 4, 5 months to kind of stitch everything together. We are now good to relaunch March end is when we are looking to relaunch with our new packaging, new product and new strategy at all stores in U.K. So this year's numbers will not be much. It will be approximately INR 15 crores or so. But then after March relaunch, we'll be able to update that how the relaunch has been appreciated in the market going forward. But yes, a lot of work happened during this interim time in terms of relaunching the whole proposition and...
My last question on margin front. We have been able to hold on between 40%, 41% gross margin, while the EBITDA has been a little on the lower side. So in the medium term, what are the pain points, which -- where do you think -- I mean you touched upon the coffee is still looking inflationary. But is there any margin room for growth for us and how we should look at the next year margin?
So like last time, we had pointed out, there is no apparent or very, this thing, reasonable kind of deviation that we are looking at the margins because there are 2, 3 factors or 4 factors that will play out. One is definitely so -- is the product mix. So if you would have seen our product mix for the current expansion and the expansion which is coming in India will be on the spray dried side. In spray dried, you earn little less margin than the freeze dried side. Then what will happen is next year, September onwards, October onwards, the freeze dried capacity will come. So that will improve the margin. On the other side, we are also trying to focus a lot more on small packs, which helps us give better margins. We are looking at specialty coffee, which will help us -- there are a lot of factors which are going to play around. There are some factors which will pull up the margins, some factors which will bring down the margin. So on an overall consolidated levels, we don't see much of a change in the margin that is going to happen in the near future.
But yes, going forward, once things get stabilized, once your mixes get stabilized, once some of our initiatives regarding small packs, specialty coffee, they all start coming into play, then we probably will start seeing improvement in margins as well.
The next question is from the line of Akshay Chheda from Canara Robeco Mutual Fund.
Sir, 2 questions. Sir, first question is, sir, you said that 14% volume growth, but EBITDA growth is only 10%. So what explains the 4% gap? Because ideally, we keep guiding that the EBITDA and the volume growth should go in hand in hand.
So Akshay, actually, EBITDA growth is, if I'm not wrong, around 11%, yes. And it's 14%. So there has been a 3% drop. As I mentioned a while ago, the 3% drop is because in our volume bits, we have been selling at Vietnam because not every product fetches you the same kind of margins. So what we did was because we wanted to fill capacity and make up for the losses that we had in quarter 2, we did some low margins contract as well in Vietnam, which led to a little bit of a squeeze in margin which you can see in terms of 2% to 3%.
But overall, stream of things if you see YTD, there isn't much of a difference. We are actually -- there is 12% to 13% growth in volumes and 15% growth in EBITDA. So we are probably at a YTD level, we are intact. And as I always have said that at a quarterly level, these big changes and all that would come into place. And therefore, you may see some variation, but on an annual basis, our guidance remains intact, volume growth and EBITDA growth will be always in line.
Okay. Sir, second question is, sir, if we see the second and the third quarter, so at least the EBITDA growth was around 13% and 10%. But on the annual guidance, does that 18%, 20% volume growth still hold true or sir we'll to have curtail that to some extent? Because at least the second and third quarter, we are lagging a little bit...
We are lagging. But, Akshay, couple of things. One is that volume growth, we are pretty confident that we'll be able to get to that 18%, 20%. In terms of EBITDA, because of that loss in quarter 2 at Vietnam, and subsequently, when we are trying to cover up, obviously, as you've seen in quarter 3, there is a little middle stress on margins because we want to aggressively cover the top line. So there could be certain drop because we may not get the insurance claim this year, it may happen later. But broadly, if we were to get that insurance claim, that guidance of 18%, 20% remains intact both for volume as well as for EBITDA.
The next question is from the line of Abhilasha Satale from Quantum AMC.
So I have one question is in terms of working capital. So can you just throw some light, what is the impact of Red Sea fee issue on our working capital in the near term? You can just give approx numbers in terms of how much you're seeing the impact?
And secondly, as our Vietnam capacity stabilizes, what kind of working capital outlook you are seeing for that because in the last, say, 1 or 2 years, we've seen some increase in working capital maybe because of the different issues. But as we stabilize all our capacities, what are the working capital days what we will be comfortable with? This is my first question.
Yes. If you look at it, the kind of revenue growth and the volume of the production that is happening, we have aligned EBITDA enhancement of the working cap facility in India by INR 200 crores. And whereby now earlier the INR 400 crores working capital loan, it is likely to increase to INR 600 crores in India. And regarding the non-coffee Vietnam, wherein the new capacity has come into operation. Earlier, we have almost around USD 15 million working capital exposure, now it is going up to almost around to USD 45 million, which we have necessary arrangements have been taking place. As a whole, if you look at it, the working capital is likely to be from earlier INR 600 crores, it has gone up to INR 1,000 crores.
Okay. So I mean do we -- are we seeing -- are we taking any measure to bring it down as our facility stabilizes? So over these 2 years or so, maybe in percentage of revenue and all, where would we like to -- or what is the target to stabilize our working capital at?
So now we are at the peak level, it is likely to go up another INR 200 crores maximum by next year. But post that, it is -- the free cash flows are going to be available, then we keep reducing it.
Okay. And my second question is what is our burn on branded segment in 9 months FY '24? And can you give some road map towards profitability for the segment?
Can you just repeat? Your voices is a little bit -- it's not very clear.
Okay. So my second question is like how much is burn on branded segment in 9 months FY '24? And can you give some road map towards profitability for the branded segment?
Okay. So first and foremost, there's no burn there because last year itself, we had indicated that we have broken even. And probably from this year, we will be at 5%, 6% EBITDA level, which will keep increasing as we go along. But yes, the fundamental principle here will be that we'll try and invest as much as possible back into the brand because we really don't kind of want to slow down the momentum at this stage when the brand has got that momentum.
And it's getting into that threshold levels of being a fairly largest brand, this year, we are looking to end the year at just the brand-brand segment at INR 200 crores. So that's a very, very big milestone because there are not many brands who kind of achieve this kind of a milestone in this short period.
So we really want to keep up the momentum, keep investing back into the brand. But yes, 5%, 6% of EBITDA is definitely there right now, and we will see how we can improve it. But with this thing, we really want to right now be invested in brand building.
Sure, sure. I appreciate. But I think at PAT level, we would still be burning if I'm not wrong.
So after -- so there isn't much of a distinct PBT, there is no listing, the brand demerger has happened. So there aren't any loans to be serviced or there is -- it's not asset this thing. So there isn't any depreciation or anything. So there is not much of a difference between an EBITDA level than at PBT level. So except for the vending machines that we buy, which probably have a little bit of depreciation, but those are very less in numbers. So there won't be much -- EBITDA levels would be at around, let's say, 5%, 6%. The PBT could be at around 2%, 3%. And PAT will not be getting impacted so much. So therefore, there isn't any burn even at the PAT level also.
The next question is from the line of on Ankit Kanodia from Smart Sync Services.
And apologies if these questions have already been answered, you can skip it. My first question is related to the tax outlook. So suddenly, we have seen a very big drop in taxation this quarter. Can you throw some light on that?
So here, if you look at it standalone, our -- we are falling under MAT because of the carryforward MAT credit, the effective tax rate, it is in India is working about 7.70% to 7.75%. And as you know, that in Vietnam, it is tax free, we have tax completely exempted. And thereby you could see that drop in the overall effect to tax rate. And as we informed the earlier also, the effective tax rate at group level, it is around 12%.
The next question is from the line of Senthil manikandan K. from ithought PMS.
My first question is with respect to the vending machine business. So if you can just share what the broad strategy we gained over the next 3 to 5 years in building this business in the domestic market?
So vending business, we approximately today have 4,000 vending machines that are operational across the country. And we are looking to build aggressively. See this is a very -- it's a tricky business as well because vending machines, everybody in the market wants you to put without any cost, and then they might end up also buying from somebody else once they get the machine because obviously, there will be local players and traders who probably offer at a very cheap rate and things like that. So that is why we have been investing careful on this front not to go overboard.
Today, we are making sure that it's a self-sustaining model in 6 to 7 months, most of our vending machines kind of payback for themselves. So keeping all this in mind with the new approach we are looking to scale it up and -- but in a more sustainable manner. In terms of the business that it will generate, of course, we're looking to build up our business out of vending itself to a INR 100 crore kind of a business in the next 3 to 5 years to date would be around INR 20 crores, INR 25 crores or so. But yes, that's been our plan, and that's been our strategy as far as vending is concerned.
In fact, last time, we had also kind of apprised all of you that there is this whole out-of-home consumption that we want to tap into and drive this whole out-of-home consumption, a lot more deeper, and there are certain experiments that we have been doing. We have been opening kiosks. We are about to open some cafes as well and do the proof of concept of penetration driving as far as the cafe concept is concerned. So all that work is happening as far as the out-of-home consumption is to be given.
Okay. Second is a related question on the domestic market. In terms of our presence in the coffee retail chains, so off late, we have seen that a lot of start-ups like Third Wave Coffee, they're making a good presence in the market. So what's our presence and strategy in this layer of business?
So I'll just give you a brief background. As far as all the coffee startups today, if you see the India ecosystem as far as coffee is concerned, probably a large part of it is driven by us. So a lot of these coffee D2C brands and the startups, you see whether it is brand or whether it is the chains, we are doing a lot of back-end work with them to drive because our whole concept has been that how could we drive a lot more coffee consumption in this tea-drinking country, yes? So that's one.
Second is in terms of our presence. If you see our presence far outweighs all the brands impact together. Most of these D2C brands are probably in the range of INR 25 crores or so. And we are probably will be reaching INR 200 crores this fiscal. So you can kind of compare the kind of presence we have. So if you come to South of India, and if you start going to retail outlet, you'll see that our presence has a very strong #3 brand in most of the retail outlet, and there are certain pockets where we are seen as the #2 brand. So that is the kind of presence and visibility that we have been able to achieve.
Yes, the next milestone would be to get this kind of presence and visibility in the Northeast and West markets as well, for which the work has started. There are a lot of outlets where we are now fairly visible in these zones as well. So that's a brief outlook of our presence in the retail market.
The next question is from the line of V.P. Rajesh from Banyan Capital.
Just a clarification, when you're talking about INR 200 crore of brand revenues this year, does that include the vending machine business also? Or if not, then...
Yes, it includes the branding because all the vending machines is a branded, which we all sell under another brand. So that is part of the bank. Bulk and private label is outside this.
Okay. And out of INR 200 crores, how much will the vending machine business be by the end of the year?
Approximately INR 20 crores, INR 25 crores would be that, rest of it would be products.
And then in terms of the products as you were describing that you are either #2 or #3 in most of the southern part of the country. So my question is that how is the competitor, the leader or the #2 player reacting on the ground to your surges in those particular markets? Are they trying to dislodge you by discounting? Or what's going on? If you can just give some commentary on that?
So we are fighting against the top 2 multinationals of not the country, but of the globe. And obviously, there, this thing would be -- to be aggressive, they hate to lose market shares. But what we are doing is we are constantly focusing on a lot of consumer offtakes because once the offtake starts happening, it becomes really difficult for you to be -- even if you are very aggressive in terms of doing channel discounts and maybe consumer discounts, once you are building loyalty for your consumers, what happens is that ability for your competition to kind of bring you down that much reduces. So that is why we are doing a lot of activities in terms of building consumer loyalty.
We are doing a lot of ATL activity combined with a lot of sampling that we do on ground which is making a huge consumer base for us. In fact, one of our largest selling packs will be 200-gram packs, which is not the largest selling back of the category. So that gives us an indication that we are building a very strong consumer base, and that is helping us ward off all the competitive pressures that may be coming from the competition. But yes, competition has been reactive. They are doing a lot of things. But consumer is the thing that we are focusing on. And we think that we are doing the right thing as long as the consumers are picking up your brand, I don't think so any of the pressures would kind of work.
Got it. And then just a quick follow-up on the online side. How would you rank yourself and who are the -- sort of what is the market share that you would ascribe to ourselves vis-a-vis these 2 large players or other DTC brands that you were talking about earlier?
No, no. Come again. On which side, did you say? Online side?
On the online channels, yes.
Yes, yes, yes. So of course, online channels, again, we are very, very sustainable on that today. If you see the online channel, there are 2 sets of products that sell. There is one set of products which sell because there is an offline equity that is getting built for the brand. So that -- if you see the large players and including us, which is Nestlé, Unilever and Continental, I can count it now in the same basket.
Our online sales are largely dependent on the off-line equity that we are building. But if you see the D2C brands, their online sales are largely from the huge amount of money that they have to spend online itself. So therefore, you see it is becoming a very, very tough for each of these brands to sustain the online sales itself. And if you were to kind of search for the ROC data for some of these D2C brands, you will be stunned to see the kind of losses these brands end up making. So anyway, I don't want to go into that side. But that's been our strength. We have been very strong on online. But the good part is that I spend INR 1 to get INR 3 revenue in online, whereas most of the D2C brands, we the D2C ecosystem, their ratios have been upwards of 1, which means that the probability will really gets reduced.
So that's been our strategy. We'll be very, very -- we are very focused on online. Today, almost 10% of our sales, which is approximately out of INR 200 crores, INR 20 crores to INR 25 crores is coming online, which is equal to some of the large D2C players who are much talked about in the market. But yes, the only difference is that we don't go tom-toming about it. And the second thing is that we are building it very, very, very sustainably.
No, that's wonderful. Just one follow-up. Do you have any market share later on the online side? Like where would you stack up among top 5 or top 10 players?
Very difficult to visit online market share data because we are -- but our sense is that from whatever talks that we do with the category managers of the online space, we probably would be close to around somewhere -- my sense is that 8% to 10% could be our share in the online space that we are into.
The next question is from the line of Bhargav from Ambit Asset Management.
My first question is, is it possible to share what is the gross margin in the advertising spend in the branded business?
On a broad level, the gross margins would be in the range of -- so the domestic market, if we look at it as a whole, it's approximately 30%. The brands would be 5% to 7% higher. And our advertising to sales spend is roughly around 8% to 10% as of now. So that's the ratio on the advertising spends.
Sir, as you scale up your branded business, is there a plan to sort of separately list also that entity because essentially, now that it's just part of the B2B business, it may not get fully valued, but on scalable, is there a plan and if there is a plan at what level would you be looking to execute that plan.
So as of now, we want to kind of -- in fact, there was -- it was under a separate subsidiary, which we kind of demerge it back to the parent company because the leverages are much better for us to drive when you are doing it from the parent company. So we really want to go very, very strong on this segment kind of build this segment over a period of time as a vision for the company, we have already kind of earmarked that CCL going forward next 5 years, 10 years, 15 years should kind of transform itself into a true blue FMCG company with a lot of brands getting launched and a lot of brands getting sold. So that's our vision, and we want to kind of translate this vision from the parent complete itself. So that will be our strategy. So in the short and medium term, I don't see any such kind of an effort from our side.
And sir, in terms of debt, we have a debt of about INR 1,000 crores on the balance sheet. When do we plan to become debt-free?
It will take around 3 years or 4 years from now to completely become debt-free, but that's a little -- it will be a hypothetical question because as we move along, as the growth are coming, we really don't know when the next expansion is going to come. But if we suppose we were not to expand and there is no new CapEx that is going to come our way, it will by '28 or '29, 4 years from now, we should be debt-free.
And sir, lastly, what would be the share of China in our overall revenue pie? And do you think that number can eventually grow from here on?
Very negligible right now, very minute quantities we sell right now. But last time we had indicated to you that we are kind of partnering with one of our old associates and we are building that market. So that market right now is in the seeing phase. So right now, there aren't any significant volumes that are coming. But we expect these things to pick up as we move along, and we'll keep you updated as the volumes pick up from that geography.
The next question is from the line of Dhruv Bakhayi from RSPN Ventures.
So can you throw some light on quarter-on-quarter and year-on-year figures for EBITDA per tonne and the overall capacity utilization that you have been able to achieve?
I'm sorry, not able to share this -- can just repeat?
Quarter-on-quarter and year-on-year figures for EBITDA per tonne. And the overall capacity utilization that you have been able to achieve?
So EBITDA per tonne remains exactly the same as before. There is a little drop in quarter 3 because we were selling a little aggressively. But as we had explained earlier that the spray-dried EBITDA per tonne is approximately INR 90 to INR 100 and the freeze-dried is around INR 130 to INR 135. So that remains intact. As far as capacity utilization is concerned, the India capacity is fully utilized. And when we say utilized, obviously, it won't be 100% of the rated capacity, it's generally at closer to 90% or so because of the changeover, because of the kind of names that you are doing. So India capacity is fully utilized. Vietnam is also, last quarter, we did optimum utilization of the capacity. There are -- it's a new capacity. There are certain line balancing and all that, that is pending. But barring that, we did optimize fully the Vietnam capacity as well.
Okay. And sir, one more question. What are your CapEx plans for financial year '25 and '26 financial?
There is new CapEx that is there. We already -- we have announced CapEx. There is a $50 million in Vietnam and another, which is the freeze-dried facility, which is already on. And when I say on the setting up the plant is on, it will be operational from next financial year quarter 2. And the India facility, the spray-dried of 16,000 tonnes, that's also close to $50 million CapEx. So that is also an ongoing project. And by this year-end, by March end, we should be operational.
The next question is from the line of Rohan Gupta Nuvama.
Sir, a couple of questions from my side. Sir, first is on the pressure which we have face on Vietnam with the aggressive pricing you mentioned, which has impacted our margins. It was just a one-off or we see that in our focus on driving the capacity utilization at Vietnam planned to full utilization, we may keep on seeing this kind of margin pressure even going ahead as well? That is one.
And second, sir, across the globally, which are the markets you see that U.S. and Europe are still facing pressure where we are not able to push the materials significantly?
So first thing is -- there is a bit of a margin drop because of our aggressive study. One-off is terminology may not be exactly right. But yes, it is very short term because once you start building clients and when you start building businesses after you have done your -- or filled your capacity or optimize your capacity, then you can start kind of improving on your margins. So -- because the more the utilization I get into my pricing becomes even better because the overheads and all that gets distributed to a larger volume.
So that's -- it's a short term things and definitely, the margins will catch up. If you see the YTD numbers, the margins are completely intact. It's only in this quarter that we saw a little bit of a stress. Then coming to which markets have been a challenge, I don't see that any market has been a challenge for us. It's more that we don't have fee capacity or we didn't have the capacity to expand to some of the markets, you would have ITC expanded America, North America is doing well for us. Africa, small packs, we are doing, where Europe we are doing, where even in Russia and CIS countries, we are doing them.
So I don't see any -- and as we discussed and I updated you, Far East, which is including China, we are seeding the seeds right now and hopefully, we'll start seeing the volumes coming there. But it was never a question of demand or our ability. This thing is more of our capacity issues that led to not touching some of these markets, but we are okay to kind of good to go once the capacity is not there.
Sir, second question is on our margins and spread. You mentioned roughly INR 90 to INR 100 and freeze-dried roughly INR 130 to INR 135. I think that we were earlier focusing on with our small pack division doing very well. We were looking at $1.50 to $2 margins on an overall basis of the company. So when do you think that we will be reaching to those, I mean, $1.50 to $2 kind of margins on an overall company basis?
We will actually. The exact timing is very difficult because a lot of work is going on in small packs. What happened is that if you see the pre-COVID time, our small pack ratios really increased to almost 24%, 25%, then COVID happened and the small packs really declined, and then we focused more on bulk pack. It was almost work starting from scratch post-COVID. So now we are back to approximately 18%, 20% of small packs as we speak. Once we get into a level of around 30% or so, then we start seeing the real value growing into the balance sheet -- sorry, the P&L. But as I was telling a few minutes ago is that in the near short term and in the medium term, there are other things which are also playing up. So what is happening is that our spray-dried capacity is going up, the mix is changing. So we are selling more of spray-dried, which has lower margins. Once the freeze-dried comes, then this margins will again start improving. So there will be certain pluses, there will be certain minuses that will play up. And therefore, with the short term, we don't see much of an improvement in margins per se. But what we are definitely seeing is that because of our aggressive top line and volume growth, the driving of EBITDA numbers will be through this volume growth, yes. And then subsequently, when the next phase comes, we will start driving improvement in margins, and then you will see lot more improvement in margins. And then we'll see how it goes because next couple of years, we are very, very focused that we will drive all our EBITDA and profits to a higher volume growth.
Okay. So sir, commissioning of this spray-dried by end of this year will probably may pull down the margin a little bit, but then once again, freeze-dried commissioning in FY '25 may pull up the margin. But for the next 2 years, at least, we are going to see the volume-led growth on this rather than any margin expansion?
Absolutely, absolutely.
Sir, just coming on the domestic business. If you can just share some numbers that the retail sales -- sorry, if I missed it out, but the retail sales number from the different channels in the current quarter and the 9 months, sir?
So basically, 9 months I'd share because that will give you a better picture. So we almost -- the domestic business in the 9 months did INR 230 crores to INR 235 crores, out of which INR 140 crores is approximately the retail, the branded business, yes. And we are looking to end the year the domestic business at around INR 320-odd crores, and the brand business will be around INR 200 crores. So that is the yearly outlook for the brand business.
Sir, any idea if you can just share that in our retail brand at INR 200 crores, what kind of market share we may have at that number?
Right now, we are very small. So when Nielsen picks it up, there are errors and all that picking up. But if I see our market share in the South market, which is like 65%, 70% of the coffee market because that's the data we buy, so I can share a bit of that with you, is approximately 3.5%. And at all India level, if I were to translate this because I don't have the numbers, so it would be around 2.5%. But definitely, there are pockets where we have done really well. So our market share in, let's say, AP, Telangana would be closer to 8% to 10%, Karnataka would be around 5%, 6%, Tamil Nadu would be around 3%, 4%. So that's a little brief on our market share.
And just one last bit, I may come back on a follow-up question. You mentioned that on the debt number that if we don't go for any further CapEx from here, excluding this $50 million -- plus $50 million commissioning over the next 8 months to 9 months. If we don't go, then you are going to repay? I mean the company will be debt-free in the next 4 years, right? So that doesn't include the growth which you will be doing with the volume led and the working capital requirement? Or that includes that and including the working capital, you would be debt free?
No, Abhishek, term loan, long-term debt is concerned, it completely gets free by '29 with a schedule of repayment. And working capital also, we'll have some ease in working capital as well because the free cash flows are going to flow into it.
Okay. So you mean, you are saying that in -- actually from the current growth plans, you can be debt-free, including working capital, I mean, short-term, long-term both?
Not debt-free. It's not a debt free. There is some easiness there from the current level. So long-term debt, it is definitely going to be debt free on account of long term.
The next question is from the line of Rakesh Wadhwani from Monarch AIF.
Sir, one question. With respect to the standalone business, we witnessed a volume decline in Q3, but there's a gross profit increase. Any reason for that?
So there are some better margin business that happened in this quarter. There was a bit of more of small packs that led to kind of better efficiencies. Therefore, that drop in profit is not there in spite of a drop in volume, yes.
Okay. And sir, again, the EBITDA margin has come -- EBITDA growth has come down, is it because of the shift in the -- or delay in the packaging shipping because the gross profit has been growth at 17%, and the EBITDA growth is negative. So is it because the products were manufactured, but they couldn't be shift, is that understanding correct?
As I mentioned in my opening remarks there was approximately 800 tonnes of product, which we could not ship because of the Red Sea issue during the end week of December. Unfortunately, the Red Sea issue happened at a time when the quarter was ending. So that led to loss in business, so that impacted our P&L.
Okay. One last question from my side, sir, regarding the debt. So you mentioned if there is a low expansion plants in the coming year, for the next 1, 2 years, then the debt -- long-term debt will be zero by FY '28 or FY '29. But I just wanted to know if we expand also the number -- the amount of cash flow that we'll be generating will be sufficient for us to fund the CapEx on that, is that understanding correct?
Very difficult to comment right now because there are working capital -- there will be working capital debt and things like that. So volume will increase. So we'll have to see the situation at the point of time and we are expanding that -- will that debt get serviced through our internal cash flow approvals or not.
Sir, this one, I'm saying because over a period of time now as coffee prices are at the peak, in a 2-, 3-year cycle, the prices will also come down in the coming year. May not be in going FY '25, for FY '26, but they may eventually come down my understanding, so that's why I'm asking?
Yes, yes, absolutely. So if the coffee prices and all that, they calm down significantly, then the situation will change. Free cash flows will be far higher to not -- far higher, in the sense, it won't be -- it would be sufficient to not only kind of ease the working capital requirement, but also kind of fund some CapEx also. So yes, absolutely, you're right, if that happens. Therefore, the reason we are not commenting is because we really don't know how the prices are going to kind of pan out in the next 2, 3 years. Really, at that moment, how things are will determine how are we going to fund the CapEx, if at all, we decide to.
The next question is from the line of Kashyap Javeri from Emkay Investment Managers.
Question pertaining to your debt. The interest cost has gone up from about INR 11 crores to INR 23 crores, INR 24 crores in last 4 quarters. I would -- one question is that, how much is cost of borrowing risen by? And a connected question is that much of this borrowing would be for our expansion also. How much of even further cap interest cost has been capitalized in last 12 months or so?
So if you look at it, at Vietnam, the expanded capacity has been completed in March 2023. Thereby, the loan of $20 million, which we have taken for the facility, the interest has been accounted for in this current financial year. That is one of the reasons being seen in the rate of interest -- in the absolute value of the interest. And the second is, if you could see that the increase in the total overall working capital borrowings has also increased with the volume of the business that has gone up, number two. Number three is the rate of interest is also changing. As you all know that it's all -- most of the export borrowings are linked with so far. So far it has not yet eased out. Because of these 3 reasons, so there is an increase in the overall interest cost.
And how much is capitalized this year?
This year is nothing because the capacity has been completed last year itself. This year it's totally accounted in the revenue.
The next question is from the line of V.P. Rajesh from Banyan Capital.
Just this INR 200 crore domestic business that we were talking about, in the next, let's say, 5 years, where do you think this business could be?
So we are trying to aggressively grow the business. Last time, we said on an annualized level for the next 3, 4, 5 years, we are looking mainly say 30%, 40% growth, maybe even more. So that's the kind of trajectory we want to maintain. So with that, this thing, you're looking to kind of double every 2 years or so from here on. But definitely, as you go along, once the bases gets filled, you're getting bigger, the kind of growth that you are having now also becomes challenging to maintain. But yes, we will be INR 200 crores this year. We'd like to double it in the next 2 years or so. So that's the kind of trajectory we would like to maintain. But this is very difficult to put. I always say that these are very challenging questions itself because it's a very nascent business for us. Come to think of it, we probably were never into FMCG business 5 years ago. So a company which has gone into FMCG business and has kind of attained this kind of scale itself has been a great trajectory. And the kind of things that we are wanting to do, we did explain not only products, we are trying to expand geographies. We want to see that can we launch it in some other parts of the world, Percol we acquired. We are looking to get into retail. So there's lots happening. So really, of course, some of it will work, some of it may not work. We'll have to change track and trajectory. So all that will happen. So to get to a number is something which is very difficult to say. But can we get to a momentum and keep driving this momentum so that we kind of see this kind of aggressive growth? Yes, we are committed towards that. And not only in terms of our intent, but also in terms of resources, that is why I keep saying that next couple of years, we are not intending to improve on EBITDA margins that the brands earn, but plow back everything back into the brand to grow this business.
Understood. And just last question on the B2B side. Do you potentially see yourself acquiring some other converters out there globally? Or the idea is always to put your capacities and growth through that route over the next 2, 3 years, while your greenfield capacities are coming up?
So it's a little, this thing, question, ifs and buts kind of a question because acquiring capacity is not an issue. There are offers that keep coming our way. But if you remember, when we talk about our competitive edge in the market, one of the biggest edge that we kind of enjoy is the -- our ability to do different kinds of blends, different kinds of products. And if you have noticed, we have always said that we build our capacity to our advantage in a way that it is very customizable. So that -- so we really don't -- while there are offers, we really don't want to acquire a setup which is very fixated in terms of its output and then diminishes our ability to be that much more nimble footed in the market. Also, the position matters a lot that are we in a zone which helps us to kind of you know -- so today, one of our other advantages are that we can import coffee from anywhere and export anywhere. So those things kind of help to our advantage, and therefore, we would like to maintain that advantage. So therefore, it's like an ifs and buts. If something right comes our way and we are looking to kind of -- it fits into our scheme of things, we won't be averse to it. But going the way we have gone till now, it looks like the principle would be to kind of build our own capacities going forward.
Thank you very much. In the interest of time, that will be the last question. I would now like to hand the conference over to management for closing comments.
Thank you all for attending the conference, and we look forward to meet you again in the next quarter. And thank you, Nirmal Bang for arranging this conference. Thank you, everyone.
On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.