CCL Products (India) Limited CC-Jun24.pdf · 2024-08-08
Rakesh, I will answer the second one, first. No, there hasn't been an increase in the inventory that the clients are building up because still the coffee prices are at pretty high levels. So, that phenomenon hasn't started yet. So, that's one. The second thing you asked about is volume growth. We are experiencing last quarter around 15% to 16% volume growth, which is in line with the guidance that we have been giving. Despite headwinds, we were able to maintain this kind of growths. Moderator: The next question is from the line of Aashish Upganlawar from InvesQ PMS. Please go ahead. Aashish Upganlawar: Sir, I just wanted to understand your thought process on how the scenario for coffee price is shaping up, I mean, regarding the crop situation around the world, the demand side and, etc.? Jaipuriar Praveen: This one is a little tough. As we had discussed in the last con call as well, things have been very volatile and therefore, the predictability of coffee prices has become very, very difficult. So, what has happened is that Brazil, and last time we had discussed that Brazil seems to be having good crops, it had a good crop, but simultaneously, there were news, and the market suggested that Vietnam had El Nino effect and they had certain crop shortages. So, the prices continue to be very high in Vietnam, which meant that any correction that was probably expected or, let's say, a good correction did not happen, so there was a correction in Brazil, but the prices remained high because the availability and the prices in Vietnam were pretty high. So, net-net, things haven't improved drastically. And to add to the complexities, there has been volatility around. So, that's the situation right now. And as we have been saying, most of the predictions for all the market pandits have gone wrong. So, we really don't want to kind of give a prediction that how the prices will pan out. But having said so, as we have always maintained, some of the trigger points are generally the harvesting season. So, the next harvesting season for Vietnam and the other countries like India also will happen now in November-December. So, that's the point of time. Then we will see how things pan out. But that's the situation right now as far as coffee prices are concerned. Aashish Upganlawar: So, the next point to watch out would be probably in November. Jaipuriar Praveen: Yes, and December. Yes Moderator: The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead. Shirish Pardeshi: Two, three questions. Can you break down the volume India and Vietnam? And the second question is if you can break the spray-dried and FDC volumes?
So, Shirish, I will give you a little broad idea. But let's say, that India, of course, will be closer to 9%, 10%, then the Vietnam will be a little higher because that's where the capacities were added last year and that's the capacity that is working. So, that is the gross this thing. Just give me a second, I will tell you the consol level, what you see behind this. So, let’s say I don't spell out the exact numbers, so 25% of the total volumes will be spray-dried volumes. Shirish Pardeshi: Second one follow-up on this. What is the capacity utilization in India and Vietnam at this time? Jaipuriar Praveen: See, India was minus with food and beverages. So, food and beverages, although we started in March, but there the utilization, a lot of the stabilization is happening. So, while there is a certain sales that is happening, but the capacity utilization is not very high. So, it will not be more than 5% to 10% of the capacity. Rest of the capacity, we were running almost full. And Vietnam would be the earlier line. The first line is running at full capacity. The second one probably at around 50% of the capacity. Shirish Pardeshi: And do you spell out some idea on the India branded and domestic business, how it is panning out, what number we have got in Quarter 1? Jaipuriar Praveen: Yes. So, in my brief, as I mentioned, the India business was approximately Rs. 95 crores. And this is growing at an overall level of around 40% right now. And out of this, the branded business is Rs. 65 crores, and that business is growing, branded and the retail business, that is growing at around almost 45% to 50%. So, that's a little brief. The plans are going well. We are expanding the distribution network. We are also expanding most of the channels right from trade to e-commerce. We are now getting pretty strong on quick commerce. So, yes, on all fronts, we are trying to be best and see how we can keep driving this kind of aggressive growth. Shirish Pardeshi: Do you think this year, we will be higher of close to about Rs. 300 crores, what target we were estimating? The reason why I am asking because we have had a lot of activation on ground. So, maybe if you can help me to get better quality to understand what kind of vending machines we are putting and what is the distribution at this point of time? Jaipuriar Praveen: Yes. So, yes, 300 is the number that we are looking at, which will mean that almost 50% growth over last year. So, that's a number that we are aiming, and this is only for retail. At an overall level, the India business should cross Rs. 400 crores. And yes, there is a lot of ground activation we are doing, both on the demand generation side and the distribution side. And while we do so, there is always, as you know, in FMCG business, it will be an evolution of the distribution as well. So, last time we spoke about how we are not only strengthening distribution in terms of number but also in terms of quality, and it's a better-quality distribution network when I say so, which means that the quality of distributors and the strength of distributors is also increasing by the day. And hopefully, in India, our direct distribution should touch 1,30,000 outlets. And we are also hoping to drive a lot of indirect distribution through wholesale, which means that we probably, in effect, will be touching around 150,000 outlets. So, that's the plan on distribution, and we continue to press upon the demand generation activities right from ATL to BTL. So, all that is happening. We are trying to see are there any other subsegments that we could enter. And yes, so all that work is happening. Shirish Pardeshi: That's really helpful. Just the last question on the margin. Though prices are elevated and we have seen gross margin has declined and also it had the effect on the EBITDA, could you spell out if the long-term contracts are now getting revived at the higher price? Or what is it that we should look forward for next 2, 3 quarters? How will the margin pan out? Jaipuriar Praveen: So, I will just correct the understanding a little bit here. The margins never contracted. Optically, it gets contracted because we would work on a per kilo EBITDA margin, which means that if the coffee prices go up, in relation to top line, the margins may look depleted, but that's not the case. Our per kilo or let's say, per tonnage margins are intact. And that's the guidance we always give that our EBITDA growth will be in line with our volume growth. This quarter, what has happened is that if you are seeing around 23%, 24% EBITDA growth and our margin growth is 15%, 16%, there has been a little expansion because this quarter, we had certain contracts, which were a little higher value contract and more margin contract. So, we saw the benefit of that. And therefore, you will see a margin improvement or, let's say, per kilo margin improvement that we witnessed in this quarter. Now coming back to this question that are the long-term contracts getting revived? As of now, we are not seeing so much of revival of long-term contracts because coffee prices are still high. But yes, it seems that, as it happens in any commodities, once the commodity sees a peak pricing, there is a period of confusion and then things start settling down. So, we are seeing those kind of settlements happening, and we are now seeing some revival, but I would not be too committal about this fact that revival has happened. So, we will wait for 1 or 2 more quarters to see how things pan out. Moderator: The next question is from the line of Akhil Parekh from B&K Securities. Please go ahead. Akhil Parekh: Praveen, sir, my first question is on the coffee prices. If I look Y-o-Y, it has almost gone up by 60%, Robusta coffee prices. While Q-o-Q, it has gone up by 25%. And at the same time, you are saying our volumes have grown by 15%, 16% on a Y-o-Y basis, while sales growth is at 18%. So, is it like you have seen a cut in the pricing in this quarter, 1Q, as the product has deteriorated? Jaipuriar Praveen: So, Akhil, there is no cut in pricing and all that. You know our model, we do back-to-back. So, a lot of this quarter's contract is actually contracts which we had done previously. So, it will be unfair to compare with current prices. So, while the current prices would have gone up by 30%, 40%, maybe 50%, 60%, but that really is not the right indicator because the contract that we delivered is probably, let's say, last year's pricing contract. So, in effect, there may be a lag of 1, 1.5 years also that may come into play. So, that is why that comparison is not a right comparison, I would say. Akhil Parekh: Do we maintain the volume growth guidance of 15% to 16% for this year? Jaipuriar Praveen: If you remember, last quarter, we had given a little broader guidance this time considering the volatility in prices, we said 10% to 20%, landed at 15%, but we would like to guard ourselves and say that we will still maintain 10% to 20%. I would not be committal at this point of time because, as I was telling you earlier also long-term contract revival is not strongly back. Most of the clients are into hand to mouth kind of a situation. So, the orders are really coming not in the long term, but in a very, very short-term manner. So, we don't have so much visibility for me to be committal about it. We maintain the guidance of 10% to 20% as of now. Akhil Parekh: And on the EBITDA per kg, sir, do you still maintain 110 per kg kind of guidance for the next 2 years? Or do you see a change because existing capacity is going to come now on stream in Vietnam. So, can we expect improvement on that sir? Jaipuriar Praveen: Again, not really because as we have been telling you there are a lot of things that play out. This quarter, we got some improvement largely because of high-value contracts, and there are more small packs that we did, but coming quarters, there are some volume contracts, some low-margin businesses that will come our way. So, we would like to maintain the guidance that most of our EBITDA growths will be driven by volume growth and not really by margin improvement after maybe 1.5 years or 2 years-or-so, I think that's the time we will start improving the margin profile as such. And again, it's not an overnight thing. We have always told that we are working towards it, small packs, more of branded business, more of high specialty coffee. So, all that will happen gradually, but the visible effect, you'll start seeing more like in the, say, 1.5, 2 years. Akhil Parekh: Okay. And how much would be small packs, sir, as a percentage of total units? Jaipuriar Praveen: So, broadly, it is at 20%, Akhil. But yes, there has been an improvement because small packs is also our own brand business. So, overall, the small pack contribution is improving, still at a 20%, 25% level, but yes, we are seeing improvement on this front. Moderator: The next question is from the line of Rahul Maheshwary from Ambit Asset Management. Please go ahead.