CCL Products (India) Limited (519600) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CCL Products Q4 FY '20 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar of Antique Stock Broking. Thank you, and over to you, sir.

Thank you, Aisha. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call. From the management we have Mr. Challa Srishant, Managing Director; Mr. K. V. L. N. Sarma, COO; Mr. Praveen Jaipuriar, CEO of Continental Coffee Private Limited; Mr. V. Lakshmi Narayana, CFO; Mr. P.S. Rao, Consultant, Company Secretary; and Ms. Sridevi Dasari, Company Secretary, on the call. Now I would like to hand over the call to Mr. Srishant for opening remarks. Over to you, Srishant.

Yes. Thank you for the introduction. The company has achieved a revenue of INR 1,143.65 crores for the year 2019/'20 as compared to INR 1,084.75 crores for the last year. And the net profit is INR 165.94 crores for the year 2019/'20 as compared to INR 154.89 crores of last year. The EBITDA is INR 290.39 crores. And the profit before tax is INR 225.31 crores for the full year '19/'20. For the fourth quarter, the company has achieved a turnover of INR 267.46 crores. The EBITDA is INR 73.31 crores. Profit before tax is INR 57.67 crores, and the net profit is INR 42.2 crores for fourth quarter. We can go directly for the questions.

[Operator Instructions] The first question is from the line of Himanshu from [ New Securities. ]

Congrats on a good performance in the current environment.

Sorry to interrupt, [ Himanshu. ] If you could speak a little louder, please. We are unable to hear you. Your voice is cracking.

One second.

If you could say something right now?

Is it better now?

Yes. Yes. You can go ahead.

Okay. So I just wanted to get some more color on the current quarter's performance. In terms of how much -- would this be contributed by higher realization than maybe how much by volumes? And if you can give us some more color as to how much the new unit in our new expansion capacity in Chittoor would have contributed to the current quarter performance.

Current quarter in the sense last quarter of last year?

No, no. What I'm saying is -- yes, so this quarter, how much the Chittoor capacity would have contributed? And if you can give us a sense of the overall revenues, which we have done, how much would have been contributed by higher volumes, at least some rough sense? Or if you can talk in terms of capacity utilization levels, where are we for the quarter?

Yes. As indicated, last year, the projected and achieved capacity utilization in Chittoor is around 50% to 53%, of which majority component has come from the third and fourth quarters. It was maintained. In fact, in both the quarters, almost similar operational levels were maintained. Of course, towards -- during the month of March, as we stated earlier also, the dispatches could not take place in the usual manner. And towards the end of the month, we were left with substantial stocks, which -- because of the nonavailability of transportation facilities, et cetera, could not be made. Otherwise, the third quarter and fourth quarter were almost on the equal footing.

Okay. So can you give us some numbers, sir, in terms of how much, on a company basis, would we have lost because of the COVID impact?

It is not loss as for -- till last year, at least. Because the stocks were there. In fact, if you have seen the financials, there is an accretion to the stocks, which could not be dispatched because of -- in fact, whole of March month, the dispatches were slow. We were not getting the containers on time. And towards the end last 10 days, it was almost standstill. So taking those figures, those accretion to stocks into account, then there was no major impact as far as the last financial year is concerned.

Understood. And secondly, on the margins, we've seen a very sharp improvement in the margins. So if you can just...

Product composition [ some turnover. ]

Right. Yes. Okay. And on the employee cost side, there is a significant jump. So any one-off is there, sir?

New unit has come into operation, no? So SEZ employee cost, all that will get added, no? So you see comparable increases in employee costs, the other expenses and all that, which are relatable to the SEZ unit.

Okay. Because even on a sequential basis, if I see from last quarter, employee cost for the quarter are INR 23 crores versus INR 16 crores last quarter. So I was just wondering if there is any one-off expense which we have provisioned for there.

No, last quarter, normally, our increments, et cetera, in Vietnam will be released during the -- those Tet holidays. So that must have in release of additional increments and all that could have contributed to that.

Understood. And finally, any outlook, I mean, in the current environment, how do we see our dispatches? And any outlook that we can give for the current year that we can build in? It might be too early, but if you can give us any qualitative color as well on how do you see FY '21 shaping up in terms of demand and dispatches.

Being in Bombay, I think you should advise us on how things would be for this year. We will take a guidance from you before giving a guidance to you.

At least, you tell us on the current status around dispatches. Have they restarted? And to what extent?

See, this is too early to predict everything. Yes, we have not majorly impacted, but there will be an impact, as you have seen on -- we have declared on the exchange also that during the month of April, there were production outages and all that. Currently, we are confident in that we would be able to retrieve most part of it. But at this point of time, to give a clear guidance would be adventure for us.

Understood, sir. And one very small final question on the India business, sir. If you can just share for FY '20 as a whole, how much revenue and loss would we have done for the year.

The India business, we have clocked about INR 85 crores or so.

INR 90 crores.

INR 90 crores. Some part of it is built in CCL parent company. So it gets added, and about INR 90 crores we have done on that. And a small loss for us around INR 3 crores or INR 3.5 crores loss was there in that. There was an impact on the retail side during the March month and of course towards the last 10, 15 days, there was an impact. Otherwise, it would have been slightly better than this. Perhaps with more convenient circumstances, they would have been at least closer to the breakeven this year. Hopefully, next year, they will do that.

Understood, sir. All the best to the team. Yes.

And the roadmap for that.

The next question is from the line of Nitesh Jain from Birla Mutual Fund.

Mr. Srishant, basically, I have couple of questions. I mean, the first one is, since we have now some time gone by in this crisis and the virus thing, globally, there are some development. In India also, the lockdown has been practically lifted across the board. So the question I want to ask, what is the current state of operations? I mean you mentioned in the remarks that there were some shortage of containers, then there was some logistic problem in March and April. So where are we today? Are these problems sorted out? And say suppose, say, in January, before the virus, if we were at, say, INR 100 of sales of the operations level, are we -- where are we? Are we at INR 90? Are we at INR 95 or INR 110? If you can provide some input here.

We are now back to our normal production at all our units. Vietnam, actually, there was no material impact because of COVID. So it's only the India operations that were impacted in the initial days. And over the last month or so, we've come back to normal operations, and we're following all the necessary precautions, social distancing and testing and everything at the factory level.

Okay. And I mean this -- as Mr. Sarma told in the beginning, in the earlier question, that this inventory, which got built up at the March end, has this been cleared off when we got this logistic thing sorted?

Yes, it has been cleared.

Okay. Fantastic. And lastly, basically, how is the impact of this -- I mean the whole -- this human health crisis on the coffee demand? Have you witnessed any of the trends? I mean, has the coffee demand gone up because more people being at home and when they used to go to office or outside, it was mainly fresh and ground. And when you are at home, mostly it is instant coffee. So has there been any -- I mean some more inquiries from the customers or less inquiry? What -- how is it the behavior basically I want to know.

Well, it's kind of a mixed response because, across the world, people consume instant coffee in both offices and institutions as well as in the house. Definitely, the retail demand for coffee has gone up significantly. But even in offices, people do consume quite a bit of instant coffee or premixes. So that demand has come down. So overall, net impact, I think, there is an increase in coffee consumption because across the world, anyway, the coffee consumption is increasing year-on-year. So irrespective of COVID, I think that consumption is still going to increase this year as well.

Fantastic. And lastly, for the -- our new 5,000-tonne unit, the FDC plant, because of this crisis, have you witnessed any of the -- any cancellation from the -- cancellation of order from any of the client? Or they are going as per the original plan?

Well, because of the crisis, some of the countries, people have been asking us to delay some shipments because there are certain markets which have been hit more badly, like how India initially went into a complete lockdown. You were not able to get manpower, the ports were closed more or less, and all these things were happening. Some of the countries where we are supplying to, they were in a similar position about a month ago, and they have requested us for some postponements. So we have obviously accepted their request. So we are in a situation where for several customers we've, again, produced some stocks and kept it ready, which we are expecting to be dispatched in the next couple of weeks or so.

Okay. But basically, it's usual -- I mean, not so unusual thing, not a significant one. I mean, it's manageable.

Yes. It's manageable. If you look at it on an annualized basis, at the end of the day, we are expecting, hopefully, this to get resolved in due course. Yes.

[Operator Instructions] The next question is from the line of [ Prasad Devisum ] from [ Valuequest Investment Advisors ].

I just have a question on what is the total current capacity that you have right now in India and Vietnam.

In India, we have a combined capacity of around 25,000 tonnes. And in Vietnam, we have a 10,000-tonne capacity.

Okay. And in terms of expansion plan, so Vietnam [ waiting to get ] another around 5,000 tonnes, if I'm not wrong?

3,500 tonnes.

3,500 tonnes. And what is the timeline for this 3,500 tonnes?

We were originally supposed to do it in quarter 1 of this year. But due to the COVID impact and because all the supplies have gotten delayed, especially because there's a lot of equipment coming from India, we are looking at sometime around quarter 3 that the new capacity is going to come in.

And what -- what is the new machinery that is going to come in India?

In India, there's no new capacity coming in right now. By next year, we are looking at increasing agglomeration and packing capacity.

Next question is from the line of Nisarg Vakharia from Lucky Investment Managers.

Sir, this gross margins, which are at the highest level that we have seen in your operating history, you said that it's because of a favorable plant mix. Is this a trend which will continue? Or is this something which comes and goes every quarter?

Currently, with our manufacturing capacity that is -- having the new freeze-drying capacity into operations, this is sustainable.

So 60% gross margin is sustainable going forward from here on?

Pardon me?

We have done 60% gross margin in the quarter.

That is because in the new plant where we have utilized almost 50% capacity utilization during this year. Because of the new technology or the new processes, we are able to get better yields. And because of that, we are able to get better margins on this. In fact, that is how we said we will -- we are trying to implement similar processes in our old plant also. When -- as and when that is completed, the margin profile would be more or less sustainable.

The next question is from the line of Ashok Shah from LFC Securities.

Sir, we have launched a south blend as a local brand, I think, 1 or 2 years back. So how is distribution set up? And has it gone all over to India we are distributing currently to the shops? Or what's the situation? And what's the market share we have? What's the sale we'll reach in the -- our branded products?

So as -- this is Praveen this side. So to answer your question, we -- for the domestic business, we did around INR 90 crores this year. Out of which, the branded business was approximately 60% of that. So that is what we did as branded business. The branded business grew by almost 40% this year. So that was a pretty good run for the branded business. The variant that you are talking about, south India blend, is one of the instant coffee blends that we had launched specifically for south Indian market catering to the taste profile that the south Indians like. So that was launched here. Currently, in terms of distribution, we are more focused -- when I say distribution, I'm taking into account retail distribution, which is general trade and modern trade. We are focused more into south India because that's where the chunk of coffee market lies. So that is there. Once we attain a significant share here, then we will slowly and steadily expand into other markets. As far as your question on shares is concerned, we are approximately now, at an overall level, Nielsen is picking us up at 2% market share. But you would agree that being a small player, the extrapolation becomes weaker for smaller players considering that after all it's extrapolation exercise. But what we feel that, depending on our internal sales, we are closer to 4% to 5% market share as we speak.

So are we confident to grow at such a high rate of 40% over the next few years? And what distant plan we have to capture the market share?

Yes. So for the domestic market, it's the combination of a lot of factors. One, as you had pointed yourself, we created this blend called South Indian blend. So similarly, we are operating into different segments with different blends. So coffee blending, which is our strength, core strength that CCL has, that is one of the things we are playing up in the market, and therefore, we are making our coffee much distinctive to the competition. This we are accentuating through a lot of retail wet sampling exercise. We almost do 1 lakh cup of wet sampling every month to make sure that a lot of consumers do experience our product. And that is leading to a lot of conversion and share gain for us. At the same time, we are also doing above-the-line activities. We are advertising. We have got a South celebrity on board, which is Nithya Menen, who is advertising for our products to create awareness amongst masses. So a combination of all these factors is helping us grow at a very strong pace, and we hope that this will continue in the future as well.

How is margin in the local new brand and export market? Is it comparable or same?

So any branded business will have -- definitely have better margins. So that is for sure. However, considering that we are spending a lot of money to gain market share right now, finding a foothold in the market, we are -- we do offer a lot of schemes in the market, consumer offers in the market and things like that. So therefore, right now, the margins are stressed. But in the long run, definitely, branded business margins will be better than the bulk business.

The next question is from the line of Manoj Gori from Equirus Securities.

Yes. Entire CCL team is doing good. And sir, couple of questions. One thing, we indicated like there were few delays in dispatches from fourth quarter. So would it be able to compensate for any impact during April month and June quarter should be a very normal quarter for us?

Obviously, June should be a normal quarter because of the carryforward stocks that we had. But obviously, during the month of April, we could not run the production units. Even during the part of May also, we were allowed to operate only 33% capacities. So there might be certain impact in the first quarter. But because of this carryforward stocks, it should be a normal quarter. Normally, over the year, on an annualized basis, we are hoping that we will be able to recover the lost production capacity.

Right, sir. Sir, and what was the situation in Vietnam today? Was there any disruption because of COVID?

No. Vietnam, there was no major disruption. Only last -- towards the end of the year, around March, there was some difficulty. But it soon got referred. In fact, Vietnam, during the first quarter, we are not experiencing any major disruptions.

Okay. And sir, coming on to the order book, so normally, you get a better visibility on like maybe around December or January, like how the upcoming year is going to pan out. So I agree that there is a lot of uncertainty. But do you have enough visibility in terms of whether this would be like, eventually, we would be making it up in the subsequent quarters?

Market reactions, as of now, we are not very certain. Things are coming back to normal. So I would not say that things are back to normalcy now. But coffee being a product which -- consumer product, which may not come down on a demand basis, we are hopeful that we should sufficiently augment and keep our manufacturing capacity so that we should be able to make it a normalized year.

Right. Sir, one last question. So if you look at the Indian domestic business, especially for the branded business, so like since last 3, 4 years, we have been targeting and we have been aspiring big on this business. So I think even internally, we won't be satisfied with the performance. So where are we lacking to scale this business significantly given that we are at a lower base?

Actually, I think I should correct that. We are extremely happy with the performance of the domestic business. It is completely in line with what we had expected, to be very frank. And we still believe that there is a good potential for growth. And this is the initial stages where we are still placing a product. Product acceptance has been exceptionally good, and our product availability also has increased quite a bit. In fact, the domestic team keeps complaining to me that we're not able to deliver enough stocks in fact. So those are the type of issues that we are currently facing. And I don't think there's any other brand that I've seen that has actually grown at the kind of pace that we are growing over here in the domestic market right now. So we are quite happy with the progress, and we are quite happy that we're able to sustain this growth. That is the most important thing.

Right. Right. Right. No, I do agree that the growth rates are very healthy, but I think we -- definitely, the potential is much bigger. So that's why -- that was the reason that I was saying, like, if there are any drawbacks there, nothing else.

No. The potential is definitely there. But one thing we should also keep in mind is we are not focusing only on the same products that our competitors are selling. We are getting into new areas, unique products. So we are in the process of creating a new market from scratch. So it is a long drawn-out process. We'll end up starting small. But looking at what we have done in other countries, we are quite confident we can do the same thing in India as well, create a different -- completely different coffee culture over here with convenience.

[Operator Instructions] The next question is from the line of [ Richa Sisodia ] from [ Concept Investments. ]

Yes. Congratulation on good set of numbers, guys. I have 1 question. I remember the management saying that there is a bit lumpiness in the bulk orders compared to the brand buyers who buy from us. So if you could provide a split between the volumes we sell to bulk buyers and the brand buyers?

Around 60% is coming from the branded business and 40% is from private label and bulk business.

Okay. 60%.

Yes.

Okay, sir. And any update on the cash conversion cycle for the whole year and not just the quarter?

The cash conversion -- only for the domestic market you're asking?

No, no. For the overall company, the cash conversion cycle for FY '19 versus FY '20.

Compared to -- on a comparison, the cash conversion was better. But as you know, we are now contracting with major brands all over the world whose normal credit terms are a little longer. But since we have our working capital facilities and our interest rates are very minimal, we are able to extend these credits and increase our product distribution, particularly among the major, major brands. But as of now, we still consider that the cash conversion cycle is satisfactory and manageable for us.

The next question is from the line of Tanvi Shetty from Axis Securities.

I wanted to know your CapEx which you planned out for FY '20, the amount.

It was so far, the packing plant, which anyway might be completed during -- by the end of this year. It would be in the range of about INR 120 crores in India. And the CapEx in Vietnam would be about INR 8 million there. The earlier estimate that we have given hold good.

Okay. Sir, and also wanted to know the volume growth for FY '20 as a whole.

Normally, this is one particular aspect, the volume growth, our volume numbers that we do not wish to share because of the business category.

Okay, okay. All right, sir. Also, sir, I wanted to have an idea on the margin expansion. Would there be further margin expansion in FY '21? I mean, I wanted to know the mix between freeze-dried and the regular coffee. Which -- would the freeze-dried orders be growing in FY '21?

No. Currently, we are expecting that additional capacity utilization between spray-dried and freeze-dried in the current year would be almost on the equal footing. So I may not say that there will not be an increase in the margin profile. We should be able to sustain the margin profile.

The next question is from the line of [ Dhiral Shah ] from PhillipCapital.

Congratulations for the good set of numbers. So what was the capacity utilization in India and in Vietnam for FY '20?

Normally, 80% to 85% utilization is considered to be an optimum utilization in [ terms ] of industry. In India, we are almost close to that barring SEZ plant where we have done only 50% utilization during the first year. In Vietnam, we did about 65% to 70% utilization during the current year.

Okay. And sir, last quarter, you have guided that there has been some pressure in freeze-dried pricing. So are that pressure normalizing? Or you've seen pressure to even continue?

Right now, at this point of time, we are not able -- we are not very clear about major changes. Right now we are anticipating that the prices will remain in the current level. So it depends on the quality of the product, and we are always seen as a premium product supplier. So brands will depend on the source major brands. So normally, there will not be any changes on a quarter-to-quarter basis on this.

Okay. And sir, lastly, what would be the spending for domestic business in FY '21 for the retail coffee?

Normal -- this year, we are expecting that normally, in a normal course, normal circumstances prevailing, we thought local branding will break even and may add some. But of late, we have seen our first has been on the retail sales and brand, where the overheads and market expenses would be slightly higher. So it may be safe for the current situation that we will continue to support as we have supported during the last year as well.

So it would be around INR 30 crores? Last year -- how much you have spent, sir?

No, no. From the parent only, we are supported to the extent of about INR 11 crores, INR 11 crores to INR 12 cores.

So this would continue in current year, right?

We are anticipating.

Okay. And sir, what was the overall Switzerland operation revenue and PAT for the year?

Revenue and PAT.

Revenue, it is INR 135 crores. And the profit beating around INR 3.73 crores.

And for Vietnam, sir? And for Vietnam.

Vietnam, INR 268 crores is the revenue and profit is INR 56 crores.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

Congratulations for a reasonable set of numbers in a very difficult environment. A couple of questions. Earlier in answer to another question, you mentioned that 60% of your product goes to brand owners. Is that globally? Or were you just talking about the India sales?

Only India sales.

What's the split globally between brand owners and bulks and repackers?

That's actually a very difficult question to answer. But at least about -- almost about 50% of whatever we are currently producing is going directly to the brand owners. And balance will be going for repackers and resellers.

50%?

Yes.

And within the brand owners, are these all large packs? Or this is all like consumer pack?

No. It's different. For some brands, we are doing consumer packs. But for most of them, we are supplying in bulk to them. They have their own packing facilities at their end. They only source production to us, and they do the packing at their end.

Are you seeing any change in that direction, people saying that give us the packed product? And therefore, your ability to add value goes up? Or...

Yes, we are. That is one of the reasons why we are going in for this expansion into small packs in India. And the response that we've been getting in the market has been quite good, which is why we thought, in order to pitch for that business, several of our existing customers, they've given us their specifications as to what the new packing facility should be like with the automation and several other things. So that's the reason why we are making this INR 120 crore investment on this new facility. That will help us get more small packs going forward.

And there is still a value proposition, notwithstanding that, even if you're doing consumer packs and glass bottles, et cetera, freights would -- the freight component would increase significantly on a per unit basis. But net of freight, there is still a value proposition to pack it in India.

It will be there, yes.

Okay. And coming to the domestic business, I mean, is the branded coffee domestic business only INR 1,000 crores or thereabout?

Well, as of now, I think INR 1,800 crores is the...

Approximately INR 2,000 crores is the coffee -- branded coffee business.

That's what I thought. So I was a little surprised when you said that your share is 4% to 5%. Because at INR 50 crores or INR 55 crores, it would be more like 2%, right?

Yes. No. So we are -- the reason -- 4%, 5%, I was only mentioning for south of India. That's where we are there. We're not there in the other regions. So this was -- so south of India is almost 60% of the market, instant coffee market. So that's how the calculation was done.

Okay. And last question. Is there room for you to tie up with some brand owners overseas and if they are keen to look at the Indian market? Or Indian market is too consolidated for anybody to be interested in?

We did get a couple of inquiries in the past where some of our current large customers that come they've done a feasibility study and all. For them, this market is extremely unattractive because for them, these guys are major players. And INR 2,000 crores is virtually nothing for them. India is still predominantly a tea-consuming country, and coffee is still in the initial stages of growing. For us, because our size is quite small right now, this INR 2,000 crores, we still have a long way to go. For the other companies, like if you go to the U.S. market, it will be like -- it's a $1 billion market. It is in billions in several other countries. So -- over here, it's significantly lesser. And most of the other countries, we have a wider range of brands which are present because the market size is bigger. Over here, you have only 2 major brands that are there. And now we are the third brand that is there, and a lot of other small regional players out there in the market as of now. So they don't find it very attractive considering these things.

The next question is from the line of Kuldeep Gangwar from ASK Investment Managers.

One question regarding the dividend from the subsidiary, like you received close to INR 131 crores this year against a profit of INR 56 crores. So it was from accumulated cash over there? Or what to expect in the coming years over there?

See, during -- right from 2012/'13 onwards, as long as the -- debt was outstanding, we did not transfer any dividends because we committed to clear the debt first before transferring the money. So first 5, 6 years, we did not transfer money. And so it was accumulated then. So last year, on a smaller scale, we have started. And this year, we could transfer what is found to be surplus there and required for us passing on the dividend. So it is out of accumulated profits that we have transferred.

So next year onwards, the fair expectation should be the dividend is close to in line with the profits over here. Is it correct?

It may not be because up to current year, whatever tax that we were paying on dividend from foreign company, we are getting an input credit here. So when I pass on the same to the shareholders, I get an input credit. From this year onwards, it's not there. So we are -- right now we are doing an expansion there for which we are utilizing these internal accruals for the current year, internal accruals also. And we will decide on whether to pass on from there or from the local sources itself, we meet the dividend. We shall endeavor to maintain the dividend policy as we declared.

Okay. And last bit, like, earlier, you used to provide, say, revenue, EBITDA, PAT guidance. So will you be providing the same for FY '21? Or will wait further?

EBITDA.

Revenue, EBITDA. It's not PAT.

Generally, it is slightly dicey right now, but we are confident that we should be able to achieve -- still leaving out this 1 month or 1.5 months shutdown of the plant also, we should be able to achieve an improvement to the extent of 10% to 15% this year as well.

On [ top line you talk about ] or...

Top line, let us not talk about because it is mostly on the price -- the green coffee prices and all that. EBITDA levels, let us say, it will be -- we are still confident that we will be able to achieve about 10% to 15% growth this year [ and so on. ]

Okay. And Vietnam, you were getting a tax benefit, if I remember correctly. So is it going to be there in FY '21 as well? Or it's no more there?

It is continuing.

Any time frame for the same? Or it's a one-on-one...

Right now, there is no time frame. It is for life.

The next question is from the line of Lokesh Manik from Vallum Capital.

My question is on the revenue side. If you can just give a breakup or an idea in terms of revenue split between freeze-dried agglomerated and spray-dried.

We are a product company. So to give a detailed breakup of our revenue profile is detrimental to our business interest. So I would suggest you please do not insist on this.

No problem, sir. Just an idea on value-add and nonvalue-add split.

Obviously, this year, freeze-dried has increased. So the product mix is towards majority of the -- I mean shifted to freeze-dried on a bigger scale.

The next question is from the line of Jignesh Kamani from GMO.

Just on the export incentive side. From January, export incentive has reduced from 7% to 5%, right? So that means EBIT was a negative impact on the profitability from this quarter, right?

Correct.

Yes.

2%.

What was the export incentive we booked this quarter?

INR 7 crores.

Okay. Any clarity now what will be the incentive for next year because there was some intensive negotiating going on with the government whether it will be phased out completely or it will be reduced to 5% only. So any color on that now?

It will be 5% for the current year as well. It is -- the foreign trade policy is continuing. And since it has been reduced from last quarter from 7% to 5%. This 5% will continue for this year.

The next question is from the line of Jason Soans from Monarch Networth Capital.

Most of my questions have been answered. Sir, just about the revenue rate [ just a little ] more. So what percentage of the revenue comes from your own in-house brand, just Continental Speciale, Continental Xtra and stuff?

Approximately around INR 55 crores out of the entire INR 90 crores.

Okay. INR 90 crores from the in-house brand?

No, no, no. INR 55 crores comes from the in-house brands.

Okay. INR 55 crores comes from your in-house brands. And what is the rest of the split between the private labels and what you supply to other brands?

So it is -- yes, the rest of it is between private label bulk. That is it. That will be 50-50 between them, almost.

50-50 between private labels and bulk?

Correct.

All right. Okay. Okay. And that is -- your own brands constitute INR 55 cores. Okay. And sir, just one thing. Just wanted to know that coffee, being a consumable product, I don't see much demand impact on that. So just wanted to know, from a broader point of view and probably a post-COVID thing, how do you think demand will pan out over, say, 3 to 6 months from now? Just would want to know your view on that.

Okay. So as you rightly pointed out, on the in-home consumption demand side, there is no issue. In fact, we are seeing a little bit of increase in that portfolio. However, coffee, there is another segment, which is a large part of it also gets consumed at institution, out-of-home that we call, which is at airlines, hotels, offices, cafes. So in these segments, the coffee consumption is likely to go down. How much it will go down? It's very difficult to assess right now because we really don't know how fast things will get back to normal, but we do see an impact in the next 3 to 6 months.

Okay. Sure. And sir, just wanted to reconfirm. Your capacity in India is around 25,000 tonnes and in Vietnam is around 10,000 tonnes?

Yes, that's correct.

Got it. And just one last thing. Your dispatches, I mean, you would obviously know the estimation for a normal season. So currently, I mean, you saw April-May must have been poor, but what percentage of normal would have been dispatched in, say, April and May gradually improving today as when the lockdown has been lifted?

So April, we were actually dispatching whatever stock that we had built up in March. And from May onwards, slowly, things have started to come back to normal. And now the dispatches are taking place more regularly.

The next question is from the line of [ Amit Sharma ] from [ NC Investments ].

Yes, sir. My first question is, a lot of consumers who would have gone to the retail outlet would not have found their preferred brand and hence chosen our brands. What do you think will -- any boost to our acceptance in this current disruption?

Yes. So we did see some kind of brand replacement happening at certain outlets. But this disruption has happened for everybody. So there were outlets where our brand was not there, and there were outlets where competition was not there. So as of now, while we have seen a spike in sales in the retail, really how much it will sustain for the long term is something that we have to see. But we are experiencing better throughput in some of these outlets, that's for sure.

Okay. Okay. My second question is on your online sales. Now a large part of online sales is heavily discounted or let's say it is under promotional schemes. Under what threshold do you think you will win on these discounts and bring it to normal pricing? And just related to that, what percentage of our domestic brands is online?

So let's say, if we were doing -- approximately 6% to 7% of our sales are online sales. And as you rightly said that, a lot of discounts are there on online sales. But how to think of it, we do save a lot on channel margins, et cetera. So our profitability actually does not get impacted even after a lot of discounts online. Having said so, in the long run, it will depend on how fast our brand equity soars up. Once that starts going up, we will start reducing the offers. So already, in some of the packs, we have started reducing the offers. And this is a gradual and a continuous progression. As and when the brands are getting strengthened, we will reduce the discounts.

All right. And if I may squeeze in a small one, like the way you positioned yourself well in south India, do you think in the rest of the country you can play a strategy wherein, let's suppose, a freeze-dried coffee, which is at a significant premium, you can play a pricing game? And maybe have -- the cost of freeze-dried would not be significantly higher, it is. But so on the selling price, maybe reduce it and have a large market share in the rest of the country. Any thoughts on such or similar product strategy?

Yes. I think you have read our minds well. So that's something we will definitely like to explore. However, currently, we were just trying to find our feet in the southern markets, which are the larger markets. But definitely, a strategy like this can be on the cards.

The next question is from the line of Binoy Jariwala from Sunidhi Securities.

My question is on the branded business. If you could just help me understand what is the distribution -- total distribution universe in terms of outlets for the instant coffee? And what is our reach for, sir?

So I'll tell you a little bit on these figures. These are mostly pre-COVID figures because things have gone a little oddly in these couple of months. So before that, we were actually directly ourselves reaching to around 55,000 to 60,000 outlets, yes. So that is where our direct reach was. And we intend to keep building upon this number year-on-year. So this year, we are taking almost a target to reach around 75,000 to 80,000 outlets directly.

Okay. And what is the distribution universe for this?

So the distribution universe will be around -- see, most of the largest brands will have a direct reach of around 6 lakh outlets. And distribution reach would be around 8 lakh to 9 lakh outlets in southern India. Because this 65,000 that we are covering is in the southern India only. So that is the like-to-like figure I'm quoting.

Okay, 8 lakhs to 9 lakhs in southern India. Okay. And sir, when you said that your -- the branded sale is about INR 55 crores this year, what was the comparable number last year?

It was around INR 32 crores last year.

Okay. And what was the total business from the last year?

Last year was INR 61 crores, like-to-like numbers.

So basically, INR 61 crores has grown to about INR 90 crores. Is that correct?

Yes. Yes.

Okay. Okay. And what was -- and the market share be for the top 2 players, let us say, Nestle and HUL?

So very simplistically put, these are -- they are 50-50. That's the simplistic way you can just take it. Because there is no significant third player or fourth player. So these 2 almost kind of share the market equally between them.

Okay. And when you said you have -- Nielsen puts your market share at 2%, that is a pan-India number, right?

That's only for south India number.

That's for south India number?

Right.

The next question is from the line of Kashyap Jhaveri from Emkay Investment Managers.

Congratulations, sir, on great set of numbers. I have 2 questions. First one on your EBITDA as well as gross margins, there is inventory carryforward or change in stock of about INR 30 crores of consolidated number. Would [ EBIT ] also contributed -- or how much of it contributed to your overall EBITDA margin because this would include some of your other costs also as a cost of inventory? That's the first question. And second question is, I just wanted to reconfirm, did you mention during the con call that your overall market share in instant coffee market is about 4%? Is that something that you mentioned?

The line for the management dropped. We would request you to please stay connected while we join them back. Sir, you can go ahead, please.

Yes. I'll just repeat the full question again. The first part of the question was that in terms of your EBITDA margins and gross margins, there is about INR 30 crores of change in stock in -- during this quarter on a consolidated basis. So how much would have that contributed in terms of gross margin and EBITDA margin because this would include some of the other costs on where we have seen significant spike up on quarter-on-quarter basis, both employee and manufacturing costs. So how much would have that contributed to the EBITDA and gross margin? Second part of the question was more a clarification. Did you mention during the call that our market share in the overall instant coffee market is roughly about 4%? Is that something that you mentioned?

Yes. Overall coffee market for south India is around 4%.

Okay, okay. And in terms of gross margin and EBITDA, both?

Yes. The stock buildup was in the range of about INR 32 crores, INR 33 crores. So if you take broadly an EBITDA margin of about 25% as it is there right now, this is the cost price, the stock valued at cost. So we would have lost about approximately plus or minus INR 40 crores of turnover. So if you apply the same EBITDA margin further, perhaps we would have lost about INR 7 crores to INR 10 crores EBITDA margin during this period.

Sir, I was trying to understand, we -- and this is about INR 30 crores change in stock. So this would also -- besides the raw materials, this would also include our other cost also, right? I mean as a total cost of production, this INR 30 crores would include that number also, right?

Correct.

I'm trying to understand. Then it would have some positive guiding on the gross margins also, right?

It would have. Had this been...

I'm just saying on this -- on gross margin, what would have been the impact?

Otherwise normally, it is taken into books at cost price, no? This would have -- if you have taken our profit margin PBT level, if we take it about 15%, 16%, then this would have been about INR 36 crores to INR 37 crores of turnover. And then on the INR 36 crores, INR 37 crores turnover, the EBITDA margin of, I think, last quarter's EBITDA margin was about 23%, 24%. That would have got converted into about INR 7 crores to INR 8 crores of EBITDA that would come into the subsequent quarter.

My question is little different, sir. Maybe I'll get in touch with Ms. Dasari and get the clarification what you mean. I'll write it to you and then probably then I can [ note it. ]

No, you can come. If you want, you can ask further. I can explain it.

I'll -- I'll just try to rephrase the questions again. This INR 29 crores change of stock in trade would include the raw material cost, and it would also include the other costs, which are part of cost of production, right?

Yes. Correct.

I'm just trying to understand what is that other cost of production included in this INR 29 crores.

Normally, going by the accounting standards, whatever is expected cost, it will get included in that. The processing cost, the power and fuel, this labor we got into it. All that will be there, no?

Okay. Can you quantify that number?

Pardon me.

Can you quantify the number? Is that possible?

No. On INR 30 crores to what is all this you wanted to know?

Yes. Breakup of that INR 30 crores of change of stock [ entry. ]

No, that will go into a total accounting, no? I cannot separate that.

The next question is from the line of Vaibhav Gogate from Ashmore Investment Management.

Did we book any export incentives with this quarter?

INR 7 crores.

And do we -- like, do we expect these incentives to continue the next year?

Yes, current indication is they are extended by 1 year, no? So 1 year extension, we will get at the rate of 5% from the last extension there.

The next question is from the line are Akhil Parekh from Elara Capital.

Many congratulations on a good set of numbers. Just a couple of questions. One is on the raw material front, how do we see the trend now going forward? And how was it in 4Q FY '20?

Raw material-wise, what we are seeing in the markets is that the prices have been coming down, but the differentials have been increasing. So the net impact is more or less the same cost of materials as it was last year. We're not seeing a very significant change. As you know that, minute by minute, the prices keep changing. On an average basis, there's not too much of a variation from the previous year.

Got it. Got it. And just on the U.S. front, any update on that? Because last couple of quarters back you had mentioned, we are expecting around 2,000 tonnes to 2,500 tonnes of volumes. Any update on that how much we did in FY '20? And any change to that guidance for FY '21?

Yes. Actually, we were targeting 1 major retailer in the U.S. towards the beginning of this calendar year. And we were actually expecting the orders by maybe January or February, but it started materializing towards the end of March for us. From the first quarter of this financial year, we are -- we've started executing those orders for the retailer. So that volume business is going to come in this year. And...

And so [ tell me, ] how much it will be? Any rough trend, like maybe or how much incremental it would be compared to what it's been?

Yes. Like you said, we're talking about -- I mean these customers have already placed an order with us for good volume, and it's for the whole year. So we have to keep supplying on a quarterly basis and all that. And this is, again, a long-term relationship that we have built up with this customer. It took us almost 3 to 4 years to take all the necessary approvals to convince them that they need to derisk from their current supplier based in Brazil. And with all the volatility that they have seen in the past with their existing suppliers, finally, they got convinced. And they completed all the audit of the plant and everything, and we managed to get them on board. So this entire year will be one of the reasons why we were confident about our volumes growing and all also is because of this U.S. business. This is what we've been waiting for, for several years. And fortunately, it has materialized now.

Okay. But like quantum-wise, would you be able to highlight anything, like we put around 2,000 tonnes, 2,500 tonnes, right, in U.S. for last year, FY '20?

It will almost double.

Okay. So from 2,000 tonnes, it might go to 4,000 tonnes.

Closer to 5,000 tonnes maybe, 4,500 tonnes to 5,000 tonnes.

Okay. That's very helpful. And this will be from Indian plants or Vietnam plants?

It's actually for the U.S., we are supplying from both plants. It's not exclusively any 1 plant. We have different sets of customers. Some want from Vietnam, some want from India. They're very specific about what products that they want.

Got it. And this would be largely bulk coffee, right, not the small packs?

Largely bulk, but we've also, for the first time, we've actually managed to crack the small pack market in the U.S. as well. So our first supplies are starting, I think, from next month onwards. So that is our first entry into the small pack business into the U.S. now.

The next question is from the line of Vidit Shah from IIFL Asset Management.

Most of the things have been answered. I just have a couple. I wanted to understand the debt repayment plans of the company in the near future.

We have almost around INR 296 crores debt. The repayments are commenced already. By '23, '24, it is going to be paid in full. And on average, every year, it is around INR 76 crores is the repayment.

Fine. And so you said operations in India were impacted in the month of May. So has June been back to optimal capacity utilization?

Yes.

Around 80%, 85%?

Yes, June, it is almost back to normalcy, but we are still seeing some cases being reported closer to the factory and all that. Currently, we are operating at optimum. But as you know, every day, there can be a variant around this. So right now, we are back to normalcy in June. May also, it was partially impacted. June, it is okay.

The next question is from the line of Anuj Jain from ValueQuest Capital.

Sorry. I actually joined the call a little late, so I missed the initial comments. I wanted to understand what is the outlook for export business going forward, considering the current pandemic which is going on?

We are hoping that we will be able to achieve normal operations with a growth perspective of about 10% to 15% this year.

Understood. Understood. And any update on any other client addition or losing out on any client as Srishant just mentioned regarding the U.S. retailer, which we have won? Any other update regarding the -- from the client side?

No, there is no losing of clients during the last year. The client that was added was also to the -- towards the end of the last year. And we are not anticipating any loss of customers in the near future.

Okay. And any -- and up to what extent the Vietnam operations were impacted in Q1?

Q1, there was no impact. Vietnam is running normally in Q1. There was a small impact towards -- during March last year, but it was for a very few days. I think, about 10, 15 days. Q1, it is okay.

And what's the status of the CapEx which was going on in Vietnam?

Yes, it is. We are spending that INR 8 million to augment the production capacity there. There was a delay in -- because the shipments, et cetera, are getting delayed. The equipment reaching also Vietnam is getting delayed. So the project might get delayed by 2, 3 months.

Understood. And you also mentioned that the total domestic business which we did for FY '20 is around INR 90 crores, right?

Right.

And out of this INR 55 crores is the branded Continental Coffee [ suite ].

Correct.

The next question is from the line of from Binoy Jariwala from Sunidhi Securities.

During this call, you made a remark that you would first focus on -- this is regarding the branded business. So you made a remark that you would first focus on south India, build up a certain level of market share and then move towards expanding to the rest of India. What is that threshold of market share you have in your mind to attain before which you start moving out to the rest of India?

So basically, we are looking to, first, at a sustainable level, get a 5% market share. So once that starts coming in, then we can expand to other markets. Because the rest of India market is much more expensive in terms of resource requirement for either awareness creation or distribution buildup. So therefore, we want to be very sure that our operations are well established in south before we move to the other zones.

So which means you're not very far away, right? You're already at 4%. You're just talking of 5%?

Absolutely. So we are actually -- as we speak, we are trying to build a skeletal level of resources so that for the key cities and in those key cities, key outlets can be covered in the near future. So we're already kind of building the base and creating that infrastructure. So as you rightly said, yes, as soon as we are a little more strengthened in south India, we'll quickly move to these cities.

So on a steady-state basis, if you have to attain this 5%, 6% kind of -- and keep on taking that market share sustainably, what is the distribution reach that you would have to meet?

So the distribution reach that we are looking at, I don't know whether you were able to hear my earlier comments where we said that we are around at 60,000, 65,000 direct reach as of today. Once you are able to reach that 1 lakh outlet threshold directly and probably add another 50,000, 60,000 outlets through indirect distribution, then your weighted distribution probably will cross a limit of around 40% to 50%. That should be decent enough for us to say that things are established in the southern markets.

Understood. And at that level, will you be also profitable?

Yes, we should be. We should be at that level.

Okay. This particular category, according to you, let's say, when you reach about INR 200 crores-odd of sales, what kind of EBITDA margin can this category generate?

Right now, very early to comment on both the numbers, INR 200 crores as well as EBITDA. We are just taking it up step by step. This year looks to be an exceptional year considering that the cost of acquisition of any new consumer as well as cost of acquiring a new outlet will be pretty different considering the new normal that is getting established. So we'll wait for a while to -- before we kind of credit to what kind of EBITDA margins we'll end up at around INR 200 crores.

Next question is from the line of Kuldeep Gangwar from ASK Investment Managers.

This is regarding export incentive part. So full year, what was the overall number you mentioned, INR 7 crores for the quarter? What was for full year?

INR 34 crores.

So is it fair to assume like because the export incentive will come on from 7% to 5%, there will be, say, INR 13 crores, INR 14 crores negative impact on operating profit in FY '21?

It's only 2% difference, no?

Yes, yes. So INR 13 crores, that's the reason I mentioned. Like you had INR 285 crores overall operating profit this year. If it moved 7% to 5%, then what is the absolute number it could have been?

Our turnover, our turnover also is -- and the exports are also likely to increase. So we are not anticipating a great decrease in this absolute amount as well.

Okay. And full year export was how much this year, FY '20?

Full year...

Export.

Full year export.

Barring that INR 90 crores of domestic...

That was the last question. I now hand the conference over to the management for closing comments.

Thank you all for taking part in this conference. Looking forward to talking to you again next quarter. Yes. Thank you.

Thank you, Srishant.

Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.