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

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 earnings conference call of CCL Products India hosted by YES Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Himanshu Nayyar from YES Securities. Thank you, and over to you, sir.

Yes. Thank you, Rituja. On behalf of YES Securities, I would like to thank the management for giving us the opportunity to host them, and welcome all the participants to CCL Products earnings call. In our view, CCL has come up with a resilient performance in a very challenging environment. And the management obviously can answer all investor queries. So from the company, we have Mr. Challa Srishant, Managing Director; Mr. K. V. L. N Sarma, Chief Operating Officer; Mr. Praveen Jaipuriar, CEO of Continental Coffee; Mr. V. Lakshmi Narayana, CFO; Mr. P.S. Rao, Consultant, Company Secretary; and Ms. Sridevi Dasari, Company Secretary on the call. Without further ado, I would like to hand over the call to the management for their opening comments, and then we will open the floor for Q&A. Thank you, and over to you, Srishant.

Thank you for the introduction. So the group has achieved a turnover of INR 296.22 crores for the third quarter of financial year 2021 as compared to INR 302.71 crores for the corresponding quarter of the previous year, and the net profit is INR 47.11 crores as against INR 47 crores from the previous year. The EBITDA is INR 72.43 crores as against INR 84.83 crores for the previous year. For the 9 months ended, the group has achieved a turnover of INR 907.57 crores for the 9 months ended December 31, 2020 as compared to INR 874.57 crores for the corresponding period of the previous year, and the net profit is INR 133.06 crores as against INR 123.74 crores. The EBITDA is INR 212.97 crores as against INR 216.78 crores from the previous year. I also wanted to just add 1 point, saying that this particular quarter, we have been impacted by 2 main points. That is, one, the logistics issues that we have faced. This is a global problem that I think most of the people are already aware of, nonavailability of containers, suddenly prices shooting up and not getting -- not being able to dispatch the product in a timely manner. That is 1 of the reasons for the substantial stock buildup also at our end, which will get liquidated during this quarter. Secondly, the MEIS proceeds were also not realized. If you noticed in the previous year same quarter, we had booked almost about -- we had realized around INR 11 crores of MEIS proceeds. And this year, it was 0. This is 1 of the reasons is also because the portal has not opened yet. That amount has accrued to the company. But as a company policy, until we actually receive it, we would show it in our books. We can open up the floor for questions now. Thank you.

[Operator Instructions] The first question is from the line of Kashyap Jhaveri from Emkay Investment Managers.

Hello. Am I audible?

Yes, you are audible.

Congratulations for fairly resilient performance. I have a couple of questions. One, you mentioned about the typical container availability problems. So how much of that sales could have got postponed probably to next quarter? Or how should 1 look at the sales which we probably -- probably we could under account -- we had to under account because of the consignment issue? That's question number one. Second question is on our gross margins. If I look at our gross margins, they have dramatically gone up versus last year as well as the previous quarter also. What could have driven that number? Third question is on our other OpEx, which has also gone quite substantially up. So any one-off in the same quarter last year or any one-off in the same -- in this particular quarter? And then container issue was largely confined to Indian ops because if I look at Vietnam, Vietnam has done phenomenally well even in this quarter. So these are my questions.

Mr. Sarma will just answer this.

The -- on the logistics issue, logistics issue as there was the container availability, particularly food-grade container availability was very scarce this year. In fact, where we were getting it in a day or 2 during last quarter, we experienced that there was a delay of 15 to 20 days for getting the containers on more average. So because of this, we had to -- I mean, certain containers, sudden dispatches had to be postponed. On a broader perspective about approximately about INR 50 crores to INR 60 crores of -- expansion could not be made on account of this which perhaps during this quarter, we will be doing gradually. So the impact on the turnover would be around that. And majority of it is FD product.

Sir, if I could ask 1 question here. So this is actually -- I mean, if a daily consumption commodity, which is -- which may also be sort of perishable. So let's say if a consignment has not gone to the customer, you would have got it from some other place to make up for that, right? So is that this sale for this particular quarter loss for us or it would be client will probably take that delivery also as a part of overall supplies for the year.

Let me clarify this. One is this is not a perishable product. Instant coffee, shelf life is 2 years plus.

Sorry, not perishable, but I mean, if I had to consume it today, I would have to buy it from some place, I will not wait for probably...

Correct, correct. But normally, what we do is we take all the lead times into accounts while ordering also. Secondly, this is not a problem specific to India. This is a universal problem that has occurred from -- in these cases, in many of the cases, the contracts were on an FOB basis. So it will be the customer who has to organize for the containers and lift them. The generals could not do it. That is why, in fact, we were -- we could avoid any P&L clauses or nonperformances on that. And not only this [indiscernible], they are not able to get the products, which is already manufactured, transported to their place. So for them to go to another supplier, seek product, manufacture and getting it will be rare. So it's not -- people are appreciative of the problem. In fact, in many cases, customers are paying extra amounts to get containers and get the product lifted. So we are not seeing any loss of order book equation or lost to any other supplier on this. Customers and orders are intact. Only thing is there is a short supply of material because of this situation, which is universal.

I just want to add 1 small point here. Any customer who wants to order or replace our product with some other product, it will take them a minimum of 3 months lead time for them to procure from anybody else. The delay we are seeing because of logistics is going to be maybe a month or 1.5 months maximum. The customers are not likely to try an order from somebody else because this is a worldwide phenomenon.

Okay. Right. About the gross margin then other OpEx, which has -- I mean, gross margin has been a dramatic expansion whereas if I look at other manufacturing expenses, there is a sharp increase. So any reclassification, any one-off? Anything in both these line items?

You must have seen that we were able to maintain the turnover levels and the profit levels there despite holding also a large amount of whole FD spend because we were also able to increase our small packs sales this quarter. Since the FD orders were not getting dispatched faster, we were able to execute more of the small pack orders. So the packing material, et cetera, will be an additional -- which has gone into the other expenses. The majority of the increase in other expenses is on account of packing material and to a small extent on the freight costs also.

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

Srishant, Sarma and entire team. Just want to know on the Russia order for the freeze-dried from the Indian operation. It good delayed from first quarter to you can say second half. So I just want to check whether the statement happened has in the third quarter or we've seen the further delay to fourth quarter?

So the Russia business and all, whatever orders that we had at the beginning of the year, everything has gotten pushed accordingly. So whatever we were supposed to execute in the first half, that has gotten pushed by a couple of months, and the whole thing has gotten pushed now also to the quarter 4 also. There will be some spillover that comes into quarter 1 as well. So the whole things are pushed a little bit.

In third quarter, there was a order or it was our count was very low and probably we will see large part in the fourth quarter?

Well, third quarter, most of the impact has been because of the transport issue only. To a very limited extent, like the postponements, the postponement request that we were getting at the beginning during lockdown was significantly higher. Now slowly, things are coming back to normal in most of the other countries also. So they started picking up the volumes that they had postponed in the past. But because of the logistics issues that are currently there, that we are not able to supply to them on a timely way.

And are you facing logistics issue only on the export or on the import also because we also import our coffee from Vietnam?

We're facing issues in both export as well as imports. Imports, what we have done is because that is in our control, and we have sufficient space to store, we've ensured that we have the coffees with us in order to take up production. So we've managed to increase our inventory a little bit. So that in case of any sudden one-off case and some containers get delayed, it's not going to impact our production in any way. But once the product is produced, the export portion is actually in our customer's scope because it's FOB contracts mainly. And they are also not able to arrange for the containers.

Understood. Second thing, MEIS got you can say correct from the December. And from January, new scheme got introduced. So any color on the new scheme, what was the impact on the margin or the impact on export incentive, if any?

Frankly, that's a big question mark for us also because the current scheme has clearly mentioned that we are not as in EOUs and SEZs are not covered under this new scheme right now. But the government has given a clarification saying that anytime you're filing shipping bills, you tick mark a certain box so that in the future, when the government does give a clarification, you will be eligible for the incentive, which means that they're considering giving some incentive, but we don't know what that is yet. So that is 1 reason why it's a big question mark for all of us as to how that's going to impact us. We don't know if the MEIS is going to be 100% replaced by this new scheme. Whether 50% is going to be replaced or whether there is zero replacement. So we have no idea at this point in time.

So exactly how you are dealing with the client because the entire benefit will get as of now, we are assuming zero benefit from the client and asking clients to partly, you can say, increase the pricing and compensate? Or how is the thought process right now?

So as far as pricing and all that is concerned also, we are pricing our products based on the market situation. We do not -- if you look at globally, other countries, they may not have MEIS. They'll have their own pricing mechanisms. Every country, depending on the competition, we price ourselves. So if you are competing mainly with other Indian manufacturers, since everyone is in the same boat, we can command a higher price. If, for instance, we are competing with a Brazilian company, then we know that whatever pricing the Brazilians are offering, we have to offer competitively. So it's a question about a case-to-case basis, we offer our pricing.

Whenever it's been known, it will be effective from the January or probably 2, 3 months where now, for example...

January 1 is what we were informed.

Understood. And anything on the expansion plan both at India and Vietnam, what is the deadline right now considering because of COVID there is some delay?

Yes. So the India plant, we've -- as we mentioned, I think, last time also, by the end of this financial year, the structure, everything will be completed. By quarter 1 of next financial year, we will continue the operation of the new packing facility. For Vietnam also, it's a similar situation by the end of this financial year, we should finish the installation and everything, and the final commissioning will take place in quarter 1 of next financial year.

The next question is from the line of Rajesh Kothari from AlfAccurate.

My first question is what about the container availability currently? Is it the normal? Or is it still facing the same issues?

We are still facing the same issue. In fact, we are expecting this entire -- for the next couple of months, the same situation to continue. We are trying to book containers well in advance and block space. We are trying our best to mitigate this issue that has come up. The shipping lines have increased prices that are not honoring existing confirmed rate contracts also. They're asking us to pay the spot price. Unfortunately, that is something which the entire industry is facing. As in not only our industry, but the entire food industry is facing the same problem. So we don't see an immediate solution coming for this.

So seems I'm talking from the exports perspective because in case if they ask for the higher price or whatever, of course, the customer has to decide what customer wants to do. So keeping in mind that this issue is likely to continue for next 2, 3 months, how do you see fourth quarter? Because it means that INR 50 crores, INR 60 crores, whatever revenue is lost you will do it in fourth quarter, but then fourth quarter revenue will also be lost because you have the container issue, which continues. So it means how do you see FY '21?

Well, FY '21, I would say that we should come back to normalcy in the next quarter to a certain extent, more than 50% to 60%. Because we have also changed our model and our plans of dispatches. What we are doing is we are timing our imports. We are speaking to our price forwarders and the CIS, and we are tightening our imports, correlating to our dispatch schedules. Suppose I have a dispatch to, say, Asia, Indonesia or somewhere else. When I'm getting containers from Vietnam or somewhere which are bringing green coffee to us, earlier, we were not -- there was no mechanism to time them on both ways. Now what we are doing is we are utilizing all those import containers for reexports. Sometimes there is a transshipment. Sometimes we are able to get location-to-location specific containers and all that, and we were able to solve to a certain extent in that fashion. Now that we have an experience on this particular method, we have increased our number of price forwarders, and we're discussing with them to organize in such a way that our import containers are themselves used for exports also in addition to our regular bases. This is improving the system. I would not say it has solved the system entirely. But definitely, it has improved the system. And in the fourth quarter, since we already have experience in this, we should be able to do much better than what we have done in third quarter.

What is your 9 months volume?

Now volume figures, we are maintaining at the same level as it was last year. We will not be very specific on the volume numbers.

So when you say 9 months volume, are you saying it is equivalent to last year 9 months volume?

Yes.

That's what you mean? Okay. And in terms of the small pick revenue, since you mentioned that your focus -- focusing more on small packaging revenue. At the same time, if you look at your other expenditure, it is already almost up like 50%. So are you trying to say that small pack revenue would have gone up like 50%, 60%, 70% from your mix perspective?

No. Actually, see, percentages, you are comparing a expenditure percentage vis-à-vis a revenue percentage. Revenue denominator is INR 300 crores and expenditure denominator is INR 50 crores. Normally, as I've been telling earlier also that there will be a value addition of about INR 100 or so on the [indiscernible] the value addition on the small side. And as we go on increasing, the turnover levels also will suitably increased. Of course, costs associated with the packing activities only packing materials because the primary product already is there. So obviously, when we are going in for a small pack capacity, the packing expenditure will be high. Within that, I think it was to the extent of about INR 12 crores to INR 15 crores packing material was accounted by.

Basically, what you're saying is INR 54 crores other OpEx would have gone up by INR 12 crores INR 15 crores because of the increase in small pack revenue? Correct.

Yes.

Correct. And small-cap revenue would be how much percent...

It's just not revenue. It is expenditure on the packing material.

Yes.

Revenue would have been, the revenue could have been much more which we broadly had another 20% on EBITDA margin and all that. On a broader ballpark figure, you can say, it's why the expenditure has gone up by INR 12 crores on packing material and other packing expenses to the extent of about INR 3 crores, INR 4 crores. Then the -- on a ballpark figure, the turnover would have gone up by about INR 20 crores also.

I see. And currently, sir, small pack revenue would be how much of our revenue currently?

Currently, I think we have increased I mean let's not go into specific revenue breakup. But this year, we have increased our small pack capacity on a quarter-to-quarter basis by about 40%. We are doing about...

Yes, about 40% improvement was there on small pack capacity.

So would it be like -- sorry, I don't understand. In terms of the revenue, I'm seeing, how much was the ballpark small pack revenue as a percentage of your total revenue, 20%, 15%, 10%, any ballpark number?

Percentage-wise?

Yes.

Percentage-wise, the small pack capacity -- small pack would be approximately, okay about 15% to 20%.

That is basically for third quarter or for 9 months?

Third quarter.

Okay. And sir, last year, in terms of MEIS incentives, what was the total incentives issued for the full last year, FY '20?

INR 33 crore INR, I think.

I see INR 33 crores. So basically, what you're trying to say is that even if 1 doesn't receive the MEIS incentive, let's assume 0 MEIS incentive, then how do you see the margins as we move into the next year hopefully, situation will be...

As on the date, the scheme is not there. But there is an arrears of about -- accumulated arrears of about INR 28 crores on MEIS, which we're eligible for the exports that have already been done. So we are expecting to realize at least some part of that during the fourth quarter. So all this, to be very honest, on the export incentive aspect, we are not very clear at this stage because we have there -- we have -- realization is available, but the portal is not ready to accept the applications because it is a process where I have to upload an application and get this script to approved. So currently, it is not operating. We are hoping that once there is a clarity on this new scheme, the portal gets updated, and we will be able to realize. In any case, next 2, 3 quarters, we should be realizing approximately INR 28 crores of accumulated MEIS benefit.

Got it. Sir, basically, as we move into the next year, as you move into the normal year, how do you see in terms of the capacities, in terms of the production? How do you see FY '22? Do you think like earlier in the conference call, you're talking about possibility of roughly 35,000 -- 32,000- to 35,000-tonne possibility in FY '22? How do you see the environment now in terms of the volumes for next year?

The production capacities are there currently, order book equation looks to be comfortable for that -- for those quantities. And by the first quarter, we should be coming to the -- completing the line balancing in our Vietnam plant, and we'll have the capacity. So on the production and on the order book equation, we are not anticipating any major hurdle as of now. But as we experienced all through this year, several things are coming up. So currently, we are not envisaging any major hurdle for either production or order book equation or for the -- that level of operations.

I see. So basically, we are targeting around 35,000, which basically we are mentioning.

Should be, should be.

Should be doable. And the margins, assuming 0 MEIS because anyway, it is a onetime thing, after 1 year, there will be no areas. So on a normalized basis, without considering MEIS margins, considering increasing small pack revenue, can you tell us in terms of the margin, how it will look like?

INR 28 crores anyway has to be realized, if you're speaking about -- at some point we'll give that.

But what I'm saying -- yes, me, I'm saying that -- I'm saying before, MEIS incentive because anyway, that INR 28 crores will not be recurring in FY '23, correct? Because it is a onetime thing, whatever the arrears will be so that's fine. Let's assume it's 0 MEIS incentive in the new scheme.

By that time, we would have in -- we would -- I mean, we would be very clear about the new scheme and whatever we are going to get it or, at least, a clarity that we will not get anything on that. And secondly, we will, in this meanwhile, we will also try to push our prices because many of our existing contracts, we have taken MEIS benefit in the costing also. So with some of those customers, we were sharing this. And so we will be able to push back those into those customers' prices. Plus during this period, during the next 2, 3 years, we will be completing our packing project and we doing value addition. So of course, MEIS, if it is not, if you are saying it is 0, it should be 0, but we will not go down substantially because we are adding capacities. We are adding the value addition propositions also in the next 2, 3 years.

The Next question is from the line of Nitesh from Aditya Barla Mutual Fund.

Srishant and Mr. Sarma. One minute. So basically, my question to Srishant is on the performance of the India operations. So if I look at -- I mean, despite doing a INR 350 crore odd expansion in FDC plant in India. For the 9 months, the revenues for the India operations are down. They are like INR 570 crores versus INR 650 crores, say, last year, 9 months. And whereas the consolidated revenue is flat. So the growth has come from the Vietnam operations. Now the question here is, Srishant, when do you see this Indian operations coming back to the growth plan? It could be because of the container shortage. It could be because of the some COVID related disruption in the FDC unit. But when do you see a INR 225 crores INR 240 crores type of revenue run rate for the Indian operation. This is my question number one.

I don't think we've never seen INR 250 crores from Indian operations till yet.

INR 225 crore, INR 225 crores I said.

INR 225 crores also.

We had done that in the past.

Okay. Okay, largest second quarter in India.

Sir, If I see the revenues of the Indian operation.

Export.

For the March '20, it was INR 170 crores, then INR 176 crores, then INR 205 crores. And then again, in this quarter, I was expecting that it should be nearly the previous run rate of INR 220 crores, INR 225 crores. But again, it came in at INR 185 crores. So something is fundamentally wrong here? Or these are like some short-term container related disruption or something else? I want to just figure it out.

If you can add this dispatch quantity of about INR 50 crores also so, we will be in that range.

Okay. So should we assume that, I mean, if this containers problem gets resolved, then for Q4, we will be hitting this kind of run rate?

We should, obviously.

And secondly, would you still believe or reiterate the guidance which you had given in previous quarters of about 10% volume growth for the company as a whole? Would you believe that it is doable? Or would you, I mean, revise it downwards because of the problem?

So as far as the volumes, whatever we are looking at, we are quite confident that we can achieve it, subject to these aspects being in place. So there are a couple of things which are currently not in our favor, that is ensuring that the product gets dispatched in a timely manner and all that. In spite of all the postponements and all that, we've seen a better offtake that is coming from Vietnam. With all these changes, we are quite confident that we should be able to achieve that volume growth. But unfortunately, I'm not 100% sure how it's going to get reflected in our books this year. Because 1 factor that we had done in an assumption while giving our projections was that whatever the MEIS amount that we are eligible for, we will get it in a timely manner. That is something which has not happened till date. There's almost INR 28 crores of backlog, which is there, which is still due to us. Secondly, this -- from January 1 onwards also, we have no clarity as to what our eligibility is going to be. These 2 factors are definitely going to impact that topline also partially and the bottom line also will definitely get impacted with these 2 main factors. As far as our general operational performance is concerned, we are fully on track with respect to that.

And can you share what was the capacity utilization for the India operations as well as Vietnam for both FDC and the Duggirala as well as Vietnam during the quarter? Approximately capacity utilization, was it 60%, 70%?

Vietnam, we utilized to the extent of 90%. In our FDC plant and to look at also, we are able to utilize to the extent of 80% to 85%. In our Duggirala plant, about 60% to 65%.

All right. And I have 1 last question on the same -- I mean, Indian operation. So the EBITDA margin for this particular part of business is like quite volatile. For example, for last year -- last quarter, it was around 30% and then 28%, then 20% than 21% for last couple of quarters. So assuming that there is no MEIS benefit, okay, what could be the steady state EBITDA margin 1 should assume given the proportion of spray-dried and FDC? And also the small pack strategy which you are following up? So related to like 20%, 21% type or 25% type?

25% is possible because the substantial quantities of FDC was withheld returns, that is not reflecting. Once the FDC gets the dispatched, then it will revert to the last year figure of about 25% also.

Next question is from the line of [ Riten from Alpha Securities ]. As there is no response from the line of [ Riten ], we will move to the next question, which is from the line of Lokesh Manik from Vallum Capital.

My question, one was on the -- coming back to the other expenses, like a lot of participants mentioned that there is a jump of about INR 20 crores. And you attributed a majority of that part to the increase in the small pack mix in the revenue. But just some clarification on whether we were not able to pass on that cost to the customer because our revenue is flat Y-o-Y, slightly 2% down, and the expense is up INR 20 crores. So...

Correct, correct. See, while analyzing this particular part, you have to take into account the undispatched quantity also. The turnover levels, however, we were able to maintain because of the small pack capacity. And Small packs are also profitable business. So if you had to say about another INR 30 crores, INR 40 crores of freeze-dried that we would have dispatched in the normal course. And obviously, that as actual position would have got reflected.

So you booked the expenses upfront and a part of your sale is still lying in your inventory, which will not require that expense in Q4? Is that a correct understanding?

In respect of freeze-dried product, since there are no small pack things. In fact small packs expenditure has come in the other expenses. Only manufacturing expenses we account for closing the -- taking the value of the closing inventory. So that is how there will not be any small pack cost attributable to the freeze-dried, FDC.

Understood. So in Q4, this should not occur, right? I mean that...

Obviously, if we are increasing small pack capacity?

Yes, yes. On a like-to-like basis, on a like-to-like basis.

That will be there, but there will not be a major variation because of this -- you are comparing turnovers vis-à-vis other expenses exclusively.

right, right.

Once the product gets dispatched that variation will not be there.

Understood. Understood. Sir, second question was on the branded business side, the B2C business, just if you can provide some update on how that is progressing in Q3? And what changes you've seen after the pandemic and after unlocking just in terms of -- since we started, we were mainly focusing on below the line activities, we were heavily involved in wet sampling. As I understand during the lockdown, that would have come to a standstill. So how has that marketing act?

Today, because of a very important meeting, Praveen could not join the call. So I will explain the largest spend on his performance. First, till the third quarter end, the domestic marketing, including some building that has to be done from the parent company, APO, except Army purchase, or mentions, et cetera, where you build from parent company. On an MEIS level, domestic market achieved about INR 105 crores turnover, of which approximately about INR 70 crores is the branded business. And we are seeing it encouraging trend in the branded business, both on the e-commerce and the general trade also. So in-house consumption looks to be increasing continuously. While we are not able to reach to the desired improvement in the institutional business. Since the offices, everything is, many of these are closed, the institutional business has not increased. So the entire increase whatever has been there during this quarter has come from small packs only. Looks to be encouraging for this year.

And the ad expenses, are they still continuing from -- I mean...

The committed expenditure of approximately INR 14 crores for the year will be met during this year also.

the next question is from the line of [ Dixit Mittal from LIC Mutual Fund ].

Sir, my question is on volume in, at least, production volume growth that you are mentioning, you can still get around 10% growth this year. So that leads us to around 26,000 tonnes of production. And for next year, you are guiding for 35,000 tonnes. So what gives you, sir, confidence of such a large jump next year going from 26,000 to 35,000? Do you have any firm orders in hand? Or on what like basis are you like projecting this kind of growth?

No, the 35,000 is the current installed capacity we have. Next year, we will be getting another 3,500 tonnes on board. So normally, our aim will be to reach to a utilization levels of about 80% to 85%. so that should be in the range of about 33,000 plus. The 35,000 that was mentioned was on the installed capacity. Of course, there is a provision for better topline because we will be increasing our granulation capacity and also our small pack capacity.

Okay. But sir, still, from -- going from 26% to 33%, that's around more than 25% volume growth. So do you have some orders in hand for that kind of growth?

Yes, we have see in Vietnam, we are feeling inadequacy of capacity that is only -- that is why we have expanded the capacity. In fact, we just did the rebalancing and expanded the capacity, for which we will see impact. The customers are also premium customers. So we are expecting that we'll be able to utilize the capacity to a larger extent with the better margins as well.

And sir, lastly, you mentioned that first 9 month volumes are basically flat year-on-year. And if I just roughly see around INR 50 crores of deferred sales. So that translates around 1,000 tonnes of income that has been pushed to Q4. So but still for 10% growth, we need to do around 8,000 to 9,000 -- 8,000 [ tonnes ] of volumes in Q4. So is that possible, sir, based on current visibility that you have in Q4?

Volume increase is there already. it's -- it may not be 9,000, but let's not go specific into the volume figures as of now. We use -- you yourself have a lot of figures. If you -- so we should be able to do because last year also, we were holding substantial stock, which will be -- which we have liquidated in this year. If you see our last year closing sells also, we were holding substantial stocks. With all this, we still expect that we should be able to achieve on the volumes.

And sir, lastly, just a small clarification. So whatever incremental volumes that have been pushed forward. So gross margin will flow to the PBT level, right? Because you've booked most of the expenses in this quarter itself?

Yes.

The next question is from the line of Nikhil from SIMPL.

Yes. Am I audible?

Yes, you are. Can you be a little louder as well?

Yes. Just 3 questions, sir. One is like you mentioned that because of these delays with the containers and which is a global thing which is happening. I just wanted to get a sense that because on our order book filling for next year, because what I understand from the previous call is like by Q3 or Q4 of year, we start booking our capacities for next year. So is there any ramification of this whole issue, which is happening on the future order booking? Or you are still comfortable with the order bookings?

No. I would say there is no impact on the order book because there is no reduction in the coffee consumption. It is only a logistics issue, which our clients are also trying to solve along with us. So as I told you earlier, most of these contracts are on FOB basis. So in some cases, where they are desperate for the stocks. They are paying more freight, in fact, sometimes even double the freight also in getting the containers. So it's the next level of for activity, both for our customers and us will be to find out a mechanism of regulating the logistics. But the consumption per se of the coffee has not decreased. So there is no effect on the order book portion as such.

Second, you mentioned INR 70 crores of the India branded business. That is for this quarter or for 9 months?

For the whole 9 months.

Nine months. Okay. And lastly, on the Swiss facility, I think until second half, we were getting a good order book there and the business was showing up with the changes we have brought, if you can just share any thoughts over there? Have we added more clients? Or how is the -- like future looking over there now?

The Trading activities at our Switzerland plant have improved. In fact, they were -- during this year, they were able to do some profitable operations. Of course, right now, we do not -- perhaps we must not have added any new retail chain as such. For getting into new retail chains, a minimum of 2 years supply experience has to be there into that market, which we have covered during this year. So from next year onwards, we should be able to get additional supermarkets online, which will substantially improve. That is the very reason why we are also augmenting our packaging capacity to meet all the -- all that requirement.

And just 1 clarification, sir, on domestic branded business. I can understand, in second half, we were talking of a -- that the branded business itself could be down like INR 125 crores or INR 130 crores range. Has there been some slower offtake in third quarter? Or...

No, no, INR 125 crores to INR 130 crores is the total domestic business, which includes private label, institutional business...

And branded.

And branded together, along with army purchases. Now that I mentioned INR 70 crores only on the branded business, we are continuing with our institutional and private label business. So the total domestic business for the third quarter is about INR 105 crores. And against INR 125 crores or INR 130 crores, the relevant figure could be in the range of about INR 140 crores or so now.

In other words, there's an upward guidance that we are giving for the domestic market compared to what we have given at the beginning of the year.

The next question is from the line of Dhiral from PhillipCapital.

Sir, have you seen any recovery in freeze-dried business?

Have you seen recovery in the freeze-dried business?

Recovery, there has been no major benefit to the business for a recovery.

Okay. But sir, this year, we have seen higher offtake of spray-dried, right?

Correct.

So has this freeze-dried business upward?

Higher uptake of spray-dried business is mainly on account of our Vietnam operations going to the full capacity. And better uptakes in the domestic market, or army purchaser organization, these things have added into the freight rate.

And sir, next year, for the incremental capacity expansion that we did in Vietnam, what kind of capacity utilization we are expecting?

We are expecting about 70% to 75% on the expanded capacity.

Of 3,500 tonnes, right?

Correct.

And sir, with this small pack capacity coming on stream from next year? And freeze-dried business also getting some kind of a recovery, do we see EBITDA margin ranging between 26% to 28%?

It's too early to -- without even getting the plant operational, should we be commenting on that. Let's maintain that the current levels of 25% will continue. Yes, there is a potential when we operate the small pack capacity, the value addition, vis-à-vis the EBITDA margins are definitely likely to increase. And the expanded capacity in Vietnam, it will be a normal EBITDA margin because there is no value addition. There it is a bulk product only.

And sir, one of your competitors have seen some kind of volume and pricing pressure because of the lower demand in the European market because of this intermediate lockdown, so have you also seen that kind of an impact in that business?

I don't know how competitor has given such an impression. But for the volumes that we are doing we have not been impacted as such. You have seen our Switzerland facilities operations have improved over last 3, 4 years.

Okay. Okay. And sir, lastly, what kind of B2C guidance you are giving for FY '22? This year, we may end at around INR 135 to INR 140. So can we see 20% to 30% growth even in next year? With cash [indiscernible]?

Let Praveen, Vuduta and comment on it. Today Praveen is not available. So on his behalf I comment -- I would comment more recently. Because [ Vuduta is not following ] .

The next question is from the line of Kaushal Shah from Dhanki Securities.

Just one clarification needed on the EBITDA margin that was discussed during some questions, some time back. Sir, if we -- for a moment to assume that the MEIS benefits will be reduced going forward. Or in a worst-case scenario, even kind of completely done away with, what will be the sustainable EBITDA margin for us without the MEIS benefit?

That is what -- see, we have also introduced premium products during this year, like cold brew sales and all that. And along with that, when we come -- when we bring our factoring facility into operation, it should at least persist whatever loss has been there. You can see there is no MEIS benefit. It should stay just in the 20% of [indiscernible] 28% level for [ instant tea ] .

Okay. So what you're seeing is that 25% is it kind of possible to maintain?

For the coming year, at least for the year '22, since we are hopeful of -- we're realizing all those the INR 58 crore, which is an accumulated [ bump ] for the -- as existing today, it should be almost in the range of what we were getting in early days. So '22, we will not be impacted largely on account of revenues because we are -- continue on a cash basis and we will be realizing it. But '23, we should have been better placed on our packing facility and our additional capacities and all that. So we will be able to observe it very well.

So even in that scenario, sir, in '23, when our Vietnam facility will be the -- additional facility will also be value utilized. We will have the packing in place. Even our FDC as well as Duggirala will be value utilized. So in your opinion, even if we exclude the MEIS, CCL can sustain a 25% kind of a margin is possible?

At least current level of operations are possible even without that.

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

Just recently in the branded business, we were close to around 75,000 outlets in second quarter. Can we color it to what level we are right now? And then what kind of loss will we incur on the branded business this year, for the full year?

So the 75,000 level, currently, the loss on domestic market is marginal. I think there was -- at this stage there is a marginal loss of INR 1.3 crore, additional to domestic operations in the current year.

I understood. So from next year, it will be profit making, right?

Next year should be normal.

Understood. And the decision on outlet?

Outlets, currently I think we have covered into 75,000 outlets.

Correct information, Praveen maybe able to give you, but he is not here.

And on the premium product, how these affected in the market like the bottled cold brew with some of the planting year. I'm hopeful that it can ramp up to growth to 100x this year. And if I understand next year. So how is the response from the client in the cold brew and the premium product?

In the export market or [indiscernible] ?

Yes. Yes.

Yes. So the response has been really good. So in fact, cold brew, I don't know if you've seen stores has launched the cold brew, the Instant core group product in their supermarket shelves. So we are doing everything in the small factor, giving them the final traditional product that is being put on the shelf. So they are the first ones in the U.S. to launch this in the retail segment, and the response has been exceptionally good or bad. They've already taken substantial volumes in last calendar year and have already signed the contract with us for this current financial year as well. Seeing the response in the U.S., we've started getting inquiries for the same product, similar quality from other countries as well, including Europe, Russia and other places. Fortunately for us, because we have the first-mover advantage. Anybody else who tries to get into this segment will take a minimum 3 to 5 years with a substantial investment to get into this segment because we have our first-mover advantage, we are trying to create a new market segment. And this is also giving us entry into new customers as well. As you already know, instant coffee business is a very sticky business, and it's not very easy to convince a customer to transition from that existing supplier over to us. We are now able to do that by showcasing the range of products that we have, and saying that nobody can supply you this product if you want to have the first-mover advantage in your territory, then you have to come to us. So that strategy is working quite well for us. So that's one of the reasons that the volumes in that segment is also the premium segment is also growing. So the volumes are still small because we just launched last year, but it is growing quite rapidly.

On the U.S. segment, I think last 1, 1.5 year we started picking the small volume also, with the help that we partnered in. Any color how this very specific data...

Well, volume-wise, we've almost doubled the volume that we have done in the U.S. market in the last 1 year itself compared to what we were doing for the last 15, 20 years. So things are moving positively in that segment. So whatever is the volume growth that we are seeing also is mainly coming from U.S. segment as well.

Perfect. And there, we will continue to support the partner in term of the higher -- later payment terms and hire his [indiscernible] for the time being, right?

Yes. We are currently -- the agreement that we have in place with our associates over there is that we will give that extended credit and all that. But they are giving us a guarantee that there will not be any issuer, bad debts or nonrecoverable amounts and all that. So from our side, we were poking with this arrangement because that will enable us to capture more volumes, especially when you're targeting supermarkets than not. This is addressed pharmacies for asking for the 60 days to 90 days payment terms by supermarkets and all of that. And considering the lead time from supply onwards, we have to give the little bit of extensive credit for that market. But we are perfectly fine doing that because this is enabling us to increase our volumes.

Understood. And probably, I think, next year, based on the visibility. Do you think you'll be sitting almost you can see capacity both at India and Vietnam. Any plan to -- and Vietnam, I think we have enough capacity to double the capacity. Any plan to double it because at least we take a 9-month to 12-month for this one.

Yes. We are exploring that as well. With the current enhanced capacity for next year, we will have sufficient volumes in place. But we've already initiated steps to look at further enhancing the capacity in Vietnam for the subsequent financial years.

And that will be a much lower cost than the greenfield because many of the [indiscernible] ?

Yes. Because the infrastructure is already in place. It's only a time anticipation that has to be done. A lot of the equipment, we have the capability of building in-house as well. So we'll be able to grow the plant also at a significantly lower cost than what it would cost another person to do it.

Understood. And that will be, again, a large scale, I can say, bulk of -- [ fund investment ] or probably similar to India, they lead a small trade and small-cap basis double capacity in Vietnam?

We are also doing -- considering doing maybe a little extent of small packs also from Vietnam because we've been getting some inquiries over there also. We thought it just experimenting a smaller scale. Because whatever the certain customers are very particular that they want the product directly from Vietnam only. So for those customers, we are planning on -- anyway put some space aside for that expansion. We're not going to be spending the substantial amounts, but initially, we will test the markets for small parts from there. Our [indiscernible] small market is going to come out from India itself.

Understood. My last question on the U.S. [indiscernible] stayed a lot of -- just trying to quality yet for from Mexico and other? And are -- as you said, there was a USA [indiscernible], I can say you have a implementations where you can be accounted for. This change of government, do you think this is scope that there will be much more risks among Mexico and in Brazil you can say, in a great coffee. It can do...

So one thing that we have seen is, irrespective of which government is there, since coffee is one of -- the U.S. doesn't grow coffee, not does it manufacture any coffee internally. So they import almost everything from different parts of the world. So the U.S. does not plan on putting any restrictions when it comes to coffee. So whichever government is, though the previous government had come up -- actually, the original FSMA guidelines were introduced by Obama. And then subsequently, the implementation was supposed to be done by the Trump government. They did not strongly implemented, but they did give indications, saying that they might implement it, which is doing most of the big cost press. They did not want to take at a risk, though there's nothing restricting them. They've consciously decided to transition over from the noncoffee over to pure coffee, which is also why we got an opportunity to enter that market, and that's also one of the reasons why our volumes are growing. Now that some of the big players have started doing this. Everybody is getting jittery, saying that, okay, these guys are getting geared up to take on any strong implementation by the government. So the others are also slowly falling in line, which is why we're getting more and more inquiries in that market. But in reality, what is happening is, yes, the same type of products that are being imported in the past. They are still being imported. Though that volume has started to come down now.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you all for joining us on this conference call. Looking forward to speaking with all of you during the next conference call after the Q4 results are out. Thank you.

Thank you. On behalf of YES Securities, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.