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

Ladies and gentlemen, good day, and welcome to CCL Products India Limited Q1 FY '22 Earnings Conference Call hosted by Antique Stockbroking. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Manish Mahawar from Antique Stockbroking. Thank you, and over to you, sir.

Thank you, Janice. On behalf of Antique Stockbroking, I would like to welcome all the participants on the call of CCL Products. I hope everyone is safe and healthy. From the management, we have Mr. Challa Srishant, Managing Director; Mr. B. Mohan Krishna, Executive Director; Mr. K.V.L.N. Sarma, Chief Operating Officer; Mr. V. Lakshmi Narayana, CFO; Mr. P.S. Rao, Consultant and Company Secretary; Ms. Sridevi Dasari, Company Secretary; and Mr. Praveen Jaipuriar, CEO Continental Coffee Pvt. Limited on the call. Without further ado, I would like to hand over the call to Srishant for opening comments, post which we will open the floor for Q&A. Thank you, and over to you, Srishant.

Thank you, Manish. Good evening, everyone. The group has achieved a turnover of INR 326 crores for the first quarter of '21-'22 as compared to INR 289 crores for the corresponding quarter of the previous year. The net profit is INR 43.84 crores as against INR 38.48 crores for the corresponding quarter of the previous year. The EBITDA is INR 72.09 crores and profit before tax is INR 53.74 crores. We can go ahead with all the questions.

Sir, can we open the call for a Q&A session now?

Yes, please.

Thank you very much.

[Operator Instructions] We take the first question from the line of Kaushal Shah from Dhanki Securities.

Sir, if you can share the first quarter capacity utilization of our FD, the Duggirala and the Vietnam?

Vietnam, there is no freeze-dried capacity.

Correct.

In India, we have -- the capacity utilization was [ projected about ] 70%.

So this was FD or this is for Duggirala also?

Duggirala [ normally and freeze dried ] put together. We take FD capacity as a combined capacity only. And there is no FD capacity in Vietnam. So in India, our first quarter capacity utilization was in the range of about [ 68 ]. You can take a gross [indiscernible].

And in Vietnam, so what was the number?

Vietnam, there is no freeze-dried.

No, not freeze-dried, just spray-dried.

Vietnam is operating at 80% utilization.

Sorry?

80% utilization. Vietnam is operating at 80%.

Right. Right. Right. Sir, in India, the spray-dried division, what was the utilization there?

In India, also in the first quarter, it is about 65% to 70%.

All right. Sir, some thoughts on your possible guidance or word -- I think in the last call you indicated that you could possibly do between 10% and 15% volume growth in the current year. So now that about 4 months have passed, would you like to make some comments on that number? Maybe revise it upwards or downwards. So how do you see the volumes for the current year?

No, we can give a broadly better figure after the second quarter. Perhaps for the current, we will retain the same figures.

Okay. And one last question on the CapEx front. I mean, how much have we done -- have we started work already on Vietnam for the expansion and also on the small packs. What is your [ utilization ] there?

Small pack capacity, it's coming closer. Perhaps we will be going into commercial production somewhere second quarter [ from August ] onwards. And Vietnam, the line balancing part is complete. It is to be commercialized. We are working on the -- on matching the projects that are there on hand. So commercialization has not yet taken place, but the trial runs have been started. And on the expansion part of doubling the capacity. In fact, it is still in the paperwork. Perhaps next month or so, we will start issuing purchase orders and initiate the actual implementation process.

The next question is from the line of Sameer Deshpande from Fair Deal Investments.

Congratulations for good results. I wanted to know this Brazil -- hearing a lot of news about this Brazil crop and the frost there. So -- and I think we consume about 90% of robusta coffee as our raw material. So when the prices of this robusta or other coffees go up, what will be the effect on our operations and our profitability?

Yes. So first is Brazil mainly grows arabica and it's 70% arabica and 30% of robusta. And [indiscernible], the maximum area that has been impacted is the robusta -- I'm sorry, the arabica growing regions. So what is happening is -- one second. Yes, so this arabica is what has been immediately impacted by this...

Frost.

Yes, is majorly impacted by this frost. So the robusta prices have not gone up in the same line as the arabica prices. Robusta prices have also gone up, but not along the same lines as arabica. So now the gap between arabica and robusta is a little higher right now.

And we consume maximum robusta?

Yes, we consume maximum robusta, less than 10% of what we do is with arabica.

Got you. So 90% is -- blend that we are using is robusta only. So there will not be a big effect on whatever. We can pass it on anywhere?

Yes. See, our nature of business also, as you are already aware, we do on a back-to-back basis. So whatever we sell, we cover the coffee immediately. We get delivered on a staggered basis, accordingly.

Got you. Okay. So that was helpful. And for the gross margins, in this quarter they're around 50% compared to the March quarter of about 58.7%. So is it a seasonal effect? Because last year, it was 45%. This year, it was 50%. So this was around 59%.

Yes. So this -- coffee is a seasonal business, normally, quarter 3 and quarter 4 will be significantly better than 1 and 2.

Okay. And early in the export or on the export front, we earlier had the problems of this container, et cetera, having some logistics issues, et cetera. But have they been resolved or they continue to be there?

No, actually, the problems are still there. It hasn't been fully resolved. The freight rates are very high. So all those issues are still there. But in spite of those issues, we are still managing to push through.

We take the next question from the line of [ Shanti Patel ] from [ Shanti Patel Investment ].

My question is, taking into consideration all the factors, what will be the return on capital employed and return on equity as on 31 March 2022 and 2023? Give us a rough idea, I don't insist on -- that is question number one. So I go ahead or give your answer and then I ask a question?

Just one second. Return on capital employed, this is [ 14.72% ].

And return on equity?

Return on equity, it is 15.12%.

As on 31 March?

30 of June, current quarter ending.

I'm sorry, current. And do you think it will go up as on 31st March '22?

It is likely to have slight improvement.

Got you. And second question is, what is the difference in the price of arabica and robusta 2 months before and today?

The movement of robusta in the last 2 months has been stiff. It was about INR 1,300 to INR 1,400 2 months ago. It has increased to plus or minus INR 1,900 as of now.

And robusta?

This is robusta.

And arabica?

Arabica is -- I mean the movement as well, slightly lesser. It is -- it started from around INR 2,300 earlier to -- INR 2,300 now and it was about INR 1,600 earlier.

No. But then the damage is in respect of arabica, right?

No. Arabica -- yes, yes. Arabica, the Brazil problem is in arabica only predominantly.

Correct. Correct. So it's likely to -- price will go up as far as that particular item is concerned, correct? The probability of going up is very high.

Whatever contracts we'll be doing, we'll be doing at this price right now.

[Operator Instructions] The next question is from the line of Manoj Gori from Equirus Securities.

Sir my question would be that going forward at least for like 3 to 6 months we would be having better visibility in terms of order executions. So the exact impact...

We cannot hear, Manoj.

Is it better now?

It is better.

So if you look at, you will be having better visibility over next 3 to 6 months in terms of order executions. And you would have already secured these orders at a normal pace. So if you look at now, going forward, whatever new orders you were taking in, that would be at higher price. So can you just give some flavor like when the exact impact of rising coffee prices would be visible in P&L?

Broadly, see, one thing is when there is an increase -- inflationary trend in prices, there will not be too many orders that will be coming in. So -- but for us, there will be a visibility of 6 months clearly. And if we are doing orders right now with these prices, the visibility should come somewhere in last quarter, second month, last quarter part of the year -- this year.

Right. So is this understanding correct that during Q2 or probably during Q3 as well, the value growth won't be following the current increase in coffee prices and it should be similar to what we have seen '21 or FY '22. So...

Normally is, but we should adjust it to some urgent requirements of the customers who may want immediate supplies for replenishments. So generally, that is so, but it will not exactly match. There may be some variations because of the immediate requirements of the customers.

Right. Right. Right. So this is just for the sake of our -- like from an investor point of view, that's why you are building in assumption a few quarters. But should we take any significant value growth apart from volume growth. Or just what basis of prices and -- what's the basis of pricing? What are the basis of product mix.

See, broadly, if you're seeing, the price increase should not greatly affect our operations either side. So but since we will be covering our margins despite increase in prices so that -- though there is a price raising of that.

I do understand your business model and I completely agree that you cover your raw materials prices. Just only for the period, top line performance would be faster...

Yes, top line part, you can expect, that it would go up.

Okay. So that would be going up from Q2 onwards or Q3?

That should be somewhere from Q4 onwards.

Okay, okay, okay. And sir, normally we work on -- like there will be a few sets of clients that we would be working on fixed EBITDA basis. Whereas for most of the clients, we are working on EBITDA margin basis. Is that understanding correct?

Your voice is not clear. There's a...

Sir, I actually meant for a few of the clients we would be working on fixed EBITDA per kg basis. Whereas for a few clients we would be working on an EBITDA margin basis. So most of the clients, we are working on margin basis, right?

Broadly, it will be per kg basis only on a broader perspective. Margin, anyway, will not -- because of these variations in the coffee prices, we do not exactly go by the margins. We try to cover our EBITDA margins on absolute number basis only.

On absolute number basis. So optically, probably, the margins might come optically, but there wouldn't be any change in profitability or the volume.

Correct. If you comparing on a percentage basis, then it looks right.

The next question is from the line of Harsh Sheth from HDFC Securities. [Technical Difficulty] As there's no response from the current participant, we take the next question from the line of Abhijit Akella from IIFL Securities.

Just one clarification, first on the gross margin shift that we've seen quarter-on-quarter, from March to June, should we understand that it's largely because of a shift in product mix? Or is there some other factor? Could it be the higher raw material costs which have been passed through? Therefore, on a percentage margin, the gross margin looks lower.

No, you're right. It is only variation in the product mix only.

Okay. And is it freeze-dried coming down, sir, mostly or any other items also, like shifting around?

Last year, last quarter, there was a mix up of freeze-dried and most of it was on the small packs. Small packs requirement will come only towards the third and fourth quarters. So in the first quarter, when there is a reduction in small packs, obviously, the top line would be lower, and gross margin looks like haven't come down.

Okay, understood. And on the volume performance in the quarter, was it broadly in line with our expectations or were there any sort of hurdles with it?

No. Quarter 1 was very much in line with the expectations.

Okay, great. Just one last thing, sir, is it possible to broadly give us a sense of year-on-year -- out of the revenue growth, how much would be roughly price change, if at all? And how much would be volume change?

This is too premature to give it. We will consider this aspect somewhere around end of third quarter or fourth quarter.

The next question is from the line of Himanshu from Yes Securities.

So first question would be on the India-branded business, if we can have some more details as to how we are doing there. And especially with respect to the entry of a new player in that market, how do we see that business and the growth? How they're going ahead?

Okay. So Praveen, is right on the domestic front, in the first quarter, we do got a -- almost 50%, 48% to be precise. So the growth is on track. And we are ourselves a new player in the market. So really, it doesn't -- we are not big enough that any new entry or any other new player will affect us because we are ourselves trying to grow. It's more like how well we are doing up against the bigger players. So new entries are generally not a threat to us at this stage at least.

And what would -- what sort of growth would we be targeting for the year?

So we are targeting similar growth. Now very difficult to assess in the first quarter because first quarter is the leanest of the quarter. And you know that this quarter was hampered quite a bit by the second wave. So difficult to judge whether 48% growth is a good enough growth. We could have got more or less. But considering the fact that this quarter was very deeply impacted because of the second wave, I think this is a commendable performance. And we will continue -- this is on track with our expectations wherever we wanted to reach.

Understood. Second question for the team would be on the MEIS, the subsidy overdues. I think there was some amount overdue. So when are we expecting to realize that? And secondly, any update you can give on the RoDTEP scheme, I mean, whether we know now how much of benefits we can get or nothing at all. So any color on this would be appreciated.

There is no indication on the new scheme being applicable to us and that we'll be able to get any benefit out of that. On the MEIS, in the current quarter, we received about INR 6 crores out of the accumulated figure of INR 28 crores. When we will realize, we do not know, but we are making an application. We have made an application and the licenses have to be cleared.

Okay. Understood, sir. And my final question, maybe Srishant could address this. I mean, you can -- if you can talk about some of -- the performance of some of our new premium products that we had -- that we were trying in the developed markets, especially U.S. So any further updates you can give or how our new premium or value-added products are doing, especially in our key focus market? And any new client breakthroughs, if you've been able to get any?

As far as products are concerned, the new introductions are actually doing quite well. U.S. response has been good and consistent, and the volumes are growing there. Thanks to the track record that we have already built up. Now there is a lot of interest that is getting generated in other countries as well. Most of the countries across the world, they just try to copy whatever is being done in the U.S. So that interest has started generated -- started getting generated in Europe as well as in the Asian markets also. So we'll be slowly introducing these products in these markets as well.

Any new client additions that you can talk about? Any significant ones, Srishant?

We keep adding new clients all the time. There's -- if you're asking if there's another major volume client that has been added, not yet right now. We are in the process of transitioning 1 particular customer. That will take some time.

Understood. And sorry, just one final clarification on this quarter's performance. I mean, I believe last few quarters, we were running at a very high, almost full utilization of Vietnam. While this has fallen to 80% this time. So just wanted to understand -- I mean, anyone in India, the utilizations are 65%, 70%. So just wanted to understand, whether this is on account of demand issue where the clients have sort of postponed a few orders? Or are we facing -- I mean, this is on account of logistics issues, where some shipments were stuck. Or how do we sort of explain this dip in overall utilization levels?

This is, I mean 80%, 85% is considered to be the optimum utilization figures. So in Vietnam, the plant is running to the optimum utilization level only. Then coming to India, it depends on the product mix. There are some premium products. There are some other products which will have a lower productivity but better realizations. So when we are producing those -- these products on a volume basis, so the number might come down, but on a financial parameter, it will be equivalent. So there is no reckonable reduction in utilizations during this quarter that way.

The next question is from the line of Harsh Sheth from HDFC Securities.

Couple of questions, specifically on U.S....

May I please request you to speak a bit louder, sir?

Just a couple of questions, specifically on our U.S. business. So on U.S. front, with the widening gap between arabica and robusta prices, coupled with Brazilian suppliers likely to be affected at times, do you sense an opportunity to make quick market share gains over our Brazilian counterparts and developing or establishing our base there?

Actually, yes, we are. In fact, because of the situation, which is there in Brazil, the -- there is an opportunity for us to grow further volumes in the U.S., and we are capitalizing on that. This year, itself, we are seeing almost 20% to 25% increase in our volumes in the U.S. market alone.

All right. So if I'm not wrong, U.S. is 10% of our top line. So how do we expect our geographical mix to change going forward? Any comment on that?

More or less, it's going to be the same the way it used to be. A little bit percentage changes here and there will be there. As you rightly said 10% is what we would do in the U.S. that may go up by a few percentage points, but that hardly matters.

All right. And sir, if possible, could you please share the breakup between bulk and packaged products for U.S. specifically? I think bulk would be more, is that right?

Yes, around 95% is bulk in the U.S. and around 5% is small packs of what we do. Going forward, we are looking at increasing more of small packs in the U.S., but that's a more long-term plan that we have to increase the small packs in the U.S.

And with economy opening up, how is the institutional business in U.S. faring? Are we seeing a good bit of traction and new order bookings?

Actually, U.S., they rarely -- didn't follow the lockdowns like some other countries. The market was open for most of the duration, in fact. So institution sales, all that is more or less the same. Right now, we're just taking advantage of the fact that Brazil, the green coffee prices are going up significantly. There's this demand from customers to transition to alternate -- options. So that's what we are capitalizing on right now.

All right, all right. And just one last question. So and last month or more so specifically last fortnight, have you already seen a slowdown in our order booking? Or do we expect a slight bit of delay going forward, given the super inflation that we are witnessing? And also from your past experience, if you could help us understand, how do we expect the broader industry to shape up given the calamity of this sort?

So, okay, firstly, helps to understand that okay when the prices started going up, we've in fact seen the opposite. We've seen panic-buying taking place, customers giving us confirmation 3, 4 months before they would normally give a confirmation because nobody wanted to take a risk because they saw on the last 2 months, the prices were going up and they were not coming down. The news was quite clear that with the frost issue, the prices have remained high and there's going to be a deeper impact on the crop for the next 2 years. So I think more or less, in the industry, people are not expecting the prices to go back to the levels that were there last year and the year before that. So that's one reason. During this transition time when the prices are going up, we've seen a phenomenal amount of order confirmations in the last couple of months itself. So that's also one of the reasons why we are very confident with our guidance for the year as well.

We take the next question from the line of Amit Zade from Antique Stockbroking.

Sir, in the earlier comments you had alluded that we would be starting this Vietnam CapEx of doubling the capacity. So sir, how much -- what would be the time line, if at all, if say, it starts in the next couple of months? Then what would be the time line we would be completing that, number one, and the CapEx involved in that? And also, a second question, sir. We have seen some COVID wave surging in Southeast Asia. So how is Vietnam carrying through? Is there any risk from COVID in Vietnam as such?

We're not able to hear you clearly.

Is it better now, sir?

Sir, may I please request you to use the handset mode while speaking?

Better now?

Yes, sir. thank you.

I'm sorry for that, sir. And the first question was -- my first question was on our CapEx guidance of doubling the capacity in Vietnam. So I think we had said that we could start in couple of months. So what could be the time line of the same? And by when could we complete the doubling of the capacity in Vietnam and the CapEx it would incur? Number one. And second question, is there any risk coming from COVID third wave in Vietnam because there was some surge in Southeast Asian countries. So is there a risk to Vietnam as such or our operations in Vietnam?

Yes. First thing is we will be starting the implementation of the expansion from around September, October this year. And it should take at least 1 year henceforth. So next to September, October, we can expect that we can complete the expansion part. And secondly, talking about the COVID impact. In fact, as we are speaking, there is an impact in COVID in Vietnam, particularly the city which we are in, Buon Ma Thuot city and in [ even coffee industries ] in which our factory is there. But we are taking special permission and trying to run the show. If things get worse, then we do not know but we are making a risk assessment and trying to work out alternatives. But even as we are speaking right now also, there are lockdown restrictions in the area in which we are operating. We are trying to maintain the operations as of now.

Okay. Got it. And would it be possible for us to, supposed to, source our orders from India in case if it will -- if the case worsens in Vietnam or...

I think Vietnam, in Vietnam, we are in a backward area. The government also is very keen on running the factories and other establishments. They are giving all kinds of cooperation to enable running the factories. In fact, we are there given special permissions for the transport of our goods and our incoming material and the outgoing material. As also, they have permitted specifically our staff with, of course, due restrictions and the due precautions being taken. So there is a, in fact, more encouragement from the government itself to run the factories. So with that kind of support, we are expecting that we should be able to run the factory. Of course, there are a few products which we can interchange between India and Vietnam. But in India, we are not gunning for any expansion in the last 3, 4 years, and we are -- at most there's optimum utilization in India in spray-dried capacity. So we will make an effort to run the factory at Vietnam with the government support.

[Operator Instructions] The next question is from the line of Vivek Tulshyan from New Market Capital.

I just wanted to understand the absolute revenue in the domestic branded business and how much distribution reach has increased in the last 3 months?

So the first answer -- the answer to your first questions, what is the business? We almost used INR 30 crores of business in the first quarter. And distribution, see, we did not -- nothing changed between March and June, as you know, because whole logistics was disrupted during the second wave. So we haven't added any distribution as of now. Going forward, we are expecting, when the second wave hasn't come, that we would expand a lot in this quarter. But that couldn't happen, and we are now expecting, that I'm hoping that no further big time wave comes so that we can continue on an expansion program.

On the MEIS, this quarter we received about INR 6 crores. So what was the comparable number last year same quarter?

I think it is INR 7 crores.

Understood.

Comparable...

Figure for first quarter last year.

Yes. And just on the revenue growth number, how much of this would have come from volume growth? And was there any realization growth that you saw during the quarter?

That, in fact, we have not yet clearly demarcated them. The prices are almost on the same lines. So there's no major variation on it.

The next question is from the line of Devanshu Sampat from Yes Securities.

Just a few questions. So what is the typical mix between the business that -- or volumes that you do for the advanced orders and the last minute or spot orders in a typical year?

They will be approximately 65%-35%.

Okay. And would it be right in saying that the majority of your advanced orders are -- I mean you get in -- towards the end of the calendar year?

Pardon me?

Your orders that you get in advance, do they usually get confirmed around the end of the calendar year?

Yes, by the calendar year, we would know, yes.

Okay. Okay. And given that robusta prices have gone up by as much as 40% as you just mentioned, so just wanted to get a sense of -- so if somebody places an order with you right now, how much of a margin on a per kg basis do you typically work with or can work with, with prices being right now there?

We try to maintain our existing margins on this. We will -- if so, the way price variation will be on account of green coffee, but cost only.

No, I understand that, but I think the long-term vision is to touch INR 130, INR 135 per kg, if I'm not mistaken. But...

Yes, that is our 3, 3.5 year figure.

What was the figure that we'd average in FY '21?

That was about INR 112 or so. But it can -- it cannot be, like in MRP, it cannot be loaded for every customer. Every customer is different for the purpose of price negotiation, with reference to the nature of customer, whether he is a manufacturer customer or a trader customer or also he's a volume customer or a small group customer and the small pack customer. So depending on this, we have the small metrics basing on which, depending on the customer's profile, we will load this. But on an overall perspective, we will try to cover our margin in absolute terms.

So just to clarify, with prices being the way they are right now, you are still targeting something in the range of INR 112 to INR 115 sort, or will it be a little bit higher?

We should target -- no, I mean in an inflationary trend, already, there is a price increase for the -- absolute price increase for the customer. So I cannot say -- I will also load extra and take it from him. So it may not be possible in that fashion.

Okay. Okay. And sir, just a last question, if I may. Just to get a broader sense on the coffee processors globally. So with the world going through whatever it has in the last 1, 1.5 years, can you give me a sense of how the supply side dynamics have changed or have they not? Like have there been supplies are closed down or can you just give me a sense of what is happening in [indiscernible]?

But for the logistics issue, we did not experience any disruptions in supplies for the past 1.5 years. Of course, logistics...

I'm asking about coffee processors globally.

Coffee processors globally also, I don't think anybody has gone bankrupt during this period. So and all over the world, the coffee is -- including Vietnam, et cetera, the coffee is graded as an essential commodity and so exempted from any of the disruptions due to lockdowns and other aspects.

The next question is from the line of Naitik from Anvil Shares and Broking.

I just wanted to ask your strategy for domestic retail business. And if you could just tell me any internal targets that you are having for the year and the next?

So our strategy, as we have spelled out many times before, is just like any other FMCG product, we have launched various products, various brands in various categories, instant, R&G and [ premixes ]. So that's -- those are the 3 segments we are -- we have entered and we are distributing it largely in the coffee stronghold, which is the southern part of India. That's where our distribution has first begin with. So that's, being brief, our retail strategy. And as far as numbers are concerned, we domestic everything put together, which is bulk, private label and our branded business. We had achieved a turnover of approximately INR 150 crores. We were looking at a 25%, 30% growth this year. But it will all depend on how things go forward because the first quarter was a little tough, and we'll wait and watch how things pan out in the next couple of months.

Another question is, are you planning for the other regions like you just mentioned, focusing on southern regions more but increasing your distribution in other regions like [ western regions ]?

Yes, of course. So, as we speak, we have already started distributing at least in the key towns of other regions, which is Northeast and West. So we are expanding our distribution. What I said earlier -- as I said earlier, the speed of expansion became a little slower because of the second wave. But hopefully, and we are just hoping that things don't go back from here, we'll be there in almost all key towns across India very soon.

Right. Also has this broken even like you said in the last point?

Sorry? Has it...

Has the business broken even?

Yes. So last year, we had a marginal loss of around INR 3 crores, INR 4 crores. We are looking to break even. But as we had said and told in many of the calls before, whatever -- even if you break even and we can make profits, we'll claw back into the business so that we can expand because there is a huge room of expansion going forward. So next 2, 3 years, we are not even looking at generating significant profit.

The next question is from the line of Himanshu from Yes Securities.

Just 1 question. I mean, on the doubling of Vietnam capacity, what is the amount of spend that we are looking at? And also, in terms of the ongoing CapEx on small packs and the Vietnam brownfield, I think that is more or less done, but any other CapEx -- overall, what would be our CapEx guidance for this year and the next?

Yes, this year, packing capacity, we are almost done with the CapEx right now, barring about, say, INR 15 crores, INR 20 crores, perhaps. Vietnam CapEx for doubling the capacity will be in the range of about 17 million to 20 million spread over this year and next year. There is no -- nothing on board right now in addition to these 2 expenditures.

So as of now, for next 2 years, 20 million on Vietnam and about INR 15 crores, INR 20 crores on the small pack. That's about it that we can pick up.

Yes. Now there will be some regular technology update expenses that we do. There are small things, small amount. But there -- any reckonable CapEx would be on account of these 2 items only.

The next question is from the line of [ Taha Machin ] from -- individual investor.

Slightly big picture question. We're seeing extreme weather events due to climate change have intensified and temperatures are increasing faster than anticipated. With the big impact that climate change has on coffee growing, how much of a risk is this to our business model over the longer term?

Actually, that is a very interesting question, because as the climate change is taking place, there are lots of new areas that are also coming under coffee cultivation. Even in developing countries across the world, there are -- there is a larger acreage that is coming under coffee cultivation. So in countries like Brazil, the plant -- there's several areas, farms where the plants are more than 50 to 60 years old. So every year, there is a small percentage of farms where you'd replace the crops as well. When that replacement time is coming, people are doing that replacement at a different altitude, so that this impact of weather is the minimums. So across the world, everyone is adapting to this climate change. As far as actual demand and supply is concerned, that demand is -- for coffee, is consistent, around 2.5% to 3% year-on-year. It is still growing. In developed countries, it's peaked or it's reducing by a small percentage. But in developing countries, in several places, there's a double-digit growth as well. So going forward, maybe we can expect the prices to be a little higher to balance out this demand and supply.

Okay. But so essentially, with increasing temperatures, the plantation acreage doesn't necessarily go down again. It can also go up or it will just go up...

It can -- yes, exactly.

The next question is from the line of Sameer Deshpande from Fair Deal Investments.

I would like to know what is the net debt of the company, as of current?

Pardon? Net...

Net debt of our company. In March, I think we had some working capital loans due to higher inventory. So what is the net debt now at the end of this quarter?

The debt on working capital is about INR 250 crores and then long-term debt is about INR 178 crores.

That's on almost some INR 120-odd crores in March.

Consolidated net debt is INR 250 crores. And long-term debt is about INR 178 crores.

So around INR 375-odd crores we are debted. And with the -- what is the effective tax rate? In this quarter, I think the tax rate has gone down to 18% only. And overall, for the last year, it was around 22%. So it remains in the range of around 18%-20%.

Obviously, with Vietnam operations going strong, the net rate will come down because the entire Vietnam profitabilities are tax free.

Okay. So our tax rate will be around 20% only overall?

Net rate will gradually come down to about 15%.

The next question is from the line of Bharat Gupta from Edelweiss Securities.

My question pertains to the utilization levels. So during the quarter past, right, so we have seen that our even utilization levels have remained below 70% odd levels. So can you throw some light in order what have been the reasons behind -- because earlier, primarily, we were able to do an optimum utilization across our Indian facilities. So why there has been a drop in the overall utilization levels? And do you believe it is family because of the COVID phenomenon which is going on? Or there is some sort of a weakness across the demand?

No, but there is no reduction in capacity utilizations. But normally, being a seasonal product, the capacity utilization of 80% to 83% is considered to be the optimum utilization. And only in some cases, particularly in our Duggirala plant, since we are producing some specific products, which have a lower productivity, the absolute numbers will come down compared to lower rate capacities, but -- and if you take the revenue from that and profitabilities, we will be running at optimum utilization. All our plants that way adjusted to the productivities, all our plants in quarter 1 run at optimum utilizations.

Secondly, just a hypothetical question on -- in terms of the coffee prices, which we have seen. So if the buoyancy in the crop prices retains, so as you have said that order inflow in regard to the current market prices, so that has been limited to some extent. So if this trend continues and the crop prices or the coffee prices remains on the higher side, sir, are you seeing that there can be some deferment in terms of the order inflows we should be getting throughout the year?

Perhaps it might slow down. But in an inflationary trend, every point is a point of concern. So when say it has gone up from 1,300 to 1,500, people are expecting a decrease and waited for -- there is a small resistance for taking orders. But when it started going from the 1,700, they were desperate to close. So at every step, there will be -- they'll be covering the orders. And anyway, we will be covered to the extent of at least 6 to 7 months operations. We will not have a problem in continuing our capacity utilizations.

All right, sir. And sir, in terms of demand, like earlier during the last quarter call, you had mentioned that rations of the orders which we record from this year. So that has started to normalize. So is that trend similar like normalcy has returned to the developed markets as of now?

Yes, broadly, the indications are that it has come to normalization. We are seeing -- of course, last year, it was an aberration, but we are seeing that things are becoming -- coming back to normalcy.

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

Just 1 question. Vietnam tax rate still remains 0 for how long a period? I do believe it will be a finite period evolution, right?

No. As things stands today, it is for lifetime because we comply with all conditions as stipulated for being a zero-tax company for lifetime, unless there's some rules are changed at a later date. Right now, it is for lifetime.

So 15%, which you are seeing on the blended basis, it becomes like a base case tax rate for you in medium term, right?

No. See, it's -- so when we are expanding the capacity, the profit generation from India and Vietnam would almost be on the 50-50 basis. Where at one point, we had 0 tax and at one point at a maximum of 25%. So we will be averaging out at 15% overall.

Yes, yes. So that's a point -- consolidated basis, the 15% tax rate should be the base case assumption, right?

That is correct.

And secondly, like when the freight rates are moving very fast, so who will be at the cost of additional freight expansion, freight cost?

It depends on the contracts that we concluded. If we are concluding an FOB contract, the buyer will. And if we are concluding a CIF contract, we have to be it.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Manish Mahawar for his closing comments. Over to you, sir.

Thanks, Janice. Yes, actually, I have 1 question. In terms of the U.S. market, particularly, what could be the size of U.S. instant coffee market? And how is the India export in terms of volume, I'm talking about, and our volumes particularly in the entire geography?

The whole of U.S. market will be around -- maybe around 80,000 tonnes.

Okay. And what is India's contribution in the 80,000 tonnes?

India's contribution in the U.S. will be the largest, it's -- and everyone put together, maybe around 7,000 or 8,000 tonnes maximum.

Okay. And what's our share out of that?

I said that we're targeting around maybe between 5,000 to 6,000 tonnes in this year.

Okay, this year. And possibly because -- as we understand, right, because of cold brew coffee and the new customer win in the last year, I think we are getting good traction in this market, right? How do you see this 5,000 to 6,000 metric ton of the volume in U.S. will be over next 3 years, particularly?

That's a bit too premature for me to comment on at this point in time because there's lots of variable factors that are there. But the way things are looking up right now, because of the issues which are there in Brazil and all, we should hopefully be able to add some customers in the next year or 2 itself.

Okay. Understood. Okay. Okay. But basically, in terms of a new customer, I think we have not had any new customer win in terms of -- in the first quarter from U.S., right?

No, we didn't add any -- we've had several new customers. But if you're referring to a large volume customer like what we added last year, we haven't had any new large volume customer like that. Lots of smaller guys, yes, we keep adding on a very regular basis.

Okay. Understood. Okay. Sure, Srishant, thanks. That's on my part. Srishant, would you like to make any closing comments?

No, nothing specific. I guess it's just sticking to our guidance of 10% to 15% for this year. And yes, so hoping for the best. Thank you.

Thank you very much. On behalf of Antique Stockbroking, this concludes this conference. Thank you all for joining. You may now disconnect your lines.