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

[Audio Gap] Thank you, Bilal. Good evening, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products' 2Q FY '22 Earnings Conference Call. From the company side, we have with us Mr. Challa Srishant, Managing Director; and Mr. Praveen Jaipuriar, CEO of Continental Coffee, who is also appointed as CEO of CCL Products in today's Board meeting with effect from 29th of October 2021. We also have with us Mr. V. Lakshmi Narayana, CFO; Mr. P.S. Rao, Company -- Consultant Company Secretary; and Ms. Sridevi Dasari, Company Secretary on the call. Without further ado, I would like to hand over the call to Mr. Srishant for his opening comments, and then we'll open the floor for Q&A. Thank you, and over to you, sir.

Yes. Thank you for the introduction. The group has achieved a turnover of INR 336.83 crores for the second quarter of '21-'22 as compared to INR 322.22 crores for the corresponding quarter of the previous year. And the net profit is INR 49.34 crores as against INR 47.46 crores for the corresponding quarter of the previous year. The EBITDA is INR 82.5 crores, and profit before tax is INR 64.78 crores. For the half year, the group has achieved a turnover of INR 663.06 crores as compared to INR 611.48 crores for the corresponding period of the previous year. And the net profit is INR 93.19 crores as against INR 85.95 crores for the corresponding period of the previous year. The EBITDA is INR 154.59 crores and the profit before taxes, INR 118.52 crores. A couple of other points that I would like to mention is our expansion in Vietnam, the equipment installation and the commissioning has been completed. We are trying to balance our order book as well as the trials that we need to do to fully commission the new line. With this, our enhanced capacity will also be available. Right now, we are -- we've achieved a part of the enhanced capacity. By next -- by quarter 3, we should be able to get the entire capacity online. So as we have already informed last time, we did the plant shutdown also in Vietnam, in spite of which we were able to still have a growth in quarter 2 compared to last year. Apart from this, there are 2 other changes that I would like to mention. This is personnel changes. One, Mr. K. V. L. N. Sarma as our COO has resigned from the company, and he has transitioned everything, whatever he was doing, to Mr. Praveen Jaipuriar, who has now been appointed as CEO of CCL Products. We can open up the floor for questions now.

[Operator Instructions] We have our first question from the line of Kashyap Jhaveri from Emkay Investment Managers.

Yes. I have a couple of questions. One, after, let's say, the first half, top line growth is roughly about 8.5-odd percent. Would you still retain your guidance of about 15% growth in net sales that you have been highlighting for some time? And how much of it could come in, let's say, fourth quarter of this year from the expanded Vietnam operations? That's question #1. And second question is that in terms of EBITDA, would our EBITDA on per unit basis would be stable despite the fact that coffee prices would have gone up in this particular quarter? And the third question is on our export market, both in the European supermarket space where we are looking at some bit of expansion and the new client that we had signed up in U.S., one of the large instant coffee player, what's the expansion in some of these geographies incrementally?

Okay. So first question with regards to sort of guidance, actually, there's a slight revision on the guidance. Earlier, we had given a guidance of 10% to 15%. Now we can confidently say that it will be significantly more than 15% for this financial year.

Okay. That guidance is now driven by -- you have been highlighting stronger order book for...

Hello? Hello?

Sir, the line got dropped. We'll move with the 2nd questioner.

Maybe I can just continue answering the question. As far as the order book is concerned, yes, we do have a stronger order book. And quarter 3 and quarter 4 is typically the peak quarters for us. And that's one of the main reasons why we wanted to complete all the expansion by quarter 2 itself, so that we have that additional capacity available to execute the rest of the order. So yes, that's one of the reasons why we are increasing the guidance given. And because of the green coffee prices, which are going up, there could be a disproportionate increase in top line, which we'll start seeing from quarter 4 onwards. So that's another point, which I just wanted to highlight. So as far as our absolute margins are concerned, they will -- they're, again, on track. We're going to remain constant. But after quarter 4 onwards, we'll start seeing more increase in top line because of the green coffee prices impact. And one more point that was asked earlier was about the customer in the U.S. Yes, that business is going well, and there could be an opportunity in the near future where we could secure the primary supplier position also for this customer. So it's a positive sign for us.

[Operator Instructions] The next question from the line of Akhil Parekh from Elara Capital.

Congratulations on the set of numbers. My first question is on the India operations side. We have seen a significant increase in the raw material prices. I mean you've just alluded that impact we've seen on Q4. But has there been any change in the product mix given that we have -- as you were expecting that the FDC utilization rate will improve in coming quarters? But it looks like probably the growth is only driven by volume in India, and there hasn't been much change in the mix or your price realization for the product. Is that true?

Actually, I think that's a good point that you pointed out. But if you look at the numbers a little bit more closely, one, yes, our [ FDC ] volumes have increased, which is why the margin also has improved in this quarter. The reason why it's not getting reflected fully is because the MEIS, what we got last year, was about 8.5 crores and quarter 2 of this year was 0. The licenses were stopped as everyone is aware for quite some time, and just towards the last week of last month, they started getting released. So we will be selling the licenses from quarter 3 and quarter 4 onwards. Last year, quarter 3 and quarter 4, the licenses were 0. We had only sold the licenses in quarter 1 and 2. This year, quarter 1, we sold the licenses, and quarter 2, there was 0 sales. So that itself, you can see almost 8.5 crores coming in from the license business side.

Okay. Okay. And how much were expected since the total MEIS benefit for the entire year? And how much it was in the last quarter, that is the first quarter?

We're expecting another 15 crores approximately of licenses. We already received about 6 crores to 7 crores in quarter 1. And quarter 3 and 4, we're expecting around 15 crores.

Okay. Coming to the FDC utilization rate, would you be able to highlight how much it is right now [ the SDC and FDC ] right now in India?

The India utilization is actually good. We are almost at around 90% now.

Okay. That's for FDC I think or both the FDC and [ SDC ].

Yes, for FD.

Okay. And how much trade rate?

Trade rate also at a similar rate. This year, we are operating at more or less peak capacity in all the units. It will be crossing the 90%. That's one of the main reasons why we need to get this new additional capacity online as quickly as possible.

Okay. Got it. And on Vietnam, sir, how is the situation now with that because, last quarter, we had some impact because of the rising COVID cases and kind of [ military-level ] lockdowns. Has the situation improved now in there?

Well, Vietnam, the situation, I think there are some new cases, COVID cases that have come up closer to the factory also now. Fortunately, I think the government has been very vigilant over there. We are also taking the necessary steps to ensure that the employees -- we provide accommodation for the employees within the premises itself because we have a completely full order book. We cannot afford to default on our commitments. So we've ensured that all the raw material is there with us. The main issue right now is manpower. One major advantage that we have in Vietnam is that it's a fully automated plant. So with minimum manpower, we are able to run the plant over there. And because it's mainly bulk production, that's not a big issue for us in Vietnam.

So the dispatches are kind of normal and has not been impacted. Is that correct?

Yes, the dispatches are more or less normal. And small delays here and there will be there and trade issues are still there, but we have to live with that.

Okay. And maybe if [ Srishant sir, you can ] highlight in India, the branded business, how it has done in second quarter and [indiscernible].

I think Praveen can answer that.

Yes. Yes, so domestic branded business, we continued a good run in quarter 2 also. So first half, we have grown by almost 40%. And this year, if you remove the army operations because, this year, we didn't get that contract, so if you remove that -- without that, we are growing at almost 45%, 46%. So we are on track with our growth projections. And first half, we did a top line of approximately 85 crores.

Okay. Okay. Should we expect to touch, say, [ 200 crores ] for the entire year or it will be shorter time?

Really -- so as we had informed in the -- during the first quarter call that there was a month of -- 2 months of disturbance, which led to -- because in the first quarter -- because of low basis last year, we were expecting, in fact, even higher growth than 45%. But that disturbance kind of lingered this year as well impacted -- this year was a little more impactful. So we lost out a little bit there and some of our expansion plans, which was to begin much earlier than we had anticipated expansion. When I say our distribution expansion beyond south states, that got a little delayed, so that has led to a little bit of a setback. But having said so, we are poised to do a good number in quarter 3 and quarter 4. So I'll not be able to exactly pinpoint whether we'll be able to exactly touch 200 crores, but yes, we are gunning for it. And it could be 5 crores, 10 crores here or there. That's it. But yes, we are on track for that kind of a number.

Okay. And the profitability wise, it's -- I mean we should expect that it will contributing to [indiscernible]

So like, Akhil, last year, we had said that we had broken even, so we would have -- this year also, things have been going good only. But as you know, coffee prices have increased a little. And because we are in consumer market, taking up price increases are not so easy and it does have a lag effect as well. So therefore, there will be a little impact on margin, but that does not impact us very differently. And as we had guided last time as well that, even for this year, whatever profits we are making, we'll try and plow back into our distribution expansion and brand-building activities. So most of it is on track, and there is no major hiccups. But yes, these are certain aspects, which I thought I'll bring to your notice.

Sure. Just one last question before I get back in queue.

Mr. Akhil, would you like to join back in queue?

Okay. No worries.

[Operator Instructions] The next question is from the line of Rahul Maheshwary from Ambit Asset Management.

Am I audible? Hello?

Yes, yes.

A couple of questions. So as you had guided in last quarter that once the Vietnam's capacity of 3,500 tonnes, which you said on the opening remarks will be commissioned by quarter 3. And you said that within next 2 months, the doubling of Vietnam's capacity plan would be laid out by the management. So can you give further visibility on the Vietnam's CapEx for next 1 to 2 years, how the ramp-up of the capacity for next -- for doubling will take place? And related to U.S., as you said that 2 to 3 major clients were in the pipeline. What is the status there? And what kind of out of the overall capacity currently we have reached to service U.S. and where we are targeting?

Yes. So as far as the further doubling of Vietnam capacity is concerned, we've already initiated that process and is expected to be completed in a year's time. So hopefully, by quarter 2 of next financial year, we should be up and running provided there are no last-minute surprises because of COVID or any other reason. With that capacity, we should be able to cater to these new customers that we are now talking to. At this point in time, we do not have that kind of capacity to cater to their requirements if they give us a large order. We are -- we've actually presold all the coffee for this year. And we will start selling for next financial year now itself. That's kind of an exception situation for us. So as of now, the capacity is a bit tight, even with this current 3,000 tonnes enhancement.

Sir, can you highlight the sense of confidence you're getting to doubling the capacity, whether the market pie is expanding or you're gaining the share from the peers, which is there because of the better quality and the wide -- different types of the coffee, which you can provide at an appropriate time? Can you give further color that what is driving such confidence to gain the growth at such a high, rapid way? And also, Srishant, can you highlight some -- as in last quarter, you said about the new products, value-added products, which were contributing currently during the quarter, what was the status and how the pipeline is building for the new innovative products.

A lot of questions combined in one. So yes, as far as confidence about why we're going in for this kind of [ existed ] expansion kind of [ thing ], one, if you noticed within India, the domestic market, we've been doing exceedingly well. And currently, while being present in hardly, what, 4 states, we are gaining a good market share. Once we start going on a pan-India basis more aggressively, that capacity needs to be freed up in India. And in order to do that, we need to shift some of the bulk production to Vietnam. So that's what we've done in the past, and that's what we need to do in the future as well. That is one thing that is giving us confidence. Second, yes, the market is also growing at a rate of around 2.5% also, the instant coffee market. But we are growing a little bit disproportionate to the market mainly because the kind of product mix that we have to offer, there is no other company in the world that can offer this. The entire range of products from the most economical to the most premium products, we can provide from our factory. So that kind of flexibility nobody is offering in the market today. And because we have the technical know-how to do this, we are able to customize based on any customer's requirement, and because of the advantage of economies of scale, we are able to be a little bit more aggressive in the market than anybody else.

So just to interrupt, for more than the Indian market, the peers at the global, which you are supplying to the U.S., Europe supermarkets or even to Russia or Turkey, over there, whether you're gaining the market share from the peers who were supplying to those markets.

Those markets -- we are already supplying to the major players in most of these markets. In Europe, we're actually supplying to a lot of repackers and resellers. And the supermarket business, we created a good foothold with some supermarkets. And consistently, for the last 3 years, we've been supplying to them, and we got the contract for next year as well. We are expanding into some new supermarkets as well, but breaking into a supermarket chain is actually a very cumbersome process. And you need to show a certain track record and all that. Now that we have that track record, it's becoming a little more easy for us to get listed as one of the priority suppliers. Going forward, we're expecting more of small packs to come in, in the near future.

Okay. And can you throw some light on the value-added products and the innovative pipeline, which is there, which -- last time, you said one product among the cold brew where demand from [ paying ] countries coming and you were not able to supply. So is there -- what kind of R&D and what kind of innovative pipeline can you witness to give insight on that?

Yes. So we started supplying this cold brew to Trader Joe's initially. We created this product category. And there, we are pleasantly surprised of the kind of response they got for this particular product. So that volume has been consistently growing with us. Now looking at Trader Joe's, in -- there's a couple of large retailers in the U.S. who have now approached us saying that they want us to do something similar for them. But we have to now create a different product. We can't give the same taste profile. So we're in the process of creating some different products for them. Now seeing the success in the U.S., there are European, Chinese as well as Russian supermarkets who have expressed interest, saying that they want to introduce cold brew in their supermarkets as well in their own private label. And because none of the big brands are doing this, the supermarkets are getting a name of being innovative thanks to us. So that's a very big plus point for us. This is one of the products that we have. There are a lot of other products that we are constantly working on as well, but it might be a little too premature to talk about it at this point in time.

[Operator Instructions] The next question is from the line of Himanshu Nayyar from Yes Securities.

All the best wishes to Praveen for his new role.

Thanks. Thanks, Himanshu.

So firstly, just a clarification on the Vietnam base. So by doubling capacity, you mean doubling from the earlier 10,000 or doubling from the now expanded 13,500 tonnes?

Doubling from 13,500.

And the cost of that would be around $10 million or...

$20 million.

$20 million, understood. And what's the status on this packing and agglo unit that we were coming up with in India. And if you can highlight if we have more visibility on how much our small pack, I mean as a percentage of sales, can be post the commissioning because that was supposed to be an important margin driver for us.

Yes. So the new facility is actually completed now. In fact, tomorrow, we have the inspection with the factory's inspector and with the [indiscernible]. And we've already initiated the shifting of packing lines as well. So that process will be completed in quarter 3. By the end of the quarter, we're doing it in a phased [ wide ] manner so as not to impact our existing commitments. So once that is completed, we'll be operating from the new unit fully.

Can we go, say, in the next couple of years, once we fully utilize this?

Yes. [indiscernible] we can go for small packs up to even 20,000 tonnes by adding equipment. Initially, we are putting that equipment in place for maybe around 10,000 to 12,000 tonnes. And as and when there's a requirement, we'll keep adding that equipment over there. So it depends on what the customers are looking for. It's not possible to utilize a particular equipment 100% for the whole year. We have to always have additional packing capacity in place so that we can cater to those orders when they come in the peak period.

And then one question for Praveen on the domestic business. So you talked about the top line growth. Just wanted to understand how are things shaping up on the gross margin. And [ PAT ] front, if you can share some numbers because, with the current inflation, I think gross margins could be under pressure right now.

Yes. So as I had -- when Akhil had asked this question, I did inform that gross margins are under pressure because we being challenger brands, for us, price increases are a little -- a tad difficult because we have to follow the leader. So -- and neither from Nestle nor from Unilever the price increases have taken place. So -- but these are -- generally in consumer market, these are short-term impacts that will happen because, over a period of time, if the coffee prices don't drop, then we all will take price increases. So it should even out in the long run. So a couple of quarters could be impacted. But since we are growing at a healthy rate, we are growing, the top line is growing at 40%, 45%, so really, right now, that bottom line impacts are not very, very apparent. And also, as we are growing, what is happening is that most of the growth is being driven by brands, where the realization is better than because the bulk business and the private label that we do in India, they are pretty much steady. They are not growing as much as what the brands are going. So that also helps to kind of balance out any price increase, the green price -- green coffee price increases. So we are well covered on that front, so there's not major cause of worry. We are right now focusing a lot on how to grow top line and how can we expand. So as we were speaking earlier that we need to now expand into more geographies beyond south because in south, we have now slowly established ourselves as a strong #3 player. So now we are taking things in the other markets, so we're all focusing on investing our resources in expansion.

Okay. But we are not expecting a significant loss for the year as a whole? Are we -- or is it just a marginal loss?

No, no, no, we are not expecting any significant loss for the year.

Understood. And just my final question on the working capital side. I believe with this high inflation, at least optically, we'll see a higher number on the inventory side of things. So is there any way we can reduce the working capital cycle? Or will we see an increase only both on the inventory side and receivables as well, which were increasing because of our U.S. expansion?

This is Lakshmi here. I would like to clarify your question. Yes. Working capital requirement is due to the increase in [ FDC ] prices or requirement at [ Ghana ], but we would be able to the [ available ] limit to able to manage apart from the operations [ in Ghana ], number one. And number two is that we are focusing more on improving the [ a part of ] the receivables, and we -- what we do to the receivables outstanding, [ majorly on ] earlier level 2. Now it will help us to maintain our working capital requirement and very much impact.

The next question is from the line of Richard D'souza from SBI Mutual Fund.

Yes. So I just wanted to understand about the logistics situation. Has it eased up? Or how is the container shortage and other things going on? [ With all the things right now ]?

Actually, it's not as bad as it was earlier. Things are slightly improving with respect to the availability but prices are still much higher and prices have gone up even for the importing of green coffee. So there is going to be a negative impact because of that. And even the export containers, the prices have still gone up. They're expecting the same thing to continue for the next couple of months at least. So there is not much of a change there.

Okay. Okay. So would it be fair to assume that most of our exports from the Vietnam plant are on [ CF ] basis or [ frozen ]? Do we bill just cost of the shipping or...

No. So we have a combination. There are a few customers that we do have great contracts with. For those, we are executing as far as possible with the old rates itself. But if there is an urgency and the customer wants to pull up a container shipment, then we are passing on those costs to the maximum extent possible or we're kind of partly sharing those costs as well.

Okay. Okay. And on import of green beans basically, just wanted to understand from where do we import?

Pardon?

On import of green beans, that is the raw material, on which countries or which regions do we import?

We import them from multiple places. From Africa, we're importing from Ivory Coast, Uganda. We are importing from Indonesia and from Vietnam. Those are the main regions that we're getting it from.

Okay. And would it be possible for you to share, the Brazilian situation, has it improved? And do you expect the coffee prices to go down in the future? Or do you expect it to remain?

Yes. Actually, no, we are not expecting the prices to go down anytime in the near future. In fact, Brazil crop has been drastically impacted. The same with the next 2 years, is going to be -- there's going to be a shortfall compared to what was there in the previous year. So that's one of the main reasons why coffee from Brazil also has become much more expensive right now. And going forward, that even in other countries like Colombia and even in Vietnam for that matter, there is a slight eruption in production. So that's one of the reasons why we are expecting the prices to, in fact, go up a little bit more in the future.

Okay. Okay. But seems even robusta is facing some supply problems.

Pardon?

Even the robusta coffee is facing some supply problems because Vietnam is primarily robusta if I'm not mistaken.

Yes. The Vietnam is mainly robusta. Actually, in both locations, we're doing around 90% to 95% of robusta. To me, a small extent of our EBITDA that we use for our production. For instant coffee across the world, it's primarily robusta.

Robusta, yes. Okay. And would it be possible for you to share what could be the volume growth approximately in both Vietnam and India? Or is this still pricing growth, which has happened?

Volume numbers is something that we've stopped sharing a couple of years ago because that becomes detrimental to the company.

Okay.

So yes. On an approximate average basis, I can say, will be like a 15% minimum volume growth compared to the previous year. And again, top line will be growing a little bit more than 15% because of the green coffee [ in that ].

Okay. One last question from me. Do you think in the near future or over the next 3, 4 years or 5 years, you would introduce your own brands in the developed market?

We're actually doing it already. We started in a couple of months ago. We're test marketing it. So we are not highlighting it anywhere because it's just feeding the market, seeing the response, like how we did it for India initially. We want to first understand the ground level, what are the challenges that we're going to face and everything. And then later on, we are laying the foundation so that, in the future, we can focus on these markets. So keeping that objective in mind, I think that's one of the reasons why we've requested Praveen to do this transition from CCPL to CCL.

Yes, I thought so too. That's why I asked. Yes. That's 2 years, sir. But earlier in one case, when we expanded our product offering, we had a backlash with one of the customers backing out of orders. So when we enter into this market with our own brand, we don't expect that kind of [ respect ].

Actually, funnily just today, we found out that the same customer who backed out in '97, we're going to supply to them in one of the markets in the near future. Very good coincidence. Today only, I found this out and you're asking the same question.

Okay. But do you think there is space for somebody like us in the international market because the volumes are humongous there and...

Definitely. In fact, our biggest strength that we can bring to the table is variety. So -- the fact is we are able to go to a supermarket and say that, okay, we are not going to be competing against you and the products that you have. We want to expand your portfolio of offerings with products that are not existing in your portfolio. So that is what people are finding interesting. And the fact that we have been already supplying to the supermarkets, we already have an established track record, so they understand what we are capable of. So they're willing to partner with us and give us an opportunity. And one good thing is, if they have a strong brand -- right now, there are only 2 strong brands, which are there in the market. They definitely need a third player so that they can hard bargain with the first 2.

Yes, bargaining for...

There's a vested interest in these supermarkets.

The next question is from the line of [ John Girman ] from Franklin Mutual Funds.

So did you upgrade the volume estimate for this year in the beginning of this call?

Yes. We -- I said earlier the estimate given was between 10% to 15%, and we've confirmed that it will definitely be above 15% as far as volumes are concerned. But the top line might grow a little bit more disproportionately because of the green coffee price increase.

Okay. And where does this higher demand for CCL come from? The market growth itself hasn't it improved or is it due to your own initiatives?

Across the board, various countries, we are introducing a product or new territories that we are entering into as well. With existing customers also, we've been able to increase volumes. So all these things put together is helping us grow. One of the main reasons why there are certain customers who have been with us for more than 15, 20 years is because partnering with us, they've been able to grow volumes substantially. I think, in fact, in the domestic market itself, I can give a best example of [ Reliance ]. The reason why they partnered with us is because the felt that the product was better accepted. And the second, the transition to us, they've been seeing substantial growth in private label volumes. So that's a similar experience that we've noticed from our customers in different parts of the world.

Okay. And the fact that we have opted to going for an ambitious capacity expansion in Vietnam, so does it mean that you are -- visibility for volume growth over the next 2 to 3 years is a bit better than what it was a year back?

Yes. So one, we are already -- have been running out of capacity, so we definitely need to add the capacity. And we're quite confident that we'll be able to fill this capacity also in the next couple of years. So that's the main reason for this expansion.

The next question is from the line of from Amit Zade from Antique Stockbroking.

So my first question -- most of the questions are answered. But on first half for performance, so sir, almost we have -- revenue was 8%, but considering a low base of last year and the fact that the FDC plant was largely not operational in the first half, is that fair to assume the -- any -- what explains the lower top end compared on low base, sir?

Actually, last year, we had -- I mean, if you look at it on an annualized basis, we had a 10% top line growth last year, and green coffee was quite stable last year. In the first half, as of now, we have a 10.97% increase in volumes. Actually, sales value will be 10.34%. So keeping what we are estimating for quarter 2 -- for quarter 3 and 4, we are very confident that we will be crossing that 15%.

Got it, sir. And sir, one more question. There were some articles wherein -- actually were saying that EOUs and SEZs were eligible for RoDTEP benefits. So any status on that, sir?

I don't think we got any clarity on that yet. Lakshmi Narayana, did we have any?

Actually, if you look at this [ endeavor that we did back ] back to the government, the Minister of Commerce, they set up the committee to review the relation of duties exercise relating to the [indiscernible]. We are yet to hear any outcome.

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

Sir, for this Vietnam plant, which we are -- which we have done brownfield expansion, so maybe Q4, we would be utilizing that facility?

Actually, we've already started utilizing for Q2 itself. It's just that we haven't been able to fully utilize it or commission at 100% because we still have to do some trials. Unfortunately, we haven't been able to do the trials because of the current order book position. There's a lot of pressure from our existing customers to keep delivering based on the schedules that we have given. So any time there is a free slot available, we are taking up trials. So that's the main issue.

Okay. So for the full year FY '23, do we expect maybe full utilization since we have a stronger order book in line?

Yes. And we've already last half year, so in the second half...

I'm talking about FY '23, next year.

Yes, next. Yes, definitely. Next year, in fact, because this additional capacity will come online, we should, in fact, be crossing the current 13,500 tonnes as well.

Okay. So next year, the 15% plus kind of a volume growth, is it possible?

Next year? Very difficult to tell right now. But again, I think it's safer for me to say 10% to 15% and then update once we are at least halfway down the year.

Okay. But sir, revenue growth would be again higher, right?

Yes, revenue will definitely be higher.

Okay. And sir, any plan for expanding the freeze-dried capacity because we are running at full capacity.

Freeze-dried, we're not planning right now because there are 2 new -- 3 new plants, which are coming online in the next year. So we didn't want to come online at the same time and put a lot of additional pressure in the market. We wanted to see how things pan out. So that's why we are focusing on maybe products that give us better realization with freeze-dried. And we wanted to focus mainly on the spray-dried sales at least for the next 1 year. But once this expansion is completed, then we'll consider the freeze-dried expansion as well.

But [ spray has ] better utilization than freeze-dried. And which of the product under spray-dried which is giving higher margin to you?

On the spray-dried also, again, we have a very, very wide range of products ranging from cold brews, which are extremely premium, to multi-mix products. So it is very difficult for me to pinpoint and say that just this one product is going to give high margin.

Okay. And sir, what is the contribution of small pack and agglomerated coffee in the overall pie?

Agglomerated coffee, we're doing at least -- I mean, about 20% of our spray-dried is being agglomerated today -- 20% to 30% of our spray-dried is being agglomerated today.

And the small pack?

Yes, some of it is in small packs as well, but we are also doing bulk agglomerated.

Okay. Okay. And sir, the incremental expansion, will it be purely from the internal accrual?

Actually, Lakshmi, I don't know if we are planning a term loan also or...

Yes. As far as the Vietnam operations, we are planning the combination of debt and equity, and this is likely to cost overall [ $20 million ]. We may go for 1/3 of the equity, our contribution and the balance [ we take ] term loan.

Sorry, pardon how much, sir? I didn't get it clear.

$20 million is likely to pass the total expansion, doubling the capacity. We may go for 1/3 of the total, around 60 million, we go for [ the contribution of ] internal accrual and the balance, the 14 crores -- $14 million sorry, USD 14 million, we go for the borrowing.

Okay. Okay. And sir, lastly, any revenue loss due to the container shortage in Q2 because our top line growth was just mere 4% this way?

MEIS wasn't there in quarter 2. That's also one of the reasons for the reduction. There was actually -- if you look at volume-wise, there's almost a 13% increase in volume, but that became 4% because of the MEIS reduction.

The next question is from the line of Yogansh Jeswani from Mittal Analytics.

Am I audible?

Yes.

Yes. So a lot of the questions have been already answered. Just one clarification or rather guidance from you. So in the past, we have been doing [ within this ] 22% to 24% kind of operating margin for a full year basis. So -- and now that we are putting up more small packs really coming in and then there's the benefit of brownfield expansion like Vietnam and all. So going forward, do we see a margin profile changing from 22%, 24% kind of level to 27%, 30% kind of level, sir, on a sustainable base?

It should actually be reducing because the green coffee cost will be higher. We work on a per kg basis. So our margins will remain the same. The profitability will remain the same. But because the green coffee is higher, the EBITDA margin should technically actually come down.

Okay. Understood, sir. Secondly, sir, with the additional Vietnam capacity of 3,500 tonnes and then the doubling of capacity, what kind of peak incremental revenue can this new capacity bring?

I'm sorry, I didn't get you.

Sir, will the increase, 3,500 tonnes of Vietnam capacity, and then a further doubling of capacity. So what kind of incremental peak sales can Vietnam do?

What kind of incremental sale can Vietnam bring?

Yes. With the 2 new CapEx is the 3,500 and then the further [ doubling of capacity ].

Yes. So for the second half of this year, we'll be utilizing that additional capacity fully. And even next year, our entire capacity will be utilized. Plus, we should be getting that doubled capacity also coming online. So part of that will get utilized next financial year.

Understood. And sir, what is the asset [ turn ] like for this CapEx? For the $20 million, what kind of asset [ turn ] are we expecting?

Within 1 year, it will be completed. Actually, we're planning on doing this in like -- mainly this one phase, we'll be doing mostly around 90%, 95% of the expansion will be completed. There's a little bit of line balancing that we can further do which will be done maybe, I mean, about a year down the line, a year or 2 down the line.

Okay. Okay. Understood, sir. I think in the beginning, number was said regarding the branded domestic business, a result of that. Can you provide that, please?

Yes. So the number that I shared was approximately 85 crores for the domestic market and in the first half, which is a growth of approximately 39%. Yes. And on the branded side, the growth is almost 40% to -- 44%, 45%, yes.

44%, 45% for first half.

Yes.

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

Just a couple of questions. A little bit...

Sir, your voice is not audible.

Am I audible now?

Yes.

So just a couple of questions. With Russia, again entering lockdown, how is the scenario here, particularly for high margin freeze-dried coffee? And sir, also, if you could help us understand the economics of small packs and current economic scenario of sharp inflation, so would customers prefer bulks over packs as they look to remain competitive? Or how is it?

In Russia, we haven't actually seen any change as of now. Customers are still taking the coffee as per the schedules that have been given, so there's not much of a change over there at least at this point in time. And as far as bulk versus small pack is concerned, with -- in most of these countries, wherever we are supplying our small packs to, the cost of producing locally is significantly higher. So even if you factor then higher freight cost and everything else, we're still working out to be cheaper for them to buy from us rather than doing it locally in that particular territory.

Understood, sir. Understood. And then lastly, in the branded coffee space domestically, I mean, because we have seen quite a few venture capitalists back start-ups entering the coffee space over the past few months or so. So I wanted to understand what is outlook here. I mean what could be the opportunity size? And how do we plan to take on the competition with regards to distribution, product launches, marketing, et cetera, if you could throw some light?

Actually, I think you'll be surprised to know that almost all the start-ups that are there are -- we are or will be supplying to them in the near future. So it's good that they're expanding the market, and we are part of that expansion. Anyone who wants to get into the premium space, they have understood very clearly that they will have no choice to come to us. So we are working with a lot of these start-ups as well. So it's been a very interesting learning experience to see what they're doing, kind of valuations that they're getting. It's quite interesting to see that.

And I understood. But over a longer period of time, I mean, we would like to introduce -- or we would like to have a higher pie of owned products, right, because that would be margin accretive.

Yes, yes, of course. That's why we have our own CCPL team. We are focusing on volumes right now. We've created a lot of niche products. We've created our own shopping cart, our e-commerce website. We've done a lot at our end. And we have the ability to keep introducing new products. And once we have this and the distribution network that we are building, that can be used to introduce multiple products as well in the future.

That was the last question for today. I would now like to hand the conference over to Mr. Abhishek Navalgund for closing comments. Over to you, sir.

No, I would just like to thank the management and all the participants for joining in. Now I'll hand over the call to Srishant sir for his closing comments. Over to you, sir. Thank you.

Yes. Thank you all for joining this call, and I hope we've been able to answer the questions. Looking forward to talking again in the next conference call. Thank you.

Thank you very much, participants. On behalf of Nirmal Bang [Audio Gap]