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

So just one clarification and understanding I would like to have. Earlier when we used to see a lot of price fluctuations and probably price being elevated and continuously upward trajectory, we used to see a margin pressure. And when you started the short-term contracts, it has been largely been kind of insulated. You have been largely insulated. So right now, from the customer point of view, does it really make a difference if prices like if at all, starts trending down, they will continue to have a short-term contract with you. And in that case, again, how do you position your contract going ahead so that we maintain the similar EBITDA per kg?

So I think that's a wrong conclusion to draw. Price never determines our margin profile because we are -- we always do cost-plus model, yes. So which means that we try and maintain our margins, whether it is a short-term contract or it is a long-term contract. Yes, long-term contract gives us better vision, gives us better planning. Our supply chain management gets better. But largely, our margin profiles don't change whether it is a short-term contract, long-term contract, right? The improvement in margin profiles happen because as we were speaking earlier, product mix, efficiencies getting built at our end, small packs, now domestic market is also contributing. So all of these lead to better margin profile. And sometimes, therefore, I say some of these stay with us, like, let's say, things like efficiency building, internal efficiency building and all that, they will stay with us. Product mix and all that is also a determinant of how the markets are behaving and how the contracts are coming. So that is why -- that is how things will play out as far as the margins are concerned. Now where do we focus on? Obviously, we love long-term contracts because it gives us long-term view. It helps us plan better. But sometimes, we also don't want to kind of as our clients to go into long-term contracts because of high prices because, see, if they go for long-term contracts at high prices, then it is actually a loss for them when the prices fall. It will not lead anything [Foreign Language ] it will not impact us in any way. But we have a very strong relationship with clients. We guide them that how do things -- how should they place the contracts. So we also -- at times of volatility, we actually tell them to kind of go for short-term rather than long-term contracts. But yes, we would love the prices to stabilize as much as possible because long-term contracts obviously are much better in terms of our view in the future.

Okay. And just 2 more bookkeeping questions. Now that our assets have been capitalized, is it the current run rate of depreciation will be like is at the peak? And secondly, earlier you used to have lower tax rate. Now last 2 quarters, we have been on a higher side. So is it the normal tax rate that we should be considering going ahead?

So I think -- first, I'll just answer the first one very broadly because I think your voice was not very clear. So I don't know whether our CFO heard it. Second one about tax rate, he will clarify. So we are already off the peak levels. If you remember, last year end, we were at around INR 1,800 crores, INR 1,900 crores debt levels, which has now come to INR 1,580 crores and the net debt will be a little lower than that as well. So we are off peak levels as far as debt is concerned. As far as tax rates, I'll just ask Chaithanya to clarify to you.

So regarding the tax rate, again, it's a derivative of where the profit has come from. Since we have facilities at Vietnam, we have, as you said, EU and all. So where the profit earned also determines the tax that we have in the P&L. So average, it would be around 17%. So we can take 17% as the average tax rate.

And also the depreciation is at a peak right now, now that we have capitalized RSV.

Yes. Yes, yes. So depreciation is at peak. Interest is also -- interest will start slightly moderating. It may not come down significantly because last year, we would have capitalized a lot of interest. So in terms of depreciation, it is at the peak level. Interest rates will more or less remain stable. Little bit of --.

The next question is from the line of Nihal Shah from Prudent Corporate Advisory Services.

Congratulations on a great set of numbers. So as we have seen a lot of growth in the B2C segment, can you give some color on the margin profile that we are managing right now at B2C segment?

So your voice was a little cracking, but what I hear you is that you are asking to give some color on the margin profile, right?

Of B2C.

Of B2C. Okay, fine. So the margin profile is pretty much similar to what we had seen last year. Again, there is a lot of things that play into it. The more penetrative we are becoming, the more small packs we are selling. Small packs don't necessarily have very high margin profile. But what we are doing is at 2 levels. One is we are keeping an eye on our top line growth, and we are keeping an eye on our EBITDA levels. Now what is happening in between is that we are playing it around so that we keep the momentum happening. So at times, we are pushing the brand because some SKUs need to be pushed. And at the same time, we are also creating enough pool. So that is where it is. As far as EBITDA is concerned, we are at around 5% to 6% EBITDA level for this B2C setup. And we will continue to be at these levels going forward because we want to reinvest, as I told you, that not only in driving the coffee growth and distribution, but also making sure that some of our new initiatives also are nurtured and nourished. So we'll keep using the fund to drive all of this and keep the margins at these levels and continue to drive the aggressive growth.

The next question is from the line of Param Vora from Trinetra Asset Managers.

Congratulations on great set of numbers. So sir, can you give us some light on the 26% stake you took in Mukkonda Renewables, like what will be the time line for commissioning and what EBITDA margins can we expect?

So there is a dual purpose of this. First and foremost, yes, as a company, we are a responsible company as far as the energy requirements are concerned. So we want to go for greener energy more and more. So that was our primary objective to do this or take this project. This project will take around 12 to 18 months to complete because it's a hybrid thing. Therefore, I'm giving you a broad guideline. In 12 months, certain set of energy will start coming in. And in 18 months, the full energy that we have contracted with them will start coming in. And almost 50% to 60% of our energy requirements will be suffice to this arrangement. And this would mean that 50%, 60% of our energy requirement will be green energy. So that is there. Yes, there will be an improvement in terms of operational cost. But we are looking at it in both ways because we're also kind of spending money upfront to get this thing done, which will mean that there will be a 2, 3 years of payback period as well. So that's where it is. Right now, we are not too predictive about that what is the margin improvement that will happen because energy is contributing very, very small portion into the margin profile. 60%, 70%, we all know is green coffee. So that is what will drive the margins going forward.

The next question is from the line of Dipak Saha from Nirmal Bang Institutional Equities.

Praveen sir, one question on the B2C part. If you can double-click on the demand driver. I mean, is it more of out-of-home consumption or in-house consumption that we are seeing, which is doing 40%, 45%? I understand base is small, but what is largely driving from the end user perspective? Is it out-of-home or it's in-house consumption or something else? If you can give some color on that?

So let me first, Dipak, give you a little category this thing. So category, if you see, the out-of-home is growing much faster than in-home, yes. So there is quite a bit of consumption increase. The in-home consumption still is not very euphoric. It is -- let's say, if I were to speak of volumes, it is low single digits only. So it is not very high. But for us, the growth is not necessarily coming from the category growth. We are more focused because we are a very small player. We are a new entrant in the market. So most of our growth is largely dependent on market share gains. And that is where our focus is that how do we gain more and more market share.

Got it, sir. And sir, just a follow-up on the previous participant's question on the investments that you have done on the renewable side. And you also highlighted the kind of efficiencies kicking in from working capital point of view and other measures that you are taking. So if you can list out all these other different measurements that you are taking to bring operational efficiencies, both on the operations side and as well as it is reflected on the working capital side, it would be a bit helpful for us to understand.

So it kind of span across the whole value chain. So basically, right from making sure that you get the most optimum yields, the better utilization, as we increase our utilization, the fixed cost spread becomes better. So you're able to spread towards a higher volume. All of this leads to better efficiencies. Now energy cost, yes, this will also add. It's like in Hindi, we say [Foreign Language] that's the kind of thing that is going to happen on the efficiency front. And most of this is going to stay. But yes, considering, as I told -- as I always tell, 60%, 70% is green coffee, which determines where the margins will be. So yes, efficiency building is something that we have taken forward. Now if you were to ask -- if you were to break it down, very difficult to break it down that, okay, if I got a INR 10 better margin every kilo, how much was it through energy and how much was it through yield improvement. But yes, all of them have kind of added to this INR 10 is what I would like to say.

Got it, sir. And sir, one last thing. I mean, quite structurally, if I see, I mean, our CapEx cycle is behind us. We are talking about debt reduction, working capital is improving. Your cash flow from operations have gone up quite meaningfully. Now -- and B2C has started firing, right? So considering all this when we are talking about 15% to 20% kind of an EBITDA growth, right? And there has been steady improvement on the operational efficiency side. So is it fair to say that we are being quite conservative on those numbers? And structurally, not from a near-term point of view, next couple of years, we can actually do even better than that?

So time will tell whether we were conservative or not. But yes, we kind of -- as I always said, 1 quarter may not be a reflection of a long-term performance. And when we say long-term performance, we always -- and you know if you were to see CCL we always have been kind of saying that we want to maintain steady state of growth. And to do that, last conference call, I mentioned that there are times where volume will drive our growth. There are times where efficiency and other aspects, mix will drive our growth. Sometimes a quarter like this happens where all of them come together, so the growth becomes that much more nicer. So therefore -- so therefore, I cannot for sure say that this will happen every time. Thus, the long-term guidance remains. But yes, I do kind of accept that when we had given a guidance of 15%, 20%, we could have landed anywhere between 15% to 20%. Now it looks like we probably will land closer to the higher end of the guidance than at the lower end. So that's the submission from my side.

Appreciate it, sir. Just one last thing before I join the queue. Sir, structurally, now you mentioned that even last con call and today also you mentioned that the desire to be a FMCG company, and we have seen the kind of measurements you have taken for with Malgudi brand and different other snacks also some of the experiments that you are doing. So if you just can very briefly give your thought process on where -- how we position ourselves from a longer-term point of view. One is coffee business is definitely doing it. But beyond that, what's your vision on that front?

So very, very clear. I kind of spelling it out again. We want to be an FMCG company. We are building distribution. We were the -- probably the only company 6, 7 years ago when everybody was kind of focusing on direct-to-consumer and we're not ready to build distribution because of the challenges it has, we went the other way around and we went ahead and build distribution because we were clear that if this were to succeed, we probably in future, would like to transition ourselves into an FMCG company. So that is the thought process. And therefore, seeding of some of these initiatives like iced tea or, let's say, a snack, all of this is happening. There are a few categories we are always on the lookout or kind of working at the back end at what could be some of the other categories. But right now, we have our plates full in terms of driving growth in some of these adjacencies that we have entered into. And going forward, yes, we are putting all our might behind all of these categories and developing ourselves into an FMCG company. Today, as we speak, we are already directly distributing to 130,000 or 140,000 outlets, which is quite significant. And we have a belief that since we have built this distribution network, we need to supplement it with some more categories. And these more categories will help us go beyond from 150,000 to 200,000. So because every additional outlet you go, the throughput has to match the cost of going to that outlet. So unless and until we add to our portfolio, this may not be feasible. So keeping all this mind, our vision and our way forward is pretty much clear. But yes, while we say so, we always know that all of this has to be taken with a pinch of salt because not every initiative succeeds. So therefore, we are taking calibrated steps doing test marketing, be sure that in the test market, things are working and only then we will expand and spend money behind it.

The next question is from the line of Akhil Parekh from B&K Securities.

Many congratulations, Praveen sir and Srishant for the good set of numbers. And it's really heartening to see the gradual and consistent progress that CCL has achieved over the last 10 years and more so specifically in the last 5 years. So my first question is on the branded business, right? We have seen last 2 years, we have maintained 70%, 30%, right, in the domestic, 70% comes from branded, while non-branded is 30%. While in first half, we see that proportion has gone down to slightly below 50% for branded. So any specific pockets where we have seen growth in the non-branded part? And what has led to that distortion basically? And how should one look at it between branded and non-branded domestic for next 2 years? That's my first question.

Akhil, so again, one of the first things that I've been telling that let's not look at proportions because it's not that we will compromise on any one segment for the other. So what it means is that, yes, we would like all our business to come from B2C, but there is a non-branded segment also, which we drive very aggressively. Today, as we speak, almost 80% of the private label that we are doing in India -- 80% of private label in India, we are doing. So we are aggressively driving that segment as well. So we don't want to leave any piece saying that, okay, because we anyways are a coffee manufacturer, we have been in the B2B business for so long. And our ability to deliver on the B2B part is equally good. So what is happening is that we have set up a separate vertical, which is now very aggressively going to all the private labels, the B2B parties in India, and we are aggressively driving the growth there as well. So it's more like we are driving equal very strongly all the segments. And it so happened that, that segment, we gained a lot of contracts in the near time. Last 6 months, we have added 2, 3 more private labels to our kitty, which has led to much better growth there as well.

Sure. And the margin profile would be broadly similar between the 2?

So it depends. If you were to see at the gross margin levels, the B2B will be lower. But when you look at net margin levels, the B2B will be higher because you don't spend anything on marketing spends and all that. So it is like that -- but yes, we kind of play it contract by contract and target by target, client by client.

Sure. And my second question, you mentioned that we have reached 1.5 lakh retail outlets. What would be the true potential in terms of the retail outlet reach we can achieve, say, over the next 3 years?

So in next 3, 4 years, 3 years, at least, we'll try and double it. It will all depend on some of our other initiatives. So the more things we add to the portfolio, our speed of reaching the outlets will become that much more bigger because now after 1,50,000 what happens is that the cost of going to that outlet sometimes doesn't justify the throughput, yes. But when you have other things in your portfolio, then it's getting justified. So it really depends how things shape up in the future. But in 3 years' time, we can definitely double it.

Sure. And my last question, slightly short-term based. Usually, what we are seeing is second half is better than the first half, right? And our EBITDA growth is far better than 20% in first half, while you're alluding that you maintain 20% plus EBITDA growth for full year. So how should one read about the second half?

So Akhil, 2 things. One is that I think, yes, you're right. Maybe 5 years ago, we used to see that second half used to be a little better than the first half. But I think last 5 years, I haven't seen in terms of -- and this I'm talking about in terms of business. I haven't seen much of a difference. Yes, in India, the second half is definitely a little better because India is a little seasonal market. But rest of the markets like a Europe market, U.S. market, CIS country market, these are generally -- and the buying for the second half, the season time also happens pre-season. So I don't see much of an impact in terms of sales or margin. Also, a little will depend on how the bases are. So I don't want to dampen the spirits here. But you remember that last year, the second and third quarters were a little weaker than the first and the last. So you will see the last -- this year, the last quarter will probably -- we'll be facing a very good last quarter last year as well. So that will also determine how the growth level are. So I can't say that this growth will better off. We'll try and maintain as much as possible. But yes, the guidance remains that we probably will be at the upper end of the 15%, 20% guidance of EBITDA growth.

The next question is from the line of Vaishnavi Gurung from Craving Alpha Wealth Fund.

My first question is on the capacity side. If you can help me with the capacity in India versus Vietnam and the respective capacity utilization.

So in India, we have a capacity of around 40,000 metric tons. Vietnam is 36,000, 37,000. So the total is around 77,000, right? And the utilization at a blended level is around -- this quarter was 65% to 70%. So which means that the old capacity is fully utilized and the new one is at around 15%, 20%.

Sir, a follow-up question. When can we expect better capacity utilization for the new capacities added?

So it will -- so the better is a question which is -- can be answered in this way that we are anyways looking at the consistent volume growth. So it won't happen that overnight the capacity gets utilized. What will happen year after year as we are driving volume growth, you will see probably every year, maybe 30% additional capacity gets utilized, the new one. So that is how the trajectory will be. And therefore, we said in 3 years' time, 3 to 4 years' time, we will look to kind of fully ramp up the capacity. But as we have maintained that some of these capacity utilizations are in -- it's a step-up process. So for any gradual increase also, you have to increase the capacity in such a manner that it takes care of next 3 to 4 years.

Okay. And the last question is on the revenue side. Our quarter-on-quarter sales have been increasing by 40% to 50%, if I'm not wrong, year-on-year basis. So just wanted to ask how sustainable is that? And where do we expect to close for FY '26?

So as you know this growth is largely dependent on the green coffee prices and may not be reflective of the long-term performance because it all depends how the green coffee prices pan out. And therefore, we kind of give you a little color on how the volume growth have been. So that is the true picture of our performance and even our EBITDA growth are mostly in line with the volume growth. So our volume growth have been this quarter, the quarter gone by was a little upwards of 20% and the first quarter was closer to 8% to 10%. So the blended first half is around 15%. And we would like to maintain this kind of a volume growth going forward.

Any guidance on the revenue for FY '26?

So revenue, again, I said that it's a little -- not -- it doesn't give you the right picture. We have already done INR 2,000 crores. If I were to -- INR 2,000 crores, and if the same coffee rates were to hold on, then INR 2,000 crores will become another INR 2,000 crores, so it will be closer to INR 4,000 crores, but we will really depend on the coffee prices. And therefore, sometimes there could be fluctuation on the value numbers.

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

Praveen, my first question was on the new capacity utilization, 15% you mentioned. What is the size of this capacity...

So the new capacity is almost half of the total capacity that we have because -- almost half, a couple of thousand crores here or there, yes.

35,000, give or take.

Right, right.

My second question is, if I look at the conversion margins, they are at the lower end compared to historical levels. Then would it be a fair assessment that the mix would have more spray-dried compared to freeze-dried?

No, not necessarily because what is happening is also that because of the new capacity, it also adds to the fixed -- the fixed cost gets added. And therefore, you will see some lowering of the conversion margins here or there. But it's not necessarily because spray-dried has increased. In fact, our freeze-dried component increased and therefore, EBITDA per kilo if you see are better than previous quarters.

Okay. And -- but the new capacity is of freeze-dried, if I'm not mistaken, which is coming up.

Both freeze-dried also and spray-dried also.

Okay. My last question was on the branded business side on the B2C side specifically. So if you could just give a sense of what would be the -- since you mentioned it's profitable now, if the margins -- EBITDA margins are at the company level below that, above that because of 2 reasons. One is it is also -- you mentioned contributing to our EBITDA per kg. And secondly, you mentioned that the new initiatives would be self-funded through this vertical. So there's a plus and minus kind of a scenario. So just getting a sense of where these margins for new businesses would be -- B2C business vertical would be compared to the company level?

Yes. So it is lower than the company level. That is because we are reinvesting a lot of this back into the business. But if you see the additional volume that is coming, so let's say, for example, we did INR 200 crores, let's say, last year, and if we were to do INR 300 crores. So what happens is that the additional amount is -- and INR 200 crores is the, let's say, the breakeven of that INR 200 crores is already built into the business. So the INR 100 crores is coming at a much higher clip than it was coming last year. And therefore, I said it has started now contributing. So at a full level, like, let's say, we have done already INR 210 crores in the first half. there we are at 5% to 6% EBITDA margin, yes. But come to think of it, last year, this INR 210 crores was, let's say, INR 130 crores, INR 140 crores, that kind of a number. And that number was breakeven. So the additional number -- the full 5%, 6% is actually contributed by the additional volumes. And that is why I said it is now contributing. But having said so, we would want to maintain this 5%, 6%, not kind of milk it as of now because as we said, we want to kind of grow the business, not only this business, but also add a couple of other categories, which will require investments. So therefore, we will continue to kind of spend at those levels.

Just last one. The B2B business in this, what would be the revenue for this quarter or half year, if you can share? I missed that, I'm sorry.

Which B2B, India B2B?

Yes, the private label part.

So basically, in India, first half, we have done around INR 310 crores. So if you remove INR 210 crores, almost INR 100 crores is B2B, which is both bulk and private label, right?

Bulk and private label. Okay. And these would include the snacks and the new initiatives, the entire vertical?

No, snacks is very small, but hardly anything to write home about. So these are very small. This is built into INR 210 crores, not in the -- but those will be a few lakhs because we are only micro marketing, test marketing.

Right. And any development on the -- or update on the U.K. brand acquisitions that we had done? How is that progressing this time?

That's progressing quite well in spite of the hugely competitive market and a market which requires very, very high level of investment. In spite of that, we are growing, we are kind of adding new accounts. And so that business is also doing pretty well. So we should get a 30%, 40% growth in that business as well.

The next question is from the line of Manish Mahawar from Antique Stock Broking.

In terms of EBITDA per kg, I think last 2 quarters, right, our EBITDA is around INR 120 to INR 130 per kg, right? Going forward, maybe '27, '28 once our capacity will reach optimum level, how do we see this EBITDA per kg should be.

So it should improve, Manish. Very difficult to put a number. But as we have been speaking, it will improve because of 2, 3 things, as we've said, more and more end clients that we are targeting, more and more small packs we are doing. Already, we have built in certain efficiencies. So that efficiencies will stay. It's already there in that EBITDA per kilo that we got last couple of quarters. So it's definitely going to increase. And if you remember, we probably have kind of advanced this a little bit because 2 quarters ago, we were saying that when people ask that EBITDA per kilo, when will it increase and all that. We had been saying that because of the efforts that we are taking in terms of changing the product mix going to the end customers, doing more small pack, the new additional domestic volume. All this will keep adding to the profile. Only thing is that we said that for a year or so, don't expect too much of an increase. But yes, some of that increase has started to build in. Going forward, put an exact number to this, that whether this will increase becomes very difficult because sometimes these things add to the EBITDA per kilo, but the proportion or, let's say, the product profile mix could also change. So that is very unpredictable. I cannot for sure say that my product mix profile will remain same or will improve in the future. And therefore, we'll remain with this guidance of 15%, 20% EBITDA growth year-on-year, whether it comes through only volume increase or it comes through proportion changes and all that, that is something that we'll keep an eye on. But nothing more or less to add to this number from here.

But product mix side, I think so your FDC and -- FDC mix will remain, right, whenever you reach to optimal level, it will be stagnant on that time. You know the capacity numbers right now. Only I understand this small pack and bulk proportion may change, which you can't predict. And operating leverage fixed cost, you know the company, right? So definitely, you must be knowing the per kg ballpark number can come over the next 2 years.

No, no. So I'll tell you, even the mix of SD and FD is sometimes difficult to predict because right now, let's say, this quarter, we had a very good FD mix, and that's the reason you saw a much better profile, right? Now if you know in India also, we had increased 16,000 tons of SD and Vietnam also 16,000 tons of FD. So if you see that our SD profiling is, in fact, capacity profiling has been more than FD, right? So that also plays a role. And therefore, predictability becomes a little challenging here.

Okay. Understood. And second question in terms of debt number, I think loans, right? You said we will close by INR 1,300 crores to INR 1,400 crores by this year-end, right? Already first half, if I look at the number, I think INR 1,500 crores to INR 1,600 crores gross debt and we are sitting on a cash of around [ INR 350-odd ] crores roughly in the book in the balance sheet, right? So we already have reached a number of net debt number of around INR 1,250-odd crores, right? So you are not expecting any improvement or debt reduction in the second half?

Yes. So it depends, again, that is what CFO was mentioning. It will depend on the Vietnam crop, how does the prices and all that pan out. And therefore, we don't want to be committed on saying that it will go down. Let us see how it happens. But yes, definitely, it will not go up. And this is the guidance we had given at the start of the year. Yes, it has got advanced by a quarter or a couple of quarters. But as of now, let's maintain the guidance rather than being bullish on that because we'll want to wait for the Vietnam crop to come in.

Understood. And last one --.

Sorry to interrupt, Manish. Hello? Sorry to interrupt. Due to time constraint, we need to close this con.

Yes, sure. Just last bookkeeping question, if I may. Can I?

Yes. Please go ahead, Manish.

Just can I get, possible the number available for your Vietnam and your South subsidiary, which is FDC per kg number for first half EBITDA and PAT?

Separately, I'll ask this thing to give some color, but you'll get the number at the end of the year. We'll be able to give you some color there.

Due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Yes. Thank you, everyone, for joining the call, and thank you, Nirmal Bang and team to arrange this call. We will look to meet you all again in the next quarter. Thank you, everyone.

On behalf of Nirmal Bang Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.