CCL Products India Ltd
NSE:CCL
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CCL Products India Ltd
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Ladies and gentlemen, good day, and welcome to the CCL Products India Limited Q2 FY '25 Earnings Conference Call hosted by Nirmal Bang Equities Private Limited.
[Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Abhishek Navalgund from Nirmal Bang Equities. Thank you, and over to you, sir.
Thank you, Dave. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products India Limited 2Q FY '25 earnings conference call. The management is represented by Mr. Challa Srishant, Managing Director; Mr. Praveen Jaipuriar, CEO; Mr. [indiscernible], Executive Director; Mr. [indiscernible], our CFO; and Ms. Sridevi Dasari, Company Secretary.
Without further ado, I would like to hand over the call to Praveen Jaipuriar, sir, for his opening comments. Post which we'll open the floor for Q&A. Thank you, and over to you, sir.
Thank you, Abhishek, and thank you for arranging this call. I welcome you all to this conference call, and we see you all a very happy testing it. Now I will quickly read out our results and then post which we can open the floor for questions. So the group has achieved a turnover of INR 738.2 crores for the second quarter of 24.2% as compared to INR 67.57 crores for the same corresponding quarter last year, which is almost a 21.5% increase. And net profit stands at around INR 73.95 crores against INR 6.86 crores for the same period last year, which is again almost a 21.5% increase. The EBITDA is at INR 17.6 crores, almost a 24.3% increase over last year same period. And the profit before taxes, it is INR 7.3 crores. As the deal -- as far as the RPL figure grows, the group has achieved return out of INR 1,119 crores for this full half as compared to INR 262.5 crores for the corresponding half, which is almost 20% growth and a net profit stand at INR 15.4 crores as against INR 121 crores for the corresponding half of this year, which is almost again, 19.6% growth. And the EBITDA is at INR 69.2 crores most a 24% growth and profit before tax is INR 149 crores. The domestic business also showed strong growth momentum, and it achieved a gross turnover of INR 200 crores in the first half, almost INR 105 crores in the quarter 2, out of which the branded sales in the first half was INR 135 crores and almost INR 70 crores in quarter 2. So that's a brief of our performance for quarter 2 and H1.
I now invite you all for questions.
[Operator Instructions] The first question is from the line of Jenish Karia from Antique Stock Broking.
Sir, firstly, if you can just help us with the capacity utilization for the quarter and volume growth, that would be great.
Without going into very details of volume, which is what -- that we not share. But if you back-calculate, we always have butane that the volume growth are generally in line with the operational profit growth, which is a However, if I were to give you a little color on this, the volume growth from EBITDA growth is largely due to volume and some bit of better margin business than we did. So the volume growth this time has been closer to high single digit or closer to 10% or so. And the EBITDA growth, if you see it is closer to 21%, 22%. So that's the that's being in terms of capacity utilization, it remains very similar to last quarter. We are almost the already set capacity which was already there. We're almost utilizing 100%. The new capacity probably is that at lows of, let's say, the F&B capacity in India would be closer to 10% to 12% utilization. The extended capacity that we had put in Vietnam, benign 2, which made it to 300 that will be closer to around the new line. The earlier line is in full capacity, the new line could be at around 40% to 50% utilization. So that's on the utilization and the volume growth and the EBITDA growth.
Sure. And what is the target for the year, like 10% was the growth for this year in terms of volume, 16% was in the last quarter? So for full year, what is the kind of volume growth we are expecting?
So considering the -- we have told you that last couple of quarters or people or quarters considering that -- there's so much of volatility in green coffee prices. The contracts have been very, very short term. So we are maintaining that guidance of 10% to 20%. We don't want to change that at this point of time. And that's how we -- that's how the trajectory looks like for the balance of the year.
Sir next is on the CapEx, so Vietnam FPC line. When do we expect it to commercialize? And any future CapEx plans for India or on the SBC side in FY '26 or?
So no CapEx plan. We are already good on capacity for the next 3, 4 years. It's only after that, we will figure out whether we need more capacity expansion. So no CapEx the Vietnam FT, we are right now in the trial phases. As you know, whenever we put up a 9, a lot of trials, certification, been matching, all that work happens. So hopefully, we're looking to kind of do all of that, complete all of that by this quarter. And subsequently, we can look forward to commercialize and start selling from that unit.
Just 1 bookkeeping question. Sir, the India 9 had commercialized in FY '20 for fourth quarter, right?
Right.
And it was around INR 400 crores of CapEx.
Right.
So why is the capital work in progress as on second half at around INR 730 crores, the Vietnam CapEx pending CapEx is only $50 million. Then why is the capital work in progress so high as the second half?
No. It is a total meeting around INR 400 to 300 -- sorry, INR 400 crores In India and almost around INR 375 crores in at, which is total around INR 770 crores. So again, with some of the equipment aged equipment, which are not effect to us. And also some of the admin planar those expenditures going around, which are not really relevant to the operations -- production operations is still going up. For the reason why you could see that around INR 750 crores of CP, but we are seeing it.
So INR 400 crores pertains to India, but India, we have already commercialized. So I've got capitalized by now. If you could just reiterate, I didn't get why is the INR 400 crores student CWIP of the plant has commercialized.
No. Because if you see that when it is in trial operations, we can't capitalize. Once we have done the that trial operations are done and when we move on to the to declare the commercial operation date, that is the firm that we grow capital.
Okay. So by end of FY '25, can we expect -- sorry, by end of FY '26, can we expect INR 2,600 crores of gross block? Is that understanding correct?
Yes. Yes, you are right. It will be there, INR 800 crores gross box is going to be increased [indiscernible].
Sure, perfect. I just -- 1 last question. If you can just share your outlook on copper prices. How is it moving? How do we expect it to go in the next 6 months? And that would be the last question from my end.
So coffee prices, again, as we have been telling for the last couple of quarters, it's become very difficult to predict. Because most of the predictions per se have been not holding true. But our sense is that you would have seen last couple of months, there has been some softening across and the Vietnam crop is slated to arrive in December. So only after that arrives, we'll get a little sense that what are the table levels that we settle at. So we'll be able to give a better picture but looks like that it may not increase much from here. Probably like stay at this level or soften up a little bit and stay there for some time. will start getting good crops from Brazil and Vietnam, where it could then again soften up. But right now, it looks like it will hold up at these levels for some time.
Sure, that's helpful. Do you expect when it softens, it goes back to INR 2,000, 2,500 levels or softening in 3,000, 3,500 levels?
No, sir, right now, none of them. So right now, when I've been talking about softening, we're saying that from INR 4,500 or INR 4,400 maybe at around 4,000 levels. It could all 3,800 levels it could soften up level, I don't see it settling at that price any time in near future or mid future. It's only maybe in long term, there is some oversupplies and all that. it may come down unlikely, unlikely that it goes down to that level.
The next question is from the line of Akul Broachwala from Avendus Investment Managers.
So just wanted your thoughts around the volume growth that you are kind of witnessing First of all, like, is it driven by spot orders? Or are you actually seeing some sort of buildup in the order book over and about 3, 4 months. Is that the case that's happening?
Yes. So in fact, most of our -- if you were to see our profile generally from the past. Most of our things are long-term contracts or a lot of our distinct was the pre Execution in these quarters last couple of quarters have been result of the earlier long-term contracts that we have been getting. Yes, there is a mix of spot orders but a lot of transactional or, let's say, opportunistic sales is something that we have purposefully not been concentrating much on considering the fact that there is a strong amount of competitiveness that is getting built around -- there are a lot of resilient players who are offering coffee because the tie crop was good, they have had advantage when it comes to the opportunistic buy when we bought on the pyramid sale. So that's something that we are purposefully not concentrated and not got into that price or so. And that's the reason the volume growth are a little lesser than what it used to be 4, 5 quarters ago. But at the same time, because we are concentrating on better margin business and more brand owners and more small packs, more margin pro pipes seem to have improved, and that is the reason why we've got such good EBITDA results. So that's the situation right now. After December when the prices settled down a bit, there are a little bit of or indication that how the prices settle down. And then that's the time we probably will be getting a lot of long-term contracts. That is our expectation as of now. we'll be able to give you more firm confirmations maybe in the next quarter that how did prices pan out and how did we pan out in terms of our ability to get more long-term contracts. But yes, as of now, the market does remain volatile. There are ups and downs which is making people also wait and go on. But come to think of it, we have been able to kind of be pretty good on both top line and bottom line. considering that in most of the calls, you would have heard us saying that a large chunk of our business is with our established clients, long-term partners, although they are giving maybe giving us short-term contracts, but these are people who have been with us for a long time. So that story continues and that narrative continues.
Understood. And like for the new capacity that we have, what sort of plan are we kind of targeting? Like are we approaching new or new set of customers? Or basically, are we just trying to again look back into our existing set of customers and probably gain further wallet share. So some understanding around the new capacity that we are, how we are planning to tie those capacities over the next 2, 3 years?
Yes. So we are actually doing both of it. One is with our existing customers, we are looking at entering into more long-term contracts, how can we make sure. Because last time also, people have also learned a lesson because the coffee prices have been rising. They haven't come down. A lot of people lost out because they didn't go for long-term contracts. So this time, we are telling them that the situation probably once they see a little stability, they should go for long-term contracts. So we are also rating them get that confidence. So hopefully, we'll be getting a lot more long-term and large volume contracts in the future. Having said so, we are also very aggressively looking at new markets. We had already indicated that we are targeting new geographies like China and all that, our efforts are continuing in that direction and we already started seeing green shoots emerging, some volumes have started coming in, and we are hopeful to build those volumes going forward. So the capacity utilization will be a combination of both factors, driving the existing customers and building new customers and geographies as well.
Got it. And just final bit on my side. So as you were mentioning that there has been some competition from Brazil as well. So given that robust coffee prices have been at this level for a while now. Do you expect that there is some sort of down trading happening with Arabica as well because of such kind of pricing that's there.
There could be. There are because what happens is that let's not view this word downtrading because generally, arabica was upgrading all the time. Such considering that the prices have both of them have kind of shot up. And generally, for a short period of time, you could see a little bit of an up and down in relation to each other. But what happens is that over a period of time, both of them on the table increases for both of them because there is a certain amount of replaceability that does come in. So while there could be a lag, the table for both of them move in a similar direction. So there may not be a down trading. But yes, the thing is that sometimes geographically, when you see 2 years ago when Vietnam was very competitive against Brazil there were shifts towards that kind of a crop. And Visa was could have happened and has happened to an extent when now resilient crop is much more competitive. So these -- the cyclical things do keep on happening. We are, as a business, geared up for all of that considering and we have told you this before as well. We also have the ability to buy from and geography that we can just that there is a little bit of a lag in logistics that could be there. But considering our freedom to buy from wherever we are, we are pretty confident to keep driving good results in the future also.
The next question is from the line of Rakesh from [indiscernible] Capital.
Am I audible?
Yes, you're audible.
So first question with respect to the total EBITDA. So this quarter, growth in EBITDA is 24% over the last quarter same time, you alluded the volume growth of around 10% to 11% in this quarter. So the remaining growth has come dot operating leverage?
So as I told in my -- as an answer to 1 of the earlier questions, we have concentrated more on more profitable clients, the clients who are brand owners, clients who are more looking for better coffee blends and things like that. So it is more of a shift towards more of these better coffee or let's say, high-margin coffee rather than anything else, considering that some of the other geographies have become more competitive. We purposefully we're not too keen to take the low-margin contracts because over a long period of time, it erodes margin for us. if you were to downgrade the prices. So that's something we always have maintained that 20%, 25% of our volumes at all the times. Opportunistic volumes where traders and these coffee buyers are buying we're looking for below low-margin, low-value profits. So that is the reason why you see or why you have seen a good margin improvement or margin profile equipment this quarter.
Sir, with respect to the debt, you have a gross to INR 1,974 crores. Can you bifurcate guide for the working capital and the CapEx?
INR 1,300 crores will be around the working capital and the balance will be CapEx.
Okay. Okay. And the last question from my side. With respect to the payable coffee prices, a couple of publications have come up with the articles or the other pieces on the coffee prices, they are announcing the fast prices are not going to come down for at least next 2 years because of the because of the environmental changes happening the crop production has come down in Brazil as well as an EBIT term that has led. In [indiscernible] on coffee to other routes, which are more profitable. So your thoughts on that, do you believe -- I know you alluded in your previous answer to yourself that the coffee prices are not going to go up. Do you think the compares are going to come down in the next 1 year or it will remain here?
So considering the interest around this commodity data from various quarters, there are a lot of news that keeps coming. So I don't particularly we get 3 years ago, probably Brazil did experience a little bit of a contraction in their output. But last year, we have seen very good output coming from Brazil, even the next year, indications are good because the flowering has been good. There has been indications that probably Vietnam crop could be affected. But really, it's difficult to gauge the on-ground situation because multiple kinds of news that comes in. It's only when the crop comes in the flow of the crop comes in the market, 1 is able to gauge the situation. But considering that, what has happened is that everything goes down to the end consumption. So most of the times, if you see most of the commodity play, when the prices go up very high, the consumption tends to get detected and therefore, it leads to a cyclical drop as well. Yes, we have seen it in other commodities like edible oils or pulses, when you see very high prices, there is a consumption impact. And then what happens is that in the night cycle, it also comes down. But interestingly, it's good news and bad news because the coffee consumption at the end consumer, we haven't seen much of an impact globally. So globally, this -- we all know that this category is pretty sticky. So what it means is that there has been no consumption drop. And everything, therefore, boils down to mostly supply. And if the supply is effective when we see these changes. So yes, for the next 1 year or so, I don't personally see much of a reduction I see that the copy prices could hold at the levels that they are at maybe a couple of hundred dollars here or there. But yes, the key thing for us is that, as long as there is stability, we feel more comfortable because then the customers are also a little more less anxious, and they are ready to give more long-term contracts. So that's my view as of now.
[indiscernible] the detailed answer. One last question if I may. So what is in respect of the B2C business that has on have seen company has done lots of branding promotion in the travel market, sponsoring few malls or the opening new core and in the Herbal market. So just wanted to understand what is the kind of advertising we are doing for the business? And how the profitability is going on in this business. EBITDA and PAT, if you can talk about like how is the profitability shaping on this business?
Yes. So first and foremost, yes, you are seeing a lot of visibility for the brand. And just not for the Hyderabad market. We're also doing a lot in other markets as well, and we are now as the season approaches, we'll do a lot of at in non-South market as well. So we are continuing to drive the brand because the brand is in a growth momentum. You have seen the results of all other companies. Most of them have seen muted results. But amidst that, our growth momentum continues to be very good. We're almost value-wise close to 50% growth has happened in the first half itself, which is a very good momentum that we are in. And therefore, we want to keep investing that into the brand so that the brand can achieve a sizable, sizable chunk of the branded business of category of in India. So that's been our plan. While the profitability continues to improve, we probably last year ended with around 5%, 6% EBITDA margin, which will improve this year. But the guiding principle has been that we will keep investing back into the brand as much as possible. Right now, we don't want to make it considering the momentum that it is into.
[Operator Instructions] The next question is from the line of Yash from Stallion Asset.
I'm just a bit new to your company. So I wanted to understand that is there a large margin differential between short-term contracts and long-term contracts?
I don't think so that's the way to define it because the better way to define is that what -- there could be margin difference in the type of coffee and the value additions that we can. So for example, bulk-based trade right coffee could be lowest in the latter. But let's say, if I were to back this coffee in a small pack, then I could be running 20%, 30% more margin on to it. suppose this trade rate becomes aglow then I may add another 4%, 5% I can get margin. Similarly, if it is freeze-dried, we all not redrive anywhere on anything between 32 50% margin higher than the free ride. So it's a lot of factors determine we saw thing there are times when even in the short-term contracts, we end up earning good margins because people are in desperate need of coffee. But the other way around is also true because contracts are a lot of times are opportunistic contract. People are looking for quick size and opportunistic buys and whoever gives them very good rates, we probably end up buying from them. So it's a combination of -- I don't think so a generic rule could apply here. But a more generic rule, as I told you, is the type of coffee and the value ratios that we are able to get or give determines the margin profile of ours.
Right. Correct. So I mean 1 of the things that I -- just from a market perspective is that a lot of the consumer-facing consumer-oriented businesses normally they trade away high valuation multiples. And 1 of the issues with our business is that the ROCs have been averaged about 15-odd percent for the past few years, right? And if margin is not a lever to improve ROCE, the only lever you will have in your asset terms. So is it just from a management perspective, are there any sort of levers that you have to improve the ROCs going ahead?
Yes. So if you were to track our ROCs for a longest period of time, you'll see patterns emerge never we end up doing capacity expansion which wherein we deploy a good amount of CapEx. You will see that during those cycles, the RCs come down, and they probably peak when we are closer to higher capacity utilization. So that's the cycle and considering that we are a B2B company, the nature of our business is to supply coffee to the end clients. It will always mean that we probably will be a little more CapEx heavy during cycles. So that is the trend that is going to continue. But having said so, that's our business model. And we are -- that's how we have built our business. But the good thing about the business, the B2B business is that unlike some of the other B2B businesses, this is pretty sticky in nature. [indiscernible], valuation-wise and in terms of perception, we probably get clues B2B companies and their kind of multiples and all. But if you see the client profile, the way we have been -- also we are a B2B company we have been instrumental in building brands and brands for the clients. And therefore, what it means is that it does not supplying coffee, but we are long-term partners to them. We have people who have been sticking with us for the last 30 years or so. So there is a relatively high sense of stickiness that is there in spite of us into B2B. Having said so, we also do realize that when you have your own brands, they give you larger or higher terminal value for your business, which means that you get a much better multiple. And keeping all of that in mind, we also have started building down B2C vertical. Right now, it looks small when you compare it with our B2B business. But come to think of it in good 5, 6 years' time, but last year, we ended the branded business at INR 200 crores. And this year, we probably will be closing around INR 300 crores which is a very significant buildup for our B2C segment because even most of the fancy, we don't talk about this too much, but also we fancy B2C companies who kind of talk a lot about themselves also are not able to scale in the kind of way we have done it. So -- and going forward, we are looking to build this up further. We are investing back. We are very now confident that we will be able to build the B2C vertical aggressively. And progressively, going forward, we'll see that we'll build a block, which will be much higher terminal value and the brand multiples that you can get on a plan. So that's our thought from our end. It's not that we want to replace 1 set of things with others. But the fact is that, yes, we have a very strong B2B verticals. We have built a very strong business very sticky clientele. And at the same time, we are building a lot on the retail part of the B2C side, and this will help us realize much better potential going forward.
The next question is from the line of Kunal Ochi Ramani from Kitara Capital.
Development in early September, 2 months back, there the typhoon in the BS and some broadline situation in Brazil. So I just had a question on supply side as there are so many global challenges. How does this help CCL and to what extent? And how prolonged this benefit was obtained by CCL?
So there will be global challenges. They're not going to go away and the climatic changes are here to stay. We all know, and it is just not coffee. We have seen that there has been cyclical disruptions in most of the commodities. Coffee is now this thing is not insulated from these. So there are news, there will be news that when we do, there will be cyclones, there'll be cross, there'll be well effect, all that is there. And that's the reason we have seen such spilling oil prices in coffee and tea volatile prices that have preplanned. So that's something that is here to stay. As far as CCM is concerned, we do our business model says that we do cost plus pricing, which really doesn't affect our margins or our business. As long as the consumption is good and I told -- as an answer to 1 of the questions, that the good news is that we haven't seen much of an impact in consumption. So the consumption remains in fact, people are still drinking coffee. And that means that there will be demand of coffee. Yes, these fluctuations create a little bit of an anxiety market, a little bit of tentativeness in the market from the buyers because nobody wants to lose after buying at high prices. So therefore, what we have said is that in times of these, what happens is that there is a little bit of tentativeness that builds on our side also because the customers are not willing to commit for long term. But come to think of it, we have seen these cycles many number of times. We have seen recession, we have seen ward. And if you see our performance, they have all been during these time times also. It's -- we have been able to manage all of this very well. The day we see some impact in consumption pattern, that's the time when we will be a little worried. But as of now, we're not too worried on that front in terms of fluctuating prices.
My question was, do we benefit? So I guess...
We don't benefit. We don't benefit. Because we do cost plus pricing, so we don't benefit of any because we don't do speculative bank, so we don't to benefit. The day we take an order, we buy the coffee. So whether it is at a high price or a low price, we really don't benefit out of this.
So does it benefit in terms of volume, if not the price?
Volume is the result of a little more stability in the coffee prices. So volumes will come as long as there is stability in the market, the volumes will come. Yes, we sometimes benefit because we are situated in India and in Vietnam. Let's say, if the Indian -- Vietnamese coffee price or the Indonesian coffee prices are much more competitive than let's say, a Brazilian coffee then what would happen is that we would end up benefiting last 2 years ago, when the cost situation had come in Brazil and the Brazil coffee prices are higher, then we did benefit at that point of time. And that's the reason at that point of time, we were pretty close to 20% volume growth, and we continue that for many, many quarters. So yes, in that sense, we benefit, but largely at an overall level, at a long-term perspective, we really don't benefit or not benefit because of these fluctuating prices.
The next question is from the line of Lokesh Manik from Vallum Capital.
[indiscernible] first question was on...
Sorry to interrupt Mr. Lokesh, could you come a bit close to your handset?
Yes, is it better now?
Yes, sir.
My first question was on the interest expense. By when do we expect this to taper off? It's been on an increasing trend sort of wide now. So any strategy on that front, either in terms of new product and production to pass on the cost to the customer? Just some light on that.
No. As you know that that's part of the interest related to the profit is already in [indiscernible] progress, and it is going to get capitalized number one. Number 2 is that when the new 2 facilities are going to be onboarded maybe in the fourth quarter, that antigen interest element is also going to be reduced further because the volume water business is going to be increased further. And we will see the impact of interest saving even the higher the volume of [indiscernible].
Understood. Understood. My second question was on the blend. As per my last understanding, it was at around INR 250, we had a portfolio of 250 blends. So has that increased over the years in the last few years?
So whenever we -- or actually not 250, where to look at our library, we are probably close to 1,000 plants, yes. But this is all because every time a new customer would come to us we would end up developing a new blend for him because everybody wants a new blend or a new type of coffee to be launched, nobody wants to do a 100% met product. So that's the reason. And sometimes we also have to keep doing our R&D depending on where the coffee prices are more competitive or which is more advantageous to us. We also end up doing a lot of R&D to make sure that same output could be delivered with different types of coffee has been put. So that makes -- and therefore, we end up in a situation where we probably have so many blends. So every time a new customer comes, it's an ongoing process, we keep doing this all the time for both the reasons. So it's an ongoing process, and we keep developing new brands all the time.
Okay. Last another question, just an update, if you can throw some light on the smaller pilot projects like the F&B side or the 2 [indiscernible] Europe or the cold brew in the U.S. So for any other projects that I'm missing or where are we at what stage are we and how are we scaling these 3, 4 areas, if you can throw some light on that will be direct?
Okay. So let me start with the U.K. acquisitions per call, it's been -- we just completed most of our transition 3, 4 months ago. wherein we took over from the previous company, Lofberg. So acquisitions do take a lot of time and energy in terms of various kinds of transition, whether it is compliance or statutory or ownership and therefore, thereafter listing in the various modern retail and all that. So all that we have completed. And the good news is that we have started slowly relisting many of the chains in the U.K. where we had lost out in the last few years. So that's a process that is going on. We are now looking to drive more and more sales there. We have started doing some ATL activities there. Last month, we get some outdoor visibility for Poly U.K. So the brand building also has started there. So that looks well in -- on track on what we had planned to do with [indiscernible]. And once we stabilize in U.K., and we believe that the growth momentum is back, we will see how we can expand it to other geographies in and around U.K. as well. So that's a little update on the call. As far as Polvo and how that is concerned, we continue to do good business there. The volumes are increasing there. So that is there. We're also developing other plants for other people A lot of work keeps have. So these are some of the other smaller initiatives that we had -- or we have taken, and that's a little update on that side.
FMV, if you can disclose some light on FMV. That it be domestic or exports?
No, you're talking about F&B as in the plan?
Plan based.
Yes. So that's -- see, we only have launched it in medium market. Again, that category, if you see in very nascent stages, most of the guys have been trying to figure out what is the right mix that will help elevate that category because this is a very new concept, especially in a country like India. So we continue to do a little business there. We are also targeting a lot of Oreka segment because we know that full first establishes itself not outside of home before you have seen how Chinese for invent for that matter is a matter noting economy is even coffee. The trend is that first, it happens outside home, and then it comes inside on. So we are targeting a lot of hotels. We have done a lot of deals. But even if those hotels remains to be a niche segment, we are also expanding our portfolio that how can we infuse protein in day-to-day snacks. So that's something that we are working on. Hopefully, we'll be out with a lot of new variants going forward. So that's the update on once we have got some volumes going for us then we will see if we want to enter into some of the other markets abroad. But right now, our focus will be there only.
The next question is from the line of Akhil Parekh from B&K Securities.
Congratulations on a very strong set of numbers. On a domestic basis on the branded business, have we taken price put in last couple of weeks because if I recollect sometime around September, we had 20-odd. But now at the on I see the product prices have been slashed back to previous years?
So sorry, I didn't get the second half. The first half I'll try and answer a is that no, we haven't taken any price cuts. In fact, there has been more price increases and price cuts. Yes, there are certain SKUs where price increases are a little difficult like the price point SKUs of INR 5, INR 10, INR 2. So that's something that we cannot take price increases on. And I didn't get the second part of your question.
So this is regarding 200-gram fat, which we get from Amazon that the prices had increased from INR 360 to some INR 40. But now if I look at it, it has gone back from INR 450 to INR 360.
No. So what happens is that there are times when you run, especially during festive times and all that there will be a very heightened level of promotions that need to be run on these channels. And you know how competitive these channels are sometimes a lot of -- during especially festive time, Diwali time and the share time, these channels, Gipar, Amazon, most of them drive a lot of festive sales through deep discounts. So we also end up doing it. But it's not price cut. These are for a few days during festive times, you'll see certain price that is happening. -- but there has been MRP increases all the time because of the coffee prices.
Just a clarification of the domestic business sales you highlighted the opening us if you can please reiterate how much you main and how much we did in second quarter and same for the branded sales.
So like, for example, second quarter, we did around INR 105 crores of business in domestic crores would be a pure branded business, which means in the first half, we have closed around INR 135 crores, INR 140 crores of branded business and INR 200 crores of the domestic sales. And for the year, we are looking to for the branded business close to INR 300 crores. We will see how this quarter and next quarter goes because the first half momentum was pretty good. We are almost like 50% growth over last year. So that's a good number set of numbers that we got, and we are continuing to build the brand from various angles in the domestic market.
Sure. And how are we doing in terms of the retail touch points? If I recollect, we have reached around 1.5 lakh exports the target [indiscernible].
Retail what did you -- outlet. Yes, yes. So we are right now -- right now directly by this end of this year, we probably will be -- this is only general trade. We will be directly servicing around 130,000 also number of outlets. You add another INR 5,000, INR 6,000 of modern trade. And then, of course, there are these other things like we target, like the shops and all that, which we take it as a separate segment. So that will be another 3,000, 4,000 touch points. And then, of course, there are other platforms like the quick commerce and e-commerce and all that. So yes, that's the number in terms of our distribution. We are looking forward to drive deeper distribution in South because now in the cities, we are doing pretty well. Now we need to drive into other Tier 2 and Tier 3 towns. So that's the task and challenge that we have taken. And in the non-South, we are now continuing to drive a lot of our distribution in the main cities. But we are keeping it restricted because that's something that we will not be able to do a very widespread distribution, where the best of distribution will matter for us because, again, those towns coffee consumption is also concentrated and a lot of consumption is now adding to big commerce and e-commerce. So that's something that we'll keep focusing on.
The next question is from the line of Akansha Gupta from Solidarity Investment Managers.
Am I audible?
Yes, you are.
Yes. So in the last couple of con calls, we have always maintained that our EBITDA growth will be largely driven by the volume growth and there would be much margin improvement on that front. So how do I look at the EBITDA growth of this quarter of 25%, 27% -- 25% or because this contains strong volume growth and some margin expansion as well. Yes. So is it because of high-value contracts in this particular quarter, and you expect it to normalize over the year? Or is it that we are seeing some growth in the EBITDA per KG as well structurally? So yes, could you just throw some color on that, that how should we look at the EBITDA per kg and the margin expansion over year?
So Akansha, what we do is when we give guidance generally these are long-term guidance. There will be certain fluctuations in the quarters in each quarter. Let me clarify 2, 3 things. One is first and foremost is that, yes, considering that the market has become very competitive, considering the various supply challenges that has creeped in, and that's what I explained my few answers before. Because of that, we ended up doing more value contracts and better value contracts, more brand owners and all that. So that helps with us. There is also an element of RoDTEP, which is approximately INR 5 crores to INR 6 crores of ROP is a substitution of MIS that we used to get. So if you see like a mine all of them, volume growth, better value contracts, more brand owners seeking coming in. And this ROD increase. All of that put together has helped us improve our margin this quarter.
And do you think over the year, it will normalize to the 110 million EBITDA for level or would this be a good base going forward as well?
No. So Akansha, like last time also, and most of our con calls, we say that because it also depends on many things, just not 1 angle. The other thing that it depends on is the mix of our products. So considering that there could be more suppose, let's say, I start doing a lot more volume going forward, and I start getting into long-term contracts, which I spoke about, and these are straight ride and all that, then what will happen is that my margins will slightly come down. So it may not be at the levels that it is today. And that's the reason we have always on a long-term guide that probably for 2 years when we spoke last time, that for next 1.5, 2 years, we are looking at a similar margin profile, I don't want to kind of preempt and say that it will be better, although we are trying all the time to better our margins every day because not only through better contracts, more high-value products, more small packs premiumization of coffee, building some efficiencies in our operations. So all that work is always happening. But sometimes it's very difficult because the mixes could change. I could be doing more of [indiscernible] would at an overall level being down my EBITDA per kilo. And that's the reason we have given this guidance that it will be more or less stable for the next to 2 years. And thereafter, probably when we are utilizing our current expanded capacity to almost 50%, 60% levels, that's the time when we start building more efficiencies and getting into more value contract because this will stabilize and then I will get better margins.
Okay. Okay. I understood. Just wanted to confirm that.
The next question is from the line of Ashish Upganlawar from InvesQ PMS.
So most of the questions answers already [indiscernible]. So sir, on the raw material scenario, what basically I understand is that the crop has not been good in Brazil, Vietnam this year also. And prices probably would you say that those have been -- have peaked now. I mean, or is there any other disruption that is there or maybe some other event that 1 needs to track around there?
So my sense is that it has peaked. It has softened a little bit in the last month or so. and it should stay at these levels is my personal sense, yes. We will keep getting these news that things are not good, so there's climate issues and all that. But largely, I am feeling that they should stay at this level. And I'm looking forward to certain stability after not the price reduction, but at least stability creeping in after December.
Okay. And -- but that doesn't maybe solve the issues on the working capital that we have with the elevated coffee prices maybe helps the P&L as such in terms of profit growth somewhere. So is there any other lever because I think in the initial part of the call, you said that some value addition has helped in terms of per kg relation of the EBITDA for us. Are there any other mitigation measures to elevate the profitability so that the ROC is actually improved because working capital, it all depends on coffee prices, actually?
Yes. So we are actually working on a lot of fronts. That's not higher-value contracts as a tool, but also other things like can I do more small packs, can I do more -- can I build more efficiencies in operations and things like that. But considering that the coffee prices are going to remain at this level, there is not much change that I'm going -- or I'm foreseeing in the near future as far as working capital is concerned. But the good part is that and which is what we have always maintained that all our working capital is for contracted business. These are not for inventory building. So I only buy coffee that I have contracted a business or finite business. So that is why we're not overly but, yes, the things will look much, much better if the coffee prices were to soften.
Okay. And what is the percentage of softening you would have seen in terms of price drop lately? Is it material or [indiscernible].
We don't see much of a drop. Actually, what happens if you see long-term cycles of supply chain of Cofina. The 2 big segments, which is the South America and the Southeast Asian segment. both of them in years when they get good crops, then we see that there will be a softening of prices. But as long as 1 of them keep reporting climate vagaries and therefore, short supplies the prices tend to be on a higher side. Having said so, coffee also on crop unlike most of the other commodities where the harbor cycles are low, most of the agri commodities you will see 6 months to 9 months of agri cycle. Coffee has 3 to 4 years because once you saw a proper plant, it starts flowering after 3 to 4 years. So it seems that -- and we have seen 2 years of price hikes. I -- we have got certain reports that there has been a great increase in all that in certain parts of Brazil and Vietnam. And therefore, what happens is that post 3 years, again, you will start seeing some more supplies and therefore, things will start softening up. And that's the reason I really don't want to comment on any short-term or midterm prices. I don't see it softening very, very much. Yes, a couple of hundred dollars here there could be the variation. In the long term, yes, because of these changes, we would expect that there will be a certain amount of softening. But again, nothing to comment and be definitive about it.
The next question is from the line of Deepak from Sundaram Mutual Fund.
Sir, my first question is regarding the capacity. So you are pointed out that the Indian capacity is going through some tire trends. I just wanted to understand the 16,000 tonne capacity and the new free res capacity of Vietnam, in which quarter do we plan to kind of commercialize it. And once we commercialize it, how much time does it take for us to achieve the utilization level?
So Vietnam [indiscernible] will be next quarter only because trials take a lot of time, there are certifications, trials, matching of blend all that thing happens. So the business starts coming in subsequent quarter only. And generally, our capacity utilization plan is that at least for the previous rate because we have good orders and all that. First year could be anywhere around. Generally, first year, our 30% to 35%, but we could be looking at 40% or 45% in the first year of the freeze-dried capacity. Coming back to India, the India plant should start operations maybe a month from now because all that trial and all that. Most of it is now over the certifications are also on their way. And as soon as they come this quarter onwards, we'll start seeing by the end of this quarter, utilization start happening. And again, the com rule will be 30, 60, 80. So that's the some room for 3 years that we've built around. Generally, you will get a peak capacity of 85 to 90 against the rated capacity because of the blend that the changes and the IPs that you do.
The utilization level you're talking about, it will be similar for both the feed as well as [indiscernible], right?
At maximum yes, maximum.
Okay. And sir, second question would be more related to bookkeeping. So when I was looking at your other expenses, in Q4, it was around INR 150 crores. Now this quarter, it is sequentially declining right now is core SP53512360 And the primary, it was driven by your stand-alone business, right, the Indian business. So I just want to understand, I mean do we expect this number to go down? Or was Q4 and aberration and now it is more at a normalized level?
So okay, some of it is the other expenses, if you see, a little bit of it is because of ForEx differences at the currency fluctuation. So there are some gains here. So probably, you will see something in between what you have seen earlier and what we are at now. Not very dramatic changes. Not that it won't be like the extreme of that and the low of this.
Okay. So we would see an Y-o-Y growth, but not at extreme of what we saw in Q4.
Right.
The next question is from the line of Richa from Equitymaster.
I think in the earlier call, you had mentioned that earlier the tire that used to happen for 6 to 8 ounces come 2 to 3 months because of this. Let's say, the Vietnam crop harvest is not good. So I mean, like you said, there is perhaps there will be some visibility on the stability and not volatility. So do you have any sense from clients that they would be willing to increase of contract length or this tie-up duration? Or is it likely to stay in 2 to 3 months ways even if the prices are where they are?
So as I told earlier, I think after December, once the picture is clear, I'm hoping that a lot of clients will now revert back to long term because the general consensus that has built around the globe is that there won't be significant softening from here, unless until some other courses begin and there is something new that we come across. But considering the current situation, there won't be huge softener port. We are expecting that post December, January, we should start seeing a little longer term. I won't say that it will go back to 9 months, a year, 1.5 years, but a little longer term than what we are seeing right now could come back. But we'll have to wait and go and see how things pan out. if it remains to be as volatile as it is right now, then the situation would continue.
Okay. And sir, my second question is -- like you said, there are 2 major regions, South America and Southeast Asia. So I know that you can source it from anywhere, but at a practical level considering that you also cater to plans, and there could be something just in the brand based on where you are sourcing from how difficult and cost and you can be, if this differences in both the regions close up.
So yes, it is a little more challenging because the tags sitting in Brazil as an access to the crops very quickly. we do have to import and therefore, it means that it lack the logistics time. But generally, if you see most of the time, then that's the reason I was talking about blends. We have that expertise to make sure that we create an output from different in different types of coffee. And we do maintain inventory because there is -- it's a rolling business for us. So there are inventory. So we can turn it around very quickly. But yes, I can't deny that it is a little more challenging to get the green beans from Brazil. But it's not that we don't do it. We often do it and we currently are also doing, which means that, yes, technically, we are at a little bit advantage in terms of the logistics time, but we are not at a fairly very strong disadvantage like the Brazilian guys would be if Vietnam were to soften because they don't allow import of coffee. But we are not saddled with those kind of problems.
Okay. And sir, what is the current cost of debt? And do you expect it to increase or moderate going forward?
Since we now completed all the projects. And going forward, the free cash flows are going getting added to the operations and definitely, it is going to reduce further.
Okay. But in percentage terms, like I think you -- in your value that it's likely to work to 8% from 6%. So where is this currently?
No. Currently, it down is the same price as we know that RP not change any rate profile in their monetary policy. So unless the rates are being softened from the RB end, we don't see that any reduction in the data center are concern.
The next question is from the line of Tushar Agate from Kamakia, Wealth Management.
Over your B2C business, you started a pilot project in Hyderabad for a coffee chain. What are your thoughts on opening it pan-India? And how do you see your B2C business in the next 5 years in terms of percentage contribution to the revenue.
So okay. First, the cap, we just opened a couple of them, 2 and caps and 1 cost kind of a thing, which is a grab-and-go kind of a thing in Hyderabad. So we right now, we don't intend to expand very quickly. we want to see because we had already indicated that we want to understand which model is working for us. And what is the kind of profile that we want to build for the cafe. So we will keep building this. And once we are convinced that, yes, this is a model that is going to work in the future, but the time we'll think of expansion. So that's the update on that front. As far as B2C business, you are saying 5 years down the line, what is what will be the percentage of B2B business. I don't think so that that's the right way to look at it because that's not what we are looking at. The reason being is that we are on, we are driving the B2B business equally aggressively considering that our market shares are still single digit in the global market. in the B2B setup. We are very confident that we will be able to drive aggressively that business as well. And here in the B2C segment also, we are driving very aggressively. So yes, it is being driven that faster than the B2B business. But very difficult to comment at what percentage it will be out of that. What we are seeing on a stand-alone basis, I told you that this year, we probably the brand business would be close to INR 300 crores, we probably will be looking to double it in maybe 3 years' time or maybe 3.5 years' time or a 4 years' time. So that's the plan that we have right now. We are taking it step by step on ever-ever even when we started, while we gave a certain indication, we were not very be. I just don't want to commit to some numbers and then say that how do we do that, but we want to take it step by step, and that's what has worked for us. So right now, the going is good, and we want to continue to drive the momentum.
Understand. The operating leverage part, so as capacity or the refined expansion, what sort of revenue you can achieve considering what I also understand the product news also on the big question. If you consider the average product mix over the years, which you have seen, so what would be the max revenue to potential of the capacities post the recent expansion.
So last year, like when we were around 37,000 tonnes, and we took all these expansion, which would have meant that we would have gone to 75,000 to 77,000 metric tons. So you can see the volume is double. I don't want to comment on the price because price is defend the value on the top line is dependent on the coffee prices because we do cost of test model. So what it means is that the we were looking to double the capacity in 4, 5 years' time. So that is what we will -- the trajectory will stay up on and resulting of what will be the top line will all depend on the coffee prices.
Sir, What would be the revenue potential I'm asking?
No, so that's what I'm saying. The revenue potential is dependent on the coffee prices because our model is cost-plus model. So I told you we were at 37,000 tonnes last year when we started -- when we -- the new capacity came. And we have given a guidance that we probably will be looking at 15%, 20% volume growth, which means that years' time or maybe 4.5, 5 years' time, we probably double the capacity, which means that we'll be closer to 70,000 metric tons in 4 years counting last year. So that is our potential and that is when we will see how do we want to take up further expansion on that. Value, I can't comment because, let's say, tomorrow, the coffee prices that would drop to 2011, the value could be very different than what it is at 4,000 labels.
Sir, my last question, sir, if you consider the value-added segment, the freeze dried and the flavored coffee in percentage terms in B2B, what would be the quantity?
So we don't do a flavored coffee in GTB segment, yes. Flavored coffee is a very small segment, not only across the globe, but in India also. And if I were to take a freeze right, it will be around 25% of our capacity.
And other value-added copies like the -- giving aside the freeze dried. Is also some value added, if I'm not just in?
Yes, yes. So it depends like, let's say, if I would take the up the top of the pyramid, which is the 5%, that will be the premium coffees and the value-added coffee, which gives us a higher margin profile and the premium profile to us. So that will be another 5% to 7% of our total business.
So more or less 30%, 40% is value-add if my understanding is correct.
Yes, if you added freeze dried. Yes, if you consider freeze dried. But lot of banks freeze dried is considered also as a base product in market like us and all that becomes real products. So yes, it really depends on which lens you're looking at from.
The next question is from the line of Anirudh Gangahar from Avendus Wealth Management.
Two questions from my side. Firstly, there was some insurance coverage money for the capacity that was lost earlier. Has that been received. If you can just help clarify that. And second question was the EU forestation regulation. Any update on the implementation and preparedness that is gone from our side for anything in terms of sales to the Europeans. Those are the 2 questions.
Yes. Relating to the issue, as you know that they will take a good amount of time and our record towards the business in total as well we have placed with them as it is on the process. Definitely, it will take some more time. And currently, the papers [indiscernible]. So UDR, we all know that it has been postponed as of now for a year. because it requires it's -- while the dent is right, the whole implementation has its own challenges because of the certification and all that you have to get. The first indication is that the commodities are part of it. When I say commodity, we had green coffee, the value edition that we do and then we make it instant coffee, that probably the final product may not be part of it as of now. But having said so, we are working with our suppliers, the growers the associations to make sure that these are all complied because it's more of an industry challenge rather than a particular challenge for corporate. So we are working for that. And as and when it comes, we should be ready for that.
Ladies and gentlemen, that was the last question for today. We have reached the end of our Q&A session. I would now like to hand the conference over to the management for closing comments.
Thank you all for joining us, and thank you, Nirmal Bang for arranging this call. And once again, I wish you all happy festivities and best of now.
On behalf of Nirmal Bang Equities, that concludes this conference. Thanks for joining us, and you may now disconnect your lines.