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 Fourth Quarter FY '23 Results Conference Call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions]. Please note that this conference is being recorded.
I now hand over the conference to Mr. Abhishek Navalgund from Nirmal Bang Equities. Thank you, and over to you, sir.
Thank you, [ Bilbo ]. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited Q4 and Financial Year FY '23 Earnings Conference Call. The management is represented by Mr. Challa Srishant, Managing Director; Mr. Praveen Jaipuriar, CEO; Mr. B. Mohan Krishna, Executive Director; Mr. V. Lakshmi Narayana, CFO; Mr. Sridevi Dasari, Company Secretary; and Mr. P.S. Rao, Consulate Company Secretary.
Without further ado, I would like to hand over the call to Mr. Praveen for his opening comments, and then we'll open the floor for question and answers. Thank you, and over to you, sir.
Thank you Abhishek, and good morning to everybody. Thank you Nirmal Bang Equities for arranging this call, and thank you to all the participations for joining us for this call. I'll briefly read out the results, and post which we'll open the floor for question and answers.
As far as quarter 4 is concerned, the group has achieved a turnover of INR 520 crores for the fourth quarter of '22, '23 as compared to INR 376.22 crores for the corresponding quarter of the previous year. And the net profit stands at INR 85.29 crores as against INR 52.69 crores for the corresponding quarter of the previous year.
The EBITDA is INR 115.47 crores and profit before tax is INR 94.7 crores. When we come to the yearly performance on a year-to-year basis, the group has achieved a turnover of INR 2,071.21 crores, so we crossed a milestone of INR 2,000 crores this year, as compared to INR 1,462 crores for the corresponding previous year. And the net profit stands at INR 268.87 crores as against INR 204.35 crores for the corresponding previous year.
The EBITDA is [ INR 408 crores ], and the profit before taxes is [ INR 305 crores ]. So that was a brief snapshot of the results. I open the floor for question and answers.
[Operator Instructions] Our first question is from the line of Kashyap Javeri from Emkay Investment Managers.
Congratulations for a really great set of numbers. My first question is on our cash flow. Now after probably 2 or 3 years now, we have seen inventories coming under control. At operating cash flow level also, this generated a great amount of cash for us. Does this now -- do you expect this to continue as we go forward, like you have been highlighting for quite some time, the overall working capital conversion -- sorry, cash conversion, the cycle continues to get tighter?
Well, this is Lakshmi here. To answer to your question, the cash flow statement, if you look at it, the best one for operating cash flows were being used to generate the required working capital. So the amount of volume of the business that we would be able to achieve it in the current financial year should be around 45% growth in terms of the revenue. This proportionately increases the working capital [indiscernible] and as well as declining now the maintenance of [indiscernible] capital changes. So going forward, the return of the remaining free cash flows that are going to be available, we are putting it to the ongoing projects and the fees and the capacities are built.
So where we had these issues on inventory side because, first, the Russia-Ukraine war and the coffee price is shooting up. Now that the global sourcing lines are sort of more free and the coffee prices have also come down, ideally the inventory number should not -- rather, should remain under control.
The Ukraine-Russia war, it has no impact on the green coffee prices. If you look at it globally, the green coffee prices are moving upward as of now. So the volumes remain intact due to the increase in the GC price, the green coffee prices, which could makes us to invest more into the operating cash flows into the working capital and the inventories to build up. And if you look at the inventories, we don't carry much of finished goods inventories. We carry the green coffee inventory to take care of any uncertainties into the availability of the products.
And last question is, what is the number of customers that you added this year, new customers?
So it's specific on an ongoing process. Every day, every month, every quarter, we add the customers. There are some customers who would drop off. So very difficult to kind of give this number because every quarter, every month, these numbers would vary. There are -- in every segment, we have been on so many geographies we have customers. Sometimes we had customers, which are absolutely new. Sometimes we add customers who were previously with us, probably would have dropped off at some stage and again get re-added.
So that's an ongoing process, Kashyap, and we keep adding new customers all the time. But as we have maintained for many, many, many calls there, if you see, there are 50%, 60% of our volume comes from the existing customers. And the rest of the volumes probably come from either adding new customers or adding new volume to the existing customers, things like that. So that is the answer from our side.
So you said 70% of the revenues from existing customers and balance should be new customers.
50% to 60% from the existing customers and the balance keeps coming from addition and because it's always a leaking bucket wherein some people will drop off, new people come in. So that's the nature of the business.
Okay. And just one more question. Can you give us a breakup of the revenue in terms of Europe, CIS, U.S., India and there are so many?
If I were to tell you broadly, CIS countries contribute almost to 20% to 25% of our volumes. And Europe is anywhere between 12% to 15%. So that's the breakup between CIS and EU. Domestic market included Asia becomes the largest because a large part of it also goes to domestic market. So that's the breakup. North America is almost again 12% to 14%, so that is the North America. So if you add up all of these, you will see that it's up to 100%. So that's the broad breakup of the geographies that we operate in.
Our next question is from the line of Amar Maurya from AlfAccurate Advisors.
Can you give us a broad understanding about how had been our volume growth in this quarter and how was the volume growth for the year? And what would be the expectation for the next year in terms of the volume growth, given that a couple of capacities will be also coming up?
So volume growth for the quarter and the year, we all stood at a very consistent level. We had earlier indicated that we will end the year at around between 20% to 25%. We ended close to a little above 20% volume growth, and we got another 20% value fee. So if you see our annual turnover growth, it's around 40%, 41%. And the items for the next year is also very close to this. We are looking to grow the volumes at around maybe 20% or so, a couple of percentages here or there, but that's the guidance we are giving.
And this year, probably we may not get such a higher clip on the prices because prices -- base prices are also pretty high. And a lot will depend on how coffee prices move during the year. So as we go along, we'll be able to give you a sharper guidance on the volume growth, but broad volume guidance is close to 20% for the next year as well.
Okay. Okay. And what would be volume growth for this quarter, sir, around?
This quarter also, we have seen -- as I told you, because in all 4 quarters, we had very similar volume growth between 20% to 25%. So this quarter also, the volume growth was close to 20%.
And sir, this Vietnam capacity of 16,000 metric ton, let's say, what -- how do we expect the utilization for FY '24, the new capacity which is coming?
So we already started utilizing the new capacity. And for the year, if you see the guidance is almost 50% of the new capacity will be utilized in the current year.
Okay. Perfect, sir. And secondly, next year, one more capacity for Vietnam will also come, right, another 16,000 -- no, no, no, for India?
No, no, no. So the next -- by this year-end probably, there is one more SD capacity in India, which is 16,000 tonnes. And next year, next financial year, by quarter 2, we will have a freeze-dried capacity in Vietnam, which is close to 5,500 metric tons.
Correct Okay. Okay. And that CapEx basically broadly remain on the track, right?
Right..
Our next question is from the line of Vidit from IIFL Securities.
Could you just share the capacity utilization that we achieved in the Vietnam capacity in 4Q when it was commissioned? Because it looks like a lot of the growth this quarter has come from Vietnam from the subsidiary business, and just wanted to get a sense of what has driven this growth in EBITDA -- ex stand-alone EBITDA.
So you're right, a lot -- the additional capacity that we got this quarter was because of the expansion that we did in Vietnam. So we could utilize certain capacity from Vietnam itself, and that is why we got robust growth on this quarter, which meant that the EBITDA percentages, the profit that -- from the NCL unit was very robust this quarter, which added to our company's growth profile. But this was all projected. We had factored all of this in when we had projected annual 20% or so volume growth, and this was -- because we knew that the commissioning would happen by the last quarter. So all this growth was factored in, and that has led to a driven -- a lot of growth for us in the last quarter.
Okay. So what is the capacity utilization across both the countries in India and Vietnam?
So if I were to remove the new capacity because it's only half of the quarter that we use the new capacity, so exact capacity utilization would be a wrong picture. But let me break it up the previous capacity. So that was almost 100% utilized. When I say 100%, obviously, it is not 100% rated, but we generally would operate between 85% or 90% or so because of the various plans that you use, changeover and things like that.
So almost all of the capacity was utilized -- the previous capacity was utilized. And this year from the new capacity, which is 16,000 tonnes we added in Vietnam, we are looking to utilize another 16,000 -- 50% capacity out of that 16,000. So another 8,000 or so should get added, and that is what will drive the 20% or so volume growth that we have been talking about for the next year -- sorry, current year.
Okay. Understood. And in terms of just overall demand fees, that demand has been under pressure. Do we see this trend changing anytime soon or these volumes of [indiscernible] margins continue to be under pressure, right?
I don't think so demand was under pressure ever because we operate mostly the clients whom we give to because we are giving instant coffee. The large part of consumption of instant coffee is in-home consumption. So we haven't seen any contraction in demand. Even during COVID period, we did not see any contraction of demand. So while out-of-home consumption did undergo through a stress, but in-home consumption was always intact. So we haven't seen any contraction in demand.
Yes. When the coffee prices went up for a short period of time, freeze-dried -- because everything the prices went up. So there was a little down trading from freeze-dried to, let's say, spray-dried at a consumer level, which led to a little pressure. But what happens at the consumer level over a period of time when the price hike happens at that moment, probably there is a little stress. But over a period of time, we all know as consumers, we kind of accept these price increases over a period of time. And that's what has -- probably has happened.
And we are not seeing any contraction in demand even in the freeze-dried as of now. In fact, our freeze-dried capacity is 100% full for the next 1.5 years, and we are seeing pressure of demand from that segment as well. So we don't see any apparent demand contraction going forward unless until something drastic happens. But as of now, we are not seeing any demand contraction.
Okay. And just one data point that if you could share on the retail business. What sort of revenue did it did in FY '23? And what are you projecting going forward?
So in FY '23, we -- the whole domestic business crossed the turnover of around INR 50 crores, and the pure brand out of this was around close to between INR 150 crores to INR 160 crores and the rest was under private label. So that is there. And we continue -- we are looking to continue the growth momentum. We're looking to -- this year also, we are looking to at least drive a growth of around -- between -- anything between 30% to 40%, and that's what we are aiming for this year as well.
So I think that the number of revenue, did you say INR 280 crores?
INR 250 crores,I said.
INR 250 crores, of which INR 50 crores to INR 100 crores was the private label, is it?
No, no. Out of which, INR 80 crores to INR 90 crores was private label and bulk and INR 150 crores to INR 160 crores was pure brands.
Okay. And just one last question if you may allow...
Mr. Vidit, may we request that you return to the question queue.
Sorry, I'll get back in queue.
[Operator Instructions] Our next question is from the line of Mayur Patel from IIFL AMC.
Can you just share some thoughts around how are you seeing the demand supply, which can lead to the change in the coffee prices going forward? And adding on to it, our business, as I've -- as you've always explained in the past, is more of a spread business. So there's a 20% plus volume growth expected for the next year. Even if the coffee prices declined critically by 15%, 20%, we should expect spreads to be maintained in our 20% plus EBITDA growth. Is it a fair expectation?
Yes. So the second part, I'll answer first, which is the EBITDA spread. So as we have always maintained, our EBITDA growth is always in line with our volume growth. So even if the coffee prices fall, if our volume growth are close to 20%, even our EBITDA will grow at 20%. So that logic always gets maintained. The only difference that comes is in the top line, which is the value number. So it will all depend on what is the kind of prices there, and we'll add or subtract that kind of prices on our volume growth. So that's been only...
Yes, that's why...
Sorry.
That's all. This is reassuring. Anyway, the top line -- the EBITDA growth is more important than the top line growth, like you rightly explained. On the first part, if you can just help us, just for our understanding, how do you see coffee prices going forward based on demand and supply sectors?
I'll just ask Srishant to fill in here.
Yes. So as far as coffee prices are concerned, this is actually quite complicated because, in fact, the previous estimate that was there was that with the new crop that's coming in Brazil, it's a very good crops. In fact, the prices should be going down. But instead, what happened is in Vietnam and Indonesia and other locations, robusta prices, there's a lot of demand for robusta also, which has increased, which has actually driven the prices upward.
When the arabica prices started going up, automatically, that there's been some transition towards robusta, which is why the robusta also is under pressure. In fact, as of now, we are seeing kind of like an all-time high prices at this point in time. We are expecting this to slowly soften once the new crop starts coming in from Indonesia and then subsequently from regions as well.
Okay. This is a pretty good reassuring. Just one more question, if I can squeeze in. We have seen some good improvement in working capital. Are there more legs to this? Should we expect some more improvement in the net working capital cycle going ahead?
So working capital is one thing. Because the prices are going up and fluctuating the way it is, frankly, it becomes a bit premature for us to comment whether there will be an improvement or no. We've always taken strategic calls based on the market fluctuations. So there are times where you find it's more economical to procure the raw material and block our working capital if we feel that the prices are still going to shoot up because otherwise, the kind of prices that we get. Whoever is quoting it, they'll add that working capital cost and then quote to us. So this is something that -- it keeps changing from time to time based on how the markets fluctuate.
Our next question is from the line of Nirav Savai from Abakkus AMC.
My question is regarding the depreciation part. And this quarter, we have seen a depreciation of about INR 10 crores versus INR 19 crores in the previous quarter. So has anything changed there? There's a lower depreciation despite the Vietnam facility, which is commercialized operations this quarter?
Yes. If you look at it, some of the old assets have been completely depreciated and the new capacity that has come into operation, which has been capitalized on end of March. And that's the reason why you could see the reduction in the depreciation in the current financial year. And the next financial year, having capitalized with the expanded capacity, and we will see more depreciation in the '23, '24.
Okay. So this quarter, the new capacity depreciation hasn't come.
No. This quarter, quarter 1 [indiscernible] new utilization, new capacity depreciation will come.
Right. Also, so the new expansion, which we are doing on the India side, that is expected to commercialize operation in first half or it would be in the second half of FY '25?
In the -- the implementation due to close at the end of March '24, and the commercial operations begins in the first quarter of '24, '25.
Okay. So Q1 of FY '25, it would commercialize operations?
Yes, the start.
And the new free trade capacity in Vietnam would be also in FY '25? Or is it going to be in '26?
So it is in quarter 2 of '25, '26. '24, '25, we are likely to complete. And having completely -- the schedule to complete the trial operations, so sometime in '24, '25 financial end, we may come into commercialization.
So in the fourth quarter of FY '25.
Yes, fourth quarter of '25. And the real time difference of the base between '25, '26 onwards.
Okay. So you're saying it will commercialize operation on fourth quarter of '25. '26 Q1 onwards, we will see some eligible...
Third quarter of '25, it will be commercialized. And the real-time impact of the new facility will be seen from '25, '26 onwards.
Our next question is from the line of Lokesh Maru from Nippon India Mutual Fund.
Congratulations on the new set of numbers. Just one question from my side. Could you please help EBITDA per KG for the quarter and for the year overall?
Sorry, sorry, Lokesh, you're not clear. Can you repeat your question?
Can you please help with the EBITDA per KG for the quarter overall?
Look, the EBITDA per kg did not change much from where we spoke last time. So if you were to recollect because our volume growth and EBITDA growth, if you see, are pretty much in line, so exactly same per kg profits are there. So for spray-dried, it is in the range of 90 to 100. And therefore, the freeze-dried, it is 130 to 140. That continues to remain as it is this year as well.
Okay. So the 34% increase in our EBITDA year-over-year, this quarter means that the volume growth was 34% this quarter.
Just don't go by very, very fine existing. So there will be some variations and variances up and down. But if you were to look at a broad sense, like when you see the annual numbers, you will see that -- because in quarter-to-quarter, if you do very myopic comparisons, you'll start seeing these differences because there are certain delayed supplies or certain delayed shipments, so -- or mix changing.
So a lot of these things happen, which kind of affect the EBITDA per kg. So it is best to look at from a long-term perspective. But so if you see the yearly perspective, exactly the same volume growth, and EBITDA growth are there. We said 20% to 25%, closer to 20% was the volume growth and so is the EBITDA growth for 21%. But broadly, Lokesh, this logic works for us most of the times.
Sure, sir. Understood. One more thing on the branded business, which, if I recollect correctly, it could be INR 175 crores for the year. Where do you expect this to be in, let's say, FY '27 per se from a 3-year perspective? You see it growing 30% to 40%, does it mean you wanted anywhere around INR 300 crores or so in 3 years?
I was expecting that you would ask me this year. You kind of -- strongly there in year of '27. Yes. So Lokesh, as we have been maintaining at the start of the year, we had projected something close to INR 170 crores, but we were a little short than that around close to INR 155 crores, INR 160 crores. But as you would recollect, we had mentioned that we are taking a lot of correction of stocks in the market, financial discipline and things like that. So we purposefully kind of held part time sales this year. But going forward -- but in spite of that, the business grew by 25%.
Going forward, we are maintaining that. Anything between 30% to 35% should be our growth projections for the coming years, at least 3 years or so. And -- however, as we speak, it's a very dynamic business, consumer businesses. We are just in the building space. So there could be quarters or years where we would probably grow at higher levels or at lower level. It will depend on a lot of things. The competition is heating up because we've now got a decent share in the market. So all that will come into place. So we'll keep you informed. But at a broader level, you're right, we are looking to kind of grow at this pace of 30% to 35% for the next 2 to 3 years.
Our next question is from the line of Dhiral from PhillipCapital PCG.
So this year, we have seen a lower effective tax rate for FY '23. So what could be the run rate for FY '24 and '25, sir?
For the lower effective tax rate, there is one reason that the new facility, which created traction [indiscernible] facility, that capitalized in the current financial year. Thereby, we could claim the additional depreciation, which leads to the -- to follow [indiscernible] comparing with the regular tax in the current financial year. And the new year, the current financial year, it is likely to fall around effective tax rate of around 25%.
Sir, this is despite Vietnam contribution going up, sir, because this year, maybe 20% of growth will become probably at some facility, right?
Because it is likely. So the effective tax rate, if you look at it, 1 unit in India was a full tax rate of [ 24% ]. And the second thing is exempted in the India. Vietnam operations are exempted. Keeping all the view, we expect the FX tax rate to fall between 22% to 25%.
Okay. And sir, if you can give the overall Vietnam revenue, EBITDA and PAT for the year and same for the Switzerland unit.
It is a significant contribution that will be there from Vietnam. It has been completed the expanded capacity. And proportionately, the contribution as well, it will go in the consolidation level.
Okay. But sir, if you can give the data set for the Vietnam overall revenue for the year and EBITDA and the PAT.
Net finance you're talking about.
Yes, FY '23.
So FY '23, we are around 40% of the total revenue. It is coming from Vietnam operations.
And sir PAT will be?
PAT will be around INR 140 crores.
INR 140 crores. And sir, if I see your order expense in Q4 was higher by 56% on a Y-o-Y basis. So any particular reason for that?
There is no much increase in the Q4. If you look at it on the Q4, the expenses are INR 108 crores in Q4 versus INR 107 crores of Q3. There's not much of increase in our expenses.
Sir, on a Y-o-Y basis, from INR 75 crores, it went to INR 118 crores.
On Y-o-Y basis, if you look at the volume growth, it is almost around 20%. And if you look at it, INR 310 crores [indiscernible] FY '22, that is [ INR 228 crores ]. If you look at it around 25% growth, volume growth, that's even compensated in terms of the increase in other expenses as well. There is no disproportionate increase if you look at it.
Our next question is from the line of Aejas Lakhani from Unifi Capital.
Yes. Just wanted to understand that the CapEx for next year and how you're likely to fund it? And how should we expect the debt levels to be in FY '24, given that you are generating strong cash flows as well.
We know that we are going with a new facility for 15,000 metric ton safety capacity in India, which is likely to pass around INR 400 crores. Out of that, we are contributing around INR 80 crores from our side, and the balance is going to be rolled in the form of the debt funding. So this is what we could see in the year '23, '24.
Okay. So from the INR 900 crores of debt that is outstanding, is it fair to understand that debt should peak out at INR 1,200 crores because you are generating significant operating cash flow as well. So I would assume that some of it will come in the form of that as well?
Yes, you're right.
So peak debt will not be INR 1,200 crores, it could be much lower because you'll compensate it with the mix of your own cash flows.
That's right. So our cash flow also gets contributed in that, and that will be -- the recession can be changed in terms of working capital utilization filed.
Got it. And secondly, in terms of -- could you quantify any new orders that larger orders or any order wins that you're expecting and -- or is it just the existing customers giving you incremental volumes or anything new on the annual?
So at any point of time, there are 5, 6 clients in the pipeline. And as I was telling earlier as well that it's -- we have a setup where almost 50%, 60% of our volumes come from regular business, our regular clients. And the rest is almost like a leaking bucket wherein new clients come in and some of them drop off. So that's the nature of the business at this point of time, very difficult to share. We generally don't share. These are confidential information about our clients. So we are not supposed to share. But at any point of time, as I'm telling you, there are 5, 6 client projects in the pipeline. And some of it materializes, some of it doesn't. It's an ongoing process that it keeps on adding.
Our next question is from the line of Rahul Maheshwary from Ambit Asset Management.
Thank you so much, and excellent set of numbers. Two questions, primarily. Can you give some guidance on the premium products, which Cold Brew products a couple of quarters, which you had given the inquiries were strong enough, how much they are contributing to such kind of products and connected to this, again, a small packaging which we commenced 12,500 tonnes, what is the color? Can you give some color on that? What is the capacity utilization and how much extra premium can we fetch compared to the bulk products which we are selling.
So the niche products, as we may call it, things like Cold Brews or Specialty Coffee, things like that, which are premium in nature, will almost contribute 5% to 10% of our volumes, yes?
On value terms in can be...
Yes. So in volume, if volume is 5% to 10%, the value would be 10% to 15%, yes. So it will give us a higher value realization from the others. So that is on the niche and the premium products, as you may call it. And as far as our small-pack capacity utilization, see, almost for the full unit, if you were to see 30% of the capacity utilization happens from the domestic market, because domestic market is all small packs there.
And we have got another rest 20%, 25% coming from the international market. So almost 50%, 55% capacity utilization is there. And this is when I talk about 3 machines as we have told earlier also, there are certain SKUs where capacity utilization is pretty high. So for example, if I were to take sachets or pouches, there we are almost in some SKUs, 100% capacity utilization. And there are certain SKUs probably where the capacity utilization is 20%, so as a whole, we are at 50% to 60% levels of capacity utilization in the new packing unit.
But on the export side, how much value addition, which we are trying to capture through the small packaging compared to earlier when we were not having the small packaging unit in terms of realization?
No. We are still having a small-pack facility, but it was part of the Duggirala Facility. We now created a separate unit altogether so that we can have a full-fledged facility which is state-of-the-art to supply to our clients and also help us get new clients.
So that is there. As far as margins are concerned, you had asked how much does it give you, almost 10% to 15% additional margins we get due to this value addition. And that was one of the reasons we had set this up because we thought that if we could provide turnkey solutions to our clients, not only it helps the client, but also helps us on more margins.
Sure. Just a second question. On U.S. last year, we completed almost -- you just correct me if I'm wrong 8,000 tonne type of capacity. In current year FY '23, how much capacity we have added over there? And what is the outlook, can you give on the U.S. side? And second thing, any -- on the sourcing of green coffee apart from Vietnam, and India, Africa is the market where we are looking at outsourcing of raw materials.
Yes. So 2 questions. First thing is, I think that the U.S. numbers are not correct. We -- I don't think so we said 8,000 tonnes. It was close to 4,000 to 5,000 tonnes. And that's the volume we are doing in the U.S. market. We are looking to acquire more clients. So as and when we get a certain growth here, we'll keep you informed. But that's the level, it's almost 10% to 12% of 10% to 15% of our business comes from this market.
The second question you asked about coffee sourcing from Africa. We already do a lot of coffee sourcing from some of the African countries like Uganda and all. And we -- as we have told you, we operate on 2 things, where do we get the coffee at the best price. And second is, it depends on the client needs. If the client needs a certain type of coffee to be sourced from a certain origin, we continue to do that. So for us, there is no binding or no listing that we have to source from here or there. And we do source from African markets as well.
Sir, just connected to this, like any -- when we are diversifying the sourcing mix, any realization benefit we get compared to Vietnam and Africa.
No, not really. Not really. So if the realization benefit, you can't say it really depends on the -- at that moment when we are doing or finalizing the deal, which -- where, there is the place where we are getting the coffee from. It also depends -- this is a complex thing. It also depends on the blend, what kind of blend the client wants. So if a client wants a certain blend and I know that I can only give this blend from a certain type of coffee, very difficult to kind of go and source from somewhere else.
So it's a complex situation, which 2, 3 things determine where do we source from. One is blend of course. The second is, okay, if the blend, we have a provision wherein A type of coffee can be replaced by B type of coffee, then we say, okay, which is the best pricing that we are getting from which source is the best pricing.
So all of these factors come into play. It's a complex thing and that is where we develop our competitive edge from others. And that's how we'll keep on operating in the future as well.
Our next question is from the line of Himanshu Nayyar from Systematix.
Congratulations on a good set of numbers. So firstly, just from this quarter perspective, we see significant divergence in performance in the stand-alone business and consol. So India and Vietnam seem to be going in very different path especially on the margin front. And even on the growth front, the growth in stand-alone looks much higher. So are both these things just on account of base effect as base in India was lower on the revenue side, same time last quarter and similarly on the margins? Or is there anything more relevant to that?
Himanshu. 3, 4 things here. Vietnam, of course, [ thing ] got commissioned in March, so we had some volumes of that month to give us that better growth, Base effect a little bit is there. If you remember last year -- last to last year, last quarter, there were certain Freeze Dried volumes, which got a little delayed. That's when Russia-Ukraine war had started. So that was -- that was supposed to be next quarter, so a little bit of base effect in that.
The third thing is that we have been speaking about this because of higher demand and our constraints in supplying or producing coffee, we had outsourced coffee also. So that also added to our volumes in the last quarter. So all of them put together has given us growth. So therefore, you will see good growth here in stand-alone as well as in pair.
And on the margin front also, if you can explain the significant divergence as in margins are down sharply in its stand-alone and up sharply in Vietnam.
Yes. So outsourcing debt to reduce margin in stand-alone. And Vietnam, of course, there won't be much of increase per se. There could be certain things which would have worked in our favor in terms of the capacity -- last month's capacity getting added that would have led to better economies of scale and therefore better margins there. So these are the factors which worked in our favor and not in our favor in stand-alone.
Got it. Second bit also on the India business, if you can just give us some updates on the profitability of that business, whether we are we are starting to make money out there? And any update if you can share on our new ventures that we were looking at, I mean, entry into food, the coffee vending machine business or any other updates you would want to share non-coffee apart from coffee, whatever we were doing.
Yes, quickly. So here, as I was telling a few moments ago, the India business, we did around INR 250 crores. Out of this, the branded business was INR 150 crores to INR 160 crores, yes. And this is approximately 25% growth over last year, and we continue to kind of put our bets onto the branded business and look to grow at [ 13% ] to 25% in the next 2, 3 years at a CAGR level. So that's the expectation.
When it comes to entering into new categories, we already are expanding [indiscernible] Greenbird. The sales are right now slow because of the fact that it's a new category. People are yet learning about the category and the concept. But the good thing is there are some certain pockets where we are getting nice responses, repeat purchases and all. So from a 3 cities, we have now already expanded to 6, and we're looking to expand into another 3, 4 cities very soon.
As far as some of the other categories right now, we are focusing on coffee and the Greenbird. Yes, in the back end, we are working, evaluating the categories we are trying to find out, are there some gap areas or spaces for us to enter. So all that work is happening in the background. I can't share them right now. But at an opportune time, we'll let you know that if there is any plan for us to enter into these categories.
Vending -- coffee vending business. Yes, we are looking to be aggressive. We are always getting new clients into our fold. There are many clients for now. We are installing machines on a pan-India basis, and these are large clients. There are some tech clients where we are installing almost 500 machines for 1 -- for the same company across their offices in India. So that will be a foray we will be aggressively pursuing on. So that's a little update on the various things that you had asked for.
On the profitability, if you can just comment, on the profitability.
So as we had told earlier that since last year, on an MIS basis, we have been breaking even -- and the reason I say MIS because earlier we were working on a transfer pricing basis. And that's the reason we are looking to demerge the company to the parent company so that we have more resources to expand the business. But if you were to look at MIS business last year itself, we had made a certain level of profit. This year, we have made profits. And going forward, we will keep on making profits. But the thing is that we are not looking to drive a lot of profits -- profit generation from this business because it's a branded business, and we do feel that another 5 to 10 years, we need to keep on investing on this business and especially considering that we are looking to not just stay in coffee, but expand into other categories. So I'm not seeing a lot of money generation from this setup. But yes, there will be certain money generation that will keep happening year-on-year.
And final question on bookkeeping one. On the -- if you can just tell -- let us know on the current rate of interest. -- on the expanded debt that we'll be sort of paying post the recent hike in interest rates and the rate of depreciation, if you can just give us a run rate going forward?
The rate of interest towards the working capital, it has an effective rate of interest from [ 200% to 6% ]. And we know that the international pricing also has [indiscernible] increased so far and that's also earlier it was linked with LIBOR. It was [indiscernible] from almost around 3%, almost 7% in the [indiscernible], so as a whole, if you look at it around 6% effective tax interest rate as of now on the working capital. And the term loan, it is likely to be somewhere around 8%, you likely to work it out so that the capacity that we are likely to reduce.
And coming to this, you said 8% on the term loan.
Yes. And coming to the depreciation rates, this will be followed as per the company site in an effort to straight line whether our depreciation is [indiscernible] around 10%.
So the current quarter rate should surely increase from the INR 10 crores that we had this quarter, right, sir?
That's right. The quarter 1 where -- at non-coffee where we have completed the expansion include the depreciation will come into force from this Q1.
So any number you can let us know as to what should be the run rate now at least for the next few quarters for depreciation?
Depreciation is likely to increase almost around INR 7.5 crores per quarter.
INR 17.5 crores, you mean INR 10 crores plus INR 7.5 crores.
INR 7.5 crores per quarter.
Our next question is from the line of Devanshu Sampat from [ Avendus Wealth ].
I just had 3 questions. Sorry, 1 second. So your comment on the clients dropping off, right, on a regular basis, 30%, 40% seems to be a fairly higher number especially for the business where I would presume the clients to be sticky. So is this churn mainly from the -- those -- the bulk or the middleman that we were trying to sort of cut out from? Or can you throw a bit more color on this?
Can you just repeat, I didn't get your. You're asking about 30%, 40% churn of the clients?
Regular clients are around 50%, 60% that we keep getting a business from and the balance, other people who keep dropping off, so this would constitute what set of clients? Are these the unbranded bulks or the middlemen that we were sort of...
Yes, let me just kind of rephrase it. So when we say 40%, so 40% is it's like new clients coming in. There are certain dropping in. And sometimes with the old clients itself from where we get probably 60% of the business, we may get orders for new variants or a new product, somebody who's buying Freeze Dried, could end up buying Spray Dried and things like that. So that is the thing. And I don't think it's a pretty high number because if you see the business, probably this is the kind of churn you will have with the new set of people coming in and the old set of people going out.
Now generally speaking, the clients who are the brand owners, generally are very sticky with us because they are serving to their consumers. They don't want to take a risk. It's the people who are traders or middlemen who are buying very base product of coffee, very run-of-the-mill stuff, who are looking for price advantages and looking for cheaper coffee. These are the people who kind of keep adding in and dropping in. And we do have a certain amount of business which keeps coming from them as well.
So of course, these are the people wherever they get a price advantage, they kind of keep coming and going. And that's the reason I said that it's like a leaking bucket. And most of these people, as you rightly pointed, are like traders and are like middlemen who are just looking for deals. So these people are the people who drop off.
Got it. Got it.
And they also keep coming back. It's not that they find that when they're getting lucrative pricing from us, they'll keep coming back and going off. So that's 20% of our business is like that, and they keep -- it keeps happening all the time.
Okay. That's around 20% of the business. Okay. And you mentioned this 5% to 10% share of value addition that we are doing right now. So can you give a sense on how you see this number going up over 2-, 3-year period, especially with the discussions you have with the clients right now? Any sense you can give us.
So yes, there are -- in our previous call, we had mentioned that we are commissioning a pilot plant, which is a small plant, which can do small quantities. Generally, until now, we haven't been able to do specialty coffee because of the fact that the MOQs were large and a lot of clients would look for smaller quantities.
So with this pilot plant in place, we also participated in some of the specialty coffee fairs in the U.S., and there has been a lot of positive response. So we are looking to kind of increase this premium and the specialized coffee segment for us. Now this pilot plant or the mini plant will help us further strengthen our play into this area. So there are talks going on. We have submitted samples with a lot of clients who are looking for such kind of coffee as and when they keep materializing, we'll keep informing you.
So we'll -- if and when we do get business from this, will it require us to set up additional capacity or we can service...
No, no, no, no, no. Generally, when you -- I mean, the specialty clients, coffee-seeking clients, they generally need coffee because it's a premium product. It's a specialty product, and it's a niche category. So they need in small quantities for which we have made a pilot or a mini plant, which has got -- we have now got the capability to make coffee from this mini plant.
Okay. Got it. Got it. And just my last question. So just to get a sense over here. What's the key reason that deals don't go through when you are talking to clients right now. Again, I'm asking on perspective that given us scale or cost advantages and the variety we offer, so what are the key issue points that come up usually? Is it payment terms? Is it cost-related things, the sourcing policies of the company? If you can throw some color.
Many reasons, all of them -- all of them, there are certain clients. So one of the biggest reasons the deals haven't gone through for us has been our inability to supply. The capacity constraint has been one of the big reasons why some deals haven't gone through. For example, we are Freeze Dried, we are full until next 1.5 years. So any new inquiry that comes, we have to say no to it. That's one of the reasons.
The other reason is, yes, as you rightly pointed out, price is one of the reasons where deals may not go through. Generally, these two are the primary reasons, payment terms and conditions rarely are reasons because we are exporting and we would do it on an advanced basis. And those clients also know and we also accept this fact.
These are primary two reasons. I don't see any third reason because as far as our capabilities are concerned, most of the times, we are always sure and we have done this also that there is no issue with making a blend of their choice or packing it in the manner that they want to. So all that capability is 100% of there with us. Most of the times, these are the two reasons widely we'll go through -- large reasons.
So what you're saying is this FD -- if FD is the key reason and they're getting a lot of inquires over here. Is that the capacity that we can get it outsourced? Or that is mainly Spray Dried that we outsource?
We can, but once you outsource the margins get contracted. So that's the reason we are building a new Freeze Dried capacity in Vietnam, which would be up and running by quarter 2, quarter 3 next year and that will help us kind of augment our -- the demand that has been there in the market.
Mr. Devanshu, may we request that you return to the question queue for follow-up questions. Our next question is from the line of Rushabh Doshi from Nirmiti Investment Advisors LLP.
Congrats on a great set of number. So I just have a broad question like , I guess the instant coffee market is around $14 billion...
Sorry to interrupt. Mr. Rushabh, may we request you to use the handset.
I just had a broad question like, I guess the instant coffee market is around $14 billion. So I just wanted to understand what is the value addition percentage for companies like us which are under processing stage. Let's say, the difference between instant coffee retail price and the price at which beans are procured is [ 100 ]. So how much percentage would our value addition be in the total supply chain?
Okay. So very broadly [indiscernible] when you procure green coffee, so after procurement of green coffee, there are large 2 costs or let's say 3 costs to it. So one is the conversion cost. Out of a kg of bean, you will get, let's say, a 400-gram or 375-gram or 425, depending on the kind of bean you are using and the blend that you're going to make. So that is the output. So generally, on that green, you get this 40% to 45% kind of yield.
And then you add to it the processing cost of it, you're making the whole process -- the bean go through the whole process to come to an instant coffee, add packaging cost to it and then logistics cost to it. So after that addition, then you sell it to the brand owners who probably have -- depending on what kind of brand they are selling, they are -- they have the ability to -- or the strength of the brand, they will price it maybe anywhere between 20%, 30%, 40%, 50%, 60%, 70%, maybe sometimes 100% higher than what they buy at. So that's the broad value chain that I can explain to you in terms of how the pricing value chain works in a coffee market.
Okay. And for the domestic market, like how large would the instant coffee market be? And what would our market's revenue for the branded business?
If you take the whole of India, the instant coffee market is around INR 2,500 crores. So we are doing around INR 150 crores, INR 160 crores. So that is our market share, around 5% or so is our market share.
Our next question is from the line of Amar Maurya from AlfAccurate Advisors.
Just wanted to understand how should we see the interest rate going forward, like this INR 11 crore run rate which is going on, should it increase further from here on?
Gentlemen, if you look at the global markets, it's keep on changing. Nobody could be able to predict how it is going to be. Yes, we are all seeing every month, that is active and everyone is following it up. So we really cannot comment upon that where it is -- how the interest rates are moving.
But then this INR 11 crore in near term, do you see it's going to increase or decrease?
That's what I told you, it all depends on the financial markets are going to reflect upon from time to time.
So -- okay. So I understood that. But I think at the current scenario, let's say, if everything remains at the stable level, is that a scope from here on to increase? Or is it going to remain stable?
If the rates are going to be unchanged and the [indiscernible] volume, absolute volume will remain same.
Okay. Okay. And tax rate for next year would be something around 12%, right?
Yes.
Our next question is from the line of Naitik Mutha from Mahansaria Family Office.
Congratulations on a great set of numbers. I just wanted to understand your strategy with respect to the domestic branded business. So I don't see a lot of INR 1, INR 2 or INR 10 sachets in terms of coffee so nearby. So -- and my observation is limited to Western India. So I just wanted to ask, do you actively choose not to do this? Or we are doing it and I've not seen it yet, so.
Yes. So just to give you a little perspective, if you see the Indian coffee market, almost 70% of the market lies in South India, yes? One zone almost contribute to 70% of the business. The rest 30% comes from all these zones put together, yes. And these zones are pretty light consumers of coffee because these are tea-drinking consumers and coffee is not a regular consumption drink, but off and on consumption drink.
So what we did is when -- 4 or 5 years ago when we were starting our foray into the B2C segment, we concentrated on South of India because that's where the volume comes from. And we created a distribution set up there.
Now that we have got a foothold in the market, and we are seeing that we have got a reasonable market share and there is a traction in the market, we are now expanding to other cities. But other city expansion is a challenge in itself because placement itself is a challenge because you need to reach to these many outlets which are huge in number. And we probably will not have the resource to reach to so many outlets on our own. So the strategy is to go to the cream layer of outlets, which is to first go to the cream layer of cities and towns. And in these cities and towns, go to the cream layer of outlets. And that is how we are going to build the distribution.
Again, we are not able -- we will not be able to spend a lot of resource in mass media advertising in Northeast and West because it sucks away a lot of money. So we'll do a very focused social media advertising and very -- a lot of the brand sales that we are intending to do is from D2C platforms like our own site, Amazon, Flipkart and Big Basket, et cetera. So that's the kind of strategy we are looking to put in place for the rest of the India market.
For South market, we continue to build our distribution. Today, we are in around 1 lakh or let's say, in South India, we are at 70,000, 80,000 outlets. We are looking to add another 20,000, 30,000 this year, and that's how we are looking to grow the market in South of India. So that's a broad level of strategy that we'll put in place in the coming years.
Right. Right. So that's very helpful. So just wanted to ask, we don't do such small sachet size even in south India for that matter? Or do we do it?
Yes. So we are looking to expand the business. What happens when a new brand comes into the market, you generally start from the top. So you're mostly present in the top outlet, the cream layer of outlets, where you sell large packs, bottle packs and things like that. But now that we are expanding distribution, we are -- we'll be expanding it to smaller outlets. And therefore, our plain sachets, and small pack, INR 10 pack, INR 5 pack, INR 2 pack, we will increase our play there. And we also look to wholesale to drive our distribution in these small packs because a lot of the small packs go through wholesale and indirect distribution. So all that work we are intending to do in the coming months and years.
Right. Right. That's very helpful. My next question is on the global industry. So if you could just lay out what is the size of the global industry for the instant coffee market, where we stand currently? And what is our aspiration for 3 years and 5 years down the line?
So the global market, it's triangulation of data because there's no one set of data, which gives you the exact picture. But our understanding is the global market, instant coffee is almost 9 lakh metric tonnes, yes, out of which approximately 50%, 60% will be -- 50% or so will be by brand owners who have their own captive capacity to feed into. And the rest, 50% or so will be left with the B2B players. So our addressable market is somewhere close to 4 lakh, 4.5 lakh metric tonnes. And that is where we stand. If you were to calculate the market share for us, it's close to 7%, 8%, maybe a percentage here or there. So that's the broad perspective I can give you on the global market and our standing in the global market.
Right. Any strategy? Or how do we look at this in 3 years, 5 years down the line? So how do you look at ourselves in the global market as a sizable player? Or how do we think about it?
Yes. So last year, when we had put a vision for ourselves and we had put a vision number also, we have said that in 4 years, we are looking to double our volumes and the resultant coffee prices will determine what will be our value growth.
So we are -- we stuck to that -- we are sticking to that projection that we'll continue to drive CAGR of approximately 18% to 20% volume growth in the 4 years. One year has already passed and the next 3 years, this will happen. And if you were to grow at this rate and considering that the world coffee market is growing at single digit -- in fact, low single digit, we probably will be crossing 10% addressable market share globally in the next 3, 4 years. So that's where we have set our goals and targets on.
Due to time constraint, that was the last question of our question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for joining us. And thank you, Nirmal Bang for arranging this call. We look forward to meet you again in the next quarter. Thank you.
Thank you. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.