CCL Products India Ltd

NSE:CCL

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Conference Call of CCL Products (India), hosted by Antique Stock Broking Limited.

[Operator Instructions].

Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking Limited. Thank you, and over to you, sir.

Thank you. On behalf of Antique Stock Broking, a warm welcome to all the participants on the 3Q FY '25 earnings call of CCL Products.

From the management, we have Mr. Challa Srishant, Managing Director; Mr. B. Mohan Krishna, Executive Director; Mr. Praveen Jaipuriar, CEO; Mr. V. Lakshmi Narayana, CFO; and Ms. S.V. Dasari, Company Secretary on the call.

Without further ado, I would like to hand over the call to Mr. Jaipuriar for opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, Mr. Jaipuriar.

Yes. Thank you, Manish. I welcome you all to the earnings call for the October-December quarter. The supply chain headwinds continue to pose challenges on the business front. You all know green coffee prices have remained volatile and have been rising.

Despite the challenging environment, CCL Group has been able to perform well, achieving a turnover of INR 758.4 crores for the third quarter as compared to INR 664.48 crores for the corresponding quarter of the previous year, thereby registering a 14.1% growth.

The EBITDA stands at INR 127.22 crores, registering a 13.5% increase with respect to corresponding quarter. And the profit before tax is INR 71.8 crores, registering a 7.7% growth with respect to corresponding quarter.

The net profit after tax remains flat at INR 63 crores as against INR 63.2 crores for the corresponding quarter of the previous year, largely owing to our sales operation, 50% of the profit of which now comes under tax bracket and higher deferred tax.

As far as the YTD figures are concerned, the group has achieved a turnover of INR 2,269.9 crores as compared to INR 1926.98 crores for the corresponding 9-month period for the previous year, registering a growth of 17.8%. The EBITDA is at INR 396.46 crores, registering a 20.3% increase with respect to the corresponding 9-month period.

And profit before tax is INR 246.37 crores, registering a 19.7% increase with respect to the corresponding 9-month period. The net profit after tax stands at INR 208.47 crores as against INR 184.85 crores for the corresponding 9-month period for the previous year, thereby registering a 12.7% growth over last year.

The domestic business performance continues to be robust and has achieved a gross turnover of INR 330 crores till now YTD out of which the brand contribution is nearly INR 220 crores.

For the quarter, the domestic business did a business of INR 130 crores, out of which the brand was approximately INR 90 crores. So, this was in brief the performance review. I now open the floor for questions.

[Operator Instructions].

The first question comes from the line of [Indiscernible] from Venture Growth Partners LLP.

I wanted to ask one thing, we see that the coffee is in single digits for the future. So where do we see as a company in 5 to 6 years down the line for both B2C and B2B segments?

Can you just repeat, there's a lot of background noise that is coming. You are not really very clear. You're audible but there is some background noise. I don't know where this is coming from.

I was saying, because coffee growth is in single digits in India and across the globe. So how do we see as a company in 5 to 6 years down the line, where do we stand for both the B2B and B2C segment?

Okay. So let me just tell you while the coffee growth has been low single digit, what if you see our strategy, which has been both for B2B and B2C, our market shares are really low single digits, yes.

For B2B, we probably globally are at 7% to 8% market share. And in the domestic market, the B2C is 3% to 4% market share, all India, which means that we have very good ample room for growth by taking market share. So we, as of now, are really not bothered about whether the segment growing or not.

Having said so, in the next 4, or 5 years, we'll be aggressively driving market share growth, which will mean that we will attain a much larger growth than what the category is growing at. So, that's for the next 4, or 5 years.

And even beyond that, we have a belief that economies like China and India, which have been largely tea-drinking economies are now converting to coffee and we know that these are the 2 economies, not just for coffee, but for many other segments will be driving the growth for the next couple of decades.

So, we are seeing that even the coffee growth will be driven by these 2 economies, and that's the time we'll probably write the category growth once we have attained sizeable market shares in both segments.

I also wanted to ask because in the B2B segment, we have a cost-plus pricing model, so we do not have so much volatility of coffee prices. But in the B2C segment, can we have very good margins, I mean, more than what we have usually because the coffee prices are growing?

Yes, yes. So absolutely, that's the whole idea in the long run that the B2C should help us earn more margins. Of course, these coffee prices, if you see, if you track for the last 2, 3 decades, there are cycles when the coffee prices go up, but definitely, they also come down.

In B2C also, we do take price increases, although with a lag effect, not like B2B wherein kind of you can do it immediately, but we do have an option of taking price increases there as well.

But having said so, we are confident that over a long period of time, definitely, the B2C segment, the branded segment will help us gain more margins than the B2B setup.

[Operator Instructions]

The next question comes from the line of Abneesh Roy from Nuvama.

My first question is on the B2C comment that you made. So I wanted to understand how much a price hike has happened. And how much more is needed? We do understand you are a marginal player there. So ultimately, the top 2 national players have to take a hike. If you could comment on how much inflation is still left yet to be covered?

So yes, Abneesh, you're right. We probably are not the leaders. And therefore, as a pricing policy, we tend to follow the increases that the leaders are taking. And that too, you know the category because a large part of the category also comes from LUPs, which means that the price increase is a little difficult there, especially in the sachet segment and all.

Having said so, in the larger packs, we already have taken almost 30% to 40% price increases in the last 1, 1.5 years. And I think another 10% to 15% lag is still left, but we will wait and watch for the leaders that how they take this forward. Accordingly, we will formulate our price increase strategy.

Two follow-ups there. One is, till when the new crop we'll have to wait and so then we can expect deflation.

Second is, for you, how much is the sachet? And have you taken any grammage cuts there? I do understand grammage cut is very difficult because overall experience for the customer gets impacted. But if you could tell us any grammage cuts you have taken? And how much is the percentage of the total mix in the LUPs?

Okay. So let me take the first question first, which is like when is the crop expected? So at least in India, the crop has started pouring in. But this year, we don't see that the prices will drop because Indian coffee prices will also follow global trends.

Globally, even after the Vietnam crop has started to pour in and has started to come, we haven't seen any price reduction this time. So probably, we'll have to wait for other crops to come in, which is the Brazilian crop in May, or June. That's the time we will see how the trend goes. But as of now, the prices are not softening. Now that's the answer to the first question.

The second question is as far as LUPs are concerned, almost today, 30% to 35% of our sales come from LUPs, which is still reasonable considering that some of the leaders, their sales are almost 50% to 60% of their sales are LUPs.

There have been grammages cut over a period of time, not very much because there is a certain cup of coffee that you have to deliver with one LUP. So we don't have a lot of leeway to cut grammages. But yes, there has been a 10% to 15% grammage cut that has happened in LUPs in the last 1, 1.5 years.

The next question comes from the line of Parth Agrawal from Bastion Research.

Can you help me with the volume growth for the quarter on a Y-o-Y basis?

So volume growth, if you see this quarter has been marginal around 3% to 4% or so. And YTD, if you see the first quarter, we were around 13%, 14%. The second quarter was around 9%, 10%. So we have, on a YTD basis, close to 10% of volume growth. Yes.

Secondly, sir, if I look at your margin sequential basis compared to Q2 FY '25, gross margins have been pretty stable or rather have increased. But when it comes to EBITDA margin, they have slightly declined. So any reason for that? Is it because you ramped up the new facility or is there some other reason?

So if you see the stand-alone figures, there has been a little bit of a decline from quarter 2, but probably a good increase from last year.

Now the decline from quarter 2 is because of some of the variations that have happened. We also have started the new factory wherein some products were made for intercompany transfers and all that. So, that led to a little bit of a strain there, but these are not substantial in nature.

As far as the margins are concerned, in fact, if you were to look at a broader level, there has been improvement in margin in spite of the volume growth being closer to 10% on a YTD basis, you'll see the EBITDA growth has been largely 20%.

Also, margins are really -- when we tell people, we tell the margin should be looked at from a volume perspective, not at a value perspective because of our cost-plus model, whenever the green prices of coffee are increasing, the margins optically will look that they are coming down. But actually, they are not. On a per kg basis, in fact, we have improved our margins.

And sir, is that the new facility went right now? I think it was expected by December.

Which facility you're talking about?

The 7,000 metric tons that was expected in [indiscernible].

[indiscernible] capacity, this quarter, we will commission that capacity. There are some adjustments and balancing and stabilization that needs to be done. So instead of December, probably this quarter, we will be stabilizing that and starting the operations.

The next question comes from the line of Chaitanya Sharma from Tradewalk Research LLP.

My question is, how will rising prices impact the demand of robusta coffee and chicory blends in India, especially if you see it in the HoReCa sector and among consumers? And if you could also shed some light on what's your sales percentage in North India as compared to South India and which are your dominating markets?

Okay. So the price increase actually affects all of the segments because the coffee component is pretty large, even if there is a chicory mix there.

In the institutional and the HoReCa segment, they are a little more aggressive because none of the buyers would like to increase their end costs to the customer or the consumer.

So, pressures are there on the pricing front. Nobody likes higher prices. But having said so, it's been a challenge, and this is a challenge for any category, if you see when the commodity prices rise, taking up price increases do pose a challenge, but one has to live with it.

We are also very carefully calibrating our price increases, making sure that we strike the right balance between generating enough volumes and not losing volumes because of prices. But yes, pressures are always there when prices are higher.

Coming to your next question, which is about how is our B2C divided in terms of zones and all that. So, as of now, almost 65% to 70% of our sales still come from the South, but that's how the category is also constructed.

Probably we are a little ahead of the category by 5% to 10% when it comes to contributions, but that is because in the initial 4, or 5 years, we were very focused in the 7 markets. We are very keen to make sure that we are able to have a strong foothold here and then spread our wings.

As we say so, our contribution from the other markets, which is beyond South has been now constantly increasing. Just to give you a picture, 2 years ago, our contribution used to be 85% from the South, which is now at 70%, which means that the other zones are also growing.

We are also expanding distribution. Selectively, we don't want to be all over the place. But yes, selectively in other zones also. We are very fast picking on spaces like quick commerce and e-commerce, which we feel is a very efficient delivery and distribution model in non-South markets where we may not have a very expansive distribution.

Sir, just one more follow-up question, if I can ask. So what's the kind of trend you are seeing in the experimental coffee that you have, be that flavored coffee or decaf coffee, what kind of trends are you seeing there?

So we are seeing quite exciting trends. Generally, if you see in any food category, a lot of these trends get built up outside of the home. And what is happening is that you can see the amount of cafes that are coming around all of us. And these are serving a lot of experiential and experimental coffees. And that's how when people get used to these kinds of coffees, then they start consuming at home also.

We have seen a fair bit of pickup in segments like flavored coffee and some of the higher-end coffees, even in home. And that's the trend we are observing. And these are good trends because for any food category to expand, you need a lot of experimental trends to emerge so that a lot more usage of the category can be driven.

So yes, that's our view. I think it will grow further from here.

And does it in some way also act as an entry product for people to get into the coffee-consuming category?

Absolutely because people who are, let's say, if you talk about people who are largely tea drinkers, for them to enter a regular coffee category may be a little difficult because they are not used to the pet.

But if you were to serve them flavored coffee or some more different coffee, probably those become a lot more apple and more palatable for them to drink. So I think, yes, these do help in expanding the category and getting more people inside the category.

The next question comes from the line of Prolin Nandu from Edelweiss Public Alternatives.

A couple of questions from my side. First is, while you talked about you have a very low market share in global as well as in domestic market and you want to increase your focus on gaining market share. But what has been your historical experience as to when do you gain market share?

Do you gain market share in a rising coffee environment market where there is a temptation to always down trade, right? Or do you gain more market share in a stable to a declining coffee price trend kind of a market?

So can you give some color as to whether is this the right time where what we have seen is that new crops coming in is also not leading to the coffee price decline? So is this the right time to probably gain market share?

Also, what are the efforts that you're going to do differently versus what we have done in the past to gain this market share?

So, yes, I think a pretty relevant question. Let me tell you that we haven't experienced market share gains either in a rising price scenario or in a falling price scenario.

If you see our efforts for the last 30 years, most of our market share gains have come because of the innovation that we probably bring to the table. If you remember, in 2006, we put up our freeze-dried plant, which was first in India.

At that time, we had envisaged that as a category, freeze-dried would do well, and we kind of entered that category, helping our customers to launch those products in their relevant market.

Similarly, many other products like fresh coffee-infused soluble coffee or whether it is specialty coffee or a different blend. So I would say a lot of our market share gains have been because of the innovation because mostly, we look forward to partnering with our clients and helping them grow in their respective markets, and it's just not a transactional relationship. So, that has been our strategy to gain market share.

Now, coming to the question that what are we going to do more to gain more market share from here. It's like this that we are trying to do a matrix of growth wherein we are also looking at some of the geographies where we have not been very strong in geographies like South America or, let's say, far East Asia.

These are some of the geographies we are now wanting to enter with a different strategy altogether. So that's something that we will focus on. We're also focusing on a lot of product innovations in the current setup.

We are looking to heighten our game in specialty coffee segments. We are seeing these trends coming up in the market. So, as I told you earlier that we are very focused on making sure that how do we come up with new innovations helping us to grow our market share.

So that will be the strategy going forward, we'll continue with our strategy because rising prices and falling prices are something that are not in our hand. Therefore, we don't see much of an advantage because sometimes you may probably play a rate game, but that doesn't serve you well in the long run. So that's how we'll keep growing.

The second question would be on your domestic B2C branded business, where, correct me if I'm wrong, you had a target of, let's say, INR 300 crores in B2C and then INR 100 crores in, so total INR 400 crores.

So can you help us understand where are we on our targets? And again, what are the kind of market share gains that we are witnessing, some qualitative color on how you are doing in offline and online. So just wanted to understand your branded B2C and B2B India piece.

Yes. So in India piece, it continues to grow at a very healthy pace of around 40%, out of which B2C is growing at 50%. You are right, we had guided that this year, we will end the total domestic business of about INR 400 crores , we are likely to be there INR 430 crores, INR 440 crores, out of which the B2C will be INR 300 crores.

So we are well on track to achieve that. 9 months, we already have done the B2C at INR 220 crores. So, that is pretty much there. So we are growing well, and we are growing all across. We are gaining market shares in every quarter. And like I was telling earlier in South, now going forward, our strategy will be to penetrate the market.

Our share among handlers are almost twice as much or twice as much as my market share, so which tells us that distribution expansion will be the key to growth in the southern markets.

In the Northeast and West, we are looking to do selective distribution. Coffee anyway as of now is very urban phenomenon and concentrated in large towns. So we have already set up our distribution network there, and we are fast expanding there. And we are looking forward to driving a lot of quick commerce and e-commerce sales in these regions.

Today, we are doing very well on most of the quick commerce, a much stronger #3 player than what we are in general trade. So that's a very, very encouraging sign.

In all the modern trade, we are very, very good on our shares and much, much above than our national average. So again, these things we have been doing really well. Recently, Reliance came up to award us and reward us with one of the best-growing categories in their whole FMCG portfolio.

So, these are signs and signals that we are achieving the brand is seeing these days, which is a very remarkable journey for us as far as the branded business is concerned. So, we'll keep growing at the same momentum and try and push as much as possible and as much as we can.

The next question comes from the line of Shirish Pardeshi from Motilal Oswal.

Just 2 quick questions. In the international B2B and domestic B2B, what kind of conversation is happening at this point of time? I'm asking this question primarily because coffee prices still remain elevated for some time. So, in terms of demand, in terms of offtake, in terms of their visibility on the ordering, maybe if you can add some color on this.

Hi, Shirish. The conversation still remains very anxious. Nobody wants to commit long-term. But we had told this last time as well that we are also keeping a very close eye on the ground at what is happening. And we did predict last time that things are not looking to soften up much. And that's the narrative we are discussing with our clients.

We are telling them that it is better for each one of them to commit to a long-term contract because things are not looking to kind of erratically or suddenly come down. So that's the reason if you see some of our client portfolios and our mix have been towards the long term.

So that's the kind of conversation we are trying to drive with the clients. But still, the market still remains shortsighted as of now. People are still a little wary of committing long term, especially the transactional clients because these are probably traders and all that who are doing business very opportunistically.

So these people are always on a wait-and-watch mode. And therefore, our narrative has been with the long-term players, the brand owners, the private label guys with whom we are also giving them guidance that looks like in the short run, it's not going to kind of soften. So therefore, trying to get into more long-term contracts.

So that's been a narrative from our side. But having said so, the overall environment still remains shortsighted and full of anxiety.

My second question is, in terms of domestic INR 330 crores or INR 220 crores what you have done? Specifically, if you can share what is the channel mix in terms of quick commerce, retail, general trade, and modern trade? And what are the growth rates you would have achieved probably in 9 months?

So in 9 months, Shirish, we are almost 40-plus growth at the overall level, out of which the brand piece is growing at 50%. So if you remember, last year, we had done INR 200 crores. And this year, we have given the guidance and which we are well on track to achieve INR 300 crores on just the branded side.

So, that means that we would have achieved a 50% growth. As far as the mix is concerned, almost 50% to 60% of our sales still come from the general and the regular trade. We are getting a very good this thing from quick commerce and e-commerce, which is now almost 20%, 25% is from modern trade.

So that's been the mix for us. As we expand more and more in the Northeast and West, I have a feeling that our contribution of modern trade and quick commerce and e-commerce will probably increase from here.

And growth rates and maybe follow-up here, what is the distribution as of December you are holding?

So growth I told you, we're growing at 50%. As far as the distribution is concerned, we currently --

Channel-wise.

So channel-wise, I don't have the ready numbers right now. I'll share it separately on the channel-wise growth. But just to give you a flavor, my growth rates in quick commerce will be the best, followed by modern trade and followed by general trade. That is because general trade bases are high.

We are already a little more entrenched in the South markets. In the Northeast and West, we are probably driving modern trade and e-commerce and quick commerce much more aggressively than the general trade. So that the growth rates in general trade and general trade would be lower than e-commerce and quick commerce and modern trade. So that's on the growth front.

The next one you asked was about --

Distribution.

Distribution, yes. So we are probably now at around 120,000 direct distributed outlets which is general trade and we are around 3,500 outlets. So we are covered in modern trade. So that's our total distribution.

And of course, in quick commerce, we are present in the 90% of their dark stores. So that's pretty good in terms of our distribution because obviously, that's an easier distribution metric to achieve. But that's the figure on the distribution front.

The next question comes from the line of Nataraj Shankar from DSP Mutual Funds.

Just a couple of questions. I just wanted to ask with respect to working capital and the conversations around working capital with your B2B business.

Has it improved given the fact that the working capital remains very high on behalf of clients? Are they willing to change the terms a little bit given the circumstances of coffee prices? And that's one. And two, can I have a debt number at the end of December?

So working capital, yes, it remains high, it's almost INR 1,200 crores as we speak. It remains high because of the high coffee prices. Now as far as terms and conditions are concerned, I don't think so.

Probably anyone is in the position to pass on these because at high prices, there is pressure on each point in the value chain. So, there's pressure on consumer who is the end consumer of coffee to the brands, to the suppliers, to the packers, to the manufacturers. So there is pressure all around.

It's not easy to pass on everything because then you become really noncompetitive in the market. And that's one of the reasons we have not been so aggressive on the volumes is because while we are able to pass on something, the market is probably not ready to take on everything that we want to pass on.

So things haven't changed because the pricing pressures are there all across. It's just not us who is facing these pricing pressures. We just spoke in the B2C segment, how difficult it is to increase prices because consumers then start dropping off the category.

So I think there's a balance that has to be maintained, which is what we are trying to do. And I told you the debt numbers, INR 1,200 crores of working capital, long-term debt is around INR 790 crores to INR 800 crores as of now. Total is around INR 2,000 crores of debt.

And what are the guardrails here let's say if this remains elevated for the next year, what kind of guardrails you would have to ensure that the balance sheet doesn't go beyond a certain point or cash flows doesn't impact while you continue to grow, not taking an eye on that?

So we are working on a lot of things. We are working to see that how can we kind of keep the interest rates as low as possible. If you see our interest rate for the global for the group is almost 5.25%, which is much lower than what the environment is offering you. We are making sure that we finance.

We have operations in India, Switzerland, and Vietnam which means that we are also trying to juggle in a way so that our financing rates remain as low as possible. So these are the things we are doing. And it's like an everyday exercise for us to see how can we keep this in control.

As far as managing it, as I told you, we are also trying to do 2 things. One is that on the procurement front, I told you that we have been kind of making sure that we have our presence at the ground so that we could procure at the most efficient rates and so that the working capital requirements are in check.

Secondly, also as I told you, we are making sure that we are doubling the requirement in such a way that our outflow or the percentage financing cost remains as low as possible. So these are the things we are doing to keep a check on the balance sheet.

And we should hopefully be on track because even this year, we had guided a higher interest outflow but we probably will end up maybe INR 5 crores to INR 10 crores lower than what we had guided.

And how does the rupee depreciation positive [indiscernible]?

We import and export in dollars. So for 60% to 70% of our value, it doesn't impact much. For 30%, yes, there are certain advantages we get at certain times. But yes, those are not substantial in nature, and therefore, we don't kind of bet on that to give us any advantage or disadvantage.

The next question comes from the line of Kashyap Javeri from Emkay Investment Managers.

Just one clarification. You mentioned that working capital at the end of this quarter was about INR 1,200 crores. And the gross debt was about INR 2,000 crores.

Right.

Does that mean that versus September and March last year, we have seen at least a decent about 10, 20 days improvement in working capital number?

From last year.

Even from September, if I look at, let's say, September '24 number, your working capital at the end of September '24 was roughly about INR 1,300-something crores, which now is about INR 1,200 crores. If I look at March, even in fact, March was almost about INR 1,200 crores, which is like a flattish number.

Yes. So it was mostly flat. I think INR 40 crores to INR 50 crores of variation was there, not much. I don't think so these are substantially strategic, there's nothing that has changed more because of a little bit of a variation from quarter to quarter.

Sometimes what happens is that when you are procuring coffee from far off source, logistics time and all that could tilt the numbers a little bit here and there, but there are no strategic shifts in the numbers between the quarters. That is what I see.

The next question comes from the line of Sumit Sarda from Compound Everyday Capital.

Just one question around the domestic branded business. The leader has indicated that they have taken price increases and plan to take more price rises. You also guided that you also taken 30%, and 40% price hikes in the last 1 year. But this is also a period when domestic incomes and demand are under pressure, maybe customers of maybe leader brands are most open to trying reasonably priced alternatives like us.

So how are we planning to play this, get aggressive, maintain or maybe increase the discount versus leaders and get aggressive on distribution to garner market share aggressively or stay focused on maintaining that spread versus --

Yes. So I think again, as I told in my previous comments is that we also will try and strike a balance. Now again, if you see the category construct, it's pretty complicated. So there is a category of single services that are there.

There are price increases you can't take price increases for INR 2 or INR 5 sachet. And maybe you can take a little bit of a grammage reduction, but not beyond a point and we are also growing our distribution is growing.

If you see the first leg of our distribution was probably the A outlets were more of large pack sales. Now once we are trying to increase the penetration to B and C, probably we'll have to be aggressive on some of these small packs where the price will be there.

Now coming to the rest of the category, which is the large bottles and the large pouches and the large packs and the rest of Indian market, there we will also take price increases because we also have to balance the margins.

One thing is good about the category as of now, let's say, it's good and bad. So the good part is that it's still in the rest of the country beyond South, it is still concentrated to the upper of the income class, which means that you have a better price elasticity there, whereas in some of the other categories where commodity prices when they go up, you fairly have a lot of price inelasticity.

So that's the thing that will help us balance it out. We are also looking to enter some of the premium segments. Probably this quarter, we will be entering into a couple of other higher-end segments, which will also help us maintain that balance between penetration and being aggressive and at the same time, maintain the margins.

Just if I can squeeze in one more. Can you share an update on your kiosks? I think you have started a few kiosks. Any new additions? How has been responded?

Not really. We had guided last time also that we have started kiosks, 3 kiosks in -- not kiosks. These are 3 quick service outlets by the name Quantico in Hyderabad.

We are still building it up. These are very initial days. Retail is a little -- it's not so easy to kind of scale it up very quickly because first, we want to be very sure of the proof of concept. So we're working on that. We are seeing how this thing grows.

As of now, we are not looking to add anything. As and when we have established a proof of concept, and that's the time we will see that how do we want to expand it and what is the model that we want to follow onto.

The next question comes from the line of Deepak from Sundaram Mutual Funds.

So, sir, I heard that this quarter, our Y-o-Y growth rate in volumes was 3%, right?

3% to 4%, yes.

I just want to understand in the past, several times we have guided that 15% on average is what we want to do around 3%. So where is the negative surprise coming from? Is it from the Indian operations? Or is it from the Vietnam operation? If you could please provide a split between volume growth between India and Vietnam's operation?

Okay. So I think I will not be able to provide you the exact split in terms of volumes because that's not what we share openly. However, I'll give you a color that, you asked about that we had given a guidance of 15% or so. Is this quarter 3%, 4%, is it an aberration? Or are we seeing a long-term trend here?

So, if you see while for last 3, 4 years, we have been guiding a 15% or so plus volume growth. At the start of the year, considering the volatility in the market, the high prices, we had indicated that this time, our guidance would be between 10% to 20%.

If you see the first 2 quarters, we were pretty much in line with our guidance. This quarter has been a little aberration and the aberration comes from the fact that at both places, India and Vietnam, there has been some growth reduction, not volume reduction, growth reduction.

That has come largely because as I was telling you, we have not been so aggressive in the 20% or 25% of our volume comes from transactional business, the opportunistic business, and the low-margin volume builder business. That's something that we probably could not be as aggressive at this point of time, considering the market scenario.

You all know that the world has a lot of excess capacity. And in these trying times, there will be people who will be probably racing to the bottom as far as rate is concerned. That's not what we want to do as philosophically, you know the company, we have always concentrated on long-term contracts, building long-term term, going to the end customers, building more value-based contracts which are margin plus for us.

And that's the reason even with 3%, and 4% volume growth, you'll see that the EBITDA growth are pretty much in line, with 13%, and 14%. So, that's the guidance we will maintain.

In the long run, we are looking for 15% kind of growth. Yes, there will be a quarter here or there where there could be some aberrations. But as of now, we are only seeing these as aberrations rather than a long-term trend.

I was not asking for the volume number. I was asking for the growth number Y-o-Y between Indian and Vietnam operations.

Yes. So India growth was a little flattish because the new capacity has just come in line. So India's growth was just flattish. India's growth was around 5%, 6%. The Vietnam growth was quite flat and in Vietnam, we do a lot of these low-margin customers and opportunistic sales and all that. So, that was a little flattish this quarter.

And sir, one final question. So as we have discussed that in several past calls also that 15% volume growth that we aim for, let's assume that we don't deliver those volumes in FY '26 and FY '27, next 2 to 3 years. So at current prices, what could be our peak debt level?

Suppose we don't increase the prices, at least at these levels, we had indicated that this year the peak debt could be around INR 2,200 crores. But going forward, I think now all the capacities are in place, all our CapExes are in place.

There won't be any additions as far as long-term debts are concerned. And every year, probably INR 150 crores to INR 200 crores we will start repaying as well. So I don't see the peak debt levels going beyond INR 2,200 crores in the next year or the year after that also. In fact, it should start reducing because we'll be repaying it.

And this is despite your saying, let's say, 10% to 15% volume growth and coffee being --

You said that if there is no volume growth, there will be a reduction even if there is a 15% volume growth, probably it may remain at the same level. But we'll have to take it up. Every quarter, we probably will have to reguide you on this depending on how prices are panning out. But I don't see in the long term more stresses coming or additions in the peak debt levels.

The next question comes from the line of Senthil Manikandan from [indiscernible].

The first question is on the sales side. So I understand that we follow the cost-plus model. But this time, we have a 14% revenue growth with a 3% to 4% volume growth. But year-over-year, coffee prices have gone up like upwards of 50% to 60%. So how to look at this number, sir?

If you see a large portion of our contracts are long term. So while the coffee prices would have gone up, we probably are buying coffee would have been done 6 months, 12 months prior.

So, therefore, it gets averaged out. So there are quarters you would have seen there are 20%, 30% growth. There are quarters where you will see lesser growth in terms of price. So that really is a combination of how far away we do the contract and what contract do we not do.

That also explains because much of the opportunistic buying are very short term. And if you see that's the volume we have not kind of bought, which also explains that these are a lot of these volumes are coming from long-term contracts. So we may not see such spikes in the portfolio.

So in that sense, it makes us more competitive in the market in terms of pricing?

Yes, it has to be competitive at these prices. Whenever the prices are high, you will see that there will be more desperation in the market. People would be out to fill volumes. There are people who will sell it even in negative margins because they need to run the plant.

So, I think it's been a very, very tough scenario for the whole industry globally. And that's the reason when I started my commentary, I did say that despite the challenging environment, the performance has been pretty good.

The next question comes from the line of Richa from Equity Master.

Sir, my question is, let's assume the coffee prices do not come down. And my understanding is that for FDC, the demand is a bit elastic, and maybe the customers will also get used to high coffee price environment.

For FY '26, considering the new capacity also coming in, what would be a conservative growth volume growth estimate that you would could share? Because 10% to 20% is quite broad, but with the new capacity coming in, do you think we could do 15% at least?

So we could actually, but really will depend in the couple of next quarters. We are trying our best to kind of -- but while we are being aggressive in the market, what we are focusing more is on the long-term contracts, building better clients. And that is why if you see even if the guidance of 10% to 20%, you could see it as broad.

The other way to see it is that I would say that it's pretty specific because considering the kind of volatility that is present in the market, this is quite a specific guidance that we have given.

The second thing is that the guidance, if you see ultimately, what we have always maintained that our volume growth and our EBITDA, the operational profit growth will be in line.

In spite of getting a 10% or so volume growth YTD, our EBITDA growth is 20%, which means that we concentrated more on better margin contracts, which has helped us to deliver these kinds of good operational profit numbers.

Going forward, I think we'll have to wait and see that, how do we drive the business forward. Having said so, I'm not wanting to say that there is any letup in our aggressiveness in the market to get a volume growth of 15%. You are right.

We have got new capacities added. We would also like to fill it as quickly as possible. So depending on what is happening, the Vietnam crop is not coming. Every day, we are seeing fluctuations. We have to wait and watch that where it settles down to.

What is a concerning point is that does it put pressure on consumption. As long as the consumption is intact, I think things should and should not impact our long-term growth guidance of 15%. So that we have committed.

As the market has become shortsighted, so have we. So therefore, giving very long-term predictions that we used to, let's say, 2 years ago has become a little challenging for all of us as well.

And sir, as the new plant comes in, do you expect your employee and other expenses to shoot up as well? Or is this with the price production, is this already factored in the cost of higher staff to operate the plant?

This is the consol for this quarter, that is already factored in India. There could be a little increase in Vietnam, but Vietnam was as we have told you, it wasn't a greenfield project. It was a brownfield project, which meant that a lot of utility manpower and other common space manpower would be the same.

It's only the variable manpower. And these are pretty much-automated factories, automated lines. These don't require very heavy manpower. So, I don't see significant variations from the current numbers.

The next question comes from the line of Aashish Upganlawar from Invesque PMS.

Sir, from the commentary so far in the call, what I could understand is that supply maybe which was constrained with the crop coming in, it could be a bit better. At the same time, the customer demand is not at all hampered despite the prices and the industry is willing to take whatever it takes to fill up the capacities despite the stress on the balance sheet and the profitability.

So, for this now to break, do you not think that the demand has to drop for the prices to react and then things get sorted or some players have to, I mean, take a call that profitability can't be sacrificed on the bottom line because in our case also, the volume and EBITDA growth has been fine, but the problem has been the interest cost because of the working capital and the CapEx that we have done.

So, how do you read the situation? Will it be sorted by supply or the demand crashing?

So I was thinking that it will be sorted by supply, not the demand crash because a lot of economies are the upcoming economies who are consuming more coffee.

So I have a feeling that there and let's say, good part or bad part, a lot of coffee consumption is happening in the affluent economies like America and Europe. So, I don't see them dropping a lot of consumption. So I don't think this price drop will happen because of demand drop. It will happen due to supply increases.

Now let me give you a color for last year also, the Brazil supply was good. This year also, the crop has been good. That is the report we are getting from the ground. And we're also seeing that during last time also when the crop came, there was a little bit of a swing at that point of time.

So back-to-back good crops will lead to more softening. That's the common knowledge. Also, if you see the coffee crop, unlike most of the commodities, most of the commodities, what happens is that the supply and demand get corrected because either the demand will come down or the supply because the crop cycles are low. If you see most of the commodities, the crop cycles are 6 to 9 months, yes.

But unfortunately, for coffee, the crop cycle is 3.5 years. So, after the crop has been soon, after 3.5 years, it starts flowering and giving the cherry. So the prices have started to increase 1.5, 2 years ago. And we have a feeling and not only feeling, but a lot of ground report says that there has been an increase in acreage. So it looks like that all the acreage will come into flowering and harvesting 1.5 years from now.

So, a good crop of Brazil coming in June, July and the next year oversupply happening due to the new crop giving new flowering and new this thing.

I think that's the time when we will start coming down. So, yes, frankly speaking, it has to be the supply flow that will soften the prices, not really the demand crash.

And lastly, given the scenario then till now, our growth on the EBITDA has been driven by largely volume growth because margins have been under stress.

So now you're saying that volumes also, you are taking tactical calls because of the pressures, industry-wide pressures. So what is the rate of growth that one should expect because then that was the only driver of EBITDA growth probably for us?

Yes. While it was the driver for EBITDA, if you see the last 3, 4 years' trajectory, you're absolutely right. The EBITDA did grow exactly as much as volume grew. Now this year, while there are challenges on the price front and therefore, the volumes have been a little tighter to drive, what we have made sure is that the EBITDA still grows in that 15% to 20% range. And that is because we have been focusing a lot more on the long-term contracts, the private label contracts, the higher margin contracts.

So even while we have to take a tactical call or we have taken a tactical call to not be so aggressive on the volume because of the price, we have successfully maintained the EBITDA growth at 15% to 20%.

So we are very confident of maintaining this EBITDA growth of 15% to 20% till we are back into the volume growth of 15% to 20%, which then will again drive EBITDA at the same level. So, I don't see any drop in our performances as far as our EBITDAs are concerned.

So just to confirm this, EBITDA growth will be around 15-odd percent. And, yes, just I'm taking confirmation, 15-odd percent EBITDA growth. And since volumes are not increasing and we don't want to inflate our balance sheet further on working capital, our bottom line can grow at a better rate probably if interest costs remain the same.

Absolutely.

The next question comes from the line of [indiscernible] from Sequent Investments.

My first question is on understanding our mix of modern trade and general trade. The idea being since the coffee prices have been increasing and there is pressure as we cannot increase the prices very much, how are we seeing this mix of modern trade versus general trade considering on the modern trade side, you experienced a comparatively lesser margin versus general trade? Or is it a different scenario for us when it comes to commerce, e-commerce for that?

So it's a little different than industry standard. You are absolutely right. For industry, the modern trade and the e-commerce, the margin is quite lower than the general trade. But for us, it has been quite not quite, but at least a significantly different story than what the industry practices are, and I'll tell you why.

It is basically because even if you see the modern trade and the quick commerce and the e-commerce that we have developed, we have created actually our demand creation has not been only focused on the quick commerce and the modern trade and the e-commerce. So a lot of our demand generation happened offline, which is the traditional methods of demand generation, which has helped us a lot in e-commerce, quick commerce, and modern trade.

Now what has happened is that most of the growth in modern trade, quick commerce and e-commerce are led by this. And therefore, things like my, let's say, spend to sales ratio is almost 1/3 of the industry standards.

And therefore, we earn equally good margins in modern trade and quick commerce. In fact, to give you this thing, when we began our journey 6 years ago, the modern trade teams were not ready to keep us because they were not sure of our optics and all that.

But what we didn't do, which most of the other people do is that push listing through higher payouts and higher amounts we spend on displays and things like that.

What we started doing is we started building the brand offline and through general trade, and we took it step by step. So for example, in 2019, when we started with Reliance, it was just 10 stores in Hyderabad. That is what they said that they said they're not very confident and they will only do 10 stores. But we didn't want to kind of overspread ourselves and overspread by paying money. So we took it from 10 to 20 to 30.

1.5 years ago, is the same Reliance who came back to us and said that we want to expand to all stores of our network across the country. And therefore, what happened is that the buying power, the purchasing this thing or the driving thing was not with Reliance that was with us. And that was pretty much possible because of the traditional ways of marketing and sales that we started with in general trade.

So therefore, our general trade model actually has helped us to earn equally good margins. So even going forward, as we expand more in modern trade and e-com and quick, I don't see our margins coming down.

So, did I understand right? I mean, on a deep discounting model, are the e-commerce or quick commerce taking hit on their side for our product?

So a lot of it they do it for themselves as well. There is a certain partnership model that we enter into. We also have been pretty thing that beyond the point, we don't deep discount.

There are days and times when they kind of push it harder by putting in money from their side. But we have made a model wherein we kind of beyond the point, don't deep discount. And a lot of our demand is being generated because of the work that we are doing outside.

So, they also have no option but to keep up even like a platform like Blinkit, which is very strong in the North, actually has or wants to take our products so much so that they told us that since we want to grow our network in South, and considering Continental Coffee is doing well in South, we would want to use Continental Coffee to drive our network.

So actually, it's been a very fair play between us and the big and the modern trade platforms. Yes, it is difficult. I won't say that it's been easy. Still the pricing talks and all that are pretty aggressive from both sides. But at least we have been not been made to kind of succumb to all their demands. We have been able to hold ourselves also, making sure that our margins don't get affected.

Sir, just one question on my side is on the total gross block side of INR 800 crores at consolidated level, has the entire block capitalized now?

No. Partly it has been capitalized. We have 2 projects. One is in India and another one is in Vietnam. The Indian part is capitalized and around INR 400 crores. And the Vietnam project is likely to be commercialized during this quarter and maybe the end of the quarter is going to be capitalized.

The next question comes from the line of Rakesh from Rivers Capital.

Sir, one question with respect to the coffee prices. We have seen this industry, the coffee manufacturing industry is very fragmented industry. There are few players like CCL, which is the manufacturing play.

But I want to understand because the coffee prices are higher from the last 15 months, have you witnessed the customers which are buying from the small players, they come to us that they want to do business with you rather than going with the smaller players which are struggling with high coffee prices?

Yes. We have actually -- I may not directly correlate with some of these new players which they were buying from small players and they have come to us because as I told you, we also have been concentrating with the larger buyers, more brand owners and long-term buyers.

And generally, people who buy from small-time players are the transactional ones. So I cannot really for sure to say that I have got from smaller players. But there has been another trend that we have been noticing that we generally over a quarter, we will get a couple or 2, or 3 proposals for taking over manufacturing units of smaller players, which probably is an indication that the smaller players would be finding it even more difficult to manage the working capital and the operations of their plant.

So, that is a sense that we are getting. But if you ask me, have you got more people or buyers from smaller players, I don't think so I can definitely say and yes to that.

Sir, second question with respect to the CapEx for the F '26 and F '27, if you can talk?

About the CapEx?

Yes.

I don't think so we'll have any CapEx in next year. We are done with our CapEx for the next 3 years. So because most of our capacity building is over now. We are good to grow for the next 3 years. So I don't think we'll have any more CapEx.

So continuing on that part, if there is low CapEx or only maintenance CapEx and the coffee prices remain same, we can do a larger chunk of payment towards debt. Is that understanding correct?

Yes, absolutely. So I think that's the sweetest spot that we can get into because going forward, every year, as I told you, INR 150 crores to INR 200 crores of debt retirement will happen. And if the coffee prices would come down, this is a double benefit that we'll get. So then things will probably get vastly rosy for all of us.

Ladies and gentlemen, I would now like to hand the conference over to the management for the final comments.

Yes. Thank you team for arranging this call. Thank you, Manish. And I thank all the participants. Wishing you all a very happy New Year, and we look forward to meeting you in the next quarter.

Thank you. Ladies and gentlemen, on behalf of Antique Stock Broking Limited, that concludes this conference. You may now disconnect your lines.