Ladies and gentlemen, good day, and welcome to the Q2 FY23 earnings conference call of CCL Products (India) Limited, hosted by Nirmal Bang Equities Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Navalgund from Nirmal Bang Equities. Thank you, and over to you. Thank you, Sashi. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome all the participants to CCL Products (India) Limited Q2 FY23 earnings conference call. The management is represented by Mr. Challa Srishant, Managing Director, Mr. Praveen Jaipuriar, CEO, Mr. B Mohankrishna, Executive Director, Mr. V Lakshminarayana, CFO, Ms. Sridevi Dasari, Company Secretary, and Mr. P.S. Rao, Consultant 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 Q&A. Thank you, and over to you, sir. Thank you, Abhishek. Good afternoon to everyone, and wishing all of you happy festivities. I will just go through in brief the result of the Group, and then we will open the floor for questions and answers. The Group has achieved a turnover of INR 506.83 crores for the second quarter of 2022/2023 as compared to INR 336.83 crores for the corresponding quarter of the previous year. The net profit stands at INR 57.79 crores as against INR 49.34 crores for the corresponding quarter of the previous year. The EBITDA is at INR 97.80 crores, and the profit before tax is INR 73.11 crores. The Group has achieved a turnover of INR 1,016.34 crore for the half year of 2022/2023, as compared to INR 663.06 crore for the corresponding period of the previous year. The net profit stands at INR 110.53 crore as against INR 93.19 crore for the corresponding period of the previous year. The EBITDA is INR 186.56 crore, and the profit before tax is INR 139.75 crore. I now open the floor for questions. Please, go ahead. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Manoj Gori from Equirus Securities. Please go ahead. Mr. Manoj Gori? Hello, Manoj. Are we able to hear you, sir? Am I audible? Yes. Please go ahead. Yeah. Thanks. My question here is, like, if you look at from a company's point of view, we are almost doubling our capacity over FY23 and FY24. Probably I would just like you to repeat, like, probably what's the outlook on the business that gives you confidence that doubling the capacity where we can actually scale up the utilization rates and how it would be panning out in the coming years. If you can throw some light over there, this would be very helpful. Yeah. Hi, Manoj. You know, when we said doubling our capacity, it's not happening, you know, at one go. Next year, we are adding another 16,000 tons to our already existing capacity of 37,500. The subsequent year, which is in 2024, we'll add another 16,000 tons. It will be done in a, you know, although it's quite quick, but in a phased manner. As you can see for the last 3-4 quarters, we have been growing at a healthy volume growth of, around, 20%-25%. That's the growth momentum we look to maintain. To maintain this growth momentum, we will require these capacities to be up and running in this phased manner. That's the reason we have been, you know, aggressively expanding our capacity. In the last call, as we had already mentioned to you, that for the last three or four quarters, we also have been outsourcing some of our quantities to make sure that we are able to fulfill our commitments. That gives us a lot of confidence that, you know, we'll be able to start fulfilling our capacities from day one itself to a certain extent. Now, where this growth is coming from, as we have mentioned, you know, a couple of times, that this growth is actually quite a well-rounded growth, and it is coming from all quarters. If you see our growth coming from U.S. markets or European markets, the domestic market, the Southeast Asian markets, it's been quite a, you know, healthy growth profile that we have got, and it's coming from all quarters. Largely because of the fact that as we are growing up in, you know, our capacity, the economies of scale and other factors are working for us, and it is helping us gain market share in the segments. Add to it, the domestic volumes are also growing at a healthy pace. To make sure that we are able to fulfill all of these demands, we are looking to expand capacity. Right. Sir, the visibility that you are able to get for the future volumes probably for FY24 and FY25, so this is coming from, like, what would be the clientele type, whether they are departmental store or whether they are means, for example, your coffee is being used for ice creams and chocolates. Can you throw some light on the clientele type? It's more on the first two aspects, Manoj, or let's say first three aspects. We are getting good growths with our bulk customers. We are also adding a lot of department stores and the domestic market is growing. Right now, no, we can't for sure say that it is going as, you know, as inputs to things like you mentioned, ice cream and all that. In domestic market, we have a very clear visibility. We are supplying to the top guys who use coffee. The top, you know, cold coffee brand or the top confectionery brand, these are all buyers of our coffee. We are seeing a growth there. As I was mentioning to you, it's coming from all sectors, so there's no one sector where I can pinpoint that it is only coming from there. This is a good sign for the company because it's a well-rounded growth. Right. Sir, any timeline that you can give for the Vietnam capacity coming into your operation? I think from next quarter, we'll start doing some trials and we'll also expect to, you know, get some commercial volumes also. Next quarter is something that we are looking at. As for the guidance, like, the timelines that you had mentioned in the past, that would be in the fourth quarter, Vietnam and India new capacity would be somewhere around end of FY24. That's correct? Let's say first quarter starting financial year starting 2024. Okay. 2024, so that is the June, probably June 2023 you're talking about. That time. We'll, you know, there is a distance to go, till that time. We will kind of keep updating you about the exact, timings, as we go along. Yeah. Yes. Sir, couple of more question if I can squeeze in. First it would be on the margin side. Obviously this quarter margins definitely look far better even on sequential basis. How should we look at the margins? Because now you would be having a better visibility on the future performance as well. Probably should we expect like current level of margins as normalized margins or probably there was some product mix, favorable product mix in the quarter. Can you throw some light over there? Okay. Manoj, there are three, four factors if you see, and if I were to just dissect the margins for you, yes, it looks better on a sequential basis. As we have always maintained that our margin growth will be exactly in line with our volume growth, and that's what we have been achieving. Now, optically what happens is that because we are getting a price advantage on top line, so the top line growth is, you know, we are getting approximately 25% to 30% additional top line because of the coffee bean prices. As a percentage to top line, the margin looks little squeezed. If you look at a growth of margins, it will be exactly in line with the volume growth. As we have been telling all of you that in the future, at least in the midterm, we are looking at these kind of volume growths to be maintained, and we will maintain the same margin profiles in the coming quarters as well. Now, as far as the product mix is concerned, I don't see a lot of changes happening here. The coffee prices are still high. There is a lot of demand that we are looking more in, you know, spray-dried than in freeze-dried. Fundamentally, you know, the margin profile looks to be, you know, or will be similar in the coming quarters. That is the guidance we can give from our side. Thanks, sir. That was very helpful. Will get back in the queue for further questions, sir. Thank you. Wish you all the best. Thanks. Yeah. Thank you. A reminder to participants to press star and one to ask a question. We have our next question from the line of Jignesh Kamani from GMO. Please go ahead. Hi, Challa Srishant and entire team. What is the volume growth for this quarter? My question is, incrementally volume growth will be more coming from the spray-dried. EBITDA growth will lag the volume growth because of the lower profitability at the spray-dried or it may not be the case in future? You know, Jignesh, as I told you, there are many factors that will play and therefore, you know, pinpointing one factor to say that, what will happen becomes a little difficult. As you had asked, what is the volume growth, we are maintaining a volume growth of 20%-25%, and we got that this quarter as well. We're looking to kind of continue this momentum. There'll be a little bit of plus or minus in subsequent quarters. You know, at an overall level, at an annual level, we will maintain a volume growth of 20%-25%. Now, as far as your question is concerned about, you know, more growth in spray-dried, that we'll have to see because, you know, now the bases have corrected. Last year itself we saw a lot of growth in spray-dried first two quarters also. We'll have to, because that base will come into effect, so we may not get that and so we still get growth. Not, you know, more than proportionate growth in spray-dried, that may not be the case. We don't look to kind of, you know, we will not expect that the margins will further, you know, decline. We're looking to maintain that. As I was telling earlier to you in my answer to the earlier question of Manoj, that we are getting an all around growth. We are getting growth in now in all the types of coffees, small packs, bulk, departmental growth. That's a good sign because we will be able to maintain these kind of margins. That's the guidance we'll give you. Understood. On the profitability wise, both spray-dried EBITDA per kg and the freeze-dried EBITDA per kg remains same or we have seen improvement in the spray-dried spread and the freeze-dried is slightly better again. No, it remains the same. As of now it remains the same. Not much has changed. Any color on the working capital cycle because we have seen earlier we were kind of supporting our U.S. partner and you've seen some inventory pile up on account of increasing the receivables pile up. How is the current scenario on the receivables side? That will also remain same, I think. That won't change much because we are, again, we are supporting them, we are getting good growth. We are looking to, you know, capture more shares in the U.S. market. All that won't change, Abhishek Navalgund. I don't see much changing in the near and mid-term. Thank you. Sure. Thanks for that. All the best. Thank you. We have our next question from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead. Yes, sir. My question is in continuation of the previous question itself about the working capital. Now, in trailing twelve months, you know, we have already invested almost about INR 300 crore additional in working capital because obviously the raw material prices have gone up, and consequently the inventory as well as the debtors number have also gone up. But, you know, when we are on that, you know, CapEx mode, any savings on that working capital side, even marginal, would help a lot in terms of, you know, debt management. Though, I mean, it's still, you know, sort of quite manageable, but, isn't, you know, reducing the working capital cycle a possibility at all, for us in next about, let's say 6 to 12 months? I'm saying in terms of number of days, because the inventory itself is like about 100 days kind of number. You have today about 80 days in terms of receivables. Anywhere it's possible to, you know, sort of, reduce that number. This is V. Lakshmi Narayana here, CFO. As you rightly said that, because of the increase in the value of the raw material and the value of the business that has increased. Due to that, the working capital requirements have gone up. As you rightly said that, going forward, definitely we are going to focus on working capital management further to reduce the credit cycle so that good amount of money is going to flow back into the system. Whereby that supports in two ways. One is to further meet the working capital as well as to meet our CapEx program. Mr. Javeri? You know, if you can quantify a number, because in past, you know, we have seen that, at least inventory at some point of time we used to work on, you know, about 50, 60 days, you know, kind of inventory. You know, if I go back in 2018, 2019, or let's say 2017, 2018, and gradually this has now moved up to almost about, if I look at the previous quarter, almost about 110 days. In the March quarter or March year, this was almost about 130 days. That's something which is there in our hand, right? If not, the support to the, you know, to the customers that we provide in terms of receivables, but at least inventory is something which is in our hand. Is there a chance that that 110-120 days of, you know, inventory days, any possibility of, you know, curtailing that number? Yeah. This, we are expecting by end of this year, we are likely to end up somewhere around 90 days. Definitely from 1-2 days, we are working out to be at 90 days level. Coming on to the receivables also, as I stated that we are focusing more on to minimize the further reduction in the credit cycle of the receivables as well. Overall, if you look at it, inventory and receivables, there is a likely impact of almost around 30-35 days. Sorry, I didn't catch the last sentence. If you look at it overall, the receivables part and the inventory part, inventory is reducing the holding level from 120 days to somewhere around 90 days. The receivables part, somewhere around to an average level of 60 days. Definitely we are going to have a major working capital positive impact. Okay. The funds is going to be good. Okay. 100%. By end of this year? Yeah, during the current financial year, by end of the current financial year. Current financial year. Okay. Sure, sir. That's it from my side, sir. Thank you. Thank you. I just wanted to add a couple of things over here. See the reason for the inventory levels to be the way they are is also because of COVID and this shipping issues that we were facing for the last two years. We took a conscious call to ensure that we have enough stocks for a longer period of time because we can't afford to default on any contracts. Now, slowly, as the shipping issues have started getting resolved, we've started reducing our inventory time as well. The transition will take some time because we had already confirmed several orders and all with our suppliers well in advance, keeping in mind our back-to-back contracts. It will take some time for it to start coming down, but it will definitely come back down to a more normalized level going forward. For the sales part, because our volumes have increased with certain customers who like that of the U.S. or some of the major clients that we're dealing with, they work only on a pure credit basis. They do not work on a CAD basis. These parties are highly reliable and more of a long-term business for us. When the volumes were increasing with these people, inventory days also was increasing. Going forward, there's going to be more volume growth coming in from other customers as well, where we are working on a CAD basis. That will also reduce this going forward. Thank you, sir. We have our next question from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead. Hi. Thank you for taking my question. I have just one question. Since last two years, our company has actually gained a lot from the, let's say, marketing sales point of view or the macro point of view and so on. Our guidance has basically seen a upward signs of, you know, adjustment. Just one question on this part. What, in your opinion, are the risks to the guidance that we have right now? That's all from my side. To be frank, risk in every business will always be there. Fortunately for us, coffee is one product that has seen recession, pandemics, war situations, and we have survived with volume increases during all these periods. Going forward also, one thing what we can be assured of is coffee consumption as such is not going to come down irrespective of the coffee prices. Whether there's a shortfall in output, whether the prices double. We've seen the prices literally doubling in the last one year, and our volumes have also increased in the same proportion. There's no lag over there at all. No matter what, coffee consumption as such will keep continuing, is what we feel. Most importantly, we are dealing with instant coffee. Instant coffee is actually the lowest end of the coffee pyramid. It is the cheapest variant that a person can buy. Because of the production process, it's efficient and everything. If you go to a coffee shop, that's why the amount that they charge is going to be 10 times more than what it would cost to just buy instant coffee and consume it at home. The segment that we are in, we are already at the bottom of the pyramid, so the only way forward is to go up. To be frank, going forward with the new products that we are coming up with the innovations that we are coming up with the value additions that we are planning, we see that there is a higher potential of gaining more market share going forward rather than the other way around. That's one of the reasons why we are being a bit more aggressive with respect to our expansion plans also. As a company, we've always been very conservative. Until and unless we are sure that we can sell, we don't want to take a risk in going for expansion. Which is why even now we are in a position where we are actually outsourcing and preparing the groundwork for our new capacities to come online. Thank you, sir, for that response. One thing you mentioned was product as well, right? Just curious, if you can elaborate on the product side of the innovation side of things which we would have undertaken lately. Product innovation is something that we keep doing constantly. We used to have single plain vanilla type products with either Arabica or Robusta, making a finished product and supplying to customers. Over the years, we've developed our capabilities to such an extent that we can offer the entire range of potential products, like even specialty products like, say, espresso coffees or in instant format, cold brews, functional coffees, flavored coffees, you name it. Anything pertaining to soluble coffee, we can do it at our end. This is something that doesn't happen overnight. There's no manufacturer who can just overnight get this kind of a capability. We've actually bought equipment from almost 30 different countries. We've integrated this over the last 10-15 years, and we've commercialized everything. Most of our growth is also within innovation, customer-led. You know, customers come up with a project and they say, "We want you to be our partner in developing something like this. Can you do this?" That's when we start investing in R&D and we create these products and then we commercialize it. Once we commercialize a product in one territory, we can basically offer the same product across the world. That's what we've been doing over the years. Got that. Thanks a lot, sir. That's all from my side. Thank you. We have our next question from the line of Richard D'Souza from SBI Mutual Fund. Please go ahead. Yeah. Good afternoon, sir. Congratulations on a decent set of numbers. I just had some question. I'm sorry to hop back on the inventories, but over past couple of months, we have seen the green bean prices having fallen quite a bit. I think on YoY basis they are lower than what they were last year. We have substantial inventories in our system. Do we envisage any risk out of that? Richard, I think you are already aware of our model. Yeah. We haven't changed anything. Whatever inventory we have is 100% against the back-to-back contract. Okay. that we already have in place. Uh-huh. Normally the customers that we deal with are large guys who they won't back out on a contract just because the prices have fluctuated a little bit here or there. Okay. Okay. We don't see any risk over there. We've been working with almost all these customers between 10-20 years. Mm-hmm. Nobody can afford to take the risk of not executing a contract. Okay. Yeah. No, just worried because, you know, times are a little difficult, and it's possible that some of the smaller players or the smaller customers may renege on some of their contracts if they can get cheaper coffee elsewhere or. No, no. That- To date, we've never faced a problem like that. Customers like that, if it's a new customer or a smaller customer, we usually take advance payment from them. Okay. If we take a, let's say a 20%-30% advance, and then when we supply the product, unless we receive full payment, sometimes we don't even ship the product. Depends on the payment terms if it's a new party. We ensure that we cover our risks 100%. If there is any potential we feel that the customer is not going to lift the coffee, though it hasn't happened, because we have that advance with us, as per the contract terms, we don't have to return that advance to the customer. Okay. That's also one of the reasons why nobody wants to default. Okay. That's a good thing to hear. Yeah. Yeah. The second thing is, you know, while your volume growth has been quite good, and we have witnessed companies like JDE and Nestlé also getting decent volume growth. Just wanted to understand the inventory levels at your end customer. Is it something that you monitor? I mean, once you sell to your distributor in U.S., and he further sells to the retail chains or the end customers, the bulk consumers. Do you monitor that? Is that giving you some signs of weakness or? We monitor only for certain specific customers. As in, well, like, if the person is our distributor, then definitely we will end up monitoring. Okay. If it is for any other customer, like a JDE and all, we cannot monitor. They will not give us that data for us to monitor as well. Yeah. They buy from multiple other parties also. Okay. Yeah. Usually, most of these companies, they give us their orders, confirmed orders with prices more than one year in advance. Mm-hmm. Mm-hmm. Our visibility is typically around 12-15 months. Okay. Yeah. With the big guys at least. Generally, if you look at the consumption trends, I mean, how is out-of-home consumption versus in-home consumption? I mean, is the in-home consumption still maintaining that kind of delta which is there over the growth in out-of-home consumption? In fact, it's a difficult question to answer because the out-of-home consumption also, there is a lot of instant coffee out-of-home consumption that takes place. Okay. Let it be offices, institutions. Uh-huh. People don't really go for only B2C machines or beans. Offices obviously will find it more economical to use instant coffee anyway. Whether the individual is consuming that coffee in their house or in the office, the overall consumption of instant coffee has been largely stable and growing. Okay. Okay, that's good to hear. We have been hearing that private label has been witnessing a comeback or quite a bit of growth in both U.S. and Europe. Have you benefited from that? We do keep getting inquiries for our private label and all, but most of these new players and all who are coming up with their brands, their volumes are extremely small. Okay. The actual growth is coming from the again, supermarkets. These are the companies that have their own private label. They've been there in the market for a long time. Mm-hmm. People who are able to source efficiently, obviously volumes for them have been increasing. Especially during this, people who have projected and predicted price increases and they've confirmed orders in a timely manner, they're able to sell more efficiently than those who have not projected well in advance. Just a couple of questions more then. One of these is on the logistics cost. We have seen the container freight indexes having quite a bit of decline in past couple of quarters at least. Even packaging costs would have come down because the plastic prices have come down and other things. Have you benefited from that, or do you think another couple of quarters down the line we'll see impact on our bottom line because of this cost going down? To be frank, ours has always been a cost-plus model. Yeah. Even when the prices increase, we pass it on. When the prices reduce also we pass it on. Okay. That is not really a profit center for us. We'd rather be very transparent with our customers to build that confidence. Okay. Some of the logistics costs we used to bear for certain customers, isn't it? If it's a CIF contract, then we end up bearing that cost. There are certain contracts, it gets averaged out eventually. If you've done a CIF contract, depending on when we have done it, at some point in time, maybe 50% of the contract will be more expensive and 50% will be cheaper. It'll average out eventually. Okay, one last one, and that's on the domestic market. What kind of growth have you witnessed in domestic market? I think Praveen can answer this. You know, we are continuing to grow at around between 30%-40%. This quarter also we got that kind of a growth. We're looking to maintain this momentum at least for some periods to come. Yes, there'll be little pluses and minuses, but in overall level, at an average level, that's the kind of, you know, momentum we are looking to maintain. This quarter as we had told last time, that we are now expanding our network at least selectively in the other zones like North, East, and West, which are quite, you know, not as big as South, but it's a growing market and it's a market we needed to cover. That's what we have begun. We already set up distribution network, and we are looking to capture that kind of a. You know, those markets are a little more seasonal also in nature, unlike South, which is year-round consumption. Consumption. We're looking to kind of capture this winter, at least in the select towns, the larger towns, the more urban towns, and see how things goes there. Okay. Any update on the plant protein, Praveen? Yeah. You know, basically, this quarter we are expanding to two more markets, Chennai and Mumbai. Chennai already we had, we have started billing there. Initially the response is, you know, it's a mixed kind of a response. There is a certain section of people who are very excited about this. There are certain section of people who are still concerned about the pricing and things like that. Yeah, it will be an evolution. We are looking to partner with a lot of these associations that have got formed up, like the Plant Based Foods Industry Association and things like that, and looking to co-promote this whole endeavor. Yes, things are looking exciting at this moment. Let us see how they shape up when we go forward. Okay. Any other agencies we are developing or any other new products for the domestic market or some new segment, are we planning to get in? No, right now not, because we have a full plate with many things. Coffee itself, we have to do a lot of activity. We have to expand, make sure that we create enough awareness in North and South zone as well. That itself will be a mammoth task. Continental Greenbird is something that we are looking to keep investing on and see how things goes. Right now, nothing on the plate right now. If at all something comes up, we'll surely inform you guys. Oh, okay. Thanks a lot, Praveen. I'll come back later with the question. Sure. Thanks, Praveen Jaipuriar. Yeah. Thank you. We have our next question from the line of Akhil Parekh from Centrum Broking. Please go ahead. Yeah. Thanks for the opportunity and, congratulations to the team for continuing the growth momentum. My question is again on the domestic part of the business. Do we maintain the guidance of INR 200 crore plus top line this year in FY23? Yeah. We will get a top line of INR 200 crores and plus, out of which around 65%-70% will be- That 70%, I mean, will be branded and the 30%. Yes. Absolutely. In fact, I was saying the same thing. Absolutely. Hello? Yeah, absolutely. Right. You're right. 70% will be branded business. Okay. Can you please quantify in Q2 how much we did in domestic? You know, let's say first half we crossed a milestone of INR 100 crore, almost INR 110 crore. The growth has been 37%. Q1 was a little higher growth. Q2 is a little lower growth because of the basis, because last year Q1 was, you know, COVID, so the bases were muted. If you see as a growth trend, as a momentum trend, we are maintaining that kind of momentum every quarter. Sure. I think absolute number-wise it looks better Q-on-Q basis, because I remember Q1 was INR 50-odd crore, I believe. No. Q1 was, yeah, INR 50 odd crores. Yeah. It is almost INR 660 crores now. Six. Now it will become even better because we are approaching to season, and we're trying to see if we put the kind of, you know, get into other zones as well. Let us see, because those will be challenging in terms of creating awareness and distribution because the whole profile of the category is very different in other zones than what it is in south zone. Yes, that's something which was there on our radar and we wanted to do that and we'll update you on the next quarter or let's say after the end of the year how did the venture go about. Yeah. If you can quantify in terms of the retail touchpoints, how we have grown over last 12 months maybe. Yeah. Retail touchpoints, see now we are directly servicing almost 120,000 outlets, out of which now 80%, which is almost 100,000 outlets, is still in south. We have added around 20-25,000 outlets in the rest of the zones, north, east and west. We are looking to end up at close to 135,000-140,000 outlets, which we'll be directly servicing. Got it. Great. Second question is on the U.S. and small packs. How much is the contribution coming from U.S. in terms of volume and sales, and info similar on the small packs as well? Let's talk about the small pack. The small pack is around 20% of our portfolio, yeah. Okay. We did see a little decline in the COVID times because a lot of our small pack goes to Africa, so that market got a lot impacted because of pricing as well. Both COVID and pricing took a little bit of a toll. We are looking to build that back, and as we go along we'll keep building that portfolio as well. US market is also approximately 5 out of, I think 5, almost 15%-20% of our portfolio and is growing at a similar pace as some of the other port because that's the first thing I told. Most of our regions and most of our segments have been growing like equally, so there is not one thing which is growing at a higher speed than the other. They're also growing at a similar pace as we as our Group grows. That is happening. Sure. This percentage you told is on the volumes, right? Not on the sales. Yeah, yeah. These are all volume percentages that I am talking about. Got it. That's all from my side, and best luck for coming quarters. Thank you so much, Akhil. Thank you. We have our next question from the line of Vidit Shah from IIFL Securities. Please go ahead. Hi, good afternoon, and thanks for taking my question. My first question was, once we add this 32,000 tons of capacity across India and Vietnam and take this up to, you know, roughly 70,000 tons, how much of, you know, the overall instant coffee market would we be then manufacturing? Just wanna understand how much market will we have and then how could growth be post this expansion. I think, you know, if you look at the current scenario, actually we are at around, you know, 6%-8% of the total instant coffee market share, yeah. If you add another 20,000, you know, probably 6%-8% will go to 10%-12%. That's where it will be. Once we have added this capacity, then we'll look where do we want to if at all we want to add, which geography, which region, how the growths are, because that will take us around 2-3 years to, or let's say, yeah, 2-3 years minimum to go to around 80%-85% utilization. At that point of time we will see how do we want to kind of, you know, get future growth from. Till next 3-4 years, because 1-2 years will take us to, you know, build the capacity, another 2-3 years to fill it. Next 4-5 years we have got our tasks really edged out and we'll go about making sure that we fill up as fast as we can. Got it. It'll take 2-3 years across both Vietnam and India, right, to get to 80%. After India capacity comes up. Yeah, sorry. I was asking, will India and Vietnam both take the same time, or will Vietnam get to 80%-85% faster given better visibility from your end? Vietnam, yeah. Vietnam will start earlier. Next quarter the Vietnam thing will start, and therefore we'll have a better visibility and a better pricing for that. India capacity is still coming next year, approximately April-J une quarter types, or maybe July- September. We'll see how it goes. There we'll start getting visibility once you know once we come closer to that date. Of course, Vietnam will be a little much faster than the Indian capacity. Vietnam has like a 2-quarter head start. I mean, that understanding is correct? 4-6 quarters head start. Because Vietnam will start next quarter itself, sorry, January, February, March quarter. Vietnam starts January 2023 and January 2023, yeah. India starts in what? July 2023. Yeah, yeah. June to July 2024. '24. It's almost 6-7 quarters. Yeah. 6-7 quarters. Not 2023. 2024. That's why I said that the Vietnam will come up much faster. Okay, understood. Also just in terms of some data points I, my line was a little patchy when you spoke about volume growth. What would volume growth be for the current quarter? 20%-25%. Would you be able to share the utilizations of freeze-dried and spray-dried in India and Vietnam? We are fully utilized. You know, we can't go and even a ton higher than what we are doing right now. Would it be possible to get how much y'all are outsourcing in terms of volumes? Approximately, you know, approximately 5%, let's say, of our quantity, which is close to maybe till now, first half we would have outsourced approximately 1,500-2,000 tons. Okay. Got it. Thanks. I think all my questions are answered. Best of luck for the coming quarter. Thanks. Thank you. Thank you. We have our next question from the line of Himanshu Nayyar from Systematix. Please go ahead. Yeah. Hi, good afternoon team. Thanks for taking my question. Firstly on the domestic business, I know we've been growing really well. Our base was also quite low, but as we become a reasonably large player, the coffee industry itself is not growing at such a pace. In the medium term, do you think, I mean, reaching, say a INR 500 crore sort of a turnover, we are confident of doing that in the next three years, say? I mean, if we continue at this rate, we should reach almost INR 500 crore turnover in the next three years, right? Yeah, Himanshu. We are looking to do that. As you rightly said, the coffee category may not be growing at such a fast pace, but we are very, you know, we are very small. As I've told earlier also in the instant coffee segment and in the Roast and Ground, which is the filter coffee segment, we look to aggressively gain shares, so that will be our main, you know, objective there. We are looking to build certain categories like the premixes and see how things goes. If we are able to maintain the current growth momentum, there is quite a possibility that we will reach INR 500 crores a year here or a year there, but that's something we are not targeting. Mm-hmm. When does, in our view, this business becomes EBITDA or PAT positive? See, at an MIS level, this business is actually, you know, positive only, although marginally, but, positive only. As we keep growing, you know, the whole question will come, do we want to keep investing more onto this business or we want to start, milking the business? I don't think so. Next two, three years we'll be, you know, wanting to milk the business. We'll keep on investing. We'll keep on increasing the distribution set up and, therefore because the growth momentum is this, growth momentum has to be maintained. You know, you'll need to keep investing on both fronts, not only creating distribution, but also to create awareness and drive preference for your brand. All these will, kind of, you know, require that whatever we earn, we plow back into the business. That's been our strategy. We'll keep taking a stock of the situation as we go along, how things are moving and how things are, you know, shaping up. Right now I can say that, probably once you cross INR 350 crore-INR 400 crore, then you start making, you know, money as well. Yeah. Understood. Understood, Praveen Jaipuriar. Second, just a clarification. When there was some confusion on the timeline that you mentioned. Vietnam, you say, you are saying that it gets commissioned next quarter, which is, third quarter of FY23. India, you are saying first quarter FY24 or FY25? 24-25 first quarter. Okay. That means the June quarter of 2024. Yeah. Yeah. Yeah. Okay. The next quarter. Yeah. The fourth quarter of this financial year. Understood. Thanks for clarifying that. Basically, I mean, after this two years of significant CapEx that we do, in addition to the working capital requirements, I mean, what would be the peak debt level and, I mean, do you think we'll start bringing that down now only after FY25? Yeah. If you look at it, the increased volume of business that accounts for the working capital requirement as well. As you rightly said, the expansion that we have scheduled in India accounts for the additional long-term debt to be in place. From the financial year 25, 26 onwards, wherein the repayments of the new debt also starts, then it will keep coming down over on debts. Okay. Any number that we can look at in terms of peak debt levels? Peak debt level by March 2024, it is somewhere around INR 350 crore of long-term debt and around INR 450 crore is going to be the working capital. INR 450 crore-INR 500 crore. Understood. Thank you. Final question is just on the. I request you to come back in the queue, sir. Sure. No problem. Thank you. Ladies and gentlemen, in order to ensure that the management is able to answer all queries, kindly restrict your questions to two at a time. We have our next question from the line of Dhiren from PhillipCapital. Please go ahead. Yeah, good afternoon, sir. Thanks for the opportunity. Sir, has competitive intensity in our instant coffee business reduced substantially? Because as I know that instant coffee market is 80% surplus in terms of capacity. Dhiren, we are not able to hear you properly. Am I audible? Yeah, you are, but your voice is a little, you know, breaking a bit. Okay. My question is, sir, is competitive intensity in instant coffee market worldwide reduced? Because I believe, you know, this market is 50% surplus in terms of capacity. Right. You know, actually, when you say 50% surplus, competitive intensity is increased, in fact. There is more competitive intensity which people have. No, no. We are guiding at 20%-25% kind of a volume growth. If I look at pre-pandemic, our growth rate historically was around maybe, you know, high single digits to maybe 10, 11% max. Now we are, you know, guiding almost doubling of that, you know, volume growth. Yeah. You know, it's our efforts which have increased our ability to cater to different markets, to different products. As Shashank was mentioning, during his answer that, we have invested in our machinery and in our equipment in such a manner that our ability to cater to the various demands in the market is, you know, competitively much better than the others. It's our efforts which is helping us grow much higher than the category rather than there is a reduction in competitive intensity. When we say that there is a reduction in competitive intensity means other people are not, you know, being competitive in terms of their pricing or their marketing efforts. That's not the case. It's, you know, 3, 4 factors that is working for us, because of our marketing efforts, because of our product innovation, because of the fact that even prices-wise, we are very competitive, because of the scale that we have built over a period of time. All these factors are helping us gain market share in the global market. Just to add to that also, we have customers from across the world whom we have developed over the years also. People whom we have created unique products which they can buy only from us. For them, volumes will not happen overnight. It is, it's like, adding any new customer also, it's almost like a 4-5-year-old process. Whatever we have been doing over the last 5-10 years, we are seeing the fruits of that seeding now. Whatever we are doing now is again, not for now, but we'll start seeing the results maybe 10 years down the line. Okay. Got your point, sir. Sir, lastly, how Europe and U.S. contribute in terms of the overall volume? What kind of growth we have seen, you know, as compared to India? Europe itself, so we have Russia itself, which contributes around 20%. Rest of Europe will be another, maybe, 10% or so. Going forward, we are actually seeing an increase in demand over there because of the recent crisis that has come about. The fuel crisis and all that, so they're not able to produce locally. One of the things that we're looking at is outsourcing or buying the product from other companies. That's where we are coming in. Sir, how much U.S. is contributing? I request you to come back in the queue. Thank you. We have our next question from the line of Rohan Gupta from Nuvama. Please go ahead. Yeah. Hi, sir. Good afternoon, and thanks for the opportunity. Just a couple of questions. I will try to restrict it at two only. Sir, first is on the previous question extension only. The benefit which you were just trying to mention in terms of Europe, which is witnessing a high energy crisis, high cost energy. Being coffee bean processing a very power intensive process. How much you see the demand shifting to India, and how much you have seen the benefit so far now? How do you see that going forward, Europe will be dependent more on India, and how much market share we can gain further? Right now you mentioned it's roughly ex-Europe, Russia is roughly 10% coming from the rest of Europe. How do you see that this market going forward? To be frank, it is actually split, but not only between India. It's between India, Vietnam, Brazil, Mexico. It's all these countries which are taking market share in different proportions. Whatever was being manufactured within Europe, whenever it's becoming so expensive or that there is no fuel for them to run the factory, they're automatically outsourcing as much as possible. It's not just one particular territory that they're focusing on. Naturally, India and even Vietnam is actually a first preference for most customers because of multiple reasons, as in supply issues and all that, availability of raw material in. Like, you don't have these currency fluctuations in like what you have in Brazil. Vietnam and India both have been very stable with respect to such things. Naturally, customers would factor in all these things when they're placing an order. We are getting more volumes because of that, but I wouldn't say we are the only ones getting that volume. There are other countries that are benefiting as well. Okay. Sir, how in terms of the currency depreciation impact vis-a-vis mainly Europe is impacting our margins. Are we having a complete hedge that is restricting the benefit of the currency depreciation there? How currency is impacting us? Also its impact on the working capital. Though you mentioned that you don't see any major defaults from Europe, but still do you see that the receivables are under risk in the European market? Thanks to the companies that we are working with, there's not much of a risk for us. We do take forward cover also because currencies are something that can, you know, fluctuate either way, and that is frankly not our core business. We would rather have clarity on what is the profit that we are making on a per KG basis rather than speculate on currency. To a very large extent, we end up doing forward covers accordingly. Thank you, sir. Thank you so much. Thank you. We have our next question from the line of Devanshu Sampat from YES Securities. Please go ahead. Yeah. Hello, sir. Good afternoon. Can you hear me? Yes. Yeah. Yeah, Devanshu. Please go ahead. Yeah, sir. Just two questions. A few quarters ago, we had spoken about, you know, exporting Continental brand abroad. Any target, any plans you can give us an update on that or what is the expectation over the next 2-3 years? Yeah. We had mentioned this. We are actually, you know, exporting our own brand requires a lot of, you know, background work in terms of doing your brand registrations, making sure all your statutory are in line. We're working on that, and hopefully in a couple of quarters, we should see the brand getting launched in a couple of countries, and that will be a start. Depending on how things go, we'll start expanding. We already had started, you know, selling in the Swiss market and the French market through an online channel, Amazon channel, so that we have placed the product. We are still yet to, you know, start a little bit of awareness building there, and post that we'll see how the brand is doing. If you were to go to Switzerland and, you know, search for our products, you'll find it on Amazon. Right. Maybe next year will be a year that we can see more. Yeah. more distribution from Yes, yes. Next year, definitely we'll start seeing some of the structuring, and then, we're launching in some of the geographies. Okay. Second question. Can you give a sense of out of our INR 1,100 crore gross flow, how much of the investment has been made towards packing unit? What's the utilization level currently, and when do we see this going up, you know, given our order booking and delivery that we have planned for the next 1-2 years? Around INR 900 crore of around INR 150 crore is investment that we made in the new packaging facility, and which is in operation around 30%-40% as of now, and we are trying to gear up for better utilization going forward. This 30%-40% includes what we're doing for domestic business as well, right? No, you know, it's domestic business and everything is included. It's more than 50%. Yeah. Because the domestic volumes are also increasing. We will continue to you know, next year, considering that the domestic business will also grow and international business, we are looking to gain back all the small packs. Hopefully we'll go closer to 70%-80% utilization, and then we'll see how we want to further expand. Because as we have already said, the further expansion will be only addition of machinery and not anything else because the infrastructure is already there. Those investments won't be much. They'll be very little compared to the overall investment when it comes to expansion further from that 12,000 metric tons. Got it. This EBITDA of INR 108-110 that we're working on a per KG basis, you see this number moving to INR 115-120, say over the next 1-2 years as a result of this and other efforts? No, we're not going to comment on that because as I was telling you, there are a lot of factors that are playing. Even the small pack that we are going to or looking to increase our business is largely on the spray-dried side, so where the margins won't be so expansive. We will kind of maintain this for the next, you know, one or two years, and then we'll keep, we'll see how things are moving forward. That we are not looking to aggressively, you know, increase from here on. Got it. Okay, thank you, sir. All the best. Thank you. Thank you. We have our next question from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead. Yeah. A question again on Continental Coffee Private Limited, which is our domestic business. In FY22, we had a sharp jump in the top line. If I look at our gross profit, you know, barely grew. Within that company, our employee costs also, you know, almost doubled, which accounts for almost 50% of the employee cost increase at the Group level. What kind of investments have we done in terms of employee there? When I look at gross profit versus top line growth, you know, there is a big disparity. Within that INR 170-175 crore of top line, what was the volume growth in FY22? Again, this year, when you look at first half, how much has been the volume growth? you know, First of all, the question about employee costs being reasonably higher. That is because if you see this whole setup is largely dependent on the distribution that we create. It is very employee heavy, unlike the B2B setup, which is not so employee heavy. Here to reach 150,000 outlets, you have to keep these kind of, you know, you have to employ these legs and feet on the ground who will distribute the product. Therefore, this explains the high employee cost for the subsidiary. Second, question you asked, what is the volume growth? Here, you know, very different from B2B business. Here, the whole pricing is based on the MRP model, which will be indexed to be a leader and our ability to charge or apply elasticity that we can, you know, get in the market. Keeping that in mind, the top line, the volume and the value growths are not very different. Every year we probably end up taking price hikes, so therefore there'll be a little 5%-10% difference. The volume growth, if the value growth is coming to, let's say, 30%-40%, the volume growth will be 20%-30%. This year, you know, last year I understand that, you know, the prices probably didn't move as much as the raw material prices went up. But, have you gotten any, you know, increases in, you know, the MRP this year to, you know, improve the gross margins there? Right now, the prices still continue to be very high, especially in the Indian market. The prices haven't come down, so we are not getting any, you know, margin advantage because of the coffee prices coming down. Mm-hmm. The good part about here is that, you know, once, because it's a consumer business, once we increase the MRP and if the prices do come down, what will happen is that you start getting a lot of margins. Because unlike a B2B setup, you need not decrease the price and MRP. Yeah. That we will be able to comment only in the next quarter when the new crop comes in, and we'll see how the price trends are moving for the Indian market. Okay. Yeah. That answers my question. Thank you so much. Yeah. Thanks. Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference over to Mr. Praveen Jaipuriar for closing comments. Over to you, sir. Yeah. Thank you once again for arranging this call, Abhishek, and thank you all for joining the call. Once again, wishing you all a very happy festivities and all the best for the new year, and we look forward to meet you again in January. Thank you so much. Thank you. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.