CCL — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
October 23, 2019 · NG NIRMAL BANG
NG NIRMAL BANG
scx>. · a relationship beyond broking
a relationship beyond broking MR. VISHAL PUNMIYA - NIRMAL BANG EQUITIES PRIVATE LIMITED Mr. CHALLA SRISHANT— MANAGING DIRECTOR- CCL PRODUCTS (INDIA) LIMITED Mr.
KVLN · SARMA
SARMA —
CHIEF · OPERATIONAL
OPERATIONAL OFFICER - CCL PRODUCTS(INDIA) LIMITED Mr. V.
LAKSHMI NARAYANA — CHIEF FINANCIAL OFFICER — CCL PRODUCTS(INDIA) LIMITED Mr. P.
S.
RAO —
CONSULTANT · COMPANY
COMPANY SECRETARY — CCL PRODUCTS(INDIA) LIMITED Ms. SRIDEVI DASARI
- COMPANY SECRETARY — · CCL PRODUCTS (INDIA) LIMITED
CCL PRODUCTS (INDIA) LIMITED MR. PRAVEEN JAIPURIAR — CHIEF EXECUTIVE OFFICER - CONTINENTAL COFFEE PRIVATE LIMITED
Chall Srishant
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
‘Good day ladies and gentlemen, and. a very warm welcome to the CCL Products India
Chall Srishant
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
“Thank you very much, Ladies and gentlemen, we will now begin the question and answer session, The first question is From the line ef Kaushal Shah from Dhanki Securities, Please goahead, Sie, from your comments is it correct to presume that going Forward in Q3 and Q4 as your numbers improve and cbwiouslythis higher ad spends will not be there, s0 it is correct to ‘presume that car margin aumbers will look better? ‘Yes, they will look betterin the subsequent quarters, Sie, iFryou can share some more colour on production atthe SEZ unit and where do we see the cuszent year's mumbere?
Also same thoughts on aw Vietnam expansion, is it on stream and when we ae likely to begin production From there? ‘As far a5 the SEZ is concerned, we had given a projection of about 50% utilization during this year and we are on track forthat.
QI and (2, the volumes were alittle lesser and Q3 ‘and Q4 we are expecting a higher volumes coming in.
We already have the orders in hand ‘and everything, so We are on track with whatever we have projected.
As far a5 Vietnam is concerned, We have started that expansion process now.
It is expected to compete in Q] oF nextfinancial year, Payments were made to all the suppliers and all and we ave proceeding as ger the plan ‘There were algo these two other expansions or units the agglomeration and the packing unit ‘hich were alo kind ofon schedule, so how is that progressing? “That alsois the same case, We have already started the werk on that and now we will come online, Again, we are expecting in Ql of next Financial year.
Sir, some thaughts on the overall demand scenario, haw are we seeing demandfrom various regions.
We have lost one lage customerin the last year, so any news onthat front.
There ‘was a possibility that some volumes from that customer could again come back to us, so some thoughts on the overall demand scenario and this particular one customer coming back tous? ‘Overall, if you lock at the global markets, yes, there is alot of new development that is taking place in the market.
Fest with respect tothis customer, [think I have mentioned this
Kanshal Shah
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
earlier also, we are in touch withthat customer.
He did place an order with us For one ofour ‘premium products, but the volumes that we used to supply, because he has his own plant, i is unlikely that he will transition that volume away from his own unit.
By virtue of producing within that country, he is getting a duty advantage also, so he would rather take advantage of thatathis end. ‘As Far a5 the global market is concerned, one significant development that has taken place cover the last couple oF months is that Brazil has become extremely competitive with respective totheir pricing because of a bumper crop in Brazil, Vietnam on the other hand, there is a very good erop in Vietnam as well, ta lot offunds have invested in the stocks, sothey are atfciallyinflatingthe prices over there as of now.
So, that isenabling Brazil to bee more aggressive in certain markets, but fortunately for us, the quality that is already established, people cannotjust automatically shift over from one quality to another origin quality very easily.
So, that is one advantage that we have, which is why we are able to ‘maintain our volumes, ‘One final question, I think there was alsothis think about duties being imposed on Vietnam exports to EL which I think is nonexisting in case of Brazil and therefore Brazil has alittle xdge versus Vietnam exports, Soany new development cn that? ‘Actually, that information isnot entirely socurate.
Brazil to ELis currently 9%, it has been 9%, itis also curently 9%.
There was a trade agreementthat Was signed a couple of months 0 With the intention to bring down from 9% to zero over a period of time, over four to five years, but that was not ratified by the respective countries, so that deal has not gone through, which meansthat Brazil will continue to be at that 9%.
So, ifthey have to be more ‘aggressive then again they have to take advantageof lower green coffee prices.
Even ifthey do all that, 9% is the additional cost that the customer has to bear.
As far as Vietnam is concerned, the Vietnam to EU is 3.1%, just the way India to EU is 3.1%, but Vietnam also atthe same time, in Fact before Brazil negotiated this deal, Vietnam had negotiated a deal ‘ith the EU saying that they will rtuce 3.19% to OM, but even that deal has not yet been ratified till now, but it was nok rejected the way thatthe Brazilian deal was ejected.
So. iF this goes through, then there wll be an added advantage ofsupplyingfrom Vietnam to the EU market “Thank you Sig this was very helpful, Thank you so muuch
Himansh Neyyar
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
“Thank you.
The next question is From the line of Himanshu Nayyarfrom Systematix, Please goahead, ‘To stant with, can you just share this revenue growth that we have got, what would the volume growth have been broadly? ‘The volume numbers are something that we are not giving out Himanshu, You already know that, No, ne, At least just wanted to have some sense whether at least our broad utilization rates are on track of iFthere is significant uptake or a miss inthis quarter, that is what I was looking to? ‘Thatison track, If you recall, this is something we have mentioned earlier also.
The first half oflast year was exceptional for us If you look atthe track record ofthe company for the last 25 years, Ql and Q2 is usually the lean quarter.
Q3 and QM usually @ much better quarter For us, Last year was an exception and now also ifwe are doing a comparison, the foct thot we ate meeting more ox less last year's numbers chowsthat we are on track and this year we are expecting Q3 and Qi to be better along the lines oFwhat we have projected, ‘On green coffee, iFyou can share the current prices?
Dothey continue to fll even now? “Terminal market price asof now is in the range of 51250 per ton as oppose to a couple of ‘months ago. it was in the range of about $1350 to $1400, so there is reduction, but the ‘variation that hastakenplace, the differentialhas changed.
Earlier the differentials were the people were working with was, may be +10, +30, now they have gone up to +200 So which basically means that farmers are not willing to sell the coffee below a certain price point ‘Though there is a terminal market reduction, the absclute reduction is marginal ‘Where were these pricessame time last year broadly?
Last year was litle higher, may be around 59% to 10% higher.
M depends on the origin, the country, it varies from regionto region. ‘And you do not see this improving anytime soon, atleast this year?
PraveenJaipnriar
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
No, we are net expecting any drastic changes or anything, terminal markets they are very volatile Itis a commodity market at the end of the day.
Anything can happen at any point in time, But, it is not like there is any drastic negative news or drastic positive news to significantly change ene way orthe ether Secondly, we were facusinga lot en expanding aur business in US, so if you could just share some update on how we are progressingthere and how is this yeargoingto be there? ‘As far a5 US is concerned, we are again on track with whatever we have planned.
In Fact ‘we have made some changes With the way that we operate there over inthe US as well.
The credit terms also we have changed litle bitin order to help grow the business over there ‘Going Forward, there area couple of large customers that We are speaking to over there and ‘we are expecting that impact to come in ftom next Financial year itself.
The agprovals process usually takesabout six months toa year.
We have already started that process about ‘a month and a halfago and hopefully, that impact will omein from next Financial year Next on the India business, could you share a update of how much revenue we have done for this quarter?
Iwill hand ever to Praveen, he can answerthis, In the first halfwe have done a business of 35 Crores.
I you rememberinthe first quarter ‘we had done a business of 15 Crores, s0 this quarter we have done a business of 20 Crores, so first half we have done a business of 35 Crores in the domestic business, Most ofthe incremental business that is happening ison account of retail sales. last year same period we have done a business of approximately 25 Crores, so all this additional growth that has ‘come is onthe account of retail market.
So, that is where we are a8 of now ‘One more thing, the 11 Crores that yeu guys mentioned, expenses on the domestic market, the advertisement etc., so would that be bocked in the standalone other expenses of the consolidated because when I see the numbers, | sub tracked and in standalone Ido not see that sert oF number getting bocked there? ‘This has been accounted for under standalone other expenses
Moderator · Conference Operator
‘Tanvi Shetty CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
No, but I thought thatthe India business isin a separate subsidiary right, but these expenses are booked in the standalone? “The brand is owned by the parent company itself, so all the advertising expenses and all that also we are only bearing that cost, because we are buildingthe brand far the company as & hale, ‘Okay, 20 that Will be inthe books, understood.
Final question on the tax rate, just warted to understand Q2 cbviously, there has been a significant decrease there, so just wanted to know on a sustainable basis for this Year and the next, what isthe tax rate that we should be looking at post the changes?
New tax rates are 229 which we are going to avail and the other two tax rate is at 219% So it would be 219% this year andthe nextyear beth right? “Thats ight.
So what aboutthe SEZ benefits for Chittoor, you are includingthose in the account?
You cannotavail SEZ benefits if you optfr 229% Right, sour effective mumber would be now 21547 Right.
Alright, that ll from me Sie.
Thanks an ll the best. ‘Thank yeu.
The next question is from the line oF Tanvi Shetty from Axis Securities, Please goahead, Sir wanted to ask that in spite offalling coffee prices sequentially, why do we see a Fallin grees margins, I mean, with your SEZ operations being commercialized in QI, the share of higher margin preduct should have supported the gross margins in this quarter as Well?
K VENSarma
‘Tanvi Shetty
‘Tanvi Shetty
Rama Krishna
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
“The prices of coffee ast is, of no relevance for us because we area cost glus manufacturer, 0 thefalling prices will nt exactly reduce or increase our margins as such.
SEZ had come into operation, but as we are informing, after coming into commercial operations, there ‘were some customer audits that will take place for selling the products from SEZ directly So ont ofthe 50% that we projectedthatis abent 2500, majority of itis booked for dispatch dluving QB and QA.
Bythis time, we have completed the client audits in total.
We have done some small quantities from there, but the difference of SEZ cominginto being will be seen very perceptibly between third and fourth quater. ‘Okayand Sir, your guidance of 159% to 20% EBITDA and volume level still holds right Sie, yOu still maintain that? ‘The thing is there ave several caveats during this year, like the MEIS whether it will continue or will get abondoned and what will be the scheme that will be in place subsequent to Decemberis one thing and tax rate of courseis decreased, but we cannot get the entire thing because SEZ waiver we cannot claim.
So there are several things that are in place ‘which we are analyzing, but broadly we are confident that we should be able tostick to eur intial guidance, that may not be grossly varying right now.
There are some positives, there ‘are some negatives, at best they can be neutralized and we should be sticking to our guidance as such ‘Okay, thatis helpful.
Thank you so rmuch Sir and wish you a very happy Diwali in advance ‘andall the best. “Thank you.
The next question is from the line oF Rama Krishna from Zen Securities, Please goahead, Ihave a couple of questions which respect to your domestic market initiatives.
First thingis just if you can help us understand the brandtraction singe yeu have launched the products in Indian market thatis the first question.
Second question in terms of sharing a perceptive ‘what is the overall market size of the product categories that you have introduced, you know, may be in terms of market share and all those things and may be finally, some thoughts with respect to the broader strategyto the domestic market, how do you want to ‘actually gain market share or increase the penetration given the higher competition already existinginthe market?
Thank you.
PraveenJaipnriar
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
| just will begin with giving you a bread outlock on the categories in Indian market and then will let you know about curinitiatives.
Basically ifyou see the instant coffee market is about 2000 Croresin India and there isa separate segment for Filter coffee wherein alot oF data is net available, so we do notexactly know how bigis that market, but that will ery small when compared toinstant market.
So that is how the market is, We have launchedproducts in three categories.
One isin the instant category.
Then Wwe have launched a product in the roast and ground, which isthe filter coffee market ard a product in the premix category, which is very nascent in India, Right now the sales are almost negligible for this category, but this category is an upcoming category and. hopefully in future it will become big.
So thatis a broad overview of the market.
As of now, to begin with, we are focusing on south of India, the four states of Southern India and we have launched our products.
We have got a sales team to wach out a certain number of outlets ‘and it is only very recently from the last couple of quarters, we have started building awvareness through mass media advertising.
Although this is only the initial phases of eur brand launch, however we have started seeing decent traction for the brand.
The brand has now started to get picked up in retail audit data, we are getting some shares in some markets and we are seeing share gains and oursales are moving quarterby quarter, which is «a good sign for most of our products, That was from my side.
Anythingelse you would like to know? ‘You have mentioned that market share are stil very small as of now?
So I just wanted 10 understand before vrapging from myside, any feedback over the last, may be whatever time period that you have launched the products in the Indian market, particularly South India, any product based feedback and based on that feedback any improvisation, so if you ‘can shave some thonghts an that in terms efproduct enhancement and such initiatives?
When we had launchedthe product, we had gone through a very stringent product test with consumers and only after we got postive feedback from consumersat ground level we had launched the product.
Even after launch, the reviews have been prety goo.
We purposefully kept our productsdistinctive from what the competition is therein the market ‘and accordingly we are getting very good feedback.
Till now there has been no reason For us to change the product because we already had tested the product and we have found it god, Yes, there would bea certain set ofconsumers who mayne like our products, but in FMCGcategory, itis net correct to change the products so often, But at an overall level, we
Moderator · Conference Operator
Lokesh Manik
PraveenJaipnriar
Lokesh Manik
Lokesh Manik
Y. Lakshmi Narayana
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
have got very positive feedback IF you go to Amazon site, most of aur products have got extremely good reviews, So, product Feedback has been pretty good overall Sure thanks this helps ‘Thank you.
The next question is from the line oF Lokesh Manik from Vallum Capital Prease go ahead.
My question pertains tothe expenses.
One is, you have mentioned that when we intially launched into the B2C segment, we had budgeted about expense of 25 Crores to 30 Crome, ‘which the parent company would supportand that activites are mainly pertaining to BTL ‘ctvites that is below the line, Now that we have moved above the line, has this budget changed now going forward?
Fundamentally, it has not changed.
What we have said that is we will spend around 30 ‘Crores for the domestic market, out of which we have envisaged that approximately 13 Crores to 14 Crores would be supported by the parent company, so that was the ATL expenses whichSrishantalso mentioned alittle while ago Since the domestic operation is a nascent operation and we have to monitor each and everything not only on a quarterly basis, but say on a monthly basis.
So as we go along, probably we will we if there are certain changes required, because that is when we will decide.
So we are taking quarter by quarter.
We have spent arcund 1] Crores.
Next quarter also we will spend seme money and then subsequently see how things pan out in the Fourth quarter ‘On an average about 10 Crores a quarter, would that be a correct estimate?
When you speak of overall expenses, everythingis included, ATL, BTLall SNM expenses ‘and below the line expenses, then probably yes, 10 Crores a quarter could be a fair estimation, But ifyou talk about media, it comld be close to between 14Croresto 17 Crores 1B Crores and thats all dependent on how oursalesgo thronginthe season. ‘Another question was on the expenses pertaining to the SEZ operations and the licenses, {ust forclarification, these are one time expen ses? “These are revenues, nat expenses, Licenses amount, which we are mentioning about during this quarter is on the revenue side.
Because of some glitch in the software at DGFT, they Lokesh Manik
Ayush Bhutada
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
have been delayed, So we have short received revenue side licen ses tothe extent oF about 5 ‘Crores duringthis current quarter, ‘Okayand the SEZ operation about 4 Crores, that i again included in this?
Currently these tno quarters, we operated at lower capacity but that will be covered in coming quarters. ‘Thank you, We have the next question From the line of Kaushal Shah fom Dhanki Securities, Please go ahead, ‘On the retail side, India busines, since we are spending aggressively on ad spent now, ‘would you want to sort of re-visit or have a higher target for the retail business, or we sheuld contique withthe earlier numberthat we had shared?
When we say higher spends, only the phasing of spends have changed.
So, if you remember, we had given guidelines that we will be probably spending around 14 Crores on topline, which ison TV.
The only thing is that, instead of spendinglate in the season, we have preponed a litle, so that we are able to capture the season well.
So, therefore spends have net more than what we have envisaged, which means that we Will stay on track with whateversid earlier.
Bath in terme of the topline, mearing the revenue For that business as well as the expenses ‘We will not kind ofcontinue on the same trajectory?
Yes “Thank you Sir, ‘Thank you.
The next question is From the line oF Ayush Bhutada from Aequitas, Please go ahead.
Sie, I just wanted to understand on car balance Caper plans of the agglomeration For packing unit and Vietnam line balance, 20 all those will be funded by internal accruals right?
Ayush Bhutada
Praveen Jaipuruar
Y. Lakshmi Narayana
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
MajorityoFthe expenditure will be made from internal accrual only. ‘Continuing on the demestic side, you have guidedfor a 110 Crores sales forthe ull year, s0 is thaton track?
Yes, as I was telling earlier, we are on track of it.
However, we are new brand, a lot of things work in our favor a lot ofthings do not work in our Favor.
We will be able to give a better guidance as we move along.
But, as of new. tll now. we are on track.
We have done 35 Crores of sales already and we are yet to approach the season, sales happen during the ‘wintertime, sowe are leoking forward to achieve the guidance that we have given. ‘Overall expenditure on the branded business will be in the range of 30 Crores to 40 Crores right?
As you mentioned, Yes Ijust wantedtoclarifyon the other expenses fontthat you mentioned in the beginning.
The 4 Crores interest and depreciationadditional expenditure, could youjust repeat that pant?
Sir Lam sorry, you are nck audible.
Initial expenditure on account of interest and depreciation, is related to the SEZ, which has come into operation ‘Okay, so that is going toa part ofthe other expenses separately right?
Interest and depreciation are different.
Other expenditure, which includes an expenditure incurred on acccunt ofadvertisement et, which we have satedin the beginning. “That would be 1] Cronesright?
Yes So 11 Crores partis the additional expenditure included in the otherexpenditure Yes
Chala Srishant
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
‘Okay Sir, thank you so much ‘Thank you.
The next question is from the line oF Bharat Gupta from Edelweiss, Please go ahead.
Sie, I just wanted to ask about the Vietnam utilization levels, 30 at what levels are We currently operating? ‘As you know, the optimum utilization is about 90% considering the seasonal nature.
At SEZ the utilization at First half beenlower and overall forthe year, we will be doing abent 50% utilization in SEZ and other places, they are at optimal.
In fact, our base unit, the utilization has been around 90% and thenin Vietnam, on an annualized basis, we are around 709% utilization ‘Okay, but I think on the guidance Front, we were guided that the Vietnam capacity utilization will reach by 809% in FY2020, so are we on track on that? ‘Correct the second half, the utilization will pick up being the season and on an annualized basis, we will be able to achieve it My next question pertains tothe coffee consumptions, Like in the Eurogean markets, we export close to 7000 tons of coffee, soI just wanted to get a-clariy like what has been the contribution oF instant coffee on that side?
Its only theinstant coffee that we are exporting, What else do we export?
Ih the MDA section in the annual report, it was stated that the coffee consumption in the European market has been increasing by close to 1.5%.
So while the market remains ‘optimistic forthe instant coffee consumption, so just wanted to get a sense about what are the Factors Which are driving outte instant coffee consumpticn in the European region?
In the last couple of years, usually up to 1.5 to 2.5% is the growth that has always been there in the instant coffee sales.
In the current year, what we are secing is that there is a growth, especially in the spray drying sector and roasted coffee segment is actually growinga little bit more, We were talking about may be 1% change and this is also accaantable becanse ofthe decrease in population alsoin EU.
Rohan Koshy
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
‘Okay, thank you Sir Iust a couple of questions From my side, one is an this SEZ operation you said that right now you are mesting the demandfrom the current facility onlyand it will be entirely shifted only inphase 2, right?
Baththe plarts will run through the optimum, ‘Till the ewrent quarter we have not ln the current quarter, this certification pracess is going on, the wilization was lesser, but en ‘an annual bovis, we will reach 509% utilization even at SEZ side We can now stant supplying from the new facility?
Sorry vas askingall the customers approvals are taken care and we can start supplying now rom the new Facility?
[Notall the customers, but tothe extent that we intent to shift to SEZ, we have taken care of the certification process.
Now, the capacity at SEZ can be fully operated among the customerprofiles that we intent to supply Fram SEZ, Sir, just a clarification on the ether expenses.
You mentioned that it was 1] Crores with regards to advertising and Rs.5 Crores MEISlicense fee is alsoincludedin other expenses?
No, MEIS is not an expense, Actually, these are two different aspects, MEIS licenses that ‘we did not realize ison the revenue side ‘Okaywhich we did net realize.
Rs.5 Crores which we are yet to realize?
During this quarter, we did not realize due tothe software glitches at DGFT. ‘Okay, Just once again some clarification on this only, So Sir, this India base Facility, you ssid that this First half have not operated at full utilization or slightly low because of the seasonality Factor only or less demand?
Chala Srishant
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
‘Can you come again onthe question?
Sie, the base Facility India, in First halfdid not operate at 1009% utilization, it was lower in terme of wilization level? “That operation i 809% utilization, ‘Yes, but you mentioned that it was operating below maximum utilization, was it mainly because of lower demand? “There is a seasonality factor, also since itis a batch process, we cannot reach the 100% uilization capacity.
So, optimum itself is about 90% of which we have already achieved 80% during the Fist two quarters and we will make up forthe balance in the coming quarter ‘when the season picks up the utilization will be better.
Overall we will be dealing at 85% utilization, Sir, justlat, o you mentionedthatthe glabal scenario which is very volatile ight now with the Bradil, they are offering a competitive pricing for their products while Vietnamis still ‘maintaining them, s0 how you see that it is going to affect your procurementofgreen coffee prices?
Andisthere any sort ofthat we will have any pressure on margins? ‘These challenges are always going to be there, the pressure on margins also Will definitely be there, it is not an easy market to bein and as you must have already seen, where literally ‘only companiesin the instant coffespace thatis actually growing and recently in fact, our Chairman also got that recognition and award for contribution to the soluble coffee industry, lifetime achievement award.
The reason also For this recognition is unheard ofin the instant coffee space to see the kind of growth that we have, The main reason for our growth is because of the ability to customize and the right partners we have in different geographies with which we have been able to grow volumes overthe years and the same strategies, we are hoping will help us grow volumes in the Future as well.
It is constant innovation that is taking place.
We are not just ding one single standard vanilla size product.
When we sayinstant coffee, lat of people have the misconception thatthe instant coffee will be only single quality or blend.
We have mumerous qualities and blends that we cdo which enables us to ensure that this gromvth continues in a sustained mance.
Moderator · Conference Operator
‘Anurag Pati:
Chala Srishant
‘Anurag Pati: CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
Sure, that we understond shout the campany's business and the robust business process that you have already set up.
Iwas just asking that the current scenari, eapecially From the Brazil which is looking very competitive in terms oF pricing, 20 is there any risk to the margin which we are 90 Far now happyin maintaining?
Ys, I ould notsay there is no riskatall, but then again that 30% excess capacity in the ‘world, 90 we have always had that risk even in the gas, there is no nev rik as such which has come in, Also, one thing we should keepin mind is Brazil, whoever is buying a generic product where they can transition from one origin to another they might consider Brazil as 4 serious option, but that is only a small gercentage ofthe market.
The rest of the people ‘who have certain brands or blends which are established in the market, it will not be easy for them to change over because Brazilian green coffee taste profile is completely different from the profile in Indonesia, Vietnam, India and other origins ‘Sure Si, thank you very eric ‘Thank you, We will take the next question From the line oF Anurag Patil From Roha Asset Management, Please goahead, Sie, we were planningtolaunch a new product called Cold Pro, so can you throm some light ‘on that Front, how is it going and addressable market and epportunity in this segment?
We have actuallyintroduced this prosuctin the EU and US mateet as of now and the initial response that we have got has been quite good.
We are working with some customers for some product modifications and development.
We are hopingthat the initial orders will start coming in from (3 onwards, Becauseitis a new product, all customers will quire sometime to create 2 new product category in that market, 0 We are not expecting any sudden spike in volumes or anything in the immediate future, but we are confidentthat over the years, that volume will come in, Because of the R&D that we have done, itis literally “unigue only For our company. ‘There is nobody else in the world who can offer this same product ‘What can be the gross margin forthis product, will it be relatively higher compared tothe current marging?
Chala Srishant
‘Anurag Pati:
Kavaldeep Singh
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
Iris actually little tricky For me to tell because it is @ new product that we are tying to introduce, Whatever we mention over here is again public information, soit will be actually detrimental for usto give information specifically to product ‘Okay, that was from my side, thank you. ‘Thank you.
The next question is from the line oF Kavaldeep Singh from Ambit Capital Prease go ahead.
Sir, L wanted to get a sense on any working capital changes which have been there in the last six months, because the last time when your anmual report came out, we saw that receivattes had increased especially for the Vietnam subsidiary and even now, I actually see thatthe standalone receivables have increased, but on a consolidated level, it is more of less the same, so if you just throw some light on this increase period which you had extended to the US customersif those receivables which are more than $0 days, whether theyare coming in? ‘Our objective has been to grow that volume in the US market, Our partner over there was also explaining that the tradition that they follow in the US marketis to offer that extent of credit, As far as we are concerned, our customer is still our partnerin the US, but if he is able to extend credit, he was confident that he can grow volumes for us in the furure.
So, that is the reason Why we took a business decision saying that we will start extendingthat credit in orderto establish more volumes in the Future, Right understood, sothere is no caveofany bad debts due tothis extension ofcredit, right?
No question about bad debts or anything, ‘Okay and the increase in the receivables From the Indian parent, is that also to the US ‘customer or some new customers have been onboarded?
Sorry, Idid notget it, canyou repeatthat Sie, there is an increase in receivables For the standalone entity of around 40 Crores, 60is that because ofa new client addition or is that algo being extendedtothe US customer?
Moderator · Conference Operator
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
‘Actually, partially because oFthe US business and partiallythere is ancther bigger customer that we have added as well So, because oftheir business model, we have to cffer him credit as well.
I isa very well established company, there is norisk, but the credit is essential for sto get that business Right, so mean my concen was basically on the cash conversion, because I saw that cath conversion has detericrated over the last one year, so You are saying that there is an extension of credit, yes, but cash conversion should remain healthyand there should be no problem over the next six months er one year right? “The cash position is likely to be improved in a year's time, one's as of now because ofthe extended credit to ancther client to whom we have developed the US market, and as well as seconds the capex programme is completed and in ayyear's time the cosh positions ping tobe bight ‘Okay right, thank you Sit.
Si, al30.0n the Swiss subsidiary, has there been any new traction in terms of business which you expect overthe next yearalso?
We mentioned last ime that curdirectorover there, we have targeted forsome business For local supermarkets, we have started doing that and the equations have started about six ‘months ago.
That is continuing as ger curplan.
Now that we have introduced our products in these urits, that should enable us to get access to some new supermarkets also for the next couple of years, We have already got the contract with the existing guys forthe next Financial year as well, so that is already in place.
They place an orderusually 12 months in advance, sothat also has come in, So, we are an track with the Swiss subsidiary as well Right, Sir any sales target for this yearforthe Swiss subsidiary, iFyou can shave that with Iris actualy a little difficult to answer because itis a subsidiary company everything gets consolidated anyways, s0itis very difficult for me to give you a clear number over here. ‘Okay, right Sir.
Thank yeu.
That will be all From my end. ‘Thank you.
The rext question is From theline oF Anish Jabalia from Banyan Capital.
Please goahead,
Moderator · Conference Operator
Akhil Parekh’
K VEN Sarma
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
‘Actually I have a couple of questions and most specially like data pints, So, Ijust wanted to kncay atthe SEZ plant, what would be the Fined cost fr the half year, can you share that number? ‘Around 22 Creres which includes depreciation and interest {Lam talking from the other expenses, like I mean above the EBITDA line, do you have any fixed costin the First phase?
Fixed cost, you can take it in thee components, one is salaries and wages & Admin exp. hich is around 6 Crores, Interest is around 4 Crores and depreciation is around 12 Crores, sototal itis arcund 26 Crores Fer the whole year. ‘So you areexpecting this much For thefill year, that is what you ae saying right? ‘Thats the whole year, that is right.
Second question is regarding the retail business.
You mentioned about the advertising expenses, but apart from that, are there any expenses Whichis there an the P&L apafrom that 20 Crores forthe half year, is there anything more than that for the retail business, iF OU can just share that? | do not think there is anything more than that.
Thatisthe anly part which is on the brand building side, that is the only ameunt, nothing else Alright, thank you so much ‘Thank you.
The next question is fram the line cf AKhil Parekh From Elara Capital, Pease go ahead. ‘You work on cost price basi, could you just give us a sense oF haw the gross profit per Kp, how ithas been forFisthalfof FY2020 versus Firsthalfof FY20197 Last yearthe second quarter was a peak, there was exceptional improvement in the prafit lat year, We have almost met, but it is not exactly same, itis 2 basis point vis-d-vis last jeer, That alsoaccounts for expenses and other things Akhil Parekh’
K VEN Sarma
Akhil Parekh’
Akhil Parekh’
Akhil Parekh’
Moderator · Conference Operator
Anshul Mittal
Chala Srishant
Anshul Mittal CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
My question was on realization, which we had guided for Rs.600 per kg, are we seeing similar kind of realizations at current point oFtime? ‘You are askingabout a specific Figure ofrealization For SEZ?
Yes, initially when we did the Caper, we had maintained 300 Crores of Caper will have similar kind of sales on the new SEZ unit which roughlyconverts into Rs.600 per kg for the freeze dried coffee, so I am just saying are we seeing similar kind of realization For the Freeze dried coffee aris it declining?
On & yearly basis, we will receive those figures, quavter-to-quarter, they might change betmeen partyto party depending on the volumes we get, but the guidance figure remains the same, there is no decline cn the guidance, ‘One last question on guidance.
My question is on the sales and PAT growth guidance for FY2020, we have maintained that we will do arciind 5% to 10% of growth, do We stick to that guidance? ‘Yes, we stick tothat guidance. ‘Okay, thank you so much, ‘Thank you.
The next question is From the line oF Anshul Mittal frem Care Portfolio Managers, Please go ahead, ‘Can you thro some highlight on the coffee production in India scenario oF it due to heavy tainfall and floods which we have been hearing in Southern India?
So.can you highlight on the fact? ‘Yes, because of tha, the green coffee prices within India is going up, because of that, even the brands have increased their prices in the market, You weuld have noticed tht ‘Yes, but can you give a highlight on the number, what would be the production figures oF how badly it has been impacted?
Chala Srishant
Anshul Mittal
Moderator · Conference Operator
SuvarnaJoshi
Chala Srishant
SuvarnaJoshi CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
Frankly, we do not have that much in depth data, we know that at least almost 20% oF the production was negatively affected within the country and cut of which, that has also resulted in a price increase.
So, whatever is the terminal market price, the Indian differentials have gone up substantially becauseofthat ‘Okay, that is From my side Sit Thank you, ‘Thank you.
The rext question is from the line oF Suvarna Joshi from Axis Securities, Please goahead, Most of my questions have been answered, but justhad one quick question.
We had been as part of ourstrategy Focusing more on small packs and forthelast two quarters, we have net heard much onthis particular part ofthe business, so ifyou could just highlight something ‘on how this particular strategy is working for us and what is the contribution to revemues coming from small packs as of Hl of FY2020 versusthe similar period last year, that would be really helpful? ‘The main reason for us to focus on small gacks is also because it is more sustainable business in the long run.
Eater, cur primary focus used to be on bulk business, to re- pockers and resellers and these people used todoit into small packs and then supply tothe retailers.
What we are doingis we are transitioning some ofthat business from bulkto small pocks, During the transition, sometimes we may even end up forgoing some bulk business in onder to ensure that we get small packs, which is growing yearon year.
From last year to now, We have seen a substantial increase in our small packs already.
All the Switzerland business that we are doing right now is entirely small packs.
The bulk business would be very small.
The reason for this new packing facility is also because of the extent that the small packs are growing both in the domestic market as well asin the export market.
As Praveen was mentioning earlier, B2C segment is what is growingat almost 100% rate of more, © the small packs basically are increasing quite substantially even in India, So, we need to be geared upfor the next few years which is Why We are setting this new facility as vel Sir, just followup on that, you mentioned about again entire business to Swiss geography is being through small packs, s0 haw much would that contribution be to our total revenue per se and how much isthe current contribution ofoverall small packs in cur business?
Chala Srishant
SuvarnaJoshi
SuvarnaJoshi
Moderator · Conference Operator
‘Yaibhav Bhagoria: CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
‘As far ae Switzerland is concerned, may be less than 5% will be through this company in small packs and overall | would say may be around 20% oF what we are doingis in small packs Sure and we remain Focused on the target of achieving small pack revenue profile to be around 20% to 35% overthe next couple ofyears?
Yes, we are ‘Sure Sir, great.
Thank you so much and wish yeu alla very happy Diwali and a Prosperous New Year and good Inck for the future ‘Thank you.
The next question is from the line oF Kavaldeep Singh from Ambit Capital Prease go ahead.
Sie, we note that your receivables for standalone have actually gone up, but on a consolidatedlevel, your receivables are broadly where they are, s0 what can explain this difference?
I think I have already mentioned this eadier, For the US business, in orderto build volumes forthe long un ‘Yes but then the consolidate shauld also gop right?
Kavaldeep, the realizations have been substantiallybetter in Vietnam and other subsidiaries also, We are able to realize the receivables Faster, soon a consolidated level, the difference is not as much, ‘Okay, thank you Sir. “Thank yeu.
The next questionis From the line oF Vaibhav Bhagoria, anindividual investor Phease go ahead. ‘My question is on the line ofother expenses, Se, as we kno the consolidate other expense duringthis quarter was around 61 Creres, whereasinthe last year, same quarter was around
K VEN Sarma
‘Yaibhav Bhagoria:
‘Yaibhav Bhagoria:
‘Yaibhav Bhagoria:
Moderator · Conference Operator
‘Ashok Shah’ CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
43, s0 around a difference of 18 Crores, so do you think that this cther expenses of 61 ‘Crores is going to continue in the next Q3 and Q4 as well, will it be onthe similar line? ‘They might slightly come down because substantial advertisement costs have been made during this quarter, but we do nat know ifhe response is Yery goed and we are able to get better business in the domestic market, there may be some more expenses in the coming, quarters forthe advertisement and brand building, So mere.orles it will he semewhere around this mumber itself?
Slightly lesser Slightly lesser, okay and what kind oFgrowth in revenue and PAT mumbers do you expect in Q3 and Q4 versus last year?
We are expecting the PAT level growth around 5% to 10% as we stated already to your previeus question ‘To answerthe earlier question, there are several things, several uncertainties, positives and negatives happening in respect of taxation, export incentives and all that, so right now we ‘are confident that we should be able to get the guidance that we have given earlier to be adhered to, Exact figures of what will be the Q3, Q4 development, we are not able to exactly explain now, but say on the MEIS side there is 2 negative news, but onthe taxation side there isa positive news and we have come up with a new company which is a packing project, the taxation would be Further less.
So we are taking into account all these Figures ‘and atthe present we wish tostick to-ourearlier guidance that was given Alright, that i all from my side, Thank you, “Thank you.
We have the last question fram the line of Ashck Shah from LEC Securities, Prease go ahead.
Regarding our head spend cf 1] Crores, are we spending anything on distribution setup as 1 ‘was travelling to Southern India, there were a let of distributors, but cur product was nat available at supermarkets and alsoin Western Indi, itis notavailable at all?
PraveenJaipnriar
‘Ashok Shah’
Moderator · Conference Operator
CCL Products {India} Limited
October 23, 2019 · NG NIRMAL BANG
‘Gut of this 11 Crores, as Srishant had mentioned earlier, we had started advertising a litle earlierin the season this year and out of which a large portion was on advertisement and certain portion is also we have taken a celebrity on board and also those payments have been made atthe start ofthe contract.
So thisis forthat payment and advertising and we are largely right now Focusingin south states, because we have just launched the brand and we ‘want toestablish our success factors here and then subsequenttothis we will move to other states because you know that generating awareness and generating pull for the brands in non-south states becomes difficult because you have to advertise on national channels and that becomes a very expensive exercise, 50right now we have not started distributing in ther states except forthe seuth states, ‘Okay, thank you. ‘Thank you, That was the last question.
I now hand the conference over to the management for their closing comments | just wanted to wish everybodyonthe conference call a Happy Diwali to you and to your respective Family.
Thank you and will talk to you again next quarter. ‘Thank you very rch, Ladies and gentlemen, on behalf of Nirmal Bang Equities Pavate Limited, that concludes this conference call for today.
Thank you for joining us and yeu may now discennect yourLines