Carnival Corporation & plc Price & Performance (CCL)

Thank you. On behalf of Fintech Stock Booking, warm welcome to all the participants on 3Q FY twenty twenty five earnings call of CCL Products. From the management, we have Mr. Shailesh Seshad, Managing Director Mr. V Mohan Krishnas, Executive Director Mr. Praveen Jaipuria, CEO Mr. V. Lakshmi Narayan, CFO and Mr. C. David Dasani, Company Secretary on the call. Without further ado, I would like to hand over the call to Mr. Jaipuria for open remarks, post which we will open the floor for Q and A. Thank you. And over to Mr. Jaipuria. Yes. Thank you, Manish. I welcome you all to the earnings call for the October quarter. The supply chain headwinds continue to force challenge on the business front. You all know green coffee prices has remained volatile and has been driving. Despite the challenging environment, CPL Group has been able to perform well, achieving a turnover of INR758.4 crores for the third quarter as compared to INR 664.48 crores for the corresponding quarter of the previous year, thereby registering a 14.13% growth. The EBITDA stands out to be INR 127.22 crores, registering a 13.53% increase with respect to corresponding quarter. And the profit before tax is INR 71.87 crores, registering a 7.77% growth with respect to corresponding quarter.

The net profit after tax remains flat at INR 63 crores as against INR 63.2 crores for the corresponding quarter of previous year, largely owing to our sales operation, 50% of the profit of which has now come under tax bracket and higher deferred tax. As far as the YTD figures are concerned, the group has achieved a turnover of INR 2,269.9 crores as compared to INR 1,926.9 crores for the corresponding nine months period for the previous year, registering a growth of 17.8%. The EBITDA is at INR396.46 crores, registering a 20.37% increase with respect to the corresponding nine months period. And profit before tax is INR246.37 crores, registering a 19.7% increase with respect to the corresponding nine months period. And the net profit after tax stands at INR208.47 crores as against INR 184.85 crores for the corresponding nine months period for the previous year, thereby registering a 12.77% growth over last year. The domestic business performance continues to be robust and has achieved a gross turnover of INR $3.30 crores till now YTD, and out of which, the brand contribution is nearly INR $2.20 crores. For the quarter, the domestic business did a business of INR 140 crores, out of which brand was approximately INR 90 crores.

So, this was in brief the performance review. I now open the floor for questions.

Thank you, sir. We will now begin with the question and answer session. The first question comes from the line of Charisha from Venture Growth Partner NLP. Please NLP. I wanted to ask one thing. Because we see that the cost is already in single digits for the future, so where do we see as a company in five to six years down the line for both B2C and B2B segment?

Can you just repeat? There's a lot of background noise that is coming. You were not really very clear. Actually, you're audible, but based on background noise, I don't know where this is coming from. Is it Okay. I was saying like because the coffee growth is in single digits in India and across the globe, so how do we see as a company in five to six years down the line? Where do we stand for both B2B and B2C segments?

Okay. So, let me just tell you while the coffee growth has been low single digit, but what if you see our strategy, it has been both for B2B and both B2C. Our market shares are really low single digits. For B2B, we probably, globally, are at 7% to 8% market share. And in domestic market, the B2C is 3% to 4% market share, all India, which means that we have very good ample room for growth by taking market share. So we, as of now, are really not bothered about the segment growing or not. Having said so, the next four, five years, we'll be aggressively driving market share growth, which will mean that we will attain a much larger growth than what the category is growing at. So that's for the next four, five years. And even beyond that, we have a belief that economies like China and India, which have been largely tea drinking economies, are now converting to coffee. And we know that these are the two economies not just for coffee, but for many other segments will be driving the growth for the next couple of decades. So we have, we are seeing that even the coffee growth will be driven by these two economies.

And that's the time we'll probably ride the category growth once we have attained sizable market shares in both the segments.

Got it, sir. I just wondered, Ash, like because in B2B segment, we have a cost plus pricing model, so we do not have so much to perfect the volatility of coffee prices. But in B2C segment, can we have very good margins, more than what we have usually? Because the cost is going Yes. So absolutely, that's the whole idea in the long run that the B2C should help us earn more margins. Of course, these coffee prices, if you see, if you track for last two, three decades, there are cycles when the coffee prices go up, but definitely they also come down. In B2C also, there is a we do take price increases, although with a lag effect, not like B2B where any kind of you can do immediately, But we do have an option of taking price increases there as well. But having said so, we are confident that over a long period of time, definitely the B2C segment, the branded segment will help us gain more margins than the B2B setup.

Got it. And by when? By this year, financial year?

Sure. I would request you to rejoin the queue if you have any further questions.

So we can get more participants. And thank you. The next question comes from the line of Avnish Roy from Nomura. Please go ahead.

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

So, yes, Avnish, you're right. We probably are not the leaders. And therefore, as a pricing policy, we tend to follow the increases that the leaders are taking. And that too, you know the category because the large part of the category also comes from LUPs, which means that the price increase is a little difficult there, especially in the Sache segment and all. Having said so, in the larger packs, we already have taken almost 30% to 40% price increases in the last one, one point five years. And I think another 10% to 15% lag is still left. But we will wait and watch for the leaders that how do they take this forward. And accordingly, we will formulate our price increases as strategy.

So thanks. Two follow ups there. One is, till when the new crop we'll have to wait, so then we can expect deflation. Second is, for you, how much is CACHE? And have you taken any grammage cut there? I do understand grammage cut is very difficult because overall experience for the customer gets impacted. But if you could tell us any grammage cut you have taken and how much is the percentage of the total mix in the LUPs?

Okay. So, let me take the first question first, which is like when is the crop expected. So, at least in India, the crop has started pouring in. But this year, we don't see that the prices will drop because Indian coffee prices will also follow global trends globally even after Vietnam crop has started to pour in and has started to come. We haven't seen any price reduction this time. So, probably we'll have to wait for other crops to come in, which is the Valeant crop in May, June. That's the time we will see how the trend goes. But as of now, the prices are not softening. Now, that's the answer to the first question. The second question is as far as LUPs are concerned. Almost today, our 30% to 35% of our sales come from LUPs, which is still reasonable considering that some of the leaders, their sales are almost 50% to 60% of their sales are LUPs. There have been grammages cut over a period of time, not very much because there is a certain cup of coffee that you have to deliver with one LUP. So, we don't have a lot of leeway to cut grammages.

But yes, there has been 10% to 15% grammage cut that has happened in LUPs in the last one, one point five years.

The next question comes from the line of Parth Agarwal from Bastion Research. Please go ahead.

Hi. Thank you for the opportunity. Can you help me with the volume growth for the quarter on a Y o Y basis? So, volume growth, if you see this quarter, has been marginal around 3% to 4% or so. And the YTD, if you see the first quarter, we were around 13%, fourteen %. The second quarter was around 9%. So, we have on a YTD basis close to 10% of volume growth. Got it. And secondly, sir, if I look at your margin sequential basis compared to Q2 FY 'twenty five, gross margins have been pretty stable or rather have increased. But when it comes to EBITDA margin, they have slightly declined. So, any reason for that? Is it because you ramped up the new facility or there is some other reason? So, if you see the standalone figures, there has been a little bit of a decline from quarter two, but probably a good increase from last year. Now that this decline from quarter two is largely because of some of the variations that have happened. We also have started the new factory wherein some products were made for intercompany transfers and all that. So that led to a little bit of a strain there, but these are not substantial in nature as far as the margins are concerned.

In fact, if you were to look at a broader level, there has been improvement in margin in spite of the volume growth being closer to 10% at a YTD basis. You'll see the EBITDA margins are EBITDA growth has been largely 20%. Also, margins are really, when we tell people, the margin should be looked at from a volume perspective, not at a value perspective because value is, because of our costless model, whenever the green prices for fee is increasing, the margins optically will look that they're coming down, but actually they are not on a per kg basis. In fact, we have improved our margins. Got it. And then is there the mix facility went right now? I think it was expected by December. Which facility are you talking about? The 7,000 metric ton that was expected in WaveNet. The new facility, this quarter we will commission that capacity. Okay, good. So, in the trial, there are some adjustments and balancing and stabilization that needs to be done. So, instead of December, probably this quarter, we will be stabilizing that and starting the operations. Got it. Just last question from my side. So the B2C run obviously I want you to rejoin the queue, please.

Those were your two questions. Thank you.

Thank you. Thank you so much.

The next question comes from the line of Chetaniya Sharma from Tradewalk Research, LLP. Please go ahead.

Hi, Amar. Yes. Yes. Go ahead.

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

Okay. So, the pricing field actually affects all of the segments because the coffee component is pretty large even if there is a chicory mix there. In the institutional and the Horikawa segment, they are a little more aggressive because none of the buyers would like to increase their end costing to the customer or the consumer. So, pressures are there on the pricing front and nobody likes higher prices. But having said so, it's been a challenge and this is a challenge for any category. If you see when the commodity prices rise, taking up price increases do pose a challenge, but one has to live with it. We are also very carefully calibrating our price increases, making sure that we strike a right balance between generating enough volumes and not to lose volumes because of prices. But yes, pressures are always there when prices are higher. Coming to your next question, which is about how is our B2C divided in terms of zones and all that. So, as of now, almost 65% to 70% of our sales still come from south, but that's how the category is also constructed. Probably, we are a little ahead of the category by 5% to 10% when it comes to contributions.

But that is because in the initial four, five years, we were very focused in the Southern markets. We were very keen to make sure that we are able to have a strong foothold here and then spread our wings. As we say so, our contribution from the other markets, which is beyond South, has been now constantly increasing. Just to give you a picture, two years ago, our contribution used to be 80 percent, 80 5 percent from the South, which is now at 70%, which means that the other zones are also growing. We are also expanding distribution. Selectively, we don't want to be all over the place, but we are selectively in other zones also. And we are very fast picking on spaces like quick commerce and e commerce, which we feel is a very efficient delivery and distribution model in non South markets where we may not have a very expensive distribution.

Thank you. And Mr. Just one more follow-up question, if I can ask.

Yes, please.

Yes. So, what's the kind of trend you are seeing in the experimental coffee that you have, be that flavored coffee or decaf coffee? What kind of trends are you seeing there?

So, we are seeing quite exciting trends. Generally, if you see in any food category, a lot of these trends get built up out of home. And what is happening is that you can see the amount of cafes that are coming around all of us. And these are serving a lot of experienced shell and experimental coffees. And that's how when people get used to these kind of coffees, then they start consuming at home also. We have seen a fair bit of pickup in segments like flavored coffee and some of the higher end coffees even in home. And that's the trend we are observing. And these are good trends because for any food category to expand, you need a lot of experimental trends to emerge so that a lot more usage of the category can be driven. So, yes, that's our view. I think it will grow further from here.

And does it in some way also act as an entry product for people to get into the coffee consuming category? Absolutely. Because people who are, let's say, if you talk about people who are largely tea drinkers, for them to enter a regular coffee category may be a little difficult because they are not used to the palate. But if you were to serve them flavored coffee or some more different coffee, probably those become a lot more applicable and more palatable for them to drink. So, I think, yes, these do help in expanding the category and getting more people inside the category. Questions. Thank you. Thank you. The next question comes from the line of Pravin Nandu from Edelweiss Public Alternatives. Please go ahead.

Yes. Hi, sir. Thank you for taking my question. A couple of questions from my side. First is, while you talked about you have a very low market share in global as well as in domestic market, and you want to increase your focus on gaining market share. But what has been your historical experience as to when do you gain market share? Do you gain market share in a rising coffee environment? What market where there is a temptation to always down trade, right? Or do you gain more market share in a stable to a declining coffee price trend kind of market? So can you give some color as to whether is this the right time where what we have seen is that new crop coming in is also not leading to coffee price decline. So is this a right time to probably gain market share? And also, what are the efforts that you're going to do differently versus what you have done in the past to gain this market share?

So yes, I think a pretty relevant question. Let me tell you that we haven't experienced market share gains either in a rising price scenario or in a falling price scenario. If you see our efforts for the last thirty years, most of our market share gains have come because of the innovation that we probably bring to the table. If you remember, 02/2006, we put up our Cleanse Right plant, which was first in India. That time, we had emphasized that as a category, Cleanse Right will do well, and we kind of entered that category, helping our customers to launch those products in their relevant market. Similarly, many other products like fresh coffee, infused soluble coffee or whether it is a specialty coffee or a different blend. So I would say a lot of our market share gains have been because of the innovation because mostly we look forward to partner with our clients and help them grow in their respective markets, and it's just not a transactional relationship. So that has been our strategy to gain market share. Now coming to the question that what are we going to do more to gain more market share from here, it's like this that we are trying to do a matrix of growth wherein we are also looking at some of the geographies where we have been not been very strong in geographies like South America or let's say, Far East Asia.

These are some of the geographies we are now wanting to enter with a different strategy altogether. So that's something that we will focus on. We're also focusing on a lot of product innovations in the current setup. We are looking to heighten our game in specialty coffee segments. We are seeing these trends coming up in the market. So as I told you earlier that we are very focused on making sure that how do we come up with new innovations helping us to grow our market share. So, that will be a strategy going forward. We'll continue with our strategy because rising prices and falling prices are something which are not in our hand. And therefore, we don't see much of an advantage because sometimes you may probably play a eight game, but that doesn't serve you well in the long run. So, that's how we will keep growing.

Sure. That's clear. Thank you for that. Second question would be on your domestic B2C branded business, where, correct me if I'm wrong, you had a target of, let's say, 300 crores in B2C and then 100 in industry, so total 400 crores. So can you help us understand where are we on our targets? And again, what are the kind of market share gains that we are witnessing? Some color on some qualitative color on how you're doing in offline and online. So just wanted to understand your branded B2C and B2B India piece?

Yes. So, in India fees, it continues to grow at a very healthy space of around 40%, out of which B2C is growing at 50%. You are right. We had guided that this year, we will end the total domestic business of about INR 400 crores. We are likely to be there INR $4.30 crores, INR 4 40 crores, out of which the B2C will be INR 300 crores. So, we are well on track to achieve that. Nine months, we already have done the B2C at INR $2.20 crores. So, that is pretty much there. So we are growing well and we are growing all across. We are gaining market shares in every quarter. And like I was telling earlier that in South, now going forward, our strategy will be to penetrate market. Our share among handlers are almost twice as much as or twice as much as my market share, so which tells us that distribution expansion will be the key to growth in the Southern markets. In the North, East and West, we are looking to do selective distribution. Coffee, anyways, as of now, is very urban phenomena and concentrated in large towns. So, we will we have already set up our distribution network there and we are fast expanding there.

And we are looking forward to drive a lot of quick commerce and e commerce sales in these regions. Today, we are doing very well on most of the quick commerce, very strong, much stronger number three players than what we are in general trade. So that's a very, very encouraging sign. In all the modern trade, we are very, very good on our shares and much, much above than our national average. So again, these things have been we have been doing really well. Recently, Reliance came up to award us and reward us with one of the best growing categories in their whole FMCG portfolio. So these are signs and signals that we are achieving the brand is seeing these days, which is a very remarkable journey for us as well as the branded business has come. So we keep growing as we take momentum and try and push as much as possible and as much as we can.

Great. Thank you so much. I'll come back in the queue. Thank you for this.

Thank you. The next question comes from the line of Suresh Pardesi from Modila and Oswald. Please go ahead.

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

So, I appreciate this. The conversation still remains very anxious. Nobody is wanting to commit long term. But we had told this last time as well that we are also also keeping a very close eye on the ground that what is happening. And we did predict last time that things are not looking to soften up much. And that's the narrative we are discussing with our clients. We're telling them that it is better for each one of them to commit to a long term contract because things are not looking to kind of elastically or suddenly come down. So, and that's the reason if you see some of our client portfolios and our mix have been towards long term. So that's the kind of conversations we are trying to drive with the clients. But still, the market still remains short sighted as of now. People are still a little wary to commit long term, especially the transaction clients, because these are probably traders and all that who are doing business very opportunistically. So these people are always on a wait and watch mode. And therefore, our narrative has been with the long term players, the brand owners, the private label guys with whom we are also giving them a guidance that looks like in the short run, it's not going to kind of soften.

So therefore, trying to get into more long term contracts. So that's been narrative from our side. But having said so, the overall environment still remains short sighted and full of anxiety.

Okay. That's helpful. And my second question is in terms of domestic $3.30 crores or $2.20 crores, what you have done. Specifically, if you can share what is the channel mix in terms of big commerce, retail, general trade, modern trade? And what are the growth rates you would have achieved probably in nine months?

So in nine months, Suresh, we are almost 40 plus growth at the overall level, out of which the brand piece is growing at 50%, yes? So if you remember, last year, we had done INR 200 crores and this year, we had given the guidance and which we are well on track to achieve INR 300 crores on just the branded side. So that means that we will get to a, I mean, we would have achieved a 50% go. As far as the mix is concerned, almost 50% to 60% of our sales still coming from the general and the regular trade. We are getting a very good listing from quick commerce and e commerce, which is now almost 20%, twenty five % is from modern trade. So that's been the mix for us, right? And as we expand more and more in Northeast and West, I have a feeling that contribution of modern trade and e commerce and e commerce will probably increase from here.

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

So growth I told you, we're growing at 50%. As far as the distribution is concerned, we talked Channel wise. Channel wise. So channel wise, I think, I'll not, I mean, I don't have the ready numbers right now. I will share it separately on the channel wise growth. But just to give you a flavor, my growth rates in e commerce will be the best, followed by modern trade and followed by general trade, yes? That is because general trade basis are high. We are already a little more entrenched in the South markets. And in the Northeast and West, we are probably driving modern trade and e commerce and e commerce much aggressively than the general trade. So that the growth rates in general trade would be lower than e commerce and e commerce and model rates. So that's on the growth front. The next one you asked was about Distributions.

Distribution, yes. So we are probably now at around 120,000 direct distributed outlets and around which is general trade and we are around 3,500 outlets, so we are covered in modern trade. So that's our total distribution. And of course, in quick commerce, we are at almost 90% of the we are present in their 90% of their dark stores. So that's pretty good in terms of our distribution because obviously, that's an easier distribution matrix to achieve. But that's the figure on the distribution front.

The next question comes from the line of Natraj Shankar from BSP Mutual Funds. Please go ahead.

Hi, good morning. Just a couple of questions. One is on the earlier Sorry, to interrupt on Natraj, could you please be a little louder? Thank you.

Is it better? Yes. Yes. I just wanted to ask with respect to working capital and the conversations around working capital with your B2B business. Has it improved given the fact that the working capital remains very high on behalf of clients? Are they willing to change the terms a little bit given the circumstances of coffee prices? And that's one. And two, can I have a debt number at the December?

So, working capital jets, it remains high because of it's almost INR 1,200 crores as we speak. It remains high because of the high coffee prices. Now as far as terms and condition is concerned, I don't think so. Probably anyone is in the position to pass on these because at high prices, there is pressure on each point in the value chain. So there's pressure on consumer with the end consumer of coffee to the brands, to the suppliers, to the packers, to the manufacturers. So there is pressure all around. It's not easy to pass on everything because then you become really noncompetitive in the market. And that's one of the reasons we have not been so aggressive on the volumes is because while we are able to pass on something, the market is probably not ready to take on everything that we want to pass on. So the things haven't changed because the pricing pressures were there all across. It's just not our sole stating these pricing pressures. We just spoke in the B2C segment how difficult it is to increase prices because consumers then start dropping off the category. So, I think there is a balance that has to be maintained, which is what we are trying to do.

And I told you the debt numbers, INR 2,000 crores of working capital, long term debt is around INR $7.90 crores to INR 800 crores as of now. Total is around INR 2,000 crores of debt.

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

So, we are working on a lot of things. We are working to see that how can we kind of keep the interest rates as low as possible. If you see our interest rates for the group is almost 5.25%, which is much lower than what the environment is offering you. We are making sure that we finance it. We have operations in India, Switzerland and Vietnam, which means that we are also trying to juggle in a way so that our financing rates remain as low as possible. So these are the things we are doing. And it's like an everyday exercise for us to see that how can we keep this in control. As far as managing it, as I told you, we are also trying to do two things. One is that on the procurement front, we are I told you that we have been kind of making sure that we have our presence at the ground so that we could procure at the most efficient rates and so that the working capital requirements are in check. And secondly, also, we are making, as I told you, we're making sure that we are doubling the requirement in such a way that our outflow or the percentage financing cost remains as good as possible.

So these are the things we are doing to keep a check on the balance sheet. And we should hopefully be on track because even in this year, we had guided a higher interest outflow, but we probably will end up maybe 5 crores to 10 crores lower than what we had guided.

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

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

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

Right.

Does that mean that versus September and March, we have seen at least a decent about ten, twenty days improvement in working capital number?

From last year?

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

Yes. So it was mostly flat. I think, $15.50 crores of variation was there, not much. I don't think so these are substantially strategic. Strategically, there is some anything that has changed more because of a little bit of a variation from quarter to quarter. Sometimes what happens is that when you are procuring coffee from far offshores, logistics time and all that could curtail the numbers a little bit here and there. But there is no strategic shifts in the numbers between the quarter. That is what I see.

Okay. Okay. Yes. Thank you so much. The rest of the questions have been answered. Thank you.

Thank you so much. The next question comes from the line of Sumit Sarthak from Compound Everyday Capital. Please go ahead.

Yes. Hi, Sarthak. Hi, Madhul. And just one question around the domestic branded business. The leader has indicated that they had taken price increases and plan to take more price rates. And you also guided that you also taken 30%, forty % price hikes in last one year. But this is also a period when domestic incomes and demands are under pressure. I mean, the customers of maybe dealer brands might be open, most open to try reasonably priced alternatives like us. So how are we planning to play this? Get aggressive, maintain or maybe increase the discount versus leaders and get aggressive on distribution to guard out market share aggressively or stay focused on maintaining the spread versus weakness? Yes. So, I think, again, as I told in my previous comments is that we also try and strike a balance. Now, again, if you see the category concept, it's strictly complicated. So, there is a category of single serves that are there. Their price increases are, you can't take price increases for a rupee or a rupee sachet. And maybe you can take a little bit of a granularity reduction, but not beyond a point. So, those are places where we will and we are also growing, our distribution is growing.

If you see the first leg of our distribution was probably the A plus outlets with more of large pack sales. Now, once we are trying to increase the penetration to B and C, we probably will have to be aggressive on some of these small packs where some of these will be there. Now, coming to the rest of the category, which is the large bottles and the large pouches and the large pack and the rest of India market, there we will also take price increases because we also have to balance the margins. One thing is good about the category as of now, let's say it's good and bad. So, the good part is that it's still in the rest of the country beyond south. It is still concentrated to the upper side of the income class, which means that you have a better price elasticity there, wherein some of the other categories where commodity prices and they go up, you fairly have a lot of pricing elasticity. So that's the thing which will help us balance it out. We are also looking to enter some of the premium segments probably this quarter. We will be entering into couple of other higher end segments which will also help us maintain that balance between penetration and being aggressive and also at the same time maintain the margins.

Understood. Just if I can squeeze in one more. Can you share update on your kiosks? I think you had started few kiosks. Any new additions? How has been the response? We had guided last time also that we had started three kiosks and not kiosks. These are three quick service outlets by the name Quantico in Hyderabad. We are still building it up. These are very initial days. Retail is a little it's not so easy to kind of scale it up very quickly because first we want to be very sure of the proof of concept. So, we're working on that. We are seeing how this thing grows. As of now, we are not looking to add anything. As and when we have established a proof of concept and that's the time we will see that how do we want to expand it and what is the model that we would want to follow on this. Thank you and all the best. Thank you.

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

Yes, thanks. Am I audible?

Yes, yes, Deepak. You are.

Yes, sir. So, sir, I heard that this quarter, our YY growth rate in volumes was 3%, right? 3% to 4%, yes.

I just want to understand in the past, several times, we have guided that 15% on average is what we want to do, and this is about 3%. So where is the negatives of price coming from?

Is it from the Indian operations or is it from the Vietnam operation? If you could please provide a split between volume growth between India and Vietnam's operation?

Okay. So, I will not be able to provide you the exact split in terms of volume because that's not we shared openly. However, I'll give you a color that you asked about that we had given a guidance of 15% or so. Is this quarter 3% or 4%? Is it an aberration or are we seeing a long term trend here? So, if you see why the last three, four years, we have been guiding a 15% or so plus volume growth. At the start of the year, considering the volatility in the market, the high prices, we had indicated that this time our guidance will be between 10% to 20. If you see the first two quarters, we were pretty much in line with our guidance. This quarter has been a little aberration and the aberration comes from the fact that at both places, India and Vietnam, there has been some volume, not growth reduction, not volume reduction, growth reduction. And that has come largely because, as I was telling you, we have not been so aggressive in the 20% or 25% of our volume comes from transactional business, the opportunistic business, the low margin volume builder business.

That's something that we probably could not be as aggressive at this point of time, considering the market scenario. We all know that the world has a lot of excess capacity and in these trying times, there will be people who will be probably racing to the bottom as far as rate is concerned. That's not what we want to do. As specifically, you know the company, we have always concentrated on long term contracts, building partnership long term, going to the end customers, building more value based contracts and which are margin plus for us. And that's the reason even with 34% volume growth, you'll see that EBITDA growth are pretty much in line 13%, fourteen %. So, that's the guidance we will maintain. In the long run, we are looking for 15% kind of a growth. Yes, there will be a quarter here or there where there could be some aberration. But as of now, we are only seeing these as aberration rather than a long term trend.

Okay. So, I was not, thank you for an elaborate answer. I was not asking for the volume number. I was asking for the growth number Y o Y between Indian and Vietnam operations.

Yes. So, India growth was a little flattish because the new capacity has just come in line. So, India growth was just flattish. There was, sorry, so India growth was around 5%, six %, but Vietnam growth were quite flat. So, and Vietnam, we do a lot of these low margin customers and opportunistic sales and all that. So, that was a little flattish this quarter.

Okay. And so, one final question. So, as we have discussed that in several past calls also that 15% volume growth that we aim for, let's assume that we do deliver those volumes in FY 'twenty six and FY 'twenty seven, next two to three years.

So, at current beans prices, what could be your peak debt level? Suppose we don't increase the prices, at least at these levels, we had indicated that this year end the peak debt could be around 2,200. But going forward, I think now all the capacities are in place, all our CapExes are in place, there won't be any addition as far as long term debts are concerned. And every year, probably INR 200 crores, we'll start repaying as well. So, I don't see the pre debt levels going beyond 2,200 crores in the next year or the year after that also. In fact, it should start reducing, but because we'll be repaying it.

And this is despite you're saying, let's say, 10% to 15% volume growth and coffee beans?

No, no.

Besides, right, you said that if there is no volume growth, there will be reduction. Even if there is a 15% volume growth, probably it may remain at the same level. But we'll have to take it up every quarter. We probably will have to re guide you on this depending on how prices are standing out. But I don't see in the long term more stresses coming out or additional in the peak debt levels.

The next question comes from the line of Sentil Manikandan from I thought PMS.

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

If you see a large portion of our contracts that are also long term, so while the coffee prices would have gone up, we probably are buying coffee, when I ask, buy would have been done six months, twelve months prior, I guess. So, therefore, it gets averaged out. So, there are quarters you would have seen there are 20%, thirty % growth. There are quarters you will see lesser growth in terms of price. So, that really is a combination of how far away did we do the contract and what contract do we now do. That also explains because much of the opportunistic buy ins are very short term, yes? And if you see that the volume we have not kind of got, which also explains that these are a lot of these volumes are coming from long term contracts. So, you may not see such spikes in the portfolio.

Got it, sir. So, in that sense, it makes us more competitive in the market in terms of pricing? Yes. It has to be competitive at these prices. Whenever the prices are high, you would see that there will be more desperation in market, people will be out to kill volumes, there were people who will sell it even in negative margins because they need to run this plant. So, I think it's been a very, very tough scenario for the whole industry globally. And that's the reason when I started my commentary, I did say that despite the challenging environment, the performance has been pretty good.

The next question comes from the line of Richa from Equitymaster. Please go ahead.

Thank you for the opportunity, sir. So my question is, let's assume the coffee prices do not come down. And my understanding is that for FDC, the demand is a bit elastic and maybe the customers will also get used to high coffee price environment. For FY26, considering the new capacity also coming in, what would be a conservative growth or volume growth estimate that you would put share? Because 10 to 20 is quite broad, but with the new capacity coming in, do you think we could do 15% at least?

So we could actually, but really will depend in the couple of next quarters. We are trying our best to kind of, but while we are being aggressive in the market, what we are focusing more is on the long term contracts, building better clients. And that is why if you see even if the guidance of 10% to 20%, you could see it as a broad. The other way to see it is that I would say that it's pretty specific because considering the kind of volatility that is present in the market, this is quite a specific guidance that we are doing. Second thing is that the guidance, if we see ultimately what we've always maintained that our volume growth and our EBITDA, the operational profit growth will be in line. In spite of getting a 10% of sales volume growth YTD, our EBITDA growth is 20%, which means that we concentrated more on better margin contracts, which has helped us to deliver these kind of good operational profit numbers. Going forward, I think we'll have to wait and see that how do we drive the business forward. Having said so, I'm not wanting to say that there is any let up in our aggressiveness in the market to get a volume growth of 15%.

You are right. We have got new capacities added. We would also like to fill it as quickly as possible. So, determining what is happening, the Vietnam crop is now coming. Every day we are seeing fluctuations. We have to wait and watch that where does it settle down to. What is the concerning point is that does it put pressure on the consumption? As long as the consumption is intact, I think things should not impact our long term growth guidance of 15%. So that we are committed. As the market has become short sighted, so have we. So therefore, giving them very long term predictions that we used to, let's say, two years ago has become a little challenging for all of us as well.

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

This in the concern for this quarter, that is already factored in India. There could be a little increase in PSNAM. But PSNAM was, as we had told you, it wasn't a greenfield project, it was a brownfield project, which meant that a lot of utility manpower and other common space manpower will be same. It's only the variable manpower. And these are pretty much automated factories, automated lines. These don't require very heavy manpower. So I don't see significant variations from the current numbers.

And sir, what would be the effective tax rate for the okay, fine.

The next question comes from the line of Ashish Upangalabad from Invescu PMS. Please go ahead.

Yes. Thank you for the rest. So, for the commentary so far in the call, what I could understand is that supply maybe which was constrained with the crop coming in, it could be a bit better. At the same time, the customer demand is not at all hampered despite the prices. And the industry is willing to take whatever it takes to fill up the capacities despite the stress on the balance sheet and the profitability. So for this now to break, do you not think that the demand has to drop for the prices to react and then things get sorted or some players have to, I mean, take a call that profitability can't be sacrificed on the bottom line because for in our case also, the volume and EBITDA growth have been fine, but the problem has been the interest cost because of the working capital and the CapEx that we have done. So how do you rate the situation? Will it be sorted by supply or the demand crashing? So I was thinking that it will be sorted by supply, not the demand crash because a lot of economies are the upcoming economies who are consuming more coffee.

So, I have a feeling that there and let's say good part or bad part, a lot of coffee consumption is happening in the affluent economies like America and the Europe. So, I don't see them dropping a lot of consumption. So, I don't think so this price drop will happen because of demand drop. It will happen due to supply increases. Now let me give you a color. For last year also, the Brazil supply was good. This year also, the drop has been good. That is the report we are getting from the ground. And we're also seeing that during last time also when the Brazil spot came, there was a little bit of a swing at that point of time. So, back to back, good crops will lead to more softening. That's the common knowledge. Also, if you see the coffee crop, unlike most of the commodities, most of the commodities, what happens is that the supply and demand, they get corrected because either the demand will come down or the supply because the crop cycles are low. If you see most of the commodities, the crop cycles are six to nine months. But unfortunately, for coffee, the crop cycle is three point five years.

So, after the crop has been sown, after three point five years, it starts flowering and giving the cherries. So, the prices have started to increase one point five, two years ago. And we have a feeling and not only feeling, but a lot of ground report says that there has been an increase in acreage. So, it looks like that all this acreage will come into flowering and harvesting one point five years from now. So, a good crop of Brazil coming in June, July and the next year oversupply happening due to the new crop giving new flowering and new, this thing. I think that's the time when we start coming down. So, yes, frankly speaking, it has to be the supply flow that will soften the prices, not really the demand crash.

Okay. And lastly, given the scenario then, till now, our growth on the EBITDA has been driven by largely volume growth because margins have been understood. So now you're saying that volumes also, you are taking tactical calls because of the pressures, industry wide pressures. So what is the rate of growth that one should expect because then that was the only driver of EBITDA growth probably for us?

Yes. So, while it was the driver for EBITDA, let's just see, because in the last three, four years, you're absolutely right. The EBITDA did grow exactly as much as volume grew. Now, this year, while we are while there are challenges on the price front and therefore the volumes have been a little tighter to drive, what we have made sure is that the EBITDA still grows in that 50% to 20% range, yes? And that is because we have been focusing a lot more on the long term contracts, the private label contracts, the higher margin contracts. So even while we have been we have to take a tactical call or we have taken a tactical call to not be so aggressive on the volume because of the appraisal, we have successfully maintained the EBITDA growth at 15% to 20%. So we are very confident of maintaining this EBITDA growth of 15% to 20% till we are back into the rolling growth of 15% to 20%, which then will again drive EBITDA at the same level. So I don't see any drop in our performances as far as our EBITDA are concerned.

So just to confirm this, EBITDA growth will be around 50 naught percent. And yes, just I'm taking confirmation, 50 naught percent EBITDA growth. And since volumes are not increasing and we don't want to inflate our balance sheet further on working capital, our bottom line can grow at a better rate probably if interest rates remain the same.

Absolutely. Absolutely.

The next question comes from the line of Vigesh Iyer from Seqent Investments. Please go ahead. Vigesh, please go ahead and please unmute your line in case it's muted.

Hello. Am I audible now?

Yes, please go ahead.

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

So it's a little different than industry standard. You are absolutely right. The industry, for industry, the modern trade and the e commerce, the margin has been is quite lower than the general trade. But for us, it has been better not quite, but at least significantly different story than what the industry practices have, and I'll tell you why. It is basically because even if you see the modern trade and the quick commerce and the e commerce that we have developed, we have created actually, our demand creation has not been only focused on the quick formals and the modern trade and the e commerce, yes? So a lot of our demand generation happened offline, which is the traditional methods of demand generation, which has helped us a lot in e commerce, big commerce and modern trade. Now, what has happened is that most of the growth in modern trade, big commerce and e commerce are led by this. And therefore, things like my, let's say, spend to sales ratio is almost one third of the industry standards, yes? And therefore, we are on equally good margins with modern trade and quick commerce. In fact, to give you this thing, when we began our journey six years ago, the modern rate teams were not ready to keep us because they were not sure about optics and all that.

But what we didn't do, which most of the other people do is that push listing through higher payouts and higher amounts we spend on displays and things like that. What we started doing is we started building the brand offline and through general trade and we took it step by step. So for example, in 2019, we had to when we started with the Reliance, it was just 10 stores in Hyderabad, yes. That is what they said. They said they're not very confident and they will only do 10 stores. But we didn't want to kind of overspread ourselves and overspread by paying money. So we took it from 10 to 20 to 30. And one point five years ago, it's the same reliance who came back to us and said that we want to expand to all stores of our network across the country, yes? And therefore, what happened is that the buying power, the purchasing this thing or the driving thing was not with Reliance but was with us. And that was pretty much possible because of the traditional ways of marketing and sales that we started within general trade. So, therefore, our general trade model actually has helped us to earn equally good margins.

So, even going forward, as we expand more in modern trade and e comm and the quick comm, I don't see our margins coming down.

Okay. So if I just could understand it did I understand it right? I mean, on the discounting model, are the e commerce or QuickCom are taking it on their side for our product?

So when we've launched, America, they do it for themselves as well. There is a certain partnership model that we enter into. We also have been pretty distinct that beyond a point we don't discount. There are days and times when they kind of push it harder by putting in money from their side. So that we have made a model wherein we kind of beyond a point don't deep discount. And a lot of demand is being generated because of the work that we are doing outside. So, they also have no option but to keep us even like a platform like Blinkit, which is very strong in North, actually has or is wanting to take our products so much so that they told us that since we want to grow our network in South, we would want to use and considering Continental Coffee is doing well in South, we would want to use Continental Coffee to drive our network. So actually, it's been a very fair play between us and the commerce and the modern trade platforms. Yes, it is difficult. I won't say that it's been easy. Still, the pricing talks and all that are pretty, pretty aggressive from both sides.

But at least we have been not been made to kind of succumb to all their demands. We have been able to hold our hold ourselves also, making sure that our margins don't get affected.

Okay. So then one question on my side. On the gross, total gross block side of INR 800 crores at consolidated level, has the entire block been capitalized now?

Partly it has been capitalized. We have two projects. One is in India, another one is in Vietnam. The Indian part is capitalized and around INR 400 crores. And the Vietnam part is likely to be commercialized during this quarter and maybe end of the quarter it is going to be capitalized.

Okay, sir. Got it, got it, sir. Thank you for the detailed explanation and all the rest, sir. Up.

The next question comes from the line of Rakesh from Nine Rivers Capital. Please go ahead.

Hello. Thank you for the opportunity. Am I audible?

Yes, yes, you are audible. Just be a little louder, little disturbance will be.

Okay, sure. Thank you very much. Sir, one question with respect to the coffee prices. We have seen this industry, the coffee manufacturing industry is very, very segmented industry. There are few players like CCL, which is the top manufacturing players. But I was understanding because the coffee prices are higher from the last fifteen months, have you replaced the customer which are buying from the small peers? Have they come to that they want to do business with you rather than going with a smaller player which are struggling with high coffee prices? Yes, we have actually. I may not directly correlate with some of these new players which are coming. They were buying from small players and they have come to us because as I told you, we also have been concentrating with the larger buyers, more brand owners and long term buyers. And generally, people who buy from small time players are the transactional ones. So I cannot really foreshoes to say that I have got from smaller players. But there has been other trend that we have been noticing that we generally, over a quarter, we will get a couple of two, three proposals for taking over manufacturing units of smaller players, which probably is an indication that the smaller players would be finding it even more difficult to manage the working capital and the operations of their plant.

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

Okay. So, second question with respect to the CapEx for the F26 and F27, if you can talk. About the CapEx, yes. I don't think we'll have any CapEx in next year. We're done with our CapEx for the next three years or so because most of our capacity building is over now. We are good to grow for the next three years. So, I don't think so we'll have any more CapExes.

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

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

Just one last clarification on the tech part in the Rakesh?

Okay. Sure. Thank you.

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

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

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