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CCL Products forecasts 15-20% volume growth for FY25
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Challa Srishant, Managing Director of CCL Products stated that its expansion in India concluded in March, bringing the total to approximately 71,000 tonne. The freeze-dried expansion is expected to be finished by August, which will elevate its capacity to 77,000 tonne.
Challa Srishant, Managing Director of CCL Products, expects volumes to grow by 15-20% during April-March 2024-25.
Currently, contracts are being negotiated on a shorter basis, spanning two to three months, he said.
Typically, they secure 85-94% of orders before the year begins, but this year, they only have around 60% confirmed orders in place, he added.
Read the verbatim transcript of the interview.
Q: In the fourth quarter what was your volume growth and what are you targeting for FY25 with all the capacity that has come on?
A: So we had a total volume growth for the whole year at about 14%. We were actually impacted because of the roster breakdown that happened in our quarter two, which we had announced earlier. So we were not able to make up for that violence because of the higher coffee prices. But this year being a more normal year, again, we are looking at about a 15-20% volume growth. Only one uncertainty that is there right now is with the coffee prices going up so high, people are not willing to give more long term contracts. They’re working on a two to three months basis only. So normally we have about 85-94% of confirmed orders before the year starts. This is the first year we have only about 60% orders in place before the year started.
Q: You mentioned that there aren’t too many long term contracts in place for FY24. Give us a sense of the kind of context that you are getting into and what kind of revenue visibility do you have? The second question is, as far as EBITDA per kg is concerned, the key metric that we track, what is the outlook for FY25?
A: So one with respect to the long term contracts, the different types of customers that we have, there are certain brands that place orders with us a year in advance, sometimes even two to three years in advance. So that business is normal. So they don’t really care about the fluctuation in prices. But a lot of the re-packers and resellers, these are companies that don’t want to take too much of a risk. So whenever the prices are on the lower trend, or they feel there’s going to be a correction, that’s when we start getting more orders from them.
The EBITDA per kg also is still the same, it’s about ₹105 approximately and we are expecting it to be along the same lines, maybe a slight improvement because of the mix change that we are expecting this year. We are focusing more on small packs and on more premium products as well. But we are not expecting any drastic change in the EBITDA per kg and volume since they will increase automatically absolute EBITDA also will be increasing this year.
Q: You spoke about small packs and premium products, what exactly is the contribution currently from both these verticals? And how much do you anticipate them to be by the end of say, FY25 and earlier for FY26?
A: So small packs and premium products both put together around 35% of our production comes from these two segments. We are increasing by and maybe another five to 10% is what we are targeting this year.
Q: Your capacity expansion, you have freeze dried capacity coming in from Vietnam in the second half of this year. Where does your total capacity stand at right now if you could give us a sense and what’s the capacity addition both spray dried and freeze dried?
A: So today our India expansion just got over in the month of March and we are currently at around 71,000 tonne. Our freeze dried expansion should be completed by around August then we will be at 77,000 tonne.
Q: Give us a sense of how the London base brand performance actually panned out. Earlier you said that you are looking at a target tale of ₹100 crore in the next two to three years is that on track or any changes over there?
A: We are on track for that. So, the first year itself we are we did about ₹12 crore of sale. And this ₹12 crore also is basically – what we had done was we had taken over the declining brand and we focused on during the transition during this first year. Now, we are relaunching the entire brand with the new formulation, with the new artworks and everything, we are going back to basics.
One of the insights that we got is that the reason for the brand decline also was a change in product formulation. So the product formulation that we originally came up with initially that is what we are reverting to now, so we are expecting that volume start coming in going forward.
Q: What about the domestic branded business? You had a target of over ₹200 crores for FY24? Where did that number end and this year, what’s the target?
A: So we were at about ₹210 crore this year for the domestic branded business, we are looking at maybe around ₹350 to 400 crore for the current financial years.
Q: With EBITDA positivity?
A: Yes.
Q: Just reiterate for our viewers the FY25 guidance, you did say you are expecting volumes to grow in the range of 15 to 20%. So what is the volume range that you’re targeting the revenue, you said EBITDA is going to grow for what is the EBITDA that you’re targeting to grow, margins and the bottom line?
A: So the revenue growth will actually be dependent on the raw material prices, which are fluctuating and kind of all over the place. So one of the reasons why you can see the kind of revenue growth closer to 40% now is because the prices of green coffee have almost doubled. But in the last couple of weeks, they have started softening, there was almost a $800 correction that took place, which was in line with the new crop coming online. So if the markets correct further than that revenue growth also will get accordingly adjusted. So revenue growth is something that we are not really very confident about giving a guidance on because it’s fluctuating a lot since us is a cost plus model.
The EBITDA growth is something that we are more confident about because it’s directly linked to the volumes and the volumes, is what we are looking at 15 to 20% increase.
Q: If you could currently give us a sense of what your domestic market share is in the stores that you operate so the addressable market, how much would that be? And secondly, on the balance sheet, because of all these expansions that you’re doing debt has increased as well. Where does it peak out? When do repayments begin?
A: so as far as the domestic market is concerned, in South India, in especially AP and Telangana, we have almost less than 12% market share. This year, we are actually starting to target other states as well. So our market share is likely to increase over there.
As far as the debt is concerned this year actually is when we are expecting the debt to peak out. We were at about ₹1,600 crore last financial year. This year, we are looking at about ₹2,000 crore of debt that is working capital of almost about ₹1,400 crore and the balance is the long term debt.
But a little bit of restructuring that we are doing internally and optimising our finance costs as well so it’s not going to be a significant impact on the balance sheet this year onwards.
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