My notes for Q1FY17 concall.
• Margin increase – Due to higher utilization from liquid coffee plant in Vietnam. Fortunate to get new costumer for premium product. EBIDTA margin guidance 22-25% This quarter best margin attained in Vietnam due to premium product, need not maintain that in every quarter depends on customer requirement. There will be definite margin improvement from last year.
• Volume growth – management reluctantly mentioned 10-15% as they did not want to give. Indian operations running at full capacity. Focus on selling premium products rather than volume in Vietnam so may reach full capacity this year. Next year we may think of Vietnam capex depends on demand.
• US market – Currently 20% of volume as well as revenue comes from US. Still no clarity on FSMA when govt will fully implement it. No issues with current capacity utilizations till then. Even retaining current customers and adding 1-2 costumers per year will give 15% growth.
• Tax guidance – this year 22%, next year plan is 19% as more utilization from Vietnam (last year 24% I guess) and new freeze dried capacity in india which comes into play from FY19 is also tax free as its in SEZ.
• Competitors – Lot of competition more than 50% spray dried coffee excess capacities in world. Competition from brazil, mexico, Singapore, Malaysia, china, Vietnam, india, Europe. But we were able to grow mainly due maintaining strong customer relationship over many years some almost 20 years. We create unique blends to our customers exclusive blends in that region and do not reveal even to them the composition. Initial years we used to have only 4-5 blends but now with investment in research and technology we have over 200 blends. Thanks to our customers for support. Once a customer introduces a particular blend into the market it is difficult for them to switch to other blends. So costumers are usually very picky and they will stick with same quality standards with us.
• India brand operations – 150% growth yoy sales. Exclusive supplier to defense establishments. Entering supermarkets and kiranas slowly. Received minimum traction that we were expecting, so now we will start spending on brand promotion etc. volume still less compared to export operation 7-8%. India is just a 2 player market and those 2 players are not reporting significant growth in coffee sales. But Indian consumption is growing at 15%. So we are trying to capture the new growing market. Scope for growth – US consumption is about 80K tons, japan is 35K tons compared to india is only 12K tons consumption so there is huge scope for coffee consumption to increase. Indian market is very price sensitive and that is why preference is for tea more than coffee. But due to our technology advantage we can supply coffee almost at the price of tea. So potential for us in Indian market is big.
• Raw material – price increase in Vietnam is mainly due to farmer hoardings although there is some fall in coffee bean production. Every 2-3 years we face these cycles but both our suppliers and big customers always go through with contracts whatever market prices may be.
• Liquid coffee plant in Vietnam due to tech improvement supplying liquid coffee in spray dried solid form as a premium product which is cheaper transportation for customer. 40-50% capacity utilization. Full utilization for liq coffee is not easy as premium customers are not easy to get.
• Indian 5k ton freeze dried coffee expansion 260 cr will come up end of next FY. Currently Indian freeze dried market is v.v.small. Just 100 ton. Nestle imports by paying 110% duty. We are the only manufacturer in India and that is our advantage we can supply at 30% lower prices than big brands. But this capacity is mainly for exports.
Disc - Hold ccl products.