CCL - CCL Products (India) Ltd. Share Price

During the earnings conference call for Q4 FY 2024-25, management provided a positive outlook for CCL Products (India) Limited. The group achieved a turnover of INR 839.65 crores in Q4, compared to INR 730.87 crores in the same quarter of the previous year, representing a growth of 14.87%. The net profit for Q4 rose to INR 101.87 crores, up from INR 65.22 crores, marking a substantial increase of 56.46%. For the full year, the turnover surpassed the INR 3,000 crore milestone, reaching INR 3,114.2 crores, a year-on-year growth of 16.98%. The annual net profit was recorded at INR 310.34 crores, up from INR 250 crores, indicating a growth of 24.14%.

Key forward-looking points emphasized by management include:

1. CAGR Guidance: Management projected a long-term profitability growth of 15% to 20% year-on-year, driven by expansion in both domestic and international markets.

2. Domestic Market Focus: The domestic business generated a gross turnover of INR 440 crores, with brand sales contributing INR 300 crores. Management aims for aggressive growth in this segment.

3. Global Market Expansion: Continuous efforts are being made to drive growth in developing economies, including China and the Middle East, with a focus on capturing a larger share of the coffee market in these regions.

4. Stability in Coffee Prices: While fluctuations in coffee prices have persisted, management indicated signs of relative stability over the last few months and expressed optimism about the impact of upcoming Brazilian crop supplies.

5. Product Innovation: The company highlighted the importance of introducing new products, such as instant cold brew and various coffee blends, to attract a wider customer base and enhance market penetration.

The strategic focus remains on leveraging growth across diverse market segments while maintaining profitability levels.

1. Question: "I would like to know like our future growth, present and future growth, which will be coming from domestic and how much will be coming from international markets? What would be the drivers, let's say, domestic markets, coffee penetration increasing year-on-year?"

   Answer: Our growth will stem from both domestic and international markets. We are not reliant on one vertical; aggressive expansion is underway in both B2B and domestic segments. In developed economies, coffee penetration is stable. However, in developing economies like India and China, growth is expected to reach double digits as coffee consumption increases significantly.

2. Question: "But could you please tell me like how much would be the CAGR growth year-on-year in these developing markets? And also, the bifurcation between our domestic and international market?"

   Answer: Our domestic market achieved approximately INR 440 crores out of a total turnover close to INR 3,000 crores. We project a CAGR of 15% to 20% for profitability. Higher growth may come from smaller segments like domestic brands. In developing markets, we foresee double-digit growth driven by increased coffee penetration.

3. Question: "One last thing. Last time we were much focused on the rising coffee prices. So, do you see that tension gone, or is it still continuing?"

   Answer: The tension exists due to price fluctuations. As a cost-plus company, we monitor coffee price stability closely. While fluctuations can affect short-term contracts, steady coffee consumption keeps demand healthy. We've seen stability in prices recently but expect market conditions to dictate future trends.

4. Question: "Sir, I was invested in tracking your company in the last decade... What has led to this situation, where working capital has gone up to 45% of our revenue consistently for the last 4 years?"

   Answer: The primary reason for increased working capital is the surge in coffee prices, which have risen from around $1,000 to $5,000. This dramatic increase means we spend significantly more on the same volume of coffee. While our market share has grown, it's the coffee price cycle that has led to our higher debt levels, not an inability to maintain economics.

5. Question: "So in a falling price environment, obviously, your inventory days will also reduce, right? I mean, that's the assumption."

   Answer: Correct, if prices stabilize or reduce, the pressure to hold inventory decreases, and working capital needs will also decline. This stabilization allows for longer contracts and efficient inventory management. Historically, rising prices forced us to secure inventory ahead of time, increasing our holding costs.

6. Question: "If at all, coffee prices go down from here, do you think our end clients will maybe wait out a few quarters...? "

   Answer: Clients typically won't wait for prices to bottom out. They have operational needs that require maintaining inventory levels. While they may minimize stock, delaying orders for extended periods isn't generally feasible, indicating demand will remain steady even amidst price volatility.

7. Question: "Can you please tell me about the demand scenario that we are seeing from the B2C segment? And are we like seeing any sort of challenges over there?"

   Answer: As a new player in B2C, we face challenges, particularly in price sensitivity as the market adjusts to price hikes. However, we're seeing promising long-term demand as India evolves from a tea-drinking nation to a coffee-drinking one, despite short-term stresses. We're focusing on gaining market share aggressively.

8. Question: "In terms of the coffee prices, let's assume the prices stabilize, whether any of the... shipment, whether is there any preponement in this quarter?"

   Answer: There hasn't been any significant preponement in shipments as we manage our operational efficiencies. Freight costs and global conditions remain unpredictable, which complicates shipment planning and further emphasizes the need for steady supply management.

9. Question: "Could you share what would be the share of Brazilian raw material in your overall inventory mix? And is it fair to say it's been the highest this year?"

   Answer: Yes, Brazilian raw material contributed significantly to our inventory this year, owing to favorable pricing and logistics. The specific share will be calculated and shared later, but we indeed relied heavily on Brazil to meet our needs due to logistics and cost considerations.

10. Question: "Do you see fall more in Brazil relative to Vietnam? Or how should we think about?"

Answer: It's hard to predict how prices will move between Brazil and Vietnam, as much depends on the upcoming crops and demand cycles. Each country's production and pricing dynamics will play crucial roles in determining how global coffee prices fluctuate, affecting our sourcing strategies.

These responses encapsulate key takeaways and numbers from the earnings call.