Expect 25% bottomline growth in FY17: CCL Products CMD

After performing better than the guidance of 20 percent bottomline growth provided for FY16, C Rajendra Prasad, Chairman and Managing Director, CCL Products, said he expects 25 percent bottomline growth in FY17.Talking about the business in India, Prasad said that it is picking up slowly. It earns around Rs 20 to 25 crore in India, of which 50 percent comes from its own brand.But he expects it will earn around Rs 100 to 150 crore from its own brand in the next three to five years in India.Below is the transcript of C Rajendra Prasad’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: This is excellent numbers both in the topline, even more so at the earnings before interest, taxes, depreciation and amortisation (EBITDA) and the net levels. What went right? Your raw material prices fell, is that why your margins did so well?A: No, this guidance was given earlier also. Only issue is that people do not believe what we say, but only performance shows. Whatever we have projected, we have achieved. There were some contracts which actually produced, they were not dispatched at that point of time because of some technical issues. They were dispatched in the next quarter. That is the reason, otherwise everything is on and we have done more value addition products. In Vietnam, we have started liquid coffee where most of the liquid coffee is used for the product itself. That is why we are getting much value added products which we are able to realise, bottomline is increasing. In spite of the green coffee prices falling, because as we always maintain, green coffee prices do not affect either way for us because our contracts are always back-to-back.Sonia: A very good set of margins is what you have reported this time. By the end of FY16, your margins have risen 500 basis points to 22 percent. Is this a sustainable level and for FY17, what could the margin triggers be?A: We expect the margins will be the same. Maybe it might improve better. That is what, with whatever contracts we have done till date, should give us this. The truth is that the topline, we cannot predict only because of the green coffee prices. Otherwise, bottomline, we expect at least 20-22 percent will be additional to what we have been doing now. This is a sustainable growth and we have got some good contracts for the long run, especially from the European client whom we have been pursuing and also some Japanese clients whom we have been pursuing for quite some time. Latha: Actually you promised 20 percent and you delivered 30 percent which is why we are asking you again and again for your guidance.A: Yes, this is maintainable.Latha: 20 is maintainable, is 30 maintainable?A: That is right. 25 is guaranteed, 30 also possible. It all depends on several factors.Latha: Is one of the factors liquid coffee, as my colleague said, all of us are interested in that. Is that an instant coffee brew variety? Will you be launching it elsewhere?A: It is an instant coffee product itself. What happens is, most of the liquid coffee in Japan is used in cola, but we have used this coffee to enhance our spray-drying capacity and once you use the liquid coffee, this is a freeze concentrated liquid coffee. You use maybe around 20 percent of the product into your normal spray dried liquid, then the product becomes very high quality. That is the reason we are able to get some high-end products.Latha: Will you be launching it in India?A: No, these are mostly exports. It is not in India. We have been exporting from Vietnam, this is a Vietnam plant. We have shifted our liquid coffee plant three years back to Vietnam because that is what the Japanese wanted us to do and we did take upon ourselves and shifted the plant to Vietnam, that particular portion of that.Sonia: Can you tell us a little more about your US business, because currently, it contributes only 10 percent, but I am trying to understand how much could you scale it up to as a percentage of your overall business over the next two years. And will you be looking to invest or do any kind of capital expenditure (Capex) or research and development (R&D) for the US business?A: US business is slightly different compared to what we do in Europe because of the quality issues which we are expecting that the government of United States have to change the import licence, import of coffee. Today everything is duty free and any kind of coffee is imported. So, which we have been talking about to the Food and Drug Administration (FDA) people and the National Coffee Association (NCA) of America has taken up the issue with the US Administration and we expect this will come through very quickly, maybe in less than a year, because we have been promised that this will happen. Once this happens, then it is an apple to apple. Our Indian coffee and our manufacturing capacities and our qualities will be well accepted in the US. We expect to do at least around 4,000-5,000 tonne in the next minimum 3three to five years.Sonia: Can you also tell us finally about the India business itself? I understand that in this quarter, the pickup in the numbers that you have seen is largely because of the Vietnam business. What kind of growth are you seeing India itself because a lot of your investors, a lot of the analysts are awaiting sustainable pickup in the India business going ahead.A: Yes, we have been going slower in India because of several reasons, because we do not have that kind of deep pockets. We have had a bad 1997 when we launched first time one single product. So, what we have done, we have used a different way now. Now we are into seven states in our country and the growth is coming quite well. We have around Rs 30-35 crore Indian business and out of which about 50 percent has come from our own brand. We feel that next three to five years, we should be at least minimum about Rs 100-150 crore our own brand business. Then the bottomline substantially improves; better than what we have seen in these numbers.