CCL Products (India), formerly Continental Coffee-claimed to be the world’s largest private label instant coffee manufacturer-is bullish on the domestic retail market. CCL exports its processed coffee to more than 90 countries, supporting more than 250 brands with sustainable supplies. The Rs 1,100-crore company has a combined manufacturing capacity of 35,000 tonne located at Duggirala, Guntur district, Andhra Pradesh, Switzerland, Vietnam and recently commissioned a plant near Sullurpet in Chittoor district of Andhra Pradesh. In addition, it can process another 15,000 TPA of premixes and other varieties, executive chairman Challa Rajendra Prasad tells FE's BV Mahalakshmi. The company is planning to spend $20 million this fiscal and is expecting a CAGR of 15% to 20 % over the next three years. Excerpts:
How do you plan to redefine coffee consumption in the country? What is the demand and supply ratio in India?
In recent times, coffee consumption has increased in India, particularly the out-of-house consumption, owing to various coffee shops and hangouts. On a broader perspective, coffee consumption in India is a little over 50,000 tonne whereas India produces more than 3,50,000 tonne. It is believed that the consumption of coffee, particularly the instant coffee segment in India, is growing at about 15% to 20%. Being a player with major capacity in India, we are aiming to improve our presence in this growing business. The coffee cultivation in the country is able to meet these increased consumption patterns and demand since even on the current scale, the production is more than seven times of the current consumption levels. We do not foresee any supply constraint for this increasing demand in the foreseeable future. The instant coffee market in India is estimated approximately at around Rs 2,000 crore, growing at a CAGR of 7-10% for the last three years. The company is adopting a strategy of competitive pricing through exciting consumer offers.
What are the investment plans in terms of setting up new plant and tapping export markets?
Over the past 25 years, the company has been consistently making investments in the coffee industry of more than Rs 750 crore on multi-location facilities. The current plan is to invest another $20 million to ramp up the capacities, which include about $8 million in Vietnam and $12 million on the packing capacities for value addition in the domestic market. These investments are expected to result in better value addition, thereby improving turnover and margins. All the units are debt-free except for the new SEZ for which about Rs 350 crore was spent and the debt on account of this is in about Rs 225 crore.
How is the pricing scenario for bean procurement? And challenges, if any?
The company has a business model where by the coffee prices do not affect the profitability since the business is done on cost-plus model. We sell instant coffee basing on the current prices and availability of raw material and upon closing the sale contract will cover the raw material on a back-to-back basis both on fixed prices. As such, for any given contract, the purchase price and sale prices as also the margins are fixed right at the beginning. This business model also enables the company to function at a minimum working capital funding against financial costs. The only effect of coffee prices will be on the top line, which increase or decreases in correlation with the prices of green coffee. The commodity risk is fully neutralised with this kind of business model.
Are there new trends for coffee consumption like ready-to-drink mixes?
The changing life styles and preference of younger generation is towards ready-to-drink coffee and instant version and we are seeing an improved market offtake on these products. CCL is the first one to visualise this and introduce a suitable product to this market. We offer specialised varieties like coffee with Hazelnut flavour, vanilla and others, which are very appealing and liked by the younger generation.
How do you see revenues in the next three years?
The company has plans to reach a milestone of servicing 100-odd countries in the next two to three years. It is expecting a CAGR in the range of 15-20 % over the next three years. Starting with India’s southern markets-almost 75% of coffee consumption happens in this market-CCL has plans to expand pan-India by 2021. Currently, the Indian business is contributing around 7% of total revenues, which is targeted to be improved to around 15% in the next two years. With additional capacity, niche products and further value additions, the company is expected to achieve a CAGR of 15-20%.