Tata Coffee Ltd (TATACOFFEE) Q4 FY23 Earnings Concall Transcript

Tata Coffee Ltd (NSE:TATACOFFEE) Q4 FY23 Earnings Concall dated Apr. 19, 2023.

Corporate Participants:

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

K. Venkataramanan — Executive Director Finance and Chief Financial Officer

Unidentified Speaker —

Analysts:

Aniruddha Joshi — ICICI Securities — Analyst

Yash Bhandari — Neo Markets — Analyst

Varun Singh — ICICI Securities — Analyst

Unidentified Participant — — Analyst

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Bhavesh Jain — Enam AMC — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Tata Coffee Q4 FY’23 Results Conference call hosted by ICICI Securities. As a reminder, all participants’ lines will be in a listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note this conference is being recorded.

I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you and over to you, sir.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah. Thanks, Bikram. On behalf of ICICI Securities, we welcome you all to Q4 FY’23 results conference call of Tata Coffee Limited.

We have with us Mr. Chacko Thomas, Managing Director and CEO and Mr. K Venkataramanan, Executive Director – Finance and CFO.

Now I hand over the call to the management team for their initial comments on quarterly performance and then we will open the floor for question-and-answer session.

Thanks and over to you, sir.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Thank you, Aniruddha. Good morning, everyone. This is Chacko here. Thank you for attending today’s call.

Before I update you on the business performance, I thought I’ll share some market conditions that we encountered during the quarter. Primarily Arabica prices have softened due to increased availability. On the other hand, Robusta prices have remained firm and if not a little bullish on account of reduced availability globally, especially from India. General market dynamics has been varying across most geographies, especially around Instant Coffee and despite the market-related challenges that we’ve had, we came out with a fairly good performance during the quarter and we’ve consolidated our presence in the MENA region, we had a noteworthy performance in Russia and similarly our green coffee sales were also pretty impressive and we actually managed record sales for the season. While challenges like increasing input costs and low-price expectancy across key markets have played a critical role in the business performance, these impacts and challenges were at partially mitigated by the ongoing cost optimization efforts and productivity projects across locations. I think it’s also a testament to the fact that we are running our plants, the Instant Coffee plants at near peak capacity at the moment.

Moving onto the financial performance. On the standalone quarterly performance, the revenue from operations were up 13% compared to the same quarter of the previous year, that is INR257 crores versus INR227 crores in the corresponding quarter of the previous year. This is primarily higher due to the higher revenues from Instant Coffee and the plantation operations, largely driven by product mix and higher price realization. The quarterly standalone PAT was also 16.33%, up compared to the same period in the corresponding quarter over the previous year. The effective implementation of our twin marketing strategies, that is differentiation and disintermediation have largely supported these performances.

On the standalone year performance, I think again, a good year. Revenue from operations were up 25% compared to the previous year at INR1,023 crores versus INR817 crores and noteworthy performances were actually as I mentioned earlier record green coffee sales and excellent Instant Coffee sales performance from all three plants. The yearly standalone PAT was at INR31 crores, significantly higher compared to the previous year and this of course was also on account of one-time profit on sale of property. On the consolidated results, the revenue from operations for quarter four was at INR723 crores, that was a 10% increase over quarter four of previous year and for the year at INR2,850 crores, up 20.59% compared to the previous year due to higher realizations across all businesses and primarily around better product mixes and largely driven by our Instant Coffee performance from all our factories. The profit for the quarter was also higher — for the year at INR321 crores. The operating performance of Eight O’clock was impacted by low volumes and slightly higher input costs for the quarter.

Overall, the quarter and the year has been pretty satisfying, especially considering this challenging situation that we encountered during the course of the year.

I will now request Venkat to take you through the financial performance for the quarter and the year. Over to you, Venkat.

K. Venkataramanan — Executive Director Finance and Chief Financial Officer

Thanks, Chacko. As Chacko has summarized, we had a decent quarter and a very good yearly performance. For the quarter stand-alone, the total income was higher by around 14%. As Chacko mentioned, we have had a good performance in the plantation, especially driven by the coffee segment. We did have some challenge around tea, we continue to have challenges around tea because of pest and disease and we are hopeful that we will find some solution to it. The management is putting lot of effort, just recently in the plantation at Anamalais.

On the on the plantation business, as he mentioned, there has been a little bit of challenge on the on the Robusta crop, in-line with whatever is happening in India per se, but overall still due to improved prices and our Arabica production was also good. So there is no issues and the plantation overall for the year has done well. Instant Coffee, as mentioned they had a good quarter, for the quarter around 17% increase is there and across both Vietnam and India. The Tata Coffee Vietnam continues to be reporting strong numbers, and improving year-on-year. On the Eight O’ Clock side, as we mentioned, they have a lower bag volume sales and also there has been impact on account of higher coffee prices, hopefully as the prices kind of you know eased the performance of the Eight O’ Clock will improve and we also had one-time profit on-sale in the quarter two which was supported, which is also aiding the overall numbers for the year.

And lastly, the company has also declared a higher dividend of 300%, INR3 per share compared to 200%, INR2 per share which was announced in the previous year.

With this I hand over the floor for question and answers. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions] We will take our first question from the line of Yash Bhandari with Neo Markets. Please go ahead. Mr. Yash Bhandari, your line is unmuted. Please go and ask your question. If you have muted yourself, please unmute on your device.

Yash Bhandari — Neo Markets — Analyst

Yeah. Sorry. Good morning.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Good morning.

Yash Bhandari — Neo Markets — Analyst

I wanted to know the clarity on the timing of the merger completion. When you are expecting to merger to complete and what are the pending accruals.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Yeah, okay. So as you know, both the approvals are pending at the NCLT Kolkata bench for Tata Consumer and of the Bangalore bench for Tata Coffee. The shareholders’ approval has already been obtained by both the companies. We are now awaiting for the second motion petition hearing from NCLT both Kolkata and Bangalore. See, this is something which is not beyond our control in terms of when the hearings take place on the orders, but our own expectation is kind of estimation is that in the next about around three months, we should be through with the merger. That’s what our sort of — our estimation is, but of course it will depend on the NCLT benches in Kolkata and Bangalore, which we are following up through our advocates.

Yash Bhandari — Neo Markets — Analyst

Okay, thank you.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions]. We will take our next question from the line of Varun from ICICI Securities. Please go-ahead.

Varun Singh — ICICI Securities — Analyst

Yeah. Thanks for the opportunity sir. Sir, my question is if you can share any update on Tata Coffee Grand. So I mean, are we seeing relative success over there?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

See, the Tata Coffee Grand, we are backing and supplying to Tata Consumer, so I think it’s best that this question is answered at the Tata Consumer Analyst meeting, because we are seeing definitely improved franchise, improved sales, but obviously the more details in terms of how it will be better answered by Tata Consumer.

Varun Singh — ICICI Securities — Analyst

Okay. And sir, my second question is on — sir, if you can share any update on the Vietnam?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Yeah. So Vietnam, the plant as I mentioned in my opening remarks is actually running at 100% capacity, peak capacity actually. The order book, I mean last year the orders as well as the completion of the same were phenomenally good, the performance was excellent from Vietnam. As we stand, our order books again are looking extremely good and encouraging. So Vietnam on the whole is a very satisfying experience [Technical Issues].

Varun Singh — ICICI Securities — Analyst

Sure. Understood sir. Thank you very much and wish you all the best.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions]. Now we take the next question from the line of [Indecipherable] Capital. Please go ahead.

Unidentified Participant — — Analyst

Hi sir, am I audible?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Yeah.

Unidentified Participant — — Analyst

Thank you for the opportunity. Just wanted to know what is your outlook on Instant Coffee and how does the [Indecipherable] industry. Just wanted to know what are we thinking in terms of entering coffee with Tata Coffee [Indecipherable].

K. Venkataramanan — Executive Director Finance and Chief Financial Officer

So Instant Coffee, the demand what we’re seeing is about 2%, 2.5% growth there. So it is that Instant coffee continues to be strong. There are no issues. So as we see, of course, as you are aware, we have all the three variants of spray agglo and freeze. So as of now, we are finding strong demand for freeze, our capacities are full as Chacko mentioned about Vietnam as well as in India also we are running full and of course the Russia bit of it is, but Russia we are still, there is no issues at all. We have got good traction in Russia and what we are seeing is only some slowness in the pickups in certain geographies like Africa, which was impacted by higher coffee costs and packing materials inflation and all that which are slowly — we are seeing green shoots there as well. So Instant Coffee demand overall look strong and we are very, very kind of — our order book is full. So we are quite keen on sort of, pleased with the performance.

Unidentified Speaker —

Okay, got it, sir. Thank you.

Operator

Thank you. [Operator Instructions]. We take the next question from the line of Dhiral from Phillip Capital. Please go-ahead.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Yeah. Good morning sir. Thanks for the opportunity. So how are the prices of Robusta Coffee currently?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Yeah. So Robusta is trending pretty well. It’s around $2,400 per ton. It’s 11-year high also. So it is also largely a function of crop shortage as well as [Technical Issues] So yeah, so that’s where demand, it’s fairly good.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

So sir, on a Y-o-Y basis, how is the price increment sir?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

So about a year back, we would be talking about Robusta being in mid-$1900s or early-$1900s, its moved towards $2,400, so about 10%, 15%, 20% higher than what it was a year back.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

And sir, do you think the prices will remain at current level or do you feel [Foreign Speech] is down little bit.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

It’s a very difficult question to answer. I would leave it at saying that there is definitely stress as far as availability of Robusta is concerned, that’s pretty clear. But there are obviously the large Robusta producers like Vietnam and parts of Brazil, that was online [Phonetic] production that is still to come in. What will happen six months from now, I’m not very sure, but at the moment it looks pretty bullish.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Okay. And sir, as you said that our Instant Coffee order book is full, but you’re also [Indecipherable] almost at optimum utilization, so what kind of growth we can expect in Instant Coffee in FY’24?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

See, the thing is like this. Now, we are also in Vietnam and all that, we have got differentiated blends, single origin blends, decaf, those kinds of things opportunities are there, which we are sort of get kind of capitalizing on. While overall, as I mentioned, we have order book is full, some of these levers are there for us to kind of commercialize and exploit further.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Okay. And sir in FY’23 itself what kind of volume growth we experienced in Instant Coffee?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

So pretty much — so even in the past year while our factories were almost running at full capacity, literally the same quantity maybe about 4% or 5% higher than the previous year, but largely the factories have been running at full capacity.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Okay. And sir you also mentioned that we are also witnessing a recovery in the freeze-dried premium coffee, right?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Yes.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

So is it a particular geography that you are witnessing or is the demand across the globe?

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Yeah, across the globe. But we must remember the largest consumer of freeze-dried is Russia. And freeze is at the moment pretty much in the demand space, so. But other parts of the world also where there is a requirement of freeze, they also seem to be asking, obviously because there have been some facilities that have actually come off production. So there is lack of quantities available in the market. So it’s a global phenomenon actually.

Dhiral Shah — Phillip Capital India Pvt. Ltd — Analyst

Okay. Thank you so much sir.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] [Technical Issues]

Unidentified Participant — — Analyst

[Technical Issues] of Eight O’ Clock and how are you seeing the the next two year outlook considering obviously the inflation fears have now receded, but still the [Technical Issues] fears are still looming large. So how we see the Eight O’ Clock next two year the growth outlook and what are the key steps that the company has taken to combat any macro headwinds. Yeah. Thanks.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

So two years, [Technical Issues] but what you are clearly saying is Eight O’ Clock is focusing on lot of innovation and kind of new product development, which will definitely be standing in good stead. They’re also trying to penetrate distribution much more than what was before. So these two are the definitely there are some other levers, which they are using. Of course, now with the the coffee prices also little bit easing, we are expecting kind of taking improvement in the margins over the period of time.

Unidentified Participant — — Analyst

Okay, sir. Understood. Thank you.

Operator

Thank you. [Operator Instructions]. We will take our next question from the line of Dinesh from BBG. Please go ahead. Dinesh, your line is unmuted. You may unmute yourself on your device and ask your question. Thank you. [Operator Instructions] We will take the next question from the line of Bhavesh Jain from Enam AMC. Please go ahead. So, Bhavesh Jain, your line is unmuted, you may unmute yourself on your device and ask your question. Bhavesh Jain from Enam AMC. Your line is unmuted sir. Please go ahead and ask your question. Mr. Jain. We are unable to hear you.

Bhavesh Jain — Enam AMC — Analyst

Hello.

Operator

Please go ahead and ask your question sir.

Bhavesh Jain — Enam AMC — Analyst

Yeah. Sir, what are our capex plan?

K. Venkataramanan — Executive Director Finance and Chief Financial Officer

So capex, we have some kind of ongoing capex on the Starbucks roastery in Kushalnagar which we are investing, so that will probably come into stream during the next couple of months and lot of other capex that we normally do for enhancing quality etc, in the plantations, for example, putting up new wet milling machines etc. So largely largely around quality, largely around enhancement as we mentioned of the Starbucks roastery and also capacity debottlenecking in the Instant Coffee plants. So that’s basically the capex that we have, I mean largely the big numbers.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

We also have some kind of rebranding, also in the plantation, which is a usual that we do have and a fairly large quantum that we spend on that. So capex spend roughly it will be around INR20 crores, INR25 crores on a steady-state basis and it will with this capex, some of these specific projects would slightly go up.

Bhavesh Jain — Enam AMC — Analyst

Anything on Instant Coffee side as we are running full —

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

We are evaluating of what all possibilities are there. Obviously, we did about a year back on the agglomeration facility for, majorly for Tata Consumer requirements in Theni. So we invested about INR25 crores there. So like that whatever requirements on a need basis we are doing it. On largest phase, yes, we are definitely evaluating.

Bhavesh Jain — Enam AMC — Analyst

And sir lastly on this Arabica prices. You said availability have increased. So how do you see the Arabica price going forward?

K. Venkataramanan — Executive Director Finance and Chief Financial Officer

Yeah. So Arabica, in my opinion, we’ve kind of topped out in terms of where the prices could have headed. The crop that we hear of coming in from Brazil seems to be pretty good this year. So I do not see any upside to it, but largely I think because demand is also very much there and you still see consumption going up by 2%, 2.5%, 3% in green coffee. I don’t think there is a major danger of prices actually gone down either, but I would be careful in saying that for the next six months, this hypothesis may hold good. Beyond that, we’ll have to wait and see how things transpire.

Bhavesh Jain — Enam AMC — Analyst

And on Eight O’ Clock, have they pass-on entirely this raw material inflation, the coffee prices inflation to end consumer?

K. Venkataramanan — Executive Director Finance and Chief Financial Officer

Not fully Bhavesh. Not fully, Because they normally, again Eight O’ Clock is fifth largest and in line with competition they have done, but may not see all these roasters carry typically longer inventory inventories of raw materials, so not fully passed down. That is why I said, as the prices ease, there also the operating margins will probably improve.

Bhavesh Jain — Enam AMC — Analyst

Okay. And anything on the volume outlook, because we are seeing subdued volume over there, Eight O’ Clock side.

K. Venkataramanan — Executive Director Finance and Chief Financial Officer

Yeah. See, the issue is was like these, you know, the point is about two, three years with the post-COVID what have been all this pantry filling and all that, the volumes did go up quite a bit for about one, 1.5 years. So when we are comparing to that, there is reduction, but obviously while we are seeing some growth in the K-Cups and all those but the bags volumes per se, we are not seeing that kind of a growth, but obviously we’ll wait because Eight O’ Clock is also putting lot of efforts on innovation and new products in terms of speciality blends. So those will probably be able to improve the volumes as we go along. They are also focusing on distribution, as you know, as we tend to do that. So with that I think hopefully bags volume should improve.

Bhavesh Jain — Enam AMC — Analyst

Okay sir. Thanks a lot and thank you for future.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Thank you.

Operator

Thank you. Ladies and gentlemen we have reached the end of the question-and-answer session and I’d like to turn the call back over to the management for closing comments. Over to you, sir.

Chacko Purackal Thomas — Managing Director and Deputy Chief Executive Officer

Thank you for attending the call and hope to see you next time. Thank you very much.

K. Venkataramanan — Executive Director Finance and Chief Financial Officer

Thank you very much. Thanks, Aniruddha.

Operator

[Operator Closing Remarks]