Rising coffee prices may impact CCL Products (India) Ltd.'s topline, but the Ebitda per kilo will remain unaffected, the company's Chief Executive Officer Praveen Jaipuriar said on Friday in an exclusive interview with NDTV Profit.
Coffee prices worldwide have reached record highs due to adverse weather conditions in the world's two largest coffee-producing countries, Brazil and Vietnam. These weather disruptions are expected to reduce crop yields further.
Jaipuriar explained the impact of these conditions on CCL Products' business.
“The increase in coffee prices will have a top-line impact. Because we pass through, what will happen is that my topline will start looking much higher than my volume growth. So, that is one impact,” he said.
Jaipuriar explained the company's "cost-plus" model, which involves taking the current coffee bean rate when a client requests a quote. The company then factors in conversions, yields, and margins before providing the final quote.
“This means that whatever the coffee price is, all my costs and margins are loaded on top of it, and that's how I quote to the client,” he said.
“If the client was to confirm the contract, I would end up buying the coffee today. So, it also doesn't have any impact on my inventory,” Jaipuriar added.
The top executive explained that CCL Products (India) Ltd. does not do any hedging, which means that the prices for the client remain stable even in long-term contracts. This ensures that the Ebitda per kilo for the company does not change over time.
“At Ebitda level, my Ebitda growth will actually mirror my volume growth. That's the best way to look at our business because that's how our model has been built,” the CEO explained.
With the per kilo Ebitda not changing “at all”, high coffee prices will not impact the margins of CCL Products, Jaipuriar said.
“When I say margins, don't confuse it with percentage margins because what happens is that when coffee prices are at a high, because of my cost plus model, my revenue goes up higher. So as a percentage optically, it may look lower, but on a per kilo Ebitda basis, it doesn't change,” he said.
He further emphasised that the company would stick to Rs 110 per kilo prices for coffee in the next two years as there was no change in consumption pattern.
Shares of CCL Products (India) Ltd. declined 1.74% to touch its intraday low of Rs 762.05 apiece on the NSE on Friday. The stock was trading at Rs 770.65 per share at 2 pm, while benchmark Nifty 50 was up 0.71% at 24,723.10 points.
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