CCL Products says more customers prefer short-term coffee contracts as market stays volatile
India’s largest coffee exporter CCL Products (India) said more buyers are opting for short-term contracts in the commodity as global prices stay volatile at elevated levels even as the new crop in the second largest producer Vietnam is set to arrive from next month.
“The challenges in coffee prices remain. They are still at higher levels. More than that, there’s volatility, which creates a little bit of anxiety in the market because the buyers are a little more short-sighted. They don’t want to get trapped with higher prices. So they are innovative and are in a wait-and-watch kind of a game,” said Praveen Jaipuriar, CEO, CCL Products (India).
A large portion of CCL’s contracts, say about 50-60 per cent, are now short-term deals, Jaipuriar said, adding that buyers are covering their requirement for the next 2-3 months. Earlier, when the prices were stable, buyers preferred more long-term contracts and the short-term deals accounted for about 20-30 per cent.
For the September quarter, CCL reported a 11 per cent drop in net profits, while its revenues were up 24 per cent. CCL reported a net profit of ₹27.16 crore on revenues of ₹436.90 crore during September quarter as against a net of ₹31.16 crore on revenue of ₹351.95 crore in the same period last year. “We had a reasonably good quarter, considering the challenges of coffee prices that are still prevailing,” Jaipuriar said, adding that the company’s EBIDTA growth stood around 22-23 per cent during the quarter.
Higher tax
He attributed the decline in net profit to the higher tax component this year. The revenue growth was on account of 10-12 per cent increase in prices while volume growth was around 10 per cent during the quarter. CCL has given a guidance of 10-20 per cent for the volume growth this year.
The Indian market contributes to around 12-13 per cent of the revenues and grew by almost 35-40 per cent, he said. Exports accounts for a bulk of CCL’s revenues. CCL, which operates a large coffee manufacturing facility in Vietnam, expects some softening of prices with the new crop expected to hit the markets in December.
“We have been getting some news that, because of the El Nino effect, there could be supply constraints. But these are the initial feelers. Considering that the price was on our trend, people would have held some stocks as well. So really, the scene will get a little clearer, because the Brazil crop has been good, and the next year’s forecast also is good, because the flowering has been good. That’s the news.
“So considering that, I am sure that even the Vietnam traders and all that would not like to hold because if you know, Brazil becomes more competitive, then they tend to lose out. So I’m hoping that it will soften. Considering the way it has moved in the last two, three years, it is very difficult to kind of give a very firm project prediction, but I think December will be a time when we start getting the real feelers that what’s happening in the market.” Jaipuriar said.
CCL, which also sources coffee from Brazil and Vietnam said, the upcoming Indian crop is largely okay, Jaipuriar said.
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