spaceage products ltd share price Management discussions

Overview

The global instant coffee market attained a value of USD 11.4 billion in 2020. The market is further projected to grow in the forecast period of 2022-2027 at a CAGR of 4.9% to reach USD 15.2 billion by 2026.

On the basis of type, the spray dried instant coffee dominated the global instant coffee market in 2020 and is estimated to continue its dominance over the forecast period. Spray dried instant coffee is relatively affordable than the freeze dried variant, thus, creating its higher demand among consumers. Based on the packaging, the pouch segment is likely to hold a major market share over the forecast period of 2022-2027. It offers various advantages over other packaging, as they are cost-effective, flexible, light-weighted, and recyclable.

On the basis of the distribution channels, the supermarkets and hypermarkets held the largest segment in 2020. The availability of more shelf-space and a wider choice among a large number of products is attributing to the segment growth. Supermarkets are generally located in the central part of the cities, which in turn attracts more buyers. Regionally, Europe accounted for the majority of the market share in 2020. The expanding middle-class population rise in disposable income, and rapid urbanization are the factors accentuating the demand for instant coffee in the region.

Instant coffee is one of the most widely consumed beverages derived from roasted coffee beans. It enables the consumers to prepare coffee quickly by just pouring hot water into it. In comparison to brewed coffee, instant coffee comprises lower caffeine content and higher amounts of antioxidants. Regular consumption of instant coffee offers many health benefits, such as increasing metabolism, enhancing brain function, and improving liver health. Furthermore, instant coffee is available in granulated, concentrated liquid, and powdered form in sachets or glass jars, thus, are gaining immense popularity, especially among the working population across the globe.

The global instant coffee market can be broadly segmented on the basis of its packaging type into:

- Jar

- Pouch

- Sachet

- Others

The major coffee types in the global instant coffee market are:

- Spray Dried

- Freeze Dried

Based on the distribution channel, the global instant coffee market is divided into:

- Business-to-Business

- Supermarkets and Hypermarkets

- Independent Retailers

- Departmental Stores

- Online

- Others

The EMR report looks into the regional markets in the global instant coffee market like North America, Europe, the Asia-Pacific, Latin America, and the Middle East and Africa.

1. Industry Structure and Developments Summary Resilient Indian Economy

This year 2022 -23 began with the anticipation that a runaway inflation, aggressive policy rate hikes, and high commodity prices might topple a few major economies, however the probability of a recession now appears to be ruled out and a few economies are picking up.

The United States, is seeing a rebound in consumer confidence and spending. Risk spreads are declining on both sides of the Atlantic after the recent banking crisis in the United States.

India, meanwhile, enjoys a euphoric moment as its economic activity is gaining momentum amid continuing global uncertainties. The GDP growth in the fourth quarter has pushed up the full-year GDP growth of FY2022-23 to 7.2%, 200 basis points (bps) higher than the earlier estimate.

The recently released Annual Economic Review for the month of May 2023 highlighted that the postpandemic quarterly trajectories of consumption and investment have even crossed pre-pandemic levels.

Evidently, economists and analysts are bullish about the Indian economy and are expecting India to grow between 6% and 6.3% in FY2023-24 and have a stronger outlook thereafter In fact, if global uncertainties recede, then Indias growth may even surpass 7% mark over the next two years.

Coffee Industry In Growth Phase:

Factors such as increasing out of home coffee consuming population, rapid urbanization, rising e-commerce retail sales, accelerating disposable income, increasing instant coffee preference, growing demand for specialty coffee and increasing green coffee consumption in emerging economies are expected to drive the market. However, the growth of Coffee Industry may be challenged by weather uncertainties, retail consolidations and stringent regulations.

A few notable trends include growing penetration of premium coffee shops, high demand for cold brew over iced coffee, inclining desire for functional coffee and increasing gourmet coffee sale in certain sections of USA.

There are two sources of coffee i.e. Arabica (oldest type of coffee, to be cultivated initially in Ethiopia (Africa) and Robusta (its initial roots in countries located in central & western sub-Saharan Africa). Arabica coffee is the first-ever cultivated coffee species and hence it is dominant in the market over Robusta coffee.

It may be recalled that in 2020, the COVID-19 pandemic had created a unfavorable impact on the global market as the production, exports and imports of coffee & related products have decreased significantly. Currently there is a gap between World coffee production and consumption. The world coffee consumption is growing at the rate of 2.5% per annum.

The fastest growing markets are the developing economies .Topping this is the regional market is the Asia- Pacific due to a rise in the demand for coffee by the working population, growing presence of a large number of coffee chains and increasing e-commerce retail sector.

Global Coffee trends:

Beverages is the fastest growing business segment world-wide. Coffee is the second largest trading commodity. More than a billion cups of coffee are consumed every day and this is the very reason for which we are in is in growing business!

As you may be aware, Coffee is the worlds second most traded commodity after oil. Consumption of Coffee has been increasing by over 2% every year at 171million 60 kg bags of green Coffee for the year 2022-23. The global coffee segments are Conventional coffee and Instant Coffee . Instant Coffee is made for convenience and much higher in terms of value. This segment has been growing at around 9% on a year-on- year basis. Global coffee consumption has been estimated at 178 million bags with a demand for 7 million bag of coffee . Economically developing countries are the biggest consumers. There is a big market in the private label segment of Instant coffee for Vintage to comfortably expand mostly to Africa , Baltic and Central Asian countries.

Inspite of slower growths of economies globally , recessionary trends and political disturbances in some geographies, Coffee as a beverage is evincing big demand and penetrating well into traditional tea drinking areas. Hence the global coffee market is anticipated to reach US$134.25 billion in 2024, growing at a CAGR of 5.32% for the period spanning 2020-2024, Vintage is well positioned to gain a fraction of this ever growing coffee market.

Vintage Gaining Global Footprints

We are happy to announce that your company, Vintage Coffee and Beverages Ltd (VCBL) has expanded its global footprints. We have now penetrated into countries of the likes of Europe, Africa, S.E.Asia, Australia ,Russia and CIS countries. The company has established a name for itself in the area of product quality and this has ensured that we have a customer retention of over 95%.

As you may be aware VCBL is a holding company of Vintage Coffee Private Ltd, (engaged in business of instant coffee manufacture and sales over the last 5 years) and Delecto Food Private Ltd, (engaged in the business of manufacturing and exporting Instant Chicory over the last seven years). VCBL.has the required expertise in merchant trading with the management team having several years of experience in this business. We have a state-of-the-art manufacturing facilities for Instant Coffee along with huge storage facility for Green Coffee and finished products. The plant is equipped with machinery components such as: probat profile roaster with hi -tech turbo roasting from Brazil; a fully automated extraction system to capture rich aroma in the product and to deliver a consistent product; and the best a recovery technology so as to add back aroma into the final product to give a rich cup taste.

Plans are on to optimise capacity utilisation and to procure green coffee at optimal prices with six month supply visibility at any time; renew the existing contracts on hand and bag additional orders from new markets; have an uninterrupted production and dispatches; and also focus on domestic sales front too in segments such as e-commerce, Exclusive retail outlets , Corporate Vending and out of home opportunities and thereafter foray into branded space in the retail segment.

Business review :

The company has taken several initiatives to improve operations and sales in FY 23.Sourcing green coffee at right time at optimal prices, new customer contracts have ben secured in all geographies which has ensured that turnover and profits have improved over the previous year. The financial metrics presented below indicate the positive improvement trends in all areas , which are bound to further majorly improve in FY24. Financial Metrics:

The Turnover of the company has increased from Rs.36.58 Crores in 2021-22 to Rs. 62.89 Crores in FY2022-23.this turnaround has improved from a loss of Rs.12.27 crores in FY 2021-22 to a profit of Rs.3.86 Crores in FY2022-23.Return on Equity has improved from -11.72%% in 2021-22 to + 3.56% in 2022-23. Debt to Equity Ratios have improved from 1.05 in 2021 to 0.94 in 2022-23.Earnings per share has also improved considerably.

Industry Structure and Development:

As presented elsewhere here, Global coffee market continues to grow steadily and the industry has been witnessing consecutive year wise deficits in production and consumption leading to increased prices and also demand for new products , blends and product deliveries.

People are becoming more sensitised to social and ethical aspects in daily life in general and for coffee in particular.So we are witnessing growths in production and consumption of certified coffees, premium products as employment and double income household are increasing in emerging markets.

Opportunities:

Since global coffee consumption is on the rise and so is instant coffee consumption in India, your company is geared up to tap the opportunities becoming available. New markets, segments,alliances , packaging etc will be focused on for business expansionbe Post Covid ,situation is becoming normal and the company is witnessing lot of dematnd in non retail segment in India . Plans are afoot to tap this opportunity in areas of HORECA, Vending, Exclusive Retail stores , Cafe etc in the coming days.

Risk, Concerns and Threats:

Global economy, Political disturbances continue and may pose potential problems.Competitors are increasing and existing competitors are also going to fight for the same pie of customers.Domestic markets are also witnessing entry of new players and witnessing high spends and our forays into this space will have to recognise this threat.

However, your company has sound planning and strategy development process to identify blind spots and is geared up to meet all the potential challenges and confident to meet its set objectives for the year.

2. Internal Control systems and their Adequacy

The Company has laid down procedures and control framework for the governance of orderly and efficient conduct of its business, including adherence to policies, safeguarding of assets, prevention and detection of fraud and errors, accuracy and completeness of accounting records and timely preparation of reliable financial reports. These include regulations in manual or automated (ERP) applications including other IT applications, wherein transactions are approved and recorded). Appropriate review and control mechanisms are one of our mandates in ensuring that such control systems are adequate and are operating effectively on an ongoing basis. The Company is responsible

for establishing and maintaining optimal internal controls in preparation and presentation of financial statements, including assertions on the internal financial controls.

3. Financial Performance with respect to Operational Performance Revenues - Standalone

During the year under review, the Company on a standalone basis has recorded an income of Rs.3574.83 Lakhs and Profit of Rs.115.37 Lakhs as against the income of Rs.449.17 Lakhs and Profit of Rs.17.83 Lakhs respectively in the previous financial year ending 31.03.2022.

Revenues - Consolidated

During the year under review, the Company on a consolidated basis has recorded an income of Rs. 6289.05 Lakhs and Profit of Rs.386.20 Lakhs as against the income of Rs.3658.91 Lakhs and incurred a loss of Rs.1227.17 Lakhs respectively in the previous financial year ending 31.03.2022.

4. Material developments in Human Resources / Industrial Relations from, including number of people employed.

There are no material developments in Human Resources / Industrial Relations from FY 22 to FY 23.

5. Details of any change in Return or Net Worth as compared to the immediately previous financial year:

Ratios: -	Formula to calculate Ratio	31-03-2023	31-03-2022	31-03-2023	31-03 2022
(a) Current Ratio	Current Assets	421.97	304.50	0.44	8.17
	Current Liabilities
		949.35	37.28
(b) Debt-Equity Ratio	Total Debt	436.39		0.03	0.00
	Total Equity	13,794.97	13,679.45
(c ) Debt Service Coverage Ratio	Earning before interest, tax and exception items	158.92	24.41	52.65	77.61
	Interest expenses+ principal Repayments made during the period for long term loans	3.02	0.31
(d) Return on Equity Ratio	Net Income	115.37	17.83	0.84%	0.13%
	Shareholders Equity	13,794.97	13,679.45
(f) Trade Receivables turnover Ratio	Value of sales and Services	3,574.83	449.17	10.59	2.92
	Average Trade Receivables	337.53	153.77
(g) Trade Payables turnover ratio	Turnover	3,574.83	449.17	28.16	64.45
	Average Trade Payables	126.93	6.97
(h) Net Capital turnover ratio	Turnover	3,574.83	449.17	0.26	0.03
	Net Capital	13,794.97	13,679.45
(i) Net Profit Ratio	Net Profit after tax	115.37	17.83	0.03	0.04
	Turnover	3,574.83	449.17
(j) Return on Capital employed	EBIT	158.92	24.41	1.12%	0.18%
	capital employed	14,231.36	13,679.45
(k) Return on Investment	Net Profit after tax	115.37	17.83	0.84%	0.13%
	Shareholders Equity	13,794.97	13,679.45

Note:

Due to better perfo rmance of business the ratios percentage _ wise increase is very much.

Increase in Current Assets & gradual increase in Current liability has resulted in ¹ fall of Current Ratios.

Higher EBITDA & increase in debt levels has resulted in improvement of Debt Service Coverage ratio

Increase in Net Income & Shareholders Equity has resulted in upward trend of Return on Equity.

(_i) Increase in revenue Year-on-year with increase in average trade receivables level has resulted in increase in Trade Receivables turnover Ratio

(ii) Increase in Cost of goods sold by Year-on-year with increase in average trade payables has resulted in increase in Trade payable turnover ratio

Change in Return on Net worth as compared to the immediately previous financial year along with a detailed explanation thereof:

6. Any other Sector Specific ratios, as applicable: Not Applicable

7. Disclosure of Accounting Treatment

During the preparation of Financial Statement of F.Y. 2022-23 the treatment as prescribed in an Accounting Standard has been followed by the Company. There are no significant changes in Accounting Treatment as followed by the Company in current financial year as compared to previous financial year.

8. Cautionary Statement

Although we believe we have been prudent in our projections, estimates, assumptions, expectations or predictions while making certain statements, realization is dependent on various factors. Should any known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information.

	For and on behalf of the Board Vintage Coffee and Beverages Limited
	(Formerly Known as Spaceage Products Limited)
	Sd/-	Sd/-
Place: Secunderabad	Tati Balakrishna	Padma Tati
Date: 02.09.2023	Chairman and Managing Director	Director
	DIN: 02181095	DIN: 02415708