Post on 27-Mar-2018
Anand Rathi Research
Time Horizon – 12 Months
June 8, 2016
Source: Company Reports, Anand Rathi Research, Ace Equity
V
A
L
U
E
P
I
C
k
Analyst: Ridhi Mehta ridhimehta@rathi.com
Relative stock performance (JUNE 2015=100)
CMP: `240
Target: ` 340
Shareholding Pattern (as on Mar’16)
CCL Products (India) Limited (CCL)
RISK MEDIUM
Bloomberg Code CCLP IN
NSE Code CCL
Sector AGRI
Industry TEA/COFFEE
Face Value (`) 2
BV per share (` ) 38.2
Dividend yield (%) 0.65%
52 Week H/L (`) 253.9/154
Market Cap (` mn. ) 30849.17
Key Data
Mar-16 Dec-15 Sep-15 Jun-15
Promoters 45% 45% 45% 45%
Non-Institutional 33% 32% 39% 39%
Institutional 22% 24% 16% 17%
Total 100% 100% 100% 100%
80
100
120
140
CCL NIFTY 50
(In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E
Net Sales 8,806 9,321 10,719 12,542 14,423
EBITDA 1,712 2,047 2,508 3,060 3,663
EBITDA Margin (%) 19.4% 22.0% 23.4% 24.4% 25.4%
EPS (`) 7.1 9.2 11.1 13.7 16.6
Ev/Sales (x) 3.7 3.5 2.9 2.4 2.1
Ev/EBITDA (x) 19.2 15.8 12.2 10.0 8.3
P/E (x) 34.0 26.1 21.7 17.6 14.4
Price Performance CY12 CY13 CY14 CY15 YTD
Absolute 183% 28% 297% 31% 8%
Relative 155% 21% 265% 36% 4%
NIFTY 28% 7% 31% -4% 3%
2 Anand Rathi Research
CCL Products (India) Limited (CCL)
Producing instant coffee in India and Vietnam, CCL was established in the mid-nineties to manufacture world-class instant coffee. It is a profit making,
export oriented unit (EoU) with the ability to import green coffee into India from any part of the world and export the same to any part of the world,
free of all duties. The strong infrastructural backbone and a global client repertoire in over 90 countries have led them to evolve into largest instant
coffee exporter in private labeling in the world
CCL Products is engaged in the manufacture of Soluble Instant Spray Dried Coffee Powder, Spray Dried Agglomerated / Granulated Coffee, Freeze Dried
Coffee, Roasted Coffee, Roast & Ground Coffee, as well as Freeze Concentrated Liquid Coffee. The company is in a position to offer a range of in‐house
products to customers. Its state‐of-the‐art soluble instant coffee manufacturing plant is located at Duggirala Mandal, Guntur District, Andhra Pradesh,
with current combined capacity of 15000MT/PA. The company has adapted Swiss and Brazilian technology, purchased from world renowned pioneers in
turnkey instant/soluble coffee technology at its plant. This adaptation of technology has enabled CCL to produce international quality soluble coffee.
To cater to specific markets, the company has expanded capacity in Switzerland and Vietnam during FY11 and FY14, respectively. The newly
commissioned green field Vietnam facility with proximity to raw material and customers as well as tax benefits is expected to propel growth and lead to
significant cost savings.
The company’s recent entry in the domestic branded coffee segment via Continental is bound to aid margin expansion. The management expects
Continental Coffee to become a Rs. 2bn brand in the next three to four years.
CCL Products has been successively awarded for its outstanding contribution to the global coffee market by the Ministry of Commerce, Government of
India & the Coffee Board of India, the Government of Andhra Pradesh and other organizations. CCL also holds Kosher and HALAL Certifications.
Coffee processing is a challenging business wherein getting the perfect blend is crucial, which the company has successfully mastered. The company’s
cost‐efficient business model, rich experience and long‐standing relationships with customers give it an edge over competitors. We initiate our coverage
on the stock with a BUY recommendation and a target price of Rs. 340 per share.
Source: Company Reports, Anand Rathi Research
Proven Business Model
3 Anand Rathi Research
Upholding the reputation for being one of the most trusted brands in the industry, CCL Products is committed to delivering its promise of
manufacturing unparalleled quality products. Roasted, blended and processed to the precise requirements of the clients, the Arabica and
Robusta green coffee is hand-picked from different parts of the world. CCL coffee is manufactured at -60 degree Celsius to retain the original
flavor and aroma. They are among the only companies in the world to produce all 4 types of pure soluble coffee from a single location.
CCL manufactures both types of instant coffees i.e. spray-dried and freeze dried instant coffees (SDIC and FDIC). SDIC is the most common
form and, in a sense, a commoditized product, hence, less expensive. On the other hand, FDIC is technically more challenging to produce,
with the output superior to that of SDIC due to flavor and aroma retention. Therefore, it is rightly considered a premium product.
Potent Combination of scale & depth
CCL has the ability to supply flavored coffee, decaffeinated
coffee, organic coffee, Rainforest coffee, Fair Trade coffee,
Dual and Triple certified coffee as well as Chicory-coffee mix
as per the required specifications of the customer, and can
also offer the customers the option of highest quality
customized products.
The company has combined capacity of 35000 tons per
annum (TPA) from its facilities across India, Vietnam and
Switzerland.It is currently the largest single-location instant
coffee manufacturer in India and one of the largest
independent white label coffee producers globally.
Of the total capacity, 40% is freeze - dried while 60% is
spray – dried. Source: Company Reports, Anand Rathi Research
CCL Products (India) Limited (CCL)
4 Anand Rathi Research
Newly commissioned plant in Vietnam drives the growth
Source: Company Reports, Anand Rathi Research
CCL Products (India) Limited (CCL)
CCL commissioned its green-field 10,000tn project in April 2013 for manufacturing instant coffee in Vietnam at a total investment of
US$40mn (including working capital). The company took a long time to commence commercial production because of technical glitches and
environmental problems. Commercial production from the plant started in 2HFY14.
With the Vietnam plant coming on stream, CCL is strategically located in terms of:
a) Logistical advantage: The plant is located in a coffee production zone in Vietnam, which provides logistics benefit to CCL.
b) Raw material availability: The plant is located in Dak Lak province, which is the highest green coffee bean-producing area in Vietnam
(Vietnam is the second-largest green coffee bean grower after Brazil, accounting for 18.3% of the world’s coffee production). As a result, the
plant will have easy access to raw materials, thereby reducing the lead time to a great extent.
c) Market proximity: Owing to the Vietnam plant, CCL can easily cater to the coffee requirements of ASEAN countries and those in close
proximity like Japan, Korea, China, etc. In addition, Vietnam enjoys the ’most favored nation’ status with many countries, thereby enjoying
reduced or nil duty structure. The Vietnam plant will cater to domestic as well as overseas markets.
d) Tax benefit: Being an agri-producer in an under-developed part of the country, the Vietnamese government has granted it 100% tax
exemption on profits till CY20, and 50% exemption after that for nine years.
On the back of capacity utilization level from Vietnam facility crossing 70% in FY16, Vietnam and other subsidiary revenue increased by 22%
to Rs. 2549 mn. CCL expects to reach maximum capacity utilization level (~10000 tons) in Vietnam in the medium term owing to its
favorable location advantage and relaxed duty & tax structure. Company will be setting up a 10,000tn brown field plant in Vietnam once the
current capacity utilization of its plant touches the peak level. Therefore, the benefits of both expansions will be visible from FY19-FY20.
5 Anand Rathi Research
CCL Products (India) Limited (CCL)
With announcement of capex, growth prospect to continue…
CCL Products has announced the setting up of a green field plant with capacity of 5000 tn in Chittur, Andhra Pradesh at an estimated cost of
~$40 million for manufacturing of freeze-dried instant coffee. The time frame for setting up the unit will be 24 to 36 months. This new
planned capacity validates strong demand visibility even beyond FY18 for freeze dried coffee variant.
CCL has already bought land in Chittur district of Andhra Pradesh, which is economically a highly backward area, for ~Rs. 230mn. The area
has proximity to ports and airports, making it a viable location. Out of the total investment of ~$40 million, ~$15 million would be funded
from internal accruals with remaining ~$25 million in the form of debt.
Advantages of setting up of freeze dried coffee facility in India versus Vietnam
• Skill-sets and expertise of employees in India and Vietnam operations are not the same. Therefore, it has to send at least 30-40
people from India to Vietnam if it prefers Vietnam over India for expansion. The management cites lack of availability of equally
competent workforce and language problem as the reason why it is more inclined towards expansion in India rather than in Vietnam.
• It will be greenfield expansion whether in India or Vietnam in case CCL opts to set up a freeze dried coffee plant. The newly formed
state of Andhra Pradesh (after carving out Telangana state) is providing better benefits compared to Vietnam, as the new unit will be
in a SEZ zone.
Source: Company Reports, Anand Rathi Research, NASSCOM
6 Anand Rathi Research
The company’s recent entry in the domestic branded coffee segment via Continental is bound to aid margin expansion. Under continental company has
three categories namely;
Continental Speciale: Continental Spéciale is 100% pure, granulated soluble instant coffee processed from carefully selected plantation Arabica and
washed Robusta beans blended to perfection for complete satisfaction instantly.
Continental Premium: Continental Premium is a distinctive blend of carefully selected plantation Arabica coffee beans, processed to perfection to give
an aroma and taste for real satisfaction, instantly. The flavor of this unique blend will linger long after the coffee is consumed.
Continental Supreme: Continental Supreme is made from carefully chosen coffee beans blended with roasted chicory to provide a strong cup of rich
tasting coffee.
Sales in domestic retail segment were Rs350mn-Rs400mn in 9MFY16, of which Rs150mn- Rs180mn comprised Continental Coffee sales. Currently,
coffee market size in India is ~Rs30bn and the management expects Continental Coffee to become a Rs. 2bn brand in the next three to four years.
Margins for its own brand are very high (more than 30%).
CCL is witnessing very good off-take of its brand and is penetrating new states. It is currently present in seven states and plans to expand to three new
states every year. CCL is increasing the headcount in its team as well as at distributor end.
Source: Company Reports, Anand Rathi Research
CCL Products (India) Limited (CCL)
Foray into branded operations provides interesting option value….
7 Anand Rathi Research
CCL Products (India) Limited (CCL)
Financials Statistics
Source: Company Reports, Anand Rathi Research
CCL witnessed robust growth of ~30% y-o-y in earnings to
Rs.1221mn despite ~5% y-o-y growth in net sales to Rs.9321mn.
For Q4 FY16 revenues improved 22% mainly because of 4% and
93% increase in revenues of India unit and subsidiary operations
respectively. Also the key reason being order slippage of previous
two quarters being booked in 4QFY16. The management stated
that CCL achieved 15% volume growth in FY16 and it gave
guidance of ~12% growth for FY17. The management believes
that CCL can achieve 20% growth in bottom line in FY17 mainly
because of product improvement.
5,000.00
7,000.00
9,000.00
11,000.00
13,000.00
15,000.00
FY14 FY15 FY16 FY17E FY18E FY19E
Revenue Stream
14311712
2047
2508 3060
3663
10.0%
15.0%
20.0%
25.0%
30.0%
500
1500
2500
3500
FY14 FY15 FY16 FY17E FY18E FY19E
Operational Efficiency
EBITDA EBITDAM
100
120
140
160
180
200
500
1000
1500
2000
2500
Jan-
15
Feb-
15
Mar
-15
Apr-
15
May
-15
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-
16
May
-16
Trend of Coffee Prices
ARABICA ROBUSTA
8 Anand Rathi Research
Inventory days declined from 115 in FY15 to 98 mainly
because of improvement in inventory days at Indian
operations from 113 to 85 in FY16. This was mainly because
of large volume orders; uniformity in production, better
product management. Also, the management believes that
inventory days are sustainable at current levels.
18.3%
22.3%
24.0%24.7%
25.7% 26.1%
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
27.0%
29.0%
FY14 FY15 FY16 FY17E FY18E FY19E
ROE Trend
4.8
7.1
9.2
11.1
13.7
16.6
0.0
5.0
10.0
15.0
20.0
FY14 FY15 FY16 FY17E FY18E FY19E
Earnings Per Share
9.0
7.6
6.3
5.4
4.53.8
0.0
2.0
4.0
6.0
8.0
10.0
FY14 FY15 FY16 FY17E FY18E FY19E
Price/Book Value
CCL Products (India) Limited (CCL)
Source: Company Reports, Anand Rathi Research
Financials Statistics
9 Anand Rathi Research
CCL Products (CCL) is India’s largest manufacturer and exporter of instant
coffee. Coffee processing is a challenging business wherein getting the perfect
blend is crucial, which the company has successfully mastered.
The newly commissioned green field Vietnam facility with proximity to raw
material and customers as well as tax benefits is expected to propel growth
and lead to significant cost savings. Moreover, the company’s recent entry in
the domestic branded coffee segment via Continental is bound to aid margin
expansion. Resilient business model, capacity augmentation in Vietnam and
sharpening brand focus in India place CCL in a sweet spot to post sales and PAT
CAGR of 16% and 22% over FY16‐19E, respectively. We estimate ROE to
improve from 24% in FY15 to 26% in FY19E. We initiate our coverage on the
stock with a BUY recommendation and a target price of Rs.340per share.
Relative stock performance (JUNE 15=100)
Valuation and Recommendation:
Source: Anand Rathi Research, Ace Equity
CCL Products (India) Limited (CCL)
Source: Company Reports, Anand Rathi Research, Ace Equity
80
100
120
140
CCL NIFTY 50
(In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E
EPS (`) 7.1 9.2 11.1 13.7 16.6
P/E (x) 34.0 26.1 21.7 17.6 14.4
P/B (x) 7.6 6.3 5.4 4.5 3.8
ROE 22% 24% 25% 26% 26%
ROCE 27% 32% 44% 46% 46%
Ev/EBITDA (x) 19.2 15.8 12.2 10.0 8.3
10 Anand Rathi Research
Consolidated Financials:
CCL Products (India) Limited (CCL)
Source: Company Reports, Anand Rathi Research, Ace Equity
(In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E
LIABILITIES
Shareholders’ Funds 4,216 5,098 5,960 7,067 8,479
Equity Share Capital 266 266 266 266 266
Reserves and Surplus 3,950 4,832 5,694 6,801 8,213
Non Current Liabilities 1,158 734 777 817 951
Long-term borrowings 904 443 486 527 661
Deferred Tax Liabilities 243 285 285 285 285
Other Long Term Liabilities 11 6 6 6 6
Current Liabilities 2,244 2,181 2,368 2,232 2,003
Total Liabilities 7,617 8,013 9,105 10,116 11,433
ASSETS
Non Current Assets 4,017 4,589 5,279 6,296 7,183
Fixed Assets 3,400 4,172 4,836 5,779 6,592
Long Term Loans and Advances 68 401 429 502 577
Other Non-Current Assets 549 16 15 15 15
Current Assets 3,600 3,423 3,826 3,820 4,250
TOTAL-ASSETS 7,617 8,013 9,105 10,116 11,433
Margins FY2015 FY2016 FY2017E FY2018E FY2019E
Sales Growth % 22.8% 5.9% 15.0% 17.0% 15.0%
Operating Margin % 19.4% 22.0% 23.4% 24.4% 25.4%
Net Margin % 10.7% 13.1% 13.7% 14.5% 15.3%
(In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E
Net Sales 8,806 9,321 10,719 12,542 14,423
Total Expenditure 7,093 7,274 8,211 9,482 10,760
EBITDA (Excl OI) 1,712 2,047 2,508 3,060 3,663
Other Income 12 15 18 21 25
EBITDA 1,725 2,062 2,526 3,081 3,689
Depreciation 268 284 370 439 505
EBIT 1,456 1,778 2,156 2,642 3,184
Interest 136 108 108 114 105
PBT 1,320 1,670 2,048 2,529 3,079
Tax 398 446 573 707 861
PAT 922 1,224 1,475 1,822 2,218
11 Anand Rathi Research
Volatility in green coffee prices will impact realization.
Slowdown in demand for instant coffee from Europe and other countries.
Retraction of order from clients.
Delay in planned expansion
Key Risks:
CCL Products (India) Limited (CCL)
Source: Company Reports, Anand Rathi Research
12 Anand Rathi Research
Rating and Target Price history:
CCL PRODUCTS rating details CCL PRODUCTS rating history & price chart
Source: Ace Equity, Anand Rathi Research Source: Ace Equity, Anand Rathi Research
CCL Products (India) Limited (CCL)
NOTE: Prices are as on 08th June, 2016 close.
Date Rating Target Price Share Price
08-June-2016 BUY 340 240
80
100
120
140
CCL NIFTY 50
13 Anand Rathi Research
CCL Products (India) Limited (CCL)
Disclaimer:
Research Disclaimer and Disclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
Anand Rathi Share and Stock Brokers Ltd. (hereinafter refer as ARSSBL) (Research Entity) is a subsidiary of the Anand Rathi Financial Services Ltd. ARSSBL is a corporate
trading and clearing member of Bombay Stock Exchange Ltd, National Stock Exchange of India Ltd. (NSEIL), Multi Stock Exchange of India Ltd (MCX-SX), United stock
exchange and also depository participant with National Securities Depository Ltd (NSDL) and Central Depository Services Ltd. ARSSBL is engaged into the business of
Stock Broking, Depository Participant, Mutual Fund distributor.
The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues.
General Disclaimer: - This Research Report (hereinafter called “Report”) is meant solely for use by the recipient and is not for circulation. This Report does not
constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The
recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of
purchase or sale of any security, derivatives or any other security through ARSSBL nor any solicitation or offering of any investment /trading opportunity on behalf of
the issuer(s) of the respective security (ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for the
readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own
investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or
making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by ARSSBL
to be reliable. ARSSBL or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy
and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are fair and reasonable, none of
the directors, employees, affiliates or representatives of ARSSBL shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary
damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report. The price and value of the investments
referred to in this Report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide
for future performance. ARSSBL does not provide tax advice to its clients, and all investors are strongly advised to consult with their tax advisers regarding taxation
aspects of any potential investment.
Continued…
14 Anand Rathi Research
CCL Products (India) Limited (CCL)
Disclaimer:
Contd. Opinions expressed are our current opinions as of the date appearing on this Research only. We do not undertake to advise you as to any change of our views expressed in this Report. Research Report may differ between ARSSBL’s RAs and/ or ARSSBL’s associate companies on account of differences in research methodology, personal judgment and difference in time horizons for which recommendations are made. User should keep this risk in mind and not hold ARSSBL, its employees and associates responsible for any losses, damages of any type whatsoever. ARSSBL and its associates or employees may; (a) from time to time, have long or short positions in, and buy or sell the investments in/ security of company (ies) mentioned herein or (b) be engaged in any other transaction involving such investments/ securities of company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) these and other activities of ARSSBL and its associates or employees may not be construed as potential conflict of interest with respect to any recommendation and related information and opinions. Without limiting any of the foregoing, in no event shall ARSSBL and its associates or employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind. Details of Associates of ARSSBL and Brief History of Disciplinary action by regulatory authorities & its associates are available on our website i. e. www.rathionline.com Disclaimers in respect of jurisdiction: This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject ARSSBL to any registration or licensing requirement within such jurisdiction(s). No action has been or will be taken by ARSSBL in any jurisdiction (other than India), where any action for such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in compliance with all applicable laws and regulations of such country or jurisdiction. ARSSBL requires such recipient to inform himself about and to observe any restrictions at his own expense, without any liability to ARSSBL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India.
Copyright: - This report is strictly confidential and is being furnished to you solely for your information. All material presented in this report, unless specifically indicated
otherwise, is under copyright to ARSSBL. None of the material, its content, or any copy of such material or content, may be altered in any way, transmitted, copied or
reproduced (in whole or in part) or redistributed in any form to any other party, without the prior express written permission of ARSSBL. All trademarks, service marks
and logos used in this report are trademarks or service marks or registered trademarks or service marks of ARSSBL or its affiliates, unless specifically mentioned
otherwise.
Contd.
15 Anand Rathi Research
Disclaimer:
Contd. Statements on ownership and material conflicts of interest, compensation - ARSSBL and Associates
Sr. No.
Statement
Answers to the Best of the knowledge and belief of the ARSSBL/ its Associates/ Research Analyst who is preparing this report
1 ARSSBL/its Associates/ Research Analyst/ his Relative have any financial interest in the subject company? Nature of Interest (if applicable), is given against the company’s name?. NO
2
ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance?. NO
3 ARSSBL/its Associates/ Research Analyst/ his Relative have any other material conflict of interest at the time of publication of the research report or at the time of public appearance?. NO
4 ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation from the subject company in the past twelve months. NO
5 ARSSBL/its Associates/ Research Analyst/ his Relative have managed or co-managed public offering of securities for the subject company in the past twelve months.
NO
6 ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. NO
7
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months. NO
8 ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation or other benefits from the subject company or third party in connection with the research report. NO
9 ARSSBL/its Associates/ Research Analyst/ his Relative have served as an officer, director or employee of the subject company. NO
10 ARSSBL/its Associates/ Research Analyst/ his Relative has been engaged in market making activity for the subject company. NO
CCL Products (India) Limited (CCL)