Initiating Coverage | Coffee
January 4, 2018
CCL Products
BUY
CMP
`300
Brewing Steadily
Target Price
`360
CCL Products Limited (CCL) is the largest Indian manufacturer and exporter of
Investment Period
12 Months
instant coffee. With a total capacity of 35,000 TPA (tonne per annum), the
company has a global market share of ~6.5%. It also has a leading market
Stock Info
share of 24% in Indian instant coffee exports CCL exports (contributing over 90%
Sector
Coffee
to revenue) to over 90 countries, which have helped in registering 14% CAGR in
Market Cap (` cr)
3,992
revenue and 30% CAGR in PAT over FY2012-17.
Beta
0.5
Hedged business model has created healthy moat: CCL works on cost plus
52 Week High / Low
371/250
margin method and places orders for green coffee only after receiving orders for
Avg. Daily Volume
1,413
instant coffee. This saves company from adverse volatility in coffee prices and
Face Value (`)
2
has helped in maintaining operating margins at 20%+ level. Further, CCL’s
BSE Sensex
33,969
Vietnam expansion is an excellent strategic move, as it is preferred by importing
Nifty
10,504
countries due to proximity to raw material and a favorable duty structure.
Reuters Code
CCLP.BO
Ramping up of facilities to foray in newer markets: In the last two decades, CCL
Bloomberg Code
CCLP.IN
has expanded its capacity by over 10 times. CCL currently has 20,000 TPA of
capacity in India, which is running at high utilization level of 90%+. The
company is expanding its Indian capacities by 5,000 TPA to capture the new
Shareholding Pattern (%)
clients (especially in Japan and Europe) in the premium freeze dried coffee space
Promoters
45.0
with an investment of US$50mn. Vietnam plant, with a capacity of 15,000 TPA
MF / Banks / Indian Fls
4.1
could be further expanded to export to countries like China, USA.
FII / NRIs / OCBs
24.5
Strong balance sheet and healthy return ratios: Its robust business model keeps
Indian Public / Others
26.3
on generating free cash flow in excess of `80cr every year, which would largely
fund its capex requirements. Despite its intensive capex ramp up, DE ratio has
come down to 0.2x in FY2017 and return ratios have been at 20%+ level.
Abs.(%)
3m 1yr 3yr
Outlook & Valuation: CCL is likely to maintain the 17%+ growth trajectory over
Sensex
7.1
27.3
21.5
FY18-20 backed by capacity expansion and new geographical foray. In H1FY18,
CCL Products
(2.4)
16.1
71.3
the company faced some margin pressure while acquiring new clients, which we
have factored in our model. However, according to us, the margin pressures
3-year price chart
would ease from FY19 onwards, once the relationship is established. The stock is
400
currently trading at 21x FY19 EPS, which offers good opportunity to enter the
350
stock. We initiate coverage on CCL with a Buy recommendation and Target Price
300
of `360 (25x FY19E EPS), indicating an upside of ~20% from the current levels.
250
200
Key Financials (Consolidated)
150
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
FY2020E
100
Net Sales
932
976
1165
1398
1595
50
0
% chg
5.9%
4.8%
19.3%
20.0%
14.1%
Net Profit
122
134
139
191
228
% chg
30.0%
10.0%
3.3%
37.7%
19.2%
Source: Company, Angel Research
OPM (%)
23.0%
23.9%
21.0%
22.5%
23.0%
EPS (Rs)
9.2
10.1
10.4
14.4
17.1
P/E (x)
32.7
29.7
28.8
20.9
17.5
P/BV (x)
7.8
6.3
5.5
4.6
3.8
RoE (%)
24%
21%
19%
22%
22%
RoCE (%)
28%
28%
25%
29%
30%
Amarjeet S Maurya
EV/Sales (x)
4.5
4.2
3.5
2.9
2.5
022 - 3935 7800 Ext: 6831
EV/EBITDA (x)
19.5
17.6
16.7
12.9
10.9
[email protected]
Source: Source :Company, Angel Research; Note: CMP as of January 04, 2018
Please refer to important disclosures at the end of this report
1
CCL Products | Initiating Coverage
Company Background
CCL was founded in 1994 as an Export Oriented Unit (EOU) with the right to
import green coffee from any part of the world and export processed coffee across
the globe, devoid of any duties. Its instant coffee manufacturing plant is located at
Guntur District, Andhra Pradesh, with a current combined capacity of 20,000
MT/PA. CCL also has a plant in Vietnam with a total capacity of 1,0000 MT for
instant coffee and 5,000 MT for liquid coffee. CCL’s 3,000 MT plant in Switzerland
is facing issues on account of unfavorable European Union regulations.
Major clientele and geographies
The major countries contributing to CCL’s export revenue are Italy, Russia,
Belgium, Japan Germany, China, etc. A few private labels served by CCL include
Mokate, Instanta, Food Empire, Strauss, DEK, Gold Roast, etc. Presently, the
company provides over 200 varieties and blends of coffee to its customers in over
90 countries.
Indian retail business could also be another booster in near term
The company launched its own brand ‘Continental’ in Andhra Pradesh and
Telangana in FY2014, which has received good response and encouraged it to
recently launch it in other parts of India. In order to ramp up the brand faster, CCL
has tied up with big retail chains, such as the Future Group, Metro, Reliance, etc.
and is supplying to institutional investors like railways. Currently, Nestle and
Hindustan Unilever’s ‘Bru’ forms over 70% the Indian instant coffee market.
Strong balance sheet and healthy return ratios
The company’s robust business model keeps on generating free cash flow in
excess of `80cr every year, which would largely fund its capex requirements. The
company exports to over 90 countries, which has helped in registering revenue
CAGR of 14% over FY2012-17. Despite its intensive capex ramp up, DE ratio has
come down to 0.2x in FY2017 and return ratios have been at 20%+ level.
January 04, 2018
2
CCL Products | Initiating Coverage
Outlook and Valuation
CCL is likely to maintain the 17%+ growth trajectory over FY2018-20 backed by
capacity expansion and new geographical foray. In H1FY2018, the company
faced some margin pressure while acquiring new clients, which we have factored
in our model. However, according to us, the margin pressures would ease from
FY2019 onwards, once the relationship is established. Moreover, its branded
business i.e. ‘Continental’ is doing pretty well and could be `100cr business in the
next 2-3 years (`50cr in FY17). The stock is currently trading at 21x FY19 EPS,
which offers good opportunity to enter the stock. We initiate coverage on CCL with
a Buy recommendation and Target Price of `360 (25x FY2019E EPS), indicating an
upside of ~20% from the current levels.
Exhibit 1: One Year Forward P/E
500.00
450.00
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
CCL Products
10.0 X
15.0 X
20.0 X
25.0 X
30.0 X
Source: Company, Angel Research
Risks to our estimates
Volumes may get impacted owing to the inability to get break through with
new clients
Abrupt fluctuations in coffee prices may adversely impact profitability
January 04, 2018
3
CCL Products | Initiating Coverage
Profit & Loss Statement
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
FY2020E
Total operating income
932
976
1165
1398
1595
% chg
6
5
19
20
14
Total Expenditure
717
743
920
1084
1228
Raw Material
547
552
635
730
839
Personnel
23
28
31
34
37
Others Expenses
148
163
180
198
217
EBITDA
215
233
245
315
367
% chg
20
9
5
29
17
(% of Net Sales)
23
24
21
23
23
Depreciation& Amortisation
28
33
36
41
42
EBIT
186
200
209
274
325
% chg
22
7
4
31
19
(% of Net Sales)
20
20
18
20
20
Interest & other Charges
11
11
13
6
5
Other Income
-8.79
-0.11
2.00
5.00
5.00
(% of PBT)
-5.3%
-0.1%
1.0%
1.8%
1.5%
Share in profit of Associates
-
-
-
-
-
Recurring PBT
167
189
198
273
325
Tax
45
55
59
82
98
(% of PBT)
26.8
28.9
30.0
30.0
30.0
PAT (reported)
122
134
139
191
228
% chg
30
10
3
38
19
(% of Net Sales)
13
14
12
14
14
Basic EPS (Rs)
9.2
10.1
10.4
14.4
17.1
Fully Diluted EPS (Rs)
9.2
10.1
10.4
14.4
17.1
% chg
30
10
3
38
19
January 04, 2018
4
CCL Products | Initiating Coverage
Balance Sheet
Y/E March (` cr)
FY2016
FY2017
FY2018E FY2019E FY2020E
SOURCES OF FUNDS
Equity Share Capital
27
27
27
27
27
Reserves& Surplus
483
610
704
847
1021
Shareholders Funds
510
636
731
873
1048
Minority Interest
Total Loans
210
142
182
172
142
Other Liabilities
1
0
0
0
0
Total Liabilities
721
778
913
1045
1190
APPLICATION OF FUNDS
Gross Block
639
643
743
843
943
Less: Acc. Depreciation
221
250
286
327
368
Net Block
417
393
458
517
575
Capital Work-in-Progress
0
0
0
0
0
Investments
2
2
2
2
2
Current Assets
331
404
479
558
650
Inventories
149
183
201
231
266
Sundry Debtors
128
163
171
197
227
Cash and Bank
19
17
63
84
110
Loans and Advances
36
42
44
46
48
Current liabilities
52
39
45
51
59
Net Current Assets
279
365
434
507
592
Deferred Tax Asset
-28
-31
-32
-34
-36
Other Assets
51
49
52
55
57
Mis. Exp. not written off
-
-
-
-
-
Total Assets
721
778
913
1045
1190
January 04, 2018
5
CCL Products | Initiating Coverage
Cash Flow Statement
Y/E March (` cr)
FY2016
FY2017
FY2018E FY2019E FY2020E
Profit before tax
167
189
198
273
325
Depreciation
28
33
36
41
42
Change in Working Capital
8
-67
-3
-19
-22
Interest / Dividend (Net)
-4
4
0
0
0
Direct taxes paid
-38
-53
-59
-82
-98
Others
Cash Flow from Operations
161
158
231
294
345
(Inc.)/ Dec. in Fixed Assets
-87
-20
-100
-100
-20
(Inc.)/ Dec. in Investments
0
0
0
0
0
Cash Flow from Investing
-87
-20
-100
-100
-20
Issue of Equity
0
0
0
0
0
Inc./(Dec.) in loans
-25
-68
40
-10
-30
Dividend Paid (Incl. Tax)
-40
-13
-13
-13
-13
Interest / Dividend (Net)
-6
-4
-13
-6
-5
Cash Flow from Financing
-71
-85
14
-29
-48
Inc./(Dec.) in Cash
3
54
145
165
276
Opening Cash balances
27
19
2
88
171
Closing Cash balances
2
2
88
171
349
January 04, 2018
6
CCL Products | Initiating Coverage
Key Ratios
Y/E March
FY2016
FY2017
FY2018E FY2019E FY2020E
Valuation Ratio (x)
P/E (on FDEPS)
32.7
29.7
28.8
20.9
17.5
P/CEPS
26.5
23.8
22.9
17.2
14.8
P/BV
7.8
7.8
6.3
5.5
4.6
Dividend yield (%)
1%
1%
1%
1%
1%
EV/Sales
4.5
4.2
3.5
2.9
2.5
EV/EBITDA
19.5
17.6
16.7
12.9
10.9
EV / Total Assets
10.0
10.5
8.9
7.8
7.0
Per Share Data (`)
EPS (Basic)
7.1
9.2
10.1
10.4
14.4
EPS (fully diluted)
7.1
9.2
10.1
10.4
14.4
Cash EPS
11.3
12.6
13.1
17.4
20.2
DPS
2.5
2.5
2.8
3.0
3.3
Book Value
38.3
47.8
55.0
65.7
78.8
Returns (%)
ROCE
28.4
27.5
25.3
28.6
29.7
Angel ROIC (Pre-tax)
26.6
26.3
24.6
28.5
30.1
ROE
24.0
21.1
19.0
21.9
21.7
Turnover ratios (x)
Asset Turnover (Gross Block)
2.2
2.5
2.5
2.7
2.8
Inventory / Sales (days)
63
62
60
56
57
Receivables (days)
47
54
52
48
48
Payables (days)
35
22
17
16
16
Working capital cycle (ex-cash) (days)
75
94
96
88
89
Source: Source: Note - Valuation done on closing price of 04/01/2018
January 04, 2018
7
CCL Products | Initiating Coverage
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
CCL Products
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
January 04, 2018
8