CCL Products


(Janme) #228

Does anyone know what are the measures taken to prevent this type of fungus which occurred in 2014?


(Rupesh Tatiya) #229

I think they are exporting 10,000 MT of green coffee. I don’t think this number is for processed soluble coffee.

Regards,
Rupesh


(Rupesh Tatiya) #230

Thanks @mpbhat for excellent notes & several resources to understand industry and story. Thanks @Donald for explaining the investment thesis. I also have been doing some work, following are some notes.

COMPETITION
I have been trying to build competitive landscape to understand the story. Although more work is required, I found information on Olam to be quite useful.

OLAM

  • Olam is a Singapore based independent coffee processing company run by Indian origin management.
  • Olam reported capacity of 22000 MT in 2013 (4000 MT in 2008). Out of this, 12000 MT capacity is based in Vietnam (Spray Dried - 8000MT, Freeze Dried - 4000 MT). The additional 10,000 MT capacity is based in Spain (Spray Dried - 4500 MT, Freeze Dried - 5500 MT). The company plans to increase Vietnam capacity to 17250 MT by 2018.
  • The company is operating at 100% capacity utilization as per latest presentation.
  • The company has moved upstream into coffee estates unlike CCL.

Mota Mota, it looks like Olam is similar sized player as CCL & both are growing at the expense of some other players.

The global market size numbers provided by Olam are a little different than that of CCL (but it does not matter that much).

  • The global soluble coffee market was 7.6L MT in size in 2014.
  • Out of this, 70% is served by majore brand owners (like Nestle, JDE etc.) & rest (2,28,000 MT) is served by independent suppliers like Olam/CCL .

Olam had also had interesting section on yield ->

  • 2.5 MT of green beans are required to produce 1 MT of soluble coffee. This ratio is called as yield.
  • A 1% improvement in the yield results in savings of US 45$/MT.
  • Yield can be improved by maximizing extraction of soluble solids which can be achieved by adjusting time/temprature/particle size etc.

Source: http://49tmko49h46b4e0czy3rlqaye1b.wpengine.netdna-cdn.com/wp-content/uploads/2016/06/Olam_Insight_June_v6_HR_NOCROPS-1.pdf

COLCAFE

  • Colcafe is part of Colombian conglomerate Grupo Nutresa
  • It has brands such as - Cafe Sello Rojo, Colcafe, La Bastilla, Matiz, Cafe Lalitud
  • The company has 54% market share in ground coffee & 42% market share in soluble coffee in Colombia.

CCL’s effort to establish brand + retail operations in domestic market seems to be influenced by players like Colcafe, Klassik who clearly have significant market share in their home countries.

NUMBERS

While looking at numbers of CCL products in screener, I noticed 2-3 interesting things ->

  • Between 2006-2017, barring 2008, the company has shown growth in operating profit (moderate in some years) every single year. This is absolutely fantastic & this probably once again validates that company can pass through RM costs with good efficiency.

  • There is high jump in operating profit in the years after fixed assets + CWIP has gone up. Considering #1 & #2 together leads to conclusion that - every time there is capex, growth will show up with very high probability (immune to commodity cycle).

e.g. Operating profit grew from 65Cr in March’11 to 87Cr in March’12. Fixes assets went up from 217Cr to 273Cr in the same period. Similar story in Mar’15 to Mar’16.
The additional 5000 T of freeze dried capacity (that comes online in Q1-2 FY19) shall prove to be similar if we are to go by past record.

  • Assuming CCL charges fixed $$ for processing, whenever green coffee prices go up, RM cost as % of Sales shall go up & go down when prices drop. But gross/operating profit per MT shall more or remain same or get better.

e.g. Between March’09-10-11, topline went down, RM costs went down but operating profit went up. So any gyrations in topline & even margins shall be taken in this context. Absolute profit numbers (gross/operating/PAT) probably make more sense than % profit margins.

TODO

  • I am still looking for reports on any smaller players (capacity < 5000 T) & how they have performed over last 4-5 years. That will validate the competitive advantage that players like CCL (and maybe Olam) have. If anyone has information, please do kindly share.

Disc - I have bought shares in last 90 days. < 5% of portfolio overall. This is not a buy/sell recommendation and investors are advised to do their own due diligence.


(amit) #231

Roasting of Coffee linked to Cancer causing chemical in coffee and fries


(rupaniamit) #232

Important line: The bottom line, for now, is that coffee retailers in California will have to post warnings. But that doesn’t mean there’s evidence that coffee itself is risky.

We need to try to understand if this applies to instant coffee made by CCL. Worth checking with management on quarterly earnings call. Above mentioned risk is for ground coffee. USA is not that big market for instant coffee.

Disc: invested


(amit) #233

This apply not only to coffee but too potatoes fries . i read on WHO and Australian health websites as well. So no fries and coffee for me from now but i dont think it will have big impact . Coffee is like cigarette deep rooted in daily routines/addiction and there is huge lobby from Starbucks etc . interesting to see would be how market takes this news. CCL is on options market so not sure will it have any impact.


(Gary) #234

And exactly like this people stopped having fat in their daily food 30 years ago only to be told that the research were not done / not adequate / poorly executed and today all dieticians tell you that you must take some fat in your food.

One would need a far more rigorous and empirical evidence to start putting cause and effect in situations likes this. And even than, a 100% increase from 0.01% only take you to 0.02% . You may still have chance of dying on Delhi roads that are 100 times more !

:slight_smile:


(shreys) #235



I found this sachet of coffee at a hotel in Maharashtra. On tasting it I thoroughly enjoyed it. On further examination it emerged that it was manufactured by CCL products.
And, it seems this coffee is quite popular because I’ve seen it at other places as well. Though I wasn’t aware then that it’s manufactured by CCL.


(Saji John) #236

I am regularly buying Continental strong from amazon [email protected] This time I got a brochure along with it which mentions of its availability through Amazon,flipkart,ebay,shopclues,paytm,infibeam and bigbasket. I am unable to upload the PDF file due to some reason


(Vel) #237

CCL product is expanding very fast in chennai. some of the shops near to home in chennai are selling continental coffee with buy 1 get 1 offer. Even Dmart Pune is selling CCL with same offer.


(Dhinakaran AK) #238

It’s also available at Reliance Fresh outlets at Chennai since long with buy one get one offer, I have been buying regularly.


(Vel) #239

Even i also used to buy from reliance fresh earlier. But that was manufactured by CCL under its private label. But recently they started selling under their own brand “Continental” in many small shops around chennai.


(rkothuri) #240

I have been buying Continental from DMART in Pune which is having 1+1 offer currently.

Just trying to understand giving discounts and showing it as another me too product is not what they are targeting. They have changed the strategy in last quarter and planning to show it as a niche and has revised margin targets.

Whereas we are still getting it at a discount and started available in most of the shops? Is this part of brand building activity?

BTW, I also saw it being served in Secunderabad Pune Shatabdhi express.


(sensaptarishi) #241

Just wanted to know if anyone can tell the current capacity plant wise, product wise and future expansion in each plant. the concalls are very confusing.


(Sandeep Patel) #242
  • CCL has currently 20,000tn of capacity in India, with 15,000tn for spray dried coffee and 5,000tn for freeze dried coffee.
  • Indian plant is currently running at peak utilization level of 98%.
  • CCL’s Chittoor plant with 5,000tn freeze dried capacity is expected to get operational by 2HFY19. It comes under a SEZ and is expected to serve export markets. Expected to touch 50% capacity utilization level by FY19.
  • With the above stated capacity expansion plan, capacity in India in FY19 is expected to go up to 25,000tn, of which 10,000tn will be for freeze dried coffee.
  • Vietnam plant has 10,000tn capacity for instant coffee and 5,000tn for liquid coffee (which is convertible to 2,000tn of solid capacity). Utilization is unclear. Q3Fy18 conf call indicates almost peak utilization and one of the research report says 65%.
  • Recent commissioning of agglomeration capacity in Vietnam plant could be bit misleading. Agglomeration is just a value added process of converting powder to granules. It is about creating another value added product within the same capacity.
  • CCL has around 3,000tn plant in Switzerland (facing issues on account of unfavorable European Union regulations).

Triggers to track -

  • Off take from upcoming facilities in India
  • B2C sales via Continental brand
  • Offtake in Vietnam facilities