The business of CCL Products can be divided into two separate entities:
- The bulk export contract manufacturing business
- The domestic retail business
The bulk export contract manufacturing business:
This forms the major portion of the revenue. The company has shown concern regarding the excess capacity of contract coffee production in the world to the tune of 50%. Keeping that in mind the company has given a moderated growth projection of 10-20% for the next 3-4 years, post which there could be a further moderation in the growth given there is no major changes in the industry dynamics (ex. any major supplier shutting its operation etc…). The company seemed confident to showcase this growth as they claimed to have a better product portfolio (larger variety of coffee products under a single head) and better relation with customers which will help them grow with this rate.
The company is looking to expand its freeze-dried production capacity by 5000 tonnes by FY19-20 and another 4000 tonnes at the Vietnam Plant also by FY19-20.
Currently total capacity
Spray dried: 24000 tonnes. Freeze dried: 6000 tonnes
Agglomeration: 10000 tonnes(only possible with the spray dried coffee))
The raw material which forms the 70% of the total cost (which is green coffee) should only affect the revenue realization with a lag of 2-3 months. The margins will remain stable even with the fluctuating green coffee prices as all the orders are pre-booked both for sale and coffee procurement.
Net off: A stable business, good management, and a moderate growth. Debt free operations, debt needed only for expanding capacities.
Domestic retail business:
A new entrant in the business with a total market size of 3000cr. The company will focus mainly in South India (Andhra Pradesh, Telangana, Karnataka, Tamil Nadu). The company started first with the institution supply with the aim of getting feedback and improve the product as to be easily acceptable to the Indian masses. Now the company is rolling out its B2C plans with target sales of this year 100cr. The company plans to gain a 10% market share in the next 3-4 years. The management is confident that the domestic business will be self-sustainable by this year (i.e will not require any budget from the core business to fund its domestic operations) However the business will not be PAT accretive as their major focus would be on gaining share for next 3 years. Though a better picture will be given in the next 2 quarters as the result of the new operations are out.
Disclaimer: Not invested yet, Though following the story.