CCL Products

Stock Opportunities Not-so-Hidden Gems
21

Tata Coffee has better margin than CCL. Size is almost same. Brands of Tata Coffee like Tata Cafe, Mysore Gold is equally powerful like continental… why should CCL be valued (2300 cr.) more than Tata Coffee (1900 Cr.)? We need to answer this.

Another thing I noticed in AR is salary of Directors- 5 crore plus for one, and 3 crores plus for other. For a company earning 75 crores profit, it is on higher side.

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22

Please check the 3 year Sales and profit CAGR for both the companies. Also look at their ROE. You will get the answer.

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True. Based on last few years figures the valuation difference is justified, but we need to examine if such figure is sustainable.

There appears to be a fundamental difference between Tata Coffee and CCL. Tata Coffee is also in plantation heavily, whereas CCL is in processing only. Raw coffee prices have remained subdued for last few years. This can be a reason for superior performance of CCL, which may get reversed if coffee prices takes an upward turn- which it has taken in last few months due to bad crop in Brazil. In view of this it is extremely necessary to examine the pricing power of Continental brand. I think we need to make study on this point.

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As far as I know, CCL works on a cost plus model, so its earnings should show less volatility compared to Tata Coffee, which is directly exposed to coffee prices. If anything, upward swing in coffee prices should help CCL as higher coffee prices can translate into higher margins for processors as well.

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If it’s a cost plus model, then coffee prices shouldn’t have much effect on CCL margins, isn’t it?

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I was thinking more in terms of how refiners work. If Oil is at 100 your refining margin is 10 and if it is 50 then your margin is say around 7. Not sure if it applies with CCL or not?

27

The company had very high RONW before 2007, except in the year 2003. However the below average performance of 2003 can be attributed to spike in selling and administrative expenses. From 2006-07 onwards operating profit margin started declining from around 25% to 15%. The trend continued till 2012 when opm was 16%. In 2013 it improves to 19% and jumped to over 20% in 2014. Accordingly RONW improved from 13% to more than 20% in 2014.Good result in 2014 is achieved by lesser interest and depreciation charges which is likely to continue going forward. The question remains sustainability of high OPM. In the first half of FY2015, opm has reduced to 17%.

Going forward topline does not remain a problem. It appears that they will almost double the sales in next 2-3 years. Ample opportunity is there in Indian market and per capita coffee consumption is also growing. They have spare capacity in Vietnam plant also and can cater to higher topline without any additional cost. On profit numbers also this year Vietnam can come in profit, and switzerland can also show some profit, and this year can be good. But going forward, if the company has to be valued like a franchise business, opm has to be better. Again we are reduced to the same question- can it sustain higher margin?

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28

Hi,

Anyone tracking this stock?.. despite good result and intact future growth prospects, stocks is continuouslycoming down.

Any information would be helpful to make decision?

Thanks - Milind

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continental coffee now available in supermarkets in Kuwait.

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30

http://www.bseindia.com/xml-data/corpfiling/AttachLive/E434BA14_320B_4461_8DE4_68CC0BEA90AC_171946.pdf

Decent results from CCL.Should we buy or wait?

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Key highlights from the concall that I have noted:

  • The performance of the company was affected as one of the shipments (400 MT with cost of Rs.11.35 crore) from Vietnam which was dispatched from the company’s plant but had not reached the port (in transit) was not considered in revenue (as can also be seen in rise in inventory as on March 31, 2015). Also, the performance was affected due to lot of holidays in the month of February. The management again reiterated to not focus on q-o-q performance.
  • The company was able to reach its targeted volumes of ~20,000 MT set for FY15 with Vietnam recording around 4,600 MT volume. For FY16, the company is targeting 25,000 MT volumes with Vietanam contributing around 7,500 - 8,000 MT of volumes and remaining being contributed from Indian operations.
  • Updates on capex: The capex for 5,000 MT additional capacity being set up at Guntur, India will be completed by December, 2015 and will start contributing to the topline by Q4FY16. The capex for liquid coffee plant being implemented at the Vietnam plant will be completed in H1FY16. However, meaningful contribution from it will come in FY17 only.
  • Products from Vietnam plant have higher realisation due to better product mix and new equipments being installed there. The margins are better in the products manufactured in the Vietnam plant.
  • The company is evaluating plans to set up a packaging unit in USA nothing substantial has been decided as of now.
  • Retail foray in the domestic market: The company has three products in the domestic market currently: Special (freeze dried), supreme (agglomerated) and premium (chicory mix). The company has been selling its products in supermarkets and has also hired employees in the marketing department at lower level. The distributors are being appointed at other places apart from Andhra Pradesh and Telangana in North India, Mumbai and Tamil Nadu (no credit offered to them), The company for the retail markets appoints the C&F, super stockists and distributors for selling in retail stores while its sells directly to big supermarket chains. The company is also focussing on institutional sales with tying up with hotels, Indian Railways, Navy, Army canteens etc. They recently sponsored an event in hospitality industry where chefs liked their product.
  • The company is in talks with a client in Netherlands which is amongst the biggest players in European markets. A special freeze dried product is being developed for it. Initial trials are going on and it has also received three orders from it. The company expects to receive big orders from the client in a year (takes around a year to change from existing supplier). Infact, the client might shut its own manufacturing facility and buy from CCL.
  • For liquid plant in Vietnam, the Japanese have visited the plant quite a few times and have recommended some changes in the equipment. The Japanese market is tough to crack, but company hopes of receiving some orders post the capex in completed in Q3 and Q4 of FY16. Liquid coffee has higher realisations.
  • The capex guidance for FY16 is around 10 - 15 crore with majority being used in the Indian plant for completing the expansion.
  • The CWIP being reflected on the fixed assets side of around 40 crore is for Vietnam liquid plant and remaining for the capex in India.
  • For standalone Indian sales, 90% is exported and remaining is for domestic market.
  • Pricing strategy of the company varies for each client depending on the volume, brand etc.
  • Switzerland reported loss of 3 - 4 crore for FY15. The company expects it to turn profitable in FY16.

Overall, I feel that sales for FY16 will be driven by increased utilisation of the Vietnam plant and some contribution from enhanced capacities in the Indian plant while for FY17 sales from enhanced capacities in Indian plant and the liquid coffee plant in Vietnam. By that time we will also get a clear picture about the retail foray of the company in the domestic market.

15 Likes
32

Thanks for the detailed results and the underlying signals. I have been following CCL for past month and now ready to make a small investment.

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Thanks Ankit for the summary.Just to add,CCL expects Switzerland value addition plant to turn positive this year.They are cautious about US expansion as they have existing clients and don’t want to upset them.Currently selling 3000T and in future may set up a value addition unit upto 10000T.
What i understood from concall is CCL growth should be tracked mostly on Y-O-Y basis.Q3-Q4 are the peak quarters for CCL and last year also festival was there in vietnam, so can’t agree this led to fall this quarter.As they mentioned, reason for fall in sales in a quarter can be something as simple as waiting for client shipment approval for an order.Normally a client would take a sample and approve shipment after testing it and if it gets delayed and during approval quarter passes, the sale has to be be moved to next quarter.
Overall looks like the company is on track and they expect to do 25000T next year.If coffee prices are falling then sales growth may be less but margin and PAT should improve with reducing debt and increasing vietnam plant utilization.Continental brand and Liquid coffee sales can be added triggers for the company.

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From prosperotree

http://prosperotree.com/investment-updates/247-ccl-products-delivering-on-guidance

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@Administrator is it ok to post link or content from other value investing blogs on VP ? # justasking, till now i have been refraining from this, Pls guide.

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CCL has come out with q1 fy 16 results.

Sales has increased from 175 cr in q1 fy 15 to 220 cr in q1 fy 16 a growth of 25%.

OP has gone up from 30 to 42 crores a growth of 40%.

Interest cost has gone down from 4.2 to 2.6 crores.

Net profit has increased from 20 cr in q1 fy 15 to 30 cr in q1 fy 16 a growth of 50%.

Quarterly eps at 2.27 per share. (not annualised).

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Hi @hitesh2710 results looks good considering Q1 is weak quarter for the co compared to other quarters. Q1 fy16 was helped due to spill over of sales from q415,

5-6 cr pat must be due to spillover sales, even if we strip this additional profit, pat growth would have been 25%

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39

If one listened to the concall post q4 fy 15 results the management seems to be on track. They had indicated topline growth of 20% for full year and some spillover to q1 fy 16.

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40

ET Interview of C. Rajendra Prasad
Summary
-> Expecting improvement in EBITDA going forward
->Expecting Deal with large European client by 2nd or 3rd Quarter(Speciality Freeze dried coffee)
->Cautiously migrating towards becoming a Branded Player
->Expecting 1000 Cr Sales and 125-130 Cr. bottom line this year.

http://economictimes.indiatimes.com/opinion/interviews/ebitda-margins-may-improve-in-coming-quarters-see-fy16-topline-at-rs-1000-cr-c-rajendra-prasad-ccl-products/articleshow/48155454.cms

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CCL Products looks very expensive at 36PE and mcap to sales of over 4. Tata Coffee on the other hand is at 15PE and mcap to sales of under 1. Does CCL has better brands than Tata Coffee ? Or is it just because of better ROCE ? Please advice.