What is the impact on CCL due to recent surge in coco prices?
High raw material price would increase working capital needs, hence increased debt and negative impact on p&l due to interest.
I think this is a short term pain and may last until mid FY25.
Fitch ratings revised outlook to negative, this report has more details
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CCL-Products–Company-Update–17-Apr-2024.pdf (nirmalbang.com)
“Robusta coffee prices continue to make new highs on a daily basis.
Duration of future orders could be lower, say 3-6 months, thereby indicating lesser visibility than in the past.
While we remain positive, relatively lower demand visibility
and working capital debt overhang might offer a better entry point to
investors in the near term” - Nirmalbang’s view
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hi folks!
I analyzed this business today by scrolling through the valuepikr threads only. I think thats a better option than reading through all concalls.
I know about the moats and cost-plus model of the business BUT
I have a quite neutral view of the business.
Cons:
-
Mediocre earnings growth
10 year Profit growth : 15% while
10 year stock returns : 25%
hence speculative returns : 10%2. Branded Coffee Business is just 7.5% of their total revenue
They commenced their branded coffee business around FY15 and they did around a revenue of 40 cr in the next year itself. Today their revenue from branded business stands around 200 crores which is around 7.5% of their total revenue.
I think it is very insignificant right now and I guess this part of the business had been the thesis for most of the investor community.
We have to see how it grows up. In my view, it might stay <10% of the total revenue in next 4-5 years. will be happy to be wrong here.
*Pros, not so pros: *
3. Its a slow, boring and compounding business. Honestly, a very good business to own for long term which gives you 15% compounded annual return with minimal downside because I believe the valuation multiples are hovering around their averages.
Also there is an optionality of branded business doing well and valuation re-rating because of that but that might come over 7,8 or 9 years in my view. A lot of patience is required for that.
Conclusion:
One can think of this as a defense stock.
Disc : I am not invested in CCL Products
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