CCL Products

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:

  1. 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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Yesterday’s newspaper article

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