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Hi its available on researchbytes for free. Thought it will be useful for few pepl.
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This development is negative for CCL http://www.thehindubusinessline.com/economy/agri-business/ban-on-vietnam-coffee-imports-will-hit-indias-reexports/article9576097.ece
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could this be an opportunity?
Hi,
Thanks for sharing it.
The news piece contains a statement from CCLâs management, as per which CCL will stay unaffected. (Please see the excerpt below)
âThe ban on imports will not have any impact on us as we operate a big facility in Vietnam. But we can look at sourcing from other origins,â said C Rajendra Prasad, Executive Chairman of CCL Products (India) Ltd, the largest instant coffee maker in the country.
Regards,
Yogansh Jeswani
Disclosure: Not Invested, Tracking.
3 Likes
Looks like CCL have made entry into southern region with their retails products. Have recently visited a resort in N.Goa for a holiday and happened to see CCL products there.
Observations:
- The 2 products were sachets of âContinental Supremeâ and âContinental Specialeâ
- The Sachets were priced at Rs.1 each ( can any competitor beat that ??..not sure)
- There were no other competitor product offered , the 2 products were the only options provided at the breakfast table for Coffee lovers ( I did a quick check with the waiter and he said the end customer are satisfied with product)
Looks like good progress made.
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@noelsouza CCL have not entered Kerala market yet. I have been using it for last one year. Gets it from Amazon. Tried Continental strong (priced Rs 600/kg) and Continental speciale (Rs 850/0.5kg) . They have increased the price by Rs50 and Rs60 respectively in 3 months! The taste is really good. It takes a while for coffee fans to change from Nescafe/Bru. Once there is a conversion the coffee fans will stick to it! Product wise they have done a good job. Now everything will depend on marketing.
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CCL Products To ET NOW: Uniformly taxing coffee at 5% will boost domestic coffee industry.
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http://www.bseindia.com/corporates/anndet_new.aspx?newsid=68b745a2-d9bf-4da7-9f6c-f7003f92cdb1
Result : Looking at the full year numbers, revenue jumped by 5% to reach Rs.977.7 crore while EBITDA rose by 13% to 233.32 crore. The company reported net profit of Rs.134.31 crore, up 10% yoy
Thanks
Maybe of interest to some folks; Prof. Bakshiâs fund holds about 1.4% of CCL as of the Dec 2016 filing.
Plug for our tool:
http://alpha-analyst.com/search?fq%3Atypename_s%3Abse_shareholding=on&fq%3Aentityid_s%3AINE421D01022=on&q="valuequest+india+moat"~5&q="valuequest+india+moat"~5
The possible reason could be a lower Q4 and low growth projected for the next year. Also concerns of high inventory (high cost) which could pressure the marginâs in Q1 of FY17-18. I also assume, that the price ran up too fast in anticipation of the domestic branded biz, which i think is at least 2 years away to make a decent presence.
Conference call and other key highlights ďˇ
~ High inventory levels at Indian plant: Inventories increased sharply during 4QFY17 from Rs950mn in 4QFY16 to Rs1,372mn in 4QFY17. One of the major reasons for this was a temporary ban imposed by the Indian government on coffee beans imported from Vietnam. As a result, more than 100 containers from Vietnam were stuck in transit. In order to avoid delays in executing orders, the company purchased inventories from India and executed them from the Indian plant.
~ďˇ Retail operations: Till 3QFY17, the companyâs focus on retail operations was in the Southern region. However, during 4QFY17, the company introduced its continental coffee in North India, mainly in Punjab, New Delhi, and Allahabad. Sales from private labels and branded business were ~Rs500mn during FY17. Management believes sales from branded business can grow 100% from Rs250mn to Rs500mn, while private label business can grow at a rate of 20%. The company hired a consultant during FY17, who is guiding the company to set up its retail operations. Retail operations will be managed by CCLâs wholly-owned subsidiary Continental Coffee Ltd. It will have a separate CEO, distribution team and marketing team. During 4QFY17, marketing expense for this operation was at Rs45mn. Branding expense of Rs300mn is expected to be incurred during the next three years.
~ďˇ New capacity addition: CCLâs Chittoor plant is expected to get operational by early FY19. It is a 5,000tn freeze dried plant that comes under SEZ and is expected to serve the export markets. Expected cost for this plant is at $50mn. Apart from this, CCL is expected to complete setting up of an agglomeration unit in Vietnam in the coming two months. This unit will allow CCL to get value addition of 3,000tn using its existing capacity.
~ďˇ Domestic Tariff Unit (DTA): CCLâs plant is currently a 100%Export Oriented Unit (EOU). With an EOU, if the company has to sell anything in the domestic market, it is mandatory to sell at least 50% in export markets. In order to avoid this legal complication, CCL has decided to set up a DTA unit. This will give the company the desired flexibility if it intends to sell more or introduce new products in the domestic market. DTA unit will do the packaging, while manufacturing will take place at its plant in Duggirala.
~ďˇ US market: US market is one of the biggest instant coffee markets, with annual consumption at 80,000tn. This market is mainly dominated by Brazilian and Mexican coffee manufacturers. The US is imposing 10% border tax on coffee imported from Mexico. Management wants to analyse the situation before it enters the market in a big way.
~ ďˇ Export incentive: Export incentive of Rs86mn was received during 4QFY17.
Source: nirmal bang institutional equity
Thanks
7 Likes
Gone through the whole thread. Great insights! The business was doing very well in last 3-5 years, but last year performance was lackluster with topline moving marginally higher and so was bottomline. Stock has corrected from 360s to 280s understandably and us at 28 trailing p/e.
Money is on their domestic branded retail segment where they have not been able to grow much. They are hiring consultants now to target this segment aggressively.
Though when we think about valuation considering last year performance, and their admission about US market, this is still trading at pretty rich valuation. No MOS. I see more timewise correction, if not price correction here any further.
Technically, 276-282 is a very good support zone and stitch may bounce back from here, but markets not being supportive (am expecting good correction in overall market anytime now), and guidance being moderated, this isnât looking like a compelling bet it was last year.
Another negative is inventory buildup from last few qtrs for one reason or the other.
This is a good company with definitely very good product but still at very rich valuation Vis a Vis growth.
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Mridul,
Last year performance got affected due to plant shutdown at Q2.Otherwise CCL could have been easily achieved 15% top-line growth and 15% bottom line growth and 25% opm.If the Q2 is not get affected, then PE would have been 21X.I hope for stable company(OPM of 25% maintained irrespective of coffee price) 21X is not high PE as per my view.
Regards,
sathish
1 Like
Satish,
Loss in revenue due to planned shutdown is spread over Q3 and Q4. So, already discounted.
Why bother about trailing PE at all ? Short term blips often give very good opportunities to buy long term growth stocks cheaper. This is an emerging moat story, so just look at it again with a slight longer and forward looking horizon.
3 Likes
Rudra,
There are a few things due to which we need to consider slowdown in assigning price multiples. If a script is trading at 35-38 trailing pe and there is a slowdown in business, market hammers big time. no Margin of safety at high price multiples. Price multiples as I am sure you are aware is directly linked to the growth. Company was doing well until last year but had many misses and gave incorrect guidance multiple times during last two years. They said they will have 1100 Cr topline while bettering margins back in July 2015. We are still at sub 1000 Cr even after 2 years. So things have slowed down believe it or not. So what we need to consider is whether there are temporary headwinds, or this is something that wâd be a norm going fwd. Can company go back to 25-30% bottomline growth? You need to take into account that veitnam operations will be taxed at 50% from next year.
Overall, market for instant coffee is growing at mere 2.5% pa. Domestic market is also a duopoly with not much growthâŚmost ppl consume brewed version. Growth all these years was mostly owing to increasing orders from existing clients. Now, They have said US mkt is a tough nut to crack due to whatever reasonsâŚ
I am getting an impression that this mgmt is in consistent mode of denial despite slower growth. They said we promise less, deliver more. Whatâs actually happening is reverse.
With no new capacity (other than 2000-3000 to aggregation coming in Vietnam in July), 2018 wd overall be slow especially when they are trying to establish their footprint in branded domestic retail. Lots of cash outgo wd be there in branding. Then, export incentives are almost over, which they were getting until q4. So, donât you think it is not going to attain higher p/e anytime soon. Even at 28 pe I find this overvalued seeing business headwinds and muted growth opportunities.
It has got moat, no doubt about that, as I understand this is a tough business to grow from 3500 ton to 35000 ton in 20 years without moat. But market adjusts valuation in relation to growth trajectory, which looks to be slowing down.
Market got spooked with their stmt Bout US operations. Their Switzerland venture was a big mistake. That capacity is lying idle due to custom duty within Europe itself. Not sure when isma will materialise. So no clear growth like there was in the past.
I am not invested. But have been fascinated by this story. Trying to study to see if I can make a good entry.
10 Likes
Mridul,
You seemed to have missed the point on trailing PE. Trailing PE more often than not is meaningless.
One should build in the projections for the next 2-3 years and see how much of this is priced in at the current price.
Coming to CCL, FY18 is going to be a moderate year in terms of residual capex and brand building on continental. Management is taking all the right steps.
With the capex programs moderating, and Continental sales in focus, FY19 can turn out to be a stellar year. There are additional optionalities around US sales which might add to the upside.
2 Likes
Rudra,
No my friend. I am not basing my valuation merely on trailing p/e, although that is an indicator. We cannot estimate forward p/e with accuracy. What we can do is guesstimate things at best. What i have said is that 2018 is going to be pretty moderate in terms of growth. And regarding 2019, additional capacity will come in, yes, but USA ventures is anybodyâs guess with Trump at the helm. I am hopeful of their branded retail venture, but thatâs a pretty long term story (brand building takes long time) as they are planning to do 100 cr in next 2.5-3 years from 50 cr today, so that is still merely 7-8 % of their overall revenue. Here as well there guidance went awry as they have been saying 100 cr revenue from domestic operation since July 2015. They have not been able to grow this in last 2 years by much.
Then, what i said is that overall instant coffee market is extremely sluggish both in India and globally. We have statistics to prove that. CCL has been growing despite overall market not growing, which is because of its moat. But at some point of time, if the overall market growth is not there, company flourishing in that segment despite being excellent will slow down as well, as there is overcapacity in instant coffee segment.
So, all i am saying is that overall growth is going to taper down in next few years. It cannot grow at 25-30% CAGR, so p/e will come down in future. This is what is being priced in now with p/e correcting from 35-38 levels to 28 in just 1 qtr.
2 Likes
I do agree with Mridul on brand building part. It is a lot of effort to break the barrier created by Nescafe and Bru capi.
Having a good product is not enough, Marketing will take a lot more effort and cash burn.