We would like to inform you that RBI has intimated approving the resolutions passed at Board of Directors’ level and in Shareholders meeting for increasing the FII/FPI investment limit under Portfolio Investment Scheme from 24% to 40%, of the paid up capital of the Company.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/ba28e613-2bf4-4d82-9641-4a8e223231dd.pdf
D’mart is also starting with selling private label coffee…any guess, it may be sourcing from CCL Products. Reliance fresh for one retails coffee from CCL.
Excellent numbers for the second quarter. Sales increased 105% (YOY) and 20% (QOQ), EBDITA increased 100% (YOY) and 20% (QOQ). EBDITA margin 19.5% vs. 19.5% QOQ vs 20% YOY…Trade receivable down from 163 Crore to 158 Crore even at higher sales. Overall good numbers
Result Link:
http://www.bseindia.com/xml-data/corpfiling/AttachLive/3ec409e1-03c2-40e0-9eb5-50c7c5f92cb4.pdf
Further, under the head current liabilities, short term borrowing + other financial liabilities +other current liabilities increased by Rs.33.25 as compared to March’17 (Looks like some intra head adjst. due to IND AS) and Inventory also increased by Rs. 33 Crore as compared to Mar’17.
How to know about company future prospect and its plan to expand their business. I looked at their annual report but unfortunately, couldn’t find the required information.Could anyone share a link to their future expansion plans?
Disc. Not invested. Looking +ve based on past records.
Read this entire thread to get these details
@tirumal & I visited their office last week. Sharing notes from the visit:
Market Size:
• 500,000-600,000 Tons global market
• EU & UK largest importer of beans followed by US
• Top suppliers are from Brazil, Columbia, Vietnam, Indonesia
• EU: 90,000 Tons. Suppliers predominantly from Asia & Columbia
• UK: 30,000-40,000 Tons
• US market: Approx 80,000 Tons of which 40% is addressable market currently catered to by Nestle, Kenco (part of JDE), Folgers (J.M. Smucker), Kraft Heinz Foods etc., rest is non-addressable
• Brazil & Mexico : Brazil only allows use of home grown green coffee & doesn’t allow imports.
• Japan : 35,000 Tons liquid coffee - Unique to Japan
• India & China: Predominantly tea drinkers. Coffee market likely to be approx 10,000 tons each
Competition & Production Capacity:
• Globally approx 600,000 tons of which 250,000 tons of Freeze Dried & rest Spray Dried
• Nestle is the global leader (150,000 – 250,000 tons of which 80,000 tons in FD capacity) followed by JDE [Jacobs Douwe & Egberts – with Mondelez merger ] (50,000-60,000 tons), Kraft Heinz Foods, Folgers (from J.M Smucker), DEK (Deutsche Extrakt Kaffee GmbH).
• Private label suppliers include ColCafe SAS (Columbia) (25,000 tons), Klasik (Vietnam) (20,000 tons), Olam (Vietnam) (15,000 tons), Tata Coffee (8,000 tons), Super Singapore (part of JDE, majorly 3-in-1 product)
Market growth & Coffee drinking habits:
• Global Instant coffee growth rate hovers around 2.5% over the past 4-5 yrs
• However, US & EU market de-growing by about 1% each year over past 4-5 yrs
• Moving towards micro ground coffee (soluble with roasted coffee beans).
• Ready to drink segment likely to include coffee consumption in tetra packs
CCL Market positioning:
• Production capacity 35,000-45,000 tons (of which 11,000 tons in Freeze Dried with new plant at Chittoor) - Target customers include Re-packers & Ingredient manufacturers
• Domestic (India) market visibility increasing and gaining traction across both Own Brand (Continental Coffee) & Private labels.
• Brand building exercise likely to be in focus over next 2-3 years. Team in place with Targets being drawn for next year.
• Working on innovative products to convert tea drinkers to coffee drinkers.
Strengths:
• Economies of scale & Variety of product offerings (close to 1,000 product varieties)
• Capability of leveraging long standing relationships with customers, employees across the globe.
• Product Quality: CCL follows stringent external & internal quality checks (internal test lab equipped with world class test equipments). Company has spent Rs. 100-150 Cr over the past 5yrs on R&D.
• Likely to be 3rd largest global player in FD market with 11,000 tons (once production starts at Chittoor plant).
Takeaways:
Scope for growth in revenues & profits:
• CCL (currently growing at approx 15%) is likely gaining market share from smaller players in the global market (global market growth at 2.5% y-o-y)
• Japan has 1 vending machine for every 14 people (with consumption at 35,000 tonnes liquid coffee) - Scope for growth for vending m/c’s in India.
• Scope for CCL to premiumise products to increase both top & bottom line.
• Promoters buying from open market in case of fall in stock price (seen last year & recently b/w mid-Jul to mid-Aug 2017). – Shows faith of mgmt in company’s future/growth prospects.
Key Risks:
• In case of delay in commissioning of new plant at Chitoor (5,000 tons): Such a scenario could topple bottom line as this facility is exclusively for producing higher margin Freeze Dried product. Capex requirements could also escalate.
• If existing bigger global players like JDE etc come out with expansion plans, market is likely to get disrupted as current global production capacities exceed demand
• Risks in Brand building & Execution: Brand Marketing spends likely to increase over the next 2-3 years. Majority of companies fail to promote brands with only very few brands succeeding in creating niche & sustain in the long run.
• HUL spends approx Rs.150 crores on brand building in India out its Rs.1,000 Cr revenues – For CCL, brand building spends may dent bottom-line in the medium term.
• US market penetration may not pan out as planned or get delayed
Discl: Holding. No transactions during the past 90 days.
A friend recently reminded us on what Charlie Munger said about inculcating the great mental discipline to be able to argue well from both sides of the table, before you form an opinion. “I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.” While we all hold an opinion on almost everything, how many of us do the work required to have an opinion?
@tirumal @mpbhat
While CCL Conference calls provide lots of data-points on the business, thanks for putting in the required work necessary for the wonderfully compiled visit note. It will help those interested/invested in CCL to do a more complete job of scrutinising the business visibility/sustainability (a la Daniel Kahneman System2 effort). More importantly to me, once assimilated in the System2 framework, it should help us ask more focused questions.
So, here’s an attempt to connect the dots and set the stage for everyone to ask more focused/relevant questions:
Market Overview
In the next few posts, let’s establish more on the market front. Post that would encourage folks to ask and address what can go wrong (Risks) and balance that with what can go right (Disproportionate (??) Opportunity).
After reading this, I tried to check Continental Coffee at Amazon. Here lies a big problem, Usually, when I buy on Amazon, I always apply the filter: Amazon Certified, only then I buy things. And I think, it’s the case with most, who buy from Amazon. Continental Coffee does not appear in the product search after applying the certified by Amazon filter. Visibility is less, so chances of buying are markedly decreased.
One quick observation -
Am I mis-reading something here @Donald. Nestle deck says that Starbucks is #2 while JDE says it’s #8. Probably that could be because of non-coffee revenue of Starbucks being counted in Nestle presentation?
Yet, it indicates that the value is getting captured at Retail storefront. Which seems rational. Which means that if CCL creates some opportunity to work directly with some of the retailers, it could garner better margins (sorry if I"m being naive and they already do this).
I think CCL current target customer segments are primarily Resellers, ingredient manufactures (where coffee is used with others), and Private Labels. They have started working with some brands/retailers, but that should be small currently. So, you are right there certainly is scope for a bigger share with brands over next few years.
Top 10 Coffee traders in 2012 - Extract from Ecobank Cocoa Cofee Sugar presentation
How many of these biggest coffee traders like Neumann, Olam, Ecom, Dreyfus are CCL long-standing clients?
Coffee Barometer 2014
This to my mind is a very useful document. Sharing some notable extracts
The world coffee market is dominated by three very large transnational corporations
– Nestlé, Mondelºe¯z and DE Master Blenders 1753 - and a few big coffee roasters such as
Smucker’s, Strauss, Starbucks and Tchibo. The ten largest roasters process almost 40% of all the coffee that is consumed worldwide. Their individual shares range from 1% (Keurig GM) to more than 10%(Nestlé). The recent merger announcement of Mondelºe¯z’s coffee division with DE Master Blenders will create the world’s largest coffee business in 2015: Jacobs Douwe
Egberts. While Nestlé remains the world’s leader in terms of revenue from its coffee
business, in volumes traded Jacobs Douwe Egberts will take the first place and become
a formidable competitor for Nestlé in developed and developing markets.
Coffee roasters have gained increasing control of the marketing chain in recent
years, despite strong competition from supermarkets and their own label coffees. In
answer to the challenge of specialty coffee chains (e.g. Starbucks) and the proliferation
of small-scale roasters with their promotion of high quality coffees, the mainstream
roasters are focusing on developing more individualized products for their consumers.
Currently, a key driver of growth in developed coffee markets is the single-serve systems,
which allow consumers to brew single cups of coffee (e.g. Nespresso, Senseo, Tassimo). This coffee market segment is unique for the diverse partnerships formed between coffee roasters and kitchenware manufacturers to produce, distribute, and brand the machines. Nestlé is the main player in this segment, capturing 50% of the global market; the company makes both
the machines and coffee capsules. In the USA, Keurig Green Mountain is the market leader with a top-selling single-serve machine to make coffee, tea, and milk drinks using the K-Cup pack system.
The large roasters tend to rely heavily upon coffee trading companies to obtain their
supplies of green coffee [18]. These companies are large players and include Neumann
Gruppe (Germany), Volcafé (Switzerland) and ECOM (Switzerland); 50% of the
world’s green coffee beans are traded by them. In recent years, international traders
have strengthened their supply network especially, to guarantee a minimum amount
of certified coffee to their major clients.
Sustainability/Certified Coffee - this seems to be a big enough issue - I was not aware of!!
Although the consumer’s taste and price quality considerations are the dominant
factors, intangible aspects such as the sustainability of coffee are becoming a
factor in driving brand choice. All of the top ten coffee roasters have developed strategic
alliances with a number of international standards initiatives, like FLO, RA and
UTZ, or developed their own private coffee standards systems (e.g. Starbuck’s C.A.F.E.
Practices and Nespresso’s AAA Sustainable Quality Program) as part of their overall
corporate strategies. Figure 6 shows the total volume of coffee purchased by each
company, the volumes of certified and verified coffees purchased, and the VSS
initiatives they dealt with in 2013.
Additionally you will find enough starting details on most of the prominent roasters and traders in this document.
@Donald - It is my understanding that CCL is the second largest instant coffee (IC) producer in the world after Nestle. If this is true, then there is good chance that Kraft Foods, Sara Lee, and JM Smucker primarily being USA businesses would be converting raw coffee beans into Ground Coffee (GC). Almost entire North America have been drinking coffee for ages that is freshly brewed from GC. Psychologically people feel that instant coffee is not fresh coffee. This mind-set is going to keep IC a very small market in USA which CCL is very well aware of. This is from my experience after living in USA for 10 years.
Not sure if you have already looked at very helpful coffee statistics shared by Coffee Board GOI. Here is the link: https://indiacoffee.org/Database/DATABASE_July17web.pdf
Connecting above 3 dots - there is a good chance CCL does significant business in Russia. So the long-standing and big clients for CCL have to be from Russia, Turkey, and Poland.
Disc: Invested
The outbound shipment of instant coffee increased sharply by 86 per cent to 47,734 tonnes in January-November this year from 22,966 tonnes in the same period last year.
Disclosure: Invested
