Buy CCL Products India Ltd For Target Rs. 382 - Yes Securities
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Set to deliver on growth and margin objectives
* Result summary ‐ Overall performance ahead of estimates led by a strong recovery in India operations despite softness in Vietnam; revenue/EBITDA/PAT growth of 25%/21%/17% respectively.
* Topline ‐ Revenue growth of 25% yoy to Rs 3.3bn ‐ India business grew 33% (helped by shipments of orders deferred from 3Q), subsidiaries grew 12% with Vietnam business muted while India branded and Switzerland saw strong growth.
* Margins ‐ EBITDA margin dipped only 100bps to 25.7% with standalone margins increasing 240bps to all‐time highs of 30.2% given higher small pack sales and subsidiaries margins declining 890bps to 16.1% mainly due to higher freight costs.
* Balance sheet ‐ While debtor days were broadly stable, inventory increased from 83 to 94 days on account of green coffee inventory build‐up FY22 orderbook.
Valuation and view –
CCL was able to manage logistics issues by optimizing incoming containers and therefore was able to ship most orders deferred from 3Q, driving strong volume growth. Vietnam had a soft quarter but a strong FY21 with full utilization while the India branded business grew a strong 65%.
Despite the low base for FY21 when FDC volumes were impacted, the management has given a conservative 10‐15% volume growth guidance for FY22 which has a high probability of being upgraded during the year if the pandemic subsides given strong order visibility and upcoming additional capacity in Vietnam. Margins should also improve in FY22 with a recovery in FDC volumes, enhanced small pack capacity coming onstream, India branded business expected to break‐even and accumulated MEIS benefits expected to be realized.
We continue to like the company given its cost and market leadership in private label instant coffee processing, successful product and market development initiatives in developed markets, strong traction in the India branded business, strong balance sheet and a capacity expansion led growth story for the next 3‐4 years. Despite losing out on MEIS benefits, there are multiple margin levers like further enhancement of product mix, higher FDC sales and more sales in small packs.
The company has a medium‐term aspiration of reaching a capacity of 55,000‐60,000mt from 35,000mt currently, given it already has infrastructure available in both India and Vietnam. We fine‐tune our EPS estimates to factorin lower growth but better margins and reiterate our BUY rating on the company with a PT of Rs 382 based on 20x FY23E earnings. We are factoring in a 14%/16%/18% growth in revenue/EBITDA/PAT over FY21‐ 23E with 20% average ROCE.
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