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Improving growth visibility driving aggressive capacity expansion; reiterate BUY

Our view

CCL’s performance wasslightly below estimates due to shipment timing issues,some logistical challenges and MEIS impact. Utilization rates in both India and Vietnam are optimum with the expanded Vietnam capacity also expected to be fully utilized in 2H and the next phase of expansion to come up next year. The India branded business also remains on track with a solid 40% growth in 1H despite challenges in 1Q. Given a strong order book and no signs of deferments despite sharp coffee price inflation, the management has increased guidance to 15% plus growth in FY22 from 10‐15% earlier. While optically margins can come off in percentage terms with sharp increase in realizations, they should continue moving up on per kg basis with an improving product mix in favor of value‐added coffee and enhanced small pack capacity coming onstream. 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

Result Highlights

* Result summary  ‐  Overall steady performance with revenue/EBITDA/PAT growth of 4.5%/6.1%/4% with about 90% utilization in both India and Vietnam, logistics issue continue but orderbook visibility for 2H very strong.

* Topline  ‐ Revenue growth of 4.5% yoy to Rs 3.4bn – Standalone business grew 6.3%, subsidiaries grew 1.3% on a high base of 53.6% while India branded business grew 40%.

* Margins  ‐  EBITDA margin improved by 30bps to 24.4% with standalone margins increasing 50bps to 21.6% given better mix and subsidiaries margins improving 40bps to 29.7%, despite the fact that MEIS realization was zero vs Rs 80mn in the base quarter.

* Current outlook and growth/capex guidance – Revised volume/revenue growth guidance from 10‐15% earlier to 15% plus for FY22 given a strong orderbook for FY22, sharp coffee price inflation will further push up realizations from 4QFY22 onwards, Vietnam capacity to double to 27,000mt by 2QFY23 at cost of USD 20mn, expanded 3,500mt capacity in Vietnam and packing/agglomeration capacity in India commissioned.

Valuation

The company is set to reach a capacity of 52,000mt by FY23 from 35,000mt currently. We increase our EPS estimates by 7% and 9% in FY23/24 to factor in higher realizations and volumes and reiterate our BUY rating on the company with a PT of Rs 500 based on 18x FY24E earnings. We are factoring in a 22%/22%/27% growth in revenue/EBITDA/PAT over FY21‐24E with 21% average ROCE.

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