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Spurt in realizations drives earnings

CCL Products (CCL) reported a sharp 43% YoY increase in its top-line, aided by a mix of volumetric and pricing gains. CCL delivered 17% YoY volumetric growth benefitting from capacity addition in Vietnam, while spurt in green coffee prices led to pricing hikes to the tune of 25% YoY. Higher logistic costs as well as sharp rally in input prices continues to dent EBITDA margins (down 130bps YoY) to 22%.

Going forward, we believe CCL will sustain growth momentum over FY23/24, with an incremental 13,500 tons being commissioned in FY23 in Vietnam. We believe, the company remains well placed to gain market share in the branded business with a wide array of products. Hence, maintain BUY with TP of INR526 (28x FY23E EPS).

Q3FY22:

Key Highlights Key highlights from Q#FY22 include: i) consolidated sales jumped 42% YoY, driven by 17% YoY growth in volumes; ii) domestic business benefited from better utilisation of its Spray Dry (SD) and Freeze Dry (FD) facilities; iii) branded business has reached a market share of 3.1% in southern markets; iv) a spurt in Robusta coffee prices is likely to aid earnings from Q4FY22; v) capex plans to double Vietnam capacity to 27,000 tons is likely to be executed by Q3FY23; vi) with a strong order book in place, management expects to deliver 15% plus volume growth during FY22 and FY23.

Volumes to remain on positive note with addition of new capacity

CCL recently commissioned a capacity expansion of 3,500 tons in Vietnam. Given strong improvement in demand for instant coffee and a sizable order book in place, the company plans to double its capacity in Vietnam to 27,000 tons by Q3FY23 with a capex spend of USD20mn. The company’s branded business is also showing resilient growth, with plans of scaling up operation across India. CCL has added more than 25,000 outlets since March 2021 and now possess a 3.1% market share in key southern region. CCL has been utilising its aggregate capacity of 38,500 tons at 80- 85% levels. We expect CCL to increase it to 90% levels. Globally, Robusta coffee prices continue to remain elevated (up 27% YoY).

Valuations and outlook:

strong demand visibility; Maintain BUY CCL’s FY23 growth journey is likely to be robust, with newer capacities coming into play in Vietnam by Q3FY23. Good order-book as well as increasing acceptance of the CCL brand in the Indian market would help the company deliver over 15% volumetric growth. Maintain BUY with TP of INR526 (28x FY23E EPS).

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