IGI Logo

Buy CCL Products (India) Ltd For Target Rs. 511 

Entering an accelerated growth phase; reiterate BUY

Result Highlights

* Result summary ‐ Overall steady performance with revenue/EBITDA/PAT growth of 13%/15%/14% with about 70% utilization in India and 80% plus in Vietnam, logistics issue continue but order booking remains strong.

* Topline ‐ Revenue growth of 13% yoy to Rs 3.3bn – Standalone business grew 26% from a low base, subsidiaries declined 8% with Vietnam business coming off from a high base while India branded business grew 48%.

* Margins  ‐  EBITDA margin improved by 40bps to 22.1% with standalone margins increasing 90bps to 20.8% given better mix and subsidiaries margins improving 20bps to 24.8%, both somewhat impacted by higher freight costs.

* Current outlook and growth/capex guidance – Retain 10‐15% volume growth guidance, Sharp coffee price inflation has not dented order booking from clients till now, high coffee prices to start reflecting in realizations from 4Q, expect higher realizations but lower percentage margins in inflationary environment, will start working on doubling Vietnam capacity from September at cost of USD 20mn, expanded capacity in Vietnam undergoing trial runs, small pack capacity to be commercialized in August

Valuation and view 

CCL’s performance was in‐line with company expectations with not much impact on production or shipments despite lingering logistics issues. Utilization rates in both India and Vietnam optically look low, but the sharp rise in gross margins indicates higher volumes of lesser productivity but higher realization premium variants. The India branded business also remains on track with a solid 48% growth. Given a strong order book and no signs of deferments despite sharp coffee price inflation, the management has retained 10‐15% volume growth guidance for FY22. 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, enhanced small pack capacity coming onstream 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 is setto reach a capacity of 52,000mt by FY23 from 35,000mt currently. We increase our EPS estimates by 3% and 5% in FY22/23 to factor in higher top line and reiterate our BUY rating on the company with a PT of Rs 511 based on 20x FY24E earnings. We are factoring in a 21%/19%/23% growth in revenue/EBITDA/PAT over FY21‐24E with 21% average ROCE.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer