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Strong topline led by volumes: CCL products posted strong topline growth of 24.1% YoY/9.4% QoQ to Rs 664.5cr led by volume growth of 14% YoY. The volume growth could have been higher (more by 5%) however the issue of red sea impacted the dispatches of ~800 metric tons. In India, the company is working at peak capacity and for Vietnam they would be utilizing at optimal levels for the new capacities. Going ahead, their core focus will be on volume growth.

Margins remain a miss: The company’s gross profit increased by 16.9% YoY/7.3% QoQ to Rs 273.6cr while gross margin witnessed a healthy decline of 254bps YoY/78bps QoQ to 41.2% led by increase in raw material cost by 29.7% YoY/10.8% QoQ. Further, EBITDA margin too saw a decrease of 212bps YoY/140bps QoQ to 16.7% while EBITDA in value was up by 10.1% YoY/0.9% QoQ to Rs 110.9cr. The impact was due to an increase in expense by 27.4% YoY/11.2% QoQ. Its PAT de-grew by 13.4% YoY and margins were down by 412bps YoY/39bps QoQ to 9.5%. The fire breakdown in Vietnam in the last quarter impacted the bottom-line (value up-to 5% of the bottom-line) as the insurance claim was not received.

Management guidance intact: Management stated though there were certain headwinds impacting volume growth however going ahead their focus will be driving volumes led by capacity addition and increasing utilization. Further, they have retained their overall guidance of growing volumes at ~18-20% levels and also maintaining the EBITDA margins at 18-20% for the next couple of years.

Key highlights: 1) Capacity expansion for India and Vietnam is moving as per the plan wherein India capacity to be operational in Q4FY24 and Vietnam in 2HFY25. 2) Small packs increases led to increase in expenses and thus impacting profits. 3) CIF contracts signed with customers mean the cost would be borne by the company. 4) Coffee prices remain higher. 5) Channels like general trade, modern trade, etc. are growing at a steady pace. 6) The company has ~4000 vending machines across pan India. 7) No new capex planned as of now and so within the next 4-5 years plan is to be debt free. 8) The company is utilizing its India & other Vietnam capacity at 100% while new capacity added last quarter is running at optimal levels. 9) Continue to focus on the home sales segment.

Outlook & Valuation: CCL Products reported mixed numbers with decent volume growth while margin impacted led by higher raw material prices. Going ahead, management focus remains on expanding capacity and utilizing it to the fullest. Also, they would continue to add more products into the premium category and expand reach as well as increase brand visibility. We remain positive on the growth prospect of the company and have estimated its revenue/EBITDA/PAT to grow at 24.8%/23%/23% CAGR over FY23-26E and maintaining the Buy rating with target price of Rs 776, valuing the company at P/E multiple of 21x on FY26EPS.

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