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Not just a B2B coffee player; diversifying to B2C

Incorporated in 1994, CCL Products (India) Ltd, formerly known as Continental Coffee Ltd, is engaged in the production, trading and distribution of Coffee in India and globally. It is one of the largest instant coffee makers in India and globally. Further, it is also the largest private label coffee manufacturer in the world. It exports to over 90+ countries and ~1000 cups of continental coffee are consumed every second. Amongst products, it provides retail & bulk packaging and has over 1000+ coffee blends to produce coffee in various forms like Spray Dried Coffee Powder, Spray-Dried Agglomerated, Freeze Concentrated Liquid Coffee, Roast & Ground Coffee, Roasted Coffee Beans, Freeze Dried Coffee and Premix Coffee. It has 4 manufacturing plants two located in Andhra Pradesh, India, one in Switzerland and other in Vietnam with a current combined capacity of 55,000 MTPA in FY23.

Strengthening B2C segment: Over the years, CCL products have strengthened its B2B segment by creating more than 1000+ unique blends of coffee for customers in India and overseas. Besides, the company’s strong product base, improvement in volumes and interest in expansion helped it to foray into the B2C segment. Thus, in 2016, it launched ‘Continental Coffee’ specifically tailored to the tastes and preferences of Indian consumers. This business started serving private labels, Institutional clients and expanding its own continental coffee brand. Further, in the short span of time CCL became an established player and gained 3rd position in the Indian B2C market on the back of strong product portfolio, focused on packaging, marketing & distribution channels as well as smoothing of supply chain. In addition, to further strengthen its B2C presence globally, CCL products in June 2023 have acquired 6 coffee brands from Sweden based coffee roasters Löfbergs Group which includes Percol, Rocket Fuel, Plantation Wharf, The London Blend, Perk Up and Percol Fusion. The acquisition will give CCL access to major supermarkets in the UK, which is Europe’s largest instant coffee market. Currently, B2C is 10% of the revenue and in the next 7-10 years the company has plans to grow B2C segment revenue to 50% by expanding products and reach 

Capacity expansion well on track: CCL products have continuously expanded its production facilities from 3,500 MTPA in 1995 to 55,000MTPA in FY23. Further, they are adding another 16,000 MTPA spray dried capacity in India by FY24 and an additional 6,000 MTPA freeze dried coffee capacity in Vietnam by Q2FY25 which will take the total capacity to 77000 MTPA. All the capacity expansion will help in fulfilling demand as well as better utilization will lead to strong volume growth. Thus the management expects volumes to grow in the range of 20-25% YoY in the next 3-4 years. 

Plans are to be a FMCG player: CCL Products has taken a step forward for its vision to be a FMCG player and thus in July 2022, it ventured into the frozen foods category with launch of its plant-based brand ‘Continental Greenbird’ in India. The company launched 100% vegetarian products like Chicken like nuggets, chicken like sausages, chicken like kababs and keema. Further, this category is niche in India and ahead it has huge growth potential because India has the potential to emerge as one of the largest markets for plant-based protein alternatives and also demand is increasing for this kind of diet on a daily basis. At present, Chhattisgarh, Pune and Hyderabad are the key states where products were launched and going ahead it intends to increase penetration, launch new products and enter more categories.

Outlook & Valuation: We believe over the years, CCL products has been strengthening its position in the coffee market and its focus towards premium & value added products, strengthening B2C segment as well as continuous capacity expansion will drive growth for the company. Further, its market share in the domestic market and exports stands at 3% and 8% respectively in FY22, and ahead it has plans to gain market share. Moreover, its stable financials, brand recall value and its relationship with customers globally and in India in the B2B segment leads to repetitive business that is helping growth. We remain positive on the growth prospect of the company and have estimated its revenue/EBITDA/PAT to grow at 25%/29%/31% CAGR over FY23-25E. We have initiated a Buy on the stock and have arrived at a target price of Rs 776, assigning a P/E multiple of 22x FY25EPS.

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