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Overall mixed performance; better growth expected ahead; Maintain Buy

Overall growth remained Mixed: CCL products reported mixed revenue growth with 19.9% YoY increase while reported de-growth of 7.2% QoQ to Rs 607.6cr. Its posted volume growth of 10-12% but it could be higher however it got impacted as the company’s machinery in Vietnam broke down. Additionally, its value growth was 20% YoY due to the pricing advantage the company got because of smaller packs. Further, its gross/EBITDA/PAT margins as compared to last year remains impacted and was down by 269bps/116bps/150bps YoY as cost of raw material was higher to the tune of 12.7% YoY. However, sequentially, gross/EBITDA/PAT margins improved by 219bps/185bps/64bps led by decrease in RM cost and better operating efficiency

Capacity expansion moving as per the plan: The company has plans to expand spray dried capacity both in India and Vietnam with total capex of Rs 650cr. India’s capacity (~16,000 metric tons) is to be operational in Q4FY24 with a capex of Rs 400 cr with 320cr by debt. For Vietnam, (6,000MT) the capex will be USD 50mn out of which they would spend USD 30-35mn in FY24 and USD 15-20mn in FY25.

Management guidance intact: Management remains positive on the growth prospect of the company on the back of improving demand, product addition coupled with capacity addition. So, they have maintained growth guidance with volumes at ~18-20% while maintaining the EBITDA margins at 18-20% for the next couple of years. Besides, they expect domestic business to grow at 25-30% topline and within which branded business to achieve revenue of over Rs 200cr by FY24.

Key highlights: 1) Coffee price is at a high level and the company books coffee as per the order and prices. 2) The company is waiting for the prices of the Vietnam crop which is expected to come in the next month which would help the company to get an idea on how prices would pan out in future. 3) Brazil crop prices have seen some decline in trend but the company is waiting for Vietnam prices of coffee. 4) The company is utilizing its India & Vietnam capacity at 100% while new capacity added last quarter is running at 50% capacity while the utilization saw decline to 20-25% post the machinery breakdown last month. 5) The company is coping up with the machinery breakdown in Vietnam. 6) The out of home segment (~90% of revenue) growth remains healthy and seeing strong traction while in-home is ~10% and growing at a slow pace. 7) Plan is to increase consumption by increasing sampling and premix coffee products. 8) Amongst the geographies, Asia including India contributes~20% of revenue, followed by Europe and US with 15% & 12% share in revenue. Besides, Africa and the Middle-east contributes, 10% & 5% share. 9) Tax rate to be ~12% at consolidated levels.

Outlook & Valuation: CCL Products will continue to grow led by increase in domestic demand for coffee, capacity expansion plan, improving utilization levels for its new commissioned plant and focusing more towards product mix and premium products. Further, management plans of focusing on strong volume led growth with steady margin as well as its expansion from B2B to B2C will aid growth. We remain positive on the growth prospect of the company and have estimated its revenue/ EBITDA/PAT to grow at 25%/29%/31.5% CAGR over FY23-25E and maintaining the Buy rating with target price of Rs 776, valuing the company at P/E multiple of 22x on FY25E EPS.

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