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Feb 21, 2013, 09.59 AM IST | Source: CNBC-TV18

See 50% upside in CCL Products: Rajen Shah

See 50 percent upside in CCL Products over the next 18 months, says Rajen Shah, CIO, Angel Broking. In domestic market it has recently joined hands with number of retailers to sell its coffee under retailer’s brand. So the retailer would be buying coffee from CCL Products and selling it under their own brand.

See 50 percent upside in CCL Products over the next 18 months, says Rajen Shah, CIO, Angel Broking. In domestic market it has recently joined hands with number of retailers to sell its coffee under retailer’s brand. So the retailer would be buying coffee from CCL Products and selling it under their own brand.

Shah told CNBC-TV18, "Coffee culture in India is picking up and so is the consumption of coffee. Today I am recommending this a very low profile Hyderabad based company called CCL Products. The company is in the business of importing coffee beans, processing it and exporting it. Almost 90 percent of the company’s turnover comes from export. It exports to very big names, which basically sell CCL coffee under their own brand name internationally.”

He further added, “So far the company had been focusing on the export market, but now the company is planning to get serious about the domestic market. It has recently joined hands with number of retailers to sell its coffee under retailer’s brand. So the retailer would be buying coffee from CCL Products and selling it under their own brand. So I think domestic operations of the company are in for a substantial jump in the coming years.”

“CCL has currently got three plants. One is at Guntur District in Andhra Pradesh, which is said to be a world class plant. The second plant is at Switzerland, which caters to the requirements of its European clients and the third plant which has been set up at a cost of about Rs 125 crore just got operational about few months back and that has come up at Vietnam, which would be catering to the Japanese market and the Southeast and the Far East markets.”

“So basically it has got three plants. The thing is that if you see the performance of CCL for the past two years the company has been growing at a steady pace, but this year if you see the first nine months’ financial results they are extremely amazing. Turnover went up by 32 percent in the first nine months from Rs 360 crore to about Rs 475 crore or so and profit went up by 67 percent from about Rs 22 crore to about Rs 37 crore or so. But if you see the Q3 results actually, because the Vietnam plant commenced operation in that quarter there is a 52 percent jump in turnover, from Rs 130 crore to about Rs 200 crore and the profit went up by 75 percent from about Rs 8.75 crore to about Rs 16 crore or so, so huge jump of 75 percent in the profit.”

“Now the Vietnam plant has stabilized and commenced operations, we expect the performance of CCL to improve in the current quarter as well as in the coming year, because in the coming year we will see the full impact of the Vietnam plant.”

“This year already the company has achieved an Earnings Per Share (EPS) of Rs 27 or so in the first nine months and we are expecting this EPS to go up to at least about Rs 38-40 in the current year and next year since we will have the full impact of this Vietnam plant, this EPS could shoot up to at least about Rs 46-48.”

“I think the stock is very undervalued at this level of about Rs 295. In the recent midcap carnage this stock came down from Rs 371 to about Rs 295 levels or so. So at this level of Rs 298-300 the stock is quoting at hardly about 7 times the FY14 earnings. So I think there is a clear case for 50 percent upside in CCL over the next 18 months or so.”

Disclosure: We own CCL Products. No positions in Shiva Texyarn, but both stocks have been recommended to clients.

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