Buy CCL Products; target of Rs 265: ICICIDirect

ICICIDirect's research report on CCL ProductsCCL Products is India’s largest exporter of bulk instant coffee with a combined capacity of 35000 tons per annum (TPA) from its facilities across India, Vietnam and Switzerland. The company had commissioned its Vietnam facility in FY14 with installed capacity of 10000 TPA expandable up to 20000 TPA. On the back of capacity utilisation level from Vietnam facility crossing 70% in FY16, CCL witnessed robust growth of 29.9% YoY in earnings to | 122.1 crore despite 4.6% YoY growth in net sales to | 921.3 crore. We believe the company would expand capacity in its Vietnam facility to 20000 tons in the next two to three years owing to its favourable location advantage and relaxed duty & tax structure. We expect healthy 14.5%, 14.2% CAGR in sales, earnings, respectively, in FY16-18E as we roll over our estimates to FY18E.On the back of higher sales from increasing capacity utilisation levels at the Vietnam facility and increased sales volumes in FY17E as a result of rescheduling of some coffee contracts, we expect net sales to grow at 14.5% CAGR in FY16-18E. We have modelled a marginal dip in margins to 20.8% by FY18E due to a high base created in FY16 on the back of benign commodity costs. We believe tax benefits in Vietnam would aid in 14.2% CAGR in profitability in FY16-18E. CCL Products was eligible to receive some export benefits from the government in FY16, which it did not get due to some technical issues at the government department’s end. According to the company, the export incentives due are ~| 12 crore. CCL expects to receive it in the near term. It is pertinent to note that we have not factored in the export incentives CCL Products should receive in our estimates. Therefore, it remains a positive risk to our estimates. We value the stock at 22x its FY18E EPS of | 12 to arrive at a target price of | 265/share. We maintain our BUY recommendation. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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