Buy CCL Products; target of Rs 295: Edelweiss

CCL Products India’s (CCL) Q2FY17 revenue/EBITDA belied our estimates by 45%/51% on account of advanced annual maintenance shutdown (from Q3 to Q2) and longer than planned refurbishment, leading to loss of production. However, CCL expects to increase output and reduce operating cost in H2FY17 following the revamp. The company also expects to recoup volumes in H2FY17. Therefore, it maintained its FY17 volume growth guidance of 12-15%, while reducing PAT guidance to 15-20% (earlier 20-25%). We have cut our FY17/18E EPS by 10%/3% as recovering entire production loss will be difficult. However, we believe capacity ramp up at Vietnam plant and taxation benefits could lead to EBITDA/PAT CAGR of 18%/27% over FY16-18E. Ergo, RoE will improve from 26% in FY16 to 28% in FY18E. Maintain ‘BUY’ with a revised TP of INR 295 (INR 304 earlier), based on 20x FY18E EPS.

We estimate volume CAGR of 12% over FY16-18, led by capacity expansion in India and better capacity utilisation in Vietnam (from 58% in FY16 to 85% in FY18). At CMP, the stock trades at 23.8x FY17E and 17.7x FY18E EPS. We maintain ‘BUY’ with a revised TP of INR 295 (INR 304 earlier), based on 20x FY18E EPS.  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.