Hold CCL Products (India); target of Rs 511: CD Equisearch

CD Equisearch's research report on CCL Products (India)

CCL Products produces several varieties and blends of coffee including spray dried coffee powder, spray dried agglomerated / granulated coffee, freeze dried coffee and freeze concentrated liquid coffee. Driven by near full capacity utilization (~85%) at its Indian and Vietnam units, CCLP posted volume growth of some 25% in the first quarter of current fiscal, thus helping the company post 56.2% growth in revenues to Rs 509.28 crs when compared to Rs 326.12 crs in the same quarter a year ago. Coffee sourcing from some of the small players - mostly generic products - has barely help diminished volume growth in last couple of quarters. With record product realizations, OPMs have all but fallen to 17.4% (22.1% in Q1 of previous fiscal) not least due to little variation in its pricing model (fixed per kg margins). Wherefore, operating profits rose by much diminished 23% to Rs 88.54 crs as against Rs 71.98 crs in the same quarter a year ago. Needless to say, margins have got a leg up from growing capacity utilization of its small packs facility, whose throughput surged past 50% in the last quarter. With depreciation costs up 25.5%, PBT rose by little enthusing 24% and post tax earnings advanced by 20.3% to Rs 52.74 crs as against Rs 43.84 crs in the year ago period.

Outlook

Buttressed by higher volumes at new Vietnam facility, post tax earnings are projected to grow by some 29% next fiscal. Balancing odds, we assign "hold" rating on the stock with revised target of Rs 511 (Previous target: Rs 339) based on 24x FY24e earnings over a period of 6-9 months.