CCL Products Ltd. (NSE: CCL) is an Indian company that specializes in the production and export of instant coffee. The company was founded in 1994 and is headquartered in Hyderabad, India. CCL Products is one of the world’s largest manufacturers of instant coffee, with a production capacity of over 35,000 metric tons per year. The company exports its products to more than 90 countries worldwide, including the United States, Europe, and Japan. CCL Products operates two manufacturing facilities in India, as well as one in Vietnam. The company has a strong focus on research and development, and has developed several patented technologies for the production of instant coffee. In addition to its instant coffee business, CCL Products has also diversified into other areas, such as tea and spices.
In the third quarter of FY23, the company reported consolidated revenue growth of 26.5% YoY to Rs 535 Cr, which was ahead of estimates. However, the volume growth was muted due to a shutdown taken in India facility. Gross margins stood at 43.7%, down 452bps YoY on account of lower volume growth.
EBITDA grew 9% YoY and EBITDA margins stood at 21.9%, which was down 305bps YoY due to negative operating leverage. Interest cost increased 200% YoY to Rs 11 Cr due to higher interest cost and an increase in working capital requirement. PAT came in at Rs 73 Cr, which grew by 25% YoY due to lower tax. Management highlighted the tax rate for FY23-24 at 12-22%.
Post the Russia-Ukraine war, the global supply chain was impacted heavily, resulting in delays in shipment, an increase in the cost of raw material and transportation, etc. Many global coffee companies are looking to de-risk their supplies and partner with a manufacturer which has a presence in different territories. CCL Products is the right choice for them because it has facilities in Vietnam and India, unlike Brazilian players that are present only in their home country. This has led CCL to have a strong footing in the international markets, continue to gain market share, and access new business.
CCL Products has a cost-efficient business model and is doubling Vietnam’s capacity from the current 13,500 MT to 30,000 MT, along with expansion in India, leading to strong volume growth visibility for the next 2-3 years. The company is also adding capacity in value-added products (FDC and small packs) in Vietnam and foraying into high-margin branded retail business (Continental Coffee, plant-based meat protein).
In summary, CCL Products has reported strong revenue growth in Q3FY23, with a cost-efficient business model and a strong foothold in international markets. The company has visibility for strong volume growth in the next 2-3 years and is foraying into high-margin branded retail business. However, gross margins have declined, and interest costs have increased, leading to lower EBITDA margins.