Everything You Need to Know About CCL Products Ltd.(NSE:CCL)| Stock UP 60% in 6 Months.

CCL Products Ltd. was established in 1994 and started operations in 1995. It is an Export Oriented Unit (EOU) with the ability to import green coffee into India from any part of the world and export it to any part of the world, duty free. 

CCL has adopted Swiss and Brazilian technologies in its plants, which have been purchased from world-renowned pioneers in instant/turnkey instant coffee technologies.

This has enabled it to produce international quality instant coffee with more than 250 blends that are currently exported to more than 90 countries around the world. 

Today, the company is India’s largest producer and exporter (36% market share) of instant coffee and the largest player in the private label market (with 10% market share). CCL operates through four plants: two in India and one each in Vietnam and Switzerland.

CCL Products Ltd. (CCL) is engaged in the conversion of raw coffee beans into instant coffee granules/powder. The company is not only the largest coffee processor in India, but has the largest single-site factory in the world, and its clients include the world’s leading producers of private label instant coffee.

While prima facie it looks like a commodity conversion business, unlike tea or other commodities, coffee processing is a specialized job as flavor and consistency must be maintained batch by batch regardless of input quality or grade. 

There are not many companies that have succeeded in doing this, which is why the coffee business has very little competition and high profitability on a global scale. CCL coffee is consumed globally at a rate of 1,000 cups per second.

CCL exports its processed coffee to more than 90 countries and supports more than 250 brands with sustainable supply – both quality and quantity. CCL has more than 1,000 recipes on offer for clients to choose from. 

It has a combined state-of-the-art production capacity of ~38,500 MTPA spread across Duggirala (Guntur district in AP), Kuvvakolli (Chittoor district, AP), Switzerland and Vietnam.

After successfully positioning its coffee in global markets, CCL has launched its ‘Continental Coffee’ brand for the Indian market, which is expected to act as a major growth catalyst. 

With the help of its rich experience in international markets, it has developed more than 250 blends and claims that they are better than its competitors.

CCL highlighted that due to higher production cost in Europe due to the energy crisis, companies in Europe are outsourcing production to other countries in Brazil, India, Vietnam, which will benefit CCL to some extent, currently Europe accounts for 10% of CCL product sales.

It is India’s largest exporter of instant coffee (38% market share) and the world’s leading private label supplier (~10% global market share). Over the past two decades, it has increased its capacity 10x without diluting its equity and has also managed to keep its debt under control.

Its business model is strong and robust because it is a sticky business; it has best-in-class technology, excellent economies of scale and resilient margins. Management has revised its volume estimate from the previously stated 15-20% to more than 20-25% now for FY23.

CCL Products (CCL) delivered strong top-line growth with consolidated revenues at Rs 507 crore, up 50% year-on-year. Growth was driven by strong volume growth of ~25% and higher realizations during the quarter.

The company reported GPM of 44.6% down 811 bps YoY but up 331 bps sequentially as coffee prices are on a downward trend. Its EBITDA margins fell by 520 bps year-on-year to 19.3% (up 187 bps quarter-on-quarter). Its PAT came to 58 Cr (Our estimate: 76 Cr), up 17% YoY.

Management remains confident of sustaining its volume growth of 15% to 20-25%. Additionally, 10-15% price growth should help the company grow ~40% overall in FY23. He further hinted at home brand business to reach +Rs 200 crore in FY23 as it further expands into various geographies.

While CCL passes these increases on to its customers, many of its contracts are long-term, so the real effect of price increases has only been seen in the last few quarters. While RM is a pass-through cost, packaging and shipping costs can be difficult to pass on, especially in a world of high inflation. However, there has been a decline in logistics costs in the recent past.

The company’s total domestic sales reported revenue of Rs 110 in H1FY23. Brand business accounts for ~70% of domestic sales. In Q1FY23, domestic business grew ~40% YoY and the company is targeting ~30-40% topline growth with a breakthrough in FY23 as it looks for major distribution expansion outside southern markets, further strengthening its NPD (flavoured, cold drinks, functional coffee) position of CCL in the domestic and internal markets. The recently launched plant-based meat protein is in a trial phase in three cities to gauge customer feedback.

The guidance revision came on the back of strong order booking, rapid growth in domestic business and capacity commissioning in Vietnam (up 16,500 MT). The company further announced more investment plans as it is setting up a 16,000 MT greenfield capacity near its Chittoor plant.

Such aggressive expansion demonstrates the strong traction that CCL is seeing demand in various markets. With these capacity additions, CCL capacity is likely to reach ~71,000 MT, which could result in strong volume growth of 20% and more over the next 3-4 years.