They say that people can be divided into four categories, employees, professionals, businessmen and investors. Each of the above have unique traits and people in each of these categories have very different lives and mindsets.

CCL’s ex MD is a thoroughbred businessman and an entrepreneur. His lifespan covered starting of the business, growing and nurturing it, moving into unchartered territories, making it the largest coffee processing companies in Asia and also making it a cash spewing machine.

The new MD, is a different species altogether, taking over the company with challenges that are entirely different. His main job is not gaining marketshare, or expansion or capacity building or invention of new products. Very grossly put, his problem is that of plenty.

Lets look at the Financials of the company this year.

FY 14 annual results ( in crs)


Vietnam and Swiss

































CCL has generated about 62 cr in cash. This is at a time when Vietnam has not yet contributed to cash and will contribute till its full potential only in FY 16, i.e the company should be generating Cash flows in the range of 100-100 cr Fy 15 onwards.  PHEW !!!

What the management has done till date has made this company great, now what the management will do with all this cash, will define the future of the company.

An easy thing to do would be to retire debt, pay dividend or buy-back shares and it will keep the investor community happy, but that will end the greatness of this company.

Coming back to where I left off about the 4 different types of people, the choice the company takes will clearly tell us the calling of the new MD. The company is able to generate a ROCE of 20% today which is excellent, but this percentage will fall if the reserves keep building up and in a market like this unless the ROCE is greater that 20-22% it would make more sense to return the money to the investors.

Apple has cash + a history of innovation.

Piramal has cash + a history of rewarding investments.

CCL has cash + history of running a great business.

While the company will continue to grow and the EPS should grow from the current 4.84 to about 7 soon, a PE of 15 in a bull market is not too far fetched. This should easily have the stock hovering in the 95-105 levels soon. Good appreciation from here, so this company is still a buy at the same time its also very interesting WATCH to see what happens to all the cash.



pssssssssssssssst – Expand !


8 replies on “CCL Products – Problems of Plenty

  1. Dear Nitin,

    i am holding tis stock in small quantities since past 13 years.. there were lots of ups and downs and the company has withered all the cahllenges with great aplomb and i hope they will continue to do so… One interesting fact is that their Continental Coffee is really refreshingly tasty and if marketed well can give Nescafe a run for thier money.. I am sure that over the next year CCL may adopt valuation parameters of FMCG companies and P/E may expand to 20 +…

  2. For a company to get FMCG valuation it must be an FMCG, and for CCL to be valued as one it would need at least 15-20% of its sales arising from its own branded coffee, which is quite a far way from here. That being said, it looks like the company has set the wheels in motion to arrive at this. PE will also depend on the levers operating and at what stage the company is at. Currently since the Vietnam plants capacity is growing every month it is trading at a new, higher PE. Once the company reaches full capacity the PE should stabilise unless growth from a new plant OR branded products begins to make an impact.

    1. THANKS..
      Chella Shrishant has been interviewed on CNBC TV 18 today and he in fact used the words in your second sentence above..and concluded that they will launch their coffee in the next 2 to 3 years and market it innovatively with min advt costs!! my focus is on the quality and acceptability of their Coffee for most of us who grew on BRU and Nescafe ! It tastes distinctly different from Nescafe but good ! we have been using it since several years in the Army.. @ Rs 118 /. is worth a hold certainly!!

  3. Army ! That is interesting. BTW CCL used to be india’s largest contract manufacturer for Nestle too. The only glitch here is that CCL has time and again proved to be awesome at being a back end manufacturer, however, we have no idea on it’s ability to handle the retail segment. I would like to give it a retail value only after at least a couple of years of retail presence as coffee and tea tastes are hard to change overnight. It is good to see that the mgmt is looking at marketing thru higher retailer margin rather than the traditional means of marketing which will eb a burden on the P&L. Interesting times ahead.

  4. Hi ,
    H N Y 2015,
    In sept we discussed ccl valuations .. it added another 56 rupees since then..now ccl is 30% more valued than TATA COFFEE.. How can we assess the scrip now,,!!


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