CCL Products products has a global production share of 5-10% of the coffee produced.(including Nestle) WOW !!!! There is no seriousl global player who has not heard of them, let alone dealt with them. And if you look at the client retention ratio, and the growth of the company over the last few years, it will correlate really well.
Till last year the biggest goal of the company seemed to be to generate profits in excess of a 100 cr every year. Well that being achieved, the con-call clarifies what the company wishes to do with all the additional moolah it generated.
The results summary is as follows:
| in CR | Standalone | Considated | Subsidiaries |
| Sales | 671 | 880 | 209 |
| Expenses | 553 | 736 | 183 |
| Operating Profit | 118 | 144 | 26 |
| Other Income | 1 | 3 | 2 |
| Interest | 6 | 13 | 8 |
| PBT | 114 | 133 | 19 |
| Tax | 38 | 38 | NA |
| PAT | 75 | 94 | 19 |
| EPS | 5.61 | 7.06 | 1.45 |
Even with the Swiss plant loosing about 3 cr a year the partly operational vietnam plant has contributed over 25%of the EPS in the current year itself. Of the 5000 MT capacity only about 75% was effectively used this year. Next year onwards the company should be able to utulize full capacity turning out an EBITA of > 25% due to its excellent product mix as well as its tax holiday. Thus for every 1 rupee of vietnamese earning, india will have to earn 1.42 just to set off the tax advantage. No wonder then, the Vietnamese plant will be expanded to 10,000 MT as soon as steady orders are established.
While the numbers have shown excellent growth, the quality of the numbers too have shown fantastic improvement. The company is future proofing itself by slowly moving away from the spray dried coffee into instant and into liquid coffee. One of the early customers for its liquid coffee may just as well be the Japanese. While their philosophy of Kaizen is popular around the world whats more important to CCL is that the Japanese are painstakingly slow at making decisions and once they do, they are likely to hold on to them for long periods of time.
Switzerland factory which seemed to have more strategic and packaging advantages rather than production capacity too has now become cash positive. While the exact contribution of the unit is unknown atleast it has stopped being a speed breaker.
With current capacity of 20,000 MT which be upgraded to 25,000 MT by the end of the year and additional 5,000 MT in the anvil in Vietnam, CCL’s order book is going to be packed full. It is this 25,000 MT or 25,00,00,00,000 cups of coffee. Thats 25 BILLION cups of coffee going by the indian standard consumption of 1 gm per cup. Starbucks sells 4 Billion cups.However, the american standard cup require 2x-3x times of coffee compared to the indian cup, but thats still 8x-10x the total coffee that starbucks sells in a year.(how many cups of coffe does starbucks sell in a year ?)
CCL has its house keeping also planned out for the 138 cr debt on its balance sheet owing to the vietnam plant. It will pay off 45 cr this year and the remaining 93 cr in the next two years.
The market is particularly excited about two things:
- Moving up the Value chain by packing into white labels
- Selling as an Own brand
The company is looking at various options to market more aggressively in the US. It is most likely that the company will set up a packing plant within the next 2-3 years.
Coming to the own brand, CCL has been painstakingly slow in branding and has now confirmed that the volume sales and the feedback received are worth justifying the time and efforts in taking up this. From the con-call it looks quite obvious that the MD’s top task apart from the existing business is to create an alternative to Nescafe 🙂 Well, Modi sure will be proud.
A coffee lover myself, I’ve sampled almost all the coffees in the freeze dried space, fom nescafe gold to bru gold to Davidoff and i can clearly state that Continental’s Blue dabba is in no way of lesser grade than any of them at 1/3 or lesser of the price.
While the Tata Coffees of the world are run by Managers, CCL is run by the family, and one whose interest is aligned with the shareholders especially since the family owns over 60% of the company.
The company shall continue to make large and steady strides into the future without risking its cash flows.
I don’t think i’m over stepping by calling CCL a cash compounding machine, look at the graph above and make sure you don’t get out between year 20 and 25, for thats where the cream is my friend.
And oh, Cafe Coffee Day is planning at IPO soon, with the pre-IPO valuation in excess of 6,200 cr with a current loss of 75 cr. CCL on the other hand will conservatively generate 115+ cars PAT in the next year and is available at just 2,450 cr today.
Need i say more ?
previous posts on CCL
http://biginvestorblog.com/?s=CCL&submit=Search
graph courtesy. safalniveshak.com
Hi Nitin,
Have been reading your blog for the past one month. Great insights and analysis. Appreciate that. But I would like you to throw some light on how you say that a particular stock is undervalued? (Is it just P/E ratio? Or do you calculate the intrinsic value of the share? If so, please throw some light on how you do it)
Valuation is more an art than science. No one metric can tell you the absolute truth. Both PE and Intrinsic values are tools, but calculating intrinsic value based on declared financials is fiction. A simplistic way is to look at the companies ability to generate cash, grow sales without compromise in margins, and look where they are in the Capex cycle. Also check if the industry is expanding or contracting. These will probably give you a better insight than just a PE number. Also, try to think in terms of ranges (best to worst) rather than absolutes. It will give you a better understanding and a better EQ.
Thanks for the prompt reply Nitin 🙂