CCL Products fell by about 8% today, as the ANALysts (yes that was intentional 🙂 ) were unhappy with the growth figures, compared to last quarter/six months.  I don’t know when they will understand that companies will not grow in a linear fashion. You just have to think long term. Most of their questions in todays call seem to be regarding the deviation from the projected growth path and not about the future of the coffee industry. Estimates are a whole bunch of moving pieces and they should be construed so. Anyway, keeping my disappointment aside, here are some additional insights into the company.

  • Value addition in CCL happens via more production for the retail customers (small packs) and in higher end, specialised coffee and both the factors are on an incline.
  • Coffee companies have an organisation called the “International Coffee Organisation” and this is a huge advantage coffee producers and growers have in the market. Think of it as a CIBIL score and since the organisation represents over 95% of the world production and 83% of the world consumption, you wouldn’t really mess with your credibility if you plan to stay in the coffee business.
  • Technology is really really changing fast. Read this entertaining article of how the kitchen sink has reduced stopped drinking coffee. Also check out these really cool coffee brewing machines that are finding a place in homes.
  • Keurig, has with the sale of its vending machines actually created and “App Store”, and each major developer is creating his apps or PODS.  They basically just created and new platform in one of the worlds oldest commodities. This almost excited me enough to dump my entire CCL holding and get into Keurig, but then again, CCL is the one who will probably be making all the coffee that is going into the PODS. The only spoiler being that the liquid coffee plant will only be ready in 2017-2018.
  • Brazil which has over 35% 1,00,000 MT of capacity can’t really compete with the world market apart from America as they don’t import green  coffee from other markets. They can only sell what they produce – a huge disadvantage. Its like telling your kid that he can be as adventurous as he wants, but he should just not leave the house 🙂
  • Also the US Labelling laws are on the verge of being changed, the so called “License Raj” will be coming to an end and Brazil will have to compete head on with CCL who doesn’t adulterate their coffee. The average American needs to have atleast 300 ml of coffee in the morning versus our Desi South Indian coffee which is just about 60 ml and here is the best part, the coffee powder  that the Americans use is almost 2.5x that off what we use.
  • CCL’s market has been Europe and the Far East due to its location and its ability to produce coffee from green coffee imported from all over the world. This is a bigger advantage than it seems like.
  • CCL has time and again been winning a lot of “blind tasting sessions”, but have not completely taken advantage of that. This is due to the conservatism of the company. I think this same conservative attitude has protected the company from more losses than loss in profits.
  • CCL has been making major inroads into the Army and Police Canteens and has been tying up with hotel chains like Club Mahindra and Sterling. They could be everywhere in a jiffy, if they just changed their credit policy, which consists of just two words ” NO CREDIT”. When you take up a policy like that, and still continue with superior growth, it is a clear example of QUALITY trumping MARKETING.

Caffeine is an addiction. In many ways like nicotine or marijuana. Luckily this drug enhances productivity without cancer or damaging the brain. The world smiles on this drug and uses it as the most common opening line to attract the opposite sex

 ” How about some coffee.”

Why would you not want to be in on it ?

In short, there are various levers still in CCL’s artillery, so there should be little reason to worry about companies growth, however, if you have entered at a frothy valuation, well ……….. ….. 🙂

 

My previous posts on CCL

13 replies on ““We make instant coffee, and take instant decisions !” – CCL Products

  1. At a time when CCD IPO is up, this one is firing up you tag of Stocks and tea perfectly. Well CCL Products has all the leg room to grow especially after the Vietnam thing, but I think one cant really say its a better play than a premium thing that is going to gain ground faster and has an established brand like Cafe Coffee Day.

  2. Hello Nitin,
    What is your view on career point — U used to track it actively!!
    Current price seems to have limited downside & probable surprise on upside. Also if we just compare tangible assets and market-cap, the scrip looks interesting 🙂

    1. Hi Das,

      I believed that Career Point was a sort of PE in the education space, but then the management made two moves that i was unhappy about.
      1) They suddenly opened a Hyundai Motor Dealership
      2) They got into education loans, for their own products, much like Bajaj Auto Financed their own motorbikes.

      I stopped tracking them thereafter. However, they have some great assets, but when you compare M.Cap to Assets and feel happy, take into account that these assets are not stock-in-trade and are not going to be sold off ( apart from cash ).In a services business such as career point, assets not as important as performance, consistence, good will and of course, cash generation.

      I haven’t dismissed the idea, but as of now i’m more comfortable sitting on the fence.

  3. Hello,

    Went through entire series of posts on CCL. I must say great insights in very simple and easy to understand manner. It would be interesting to know your view on tata coffee plus their US subsidiary 8 Oclock.

    1. Hey Hiten,
      Tata Coffee is a very different animal altogether. They are coffee growers with multiple coffee estates and a few tea estates. CCL is not into agriculture/plantation business so comparing the two would be comparing apples and oranges.

  4. Hi nitin,

    Started following your blog while searching for something on MPS. Been an avid reader since then. I have been following CCL for sometime now but missed buying it earlier for some reason or other. Do you feel at present the valuations seem to be taking fair value into account?
    Surprisingly the market hasn’t devalued the stock by a huge percent. Other companies with result disappointment have had harder falls. Probably because they were at frothy valuations.
    Appreciate a reply.

    Abhishek

  5. Shocked to see the CMD answers…..would not trust a penny on this guy….all fuzzy, round about

  6. Hi Nitin,

    Excellent posts on CCL.

    Knowledge with wit, with some coffee, and some sound advice to make money, all adds up to brilliant analysis. Thanks for sharing.

    Regards,
    Ankur

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