About the Company

CCL Products is the largest instant coffee maker and exporter in India. The company was formed set up in 1994 and commenced commercial operations in 1995. It is a profit-making, export-oriented unit (EoU) with the ability to import green coffee into India from any part of the world and export the same to any part of the world, free of all duties. The company has two international subsidiaries in Switzerland and Vietnam. The company has recently ventured into the branded coffee segment through its in-house brand “Continental Coffee”.

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Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 224.05 181.12 23.70% 222.34 0.77% 711.24 614 15.84%
PBT 57.96 34.59 67.56% 26.58 118.06% 186.85 118.02 58.32%
PAT 36.08 23.83 51.41% 24.16 49.34% 142.48 76.12 87.18%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 303.36 234.99 29.09% 299.1 1.42% 876.19 821.88 6.61%
PBT 68.71 43.37 58.43% 44.44 54.61% 167.64 161.16 4.02%
PAT 46.99 32.6 44.14% 42.07 11.69% 123.74 119.25 3.77%

Detailed Results

    1. The company had a good quarter with sales growth of 29% YoY and PAT growth of 44% YoY. But these figures were high mainly due to the low base of Q3FY19 last year.
    2. The 9M figures show modest growth for the company so far this year with only 6.7% YoY revenue growth and 3.8% YoY profit growth.
    3. Other income was also low in Q3 coming in at Rs 6.47 Cr vs Rs 9.1 Cr last year.
    4. Another change as compared to last year was in 9M cost of raw materials which fell 6.4% YoY. However, 9M revenues rose 6.75% YoY.

Investor Conference Call Highlights

  1. The margins for the company are expected to stay stable at current levels mainly due to the shift of the product mix towards freeze-dried coffee.
  2. The management has mentioned that the company is operating at optimal capacity in the Vietnam facility and the company is looking to expand capacity in this unit. This is because the current product mix has caused output volumes from this unit to decline and thus the company feels the need to expand capacity to address growing demand in a timely manner.
  3. The volumes for the quarter were according to the company’s estimates.
  4. The company is going to invest $8 million for expansion in the Vietnam plant to increase capacity by 3500 tons. This expansion is expected to be done by Q1FY21. The company expects the capacity utilization in the expanded capacity in FY21 to be around 75%.
  5. In the domestic business, the company expects sales of Rs 100 Cr in FY20 and more than half of this is expected from the branded business. Last year the branded sales were only Rs 30 Cr vs Rs 50 Cr expected this year.
  6. The company spent around Rs 14-15 Cr for business expansion and marketing and the company expects to maintain this proportion going forward.
  7. The management has stated that the company is expecting to earn around $14 million in revenues from the proposed expansion as full capacity.
  8. The management admits that the YoY growth in Q3 was mainly due to lower base in Q3FY19 and QoQ growth has been normal. The realization has been higher mainly due to freeze-dried capacity working at optimal utilization.
  9. The Vietnam business has become EBITDA breakeven in Q3 and is expected to turn profitable in Q4.
  10. The company has realized the Merchandise Export from India Scheme (MEIS) of Rs 30 Cr in the year so far.
  11. In India operations, the company expects capacity utilization of around 80-85% in the next year. The company is also planning an activity which can increase capacity by 500 tons.
  12. Gross margins are expected to stay stable at current elevated levels as it has been achieved as a result of the company’s upgradation efforts and other initiatives like the improved product mix.
  13. The CAPEX for this year and next year in total is around $23 million which includes the $8 million expansion in Vietnam.
  14. The rise of coffee prices does not affect the company’s sales immediately and since the company uses 6 months or one-year contracts, the impact appears sometime in the future.
  15. The working capital cycle for the company has increased mainly because of enhanced operations in Switzerland unit.
  16. The inventory days is at 60 days and receivables are at 75 days with no change in payables.
  17. The new small pack making facility is expected to be completed by end of FY20 and operations should start from FY21 onwards.
  18. The Indian subsidiary is expected to breakeven next year as this year, the subsidiary has some small losses due to high marketing costs.
  19. The company is the 3rd largest brand by market share after Nescafe and Bru. The company already enjoys >5% market share in major cities in South India like Hyderabad.
  20. The utilization level in Q3 is around 75% in the SEZ facility. Overall on a yearly basis, utilization was between 50-60%.
  21. The company has gained a new customer from whom the company is expecting some large orders to come in for the Vietnam plant.
  22. The company is seeing growth in market demand for freeze-dried coffee and thus it has already planned its expansions accordingly.
  23. The company is consciously focussing on growing its branded business.
  24. The market size of instant coffee in India is around Rs 2000 Cr and the filter coffee market size is around Rs 400-500 Cr. The company aims to reach 5% market share or Rs 100 Cr in branded sales in the next 2 years.
  25. The management has chosen to focus on branded sales with freeze-dried coffee as the major players like Nescafe and Bru do not have facilities in the country to make this product and importing it from overseas facilities will raise costs to unsustainable levels for these players. Thus CCL has a unique advantage in the freeze-dried coffee space which the company hopes to use to capture the market from the incumbent players.
  26. Regarding the company’s unique and premium products like cold brew coffee, the company is introducing it to developed markets because of higher acceptance of such products. At the moment the company’s products are unique and not manufactured at such scale anywhere in the world and the company hopes to capitalize on this first-mover advantage as much as possible.
  27. The company is now targeting customers with higher quality requirements to remove its dependence on price-sensitive customers.
  28. Around 60% of customers are ones that are quality customers who get unique offerings from the company while 40% are vanilla customers with whom the company does not have any competitive hold other than price.
  29. The expenses for the branded business that has been booked by the parent company is around Rs 10 Cr.
  30. The management has said that from next year onwards, the company will also be looking to use some of its cash flows to pay back term loans in a timely manner.
  31. The Switzerland business has been doing well and is generating deals with major supermarket chains in the EU region. The revenues from this unit is Rs 83 Cr in 9M period and the company expects this to reach Rs 110 Cr by the end of the year.
  32. The company has around 60,000 retail outlets in reach and around 600 distributors for the branded business currently.
  33. The company is looking to balance the low margin bulk business and the high margin premium business and not reduce dependence on its traditional strengths in the bulk segment to chase premium growth.
  34. The management has said that the govt is likely to incentivize industries to promote exports even if MEIS regimen comes to an end. Thus some form of export incentive is expected to stay preserved for exporting companies like CCL.
  35. The company is still sticking to its earlier guidance of 10-15% volumes growth for FY20.

Analyst’s View

CCL has already established itself in the wholesale coffee space for many years and their foray into branded sales through Continental Coffee label has been very encouraging. The company has had a good quarter on the back of the improved product mix and bagging a few big orders from Switzerland. The company’s branded business is growing well and has already captured almost 5% market share in prominent cities in the South like Hyderabad. This highlights the quality of the brand’s offerings and the competitive edge of the company which should help them further in capturing market share from incumbent players like Nescafe and Bru. The company is doing well to capitalize on its unique offerings and is working hard on expanding its influence. The management has been prudent and frank that this competitive advantage is not permanent and other players may soon start developing similar products and dilute its unique edge. Hence, management says that it is working as hard as possible to push its growth as long as this edge lasts. It remains to be seen whether the path forward for the company will be as smooth as it has been so far, particularly for its branded business. Nonetheless, given the enormous market opportunity for the branded business in the domestic market and other innovative products like flavoured cold brew in advanced markets, CCL products may turn out to be a rising dark horse in the global coffee industry in the years to come.


 

 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 222.34 214.19 3.81% 264.85* -16.05% 487.2 432.88 12.55%
PBT 26.57 46.56 -42.93% 102.3 -74.03% 128.88 83.42 54.50%
PAT 24.15 28.15 -14.21% 82.24 -70.63% 106.4 52.28 103.52%
Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 299.1 292.11 2.39% 273.72 9.27% 572.82 586.89 -2.40%
PBT 44.44 65.6 -32.26% 54.48 -18.43% 98.92 117.78 -16.01%
PAT 42.07 47.18 -10.83% 34.67 21.34% 76.74 86.64 -11.43%

*Includes Other income of Rs 58.77 Cr

Detailed Results

    1. The company had a modest quarter with standalone and consolidated operating revenues growing 4% and 3% YoY respectively.
    2. Standalone and consolidated profits fell drastically with standalone and consolidated PBT falling 43% and 32% YoY respectively.
    3. This fall is mainly due to inflated depreciation and other expenses due to the addition of new PPE in the balance sheet.
    4. The consolidated PAT for the company also declined by 11% highlighting a tough quarter for the company.
    5. H1FY20 was drastically different on standalone and consolidated levels. On standalone levels, H1FY20 performance was good with sales rising 12.55% YoY and profit rising more than 103% YoY.
    6. Consolidated H1Fy20 performance was lean with sales declining 2.4% YoY and profits falling 11% YoY.

Investor Conference Call Highlights

  1. The other expenses were high in the quarter due to the company contracting a high profile celebrity for advertising.
  2. The depreciation was also high in the quarter because due to the seasonal operations and the company also spent Rs 5 Cr NEIS license which will be reflected in the next quarter.
  3. The company expects margins to improve in the coming quarters due to the removal of one-time ad spend and the improvement in profits.
  4. The company is expecting the new SEZ operations to be working in line with its previous guidance of keeping capacity utilization at 50% for the year. The orders from this unit were low in Q1 and Q2 but they will pick up in the next 2 quarters due to the incoming order schedule.
  5. The Vietnam expansion is started and is expected to be completed by Q1FY21.
  6. The other expansions are also expected to be going on with the same timeline.
  7. The crop yields in Brazil have been very good and so the market pricing from Brazil is very competitive. The management states that Vietnam also had a good yield and due to a lot of investment into the Vietnam Coffee industry, the prices of coffee in Vietnam are being kept inflated artificially. This is causing Brazilian coffee to spread to other regions.
  8. The Vietnam duty to EU is still 3.1% and Brazil’s duty to EU is still 9% thus preserving the duty advantage of Vietnamese exporters to Brazilian exporters.
  9. Historically, Q1 and Q2 have been the lean quarters while Q3 and Q4 are the better ones for the company.
  10. The company is on track with its plans with expansion in the USA. The company has also changed its credit terms to attract more customers. The company expects a few customers to come in from FY21 onwards. The company has already started the official customer approval process for a few companies which should take around 6 months to complete.
  11. IN Q2FY19, the company has done a domestic business of Rs 20 Cr bringing their H1FY20 revenues from domestic operations to Rs 35 Cr. All the additional growth is from the retail market. The company is confident that it will achieve its yearly guidance target of Rs 110 Cr.
  12. The effective tax rate for the company is 21% currently.
  13. The majority of the products made in the SEZ units are to be dispatched in Q3 and Q4 and thus the margin expansion from the SEZ operations will be reflected in the coming quarters.
  14. The management is fairly confident that they should be able to achieve their initial guidance given at the start of the year.
  15. The instant coffee market is around Rs 2000 Cr in India. The filter coffee numbers are not available as a lot of the sales in this segment is unorganized. The company has 3 main products in the instant coffee, filter coffee, and premix categories.
  16. The company is focussing right now in the 4 main states of South India. The company has also started building awareness through mass media advertising.
  17. The utilization levels in Vietnam is around 70% on an annualized basis. H2FY20 should help bring this up.
  18. The company observes that in India, the roasted coffee sector is growing better than the normal instant coffee sector.
  19. The management maintains that they are not worried about the effect of the brazil exports as the profile of Brazilian coffee exports is very different from the company’s offerings and the company is not competing in that segment.
  20. The company has introduced their new product cold brew in USA and EU. The company is expecting orders to come in the next few quarters. This product is unique and thus it will take time for the product to expand.
  21. Cash conversion for the company is expected to remain stable. The company is not expecting any delinquency from their extension of credit to customers in the USA.
  22. The company’s Swiss subsidiary has already renewed their contracts with existing clients and they are expecting more clients to come in the near future.
  23. The fixed costs for the SEZ unit is Rs 26 Cr for the full year.
  24. The company started small pack business as they see this business to be more sustainable in the long term for them. The small pack business has grown at a good pace in the last one year. All of the business in the Swiss subsidiary has been in small packs.
  25. Switzerland contributes 5% of revenues while total small pack revenue is around 20-25% of the total revenues.
  26. The management has guided that the expenses may rise if they go forward with more advertising on seeing good response to existing efforts.

Analyst’s View

CCL has already established itself in the wholesale coffee space for many years and their foray into branded sales through Continental Coffee label has been very encouraging. The company has had a couple of lean quarters. The company, however, has seen encouraging signs on its foray into the USA market. The company has been proactive in wanting to grasp this opportunity which is evident from its decision to extend credit to customers in the USA. The performance of the retail segment has been encouraging but it remains to be seen whether this segment shall perform as highly as expected in the next 2 quarters. Nonetheless, despite slow growth in the current quarter, CCL remains a good investment prospect in the coffee industry given their experience and their new product portfolio which is expected to be well received in the market.

 

 

Notes on Annual Report (FY2018-19)

Management Discussion & Analysis

  • As per Wiseguy report, the global instant coffee market is valued at 23500 million US$ in 2018 is expected to reach 32900 million US$ by the end of 2025, growing at a CAGR of 4.3% during 2019-2025.

 

  • Despite the dominance of fresh coffee in the coffee industry, instant coffee is quickly becoming popular all over the world. Transportation of instant coffee is cheaper, as it has lower shipping weight and volume than beans or ground coffee. Moreover, instant coffee offers convenience in preparation, shelf life, which increases its demand among urban consumers.

 

  • The instant coffee market in India is growing at a rate of more than 15% year on year. A positive consumer outlook towards new experiences such as premium coffee, higher disposable incomes and the growing number of young professionals were some of the important factors that promoted growth in coffee consumption in India. Additionally, increased access to coffee machines in offices and institutions triggered interest in coffee among consumers, which indirectly drove sales in households, as people began to acquire a taste and in turn consumed coffee at home as well.

 

  • The Asia Pacific is a key region for the company as it accounts for 38% of instant coffee demand. The easy preparation of instant coffee, as well as its ability to be tailored to local taste preferences, has made it the coffee of choice in most markets in the Asia Pacific, where coffee consumption is still low.

 

  • Demand for instant coffee in North America and a few European countries is expected to decline due to greater preference to filter coffee. Especially the new technology of capsule coffee is expected to further reduce the utilitarian appeal of instant coffee.

 

  • Vietnam’s instant coffee market is expected to continue to grow steadily in the coming years due to various market trends. The growth of instant coffee is stemmed from the rising demand among young and adolescent consumers, who seek convenience and quick methods for consuming hot beverages in tune with their busy lifestyle.

 

  • The company’s presence in Vietnam helps it cater to the coffee needs of various ASEAN countries and the major economies of China and Japan. Most of these countries have granted Vietnam a most favored nation status with reduced or NIL duty structures in addition to having savings on logistics which is very beneficial to the company when exporting from their Vietnam facility.

 

  • The major threat being faced by the instant coffee industry is the creation of huge additional capacities in several countries which are resulting in unhealthy competition and stress on prices. The company is making efforts to mitigate these threats by increased volumes of high-quality niche and new products.

Financial Performance in FY2018-19

  • Total income declined 5% to Rs. 1084.75 Cr. Revenues from India business grew 1% to Rs 839.31 Cr.

 

  • The company received dividend income of Rs 29.5 Cr from its Vietnam subsidiary Ngon Coffee.

 

  • The EBITDA margin stood at 22.7% whereas net profit margin was at 14.3%.

 

  • In the Switzerland subsidiary, the sales for FY19 were around Rs 38 Cr with a PAT of Rs 77 Lacs.

 

  • In the Vietnamese unit, the revenues for FY19 dipped to Rs 264 Cr from Rs 297 Cr last year with PAT coming in at Rs 67 Cr.

 

  • The branded sales for Continental Coffee Pvt Ltd has grown more than 100% in FY19 contributing almost Rs 35 Cr in revenues. Overall branded domestic sales for this subsidiary has been at Rs 80 Cr.

 

  • Debt to equity ratio remained at a stable 0.5 times.

Business Performance in FY2018-19

  • The company saw an 18% decline in volumes due to the loss of a key customer who started their own coffee manufacturing facility.

 

  • The capacity utilization rate for the SEZ plant was at 50% while the Vietnam plant was operating at 90% for the year. The company is going for additional capacity expansion at the Vietnam plant and it is expected to be completed by the end of FY20.

 

  • The freeze-dried unit started commercial operations on 20th April ’19 and the company expects at least 50% capacity utilization in this unit for FY20.

 

  • The company expects to double its B2C business in FY20. Taking this into account, they expect overall B2C sales to cross Rs 100 Cr this year.

 

  • As the company has only entered the retail space recently, they are focusing on bringing up volumes and utilization, especially in the small packets segment.

 

  • Overall in India, the company operated at 90%-95% utilization.

 

Analyst’s View

CCL Products is a sound company with good industry reputation and an experience of more than 25 years in the instant coffee industry. The company has made good long term trade relationships which are vital for any export business. The company’s strategic positioning in Vietnam should bring many benefits to the company in the future due to access to the prime coffee consuming regions in Asia and zero duty structure for exports. The company’s foray into the branded instant coffee space should prove fruitful given the company’s pedigree in developing and manufacturing high-quality coffee blends while maintaining high product consistency. The coffee industry remains underpenetrated in India and the rest of Asia thus highlighting the massive potential for market expansion in this industry. Dependency on a few large customers turned out to be expensive for the company in FY18-19. The working capital cycle has also increased due to the same in FY 19. Nevertheless, CCL Products is an interesting story to watch out for.


 

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 264.07* 218.69 20.75% 225.31 17.20%
PBT 102.3 36.86 177.54% 60.55 68.95%
PAT 82.24 24.13 240.82% 49.3 66.82%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 273.72 294.77 -7.14% 262.87 4.13%
PBT 54.48 52.19 4.39% 47.48 14.74%
PAT 34.67 39.46 -12.14% 35.63 -2.69%

Detailed Results

    1. The company had a lean quarter with declines in standalone and consolidated operational revenues of 4% and 7% respectively.
    2. The other income mentioned above is dividend income derived from the Vietnamese subsidiary of the company.
    3. The consolidated PAT for the company also declined 12% highlighting a tough quarter for the company.

Investor Conference Call Highlights

  1. The company has commenced the operations for the SEZ facility in Shibpur district.
  2. The management guides for 15-20% volumes growth despite the stagnant results in the current quarter.
  3. The volumes in Vietnam were lower as last year was a high base year with 40% more volumes from 2 years ago. The domestic business has seen volumes go down a little because of extended summer season.
  4. There has been a reduction in profits from Vietnam due to fall in volumes.
  5. The company is bringing in the leftover profit after deducting capex amount for the Vietnam entity as dividend which appears as the other income of Rs 59 Cr.
  6. The company is not expecting significant changes to the raw material costs as supply and demand are expected to stay stable at current levels.
  7. The depreciation in the standalone books rose significantly due to the commencement of operations from the SEZ facility.
  8. The company expects the margins for Vietnam to improve in the next quarter.
  9. The company is trying to communicate with the Indian and Vietnam government to help reduce import duty on instant coffee to stay competitive as the import duty on Brazilian coffee is reduced. The company has also mentioned that a little less than 1/3rd of the company sales originate from EU.
  10. The company expects the US sales to grow almost 25% this year. The amount exported to the USA last year was 2500 tons.
  11. By the end of FY20, the facility construction for the packaging plant in India should be completed.
  12. The current quarter has had branded sales of Continental Coffee in India of Rs 15 Cr which is almost double of last year figures despite the lean quarter for coffee due to summer.
  13. The company is confident of volumes growth in FY20 as the packer that they lost last year wants to come back for some of the higher quality volumes as he is not able to match the higher quality product from his own production.
  14. The company believes that the net profit growth will not be in line with EBITDA growth due to higher depreciation and interest expenses this year.
  15. The company has taken RS 162 CR for the freeze dried unit and Rs 60 Cr for upgradation for their existing facilities. These are financed by long term debt for the company.
  16. The capacity utilization for this year across all plants has been 90% except for the SEZ plant which is at 50%.
  17. Around 300 to 400 tons of freeze dried product has been produced since late April.
  18. The company believes that they should have opportunities from branded sellers in India as most of the packers except Nestle do not have their own manufacturing facilities and they source instant coffee from other makers.
  19. The growth in EBITDA margin in standalone terms is attributed to mainly the above mentioned freeze dried coffee sales.
  20. The company is spending Rs 15 Cr in domestic branded sales and they expect this segment to breakeven next year.

Analyst’s View

CCL has already established itself in the wholesale coffee space for many years and their foray into branded sales through Continental Coffee label has been very encouraging. Given the expected demand for the higher margin freeze dried coffee, the company is expected to perform well as long as the demand for this product pans out. It remains to be seen whether the company can achieve their guided volume growth target of 15-20% as the numbers for Q1 have stayed stagnant although this can be attributed to the seasonal fall in demand for all forms of coffee. Nonetheless, CCL remains an interesting company for people looking to invest on the theme of growing coffee consumption both in India and abroad.


Q4 2019 Updates

Financial Results & Highlights

                                                                Standalone Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 225.3 225.68 -0.17% 181.11 24.40% 839.31 828.67 1.28%
PBT 60.55 37.92 59.68% 34.59 75.05% 178.57 151.25 18.06%
PAT 49.3 23.41 110.59% 23.82 106.97% 125.42 97.76 28.29%
                                                                Consolidated Financials (In Cr)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 262.87 322.51 -18.49% 234.98 11.87% 1084.75 1142.84 -5.08%
PBT 47.48 61.95 -23.36% 43.37 9.48% 208.64 201.82 3.38%
PAT 35.64 47.24 -24.56% 32.6 9.33% 154.9 148.13 4.57%

 

Detailed Results

    1. The revenue performance for the quarter has been flat in standalone terms and has declined 18.5% on consolidated terms.
    2. Despite this flat standalone performance, profits have soared with standalone PAT rising 110% for Q4 and 28% for FY19.
    3. This was mainly driven by a substantial increase in other income which rose to Rs 29.5 Cr in Q4FY19 from Rs 0.88 Cr a year earlier.
    4. Almost all of this amount is attributed to dividend income from the company’s Vietnamese subsidiary Ngon Coffee Company Ltd.
    5. The Board has recommended a final dividend of Rs 1.75 bringing the total dividend given out for the year to Rs 3.5.
    6. The fall in revenues is mainly due to the loss of a major repacking customer who has set up his own manufacturing facility.

Investor Conference Call Highlights

  1. Coffee prices have gone down 10%-15% for the year and there has been an 18% decline in volumes for the year because of the loss of the above mentioned customer.
  2. The company’s receivables have gone up almost Rs 50 Cr mainly due to the extension of the credit period provided to some of the new customers.
  3. Green coffee prices are expected to stay pressured for the year mainly due to the good crop harvest from Brazil and Vietnam.
  4. The capacity utilization rate for the SEZ plant has been at 50% while the Vietnam plant has been operating at 90% for the year. The company is going for additional capacity expansion at the Vietnam plant and it is expected to be completed by the end of FY20.
  5. Overall in India, the company is operating at 90%-95% utilization.
  6. The freeze dried unit has started commercial operations on 20th April ’19 and the company expects at least 50% capacity utilization in this unit for FY20.
  7. The branded sales for Continental Coffee Pvt Ltd has grown more than 100% in FY19 contributing almost Rs 35 Cr in revenues. Overall branded domestic sales for this subsidiary has been at Rs 80 Cr.
  8. The company expects most of the growth for the domestic business to come from the rising retail sales segment while the B2B segment is expected to stay constant.
  9. The company is looking to double their B2C business in FY20. Taking this into account, they expect overall B2C sales to cross Rs 100 Cr this year.
  10. As the company has only entered the retail space recently, they are focusing on bringing up volumes and utilization, especially in the small packets segment.
  11. The company is also planning on establishing a packing and agglomeration plant adjacent to their Chittoor unit which is expected to cost around $ 10 million.
  12. The company is also looking to add another 3500 tonnes of additional capacity which is expected to cost around $ 8 million.
  13. The company intends to increase the revenue contribution of small packs and premium products to more than 30% in FY20 from 20% in FY19.
  14. The company also spent Rs 10 CR in FY19 on advertising.
  15. In the Switzerland subsidiary, the sales for FY19 were around Rs 38 Cr with a PAT of Rs 77 Lacs.
  16. The company is expecting better profitability from the Swiss unit going forward as they have recently gotten a few tenders approved for a few European supermarket chains.
  17. The company is expecting profits of above $ 500,000 from these engagements.
  18. In the Vietnamese unit, the revenues for FY19 dipped to Rs 264 Cr from Rs 297 Cr last year with PAT coming in at Rs 67 Cr.
  19. The company is also expecting 20%-30% growth for their US unit as they are pushing for aggressive volumes growth for existing customers there.
  20. The company expect the maximum growth to come from the USA and Asian markets excluding India since coffee consumption for all these areas is quite high as compared to India where only 7% of total population consumes coffee.
  21. The management has clarified that they do not run any risk of higher inventories due to selling to repackers as they maintain a strict policy of 100% prepayment in this segment.
  22. The company is commissioning its freeze dried product soon as they want to cover the shortfall of 2000 tonnes that they have lost in volume sales when a long time repacking customer of theirs moved away from repacking and has opened his own manufacturing facility.
  23. The management ensures that this development is a one-time event and that it is very rare for a customer to go into direct manufacturing as initial costs of setup and market entry are very high. Thus they are not worried of losing any other repacking customers in the same way.

Analyst’s View

CCL have proven themselves to be a mainstay in the Indian coffee industry. Recently, they have lost a big repacking customer in FY19 which has resulted in a volume fall of 2000 tonnes. However, the company’s foray into retail and brand sales have been encouraging and they expect this segment to rise fast and bring the company to higher trajectory of growth. Although the risk of volatile green coffee prices is present, CCL have proven themselves as seasoned players in the field and should be able to prevent any adverse impact from this source. Taking into account the company’s encouraging sales growth and expectations in the USA and EU, CCL looks to be a reasonable bet on the coffee consumption market.


Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q3FY19

Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18 9M% Change
Sales

181.11

204 -11.22% 214.2 -15.45% 614 603 1.82%

PBT

34.59 42.22 -18.07% 46.56 -25.71% 118 113.32

4.13%

PAT

23.83 28.05 -15.04% 28.16 -15.38% 76.15 74.34

2.43%

Consolidated Financials (In Cr)

Q3FY19 Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18 9M% Change
Sales 235 274.4 -14.36% 292.1 -19.55% 821.88 820.33 0.19%
PBT 43.37 54.6 -20.57% 65.6 -33.89% 161.16 139.87 15.22%
PAT 32.6 40.42 -19.35% 47.18 -30.90% 119.25 100.88 18.21%

Detailed Results

    1. The performance for the current quarter for the company has been disappointing with a decline in standalone revenues of 11% YoY.
    2. The 9M standalone figures were also almost flat as compared to last year.
    3. The same trend has been seen in the consolidated revenues with a drop of 14% YoY.

Investor Conference Call Highlights

  1. The company is set to start commercial production from their SEZ plant from 1st of April 2019. The capacity utilization for this is expected to be around 50% in the first year.
  2. In Vietnam, the company is operating at 80% capacity utilization and they are planning to increase capacity by 3500 tons with an expansion next year.
  3. The company believes that decline in in consumption of instant coffee in developed countries is mainly due to stagnating population while coffee consumption per person has remained stable.
  4. The company is focussing on developing countries mainly because of the rapidly growing populace and the popularity of coffee in the young segment in these countries.
  5. The company is using Robusta coffee for 85%-90% of their products mainly due to its cost advantage.
  6. The 9M revenues for Vietnam have been up 40% YoY. The net asset turnover for their Vietnam facilities is 1.
  7. The management believes that the main reason for the fall in revenues is the fall in raw material prices of the green coffee which has led to fall in prices of the product as the addressable market is raw material price sensitive.
  8. Their domestic branded business has grown to Rs 36 Cr this year as compared to Rs 9 Cr last year. The bulk domestic business segment stands at Rs 44 Cr this year.
  9. The company believes that 3-4 years will be needed to establish themselves as a recognizable brand and generate significant enough revenues to be reflected in net profits.
  10. The company wants to focus more in the branded business as it would yield higher margins than the bulk business.
  11. The management recognizes that the next couple of years will probably be a tough challenge for the company due to the changing shape of the market and their challenges to establish themselves as a brand.
  12. The company is also eyeing expansion of domestic capacity to 8500 tons by the end of FY2020.
  13. Volume growth for the current 9M period has been 15% YoY.
  14. In India, the management is envisioning future volume growth of 20%-30%. Thus they are planning to setup additional agglomeration and packing facility in the next financial year.
  15. The capex in Vietnam is entirely debt free and will be built using the internal accruals of the company. The project cost is estimated to be at $ 8 million.

Analyst’s View

CCL has been one of the oldest instant coffee manufacturers in India. They have almost all of their operations outside of India and have recently started to foray into the domestic market since the past 2 years. They have been aggressively expanding their capacities and have been committed to running a volumes driven business model. The main concerns for the company shall be whether they can make their volumes grow in order to keep their rising capacity at optimal levels. Also establishing themselves as a brand in the domestic market where Nestle has already captured more than 50% of the market share is going to be tough to say the least. Hence, it would be interesting how CCL fares in the next couple of years.

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