Fundamental

Research Of

CCL PRODUCTS

Prepared By : SANA PATNI

 Overview of the Coffee Sector
• India is the third-largest producer and exporter of coffee in Asia, and the
seventh-largest producer and fifth-largest exporter of coffee in the world.
• The country accounts for 3.66 per cent of the global coffee production.
• Revenue in the Coffee segment amounts to US$377m in 2018. The market
is expected to grow annually by 5.9% (CAGR 2018-2021)
• Italy, Russia, Germany, Belgium, Turkey, USA, Poland, Libya, Spain and
Indonesia are the leading importers of Indian coffee.
• Of the total coffee produced in India, around 70 per cent is exported while
the remaining 30 per cent is consumed domestically
 Share in the Coffee Industry
Domestic Share : 70% - Nestle & Bru
24% - CCL Products
06% - Others

Global Market Share : 6.5% - CCL Products

 CCL Products, since 7 years has been winning award for largest exporter of coffee
from Govt. of India and Coffee Board of India (The Chairman of CCL is a member of
the Coffee Board)
 Outlook and valuation: Although the overall coffee market has been facing excess
supply challenge, very few players like CCL have superior R&D, product
development capabilities and long-term client relationships.
 About CCL Products
Sector Coffee CCL Products India Ltd. is India’s
Chairman Challa Rajendra Prasad largest manufacturer and exporter
of instant coffee. The company was
Managing Director Mr. Challa Srishant
formed in the year 1994 and
Current Market Price 267 started commercial operations in
Market Cap 3559.83 Cr 1995. The company specializes in
import of green coffee into India
Stock P/E 34.31
and exports instant coffee all over
EPS 7.8 the world with manufacturing
52 Week High/Low 330.70 / 225.50 plants in India, Switzerland and
Vietnam
 Subsidaries of CCL Products :
Ltd
 Continental Coffee Pvt Ltd.  Grandsaugreen (South Africa)
 Jayanti Pre Ltd.  Ngon Coffee Company Ltd

Products : Packaging :
1. Spray dried coffee powder 1. Jars [25,50,100,20 gms]
2. Spray dried coffee granule 2. Cans [45 gms to 1 Kg]
3. Freeze dried coffee granule 3. Pouches/Sachets [1 gm to 1
4. Freeze concentrated liquid Kg]
5. Decaffeinated coffee pa
4. Drums
6. Flavoured coffee 5. Bulk box
7. Certified coffee 6. Bag in box (for continental
8. Chicory mix coffee Brand)
9. 2 in 1 Coffee
10.3 in 1 coffee
Labels they served: Makate, Instanta, Food empire, Strauss, DEK, Gold Roast,etc

In 2014, CCL Products launched the Brand : CONTINENTAL COFFEE

1) Continental Speciale
2) Continental Premium
3) Continental Xtra

The company launched its own brand ‘Continental’ in Andhra Pradesh and Telangana in FY2014, which has
received good response and encouraged it to recently launch it in other parts of India. In order to ramp up
the brand faster, CCL has tied up with big retail chains, such as the Future Group, Metro, Reliance, etc. and is
supplying to institutional investors like railways. Currently, Nestle and Hindustan Unilever’s ‘Bru’ forms over
70% the Indian instant coffee market.
 Total Capacity : 35000 TPA

20,000 TPA 3000 TPA 15,000 TPA

India Plant Switzerland Plant Vietnam Plant

(facing issues on account of  Closer raw material availability
(Guttur district, A.P)
unfavourable EU regulations)  Favourable duty structure for China & USA

The company’s Chennai plant, which is a 100% premium freeze-dried coffee plant with a capacity of 5,000 tn, is
expected to start commercial production in April 2019. The management indicated that the Chennai plant is expected
to run at 65% of its capacity initially because of lengthy and frequent service of the plant in its maiden year of
operation.
 SWOT Analysis
Weaknesses :
Strengths : 1. Lot of competition
2. Fluctuation in prices of coffee
1. Coffee is prepared from high quality 3. Being in a capital intensive industry, initial high
Arabica and Robusta coffee beans costs create issues while expanding in other nations
2. They manufacture Soluble Instant Spray
Dried Coffee Powder, Spray Dried
Agglomerated / Granulated Coffee, Freeze
Dried Coffee, as well as Freeze Concentrated Opportunities :
Liquid Coffee providing huge variety 1. Increase its presence in domestic market especially in South
3. Has tie-ups with local suppliers and India
distributors in foreign countries 2. Create awareness among Indians about their quality
4. CCL is well known internationally in the 3. Increase in global demand for coffee
instant coffee industry as a processor and
supplier to over 30 countries of a wide range
of coffees of various grades / qualities.
Threats :
1. Being an export oriented unit, fluctuations in foreign exchange
2. Domestic players entering international market
Profit & Loss (2016-2018)

TRENDS: 10 YEARS 7 YEARS 5 YEARS 3 YEARS

Sales Growth 10.4% 17.7% 11.8% 8.9%

PBT Growth 29.1% 26.3% 22.3% 14.7%

PBT Margin 13.0% 15.2% 16.8% 18.3%

Price to Earning 14.2 18.2 24.1 27.2

Balance Sheet (2016 – 2018)
2016 2017 2018
B/S Ratios

Debtor Days 50 61 58
Inventory
Turnover 6 5 6
Fixed Asset
Turnover 2.2 2.5 3.1
Debt/Equity 0.4 0.2 0.4
Return on Equity 24% 21% 20%
Return on Capital
Employed 18% 19% 18%
Cash Flow Statement (2016 – 2018)
 Conference Call Highlights
1. Management attributed EBITDA growth in Q2FY19 mainly to: 1) higher proportion of small pack
sales in domestic business (~30% in Q2FY19 vs. 20-25% in Q2FY18), which are usually more
profitable than bulk sales due to higher value-addition; and 2) preponement of certain more
profitable contracts from H2FY19 into Q2FY19.
2. Management revised its FY19 net profit growth guidance to 15-20% yoy (from 10-20%
previously), while top-line guidance was also tweaked upward to 5-10% (from 0- 10% previously).
The upward revision in guidance is due to higher contribution from value added products.
Management also mentioned that the company is awaiting certain new contract wins in next 2-3
months, which, if they materialize, could drive net income growth closer to the higher end of the
company’s guidance range.
3. On currency depreciation, management clarified that its COGS as well as revenues are
denominated in USD. Hence, benefits from INR depreciation are applicable only below the gross
margin line. Even here, the company may have to pass on some of these benefits if competitors do
so. Although most of CCL’s competitors are located overseas, currencies in most of their respective
home countries have also depreciated.
4. The company guided for FY19 capacity utilization in the range of 90- 95% for India business
(largely stable yoy) and 75-80% for the Vietnam business (vs. 60-70% in FY18). It clarified that it has
already completed its annual shutdown of 20 days during H1FY19.
1 Year Chart
Recommendation