| CCL Products-The Taste Of Coffee CCL is in the business of converting raw coffee beans into instant coffee granules/powder. CCL is not only India's largest coffee processor; it has world's largest single location plant and is amongst the top 3 private label instant coffee manufacturers with clients across the globe. While prima facie it looks like a commodity conversion business; but unlike tea or other commodities, coffee processing is a specialists job as the flavor and consistency has to be maintained batch after batch irrespective of the input quality or grade. Not many companies have been successful in doing this and hence, globally, coffee has very little competition and highly profitability. Over FY08-09, CCL undertook a ` 100crs capex plan to expand its capacity from 14,000 tonnes to 22,000 tonnes. This expansion got completed in December 2009 via debt and internal accruals. In FY2010, CCL achieved sales volumes of close to 8,500 tonnes, thus indicating that it can easily double its turnover without any additional capex. The new facility has a 5,000 tonnes liquid concentrate plant and a 3,000 tonnes brown field plant in Switzerland. Liquid instant coffee commands 25% plus premium over normal instant coffee. Additionally, the Swiss facility will enable CCL to brand its products as "Made in Switzerland" and this branding will entitle it to premium pricing in the EU nations. Hence with raw material costs expected to remain the same, CCL is in a position to improve upon its margins in the medium-to-long-term. We believe that our assumptions are not aggressive as for FY2011 we have assumed incremental volume sales of 3,500 tonnes of which 3,000 tonnes will come in from the new facilities itself. For the base business, we have assumed margins to remain steady and overall margins are expected to improve primarily due to the commissioning of the Switzerland facility. CCL, with the help of a 5-decade experienced management team, operates a high margin low working capital intensive business at a global scale. It is estimated that global consumption of instant coffee is in excess of 300,000 tonnes and is steadily growing in low single digits. With world class facilities and India's cost advantage, CCL should be able to increase its current 3% market share. High entry barriers, low capital intensity, high profitability and low valuations make CCL an ideal re-rating candidate with the potential to trade in the 8x-10x P/E band over the next 2-3 years. This effectively means that at the lower end of the expected valuation band, CCL could trade at a price of ` 592 (up 123%) and at the upper end of the valuation price band, the stock could be valued at about ` 740 (up 178%) over the next 2-3 years. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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http://in.groups.yahoo.com/group/investwise/
INVESTMENTS IN INDIA
We are low-risk, long-term investors.
Stocks, mutual funds and the entire investment gamut. Only financing/investment avenues in India will be discussed.
For any assistance, questions or improvement ideas, contact investwise-owner@yahoogroups.co.in
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NEW! ==== Check "Tracklist" in Links and Files sections for Investment Ideas.
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