CCL Products Ltd was incorporated in 1993 and started its commercial production of instant coffee in 1995 with a capacity of 3,600 MT.
The company is promoted by Challa Rajendra Prasad, who together with his family holds ~40 percent stake in the company. It is India's largest private label instant coffee company and supplies in retail and bulk quantities to premium brands over 58 countries.
Currently, CCL Products Ltd has an installed capacity of 25,000 MT out of which 15,000 MT capacity is located at Guntur, Andhra Pradesh.
Recently, CCL commenced production at its Vietnam plant (Ngon Coffee Company Ltd (NCCL) is a step down wholly-owned subsidiary of CCL) with an installed capacity of 10,000 MT. In the same plant, CCL Products Ltd plans to further increase the capacity by another 5,000 MT in the coming future.
CCL is also looking for a JV partner who has a good marketing network to introduce its own domestic products.
Products
CCL Manufactures Three Types of Products
i) Spray Dried Coffee Powder
This is a base form of coffee, which is processed from either Robusta or Arabica beans. CCL also processes the spray dried coffee powder into spray dried granules.
ii) Freeze Dried Coffee
This is a premium product. The freeze dried product preserves the coffee flavour to a great extent. However, it is a highly capital-intensive method.
iii) Liquid Coffee
This is a premium type of coffee since most of the coffee flavour is retained. Major demand comes from Japan and Korea for this kind of coffee.
CCL's revenues are well distributed geographically and it gets 30 percent of its revenues each from USA, Europe and Russia and CAS countries. The remaining 10 percent is sold domestically and to eastern countries.
Investment Thesis
Benefits of Capacity Expansion
CCL recently installed a Greenfield project of 10,000 MT to manufacture instant coffee in Vietnam. The initial proposal was to install a total capacity of 15,000 MT for a total investment of USD 50 million in a phased manner.
In the 1st phase, the company intends to install 6,000 MT capacity for an investment of $20 million and 9,000 MT in the 2nd phase for an investment of USD 30 million.
EBITDA Margins are expected to improve
The company has been adding better product mix to its portfolio, which is fetching better margins for the company. Margins for 9MFY14 stand at 20.5 percent as against 19.3 percent a year ago (9MFY13).
Going forward, we expect the margins of CCL Products Ltd to remain healthy given the changing product portfolio of the company.
Instant Coffee Consumption Rising Globally
Domestic coffee consumption has been growing steadily over the last several years, driven by double digit growth in the instant coffee category especially from the emerging Asian consumers.
The prospects of instant coffee sector outlook are bright due to its simplicity of preparation. Coffee demand is on the rise and will continue to rise as most of the predominantly tea drinking population is also slowly developing a coffee habit.
The current global instant coffee market is around 707 million kg and is forecasted to reach up to 814 million kg by year 2017.
Risks
Currency Fluctuation: Exports contribute almost 90 percent of CCL Products Ltd's revenues and are thus exposed to fluctuations.
Recession: Coffee is a premium beverage. Recession can change preferences of consumers.
We believe addition of capacities, rising demand for instant coffee, tax benefits from the Vietnam plant (full tax exemption for four years) should augur well for CCL Products Ltd. We expect CCL to perform well in the coming period.
Source: Nirmal Bang's Beyond Market
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