July 07, 2016 / 04:47 PM IST
CD Equisearch's research report on CCL Products
Partly due to sharp fall in green coffee prices, CCLP's sales trajectory has seen volatility of sorts’ last fiscal. After starting the fiscal with a bang (+25.1%), income from operations dived in the following two quarters (-4.9% & -11.8%). Turbulence in green coffee markets elucidates much of this ponderous activity. Sales drop of nearly 12% in Q3 resulted from a host of seemingly unrelated factors: rescheduling of certain contracts; partial plant shutdown; delay in the enactment of FSMA law in US; slide in green coffee prices. In contrast, higher capacity utilization and higher sale of value added products buttressed dispatches.
The stock currently trades at 23x FY17e EPS of Rs 10.69 and 19.2x FY18e EPS of Rs 12.84. Middling earnings growth projected over the next two years and high return on capital would help partly fund the expansion of its freeze dried capacity. Yet near unpredictibility in global weather trends and shifting demand patterns in global coffee markets have of late fanned price volatility. As a result trends in volumes growth cannot be resolutely determined. On balance, we assign a hold rating on the stock with revised target of Rs 270 (previous target: Rs 258) based on 21xFY18e earnings (PEG ratio: 1.2x) over a period of 6-9 months.
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