Karvy Stock Broking
CCL Products (Hold)
CMP: ₹182.45
Target: ₹204
In India, CCL Products started with capacity of 3,000 mt and gradually improved to 25,000 mt and then to current capacity of 38,000 mt in India, Vietnam and Switzerland in the last few years with no equity dilution and growth in RoE and RoCE.
RoE and RoCE which are currently at 24.3 per cent and 23.9 per cent are expected to grow to 28.3 per cent and 34.0 per cent respectively in FY17E. The current operating profit margins (OPM), around 19 per cent, are expected to sustain and improve by another 170 bps as capacity utilisation levels improve. Along with the growth in capacity utilisation, sustainable OPM and tax and duty benefits from the Vietnam plant are expected to boost the net profit to ₹127.8 crore and ₹164.8 crore by FY16E & FY17E. Given the sales CAGR of 18.5 per cent in FY14-17E driven by growth in sales volume in its India and Vietnam operations, sound cash flows and healthy return ratios, the valuations appear to be reasonable and the company is fairly valued.