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Axis Securities
CCL Products (Buy)
CMP: ₹247.95
Target: ₹267
CCL Prdoucts’ EBITDA margins at 25 per cent in FY20 were the highest reported margins over the last five years. Key drivers for margins expansion were 1) rising contribution from higher margin freeze dried coffee (FDC); 2) small packs gaining traction; and 3) improved product mix. With the ramp up in capacity utilisation of FDC unit (about 50 per cent in FY20), 3,500 tonnes capacity addition in Vietnam and commissioning of agglomeration and packing capacity we believe there is further scope for margin expansion and volume growth going forward.
CCL Products’ foray into India’s branded coffee market with its brand ‘Continental Coffee’ bodes well in terms of capturing the ₹2,500-crore instant coffee market in India growing at 15 per cent a year. The brand recorded a robust growth of 40 per cent y-o-y at ₹55-crore during FY20 and had a 4 per cent market share in southern India according to management. For FY21, branded business is expected to report a robust 45 per cent y-o-y growth with revenue target of ₹80 crore owing to 1) healthy traction and encouraging consumers response’ 2) expansion of direct reach to 75,000 outlets from 60,000 currently; and 3) investing behind the brand through ATL/BTL activities especially in southern India.
We recommend Buy with target price of ₹267.
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