CCL Products Targets 15-20% Revenue CAGR Led By Cost-Plus Model

Leading instant coffee manufacturer CCL Products (India) Ltd. is targeting a 15-20% compound annual growth rate in revenue, led by its cost-plus business model, according to Managing Director Srishant Challa. 

“We are comfortable with 15-20% because we believe in sustainable growth. If we have to grow by 25% in any odd year, we can easily do so. But we've always believed in building sustainable growth. Our process of onboarding a customer typically takes between two to five years. We want them to stay with us in the long run as well,” he told NDTV Profit.

The company’s business model helps it remain insulated from the volatility in global coffee prices, he said.

“We work on a fixed margin basis. We've seen coffee prices at $1,000, we've seen it at $6,000, but our absolute earnings have been more or less the same. We work on a cost-plus basis. That's been our business model for more than 30 odd years and we continue to follow the same system,” he said.

A significant mismatch between supply and demand, coupled with market speculation, had previously driven coffee prices up by 300% to 400%, Challa said. This happened despite a demand-supply gap of only 7% to 10%. “Everyone in the market knew that it was not sustainable."

“We were all expecting the prices to come down. Brazil is actually in the process of doubling its capacity within the next two to three years. Things should start getting normalised in the next year or two,” the top executive noted.

A further price drop is expected in about six months following the arrival of the new crop from Vietnam. The company is advising its customers against long-term commitments. “We are guiding our customers to start covering only for six months at a time, not to go beyond that to insulate themselves,” he said.

Lower coffee prices would eventually filter through to consumers, though it could take around six months due to existing inventory and processing pipelines, according to Challa.

"Thanks to the competition that is there, whoever ends up buying coffee at a lower price, they will start pulling the prices down anyway,” he said. 

Shares of CCL Products (India) were trading 2.43% higher at Rs 840.1 apiece on the NSE at 1:57 p.m., while the benchmark Nifty 50 was up 0.39% at 25,069.25.