CCL Products - Strong Demand Outlook; Capacity Expansion On Track: Nirmal Bang

Nirmal Bang Report

We recently interacted with the management of CCL Products (India) Ltd. in order to get updates on demand outlook, commissioning of new capacities, order visibility and business-to-consumer operations. Following are the key takeaways from the interaction.

We believe that underlying demand for spray dried coffee continues to be strong across geographies and CCL Products is in a position to clock 60,000 tonnes volume by FY26-end, which should translate into ~Rs 7.2 billion Ebitda, implying a four-year compound annual growth rate of ~22%. Earnings CAGR over the same period could be ~25% on account of lower effective tax rate.

• The management believes that coffee demand has witnessed a surge post Covid-19, wherein newer geographies are opening up while demand from developed countries remains in low single digit. CCL Products is gaining market share in the developed countries by replacing other processors and also by expanding its portfolio. As a part of their strategy of territorial de-risking, customers want to diversify their supplies.

• The management indicated that customers are considering CCL Products as the first preference because of its capacity addition plans, consistent track record and manufacturing operations in both India as well as Vietnam. Hence, select customers are willing to sign multi-year contracts as well.

• Due to capacity constraints in India, CCL Products has been actively outsourcing plain vanilla blends for select clients. The management informed that out of the more than 1,000 blends, ~45% should be generic in nature. Demand from the domestic business remains strong. Ebitda/kg from the blends getting outsourced is broadly similar to the overall India spray dried margin.

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