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CD Equisearch
CCL Products (Buy)
CMP: ₹224.55
Target: ₹309
Although CCL Product’s dutiful expansion in domestic market — from launch of various product categories (instant; filter coffee; pre-mix) to increased branding to expanding the distribution network to rolling out small packs — would enable it to expand its market reach but its influence would be restricted to galvanising volumes for the business is not expected to breakeven over the next few quarters. Setting up of an agglomeration and packaging unit by its subsidiary CCL Beverages Pvt Ltd at an investment of some $15 million is aimed at meeting sturdy of take of margin buttressing small packs both in domestic and overseas markets.
Buoyancy in earnings next fiscal largely rests on higher of take from newly unveiled freeze dried plant which would for the first time operate at optimal utilisation.
The stock currently trades at 17x FY20e EPS of ₹13.05 and 14.4x FY21e EPS of ₹15.46. Improved overall capacity utilisation in India next fiscal (about 85 per cent) coupled with stabilisation of freeze dried capacity would anything but suppress margins. Its Switzerland operations have shown traction this fiscal with bagging of new supermarket business. Yet growing capacities of instant coffee in several countries could depress price, thus entailing need for enhanced value addition. On balance, we advise buying the stock with revised target of ₹309.
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