05/01/2008

CCL Products (India) Ltd.

Initiating with a BUY 12mth Price Target: Rs 371

Lalitha.M.R (lalitha@ascilonline.com) We are initiating coverage on CCL Products with a 12-month price target of
Research Head Rs.371
Aarthi S (aarthis@ascilonline.com)
Research Analyst
Investment Highlights

Industry: Coffee Expansion plans to drive volumes: The total production capacity of the
Price Data company now stands enhanced to 14,000 Mt. per annum (MTPA) from
Current Price (Rs) 270 10500 MTPA, a growth of 33% on a YoY basis. The enhanced capacity was
52 wk range (Rs) 544.50-192 from Freeze Dried Instant Coffee, which went for commercial production
Price Movement Chart since June 07.
Increasing demand for Freeze Dried Coffee: Of the total production
CCL Product's one year price volume chart
100 600
capacity of 14,000 MTPA, the capacity of Spray dried coffee is 10,000 MTPA,
90 while that of Freeze dried instant coffee is 4,000 MTPA. Further, the
500
80 increasing demand for Freeze Dried Coffee gives a competitive edge for the
Volume in '000s

70 400 company.
Price (Rs.)

60
50 300 Realization to improve supported by rising Asian coffee price: During
40
30 200 January 2008, the price of arabica plantation grade A coffee was at
20 100 $3,000/tonne up from $2,900/tonne in December 2007.
10 Increasing coffee crop production to improve the margin: Brazil’s coffee
0 0
crop production has been approaching record levels. It has been estimated
Sep-07
Dec-06

Feb-07

Dec-07
Jan-07

Mar-07
May-07

Oct-07
Jun-07

Aug-07
Jul-07

that during 2008-2009, the production will be at around 47.6 million to 49.9
million 60-kg bags, an increase of 28% to 35% from 37.1 million bags in 2007-
Total Traded Quantity Close Price
08
Stock Performance JV to boost the topline: The company’s 50:50 joint venture with Jyothy
1M 3M 6M Laboratories Ltd will enable it to market its products widely in India, which
Absolute % 14.21 -3 (0.81) would boost its topline.

Stock Data Financial Performance

Mkt Cap (Rs Cr) 363.29 Consolidated figures (Rs Crs)
Last traded qty (NSE) 15,343 Particulars FY05 FY06 FY07
No. of shares o/s(Cr) 1.33
Free float (%) 70.96 Net Sales 249.49 306.46 389.63
Share holding pattern chart Adj PAT 30.55 35.60 37.99
Shareholding Pattern as on Sep07 Adj PAT Margin (%) 12.24% 11.62% 9.75%
EPS (Rs.) 22.97 26.77 28.56
4%
16%
33% P/E 11.89 10.20 9.56
Mcap/Sales 1.46 1.19 0.93
18%
29%
Net sales were Rs. 389.63 Crs for FY07 representing a growth of 27%. The Net profits
Foreign Promoter
Institutions Public
of the company grew by 6.7% in FY07.
Non Prom Corp
(Consolidated figures includes its subsidiaries in Singapore & UK)
Key Indicators
EPS TTM (Rs) 21.86
BV per share (Rs) 105.48 Valuation
ROE (%) 27.08
PAT Margin (%) 9.75 We expect a stronger topline and bottomline growth on the back of increased
capacity, increasing demand for freeze dried coffee and increasing coffee crop
Code production. At the CMP of Rs. 270, CCLP is trading at 12.35x its 12m trailing
NSE CCL earnings. Compared to the industry average PE of 25x, the stock is highly
BSE 519600 undervalued. We recommend a BUY on the stock with a 12M-price target of Rs. 371.
Reuters CONT.BO
Bloomberg CCLP IN
 Industry Profile
International Coffee Price during 2007
International Coffee Price during 2007

120 Coffee is the highest traded consumable commodity in the world.

India ranks sixth in the world coffee production and has created a niche for
US cents per Lb

115
110 itself in international market. India produces 4.5% of the world’s coffee and
exports 70%-80% of its output.
105
100
India exports coffee mainly to Italy, Germany and Russia. Italy accounts for
24% of the country’s exports, followed by the Russian Federation and
95
Germany with 12% and 5% respectively.
Jan Mar May Jul Sep Nov
Karnataka, the home of Indian Coffee is the largest producer of the finest
Source: www.ico.org varieties of coffee and accounts for 56% of India's total coffee output. Other
states producing coffee are Tamilnadu, Kerala and Non-Traditional areas
CCLP’s Production (MTs per annum) like Andhra Pradesh, Orissa and North Eastern Region.
Production in MTs per annum During 2007 India’s coffee exports fell 11% to 223,565 tonnes from 250,980
tonnes a year ago. Further, the exports was affected due to rise in the
10000
9000
rupee and lower production.
8000
Exports of instant coffee rose 86% to 51,104 tonnes due to higher demand
7000
from Russia in 2007.
6000
Exports in 2008 are likely to improve on expectation of a global shortage.
MTs

5000
4000
3000
2000 Company Profile
1000
0
FY05 FY06 FY07
CCL Products (India) Limited (CCLP) is a profit making, 100% Export Oriented Unit
(EOU) manufacturing instant/soluble coffee since 1995. Its plant is located in
Guntur, Andhra Pradesh.

The company’s principal activity is to manufacture powered and Granulated Instant

CCLP’s Gross Sales (Rs. Cr) Coffee, Agglomerated Coffee, Freeze Dried Coffee and Spray Dried Coffee. Its
brands include Continental Special, Supreme Instant, Continental Choice and
Gross Sales importers' choice in case of exports.
450
400
350 CCL’s instant coffee flavors are made from the Arabica and Robusta coffee beans.
300
It is an ISO 9001:2000, HACCP and BRC Quality Management System (QMS) certified
Rs. Cr.

250
200 Company having attained a Two Star Export House status.
150
100 For FY07, the production and sales of Instant Coffee are 8,868 MTPA and 8,580
50 MTPA as against 6,825 MTPA and 6,811 MTPA respectively in the previous year.
-
FY05 FY06 FY07
During FY07, the company’s total turnover was Rs. 390.51 Crs and PAT was Rs.
37.99 Crs, a YoY growth of 27.24% and 6.71% respectively.

The company has a subsidiary in Singapore to promote its products in the

international markets.

CCLP is exporting to countries such as European Union, US, Russia, Japan, Korea
and Italy.
Fund Holdings
Investment Rationale
No. of % of pd
Fund Name Month shares up The company has been successful in producing and marketing Freeze
(in lakhs) capital Dried Coffee and Liquid Coffee. These premium products have given
Franklin FMCG them a space in the international instant coffee market. Traditional
Fund (G) Nov-07 0.2 0.15%
Spray Dried Coffee manufactured by the company had already
established its long-standing presence in the international market. This
Franklin India helps the company in achieving higher sales growth.
Prima Fund (G) Nov-07 11.43 8.59%
The company has promoted a 50:50 Joint Venture with Jyothy
Tata Equity
Laboratories Ltd to launch its products into Indian market. At present
Opp. Fund (G) Nov-07 0.92 0.69% most of its domestic clients are institutions such as Air India, Indian
Airlines, Indian Railways and Coca Cola and some Hyderabad based super
markets. Products of the company are marketed in the domestic market
under the brand name of "Continental Speciale."

CCL Product's one year price volume

Freeze Dried Coffee plant was affected by a fire accident on 6th July
chart
2007. This was immediately after the commercial production of this unit.
100 600
Fire The company’s operations in this unit were affected for nearly 3 to 4
80 500
months. So, the operational performance got impacted during the first
Volume in '000s

breakout
400
Price (Rs.)

60 half of FY08. Hence the net profits fell by 62% during the 1H FY08. This
300
40 Freeze Dried Instant Coffee constitutes around 28.6% (based on installed
200
capacity).
20 100
0 0 Sales realization in Freeze Dried Coffee is around 70% more than that of
Spray Dried Coffee. The company’s capacity expansion from 1500 MTPA
Jul-07
Dec-06

Dec-07
Oct-07
Jun-07
Feb-07
Jan-07

Sep-07
May-07

Aug-07
Mar-07

to 4000 MTPA happened in June 2007. But the benefit could not be
Total Traded Quantity Close Price reaped in 1HFY08 due to the fire accident in July 2007. Going forward
the company shall be able to utilize the expanded capacity, thus
resulting in topline growth.
Further, during 4QFY07, the company faced electricity problems, which
affected its performance. The company has taken corrective measures
now. So, going forward, this should result in better performance.

Peer comparison
Name of the M Cap* Price* Face Value Net Sales PAT Mcap/ EPS P/E
Company (Rs Cr) (Rs) (Rs) TTM (Rs Cr) TTM (Rs Cr) Sales (Rs)
CCL Products 359.10 270.00 10.00 227.03 29.08 1.58 21.86 12.35
Tata Coffee 582.32 311.90 10.00 282.52 15.68 2.06 8.40 37.14

*As on 04/01/08
Figures represent Trailing Twelve Months

Investment Concern

Any increase in raw material prices, that is bean prices, would increase
the input cost, which in turn would affect the bottomline.
Any decrease in the production of Coffee Beans in the top two cultivating
countries viz. Brazil and Vietnam would affect the company’s margin.
Other than movement in coffee bean prices, any change in sales mix of
clients and blends would have an impact on margins.
 Technical Outlook
Monthly moving average
80%
Technically CCLP is witnessing upward trend and it may take resistance R1 at 285,
60% R2 at 325 levels and support S1at 251 and S2 at 227 levels for a period of next 3
40% months.
20%

0%

-20%

-40%
6/7/2004

12/7/2004

6/7/2005

12/7/2005

6/7/2006

12/7/2006

6/7/2007

12/7/2007
Consolidated Financial Statements

Income Statement
(Rs Cr)
Particulars FY05 FY06 FY07 1H FY08
Sales 249.49 306.46 389.63 167.97
Total Expenses 215.92 260.60 337.10 148.41
Gross profit 33.57 45.86 52.53 19.56
Other income 2.43 1.75 4.32 1.00
Depreciation 2.40 4.44 6.81 5.19
PBIT 33.60 43.17 50.04 15.37
Interest 2.41 4.10 9.21 7.00
PBT 31.19 39.07 40.83 8.37
Tax 0.34 3.46 2.80 0.03
PAT before Minority interest 30.85 35.61 38.03 8.34
Minority interest 0.10 0.01 0.07 0.22
Reported PAT 30.75 35.60 37.96 8.12
Extraordinary items 0.20 - (0.03) -
Adjusted PAT 30.55 35.60 37.99 8.12

Ratio Analysis
Profitability Ratios
Gross profit margin 13.46% 14.96% 13.48% 11.64%
EBIT/sales 13.47% 14.09% 12.84% 9.15%
Other Inc/Sales 0.97% 0.57% 1.11% 0.60%
Net profit margin 12.24% 11.62% 9.75% 4.83%
Tax Rate 1.09% 8.86% 6.86% 0.36%
Valuation Ratios
EPS 22.97 26.77 28.56
Book Value 60.32 82.08 105.48
Mcap/Sales 1.46 1.19 0.93
P/E 11.89 10.20 9.56
Price/BV 4.53 3.33 2.59
EV/EBITDA 12.44 10.36 11.07
ROCE (%) 25.46% 19.48% 14.80%
ROE(%) 38.08% 32.61% 27.08%
 Balance Sheet
(Rs Cr)
Particulars FY05 FY06 FY07
SOURCES OF FUNDS
Share Capital 13.30 13.30 13.30
Equity 13.30 13.30 13.30
Preference - - -
Reserves and Surplus 66.93 95.87 126.99
Minority Interest 3.30 3.10 3.26
Secured Loans 60.70 121.70 225.92
Unsecured Loans 0.79 5.19 0.77

TOTAL LIABILITIES 145.02 239.16 370.24

APPLICATION OF FUNDS
Gross Block 49.90 127.59 149.46
Less: Accumulated Depreciation 18.85 23.29 30.05
Net Block 31.05 104.30 119.41
Capital Work in Progress 40.73 14.78 117.84
Investments 0.03 0.03 0.02
Current Assets, Loans and Advances
Inventories 22.52 33.50 57.30
Sundry Debtors 45.52 58.33 80.14
Loans and Advances 15.23 35.64 26.40
Cash and Bank Balances 7.09 15.04 8.37
Total Current Assets 90.36 142.51 172.21
Current Liabilities
Sundry Creditors 7.97 11.74 21.21
Other liabilities 0.15 0.02 0.04
Provisions 4.95 5.75 10.79
Total Current Liabilities 13.07 17.51 32.04
Net Current Assets 77.29 125.00 140.17
Miscs Expe (not written off) - - -
Deffered Tax Asset - - -
Deffered Tax Liability 4.08 4.95 7.20
Net Deferred tax (4.08) (4.95) (7.20)

TOTAL ASSETS 145.02 239.16 370.24

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directors or employees are responsible for any errors inadvertent or otherwise, and for any investment or divestment decision taken based on
its recommendations. Our company or an associate company or firm, their employees may hold positions and / or transact in the instruments
mentioned herein.
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