Buy CCL Products India, target price Rs 320: LKP

LKP has given a buy rating to CCL Products India with a target price of Rs 320. The share price moved down by -0.99% from its previous close of Rs 247.15. The stock’s last traded price is Rs 244.70.

CCLP formerly known as Continental Coffee Ltd was promoted in 1995, has the capacity of 25,000 tons in India & 10,000 tons in Vietnam with the ability to make both spray dried as well as freeze dried coffee. 60 per cent of its revenues come from branded business while the balance 40 per cent is from private label & bulk business.

While the Pandemic has no doubt adversely impacted the Hotel/Restaurant/Café (HORECA) segment, CCL is witnessing robust growth in in-house consumption and its Vietnam unit has not seen any disruption while the carry forward stocks at its India unit would in the brokerage view would help mitigate the postponement of orders in the early part of the first quarter.

Investment Rationale

With exports accounting for over 75 per cent of its revenues with marquee names like Strauss & JDE as its customers, the ability to expand and grow without equity dilution and new technologies and processes leading to yield improvements, the brokerage is optimistic on sustainable margin expansion due to sustained improvement in the product mix.

The Indian unit of CCLP continues to operate at 80 per centutilisation. With the recently commissioned freeze dried unit fast ramping up production, the brokerage expects growth trajectory to accelerate going forward and recommends a buy with a price target of Rs 320. High ROE with positive free cash flow (FCF) generation enables debt retirement thereby keeping the balance sheet strong.

Source: LKP Securities

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 264.58 crore, down -12.60 per cent from last quarter sales of Rs 302.72 crore and up 0.93 per cent from last year's same quarter sales of Rs 262.13 crore. The company reported net profit after tax of Rs 42.20 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 45.84 per cent stake in the company as of March 31, 2020, while FIIs held 15.80 per cent, DIIs 10.96 and public and others 27.41 per cent.