Improved growth visibility and timely capacity expansions to remain key re-rating triggers, reiterate BUY
CCL's earnings narrowly missed our estimates despite strong topline and volume growth given higher green coffee and logistics inflation. Utilization rates in both India and Vietnam are optimum with the expanded Vietnam capacity coming onstream in 3Q and the next phase of expansion to be commissioned by Q3FY23. The India branded business also remains on track with a solid 40% growth in 9MFY22. Given a strong order book and no signs of order deferments, the management has maintained 15% plus volume growth guidance for FY22 while revenue growth can be north of 25%. While optically margins can come off marginally in percentage terms, they should continue moving up on per kg basis with an improving product mix in favor of value-added coffee variants and enhanced small pack capacity coming onstream. We continue to like the company given its cost and market leadership in instant coffee processing, successful product and market development initiatives in developed markets like US/Europe, strong traction in the India branded business, strong balance sheet and well planned timely capacity expansions. With a 25% plus earnings trajectory over next two years with stable 22-23% ROCE, we see a re-rating towards our target multiple of 20x.
- Result summary - 3Q revenue/EBITDA/PAT growth of 41.2%/28.2%/24.1% led by weak base, strong order book driving 17% volume growth and sharp coffee inflation- led rise in realizations. Revenue growth came in well ahead of our estimate of 25% growth.
- Topline - Overall revenue growth of 41.2% yoy to Rs 4.2bn, standalone business grew 38.2%, subsidiaries grew 46.3% despite high base given strong offtake from Vietnam (new capacity onstream) and domestic branded business (continued 40% growth).
- Margins - Gross margin fell 730bps due to sharp 930bps fall in standalone business margin led by higher coffee prices and logistics cost. EBITDA margin fell 220bps to 21.9% with standalone margins decreasing 510bps to 16.2% and subsidiaries margins improving 220bps to 30.9%. Margin contraction was partially offset by lower employee and SGA expenses. India business is close to break-even.
- Earnings and dividends - PAT came in at Rs58.5cr below our estimate of Rs63cr; an interim dividend of Rs 3/share was declared.
The company is set to reach a capacity of 53,000mt by FY23 from 38,500mt currently. We increase our EPS estimates by 4-5% in FY23/24 to factor in higher realizations and volumes and reiterate our BUY rating on the company with a revised PT of Rs 580 based on 20x FY24E (18x earlier) earnings. The higher multiple reflects an increasing scale, strong growth outlook with stable return ratios and successful scale-up of India branded business. We are factoring in a 23%/23%/28% growth in revenue/EBITDA/PAT over FY21-24E with 21% average ROCE.Link to the report
Shares of CCL Products (India) Limited was last trading in BSE at Rs. 461.30 as compared to the previous close of Rs. 443.80. The total number of shares traded during the day was 158542 in over 7498 trades.
The stock hit an intraday high of Rs. 476.90 and intraday low of 443.75. The net turnover during the day was Rs. 73539853.00.
Source : Equity Bulls