CCL Products (India) Limited. BSE Id: 519600 NSE Code: CCL

Given enough Coffee, I could rule the world.

CMP (BSE): Rs. 187

CMP (NSE): Rs. 187.25

Industry: Tea and Coffee

CCL Products (India) Limites (CCLPR) was formed in 1994 and commenced its commercial operations in the year 1995. CCLPR is a profit making, Export Oriented Unit (EOU), with the ability to import green coffee into India from any part of the world, and export the same to any part of the world, free of all duties.

CCLPR is engaged in the manufacture of Soluble Instant Spray Dried Coffee Powder, Spray Dried Agglomerated/ Granulated Coffee, Freeze Dried Coffee, as well as Freeze Concentrated Liquid Coffee. Their soluble instant coffee is prepared from carefully chosen Arabica and Robusta coffee beans, roasted and processed to perfection. In addition to 100% pure soluble instant coffee, they also have the ability to supply flavoured coffee, decaffeinated coffee, organic coffee, Rainforest coffee, Fair Trade coffee, Dual and Triple certified coffee as well as Chicory-coffee mix as per the required specifications of the customer, and can also offer the customers the option of highest quality customised products. CCL Products is also in a position to offer a range of in-house products to its customers.

CCLPR's state-of-the-art Soluble Instant Coffee Manufacturing Plant is located at Duggirala Mandal, Guntur District, Andhra Pradesh, India, with a current combined capacity of more than 20,000 MTs, per annum. CCL Products has the distinction of setting up India’s first Freeze Dried Instant Coffee Manufacturing Plant in the year 2005. CCLPR has adapted Swiss and Brazilian Technology, purchased from world renowned pioneers in turnkey Instant/Soluble Coffee technology at its Plant. This adaptation of technology has enabled CCLPR to produce international quality soluble coffee, which is currently being exported to more than 58 countries around the globe.

Industry Analysis:

Coffee is the most widely consumed drink in the world, with approximately half-a-trillion cups consumed every year. Among all the beverages consumed in India, coffee ranks third, after tea and plain milk. Approximately 90% of world coffee production is represented by the species Coffee Arabica; about 9% by the species Coffee Robusta; with minor production from the species Coffee libericia. The industry can be segmented into filter coffee and instant coffee. The country produces only 4.5% of the world’s coffee, but exports 70-80% of its output. Italy, Russia and Germany are the top three buyers of Indian instant coffee.

India has traditionally been a long known mature market for coffee and a country where Roast & Ground Coffee is a consumers’ preferred choice. But the trends are gradually changing in this fast paced world, with consumers shifting to soluble instant coffee. Within this new increased demand for soluble instant coffee, around two-thirds of soluble instant coffee is being sold as private label coffee. Consumption of soluble instant coffee is on the rise, with growth rates often outstripping those for Roast &Ground Coffee. Consumption is rising not only within the traditional tea-drinking societies of UK, Russia, India and Japan, but also in emerging new markets in Eastern Europe and China. And CCLPR has a state-of-the-art Soluble Instant Coffee manufacturing plant producing almost 20000 MT of coffee every year.

There are several reports available indicating that coffee is a USD 70 billion market per year, globally including USD 9 billion a year in North America alone, yearly. All these and many more, only confirm the belief that the coffee is going to be one of the best markets to invest and reap in the results.

Opportunities for CCLPR:

• The major portion of the soluble coffee is currently being met by the private labels. Since CCLPR is one of the private label soluble coffee provider, the future looks bright for CCLPR in the times to come.
• CCLPR has adopted a business model, wherein the fluctuating prices of green coffee have minimum impact on the sales of the Company. This has been achieved by entering into fixed contracts with customers taking the prevailing green coffee prices at the time of entering into the contract.
• Being the only company in the world to offer all the 4 types of soluble instant coffee from one location, CCLPR has already made its mark in select global markets, for its products, and is now exploring newer markets for all its products.

CCLPR stock is quoting at just 1.25 times its book value. Its PE stands at 9.10 in an industry where the average PE is 13.61. Its market capitalization stands at Rs. 249.43 crore at the current market price. This when compared to CCLPR's expected FY11 sales of Rs. 325- Rs 350 crores, puts CCLPR in a very attractive position. It is a regular dividend paying company and has good dividend history.

It has a very small equity base of just Rs. 13.3 crores. Its reserves stand at Rs. 187.03 crores. Its interest coverage ratio is 3.53, which again puts CCLPR well within the safety zone. The debt equity ratio stands at 0.78 which is fair enough. Its EPS for FY10 was Rs.20.30, while its EPS in the first 3 quaters of FY11 stands at Rs. 18.08 and with one more quater to go, I think it will be definitely better.

In the last one year, the prices of coffee has almost doubled. This has reflected in the rally showcased by Tata Coffee, which will benefit from this price rise to a very large extent. In case of CCLPR, this price rise will not be reflected with huge earnings as it has entered into future contracts where it sells its produce at a predetermined fixed rate. But this increase in coffee price is not just a short term phenomenon. Coffee demand is on a rise and will continue to rise as many predominantly tea drinking populations are slowly shifting to developing the coffee habit. So the future is definitely very bright for the coffee sector and the companies operating in this domain. So sooner or later CCLPR is set to benefit from the surging demand for coffee.

Tata Coffee has had its own share of rally and seems quite overpriced to me. But the rally is still left for CCLPR and at current valuations it seems very attractive. A good long term investment. A good investment would be to buy this stock on dips.

Happy Investing.