ano
ivesh
N
Nano Nivesh
September 14, 2012
Key risks to investing in Nano stocks
• Nano stocks may not be in the limelight and inherently being micro cap in nature will have a high
risk return profile
• We advise clients to be disciplined in investing at all times. Allocate only a small proportion of your
investible income to these stocks and diversify well
• Try to diversify your exposure within the Nano stocks as well by investing equal proportions in
several picks
• These stocks may have low volumes and trade infrequently
• Micro cap stocks the world over are, to a large extent, affected by the “Pump and Dump”
phenomenon of inflated price buying and depressed price selling
• As explained above, the clients should be patient and trade only through limit orders on any side of
the trade.
• The risk of volatility remains in such micro cap stocks as they can move up or down with large
buy/sell orders
• The fair value of Nano stocks are subject to expected growth potential in the future. Though due
diligence has been done to a fair extent, the actualisation of growth still has a degree of uncertainty
attached to it
Nano stocks report tries to highlight companies with good and scaleable business models, dependable management
and sound financials. However, these stocks may not be in the limelight and have a high risk high return potential.
Please watch out for the following factors before investing in these stocks:
Allocate a small proportion of your investible income to these stocks and diversify well. If you choose to invest in these
stocks, most of your assets allocated towards equity should remain in more stable investments like stocks of large
companies. Moreover, try to diversify your exposure within the nano stocks as well by investing equal proportions in several
picks. This will help you avoid losing too much of your total wealth if the investments do not turn out well. When you invest
in micro-cap stocks there is a higher risk of impairment.
These stocks may have low volumes and trade infrequently. This can create a situation in which you may not be able to find
any willing buyers for your stocks when you wish to sell. We advise our clients to be patient and trade only though limit
orders to avoid volatile fluctuations, both while putting a buy and sell order in these stocks.
ICICI Securities Ltd | Retail Equity Research
Nano Nivesh
October 8, 2014
CCL Products Ltd (CONCF)
Sanjay Manyal
[email protected]
Parineeta Rajgarhia
[email protected]
Price
CCL Products, largest exporter of bulk instant coffee from India, with
capacity of 33000 MT across India, Switzerland, Vietnam, is expected
to see robust earnings growth at 33.3% CAGR (FY14-17E) to | 152.4
crore (FY17E). Growth may primarily be led by higher contribution to
revenue from its newly commissioned Vietnam plant having favourable
location, duty and tax structure for export of instant coffee globally.
Highlights:
•
| 116
Recommendation
•
Buy
•
Fair Value
| 150 - 170
•
Largest instant coffee manufacturer: With a capacity of 20000 MT
in India, 10000 MT in Vietnam (expandable further by 10000 MT)
and 3000 MT in Switzerland, CCL Products (CPL) is the largest
instant coffee producer and exporter from India. The company has
expanded its capacity from ~9000 MT in FY06 to ~33000 MT in
FY14 and extended its presence from India to other global
markets to cater to the specific needs across markets.
Increased capacity to aid volume growth: The company’s new
capacity in Vietnam (10000 MT), commissioned in H2FY14 is
expected to aid the volume growth of CCL from FY15E onwards.
Hence, we expect the company’s total coffee sales to increase to
~28000 MT by FY17E from ~19500 MT in FY14.
Savings in costs to aid margins: With CCL’s plant in Vietnam, the
company would be saving ~50% in logistics cost for exports to
Asian countries (~US$100-150/tonne) as transportation cost from
Vietnam ($1200-1600/container) is much lower than that from
India ($3000-3600/container). Further, with the proximity of
capacity near the coffee producing region in Vietnam (Dak Lak)
CCL’s transportation cost for importing raw material (30% was
sourced from Vietnam) and lead time for acquiring the same (two
to three months) would also get halved, consequently aiding
EBITDA margins for CCL. We expect margins to increase to 23.3%
by FY17E from 20% in FY14.
Higher margins, lower taxes to drive earnings: CCL Products has
been granted a four year tax holiday (from the year it starts
making a profit) and subsidised tax at 5% till the fifteenth year by
the Vietnam government as it is the largest coffee exporter from
the region. Hence, we expect improving margins coupled with
lower taxes to drive CCL’s earnings growth at a robust 33% CAGR
(FY14-17E) to | 152.4 crore by FY17E.
Key risksBusiness specific
Fluctuations in coffee production: With Brazil being the largest coffee producer, any fluctuation in coffee production in Brazil
has a consequent impact on coffee prices globally. If coffee production is very good in Brazil but lower in Vietnam, prices
witness a significant correction globally, impacting realisations for CCL. In FY12 when production in Brazil declined by 9.6%,
production in Vietnam was higher by ~24% and global production was flat flat, coffee prices increased by 15-22%. While in
FY13 Brazil witnessed higher production by ~17% while Vietnam’s production fell by ~9%, coffee prices globally witnessed
a steep decline (4-35%) taking cues from Brazil’s production. Hence, dependence on coffee production makes margin
certainty very tough for CCL’s business.
Company specific
Changes in duty and taxation structure in Vietnam: The Vietnam plant is particularly attractive for its favourable duty and tax
structure for CCL aiding its expansion into the Asian markets. However, in the event of any change in either of them, we
believe the growth in revenues and earnings could be severely impacted.
ICICI Securities Ltd | Retail Equity Research
Description
Stock data
CCL Products (India) Ltd is the largest producer and exporter of bulk
instant coffee from India and has 10% global market share in instant
coffee exports (excluding Nestlé’s captive consumption). The
company has a total processing capacity of 33000 MT, having one
of the largest capacity in India (20000 MT) and Vietnam (10000 MT).
The company has also entered the branded coffee business in India
(competitors: Bru from HUL and Nescafe from Nestlé) through its
own brand ‘Continental’, available in Andhra Pradesh, which it plans
to launch pan-India in FY15.
Market Capitalization (| crore)
52 Week High / Low (|)
Promoter Holding (%)
FII Holding (%)
DII Holding (%)
Dividend Yield (%)
12M / 6M stock return (%)
Debt (| crore) (FY14)
Cash and Cash Equivalent (| crore)
Enterprise Value (| crore)
5 Year Revenue CAGR (%) (FY09-14)
5 Year EBITDA CAGR (%) (FY09-14)
5 Year PAT CAGR (%) (FY09-14)
History and track record
•
CCL Products (India) Ltd started operations in 1995 as an export
oriented unit (~90% of revenues from exports) for manufacture of
soluble (instant) coffee with installed capacity of 3600 MT/annum
•
From 3600 MT capacity, the company has expanded its
capacity to ~33,000 MT (2014) along with geographical expansion
into three countries, India, Switzerland and Vietnam
•
The company has set up its biggest facility of ~10000 MT
(scalable up to 20000 MT which could further double the production
from Vietnam to ~16000 MT, going ahead) in Vietnam
(commissioned partly in FY14) to meet the growing demand from
Asian countries and capitalise on operational and financial benefits
for coffee exports from Vietnam
•
Revenue growth in the last five years (FY09-14) has remained
modest at 8.9% CAGR given the fluctuation in coffee prices.
However, earnings have grown at a robust 30.6% CAGR aided by
improving EBITDA margins from 11.1% in FY09 to 20% in FY14
•
Despite constant expansion over the years, CCL’s debt-equity is
comfortable at 0.7x in FY14 vs. 1.4x in FY09. The company has also
increased its dividend payout from 8.1% in FY09 to 24.8% in FY14
Valuation table
FY14
P/E
24.0
Target P/E
35.5
EV / EBITDA
12.2
P/BV
0.4
RoNW
18.3
RoCE
19.2
Source: ICICIdirect.com Research
FY15E
16.7
24.7
9.8
3.6
21.7
22.2
FY16E
12.0
17.8
7.6
2.9
24.2
26.4
FY17E
10.1
15.0
6.4
2.4
23.6
28.0
Q3FY14
198.3
38.0
19.1
6.4
5.2
0.9
17.2
1.3
Q4FY14
218.6
41.6
19.0
9.5
3.9
0.8
17.8
1.3
Q1FY15
175.6
36.0
20.5
6.7
4.2
0.9
20.2
1.5
Q3FY14
44.5
41.4
Q4FY14
44.5
45.9
Q1FY15
44.5
46.3
Quarterly performance (Standalone)
(| crore)
Sales
EBITDA
EBITDA Margin (%)
Depreciation
Interest
Other Income
PAT
EPS (|)
Q2FY14
166.1
33.9
20.4
6.4
4.4
0.8
16.9
1.3
Source: ICICIdirect.com Research
Earning estimates
| crore
Net Sales
EBITDA
EBITDA margin (%)
PAT
EPS
1543.1
124 / 25
44.5
0.0
9.2
2.3
338 / 109
240.4
34.3
1749.2
8.9
22.4
30.6
FY13
650.7
123.7
19.0
47.4
3.6
FY14
716.8
143.1
20.0
64.4
4.8
FY15E
822.0
174.7
21.3
92.4
6.9
FY16E
938.3
215.2
22.9
128.7
9.7
FY17E
1021.7
238.0
23.3
152.4
11.5
Shareholding trend (%)
Key Shareholders
Promoter group
Non-institutional
Q2FY14
44.3
41.5
Source: ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
Technical Chart (Quarterly Bar chart)
Price breakout above multi year peaks project strong
51
Technical View
The stock pierced through its multi year highs around |
50 during April 2014 and remained a key out performer
within FMCG space over past few months.
Technically, the multi year breakout necessarily
indicates new bull market. The rising peak and troughs
on long term charts and positive price structure as
exhibited by shallow retracements and faster and
stronger rallies highlight strong appetite to own the
stock
The strong participation during the breakout and
further rallies boost longevity of long term up trend
Based on value of higher boundary of rising channel
we project target of | 180 over a period of one year
Source: Bloomberg, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
What’s the story?
CCL Products Ltd, the largest producer and exporter of bulk instant coffee from India, has expanded its
capacity ~10x to ~33000 MT (FY14) in the past two decades by expanding its footprint into three
geographies, India (producing since 1995), Switzerland (entered in FY11) and Vietnam (set up in FY14).
The company is the largest instant coffee exporter both from India as well as Vietnam with capacity of
~20000 MT and ~10000 MT, respectively. CCL’s recent expansion in Vietnam (second largest coffee
producer in the world with ~15% of global production producing ~22 million bags of coffee), however, is
expected to be the key revenue and earnings growth driver for the company following the favourable
location and trade benefits for trading instant coffee from Vietnam.
Triggers from Vietnam...
•
•
•
CCL’s greenfield Vietnam plant for instant coffee (located in the green coffee hub of Dak Lak and
expandable by further 10000 MT) is currently operating at ~25% capacity. It is expected to get scaled
up to ~60% utilisation by FY15E and 80-85% by FY17E driving CCL’s consolidated sales volume to
~28000 MT by FY17E from ~19500 MT in FY14, a CAGR of ~13% in FY14-17E. The company has
also shifted its 5000 MT liquid coffee capacity from India to Vietnam (expected to be commissioned in
FY15) as liquid coffee is the preferred beverage, especially for Asian countries
The advantage of increasing capacity in Vietnam as against India stems from the fact that Vietnam
has a favourable duty structure for importing countries and taxation policy for CCL Products. The
instant coffee import duty rates for China, Thailand, Korea and Japan are 8%, 60%, 8.5% and 12.3%,
respectively. However, in case of import of instant coffee from Vietnam, the rates are 3.3%, 0%, 0%
and 3.3%, respectively. Further, CCL’s Vietnam plant has been given a tax holiday for four years from
the year its starts recording profits with further reduced tax of 5% till the fifteenth ear. We believe
these benefits make exports from Vietnam comparatively attractive for importing nations as well as
CCL, thereby aiding it to extend its footprint into the under-penetrated Asian markets easily. Further,
as the plant scales up capacity (+90%), CCL can further expand its Vietnam plant by 10000 MT as it
has the required approvals and set-up in place
The capacity in Vietnam would also aid the margins of CCL by reducing the logistics cost for CCL in
acquiring raw materials (~30% of its green coffee bean requirement was from Vietnam) and
distribution of final product to the target Asian countries. Also, with the location of the plant in
proximity to the producing country, the effective lead time for acquiring green coffee is expected to
decline to ~1.5 months from two or three months earlier. Further, the transportation cost for
delivering instant coffee to Asian countries (Japan, Korea) is expected to witness ~50% reduction as
cost of transportation from Brazil/India to Japan is around US$3000-3600/container while for Vietnam
to Japan it is only US $1200-1600/container)
Apart from exporting bulk instant coffee to ~70 countries, CCL has also entered the higher margin
branded coffee business (~| 2500 crore market growing at ~10%) in India through its in-house coffee
brand ‘Continental’ (currently sold only in Andhra Pradesh). The branded coffee business currently
accounts for ~5% (~| 30 crore) of its revenues (FY14) and is expected to gain traction as the company
increases its distribution pan-India. The company has tied up with Future Retail to drive the growth of its
branded coffee sales. Being a higher margin product, CCL’s margins are expected to expand further as
the company launches the product nationally.
Robust earnings growth + strengthening balance sheet +attractive valuations = Re-rating of stock
Led by higher sales volumes from the newly commissioned capacity in Vietnam, we expect CCL’s
revenues to post a healthy CAGR of 12.5% in FY14-17E to | 1021.7 crore in FY17E. Margins are estimated
to increase to 23.3% by FY17E (20% in FY14) following savings in operational costs and increasing
contribution of branded coffee sales. Consequently, higher margins, lower interest costs and lower taxes
(CCL’s effective tax rate is expected to slip to 25.6% in FY17E from 35.3% in FY14) are expected to drive
CCL’s earnings at a robust 33.3% CAGR (FY14-17E) to | 152.4 crore in FY17E. Further, with no capex
requirement in the near term, reducing debt and higher free cash flows, we expect the dividend payout
by CCL to remain high at ~22% (FY17E) with return ratios (RoE and RoCE) improving to 23.5% and
27.9%, from 18.3% and 19.2%, respectively.
Historically, CCL Products has traded at a modest level. Led by growth in capacity, expansion into higher
margin branded business, operational & tax benefits from Vietnam driving robust earnings growth, debt
to equity expected to decline to 0.1x by FY17E (0.7x in FY14) and return ratios to witness improvement,
we believe CCL Products is all set for a re-rating. We value the stock on a weighted average of P/E (15x
FY17E EPS of | 11.4) and EV/EBITDA (9x FY17E EBITDA) ascribing a fair value of | 150-170.
ICICI Securities Ltd | Retail Equity Research
Page 3
Financial summary
Profit and loss statement
(Year-end March)
Total Operating Income
Growth (%)
Raw Material Expenses
Employee Expenses
Marketing Expenses
Administrative Expenses
Other expenses
Total Operating Expenditure
EBITDA
Growth (%)
Depreciation
Interest
Other Income
PBT
Exceptional items
Total Tax
PAT
Growth (%)
EPS (|) - Diluted
| Crore
FY14
716.8
10.2
459.7
25.8
5.1
19.9
63.2
573.7
143.1
15.7
29.1
17.1
2.6
99.6
0.0
35.1
64.4
35.8
4.8
FY15E
822.0
14.7
521.1
28.8
5.8
21.8
69.9
647.3
174.7
22.1
33.5
13.7
2.7
130.2
0.0
37.8
92.4
43.5
6.9
FY16E
938.3
14.1
582.2
32.8
6.1
22.5
79.4
723.1
215.2
23.2
36.5
9.0
5.4
175.1
0.0
46.4
128.7
39.3
9.7
FY17E
1021.7
8.9
628.3
35.2
10.2
24.0
85.9
783.7
238.0
10.6
37.8
4.4
9.0
204.8
0.0
52.4
152.4
18.4
11.5
Source: Company, ICICIdirect.com Research
(Year-end March)
Profit/Loss after Tax
Add: Depreciation
Add: Interest
(Inc)/dec in Current Assets
Inc/(dec) in Current Liabilities
CF from operating activities
(Inc)/dec in Investments
(Inc)/dec in Fixed Assets
Others
CF from investing activities
Issue/(Buy back) of Equity
Inc/(dec) in loan funds
Dividend paid & dividend tax
Inc/(dec) in Sec. premium
Others
CF from financing activities
Net Cash flow
Opening Cash
Closing Cash
| Crore
FY14
64.4
29.1
17.1
5.1
1.2
116.9
-0.1
-94.7
27.5
-67.4
13.3
-17.6
-18.7
0.0
-1.7
-24.6
25.0
9.3
34.3
FY15E
92.4
33.5
13.7
-42.7
-26.1
70.8
-1.0
0.9
-0.7
-0.8
0.0
-30.0
-19.5
0.0
-13.7
-63.1
6.9
34.3
41.2
FY16E
128.7
36.5
9.0
-48.9
6.5
131.8
-1.0
-20.0
0.2
-20.8
0.0
-65.0
-23.3
0.0
-9.0
-97.4
13.6
41.2
54.8
FY17E
152.4
37.8
4.4
-20.7
10.7
184.5
-1.0
-20.0
0.4
-20.6
0.0
-75.0
-38.9
0.0
-4.4
-118.3
45.7
54.8
100.5
FY14
FY15E
FY16E
FY17E
4.8
70.3
265.2
12.0
25.8
6.9
9.5
32.0
1.3
3.1
9.7
12.4
39.9
1.5
4.1
11.5
14.3
48.5
2.5
7.6
20.0
13.9
9.0
70.2
54.4
10.4
21.3
15.8
11.2
72.0
53.0
11.0
22.9
18.7
13.7
72.0
54.0
10.0
23.3
20.0
14.9
70.0
53.5
10.5
18.3
19.2
21.0
21.7
22.2
23.5
24.2
26.4
28.4
23.6
28.0
32.1
2.4
12.2
2.4
2.2
0.4
16.7
9.8
2.1
1.9
3.6
12.0
7.6
1.7
1.6
2.9
10.1
6.4
1.5
1.5
2.4
1.7
0.7
2.9
1.7
1.2
0.5
4.5
2.5
0.7
0.3
4.9
2.8
0.3
0.1
5.0
3.0
Source: Company, ICICIdirect.com Research
Balance sheet
(Year-end March)
Liabilities
Equity Capital
Reserve and Surplus
Total Shareholders funds
Long Term Borrowings
Long Term Provisions
Other Non-current Liabilities
Total Liabilities
Assets
Gross Block
Less: Acc Depreciation
Net Block
Capital WIP
Non Current Investments
LT Loans & Advances/Others
Current Assets
Inventory
Debtors
Cash
Loans & Advances
Other Current Assets
Current Liabilities
Creditors
Provisions
Short Term Borrowings
Other CL
Net Current Assets
Total Assets
Cash flow statement
| Crore
FY14
FY15E
FY16E
FY17E
26.6
326.2
352.8
240.4
0.0
23.3
616.5
26.6
399.2
425.8
210.4
0.0
24.3
660.5
26.6
504.6
531.2
145.4
0.0
25.3
701.9
26.6
618.0
644.6
70.4
0.0
26.3
741.4
521.1
159.9
361.2
38.9
1.6
4.1
541.1
193.5
347.6
18.0
2.6
5.8
561.1
229.9
331.2
18.0
3.6
6.6
581.1
267.7
313.4
18.0
4.6
7.2
137.9
106.8
34.3
39.9
0.5
162.2
119.4
41.2
45.8
0.5
185.1
138.8
54.8
52.2
0.6
195.9
149.8
100.5
51.1
0.6
20.5
21.5
0.0
66.6
210.8
616.5
24.8
24.8
0.0
32.9
286.6
660.5
25.7
25.7
0.0
37.5
342.6
701.9
29.4
29.4
0.0
40.9
398.3
741.4
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Key ratios
(Year-end March)
Per share data (|)
EPS (Diluted)
Cash EPS*
BV
DPS
Cash Per Share
Operating Ratios (%)
EBITDA Margin
PBT / Net Sales
PAT Margin
Inventory days
Debtor days
Creditor days
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt/EBITDA
Debt / Equity
Current Ratio
Quick Ratio
Source: Company, ICICIdirect.com Research
* Company split and issued bonus shares in FY14 thereby increasing the number of
shares to 13.3 crore from 1.3 crore prior to that
Page 4
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: > 10%/ 15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]
ANALYST CERTIFICATION
We /I, Sanjay Manyal (MBA) , Parineeta Rajgarhia (MBA), research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect
our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
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banking or other advisory services in a merger or specific transaction. It is confirmed that Sanjay Manyal (MBA) , Parineeta Rajgarhia (MBA), research analysts and the authors of this report have not received any
compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings
from Investment Banking and other business.
ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the
research report.
It is confirmed Sanjay Manyal (MBA) , Parineeta Rajgarhia (MBA), research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of
the companies mentioned in the report.
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of information contained in the report prior to the publication thereof.
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publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
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ICICI Securities Ltd | Retail Equity Research
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