CCL Products (India) Ltd. – Quarterly Results Update

CCL Products (India) Ltd. (CCLP) was founded in 1994 to create only the finest and richest coffee in the world. CCL’s strong infrastructural backbone and a global client repertoire in over 90 countries have led us to evolve into the largest instant coffee exporter and private label manufacturer globally.

Result Highlights

CCLP registered a 28.6% YoY revenue growth to Rs. 654.9 crores in Q1FY24, surpassing market expectations of Rs. 580.1 crores, led by the company maintaining its volume-driven growth trajectory in the 18-20% range with additional volumes driven by the Vietnam plant. 

However, high coffee-bean prices resulted in a blip in the company’s gross profit margins, which fell to 42.2% in Q1FY24 compared to 45.4% in Q1FY23. Consequently, the EBITDA margins declined to 16.2% in Q1FY24 compared to 17.4% in Q1FY23 and 21.7% in Q4FY23. 

High depreciation charges and an uptick in interest costs (led by higher borrowings) also resulted in the company’s PAT falling short of the expected level of Rs. 73.4 crores to Rs. 60.7 crores in Q1FY24. The PAT margins contracted 9.3% (down 713 bps QoQ / down 109 bps YoY).

Concall Highlights

• The company plans to add 16,000 metric tonnes of spray-dried coffee by year-end, which will take its capacity to 70,000-71,000 metric tonnes in FY24. The business plans to add another 6,000 metric tonnes in Vietnam by Q2FY25 in freeze-dried capacity space. Thus, on a group level, the company’s production capacity will be around 76,000-77,000 metric tonnes (including spray-dried and freeze-dried).

• The company has entered into an Asset- Purchase agreement with the Löfbergs Group for the acquisition of various brands in the UK, which includes Percol, Plantation Wharf, Rocket Fuel, Percol Fusion, The London Blend, and Perk Up for a consideration of £ 550,000. Presently, the revenue is close to Rs. 18-20 crores which the business aims to accelerate to Rs. 100 crores portfolio in a 3-5 years timeline. The company requires no additional investment here as it is already a running business.

• Elevated coffee-bean prices led to the company’s margins falling from 21.7% in Q4FY22 to 16.2% in Q1FY24. However, the management emphasised tracking the EBITDA/kg metric instead as that remains intact due to a favourable like-to-like volume growth of 10-15%.

• The business maintained a capacity utilisation of 50% for its recent capacity expansion at its Vietnam plant for FY24, while its overall capacity utilisation stood in the 70-75% range.

• The business maintained its volume growth trajectory of 18-20% and maintained this guidance for the next 3-4 years.

• CCL Products is exploring opportunities in the speciality coffee space as it plays in the more premium category. Presently, it is working with clients in small quantities in this space.

• The company aims to increase its outlet reach by 30-40% in the domestic branded business, from catering to around 1,00,000 outlets to about 1,30,000-1,50,000 outlets this year. In the next 2-3 years, the company will continue to break even on an EBITDA margin basis.

• In order book visibility space, the business is fully booked for the next 1-1.5 years in the freeze-dried coffee space while it evaluates its spray-dried coffee on a rolling basis. The company has 100% order visibility for the next three months following six months – approx. 75% visibility, and in a year, about 50% visibility.

• Presently, the business holds 8% of the total B2B market share in volume (globally) and is confident to reach a market share of 15% in the next 2-3 years.

• On directing its gross debt levels ( Term Loan + Working capital), the business is expected to reach Rs. 1,700 crores in FY24 and Rs. 2,000 crores in FY25 due to increased working capital requirements in Vietnam. Of this debt, Rs. 1,050 crores are long-term debt, while Rs. 1,000 crores are the working capital loan requirement. The management estimates this to be the peak level of debt.

Valuation and Outlook

Surpassing market expectations, the company continued to post stellar revenue growth on the back of a robust volume growth trajectory in the 18-20% range, which it expects to carry on for the next 3-4 years. Both higher realisations drove this due to an increase in coffee prices and an additional 16,000 MT expansion in the Vietnam plant at the FY23 end. Although we witnessed a margin fall, the overall operational environment remains healthy, with the EBITDA/kg realisation remaining intact. Going forward, it is crucial to check the balance sheet performance to ascertain the company’s overall health, as the gross debt levels are expected to inch upward from here onwards. We would also keenly track the B2C side of the business, with the company growing aggressively on this front and decipher management commentary on updates about its recent acquisition in the UK.