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Sector Outlook: Positive
Strong financial performance amid coffee price volatility
CCL Products (CCLP) posted a robust 21.5% YoY revenue growth in Q2FY25, supported by a 10% volume increase. Although Brazilian competitive pricing limited short-term volume growth, CCL prioritized long-term margins and brand strength over market share. Gross margin contracted by 218bps YoY to 39.8% due to high coffee bean costs, yet EBITDA rose 24.7% YoY, reaching an 18.6% margin due to a favorable product mix and smaller pack sales. Higher coffee bean costs led to increased working capital needs, pushing debt to Rs. 1,947 crores. The branded segment remained resilient, contributing Rs. 70 crores. The company is expanding its Vietnam FDC plant from 71,000 MT to 77,000 MT and has revised its FY25 guidance to 10-20% growth in volume and EBITDA, maintaining cautious optimism.
Key Concall Highlights
- Green Coffee Price Volatility: Green coffee prices have been volatile with some recent declines, but CCL’s costless pricing model protects it from price fluctuations, as it only buys coffee per order, avoiding speculative buying.
- Capacity Utilization: Current capacity utilization is 10-12% for Indian F&B operations and 40-50% for Line 2 in Vietnam operations.
- Volume Growth and Expansion Plans: The company projects 15-20% volume growth this year and plans to double its capacity within 4-5 years, targeting 70,000 metric tonnes.
- EBITDA and Margin Focus: EBITDA growth is driven by volume expansion and high-margin contracts, especially in freeze-dried coffee, which yields 30-50% higher margins than bulk products. Low-margin deals are avoided.
- Strategic Margin Contracts: The company focuses on long-term contracts with better margins rather than engaging in price wars, helping secure stronger EBITDA and margin stability.
- Cost-Plus Pricing Model: This model enables the company to bypass low-margin markets and competitive areas, allowing for consistent performance despite green coffee price volatility.
- Market Position: CCL maintains a single-digit market share in the global B2B coffee segment and focuses on sustainable long-term contracts over opportunistic sales.
- Consumer Demand: Despite fluctuating prices, coffee demand remains steady, with no significant change in consumer behavior observed.
- Growth Guidance: The company maintains a full-year growth target of 10-20%.
- CapEx and Working Capital: No major CapEx planned for the next 3-4 years as capacity is sufficient. Rs. 1,300 crores are allocated for working capital, with the remaining funds for CapEx.
- UK Acquisition: Recently acquired the UK-based Percol brand, transitioning it from Lofbergs.
Valuation and Outlook
CCL Products continues its strong growth despite coffee price volatility and supply chain challenges. Leveraging its strategic bases in Vietnam and India, CCL enhances international market access, positioning itself as a key supplier for companies seeking diversified sources. The company is on track to double capacity from 38,500 MT in FY22 to 77,000 MT by FY25, with high utilization rates in both countries. Its cost-effective model and focus on value-added products like FDC and small packs further boost its competitive edge. Despite FY25 PAT pressure from high coffee prices, CCL’s strategic expansion and adept market management support a positive long-term outlook for growth and market share.
