initiatingcoverage plantations-tea&coffee 01nov2018...coffee prices: unexpected fluctuation in...

Jainam Share Consultant Pvt Ltd. Sector : Plantations - Tea & Coffee

01-11-2018

VandanaPareek - Research Analyst ([email protected]); 0261-6725518

Plantations-Tea & CoffeeInitiating Coverage |

01 Nov 2018

Investors are advised to refer through important disclosures made at the last page of theResearch Report.Jainam Share Consultant research is available on www.jainam.in

http://www.motilaloswal.com/Institutional-Equities


01-11-2018

IndexA. Company Overview

1. About……………………………………………………….…………….…….12. Investment Rationale……………………………………….…………………23. Risk………………………………………………….………………………….34. Brief Conclusion……………………………………….………………………..3

B. Industry Overview

1. Global Coffee Industry……………………………………………..………………………………….42. Indian Coffee Industry………………………………………………………………………..……….6

C. Business of the Company

1. Instant Coffee Making Process……………………………….……………….82. Product……………………………………………………………………..…103. Production Capacity.…..…………………………….………………………..124. Subsidiaries……..…………………………………..………………………...135. Top Shareholders…………………………………..…………………………156. Management………………………………………………………………….15

D. Financial Outlook

1. Profit & Loss………………………………….………………………………..162. Ratio…………………………………….………….…………………………..173. Balance Sheet…………………………………………………………………184. Cash Flow Statement………………………….………………………………185. Quarterly Update……………………..…….…………………………………19

E. Analysis

1. Peer Analysis………………………………………………………………….222. Valuation………………………………………………………………………23

F. Conclusion

1. Recommendation…………………………………….……………………….262. Sources……………………………………………….………………………..263. Full Form & Glossary………………………………………………………….274. Report Gallery………………………………………………………………….285. Disclaimer……………………………………………………………………..29


01-11-2018 1

Company Overview

About

Exchange: BSE BSE Code: 519600 Current Market Price: 260.00 Date: 01-Nov-18

Latest Date 01-Nov-18

Latest Price (Rs) 260.00

52 Week High (Rs) 354.60

52 Week Low (Rs) 225.05

Face Value(Rs) 2.00

Industry PE 17.76

TTM Period 2018-09

Price/BV(x) 4.26

EV/TTM EBIDTA(x) 13.37

EV/TTM Sales(x) 3.16

Dividend Yield% 0.96

MCap/TTM Sales(x) 2.93

Market Cap (Rs in Cr. ) 3458.00

EV (Rs) 3724.75

Latest no. of shares (in Cr.) 13.30

Source : Ace Analyser, Software

CCL Product Ltd.CCL Products, (India) Limited, a global coffeemanufacturer was founded in the year 1994with the vision of creating only finest and therichest instant coffee in the world. They areamong the only companies in the world toproduce all four types of soluble coffee from asingle location. The company is a topmostproducer and exporter of various types ofinstant coffee. Company is specialized inimporting green coffee from any part of theworld and export processed coffee across theglobe, devoid of any duties. It has distinction ofsetting up India’ s first Freeze Dried Instantcoffee manufacturing plant in the year 2005.

a) CCL products are currently beingexported to more than 85 countries.

b) Currently selling almost 1000 differentblends to customers.

c) Swiss & Brazilian technology at its plantis purchased from Turnkey.

Currently CCL is planning grab a bigger pie inthe freeze dried coffee by setting up its fourthplant in Chittoor, Andhra Pradesh at aninvestment of Rs. 360 crore.


01-11-2018 2

Investment Rationale

Stable Profit Margin : CCL works on cost plus margin basis because of which there marginremain fixed and they have been able to pass on the cost of raw material to the customers.They place order for green coffee beans only after receiving order for instant coffee becauseof this approach CCL has been able to maintain their operating profit margin above 19% in lastfive years. And even adverse volatility in coffee prices will not affect its margin.

Continuous Expansion : CCL products currently have a combined capacity of 35000 tonneper annum. Currently, Indian capacity is of 20000 tonne per annum which is operating at 98%while the Vietnam based subsidiary has production capacity of 10000 tonne per annum forspray dried coffee and 5000 tonne of liquid coffee ( 2000 tonne in solid terms) which iscurrently operating at around 60 to 70%. CCL is setting up a freeze dried freeze dried instantcoffee greenfield plant in Chittor, Andhra Pradesh at an investment of Rs. 360 crore in whichRs.180 cr. will be through internal accrual and remaining Rs. 180 cr. is the loan component.Freeze dried coffee is a premium product being served to niche market and is globally growingat fast pace.

Largest Exporter: CCL products is India’s largest manufacturer and exporter of instantcoffee. According to the data of year 2017, out of the total export of instant coffee from India,CCL product accounts for 37% of the total export.

Domestic Expansion: Continental Coffee Private limited subsidiary of CCL Products isserving the domestic market. They are taking initiatives to strengthen its brand in domesticretail coffee market under the brand name ‘Continental’. They have started placing vendingmachines and around 750 machines has been placed and there target is of around 3000machines. CCL is targeting revenue of Rs. 70 crore in FY19E from the brand.

Cost Control: Company has been continuously saving fuel costs for its boiler by using ricehusk and recycled solid waste as fuel. During production, 40% can be derived from the coffeebeans for the productive usage and the rest 60% is in the form of solid waste. More than 90%of the waste generated is being recycled. The solid waste generated is being used as fuel forthe boiler. The ash that comes from the boilers is being supplied to brick manufacturer.

Source : Coffee Board of India, Website


01-11-2018 3

Risk

Coffee Prices: Unexpected fluctuation in green coffee prices may adversely affect theprofitability of the company.

High Competition: India’s instant coffee market is a duopoly of the firms Nestle and Bruwhich account 55% and 45% of market share.

Adverse Currency Movement: CCL is an exported oriented unit and its 90% of the revenueis generated from export so any sharp movement in currency may cause risk. It import approx.60% of its raw material, and all its transactions are in USD which provides it natural hedge.

Slowdown in Demand: Reduction in demand for instant coffee from Europe and othercountries may slowdown the export of CCL as Europe coffee market is growing at CAGR of 1.2%and at Global level consumption level is increased at 2.2% CAGR only.

Agro – based Product: Reduced rainfall in some areas due to drastic change in theecosystem will result in change of quality of the coffee beans used as the raw material toproduce instant coffee.

Brief Conclusion

Company being India’s largest manufacturer and exporter of instant coffee working with cost plusmargin basis and having global reach in more than 85 countries and selling around 1000 differentblends to customers. They are currently expanding its production capacity by installing additional5000 Tonnes capacity being operational in FY19. They stands strong due to its product taste andquality and are trying to build it brand name 'Continental' and have started placing vendingmachines with target of installing 3000 machine.

We recommend our Investors to “Buy” the stock with potential upside of 23% with horizon of 2years.


01-11-2018 4

Industry Overview

Global Coffee Industry

Coffee has gained the status of being third most preferred beverage worldwide after water andtea. Coffee is the second most traded commodity in the whole world after oil.

The opportunity in the instant coffee market is likely to rise at a CAGR of 4.80% from 2017 to 2025.The increasing awareness regarding the harmful effects of aerated drinks is also expected to shiftthe preference of consumers towards coffee, which subsequently, is anticipated to propel theworldwide market for instant coffee in the near future.

Global coffee consumption increased at 2.2% CAGR between FY 2013-14 to 2016-17. In FY2016-17, 15.89 cr. bags (60 Kg each) were consumed.

Out of the total world coffee consumption 69.1% of the coffee is consumed by importingcountries like EU, USA, Japan, Russia and Canada while remaining 30.9% of the coffee isconsumed by the Exporting countries like Brazil, Ethiopia, Indonesia, Philippines and India.

Consumption of Exporting countries is growing at CAGR of 2.3% while importing countriescoffee consumption is growing at a CAGR of 2.1%.

Source : International Coffee Organisation, Website

2.2% CAGR


01-11-2018 5

Europe is the largest consumer of coffee in the world from past many years and is growing ata CAGR of 1.2% with consumption of approx. 5 crore bags (60 kg) every year.

Asia & Oceania is the second largest consumer of coffee after Europe with total consumptionof 3.47 cr. bags and is growing with CAGR of 4.2% which is highest as compared to othercontinents.

Coffee Consumption




01-11-2018 6

Indian Coffee IndustryCoffee industry which has been growing at a CAGR of around 3.1% currently is expected to grow at5.9% annually from 2018-2021.

Robusta consist 56% of the total coffee export from India of about 223536.318 tonnes in2017 and export is growing at a CAGR of 9.98% from 2015 to 2017. Robusta is a bittertasting coffee bean with 50% extra caffeine.

Following Robusta, Instant coffee is the second largest exported coffee product in term ofquantity of about 115258.461 tonnes in 2017 and export is growing at a CAGR of 7%.

Instant Coffee

Revenue in the instant coffee segment amounts to Rs. 1495.46 Cr. in year 2017-18 and in growingat a CAGR of 4.9% annually from 2014 to 2018.




01-11-2018 7

Among the total export instant coffee from India 24% of the quantity is exported to RussianFederation only, following Turkey of about 15% in terms of quantity.

Growth Drivers

Currently India’s annual coffee per capita consumption is 0.1 Kg as compared to that ofFinland which is 11.9Kg so still there is a great opportunity available in domestic market

It is expected that India’s instant coffee industry will grow at 15% year on year.



01-11-2018 8

Business Of The Company

Instant Coffee Making Process

Green Coffee Beans storage: Coffee seeds (beans) of Coffea fruits obtained afterremoving the pulp that are not yet been roasted. And these beans are stored in silos forfurther processing. There are two types of coffee beans Arabica and Robusta.

Source : Jainam Share Consultant, Company

Source : Pinterest, website


01-11-2018 9

Cleaning & Grading: Coffee beans are cleaned to remove any kind of impurities and dustparticles. After cleaning beans are graded on basis of different category of speciality, premium,standard, etc.

Roasting: Roasting is a precise process which is done as per requirement of the customers.Roasting is a critical process as Aroma and flavour of final product is decided in this process.

Grinding: The beans are cooled down to room temperature. Then these roasted beans aresent for grinding.

Extraction & Clarification: During the extraction process, soluble solids and aromas areefficiently extracted and the coffee aromas are gently obtained to achieve the desired aromaprofile. Ground coffee is extracted with softened water. The extraction process is thenfollowed by the clarification of the coffee extract.

Spray Drying: In spray-drying the coffee extract is sprayed into a stream of hot air at the topof a tall cylindrical tower. As the droplets fall, they dry, becoming a fine powder by the timethey reach the bottom. The powder may then be texturised into granules to facilitate dosageand dissolution. The quality of the aroma and flavour are preserved thank to the very fastdrying occurring during this process.

Agglomeration: Spray dried powders require further agglomeration, an additional processstage is used involving powder wetting, after drying and cooling. Control of wetting is carriedout with water and/or saturated steam in an agglomeration chamber equipped with a rotatingimpactor.

Freeze-drying: In this process, first, the coffee is allowed to sit so the water evaporatesnaturally, leaving a concentrated coffee solution. This concentrate is then frozen to around –40 Degree Celsius. The remaining water freezes into ice crystals. Sublimation (a naturalprocess similar to evaporation) is used to remove the ice, leaving behind dry grains of coffee.

Liquid Coffee: This process consists of a crystallization section, where part of the water isconverted into solid ice crystals with the use of a refrigeration system. The ice crystals arethen separated by filters, centrifuges or with the help of wash columns.

Packaging: Finally, the soluble coffee is packaged into jars, cans, sachets / pouches andbag-in- box, of varied sizes, shapes, styles and materials.


01-11-2018 10

Product

FREEZE CONCENTRATEDLIQUID

In Spray dried coffee the concentrated coffee is sprayed from a hightower in a large hot chamber, in this process the droplets falls, theremaining water evaporates. The high temperature involved in thismethod tends to affect the oils of the coffee, which leads to loss ofmore flavour as compared to freeze dried coffee.

Price – Rs. 540/kg

Spray dried powders require further agglomeration, by the processof converting the coffee powder into granules. An additionalprocess stage is used involving powder wetting, after drying andcooling.


In freeze drying coffee granules, coffee is allowed to sit so thewater evaporates naturally, leaving the concentrated coffeesolution. This concentrate is then frozen to around -40 DegreeCelsius. This method preserves the coffee flavour to a great extent.


Freeze concentration process consists of a crystallization section,where part of the water is converted into solid ice crystals with theuse of a refrigeration system. The ice crystals are then separated byfilters. There is no loss of aromas or other volatile components.


SPRAY DRIED COFFEEPOWDER

SPRAY DRIED COFFEEGRANULES

FREEZE DRIED COFFEEGRANULES


01-11-2018 11

Chicory is a natural plant product used to add flavour to drinks.It is a perfect blend of coffee and chicory which create a strongercoffee at a lower cost as compared to pure soluble coffee. Thiscoffee blend is available in both forms – Spray dried forms as wellas granules.

Price – NA

It is a white coffee without pre-added sugar, which is a mix ofonly instant coffee and creamer. It is customised using variouscombinations as per the requirements of the customers.

Price – NA

3 in 1 coffee is a premium mix of white coffee that includesinstant coffee, creamer and sugar. This coffee is needed to bemixed only with hot or cold water for a perfect cup of coffee.This variant is also available in decaffeinated and chicory mixvariants.

Price – NA

Decaffeinated coffee is the coffee that has almost all thecaffeine removed. Coffee beans go through a specialisedprocess of decaffeination that removes up to 97% of caffeine.This process than leaves just 2-3mg of caffeine in a cup ofcoffee.

Price – NA

2 IN 1 COFFEE

3 IN 1 COFFEE

DECAFFEINATED COFFEE

CHICORY COFFEE


01-11-2018 12

Production Capacity

CCL product has received an approval from the development commissioner of VisakhapatnamSpecial Economic for setting up Freeze Dried Instant coffee manufacturing unit in SpecialEconomic Zone at Kuvakolli Village, Varadaiah Palem Mandal, Chittor District, Andhra Pradesh atan investment of Rs. 300 crore. Management is expecting 50% capacity utilisation in first yearfrom Chittor plant.

The plant will add 5,000 tonnes per annum to its capacity, taking the total to 35,000 TPA. As theplant is in tax free zone some impact on profit will also be seen.

Source : Jainam Share Consultant, Company

Production Capacity(35000 Tonnes)

CCL Products(India) Limited

Ngon CoffeeCompany Limited

Grandsaugreen SA

14000 TonnesFreeze Dried


3000 TonnesAgglomerated

2000 TonnesLiquid Coffee


*Additional 5000 TonnesFreeze Dried (FY19)


01-11-2018 13

Subsidiary

Continental Coffee Private Limited: Continental Coffee Private Limited is a wholly ownedsubsidiary of the CCL Products, which was incorporated in 2011 with an objective ofpromoting instant coffee brands of the Company in the domestic market.

Jayanti Pte Limited: Jayanti Pte Limited is a wholly owned subsidiary of the CCL Product Ltd.incorporated in Singapore for the purpose of promoting instant coffee projects in variouscountries. This is only an investment based company, hence no operational gain is earned.

* The Board has decided to wind up M/s. Jayanti Pte Ltd by transferring the shares held byit in M/s.Grandsaugreen SA and M/s. Ngon Coffee Company Limited, to the parentCompany, thereby making both the Companies directly owned by CCL as 100%Subsidiaries.

Grandsaugreen SA: Grandsaugreen SA is a wholly owned subsidiary of Jayanti Pte Limitedand step down subsidiary of the Company incorporated in Switzerland under Swiss law in2008 and started its commercial operation in the year 2009. This is an agglomeration andpacking unit, engaged in manufacturing of Instant/Soluble Agglomerated/granulated Coffee ,as well as the supplying of Spray-Dried coffee , and Freeze Dried Coffee . This enables CCLproducts to cater to the European Market with short lead time.+

Problems: Swiss plant is facing issue on account of unfavourable trade relationshipbetween Switzerland and European Union. Import duty levied by European Union onSwitzerland supply is 9% as compared to supply from India or Vietnam there is a 3.1%duty.

Revised target market: Switzerland is a blended market of Freeze dried as wall asagglomerated coffees. Two or three major major local brands are competing in thelocal Swiss market with extremely high margin. CCL will take their base product to

NameProportion (%) of ownership interest

*2018-19 2017-18 2016-17

Grandsaugreen SA - 100 100

Ngon Coffee CompanyLimited - 59 59

Domestic Sales

Own Brand( Continental Xtra,Speciale, Strong)

Institutional Sales(all the defenseestablishment)

Private Label(Reliance andSpencer's)


01-11-2018 14

Switzerland and will repack the agglomerated coffee and will sell in local market atmuch higher premium.

Ngon Coffee Company Limited: Ngon Coffee Company Limited established in the year2011 under the laws of Vietnam. Ngon Coffee state-of-the-art Soluble Instant CoffeeManufacturing Plant is located at Cu Kuin Industrial Complex, Cu Kuin District, Dak lakProvince, Vietnam with a current combined capacity of more than 10000 MTs, per annum.Ngon Coffee is engaged in the manufacture of Instant/Soluble Spray Dried Coffee.

Advantage of having plant in Vietnam:

Raw material availability: Vietnam is the second largest producer of green coffeebeans in the world after Brazil. Vietnam rapid expansion in coffee production whichwas only 6,000 tons in 1975 and now is almost 2 million.

Tax Benefit: Company is exempt from income tax for four years starting from thefirst year it generates taxable profit (from 2015 to 2018) and after that will beentitled to 50% reduction in income tax for for nine succeeding year (from 2019 to2027).

Market Presence: Presence in Vietnam help the company to cater to the coffeeneeds of ASEAN countries and this is in close proximity to many South -East Asiannations, Korea, China, etc. Most of these countries have granted Vietnam a mostfavored nation status with reduced or NIL duty structures in addition to havingsavings on logistics.

Jainam Share Consultant Pvt Ltd Sector : Plantations - Tea & Coffee

01-11-2018 15

Top Shareholders

Name of Share holders No of shares Percentage

Valuequest India Moat Fund Ltd. 1879283 1.41

Sudhir Koneru 1002410 0.75

Smallcap World Fund, Inc 10642173 8.00Schroder International Selection Fund AsianSmaller Companies 1281803 0.96

Naveen Bikkasani 1000000 0.75

Malabar India Fund Ltd. 2950645 2.22

India Whizdom Fund 1946771 1.46

Georgalis Heleanna Gabrielle 2109100 1.59Fidelity Investment Trust Fidelity EmergingAsia Fund 1176652 0.88

Fiam Group Trust For Employee Benefit Plans 5776687 4.34

Management

Name Designation About

Mr. Challa Rajendra Prasad Executive Chairman

More than 25 years ofexperience in InternationalCoffee Industry.

CCL Products was promotedby Mr. Prasad in 1995.

Mr. Challa Srishant Managing Director

Mr. C. Srishant is a lawyer byeducation

Has more than 10 yearsexperience in the coffeeindustry

Ms. Sridevi Dasari Compliance Officer,Company Secretary

Member of Institute ofCompany Secretaries ofIndia.

Mr. V. Lakshmi Narayana Chief Financial Officer

Member of ICAI from theyear 1988.

He has 30 years experiencein finance in India


01-11-2018 16

Financial Information

Profit and Loss

Report Date (in cr.) Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Sales 716.83 880.57 932.13 976.49 1136.67

Raw Material Cost 419.98 555.33 546.29 544.06 719.51

Change in Inventory -5.08 11.37 -0.44 -7.86 28.94

Power and Fuel 38.34 41.61 41.83 35.72 43.26

Other Mfr. Exp 54.28 53.29 62.49 69.74 61.72

Employee Cost 17.03 18.60 22.83 27.60 32.52

Selling and admin 27.62 41.06 42.83 52.07 62.66

Other Expenses 11.40 10.82 10.67 7.34 7.04

Other Income 2.62 3.02 1.22 1.23 4.85

Depreciation 29.10 26.82 28.38 33.25 34.09

Interest 17.06 13.61 10.82 11.17 7.83

Profit before tax 99.57 133.82 166.76 188.91 201.82

Tax 35.15 39.84 44.64 54.35 53.70

Net profit 64.42 93.98 122.12 134.56 148.13

Dividend Amount 15.97 19.96 33.26 33.26 33.26


01-11-2018 17

Ratio

Performance Ratios 2014 2015 2016 2017 2018

ROA 9.26 12.64 15.63 16.32 14.95

ROE 20.41 24.27 26.22 23.65 21.65

ROCE 19.04 22.76 25.91 26.85 23.02

Efficiency Ratios 2014 2015 2016 2017 2018

Receivable Days 49.05 45.31 47.09 53.99 55.29

Inventory Days 74.22 64.16 62.85 61.51 58.68

Payable Days 15.32 16.05 13.66 5.73 4.36

Financial Stability 2014 2015 2016 2017 2018

Total debt/equity (x) 0.83 0.54 0.41 0.23 0.42

Current Ratio (x) 1.49 1.66 1.52 2.31 2.86

Interest Ratio (x) 6.84 10.83 16.42 17.91 26.78

Du Pont Analysis 2014 2015 2016 2017 2018

PATM (%) 13.89 15.19 17.89 19.34 17.75

Sales / Total Assets(x) 198.49 259.01 223.44 248.34 306.31

Assets to Equity (x) 56.89 50.56 40.64 26.87 22.17

ROE (%) 20.41 24.27 26.22 23.65 21.65

Valuation Ratios 2014 2015 2016 2017 2018

EPS (x) 4.84 7.06 9.18 10.12 11.14

P/E (x) 10.50 25.28 21.24 33.84 24.99

P/BV (x) 1.92 5.63 5.09 7.25 5.00

EV/EBITDA (x) 6.41 14.79 13.53 20.05 16.29


01-11-2018 18

Balance Sheet


Equity Share Capital 26.61 26.61 26.61 26.61 26.61

Reserves 326.18 394.97 483.19 601.70 713.33

Borrowings 292.07 229.18 210.31 142.00 310.95

Other Liabilities 80.17 110.96 81.16 77.87 82.71

Total 725.03 761.72 801.27 848.18 1133.6

Net Block 361.13 339.97 417.31 393.28 371.13

CWIP 38.88 53.43 - 0.16 226.39

Investments 1.50 1.50 1.50 1.51 1.48

Other Assets 323.52 366.82 382.46 453.23 534.6

Total 725.03 761.72 801.27 848.18 1133.6

Receivables 106.75 113.22 128.14 162.74 182.03

Inventory 137.95 173.53 148.60 182.76 183.16

Cash & Bank 34.38 26.63 18.68 16.79 44.21

No. of Equity Shares 13.30 13.30 13.30 13.30 13.30

Face value 2 2 2 2 2

Cash Flow Statement


Cash from Operating Activity 124.79 104.71 160.98 101.78 145.15

Cash from Investing Activity -58.25 -19.17 -86.97 -19.60 -246.71

Cash from Financing Activity -41.51 -93.29 -81.96 -84.32 128.93

Net Cash Flow 25.03 -7.75 -7.95 -2.14 27.37


01-11-2018 19

HY1 FY19 Update

Turnover stood around 586.89 cr. during the period ended 30 September, 2018 as comparedto 545.94 cr. during the period ended 30 September, 2018.

Net profit is 86.64 cr. as against 73.46 cr. for the corresponding period of financial year2017-2018. During the second quarter company got some more profitable contracts fromVietnam which also contributed significantly to the bottom line.

Revenue earned from the domestic market is 40 cr. For HY1 FY19 which is more than 46cr.that they have earned in FY18. The projection for this year is about 100 cr. During last monthcompany has launched its new product Malgudi.

Management has revised its FY19 net profit growth estimate to 15-20% YOY which waspreviously 10-20% and also improved its top-line guidance to 5-10% from 0-10% previously.The reason for higher estimate is due to increase in contribution form value added products.

The company has commenced its trial production in this Q3 in the SEZ plant and willapply for necessary permission for the certification by the end of this quarter and by Q4 theyare excepting to receive all the necessary client approval as well as certifications. They aretargeting to start commercial production from April 1, 2019. Management is expecting 50%capacity utilisation in first year from Chittor plant.

Capacity utilization for FY19 will range from 90-95% for Indian business which is stable in lastfew years and 75-80% for Vietnam based business which in previous year was 60-70%.

The company is planning to set up new agglomeration and packing unit capacity of about 5000tonnes for agglomeration and 3000 tonnes for packaging unit by next financial year, theinvestment will be approximately around $12 million (86.44 cr.)*. For this they have alreadypurchased some additional land four years ago.

In Vietnam based plant they are doing a little bit of line balancing to increase the capacity toaround additional 3500 tonnes by next year. The projected cost for improvement of linebalancing in Vietnam is around $8 million (57.63 cr.)*.

Company is targeting around Rs.20 crore for advertisement.

Currently company is focusing on certain customer and if due to this volumes come and thedemand for Spray Dried increases substantially, than company will go for another 10,000 tonsof capacity expansion in Vietnam.

* $1 = Rs. 72.04 as on 15 Nov. 2018


01-11-2018 20

HY1 FY19 - Profit & Loss

Particular ( in Cr.) H1FY19 H1FY18 % change

Gross Sales 585.21 543.13 7.75

Less: Excise Duty

Net Sales 585.21 543.13 7.75

Other operating income

Net Sales & Other Operating Income 585.21 543.13 7.75

Total Expenditure 445.25 439.89 1.22

(Increase) / Decrease In Stocks -16.90 -35.44

Raw Material Cost 347.68 374.17 -7.08

Excise Duty

Manufacturing Expenses 85.60 79.76 7.33

Electricity , Power & Fuel Cost

Employees Cost 28.88 21.40 34.93

PBIDT (Excl OI) 139.96 103.25 35.56

Other Income 1.68 2.81 -40.24

Operating Profit 141.64 106.06 33.55

Interest 5.68 3.87 46.81

Exceptional Items

PBDT 135.96 102.19 33.05

Depreciation 18.17 16.92 7.42

Proft / Loss from ordinary activities before tax 117.79 85.27 38.13

Tax 31.14 24.81 25.53

Profit after Tax 86.64 60.46 43.30


01-11-2018 21

HY1 FY19 - Balance Sheet

Particulars ( in Cr.) 2018/09 2018/03

ASSETS

Non-current assets

Property plant and Equipment 386.43 371.09

Capital Work Inprogress 369.45 226.39

Other Intangible assets 0.04 0.04

Financial assets 4.91 4.77

Other non current assets 38.06 36.88

Current assets

Inventories 189.03 183.16

Financial assets 324.07 226.32

Other current assets 38.03 84.91

Total Assets 1350.02 1133.55

EQUITY AND LIABILITIES

Equity 811.99 739.94

Non-current liabilities

Financial Liablities 223.95 181.75

Deferred tax liabilities (net) 41.29 39.15

Current liabilities

Financial Liabilities 254.20 154.39

Provisions 3.98 -

Other current liabilities 14.60 18.32

Total Equity and Liabilities 1350.02 1133.55


01-11-2018 22

Analysis

Peer Analysis

Particular Tata Coffee Ltd. CCL Products Ltd. Olam InternationalLtd.

About

Tata Coffee is coffeecompany owned bythe Tata GlobalBeverages, subsidiaryof Tata Group.Produce some of thefinest Indian OriginGreen Coffee Bean,Instant Coffee, Pepperand Tea.

CCL Products, (India)Limited, a globalcoffee manufacturerfounded in 1994.Company is a topmostproducer and exporterof various types ofinstant coffee.

Leading agri-businessoperating from seed toshelf in 66 countries,supplying food andindustrial raw materialsto over 22,000customers worldwide.Global leadershipposition in Edible Nuts,Cocoa, Spices andVegetable Ingredients,Coffee and Cotton.

Capacity 8400 MT 35000 MT 29250 MTMarket Cap. (inCr.) 1814.47 3295.10 31311.25

Sales* (in Cr.) 360.18 1136.67 38849.80Sales Growth ( 5yrs)** (in Cr.) 3.00% 10.00% 9.00%

PAT (in Cr.) 186.94 148.13 2772.59ROA (%) 6.74 14.95 3.44ROE (%) 17.16 21.65 8.50TotalDebt/Equity (x) 0.88 0.42 1.46

Asset TurnoverRatio (x) 0.56 1.15 1.23

EBITDA Margin(%) 16.86 20.97 10.40

ROCE (%) 11.17 23.02 -EPS (Rs.) 5.71 11.13 8.89

* In the above table sales figure indicate total amount green coffee sold during the year. And thesales of Olam International is converted into INR on basis of value on 31st December 2017.

** Instant coffee past 5 years sales growth is being considered.


01-11-2018 23

Valuations

Scenario 1 assumption: Currently, global coffee consumption has been growing with a CAGR of2.3% from past 4 years. So assuming revenue growth to be conservative, it is assumed that saleswill grow with a CAGR of 2.3% till FY20.

Part 1 - Based on Profit after tax margin

It is assumed that sales will grow with a CAGR of 2.3% till FY20 which resulted into theRs.1189.90 cr.

In column A, we have assumed 5 years average PATM (%) which is 12% and in column B, wehave assumed 3 years average PATM (%) which is 13%. We have not taken into considerationmargin expansion due to the growth of domestic retail brand.

Also, management has mentioned in the concall that their main focus is on the volume ratherthan margin.

Part 2 - Based on Profit before Interest, Depreciation and tax margin


In column A, we have assumed 5 years average PBIDTM (%) which is 21% and in column B, wehave assumed 3 years average PBIDTM (%) which is 22%. We have not taken intoconsideration margin expansion due to the growth of domestic retail brand.


FY 20 (E)

Particular 5 years avg. PATM (%) - A 3 years avg. PATM (%) - B

SALES (in Cr.) 1189.90 1189.90

PATM (%) 12 13

PAT (in Cr.) 141.68 158.41

P/E (x) 20.74 20.74

MCap (in Cr.) 2671.66 3018.64

No. of shares (in Cr.) 13.30 13.30

Price (Rs.) 200.83 226.91


01-11-2018 24

FY 20 (E)

Particular 5 years avg. PBIDTM (%) - A 3 Year avg. PBIDTM (%) - B

SALES (in Cr.) 1189.90 1189.90

PBIDTM (%) 21 22

PBIDT (in Cr.) 256.22 267.47

EV/EBITDA(x) 16.29 16.29

MCap (in Cr.) 3706.97 4090.35


Price (Rs.) 293.69 307.48

Scenario 2 assumption: According to the current scenario Asia coffee consumption is growing at aCAGR of 4.2% from last 4 years. So the growth of sales is assumed to grow with a CAGR of 4.2%.

Part 1 - Based on Profit after tax margin


In column A, we have assumed 5 years average PATM (%) which is 12% and in column B, wehave assumed 3 years average PATM (%) which is 13%. We have not taken into considerationmargin expansion due to the growth of domestic retail brand.


FY 20 (E)

Particular 5 years avg. PATM (%) - A 3 years avg. PATM (%) - B

SALES (in Cr.) 1234.51 1234.51

PATM (%) 12.00 13.00

PAT (in Cr.) 146.99 164.35

P/E (x) 20.74 20.74

MCap (in Cr.) 2781.83 3141.82


Price (Rs.) 209.12 236.18


01-11-2018 25

Part 2 - Based on Profit before Interest, Depreciation and tax margin


In column A, we have assumed 5 years average PBIDTM (%) which is 21% and in column B, wehave assumed 3 years average PBIDTM (%) which is 22%. We have not taken intoconsideration margin expansion due to the growth of domestic retail brand.


FY 20 (E)

Particular 5 years avg. PBIDTM (%) - A 3 Year avg. PBIDTM (%) - BSALES (in Cr.) 1234.51 1234.51PBIDTM (%) 21.00 22.00PBIDT (in Cr.) 265.82 277.50EV/EBITDA(x) 16.29 16.29MCap (in Cr.) 4063.45 4253.71No. of shares (in Cr.) 13.30 13.30Price (Rs.) 305.46 319.76


01-11-2018 26

Conclusion

Recommendation

Company being India’s largest manufacturer and exporter of instant coffee working with cost plusmargin basis and having global reach in more than 85 countries and selling around 1000 differentblends to customers.

CCL product is currently in expansion stage trying to grasp both domestic and global market byincreasing production capacity and brand promotion. Company is currently expanding itsproduction capacity by installing additional 5000 Tonnes capacity by setting up a freeze driedinstant coffee Greenfield plant being operational in FY19. In India they have started placingvending machines with target of installing 3000 machine.

The demand of instant coffee is growing at only 2.2% is the major concern due to which exportdemand will slowdown and will directly affect company’s sales. Duopoly in domestic market is alsoa concern for expansion in domestic market.

Company stands strong due to its product taste and quality and it trying to build it brand name indomestic market.

We recommend our Investors to “Buy” the stock with potential upside of 23% with horizon of 2years.

Sources

Annual Report CCL Products (INDIA) website Conference Call BSE website Singapore Exchange website International Coffee Organisation website Coffee Board of India website Web based Software – Ace Analyser

Head of Research: Tejas Jariwala

Guided By: Jimit Zaveri

https://twitter.com/tdjariwala


01-11-2018 27

Full Form & Glossary

Abbreviation Full FormBV Book ValueCAGR Compound Annual Growth RateCAPEX Capital ExpenditureCOGS Cost of Goods SoldDPS Dividend Per ShareEBIT Earnings before interest and taxesEBITDA Earnings before interest, tax, depreciation and amortizationEPS Earning Per ShareEV Enterprise ValueFY Financial YearGP Gross ProfitHY Half YearMCap Market capitalizationNAV Net Asset ValueNII Net Interest IncomeNOI Net Operating IncomeNOPAT Net Operating Profit after TaxNPV Net Present ValueOCF Operating Cash FlowOI Operating IncomeP&L Profit & LossP/E Price/Earnings RatioPAT Profit After TaxPATM Profit After Tax MarginPBT Profit Before TaxQOQ Quarter on QuarterRE Retained EarningROA Return on AssetsROCE Return on Capital EmployedROE Return on EquityROI Return on InvestmentROIC Return on Invested CapitalRONA Return on Net AssetTTM Trailing Twelve MonthWC Weighted Average Cost of CapitalYOY Year over Year


01-11-2018 28

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https://www.slideshare.net/KARANAGARWAL32/hotel-sector-111278681

https://sensibleinvestingblog.files.wordpress.com/2018/01/varun-beverages.pdf

https://sensibleinvestingblog.files.wordpress.com/2018/02/tyre-sector-co-report.pdf

https://sensibleinvestingblog.files.wordpress.com/2018/05/balrampur-chini.pdf


01-11-2018 29

Disclaimer

Research Analyst Details

Name: Vandana Pareek Email Id: [email protected] Ph: +91 0261-6725518

Analyst ownership of the stock: No

Details of Associates: Not Applicable

Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their)personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is orwill be directly or indirectly related to the specific recommendation(s) or views contained in this research report.

Disclaimer: www.jainam.in is the domain owned by Jainam Share Consultants Pvt. Ltd.

SEBI (Research Analyst) Regulations 2014, Registration No. INH000006448

The views expressed are based solely on information available publicly and believed to be true. Investors are advisedto independently evaluate the market conditions/risks involved before making any investment decision.

This report is for the personal information of the authorized recipient and does not construe to be any investment,legal or taxation advice to you. This report should not be reproduced to any other person in any form. This documentis provided for assistance only and is not intended to be and must not alone be taken as the basis for an investmentdecision. Jainam Share Consultants Pvt. Ltd. or any of its affiliates or employees shall not be in any way responsible forany loss or damage that may arise to any person from any inadvertent error in the information contained in thisreport. Neither Jainam Share Consultants Pvt. Ltd., nor its employees, agents nor representatives shall be liable forany damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits thatmay arise from or in connection with the use of the information. Jainam Share Consultants Pvt. Ltd. or any of itsaffiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matterpertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particularpurpose, and non-infringement.

The recipients of this report should rely on their own investigations. Jainam Share Consultants Pvt. Ltd. and/or itsaffiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in thisreport. Jainam Share Consultants Pvt. Ltd. has incorporated adequate disclosures in this document. This should,however, not be treated as endorsement of the views expressed in the report. We submit that no material disciplinaryaction has been taken on Jainam Share Consultants Pvt. Ltd. by any regulatory authority impacting Equity ResearchAnalysis.

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