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Tuesday, June 23, 2015

ATUL AUTO LTD: STOCK ON TOP GEAR !!!

Scrip Code: 531795 ATULAUTO
CMP:  Rs. 502.30;Market Cap: Rs. 1,102.20 Cr; 52 Week High/Low: Rs. 721.80 / Rs. 240.28
Total Shares: 2,19,43,200 shares; Promoters : 1,20,84,810 shares –55.07 %; Total Public holding : 98,58,390 shares – 44.93 %; Book Value: Rs. 41.76; Face Value: Rs. 5.00; EPS: Rs. 17.92; Dividend: 75.00 % ; P/E: 28.08 times; Ind. P/E: 23.68; EV/EBITDA: 16.09.
Total Debt: ZERO Cr; Enterprise Value: Rs. 1,057.05 Cr.
                                                                         
ATUL AUTO LIMITED: ATUL AUTO Ltd was incorporated in 1986 and is based in Rajkot, Gujarat, India. The company was earlier known as Atul Auto (Jamnagar) Pvt. Ltd and changed its name to Atul Auto Pvt. Ltd on Aug 1994. The company, in May 2012, gave bonus of equity shares of Face value of Rs. 10 each fully paid up in ratio of 1 new for every 2 equity shares held- the company issued 36,57,200 equity shares as Bonus. Atul Auto Ltd recently on June 26, 2014 declared split in its face value from Rs. 10 to Rs. 5. Atul Auto limited manufactures and sells front engine and rear engine passenger, loading three wheeler auto rickshaws and its spare parts primarily in India. It offers goods carriers; passenger carriers; and special purpose vehicles such as chicken carriers, trippers, water tank carriers, soft drink carriers, mobile shops, hoppers, and bio hazard and vegetable vending vehicles that have applications in courier services, industrial products, laundry construction, dairies, caterers, FMCG distribution, LPG distribution, etc. The company provides its three wheelers under its brands namely: Atul Shakti, Atul Gem, Atul Shakti Smart, and Atul Gemini–Dz brands. The Company is also involved in the generation of electricity with a wind turbine generator at Gandhavi Village, Gujarat. The company has 150 exclusive dealers, more than 100 sub-dealers, 14 regional offices and 3 training centres in 16 states of India. Company exports its 3 wheelers in CBU,SKD,CKD conditions and as per the requirement of Importer. The company also exports its products primarily to Nigeria, Kenya, Egypt, Tanzania, and other African countries. The Company has its plant at Village Shapar at a distance of 18 kms from Rajkot. This plant commenced its commercial production from July 1992 and at present has an installed capacity is 48,000 vehicles per annum. Atul Auto Limited is locally compared with Bajaj Auto Ltd, Hero MotoCorp, Swaraj Mazda Motor Corp, Scooters India Limited, Automobile Corporation of Goa Limited, Commercial Engineers and Body Builders and globally compared with Aftab Automobiles Ltd of UAE, Ford Motor Company of USA, Harley-Davidson Inc of USA, Tesla Motors Inc of USA, Thor Industries Inc, Mitubishi Motor Corp of Japan, Bayer Motoren Werke AG (BMW) of Germany, Piaggio & C. SpA of France, Porsche Automobil Holding SE of Germany, Renault Societe of France, Volkswagen Aktiengesellschaft of Germany.

Investment Rationale:
Atul Auto Ltd is one of the key three-wheeler manufacturing companies in the country and has its manufacturing facility at Rajkot in the state of Gujarat. Atul Auto Ltd was conferred with "IndiaMart Leaders of Tomorrow Award 2013" in Auto Components sector of West Zone presented by ET Now. The Company manufactures popular 3-wheelers in the sub 1 tonne category targeting the passenger and cargo segment. In passenger segment, the Company manufactures the Diesel & CNG powered carrier for carrying 3 to 6 passengers. In the cargo segment, the Company manufactures vehicles with a rated carrying capacity of 0.50 tonne. Both these vehicles have been approved by the Automotive Research Association of India under the Bharat Stage-III. The Company has its existing plant at Village Shapur, near Rajkot. The plant commenced its commercial production from July 1992 and has installed capacity is 48,000 vehicles (from April 2013) per annum. The company has improved its market position in the domestic 3-wheeler industry with incremental market share in the goods as well as passenger carrier in 0.5 Tonne segment (third large player in 0.5 T three wheeler industries). This has happened with established distribution network, increase in capacity and launch of new products. This increase in capacity was achieved through local level innovations and process re-engineering, and did not involve any major capital expenditure. Atul Auto has defied all market hurdles & is growing consistently. The company launched various variants to its vehicle line, thus by increasing its market share to over 7 % from 2 % in FY09. Atul Auto has aggressive expansion plans and more variants are to be launched, which will boost the company top line, and being debt free strengthens the bottom-line as well. The Indian automobile industry has been growing at a remarkable rate over the years, contributing approximately 7 % to the country’s GDP and employing about 19 million people. However in recent years, it has been going through challenging times with both production and domestic sales declining due to weakening economic sentiments caused by the slowing economy, volatile fuel prices and expensive loans. India is one of the largest manufacturers of three-wheelers in the world with an estimated production of 850,000 units annually. Of these, almost 500,000 units are sold in the domestic market, with exports comprising the balance 350,000 units. Three-wheelers play an important part in transporting both passengers as well as goods, providing a cost-effective alternative for last mile connectivity in both urban cities as well as rural towns of the country. With easier permits available for CNG-LPG vehicles, three-wheelers are emerging as a popular alternative for both personal and mass transportation needs. The Indian automobile sector is a fully de-licensed industry and free imports of automotive components are allowed. The outlook for the Indian automobile sector is positive. The sector is expected to resurge in 2015 on the back of revival in demand both from consumers as well as industry. Driven by a renewed confidence in the economy and a general improvement in liquidity and sentiments, demand is expected to rise as early as in the first quarter of FY 2014. The industry estimates demand to pick up to 5 % in the year 2014-15 and return to double digit demand in the year 2015-16. The industry is further hopeful that the new government will favourably consider reduction of excise duty, which would result in unlocking middle-class demand. Faster economic growth coupled with the government's policies is likely to drive volumes and revive the Indian automobile sector. A fall in interest rates and stable fuel prices are expected to create an environment conducive for growth in this industry. Many foreign companies have also started to show their presence in India leading to a very competitive automobile market in the country, which augurs well for the sector's growth. It has been predicted by IHS Automotive, a global market information provider that India will become the third largest automotive market in the world by 2016 ahead of Japan, Germany and Brazil, riding on its domestic automotive sales. Atul Auto Ltd.’s main forte has been rural markets, especially the large diesel segment, which is of a strong 2.5 to 3 lakh unit market. The company has a significant market share in the goods carrier segment in which it is a strong player. Expansion in dealer network in new states has enabled the company to grow above industry rate resulting in an increase in market share from 2.64 % at the end of Mar’07 to 3.81 % at the end of Mar’13. The increase in dealerships across the country could propel faster volume growth. Atul’s market share has grown in its target market across the years. It is interesting to note that Atul has as of now only been able to target 60 % of domestic market due to absence of petrol variant. The entry into petrol segment, increasing capacity and footprint could lead to faster growth in market share in the coming years. Atul Auto Ltd would be launching petrol based three-wheelers in the next 6-8 months to tap growth in export markets and urban markets as several new permits are likely to be issued to markets like Mumbai and New Delhi. The company has been doing a lot in the last few months to increase its export share, where realizations are higher. Company is in the process of launching gasoline three-wheelers which is the correct product for overseas market. Company is also establishing direct marketing network around the prospective geographies. The new product is likely to boost export volumes with the management expecting exports to grow significantly on a low base. The company has already established six distributors in Kenya, Mozambique and Bangladesh which will enhance company's expansion plans. Atul Auto Ltd is expected to witness a product mix improvement in the coming years with the launch of petrol-alternate fuel versions coupled with an entry in export markets. Both these factors could aid in improving average realisations from present levels.

Outlook and Valuation:
Atul Auto Ltd. is one of the youngest players in the 3 wheelers business with humble beginning in 1992 that started with manufacturing of Chhakaras (Rural Transportation Vehicle- RTV). Company produces auto rickshaw under Atul Shakti, Atul Smart, Atul Gem and Atul Gemini-DZ product names. Atul Auto is the only pure play 3-W manufacturer in India. Atul Auto’s growth trajectory has been impressive with volumes growing at a CAGR of 34 % over FY09-15. With 18 % share in the goods carrier segment and 5 % share in the passenger carrier segment, Atul has reached a respectable size in the market. Atul has also gone pan-India with a presence across almost all states. The company launched various variants to its vehicle line which helped company to now command overall market share of 7.3 % as against less than 1 % five years ago, and has posted an average volume growth of 17 % in trailing four quarters compared with industry's average of 2 %. Atul Auto has defied all market hurdles & is growing consistently. Atul Auto has aggressively expanding itself and plans to launch more new variants, which will boost its top line and being a debt free company will strengthen its bottom-line. With the bigger players catering to urban markets, Atul Auto saw opportunity in tier-II and -III cities and built its strategy around them. For instance, it customized its products to meet the expectations of smaller cities and rural areas. India is one of the largest manufacturers for three-wheelers producing volume of 950,000 units p.a. and growing at 6 % to 8 % p.a. having a domestic market of 550,000 units p.a. Three wheelers is an important element of goods transportation in the country as it provides last mile connectivity in the metro and urban markets where entry of large commercial vehicles into city limits is increasingly getting restricted and it is the ideal and most widely used mode for goods transportation in rural and semi urban markets. Also it is a cost effective mode for personal and mass transportation. Atul Auto Ltd.’s passenger segment is likely to see robust growth in domestic markets on account of government focus on improvement in rural road infrastructure and three-wheelers continue to be a popular mode of passenger transportation. New permits for fuels like CNG-LPG driven vehicles are available more easily. Passenger application in the rural and semi urban areas will continue to grow. Moreover availability of easy financing by banks and big NBFCs will provide more impetus to three-wheeler sector in India. It is believed that India’s three-wheeler industry is on the cusp of growth over the next few years and company like Atul Auto which is a dedicated three-Wheeler player will surely be one of the major beneficiaries of revival in the sector. Atul’s cargo segment will also witness good amount of volume growth on the back of added dealership which will provide good penetration to Atul Auto Ltd in the tier II and tier III cities along with improvement in urban areas as well. Growth in key user industries like fmcg, pharma, retail, construction etc. will augur well for the company as major retail push by these industries in tier II and tier III cities and smaller towns where three wheelers serve as the ideal mode of goods transportation. The management has maintained the guidance for double digit growth for the next couple of years. However, they expect volumes to remain subdued in H1FY16E and expect it to pick up from H2FY16E onwards. Erratic rains in Q4FY15 have impacted rural demand from where Atul Auto derives a majority of its volumes. Hence, demand is likely to be under pressure in the near term. The management has guided that the dealer network expansion will continue with 25 to 50 new dealers likely to be added till FY17E. The current count of touch points stands at 325 with primary dealers at 200. On the export front, the company has 7 distributors that are also likely to added, going forward. The land acquired for the new plant is likely to be commissioned in H2FY17E. The current capacity of 48,000 units is likely to get expanded to 60,000 units by carrying out the de-bottlenecking activity. The management has guided that capex for FY16E could be Rs. 50 crore. The company witnessed a three to four month delay in receiving approval from Automotive Research Association of India (ARAI) for its petrol model while the new model currently in the testing phase and is under review. Post the completion of this phase, the company would launch its new petrol engine model, which is likely to take another six to eight months. Atul possesses strong balance sheet strength, with zero debt on the books. For the major capex planned in FY15E, FY16E, the management has guided at meeting the capex need by using existing cash as well as CFOs. Atul’s debt-free status is likely to sustain for more years to come with CFO generation which is likely to remain robust as the demand scenario improves. Atul Auto Ltd's performance has been quite encouraging and consistent with strong top line and bottom line growth. Atul’s specialised focus has clearly paid rich dividends as evidenced by market share gains. India's 3-wheeler growth trajectory looks quite promising going ahead with government thrust on infrastructure and focus on encouraging new and small entrepreneurs, which will boost the sales of 3-wheelers. In a scenario where multiple challenges in the economy and industry have weighed down heavily on the automobile industry, with most players struggling to cope with falling sales and margins, it is believed that the worst is over for automobile industry and the sector is poised to grow well on the back of improving economy with strong government at the center and improving consumer sentiments. At CMP of Rs 502.30, the stock currently trades at 23.20x FY16E EPS of Rs 21.65 and 17.99x FY17e EPS of Rs 27.91, even thought the stock has run up from the recent lows of Rs. 377 odd levels, it's still attractively valued considering the strong prospects of the company in domestic markets as well as its expected ramp up in exports. Atul Auto Ltd’s valuations leave scope of improvement looking at three-wheelers sector prospects and expected profitability. Company can show a conservative growth of about 21 %It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.  

KEY FINANCIALSFY14FY15FY16EFY17E
SALES ( Crs)430.14492.80575.88673.36
NET PROFIT (₹ Cr)29.8040.5747.5261.25
EPS ()13.5818.4921.6527.91
PE (x)14.2030.0020.3015.80
P/BV (x)4.3010.106.204.90
EV/EBITDA (x)19.0018.2012.309.80
ROE (%)31.5033.5030.6031.30
ROCE (%)45.6049.4044.1044.20

 As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase(Why Strict stop loss of 8 % ?) - Click Here


*As the author of this blog I disclose that I do not hold ATUL AUTO LTD in my any of the portfolios.

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
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Friday, June 19, 2015

MY QUOTES : 3 DAY QUOTES CHALLANGE - DAY 3 !!!

Hii Friends , 
My  Third Quote and Last day for 3 days Quotes challange ... 

Non Other than the Guru of Value Investing Mr. Warren Buffett -  better known as "Oracle of Omaha", "Sage of Omaha" or "Wizard of Omaha" is obviously the most successful investor of all times. He is not only known for his investment philosophy but also for his great quotes on investing. 
But as promised to myself ( & to my dearest friend) that I will try to write beyond markets, so here I am trying to quote Warren Buffetts Quotes which are life inspring, here are some -  

"How you come out of the womb has really nothing to do with what kind of person you are. You decide what kind of person you're going to be."

"You're neither Right nor Wrong because other people agree with you. You're right because your facts are right and your reasoning are right - that's the only thing that makes you right. And if your facts and reasoning are right, you don't have to worry about anybody else"  

" It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently"

" If you're in the luckiest 1 % of humanity, you owe it to the rest of humanity to think about the other 99 %"

" Money to some extent sometimes let you be in more interesting environments. But it can't change how many people Love you or how healthy you are"

And the best one - 




Here is my Day 2 of my 3 day Quote challange


Please do keep on ur support for me & pl do visit again and share the posts :)

 Regards
Bhavikk shah
mumbai  

******************************************************************************************************************************
I have been tagged by my blogger friend Dipanwita, to take part in Three Days Quote Challenge which is - 1) Post a favorite quote of yours for 3 consecutive days, each day new quote. Quote could be from any Book, any Author of your choice, or your own quote. 2) Nominate 3 bloggers with each post to Challenge them. 3) Thanks the person who nominated you.

Thanks Dipanwita for tagging me :) I am tagging my blogger friend Datta Ghose DasDeepa PrabhuSneh Asnani
All the best Friends... I hope u all enjoyed these series :)


Top post on IndiBlogger.in, the community of Indian Bloggers


Thursday, June 18, 2015

MY QUOTES : 3 DAY QUOTES CHALLANGE - DAY 2 !!!

Hii Friends , 
My Second Quotes for 3 days Quotes challange ... 

Steve Jobs, 




Here is my Day 2 of my 3 day Quote challange


Please do keep on ur support for me & pl do visit again and share the posts :)

 Regards
Bhavikk shah
mumbai  

******************************************************************************************************************************
I have been tagged by my blogger friend Dipanwita, to take part in Three Days Quote Challenge which is - 1) Post a favorite quote of yours for 3 consecutive days, each day new quote. Quote could be from any Book, any Author of your choice, or your own quote. 2) Nominate 3 bloggers with each post to Challenge them. 3) Thanks the person who nominated you.

Thanks Dipanwita for tagging me :) I am tagging my blogger friend Jyotsna BhatiaPreethi VenugopalaArchana Chaurasia Kapoor
All the best Friends... I hope u all enjoyed these series :)

Wednesday, June 17, 2015

MY QUOTES : 3 DAY QUOTES CHALLANGE - DAY 1 !!!

Hii Friends , 
One of my blogger friend Tagged me with 3 days Quotes challange ... 

So, here's my first quote by Mr. Chandrakant Sampat - World knows about Warren Buffett and Benjamin Graham, but Mr. Sampat was the first Value Investor of India. He made his wealth by identifying investment opportunities in 1950's when he bought Hindustan Unilever (then Hindustan Lever) and Gillette India (then Indian Shaving Products) at Rs. 16 a share. He had many such great picks in his kitty. He had one piece of Advice for every investor : Look for Companies with minimum Capital Expenditure - where Return on Capital Employed should not be less than 25 %, company should have Free Cash Flow. Invest in business you understand, company should have ZERO debt or very little debt & should be available at P/E ratio of 13 to 14 times the current year's earnings and lastly it should be available between 3.5 % to 4 % of Dividend yeild. I have tried to complie his quotes in one, Hope u all will learn as I did !!! 
Here is my Day 1 of my 3 day Quote challange



Please do keep on ur support for me & pl do visit again and share the posts :)

 Regards
Bhavikk shah
mumbai  

******************************************************************************************************************************
I have been tagged by my blogger friend Dipanwita, to take part in Three Days Quote Challenge which is - 1) Post a favorite quote of yours for 3 consecutive days, each day new quote. Quote could be from any Book, any Author of your choice, or your own quote. 2) Nominate 3 bloggers with each post to Challenge them. 3) Thanks the person who nominated you.

Thanks Dipanwita for tagging me :) I am tagging my blogger friend Namrata Kumari, Kiran Acharya & Garima Shrivastava Nag
All the best Friends... I hope u all enjoyed these series :)

Saturday, June 13, 2015

CCL PRODUCTS INDIA LTD: THE PERFECT CUP OF COFFEE !!

Scrip Code: 519600 CCL 
CMP:  Rs. 183.70; Market Cap: Rs. 2,443.72 Cr; 52 Week High/Low: Rs. 222.50 / Rs. 60.75
Total Shares: 13,30,27,920 shares; Promoters : 5,92,49,243 shares – 44.54 %; Total Public holding : 7,37,78,677 shares – 55.46 %; Book Value: Rs. 26.65; Face Value: Rs. 2.00; EPS: Rs. 5.61; Dividend: 60.00 % ; P/E: 32.85 times; Ind. P/E: 30.84; EV/EBITDA: 10.63.
Total Debt:  Rs. 240.39 Cr; Enterprise Value: Rs. 2,650.20 Cr.

CCL PRODUCTS INDIA LIMITED: CCL Products India Ltd was incorporated on December 1961 and is based in Hyderabad, India. The company was earlier known as Sahayak Finance & Investment Corporation Limited and changed its name to Continental Coffee Limited in the year 1993 reflecting the change of its business from hire purchase financing to coffee related business. The company is predominantly engaged in exporting and manufacturing of Soluble Coffee known as Instant Coffee. The company came out with an IPO of about 27,00,000 lakh shares of Rs. 10 each at a premium of Rs. 10 per share in August, 1995. The company had split the face value of its share from Rs. 10 to Rs. 2 in 3 July 2013 and on same date it also declared bonus in ratio of 1:1. The company, CCL Products (India) Limited, together with its subsidiaries, manufactures and sells coffee products in India. Its coffee products include pure soluble coffee products comprising spray dried coffee powder and granules, freeze dried coffee, and freeze concentrate liquid coffee; decaffeinated coffee; flavoured coffees in vanilla, cinnamon, caramel, chocolate, and hazelnut flavours; certified coffees; and chicory-coffee mix. The company provides its products in various packs, such as jars, cans, sachets-pouches, bag-in boxes, drums, and bulk boxes under the brand name of Continental Spéciale, Continental Premium, and Continental Supreme. CCL Products (India) limited also exports its products to approximately 80 countries worldwide. Company also has its own manufacturing process units for Green beans storage, cleaning and grading, roasting and grinding unit, Extraction/Clarification unit, Aroma recovery and Evaporation unit, Spray drying, Agglomeration, Freeze-drying unit, Freeze Concentrated Liquid Coffee manufacturing unit, and Packaging unit. CCL Products also has an Export Oriented Unit, 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. CCL Products exports to over 80 countries. CCL Products' state-of-the-art Coffee Manufacturing Plant is located at Duggirala Mandal, Guntur District, Andhra Pradesh, India. The company is also certified with ISO 9001:2008, HACCP and BRC Quality Management System (QMS), and has achieved “Trading House” status. CCL Products is also certified approved to produce Organic Coffee, Rain Forest Alliance Coffee and Fair Trade Coffee, in any combination, by the relevant organizations. The company’s Coffee Manufacturing Plant also holds Kosher and HALAL Certification. CCL Products India Ltd can be locally compared with Tata Global Beverages, Bombay Burmah Trading Co, Mcleod Russel (India) Ltd, Jay Shree Tea & Industries Ltd, Nestle India, Assam Company India Ltd, Goodricke Group Ltd, Warren Tea Ltd, B&A Ltd, Upper Ganges Sugar & Industries Ltd, Tata Coffee Ltd, Hindustan Unilever Ltd and Globally with Unilever PLC of UK, Suntory Beverages & Foods Limited of Japan, BrasilAgro of Brazil, B& G Foods Inc of USA, Premium brands holding corporation of Canada, Ten Peaks Coffee Com of USA, Farmer Bros. Co. of USA, Keurig Green Mountain Inc of USA, Growers Direct Coffee Company Inc of USA,   Power Root Berhad of Malaysia, Unicafe Inc of Japan, Coffee Holding Co. Inc of USA. Key Coffee Inc of Japan.

Investment Rationale:
CCL Products (India) is among the world’s leading and India’s largest processor and exporter of instant coffee. It exports to more than 67 countries. It has 10 % market share globally in instant coffee exports. Its top big customers include Israel’s Strauss Coffee B.V. and Germany’s Deutsche Extrakt Kaffee. CCL is one of the very few companies globally that have successfully scaled up this business and increased its capacity near about 10 times since inception in 1995, and that too without equity dilution. CCL Products (India) Ltd.’s capacity expansion in Vietnam has brought CCL’s name to the world’s second-biggest grower of the beans list. Any good forecasts for record coffee crops in Vietnam and India will guarantee CCL Products raw materials and bolster efforts to win more buyers for instant coffee supplies which are currently dominated by Nestle SA and Kraft Foods Group Inc. CCL was the largest importer of coffee from Vietnam for 15 years and so Vietnam government offered concessions for setting up plant there. The Vietnam plant offers four benefits: Logistical advantage; better raw material availability; favourable duty structure and no income-tax for first four years and tax exemption of 50 % for next five years. Vietnamese operations are expected to account for almost 50 % of the profit by 2016-17. CCL added one large client in 3QFY15 in Europe for freeze dried coffee. The product enjoys super premium in nature as the company is using 100 % Indian coffee. As per the management, the client will provide additional business in other countries as well. It will take one year for the client to stop purchases from its existing supplier and ramp up volume from CCL. For CCL, 3Q and 4Q are better quarters than 1Q and 2Q on account of seasonality. The company has registered a volume of 15,000 ton from Indian operations which is 100 % capacity utilisation and 4,600 ton from Vietnam plant which is 46 % capacity utilisation in FY15. As per the management, total volume is expected at 25,000 ton in FY16. Vietnam plant’s volume is expected to increase 63 % from 4,600 ton in FY15 to 7,500 ton which will be 75 % capacity utilisation and Indian operations’ volume is likely to increase 16 % from 15,000 ton to 17,500 ton. CCL is expanding its Indian operations from 15,000 ton to 20,000 ton at a cost of Rs. 20 Cr through brownfield expansion and is expected to complete it by December 2015. CCL’s Swiss plant operates at sub-optimal utilisation level because of non-competitive pricing of supplies from Switzerland to the European Union. Import duty levied by the EU on Swiss coffee is 9.0 % whereas only 3.3 % is levied on coffee supplied from India. CCL is negotiating with Swiss government on the terms of duty payment, wherein CCL will import bulk coffee from its Indian plant by paying 3.3 % duty, do value addition in Switzerland and thereby get entitled to pay the balance 6 % duty on value addition, rather than on basic coffee. The company has sorted out the tax problem pertaining to Switzerland plant. As of now, CCL is paying tax on value-added products. Utilisation of the Switzerland plant is expected to improve and it incurred Rs. 3 Cr loss in FY15 will turn to positive by FY16. CCL gave marketing rights to a local Swiss authority for products from Switzerland plant. CCL expects capacity utilisation level at its Switzerland plant to improve to 75 % with single-shift capacity of 1,000tn in the next one year. Because of higher costs, liquid coffee is consumed only by the Japanese population. Currently, Japan consumes 10,000-20,000 ton of liquid coffee and out of this 50 % is produced locally while the rest is sourced from Brazil. The shifting of liquid coffee operations from Switzerland to India is complete and trial production started in 1QFY15. CCL expects some revenue from liquid coffee from December 2015 onwards and capacity utilisation to increase to 50 % in the next two years. To double the capacity at Vietnam plant from 10,000 ton to 20,000 ton, CCL has to incur incremental capex of US$10mn-US$12mn as against original capex of US$32mn. Once finalised, it will take one year to double the capacity. CCL is expected to finalise doubling of the capacity at its Vietnam plant once its existing operations achieve 75 % to 80 % capacity utilisation, tentatively by FY17. As per the management, US imports 80,000 ton to 100,000 ton of instant coffee, while CCL sells only 2,000 ton. The imports are mostly from Brazil, Mexico and Ecuador. CCL’s associates in the US have more than 30 years and have gained substantial experience. CCL will be conducting market research in the US over the next six months to set up a packaging facility where its coffee will be shipped from Vietnam. Capex required for the same is the range of US$8mn- US$10mn. The location will be finalised in the next six months. 


India’s coffee market is estimated at Rs. 3,000 Cr with Nestle India and Hindustan Unilever Ltd dominating with a combined branded market share of more than 65 %. The organised coffee market in India is around Rs. 600 Cr or 20 % of the total domestic coffee consumption of Rs. 3,000 Cr and the coffee chain business is growing by 40 % in India. The per capita consumption of coffee in India is just 82 grams compare that with 4 kilos in US. Consumption in India is seen expanding to 2.5 million bags of 60 kilograms each by 2020 from 1.92 million bags in 2013. The world coffee market is set for the largest shortage in nine years as drought cuts the crop in Brazil. Demand will exceed production by 8.8 million bags in the 12 months starting October. Domestic consumption has increased, and this gives CCL the advantage of entering the Indian market as a brand and expects to garner revenue of Rs. 300 Cr in five years. CCL currently sells 1,000 ton of coffee in domestic market including super markets and does institutional sales as well as branded product sales. CCL did a soft launch of a product in Andhra Pradesh and the product was widely accepted. The next target which CCL is eyeing to sell its brands is North India, which is the leading instant coffee market after South India. To increase visibility, CCL has also started selling coffee under the Continental brand to institutions like hotels, airlines etc. Even the chefs of hotels are recommending the Continental brand. The company is also in the process of setting up a marketing team in the next six months so as to push the sale of products aggressively. As the brand is making reasonable profit now, the management is planning to increase advertisement spending. CCL is yet to hire senior people for its marketing team. It has hired market research and other consultants. CCL is planning to develop two separate brands and also two separate teams for marketing - one for chicory and one for coffee. As per the management, once the branding exercise is complete, senior members in the marketing team will be hired and also new states will be targeted. The company is now targeting northern cities like Punjab, Uttar Pradesh, Lucknow, Delhi, Allahabad etc. As per the management, in the next six months, Continental brand will be made available in Delhi market. As per management, the product is widely accepted in AP, Allahabad, some other parts of North India and also South India.

Outlook and Valuation: 
CCL Products India ltd is India’s largest private label in instant coffee, supplying to premium brands in over 80 countries. CCL Products also have one of the world’s largest single-location plants and is considered amongst the top three private label manufactures in global instant coffee. Coffee processing is a niche and highly profitable industry, and has high entry barriers. Coffee processing is not an easy business, as it is very important to get the right blend. Further, the taste & preference varies region-wise and culture-wise. Experience and relationships is Key to success, and the model is not easily replicable. It takes three to five years to win over a client and establish one’s credentials. CCL Products is one of the very few companies globally that have successfully scaled up this business. CCL’s USP is its technology, which it acquired from Brazil, allowing it to use low grade of green (or raw) coffee beans to produce very high quality instant coffee. CCL is building a market for coffee in Africa and at present, it sells 1,200 ton there. The company plans to set up 3,000 ton plant at a cost of Rs. 50 Cr, once the sales top 2,000 ton to 2,500ton. CCL officials are keen to invest in Africa as it has two advantages: Raw material there is available in plenty and no duty is levied in African countries and secondly, coffee can be exported to this country without any duty. Exports to South Africa attracts 35 % import duty currently. As a result, a significant part of coffee exports from India and other countries to West Africa is taking place illegally currently. In order to avoid this risk, CCL sells coffee to Indian exporters-trading houses-branded players who are selling coffee in Africa. Once the duty structure in the African region is streamlined, CCL will set up a plant there. CCL currently sells 1,000 ton of coffee in the domestic market including super markets, to Hindustan Unilever, and also via branded sales. CCL did a soft launch of a product in Andhra Pradesh and the product was widely accepted. The next target which CCL is eyeing to sell its brands is North India, which is the leading instant coffee market after South India. The company is targeting northern cities like Punjab, Uttar Pradesh, Lucknow, Delhi, Allahabad etc. As per the management, in the next six months, Continental brand will be made available in the Delhi market. To increase visibility, CCL has also started selling coffee under Continental brand to institutions like hotels, airlines etc. The company is also in the process of setting-up a marketing team in the six months so as to push the products aggressively. Indian coffee is the most extraordinary of beverages, offering intriguing subtlety and stimulating intensity. India is the only country that grows all of its coffee under its shade. India’s coffee growing regions have diverse climatic conditions, which are very well suited for cultivation of different varieties of coffee such as Arabicas and Robustas. India is one of the major coffee producing countries and ranks seventh in the world. With only about 2 % share in the global coffee area, India contributes about 4 % towards the world production and it contributes between 4.5 % to 5 % of global coffee export. CCL Products is no longer content with selling to institutional buyers outside India. The company wants a slice of the domestic branded instant coffee market and has started retailing under the Continental brand across the country. The company is also supplying to private label manufacturers such as retail supermarkets. Till last year the biggest goal of the company was to be to generate profits in excess of a Rs. 100 Cr every year. Well that being achieved, the management con-call clarifies, what the company wishes to do with all the additional money it generated. Even with the Swiss plant which is losing about Rs. 3 Cr a year the partly operational Vietnam plant has contributed over 25 % of the EPS in the current year itself. Of the 5000 MT capacity only about 75 % was effectively used this year. Next year onwards the company should be able to utilize full capacity turning out an EBITA of more than 25 % due to its excellent product mix as well as its tax holiday it enjoys from Vietnam. Thus for every Re. 1 of Vietnamese earning, Indian operation will have to earn Rs. 1.42 just to set off the tax advantage. No wonder then, the Vietnamese plant will be expanded to 10,000 MT as soon as steady orders are established. While the numbers have shown excellent growth, the quality of the numbers too has shown fantastic improvement. The company is future proofing itself by slowly moving away from the spray dried coffee into instant and into liquid coffee. With current capacity of 20,000 MT which will be upgraded to 25,000 MT by the end of the year and additional 5,000 MT in the anvil in Vietnam, CCL’s order book is going to be fully packed. CCL will repay its debt of upto Rs. 138 Cr which was due to Vietnam plant and CCL will pay off Rs. 45 Cr this year and the remaining Rs. 93 Cr in the next two years. Also, Coffee Day Enterprises Ltd, the firm behind Cafe Coffee Day, India's biggest home grown coffee chain, is all set for a market debut that could value it at almost $1 billion. Cafe Coffee Day, a cafe pioneer in India, aims to list a 20 %, raising roughly Rs. 1,150 Cr through IPO. CCD has more than 1,650 stores and 600 kiosks across India as well as 30,000 vending machines in 11,000 corporate offices. Cafes have become a hangout for India’s young and restless generation and have now became a meeting hub for entrepreneurs, corporate workers. It is said that Rs. 750 Cr will be used to repay CDEL debts and Rs. 290 Cr will be used for capex. CDEL owns Amalgamated Beans Coffee Trading CO. ltd- which runs the café chain. CDEL also owns Coffee Dat Hotels & Resorts Pvt Ltd, Global Technology Ventures Ltd and Tanglin Developments. CDEL is valued at Rs. 6200 Cr based on Pre-IPO round of funding concluded in March raising Rs. 100 Cr. Rakesh Jhunjhunwala, Radhakishan Damani & Nandan Nilekani have made pre IPO investment in CDEL at Rs. 289 apiece. CDEL had consolidated Revenue of Rs. 1,088 Cr with a net profit of Rs. 75 Cr as on 31 March 2014. On the other hand CCL will conservatively generate Rs. 115+ Crs PAT in the next year and so this company is available at just Rs. 2,450 Cr today, manageemnt expects company to grow 25 % yoy. CCL plans to launch its own products on Pan India basis under the brand name Continental (Spéciale, Premium and Supreme). CCL started doing private labelling for Reliance, Spencer and other super markets, which helped CCL to get space for the Continental brand in these super markets, thereby increasing its visibility. CCL’s management aims to achieve 20 % market share in the next three to five years. As CCL has completed a major portion of its capex, it is likely to incur only maintenance capex. With strong profitability, lower capex and improving working capital cycle, free cash flow generation is expected to be very healthy and company could be debt free by FY17 which would result in re-rating of the stock. Historically, the stock has traded between 5x and 20x one year forward earnings. However, with the sustainable strong growth in revenues and earnings in the medium term, the stock is expected to command a premium to its historic averages. At current price of Rs. 183.70 the stock is trading at P/E of 18.18x FY16E on EPS of Rs. 10.10 and 13.50x FY17E on the EPS of Rs. 13.60. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

KEY FINANCIALSFY14FY15FY16EFY17E
SALES ( Crs)716.80880.60944.001,157.40
NET PROFIT (₹ Cr)64.4094.00134.30180.70
EPS ()4.807.1010.1013.60
PE (x)38.2026.2018.3013.60
P/BV (x)7.005.804.703.60
EV/EBITDA (x)19.0015.5011.708.90
ROE (%)20.4024.3028.3030.00
ROCE (%)12.3016.0021.0025.50

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*As the author of this blog I disclose that I do hold CCL PRODUCTS INDIA LTD in my investment portfolio.

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
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