COLGATE PALMOLIVE (INDIA) LTD : SMILING ALL THE WAY !!!

Scrip Code: 500830 / COLPAL

CMP:  Rs. 1,893.20; Accumulate at Every Dips.
Short term Target - Rs. 2,060; Medium to Long term Target – Rs. 2,366; STOP LOSS – Rs. 1741.74; Market Cap: Rs. 25,746.16 Cr; 52 Week High/Low: Rs. 2049.00 / Rs. 1235.20.

Total Shares: 13,59,92,817 shares; Promoters : 6,93,56,336 shares – 51.00 %; Total Public holding : 6,66,36,481 shares – 49.00 %; Book Value: Rs. 44.11; Face Value: Rs. 1.00; EPS: Rs. 37.47; Dividend: 2700.00 % ; P/E: 50.52 times; Ind. P/E: 47.16; EV/EBITDA: 33.28.

Total Debt: ZERO; Enterprise Value: Rs. 25,596.88 Cr.

COLGATE PALMOLIVE (INDIA) LTD: The Company was founded on 23 September, 1937 and is based in Mumbai, India. The company is the subsidiary of Colgate Palmolive Company of USA. The company offered 11,79,000 equity shares of Rs. 10 each at a premium of Rs. 15.00 to the general public in November, 1978. Colgate-Palmolive (India) Limited provides oral care products. The company has its good Bonus history as it gave 1:1 bonus in 1982, 1:1 in 1985, 1:1 in 1987, 1:1 in 1989, 3:5 in 1991 and finally 1:1 in 1993. In November 2007, the Company in its First-of-its-Kind investor friendly move announced a Reduction of Share Capital under section 100 of Companies act of 1956. It gave back Rs. 122.40 Cr to its shareholders by reducing the face value of its equity shares from Rs. 10 to Re. 1.00 and accordingly its equity share capital came down from Rs. 135.99 Cr to Rs. 13.59 Cr. And Rs. 9 per share was paid as a ‘Deemed Dividend’ and was tax free in the hands of shareholders. The share of the Colgate Palmolive after this got relisted on BSE on December 17, 2007 at Rs. 380 per share. The company offers products that include toothpastes, toothpowder and toothbrushes under the 'Colgate' brand, as well as a specialized range of dental therapies under the banner of Colgate Oral Pharmaceuticals. The company also provides a range of personal care products under the brand name 'Palmolive'. The oral care product mix includes: Toothpastes which comprises of Colgate Dental Cream, Colgate Total 12, Colgate Kids Tooth Paste, Colgate Fresh Energy Gel, Colgate Herbal, Colgate Herbal White, and Colgate Cibaca Top. Its Tooth Brushes products comprises of Colgate Kids, Colgate Navigator Plus, and Colgate Sensitive, Colgate Extra-Clean, Colgate Super 55, Colgate Cibaca Top, Colgate Motion, Colgate Massager, Colgate Super Junior Flexible, and Colgate Super Child Flexible. Other products offered by the company include tooth powder and whitening products. Its Personal care product mix includes: Shower gel which comprises of Palmolive Aroma Shower Gel – Sensual, Palmolive Aroma Shower Gel – Relax, and Palmolive Aroma Shower Gel – Revive. It’s Bar soaps products comprise of Palmolive Aroma Soap – Revive and Palmolive Aroma Soap – Relax. Company’s Liquid hand wash products comprise of Palmolive Aroma Liquid Hand Wash – Revive and Palmolive Aroma Liquid Hand Wash – Relax. Colgate’s Talcum Powder products comprises of Palmolive Aroma Talcum Powder - Revive and Palmolive Aroma Talcum Powder – Relax. In November 2007, it acquired a 75% equity interest in Advanced Oral Care Products, Professional Oral Care Products and SS Oral Hygiene Products, the company is the fastest growing and one of the oldest companies catering to the personal care products. Colgate Palmolive (India) Ltd is locally compared with Amar Remedies Ltd, Farmax India Ltd, Gillette India Ltd, Godrej Consumer Products Ltd, Hindustan Unilever, JHS Svendgaard Laboratories Ltd, Jyothy Laboratories, Nirma Ltd, Procter & Gamble Ltd and Globally with Procter & Gamble of USA, Unilever PLC of UK, Beiersdorf AG of Germany, Reckitt Benckiser PLC of UK, Kimberly-Clark Corporation of USA, Church & Dwight Co., Inc of USA, Clorox Company of USA, Paos Holdings Berhad of Malaysia, Niitaka Co ltd of Japan.

Investment Rationale:

Colgate Palmolive (India) Limited is India’s leading provider of scientifically proven oral care products with multiple benefits at various price points. Colgate has a market share of 43.6 % in the oral care in India. India’s oral care market is estimated around $100 Cr and is expected to grow at a CAGR of about 14 % during 2011–2015, which is much higher than the global growth rate in this sector. This has led to an increase in the number of oral care companies entering the space, thereby stiffening the competition. The combined share of all the local brands, including Vicco, Ajanta, Anchor, Smyle and Baidyanath has now slipped to 2 % in calendar year of 2013 from more than 5 % from two years ago. Regional players had over 15 % share in the toothpaste market some 10 years ago. So the big marketers such as Colgate, Hindustan Unilever and the Indian player Dabur have widened their reach to almost all rural and urban markets and have slashed its entry-level prices to Rs. 5.00 and Rs. 10 which is giving a hit to local brands. Also, multinationals like Procter & Gamble (P&G) and GlaxoSmithKline (GSK) have now entered the oral-care market, increasing the competition, which is affecting small & regional players. GSK's Sensodyne has already gathered more than 2.3 % share in the Indian oral-care market. Sensodyne has crossed Rs. 100 crore in annual revenues and it leads the sensitive toothpaste category with a 27 % market share, while P&G's mass brand Oral B has garnered a market share of 0.30 % in the first six months of its launch. Companies such as Dabur having a market share of 11 % and Hindustan Unilever have doubled their rural reach over the past couple of years and have grown their market share. Market leader Colgate, too, increased its share in the toothpaste segment to 54 % last year, from 51 % in 2011. In India only 42 % of the people living in villages and small towns use tooth-paste; this proportion is expected to increase with the rising rural income and greater awareness about oral hygiene through advertisements, dental camps and free dental checkups. Colgate has done very well in this regard by building its strong distribution strength across rural India. Colgate now has the highest reach among all the consumer products companies in the country. Also, more than 30 % of India’s population suffers from gum sensitivity and oral hygiene problems. Thus, India’s urban population is continuously upgrading from regular tooth-pastes to dental creams due to which this category is growing at 30 % to 40 % annually. To carter the urban modern population, Colgate has from time to time is introducing innovative products like Colgate SlimSoft Charcoal launched recently in August 2014, which is India’s first and only toothbrush with super slim tip bristles infused with Charcoal priced at Rs. 60. Similarly it also introduced Colgate SlimSoft last year; it also launched Sugar Acid Neutraliser, Visible white Regimen. Over the years, Colgate has built an extensive oral care portfolio through constant innovation, thereby offering products across the value pyramid and within each sub-category such as sensitive toothpaste, gum care toothpaste, electric brush, kids brush, etc. It has been aggressive on extension of its premium portfolio to capture the up-trading consumers. In FY14, it launched two varieties of toothpastes like Active healthy White, Max Fresh Tea and Slim Soft Toothbrushes. Hence, with constant innovations and higher A&P spends, it is believed that Colgate would continue to remain the dominant player and be the largest beneficiary of increasing penetration levels in the country which is currently at 75 %. Colgate Palmolive also falls under FMCG category and this sector is the fourth largest in the Indian economy and has a market size of $13.1 billion. The FMCG market is all set to treble at US$ 33.4 billion by 2015. The penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. The Indian FMCG industry represents nearly 2.5 % of the country’s GDP. The industry has tripled in size in past 10 years and has grown at 17 % CAGR in the last 5 years driven by rising income levels, increasing urbanization, strong rural demand and favourable demographic trends. Food products and personal care together make up two-third of the sector’s revenues. Rural India accounts for more than 70 % of the Indian population and accounts for 50 % of the total FMCG market. With the changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $8,000 Cr by 2026 in towns with population of up to 10 lakh. Distribution is the most important variable in the marketing plans of most consumer goods manufacturers, because managing such a massive sales and distribution network is in itself a huge task. This sector will continue to see growth as it depends on an ever-increasing internal market for consumption, and demand for these goods remains more or less constant, irrespective of recession or inflation. Hence the growth in this sector will continue to remain robust. Colgate has done well in this regard by building strong distribution strength across rural India. Colgate now has the highest reach among all consumer products companies in the country.

Outlook and Valuations:

Colgate has been present in India for more than 76 years & has products across all orla care categories and prices points. It is one of the most popular & preferred oral hygiene brands in the coountry. It has wide range of toothpastes and toothbrushes are very well known and has strong brand recall. The Company also provides a range of personal care products under the ‘Palmolive’ brand name. Colgate has been ranked as India’s No. 1 Most Trusted Brand across all categories for four consecutive years from 2003 to 2007 and in 2011 and 2012 by Brand Equity’s Most Trusted Brand Survey. It is the only brand to be in the top three from 2001-2012. Colgate Palmolive is the largest player in the oral care segment in India with the market share as of June, 2014 of about 57 % in toothpaste and 42.6 % in toothbrush category. In spite of Procter & Gamble’s (P&G) re-entry into the toothpaste segment in India in June, 2013 with its brand Oral B, Colgate’s market share has only strengthened. Colgate has increased its market share in toothpaste from 54.7 % in June, 2012 to 57.1 % in April, 2014. Similarly, the market share in toothbrush has also increased from 38.7 % to 42.6 % for the same period. Colgate is believed to be the second largest player in the toothpaste category, HUL, is losing its market share with Dabur India inching share from 10 % to 11 % in last two years. Further, regional players like Vicco, Ajanta, Anchor, Smyle and Baidyanath have also witnessed a loss in market share in toothpastes. On performance side, Colgate Palmolive reported a 10.9 % increase in sales to Rs. 990 Cr. It reported PAT growth of 18.3 % on 2.40 % margin expansion led by 7 % volume growth in toothpaste to Rs. 130 Cr. Its EBITDA margins expanded 2.40 % as 0.90 % higher staff costs. EBITDA increased by 27.5 % to Rs. 186 Cr. Colgate’s Toothpaste volumes were up by 7 % with overall volumes up 5 %. Rural demand has been better than urban demand which declined at higher pace. Colgate’s Toothpaste market share was up 0.70 % at 56.7 % v/s 56 % in Jan‐Sep 2013. Colgate’s Toothbrush market share was up by 1.40 % YoY to 42.6 %. Colgate Palmolive’s new launches like Sugar Acid Neutraliser, Visible white Regimen and Colgate Slim soft toothbrush’s success is ensuring strong visibility. Colgate Palmolive enjoys strong Brand recall along with strong innovations in pipeline and has focused approach which ensures robust growth for the company. Company commands premium valuations due to strong brand, sustained high ROE and ROCE of more than 100 % and dividend pay-out ratio of 75 % & also there's a possibility of bonus issues by the company as it has been more the two decades from the last bonus given by the company so investors can expect bonus soon as company has enough reserves. Higher dividend payout exuberates confidence on future cash generation. At the current market price of Rs. 1,873.20, the stock is trading at a PE of 43.76 x FY15E and 36.80 x FY16E respectively. The company can post Earning per share (EPS) of Rs. 42.80 for FY15E and Rs. 50.90 for FY16E. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. One can ‘BUY’ in COLGATE PALMOLIVE INDIA LTD with a Short term target of Rs. 2,060 and my conservative  price for Medium to Long term investment is Rs. 2,366.00 but looking at the potential of the company to earn it could give Rs. 3000 + in near next 3 years time .

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	3,163.90	3,578.20	4,089.50	4,772.90
NET PROFIT (₹ Cr)	496.80	484.30	582.10	692.80
EPS (₹)	36.50	35.60	42.80	50.90
PE (x)	47.00	48.20	40.10	33.70
P/BV (x)	47.70	38.90	35.60	32.30
EV/EBITDA (x)	34.80	34.80	27.50	22.00
ROE (%)	101.46	90.00	74.70	68.85
ROCE (%)	153.28	127.54	118.44	109.85

I would buy COLGATE PALMOLIVE (INDIA) LTD for Medium to Long term for target of Rs. 2,366.00 and for the shorter term the target would be Rs. 2,060.00. 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 ₹ 1,741.74 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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SNOWMAN LOGISTICS LTD : LOGISTICS THE DIFFERENT WAY !!!

Scrip Code: 538635 / SNOWMAN

CMP:  Rs.  85.75; Buy at current levels. Short Term Taget : Rs. 100.00;
Medium to Long Term Target: Rs. 125; STOP LOSS – Rs. 78.89; Market Cap: Rs. 1,427.30 Cr; 52 Week High/Low: Rs. 103.80 / Rs. 47.00.

Total Shares: 16,64,49,395 shares; Promoters : 6,72,54,119 shares – 40.41 %; Total Public holding : 9,91,95,276 shares – 59.59 %; Book Value: Rs. 17.83; Face Value: Rs. 10.00; EPS: Rs. 1.81; Dividend: 00.00 %; P/E: 47.37 times; Ind. P/E: 55.21; EV/EBITDA: 24.18.

Total Debt: Rs. 90.64 Cr; Enterprise Value: Rs. 1,534.03 Cr.

SNOWMAN LOGISTICS LIMITED: Snowman Logistics Limited was founded in 1993 and is based in Bengaluru, India. The company was formerly known as Snowman Frozen Foods Limited and changed its name to Snowman Logistics Limited in March 17, 2011. Snowman Logistics Limited is a subsidiary of Gateway Distriparks Limited. The company came out with an IPO on August 2014 offering 4.20 Cr equity shares of Rs. 10 each for Rs. 47 per share raising Rs. 197.40 Cr. The object of offer for sale was to set up a new temperature controlled and ambient warehouse, to provide long term working capital and for other general corporate purposes. The shares got listed on Indian bourses on September 12, 2014 with a staggering at Rs. 79.80. Snowman Logistics Limited is an integrated temperature controlled logistics service provider with 23 temperature controlled warehouses across 14 locations in India. It has a storage capacity of 58,543 warehousing pallets and 3,000 ambient pallets. The company also owns and leases reefer and ambient vehicles. As of March 31, 2014, it operated 370 reefer vehicles consisting of 307 leased and 63 owned vehicles. In addition, the company offers primary and secondary distribution services; consignment agency services; and value added services, such as kitting, labelling, sorting, stuffing, and de-stuffing of containers, repacking, and bulk breaking. It serves corporate customers in dairy, ice-creams, chocolates, and poultry and meat industry sectors. It also offers services to Confectioneries including chocolate and baked products; Fruits and vegetables; Healthcare and pharmaceutical products; and Industrial products such as x-ray, and photo-imaging, films. It operates in two segments, Temperature Controlled Services and Ambient Distribution. The company offers warehousing solutions that cover ambient, chilled, frozen, and blast freezing facilities. Snowman Logistics Limited is locally compared with Allcargo Logistics Ltd, Blue Dart Express Ltd, Container Corporation of India Ltd, Gati Ltd, Gateway Distriparks Ltd, Sical Logistics Ltd, Kesar Terminals & Infrastructure Ltd, North Eastern Carrying Corporation Ltd, Shreyas Shipping & Logistics Ltd, Patel Integrated Logistics Ltd, Global Vectra Helicorp Ltd globally compared with Kawanishi Warehouse Co, Ltd of Japan, Sugimura Warehouse Co Ltd of Japan, Royal Mail Plc of London, Postal Services mail Plc of London, Deutsche Post AG of Germany, PostNL N.V. of Netherlands, Hanjin Transportation Co., Ltd of South Korea, Pos Malaysia Berhad of Malaysia, Singapore Post Ltd of Singapore, Yusen Logistics Co Ltd, Hyundai Glovis Co Ltd of Korea, Atlas Air Worldwide Holdings of USA, Bpost NV-SA Brussels, Belgium, Kintetsu World Express Inc of Japan, UPS – United parcel Service Inc of USA, Fedex Corp of USA, Air transport Services Group of Ohio, Hub Group Inc of Illinois, Xpo Logistics Inc of USA, Echo Global Logistics Inc of Illinois, Uti Worldwide Inc of British Virgin Islands,  Chichibu Railway Co., Ltd of Japan, Kobe Electric Railway Co., Ltd of Japan, Keifuku Electric Railroad Co., Ltd.

Investment Rationale:

Snowman Logistics Ltd is the most preferred integrated temperature controlled warehouse and transport logistics company in the organized sector enjoying lion market share. The company has been also providing additional services like repacking of products for direct marketing in retail market to the manufacturers, exporters and adding value addition of services to its clients that include Hindustan Unilever, Cadbury, McCain, Baskin Robbins, Ferrero Rocher, Taj Hotels, etc. and has PAN India presence at 14 locations with 23 warehouses and fleet of 370. Currently 242 cities are covered and plans more cities to be added to the network each year. During FY14, Snowman Logistics Ltd.’s warehouses were running at 82 % utilization while the trucking business was running at 100 % utilization. Gateway Distriparks Limited is the promoter and the largest shareholder of the company. Snowman Logistics offers blast freezing facilities at its temperature controlled warehouses in Bengaluru, Mevalurkuppam, (near Chennai), Visakhapatnam, Serampore (near Kolkata), Taloja (near Mumbai), Ahmedabad, Palwal (near Delhi), and Mubarakpur (near Chandigarh). Its integrated ‘Source to Stores’ operations comprise warehousing, primary distribution and secondary distribution and value-added services including kitting, labeling, sorting and bulk breaking. India falls under the category of low cold chain adoption countries i.e. countries with less than 10 % of produce passing through a cold chain, reflecting a significant potential for growth in Cold Chains. Temperature Controlled Logistics (TCL) provider in India is largely fragmented and generally focuses on a single region or focuses on any one aspect of the logistics chain such as storage or transportation. Consequently, there are very few integrated temperature controlled logistics service providers who have the ability to service customers on a pan-India basis. It is estimated that the current market share of organized players is only around 6 % to 7 % in the temperature controlled warehousing segment and about 15 % to 20 % in the temperature controlled transportation. So, the potential for growth in organized services in this sector is immense. It is expected that the organized outsourced temperature controlled services to grow at around 20 % p.a as against an overall market growth of around 15 % and in terms of volume, the existing capacity is estimated to be around 30 million MT of temperature controlled warehousing and around 7,000 – 8,000 in Reefer Vehicles. From the existing cold warehousing capacity, 75 % is dedicated to potatoes while 23 % is classified as ‘Multipurpose’ i.e. catering to multiple commodities across dairy products, frozen foods, fruits and vegetables and the balance 2 % is used across meat and seafood. 

Temperature Controlled Logistics (TCL) is responsible for preserving the quality to enable their availability during an off – season or making them available at locations far from the production/ processing locations. The temperature sensitive products like dairy & perishable products is stored & preserved in a custom built temperature controlled warehouses. These temperature controlled warehouse generally consists of temperature zones which are capable of warehousing goods in the range of –25ºC to +20ºC. Similarly, temperature controlled distribution entails primary and secondary transportation of temperature sensitive products from source to stores using temperature controlled containerized trucks and cargo trains. Certain containerized trucks are also modified to enable installation of temperature controlled zones. Businesses which utilize cold chains in India include dairy, poultry and meat, seafood, ready – to eat, chocolates, healthcare and pharmaceuticals, industrial products and fruit and vegetables. India’s temperature controlled logistics industry is estimated to be around Rs. 12,000 Cr to Rs. 15,000 Cr and is expected to grow at 15 % to 20 %, year on year, for the next 3 to 4 years to Rs. 22,000 Cr to Rs. 25,000 Cr. The growth is expected to be driven by an increase in the consumption of temperature sensitive perishables; Greater use of temperature controlled logistics in categories such as pharmaceuticals and fruits and vegetables and from the increase in the consumption of a gamut of niche and high end products that need to be maintained in temperature controlled environment. Since FY12, Cold Storage business in India has been given the "Infrastructure status", which makes bank financing easier. Also, Snowman Logistics is eligible for 100 % deduction under section 35AD for all capex made till AY13. This investment deduction allowance rate has increased from 100 % to 150 % in AY14. The tax benefits given to warehousing income under section 80 (I) (B) along with subsidy schemes will also be helpful for the company to aggressively pursue capex and growth. Snowman Logistics has asset light business model, given that 83 % of its entire fleet is on lease. Similarly for Warehouse division, company usually leases out the land on a long term basis and constructs its own building used for storage purposes. Snowman Logistics owns, both land and building at 9 of these 23 temperature controlled warehouses. This asset light strategy has helped the company to quickly scale up its businesses, thereby generating quicker pay-back period for investment made and higher Return on Networth. Management has maintained that money raised from issue proceeds would be deployed for capacity expansion, thereby restricting any further RoNW expansion in FY15E.

Outlook and Valuation: 

Snowman Logistics Limited is an integrated temperature controlled logistics service provider, promoted by Gateway Distriparks Ltd which in itself is one of the largest players in the organized temperature controlled logistics. Gateway Distriparks holds 40.4 % (post issue) in Snowman Logistics Ltd. Gateway Distriparks’s expertise as a major logistics player in India augurs well for Snowman Logistics as it instils confidence among Snowman’s customers besides providing leverage in institutional and banking relationship for Snowman’s business operations. A strong promoter and sound investor base reinforces Snowman logistics as a major brand in a largely unorganised temperature controlled logistics industry. Snowman Logistics Ltd caters to numerous customers ranging from HUL to McCain foods and from Suguna Foods to Ferrero India Pvt Ltd to Hotel Taj. Many of Snowman’s customers are competitors in their respective industry and Snowman’s ability to cater to each one of them in an unbiased and professional manner is a testament to the fact that contributions from its top clients have remained largely unchanged in the past three years. Snowman’s top 20 clients contributed nearly 56.75 % in FY11, 49.92 % in FY12, 39.02 % in FY13 and 44.1 % in Fy14, respectively in terms of revenue. The company garnered Rs. 197.40 Cr through its IPO during the month of August 2014. The company intends to use the part of the net IPO proceeds to setup six temperature controlled warehouses and 2 ambient warehouses across six cities. The estimated cost of construction of these warehouses is around Rs. 140 Cr. This will increase the pallet capacity from 61,000 to 85,000 (1 pallet = 1 Tonne) by FY15. The company intends to use the IPO funds of Rs. 197.40 Cr to retire its bridge loan and will meet the remaining capex of Rs. 128.28 Cr. Long term working capital requirements of Rs. 8.41 Cr will also be met from the IPO proceeds. The left over amount will be utilised for general corporate purposes after meeting the issue related expenses. The demand for perishable products is expected to increase in the coming years thus creating the need for larger warehouses and bigger fleet size to carry the products to the end customer. With new capacity coming on stream, Snowman Logistics will be able to garner greater market share from the anticipated pickup in demand. On Financial side, the company enjoys robust EBIDTA margin of 25 % and is likely to post 42.2 % revenue and 45.3 % EBITDA CAGR over FY14-16E. The company has adopted an asset light business model which has helped to keep fixed assets low, resulting in improvement in return ratios. As of FY14, 13 of the 23 warehouse land and 307 out of 370 reefer vehicles are on lease. Return ratios like RoE/RoCE have improved from 8.5 %/3.8 % in FY10 to 13.3 %/8.4 % in FY14. Snowman Logistics has a healthy balance sheet as the business throws up positive operating cash flow. And once these warehouses is fully operational, maintenance capex and overhead expenses would be stable and will increase revenues. This can throw up significant cash flows and will help margin expansion. Snowman Logistics is the only player in the organized segment in India, thus should command a scarcity premium in terms of valuation. Snowman Logistics offers a robust business model with one of the highest temperature controlled warehousing capacity, largest fleet size, national presence and market dominant position. At the CMP of Rs. 85.75, the stock is trading at its all-time high P/E of 61.25 x FY14E, 50.44x FY15E and 35.72x FY16E. The Company can post EPS of Rs. 1.40 for FY15E & Rs. 17.0 of FY16E & for FY17E it can post an EPS of around Rs. 2.40. Given the attractive valuations with the pan India presence, robust growth prospects and with excellent client base, one can buy into this Stock with a target price of Rs. 100 for the short term and for the medium to long term it should be Rs. 125.00.

KEY FINANCIALS	FY14A	FY15E	FY16E	FY17E
SALES (₹ Crs)	153.40	193.80	254.50	331.20
NET PROFIT (₹ Cr)	22.50	22.60	27.40	40.00
EPS (₹)	1.40	1.40	1.70	2.40
PE (x)	34.70	34.50	28.50	19.50
P/BV (x)	3.50	1.80	1.70	1.60
EV/EBITDA (x)	23.60	15.80	12.30	9.50
ROE (%)	10.10	5.20	5.90	8.00
ROCE (%)	6.50	6.50	7.40	9.40

I would buy SNOWMAN LOGISTICS LTD for Medium to Long term for target of Rs. 125.00 and for the shorter term the target would be Rs. 100.00. 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 ₹ 78.89 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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RETURN ON CAPITAL

CCL PRODUCTS (INDIA) LTD : DAS CAFÉ !!!

*As the author of this blog I disclose that I do hold C.C.L. Products India Ltd in my portfolio.

Scrip Code: 519600 / CCL

CMP:  Rs. 123.45; Buy at current levels and Accumulate at every Dips; Short term Target: Rs. 150; Medium to Long term Target: Rs. 200; STOP LOSS – Rs. 113.55 (for short term players only); Market Cap: Rs. 1,552.03 Cr; 52 Week High/Low: Rs. 124.90 / Rs. 24.95. 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. 5.54; Dividend: 50.00 % ; P/E: 22.28 times; Ind. P/E: 21.43; EV/EBITDA: 12.12.

Total Debt:  Rs. 240.39 Cr; Enterprise Value: Rs. 1,848.57 Cr.

CCL PRODUCTS INDIA LIMITED: CCL Products India Limited was incorporated 0n 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, 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 67 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' 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 with 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. Plans to produce 5,000 tons of coffee this year at its Vietnamese plant which has an annual capacity of 10,000 tons, and company plans to raise this capacity further in the next three years. This capacity expansion in Vietnam will make CCL the world’s second-biggest grower of the beans. Forecasts for good record 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 govt. offered concessions for setting up plant there. The Vietnam plant offers four benefits: 1) Logistical advantage of US$150 per tn because of proximity to coffee-growing zone, 2) Better raw material availability, with lead time lower by one-and-a half months as Vietnam is the second-largest green coffee grower, 3) Favourable duty structure and close proximity to coffee-consuming ASEAN nations like Japan, Korea, China, etc, and 4) 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. 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. 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 - 5 % of global coffee export. The Govt. of India however, proposes to provide support for the certification of organic coffee under the scheme ‘Integrated Coffee Development Project’ for XII Plan. There has been a gradual increase in the production of coffee in the country. The production of coffee in the country increased from 3,02,000 MT in 2010-11 to 3,18,200 MT in 2012-13. The domestic coffee consumption which was at 1,02,000 MT in 2009-10 has risen to 1,15,000 MT in 2011-12 and growing at the rate of 5-6 % per annum and is estimated at be at 1,20,000 MT during 2012-13. The exports of coffee have achieved an all-time high of 3.33 Lakh MT during 2011-12. 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 in Andhra Pradesh. The company is also supplying to private label manufacturers such as retail supermarkets.

Outlook and Valuation: 

CCL Products India ltd is India’s largest private label in instant coffee, supplying to premium brands in over 67 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. Recently, Government of India approved Rs. 950 Cr project for development of the Coffee sector in 12th Five year Plan, with an aim to increase production and Exports of Coffee. The Integrated Coffee Development Project (ICDP) will be funded for reasearch & development and for export promotion and for transfer of technology. 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. As stated above, coffee business is very tough to scale up, and the profitability, return ratios and cash flow of CCL remained subdued until FY11, adversely impacting its valuation. Therefore, its historical valuation is not the right benchmark. CCL has increased its capacity since inception in 1995 from 3,500tn and more than three times in the past six years at 33,000tn currently. The expansion was funded mainly through internal accruals, and without recourse to significant debt. CCL has not raised any fresh equity since its listing in 1995. In addition to this, CCL’s debt profile is conservative with a peak Debt to Equity ratio of 1.6 x to its current Debt to Equity ratio of 0.8 x. With Vietnam operations, it is expected that CCL can generate a healthy free cash flow of Rs. 340.5 Cr over FY14-FY17E, which is likely to be utilised to repay the entire debt of Rs. 292.1 Cr and can also improve dividend payout. CCL has now diversified operations in three countries - India, Switzerland and Vietnam - and plans to set up a plant in Africa. This diversified presence will help CCL to gain access to new markets and also exploit arbitrage opportunities between different manufacturing plants to its advantage which would also improve valuation due to lower volatility in earning profile. To cite an example, CCL will leverage the lower duty structure available for its Vietnam plant in several Asian markets and also leverage extended tax benefit. CCL operates on fixed margins without carrying the risk of coffee price volatility. CCL plans to launch its own products on Pan India basis under the brand name Continental (Spéciale, Premium and Supreme) and has already made a soft launch in AP. 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. It will take two more years for CCL to roll out its own brand nationally. Nestle India and HUL dominate the branded coffee market in India with a combined organised market share of more than 65 %. Unlike Nestle, which sells only spray dried coffee, CCL has a wider portfolio comprising premium freeze dried coffee, pure vanilla coffee products, etc. In addition, competitors (Nestle and HUL) do not have manufacturing capacities (for freeze dried instant coffee) and CCL has been manufacturing value-added coffee like single filter, double filter, freeze dried, etc at a much lower cost. Hence, CCL is able to offer better products at prices lower than its competitors. CCL’s management aims to achieve in the next three to five years market share of 20 %. 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. At the current market price of Rs. 123.45, the stock P/E ratio is at 13.27 x FY15E and 10.92 x FY16E respectively. Company can post Earning per share (EPS) of Rs. 9.30 for FY15E and Rs. 11.30. One can buy this stock with a target price of Rs. 200.00 for Medium to Long term investment. 

KEY FINANCIALS	FY14	FY15E	FY16E	FY17E
SALES (₹ Crs)	716.80	949.60	1,068.20	1,143.20
NET PROFIT (₹ Cr)	64.40	92.00	123.70	149.80
EPS (₹)	4.80	6.90	9.30	11.30
PE (x)	18.60	13.00	9.70	8.00
P/BV (x)	3.40	2.80	2.30	1.80
EV/EBITDA (x)	10.20	7.80	6.30	5.20
ROE (%)	20.40	23.60	25.80	25.10
ROCE (%)	12.30	16.40	20.20	23.30

I would buy CCL INDIA LTD for Medium to Long term for target of Rs. 200.00 and for the shorter term the target would be Rs. 150.00. 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 ₹ 113.55 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
*As the author of this blog I disclose that I do hold CCL INDIA LTD in my portfolio.

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