Should India Look At Investing In CCL Products In the Long Term?

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It pertinent to ask the question whether India should look at investing in CCL Products (coffee processing business) in the long term. CCL Products (India) Limited’s revenue, EBIDTA and PAT have grown at CAGR at 12%, 16% and 24% from FY2011 to FY2020. In terms of cash flows, the operating floors have funded the growth in fixed assets bearing FY18 and FY19, while its ROCR has been in the range of 18% to 24%.

Image Source: BloombergQuint

Background of the company 

Incorporated in 1994 CCL products has been in business of processing of the green coffee and it is the largest private label instant coffee manufacturer with plants in India, Vietnam and Switzerland. CCL exports to nearly 90 countries and sells nearly 200 unique blends as well. CCL does not own any coffee plantations. It procures the green coffee from Chikmangalur, Karnataka and also imports a wide variety like Robusta and Arabia from Vietnam and Ethopia respectively.

Business Model 

It mainly caters to the B2B (business to business) segment of the market, and in 2016 it forayed in the B2C segment (business to consumer) by launching its own brands. In B2B model, CCL works largely on the cost plus model. The fluctuation in coffee prices does not impact CCL to a large extent. Further, majority of the customers place their requirement 6 to 8 months in advance.

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CCL drives nearly 55% to 60% of its revenue from large customers who buy around 1500 to 2000 tons per annum. They also provide order commitments for the next 6 to 12 months. Further, 20% to 25% of its volume is derived from small regional players. In fiscal year 2020, CCL commissioned Greenfield freeze-dried coffee plant at a capex of Rs. 300 crore. It was noted that its capacity utilisation stood at 50% which is likely to touch around 75% to 80% in fiscal year 2021. This is around the optimum utilization of about 90% FY22. This coffee has a much higher realisation compared to spray dried coffee, which will help in posting higher gross margins going forward for the company.

In the B2C side of the business, it has targeted the retail consumers. In FY20, it reported a revenue of Rs. 77 crore and a net loss of rupees 3.50 crore. In H1FY21, the reported revenues of Rs. 60 crore was mentioned and the target to reach the revenue of about Rs. 100 crore was also put forth. Currently, 90% to 95% of the retail market is with Nestle (Nescafe) and HUL (bru). In the month of September 2020, the business grew by 8% on the back of 7% volume growth which was mainly due to the strong operations in the Vietnam unit. Additionally, the gross margin expanded by 300 BPS due to the favourable mix. The higher proportion of freeze dried coffee from SEZ unit in India also led the recovery this time. CCI is in the value-added segment and is now entering the small size packs, and along with its large client base, it puts the company at an attractive space.

Plans ahead 

It can be noted that as of January 2021, the market share of the company is around 4% to 4.5% in the South Indian market, and once CCL reaches to its goal of 5% market share, it plans on introducing it in tier 1 and tier 2 cities of India.


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