CCL Product (India) Ltd.

CCL Products (India) Ltd.
Exchange: BSE BSE Code: 519600 Current Market Price: 232.10 Date: 24-Oct-18
Company Overview
CCL Products, (India) Limited, a global coffee
manufacturer was founded in the year 1994 with the
vision of creating only finest and the richest instant
coffee in the world. They are among the only
companies in the world to produce all four types of
soluble coffee from a single location. The company
is a topmost producer and exporter of various types
of instant coffee. Company is specialized in
importing green coffee from any part of the world
and export processed coffee across the globe, devoid
of any duties. It has distinction of setting up India’s
first Freeze Dried Instant coffee manufacturing plant
in the year 2005.
a) CCL products are currently being exported to
more than 85 countries.
b) Currently selling almost 1000 different
blends to customers.
c) Swiss & Brazilian technology at its plant is
purchased from Turnkey.
Currently CCL is planning grab a bigger pie in the
freeze dried coffee by setting up its fourth plant in
Chittoor, Andhra Pradesh at an investment of Rs.
300 crore.
Investment Rationale
 Stable Profit Margin: CCL works on cost plus
margin basis because of which there margin
remain 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 because of
this approach CCL has been able to maintain
their operating profit margin above 19% in last
five years. And even adverse volatility in coffee
prices will not affect its margin.
Latest Date 24-Oct-18
Latest Price (Rs) 232.10
52 Week High (Rs) 354.60
52 Week Low (Rs) 230.15
Face Value(Rs) 2.00
Industry PE 17.79
TTM Period 2018-09
Price/BV(x) 3.80
EV/TTM EBIDTA(x) 12.01
EV/TTM Sales(x) 2.84
Dividend Yield% 1.08
MCap/TTM Sales(x) 2.62
Market Cap (Rs in Cr. ) 3087.58
EV (Rs) 3354.33
Latest no. of shares (in Cr.) 13.30

 Continuous Expansion: CCL products currently have a combined capacity of 35000 tonne per
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 for spray dried
coffee and 5000 tonne of liquid coffee ( 2000 tonne in solid terms) which is currently operating at
around 60 to 70%. CCL is setting up a freeze dried freeze dried instant coffee greenfield plant in
Chittor, Andhra Pradesh at an investment of Rs. 300 crore in which 50% will be through internal
accrual and remaining 50% through borrowings. Freeze dried coffee is a premium product being
served to niche market and is globally growing at fast pace.
 Largest Exporter: CCL products is India’s largest manufacturer and exporter of instant coffee.
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 is serving
the domestic market. They are taking initiatives to strengthen its brand in domestic retail coffee
market under the brand name ‘Continental’. They have started placing vending machines and
around 750 machines has been placed and there target is of around 3000 machines. 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 rice husk
and recycled solid waste as fuel. During production, 40% can be derived from the coffee beans 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 for the boiler. The ash
that comes from the boilers is being supplied to brick manufacturer.

Risks
Coffee Prices: Unexpected fluctuation in green coffee prices may adversely affect the profitability of
the company.
High Competition: India’s instant coffee market is a duopoly of the firms Nestle and Bru which
account 55% and 45% of market share.
Adverse Currency Movement –CCL is an exported oriented unit and its 90% of the revenue is
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 other countries 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 the ecosystem will
result in change of quality of the coffee beans used as the raw material to produce instant coffee.

BUSINESS OF THE COMPANY
Instant Coffee Making Process
Green Coffee Beans storage: Coffee seeds (beans) of Coffea fruits obtained after removing the pulp
that are not yet been roasted. And these beans are stored in silos for further processing. There are two
types of coffee beans Arabica and Robusta

Cleaning & Grading: Coffee beans are cleaned to remove any kind of impurities and dust particles.
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 are sent for
grinding.
Extraction & Clarification: During the extraction process, soluble solids and aromas are efficiently
extracted and the coffee aromas are gently obtained to achieve the desired aroma profile. Ground
coffee is extracted with softened water. The extraction process is then followed 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 top of a tall
cylindrical tower. As the droplets fall, they dry, becoming a fine powder by the time they reach the
bottom. The powder may then be texturised into granules to facilitate dosage and dissolution. The
quality of the aroma and flavour are preserved thank to the very fast drying occurring during this
process.
Agglomeration: Spray dried powders require further agglomeration, an additional process stage is
used involving powder wetting, after drying and cooling. Control of wetting is carried out with water
and/or saturated steam in an agglomeration chamber equipped with a rotating impactor.
Freeze-drying: In this process, first, the coffee is allowed to sit so the water evaporates naturally,
leaving a concentrated coffee solution. This concentrate is then frozen to around – 40 Degree Celsius.
The remaining water freezes into ice crystals. Sublimation (a natural process 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 is converted
into solid ice crystals with the use of a refrigeration system. The ice crystals are then separated by
filters, centrifuges or with the help of wash columns.
Packaging: Finally, the soluble coffee is packaged into jars, cans, sachets / pouches and bag-in- box,
of varied sizes, shapes, styles and materials.

Products
Pure Soluble Coffee
In Spray dried coffee the concentrated coffee is sprayed from a high
tower in a large hot chamber, in this process the droplets falls, the
remaining water evaporates. The high temperature involved in this
method tends to affect the oils of the coffee, which leads to loss of more
flavour as compared to freeze dried coffee.
Price – Rs. 540/kg
Spray dried powders require further agglomeration, by the process of
converting the coffee powder into granules. An additional process
stage is used involving powder wetting, after drying and cooling.
In freeze drying coffee granules, coffee is allowed to sit so the water
evaporates naturally, leaving the concentrated coffee solution. This
concentrate is then frozen to around -40 Degree Celsius. 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 the
use of a refrigeration system. The ice crystals are then separated by
filters. There is no loss of aromas or other volatile components.

Chicory is a natural plant product used to add flavour to drinks. It is a
perfect blend of coffee and chicory which create a stronger coffee at a
lower cost as compared to pure soluble coffee. This coffee blend is
available in both forms – Spray dried forms as well as granules.
It is a white coffee without pre-added sugar, which is a mix of only
instant coffee and creamer. It is customised using various
combinations as per the requirements of the customers.
3 in 1 coffee is a premium mix of white coffee that includes instant
coffee, creamer and sugar. This coffee is needed to be mixed only
with hot or cold water for a perfect cup of coffee.
This variant is also available in decaffeinated and chicory mix
variants.
Decaffeinated coffee is the coffee that has almost all the caffeine
removed. Coffee beans go through a specialised process of
decaffeination that removes up to 97% of caffeine. This process
than leaves just 2-3mg of caffeine in a cup of coffee.

Production Capacity
CCL product has received an approval from the development commissioner of Visakhapatnam Special
Economic for setting up Freeze Dried Instant coffee manufacturing unit in Special Economic Zone at
Kuvakolli Village, Varadaiah Palem Mandal, Chittor District, Andhra Pradesh at an investment of Rs.
300 crore. Management is expecting 50% capacity utilisation in first year from Chittor plant.
The plant will add 5,000 tonnes per annum to its capacity, taking the total to 40,000 TPA. As the plant
is in tax free zone some impact on profit will also be seen.

Subsidiaries
 Continental Coffee Private Limited: Continental Coffee Private Limited is a wholly owned
subsidiary of the CCL Products, which was incorporated in 2011 with an objective of promoting
instant coffee brands of the Company in the domestic market.
In House Brands -
 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 various countries.
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 by it in
M/s.Grandsaugreen SA and M/s. Ngon Coffee Company Limited, to the parent Company,
thereby making both the Companies directly owned by CCL as 100% Subsidiaries.
 Grandsaugreen SA: Grandsaugreen SA is a wholly owned subsidiary of Jayanti Pte Limited
and step down subsidiary of the Company incorporated in Switzerland under Swiss law in 2008
Name
Proportion (%) of ownership interest
*2018-19 2017-18 2016-17
Grandsaugreen SA - 100 100
Ngon Coffee Company
Limited
- 59 59
Domestic Sales
Own Brand
( Continental Xtra,
Speciale, Strong)
Institutional Sales
(all the defense
establishment)
Private Label
(Reliance and
Spencer's)

and started its commercial operation in the year 2009. This is an agglomeration and packing
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 CCL products to
cater to the European Market with short lead time.
o Problems: Swiss plant is facing issue on account of unfavorable trade relationship
between Switzerland and European Union. Import duty levied by European Union on
Switzerland supply is 9% as compared to supply from India or Vietnam there is a 3.1%
duty.
o Revised target market: Switzerland is a blended market of Freeze Dried as well as
agglomerated coffees. Two or three major local brands are competing in the local Swiss
market with extremely high margin. CCL will take their base product to Switzerland
and will repack the agglomerated coffee and the will sell in local market at much higher
premium.
 Ngon Coffee Company Limited: Ngon Coffee Company Limited established in the year 2011
under the laws of Vietnam. Ngon Coffee state-of-the-art Soluble Instant Coffee Manufacturing
Plant is located at Cu Kuin Industrial Complex, Cu Kuin District, Dak lak Province, 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:
a) Raw material availability: Vietnam is the second largest producer of green coffee beans
in the world after Brazil. Vietnam rapid expansion in coffee production which was only
6,000 tons in 1975 and now is almost 2 million.
b) Tax Benefit : Company is exempt from income tax for four years starting from the first
year it generates taxable profit (from 2015 to 2018) and after that will be entitled to 50%
reduction in income tax for for nine succeeding year (from 2019 to 2027).
c) Market Presence: Presence in Vietnam help the company to cater to the coffee needs of
ASEAN countries and this is in close proximity to many South -East Asian nations,
Korea, China, etc. Most of these countries have granted Vietnam a most favored nation
status with reduced or NIL duty structures in addition to having savings on logistics.

Global Coffee Industry
Coffee has gained the status of being third most preferred beverage worldwide after water and tea.
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 shift the
preference of consumers towards coffee, which subsequently, is anticipated to propel the worldwide
market for instant coffee in the near future.
 Global coffee consumption increased at 2.2% CAGR between FY 2013-14 to 2016-17. In FY
2016-17, 15.89 cr. bags (60 Kg each) were consumed.
 Out of the total world coffee consumption 69.1% of the coffee is consumed by importing
countries like EU, USA, Japan, Russia and Canada while remaining 30.9% of the coffee is
consumed by the Exporting countries like Brazil, Ethiopia, Indonesia, Philippines and India.
 Consumption of Exporting countries is growing at CAGR of 2.3% while importing countries
coffee consumption is growing at a CAGR of 2.1%.
2.2% CAGR

 Europe is the largest consumer of coffee in the world from past many years and is growing at a
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 consumption
of 3.47 cr. bags and is growing with CAGR of 4.2% which is highest as compared to other
continents.
Coffee Consumption

Indian Coffee Industry
Coffee industry which has been growing at a CAGR of around 3.1% currently is expected to grow at
5.9% annually from 2018-2021.
 Robusta consist 56% of the total coffee export from India of about 223536.318 tonnes in 2017
and export is growing at a CAGR of 9.98% from 2015 to 2017. Robusta is a bitter tasting
coffee bean with 50% extra caffeine.
 Following Robusta, Instant coffee is the second largest exported coffee product in term of
quantity 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 growing at a
CAGR of 4.9% annually from 2014 to 2018.
4.92% CAGR4.92% CAGR

Among the total export instant coffee from India 24% of the quantity is exported to Russian Federation
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 of
Finland 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.

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

Ratios
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

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
New Bonus Shares
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

Peers Analysis
Particular Tata Coffee Ltd. CCL Products Ltd. Olam International Ltd.
About
Tata Coffee is coffee
company owned by the
Tata Global
Beverages, a sub-
sidiary of Tata Group.
Produce some of the
finest Indian Origin
Green Coffee Bean,
Instant Coffee, Pepper
and Tea.
CCL Products, (India)
Limited, a global coffee
manufacturer founded
in 1994. Company is a
topmost producer and
exporter of various
types of instant coffee.
Leading agri-business
operating from seed to shelf
in 66 countries, supplying
food and industrial raw
materials to over 22,000
customers worldwide.
Global leadership position
in Edible Nuts, Cocoa,
Spices and Vegetable
Ingredients, Coffee and
Cotton.
Capacity 8400 MT 35000 MT 29250 MT
Market Cap. 1814.47 3295.10 31311.25
Sales* 360.18 1136.67 38849.80
Sales Growth ( 5
yrs)**
3% 10% 9%
PAT 186.94 148.13 2772.59
ROA (%) 6.74 14.95 3.44
ROE (%) 17.16 21.65 8.50
Total Debt/Equity 0.88 0.42 1.46
Asset Turnover
Ratio
0.56 1.15 1.23
EBITDA Margin 16.86 20.97 10.40
ROCE (%) 11.17 23.02 -
EPS 5.71 11.13 8.89
* In the above table sales figure indicate total amount green coffee sold during the year. And the sales
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.

Valuations
Scenario 1 assumption: Currently, global coffee consumption has been growing with a CAGR of
2.3% from past 4 years. So assuming revenue growth to be conservative, it is assumed that sales will
grow with a CAGR of 2.3% till FY20.
Part 1 - Based on Profit after tax margin
FY 20
Particular 5 years avg. PATM (%) 3 years avg. PATM (%)
SALES 1189.90 1189.90
PATM (%) 12 13
PAT 141.68 158.41
P/E 20.74 20.74
MCap(cr.) 2671.66 3018.64
No. of shares 13.30 13.30
Price 200.83 226.91
Part 2 - Based on Profit before Interest, Depreciation and tax margin
FY 20
Particular 5 years avg. PBIDTM
(%)
3 Year avg. PBIDTM (%)
SALES 1189.90 1189.90
PBIDTM (%) 21 22
PBIDT 256.22 267.47
EV/EBITDA(x) 16.29 16.29
MCap (cr.) 3706.97 4090.35
Price 293.69 307.48

Scenario 2 assumption: According to the current scenario Asia coffee consumption is growing at a
CAGR 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
FY 20
Particular 5 years avg. PATM (%) 3 years avg. PATM (%)
SALES 1234.51 1234.51
PATM (%) 12 13
PAT 146.99 164.35
P/E 20.74 20.74
MCap(cr.) 2781.83 3141.82
Price 209.12 236.18
Part 2 - Based on Profit before Interest, Depreciation and tax margin
FY 20
Particular 5 years avg. PBIDTM
(%)
3 Year avg. PBIDTM (%)
SALES 1234.51 1234.51
PBIDTM (%) 21 22
PBIDT 265.82 277.50
EV/EBITDA(x) 16.29 16.29
MCap (cr.) 4063.45 4253.71
Price 305.46 319.76

Conclusion
Company being India’s largest manufacturer and exporter of instant coffee working with cost plus
margin basis and having global reach in more than 85 countries and selling around 1000 different
blends to customers.
CCL product is currently in expansion stage trying to grasp both domestic and global market by
increasing production capacity and brand promotion. Company is currently expanding its production
capacity by installing additional 5000 Tonnes capacity by setting up a freeze dried instant coffee
Greenfield plant being operational in FY19. In India they have started placing vending 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 export
demand will slowdown and will directly affect company’s sales. Duopoly in domestic market is also a
concern for expansion in domestic market.
Company stands strong due to its product taste and quality and it trying to build it brand name in
domestic market.
Disclaimer
I am not a SEBI registered Research Analyst. No recommendations are given for the company
discussed in the report. Any valuation discussed in the report is solely for informational reasons and
not to be taken as an investment recommendation. I do not hold any shares of the company, neither am
I beneficiary to any shares of the company.
Authored by: Vandana Pareek
Head of Research: Tejas Jariwala

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

CCL Product (India) Ltd.

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