LKP Securities recommends a BUY rating on CCL Products (India) Limited with a 12-month target price of Rs 881, anticipating a potential 26% upside from the current market price of Rs 701. This guidance follows CCL's Q2 FY25 results, which revealed a robust year-over-year revenue growth of 22%, fueled by high-margin contracts and a 10% volume increase. The expansion is underpinned by the company’s steady progression in the newly established Vietnam freeze-dried coffee facility and strategic brand revamps in international markets. LKP forecasts CCL’s revenue, EBITDA, and PAT to grow at compound annual rates of 19%, 25%, and 29%, respectively, over FY24-26E, positioning CCL as a promising investment.

Key Financial Highlights

Robust Revenue Growth: CCL reported a notable 22% YoY increase in revenue, reaching Rs 7,382 million in Q2 FY25, although reflecting a minor sequential decline of 4.5%. This growth stemmed from increased high-margin product sales and a 10% YoY volume boost, underscoring resilience in demand.
Improved EBITDA Margins: EBITDA rose by 24.7% YoY to Rs 1,371 million, with EBITDA margins improving by 48 basis points (bps) to 18.6%. The cost efficiencies achieved in operational expenses aided this margin expansion.

Positive PAT Trajectory: The company reported a PAT of Rs 740 million, marking a 21% YoY increase and achieving a stable PAT margin of 10%, consistent with previous quarters.

Strategic Expansions and Operational Updates

Vietnam Facility Utilization: CCL’s new freeze-dried coffee facility in Vietnam, with a capacity of 30,000 metric tonnes, is currently running at 40-50% utilization. This progress highlights CCL’s scaling potential, with the facility expected to reach full utilization as demand strengthens.
Brand Acquisitions and International Focus: CCL has completed its acquisition of six premium brands from Sweden’s Löfbergs Group, including the Percol brand. Efforts are underway to revitalize these brands through enhanced visibility and relisting in key retail chains across the UK. This initiative is expected to bolster CCL’s international revenue streams.

Stock Performance and Comparative Analysis

Price Performance vs. Nifty 50: Over the past year, CCL Products delivered a 12.2% return, trailing the Nifty 50’s 24.7% performance. However, the recent price rally of 5.8% over the past month suggests an upswing in investor sentiment.
Shareholding Structure: As of September 2024, CCL’s promoters held a stable 46.09% stake, while mutual funds and foreign portfolio investors (FPIs) held 18.99% and 10.17%, respectively, indicating strong institutional confidence in the stock.

Guidance and Forecast

Projected Growth: LKP projects that CCL will achieve a revenue CAGR of 19%, with EBITDA and PAT expected to grow at CAGRs of 25% and 29%, respectively, over FY24-26E. This growth trajectory is supported by CCL’s cost-effective model, a shift toward high-margin specialty coffee, and increased capacity.
Target Price and Valuation: CCL is valued at a 12-month target price of Rs 881, reflecting a PE of 28x based on the anticipated FY26 EPS of Rs 31. LKP’s valuation also considers the anticipated global expansion and strategic investments in value-added coffee segments.

Risks and Market Considerations

Raw Material Price Volatility: Fluctuations in green coffee prices could impact CCL’s profitability, particularly if prices stabilize at elevated levels. The company is managing this risk by emphasizing short-term contracts during price peaks.
Climatic and Geopolitical Risks: Unpredictable weather patterns in coffee-producing regions such as India and Vietnam, combined with potential geopolitical disruptions, pose risks to supply chains and raw material costs.

Conclusion and Investment Outlook

LKP Securities’ *BUY* recommendation on CCL Products underscores the firm’s resilience, growth potential, and strategic global expansion. The stock’s current valuation, coupled with robust financials and strategic developments, makes CCL an attractive investment for growth-focused investors.