Keynote Capitals has issued a Buy recommendation for CCL Products (India) Ltd, with a price target of Rs. 1,221, reflecting an upside potential of 72% from its current price of Rs. 670. CCL is India's largest manufacturer and exporter of instant coffee and the world's largest private-label instant coffee producer. The company is focused on expanding its branded business and has made significant capacity expansions to meet growing demand. CCL’s focus on premium products, including freeze-dried coffee, will drive margin improvements and long-term growth, positioning it well in the global market.

Capacity Expansion to Drive Growth

Significant Capacity Expansion Over the past two years, CCL has undertaken a major capacity expansion, increasing its production capacity by over 80%. From FY22's 38,500 TPA to 71,000 TPA in FY24, with an additional 6,000 TPA planned by FY25, CCL is well-positioned to capitalize on emerging market opportunities. The expansion is driven by robust client demand, particularly for freeze-dried coffee, which offers superior margins compared to spray-dried products.

Expansion into Branded Business

Strong Growth in B2C Segment CCL is strategically expanding its B2C branded coffee business both domestically and internationally. The company has strengthened its presence in South India, broadened its distribution network, and expanded its e-commerce channels, vending machines, cafes, and kiosks. In FY24, the branded business generated Rs. 2,100 Mn in revenue, and the company aims to grow this segment by 30-40% annually, with a target to increase branded revenue to 50% of total revenue by 2030.

International Expansion and Strategic Acquisitions

Acquisition of Löfbergs Group Coffee Brands In June 2023, CCL acquired several UK coffee brands from the Löfbergs Group, expanding its footprint in the European market. The company is re-launching these brands and introducing innovative products like coffee bags to capture the growing demand in the UK. This acquisition aligns with CCL's strategy to penetrate modern retail markets and enhance its B2C business internationally.

Robust Financial Performance

Revenue and Profit Growth For FY24, CCL reported revenues of Rs. 26,537 Mn, with a projected growth of 15% annually through FY27. EBITDA margins are expected to improve from 17% in FY24 to 20% by FY27, driven by higher contributions from freeze-dried coffee and branded business. Net profits are forecasted to grow at a compound annual growth rate (CAGR) of 27% over the next three years, with EPS expected to reach Rs. 40.39 by FY27.

Valuation and Target Price

Buy Recommendation with a Price Target of Rs. 1,221 Keynote Capitals values CCL at 21x EV/EBITDA on FY27E estimates, resulting in a price target of Rs. 1,221, offering an upside of 60.7% from its current levels. The company's robust growth in both its B2B and B2C segments, along with its strategic capacity expansions and international acquisitions, position it for sustained profitability and market leadership.

Key Risks

Volatility in Green Coffee Prices The fluctuation in global green coffee prices, driven by weather conditions and supply disruptions, poses a risk to CCL’s cost structure. While the company mitigates this through pre-sale contracts, any significant price increases could impact margins.