Q4FY23 Review: CCL Products: Growth to continue in near term

18 May 2023 , 12:29 PM

CCL delivered a robust quarter of growth as Ebitda/PAT grew 34%/62% YoY respectively. Management guided to ~20% volume growth in FY24. Capacity expansion projects are on schedule and could add ~22,000MT of capacities by the end of FY25. Order book and revenue visibility are healthy; but delay in commissioning of capacities or loss of important customers are key risks.

FY24 growth driven by new capacities in Vietnam: 

Volume growth in FY23 was ~20%; management guided to achieving similar growth in FY24. Growth in FY24 is estimated to be driven by the ramp-up in capacity utilisation of the recently commissioned 16,500MT plant at Vietnam. Management is confident of achieving a capacity utilisation of ~50% at this plant. Post FY24, growth is likely to be driven by the ramp-up of capacities coming up in both India (~16,000MT by Q4FY24) and Vietnam (~6,000MT by Q3FY25).

Branded business focusing on geographical expansion: 

Branded business, which clocked ~Rs1.5bn of revenue in FY23, is focusing on expanding distribution across northern and western regions. The company is initially trying to build its brand in the cream of cities, and is focussing on social media marketing (as against mass advertisements) for brand building.

Valuations price in stellar growth: 

Overall, analysts of IIFL Capital Services continue to believe that CCL is on track to register healthy growth in earnings in the coming years, underpinned by orders in hand coupled with capacity expansion in Vietnam and India. At 25x/20x FY24/25 P/E, they think valuations factor in most upside. CCL’s ~20% ROE profile, balance sheet and growth prospects remain attractive. Key risks include – loss of customer, delay in commissioning of ongoing capex projects and inability to ramp-up volumes at new plants.

Analysts of IIFL Capital Services raise their FY24-25 EPS estimates by 3-4%. Their TP, rolled forward to Jun’24, moves to Rs635.