CCL Products Ltd (Q3 FY16): Missed estimates; Structural story intact!!!

 The management stated that consolidated EBITDA will be ~Rs195cr and PAT-level growth will be at least 25% for FY16E excluding export incentives to be received from the government.

Feb 04, 2016 12:02 IST India Infoline Research Team

CMP Rs179, Target Rs301, Upside 68.0%
 
  • CCL Products or CCL reported a decline in revenue by 11.8% to Rs213cr, 16.5%/15.2% lower than our/BBG estimate, respectively. Standalone operations fell down by 6% to Rs161cr as against our estimate of Rs170cr and Vietnam operations declined 25.7% to Rs52cr against our estimate of Rs85cr. Revenue declined mainly because of the fall in green coffee prices, partial shutdown of Indian plant in December 2015, deferment of export incentives to the tune of ~Rs14cr and rescheduling of contracts by customers following changes in global economic environment.
  • With lower green coffee prices, gross margin at domestic/Vietnam operations rose 169bps/1,933bps to 42.1%/48.4%,respectively,while consolidated gross margin rose 653bps to 43.6%.
  • Despite higher power cost and Other expenses, operating margin improved 255bps because of fall in raw material prices and increase in the share of value-added products. Following lower revenue, operating profit was flat YoY at Rs46cr. With healthy cash flow and lower debt, interest costs declined 19% to Rs3cr. Net profit was flat at Rs26cr, 25.2%/15.3% below our/BBG.
  • The management stated that consolidated EBITDA will be ~Rs195cr and PAT-level growth will be at least 25% for FY16E excluding export incentives to be received from the government.
  • We have reduced our FY16/FY17/FY18 revenue estimates by 12.5%/7%/6% to Rs864cr/Rs1,094cr/Rs1,366cr, respectively, and PAT estimates by 17.6%/11.9%/9.3% to Rs116cr/Rs161cr/Rs222cr, respectively. We maintain our BUY rating with a reduced target price of Rs301 (based on 18x FY18E) from earlier Rs369 (based on 20x FY18E).
 
Consolidated Result table
Y/E Mar (Rs cr) Q3 FY16 Q2 FY16 % qoq Q3 FY15 % yoy
Net sales 213 235 (9.4) 241 (11.8)
Net RM (120) (141) (14.9) (152) (20.9)
Power/Fuel cost (13) (11) (20.1) (13) 5.6
Other expenses (34) (35) (1.8) (31) 8.3
Operating profit 46 48 (5.7) 46 0.1
OPM (%) 21.4 20.6 84bps 18.9 255bps
Depreciation (7) (7) (0.8) (7) 1.5
Interest (3) (3) 2.2 (3) (19.2)
Other income 1 1 (58.7) 1 (52.3)
PBT 36 40 (8.7) 36 0.1
Tax (10) (11) (2.0) (10) 1.7
Effective tax rate (%) 28.7 26.7 198bps 28.3 45bps
PAT 26 29 (11.2) 26 (0.5)
PAT margin (%) 12.2 12.4 (24)bps 10.8 138bps
Source: Company, India Infoline Research
 
Revenue growth missed our estimates
Because of the reduction in green coffee prices (~18%-20% down YoY), partial shutdown in Indian plant in December 2015 (~10 days to the tune of 300tn-310tn), deferment of export incentives to the extent of ~Rs14cr (following system lacuna on the government side, which once addressed, will be booked in Q4FY16 or Q1FY17), rescheduling of contracts by customers amid changes in global environment (which will be nevertheless made up by the customers in subsequent years), led a subdued revenue growth for the quarter. As per management, the company has agreed to reschedule contracts for certain customers as they have promised order placements and company wants to maintain healthy relations with them. Hence, these revenues are likely to be booked in FY17. As per management, as the conversion rate from green coffee to instant coffee is 2.1x-2.7x, a 10% drop in the green coffee prices leads to ~6% drop in the prices of instant coffee.
 
Lower green coffee prices and higher value added products led healthy expansion in margins
With a fall in green coffee prices (raw-material) and increase in the share of value added products with better realization, consolidated EBITDA margin improved 255bps to 21.4% in Q3FY16. Despite the fluctuation of coffee bean prices, EBITDA/tn continues to remain similar as last year, as the company’s pact from the raw-material to the finished products helps CCL to insulate from the unfavorable movement of coffee bean/currency prices does not impact EBITDA/tn for CCL.
 
Valuations and Recommendations
Owing to poor show in Q3FY16, we have reduced our FY16/FY17/FY18 revenue estimates by 12.5%/7%/6% to Rs864cr/Rs1,094cr/Rs1,366cr, respectively, and PAT estimates by 17.6%/11.9%/9.3% to Rs116cr/Rs161cr/Rs222cr, respectively. We maintain our BUY rating with a reduced target price of Rs301 (based on 18x FY18E) from earlier Rs369 (based on 20x FY18E).
 
Financial Summary
Y/E 31 Mar (Rs cr) FY14 FY15 FY16E FY17E FY18E
Revenues 717 881 987 1,177 1,453
yoy growth (%) 10.2 22.8 12.0 19.3 23.4
Operating profit 143 171 224 278 346
OPM (%) 20.0 19.4 22.8 23.6 23.8
Reported PAT 64 94 140 183 245
yoy growth (%) 35.8 45.8 49.3 30.6 33.7
EPS (Rs) 4.8 7.1 10.5 13.8 18.4
P/E (x) 37.0 25.4 17.0 13.0 9.7
Price/Book (x) 6.8 5.7 4.5 3.5 2.6
EV/EBITDA (x) 18.4 15.1 11.3 8.7 6.7
Debt/Equity (x) 0.8 0.5 0.3 0.1 0.0
RoE (%) 20.4 24.3 29.4 30.0 30.9
RoCE (%) 18.3 22.0 27.4 32.2 35.4
Source: Company, India Infoline Research
 
Result Analysis of Indian Operations
Y/E March (Rs cr) Q3FY15 Q2FY16 Q3FY16 YoY(%) QoQ (%) 9MFY15 9MFY16 YoY(%)
Net sales 171 178 161 (6.0) (9.7) 499 497 (0.5)
Net raw material & Purchase of finished goods 102 107 93 (8.7) (12.9) 307 296 (3.5)
% of sales 59.6 60.0 57.9 61.6 59.7
Power, oil & fuel cost 6 6 7 15.0 4.9 17 19 14.7
% of sales 3.5 3.6 4.2 3.3 3.8
Other expenses 31 29 28 (7.9) (4.3) 80 80 0.4
% of sales 17.8 16.5 17.5 16.0 16.1
Total expenditure 138 143 128 (7.5) (10.3) 404 396 (2.0)
Operating Profit 33 35 33 0.2 (7.0) 95 101 5.9
OPM(%) 19.1 19.8 20.4 126bps 58bps 19.1 20.3 122bps
Interest 1 1 1 (12.3) (10.1) 4 3 (26.2)
PBDT 32 34 32 0.6 (6.9) 91 98 7.4
Depreciation 2 3 3 7.0 (1.2) 7 7 3.6
Other income 1 0 0 (67.4) (36.1) 1 1 (55.2)
PBT 30 32 29 (1.2) (7.6) 85 91 6.7
Tax 10 11 10 1.7 (2.0) 29 31 7.0
Effective tax rate (%) 34.5 33.5 35.6 33.7 33.8
Reported PAT 19 21 19 (2.7) (10.5) 57 60 6.6
NPM(%) 11.4 11.9 11.8 41bps (11)bps 11.3 12.1 80bps
EPS (Rs.) 1.5 1.6 1.4 (2.7) (10.5) 4.3 4.5 6.6
Equity 26.6 26.6 26.6 - - 26.6 26.6 -
Source: Company, India Infoline Research
 
Result Analysis of Vietnam and Subsidiaries
Y/E March (Rs cr) Q3FY15 Q2FY16 Q3FY16 YoY(%) QoQ (%) 9MFY15 9MFY16 YoY(%)
Net sales 70 57 52 (25.7) (8.6) 165 171 3.5
Total expenditure 56 43 38 (32.3) (10.8) 127 125 (1.6)
Operating Profit 13 13 13 0.1 (2.2) 35 42 20.7
OPM(%) 18.3 23.0 24.7 637bps 161bps 20.9 24.4 347bps
Interest 2 1 2 (23.1) 12.1 7 5 (27.4)
PBDT 11 12 11 4.8 (4.1) 28 37 32.1
Depreciation 5 5 4 (1.3) (0.6) 13 14 0.9
Other income 0 1 0 (34.9) (65.7) 1 2 32.6
PBT 7 8 7 6.0 (13.1) 16 25 58.7
Reported PAT 7 8 7 6.0 (13.1) 16 25 58.7
NPM(%) 9.4 14.2 13.5 404bps (69)bps 9.6 14.7 511bps
EPS (Rs.) 0.5 0.6 0.5 6.0 (13.1) 1.2 1.9 58.7
Equity 26.6 26.6 26.6 - - 26.6 26.6 -
Source: Company, India Infoline Research
 
Change in estimates
Earlier assumption New assumption Change (%)
Y/E Mar (Rscr) FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Sales 987 1,177 1,453 864 1,094 1,366 (12.5) (7.0) (6.0)
EBITDA 224 278 346 194 255 320 (13.6) (8.4) (7.6)
EBITDA (%) 22.8 23.6 23.8 22.4 23.3 23.4 (31) (34) (41)
APAT 140 183 245 116 161 222 (17.6) (11.9) (9.3)
Source: Company, India Infoline Research
 
Our estimates versus actual performance
Y/E Mar (Rscr) Q3FY15 Q2FY16 Q3FY16 YoY (%) QoQ (%) IIFL estimates Variation (%) BBG Consensus Variation (%)
Net Sales 241 235 213 (11.8) (9.4) 255 (16.5) 251 (15.2)
EBITDA 46 48 46 0.1 (5.7) 56 (18.7) 48 (5.2)
EBITDA (%) 18.9 20.6 21.4 255 84 22.0 (57) 19.2 225
Adjusted PAT 26 29 26 (0.5) (11.2) 35 (25.2) 31 (15.3)
Source: Company, India Infoline Research

Related Story