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CCL Products Q1FY15 results update

July 22, 2014, Tuesday, 11:44 GMT | 07:44 EST | 16:14 IST | 18:44 SGT
Contributed by Nirmal Bang

CCL reported Q1FY15 results in line with our expectations. Revenues grew 30% YoY while they were down 20% QoQ. Q1 is a seasonally weak quarter for the industry while Q4 is the peak. Margins grew 150 bps QoQ and by 200 bps YoY at 20.5%. We expect the company to deliver strong performance in FY15 on the back of expansion, available tax breaks and steady growth in instant coffee consumption. We believe that since the company’s investment phase is over, it will be able to do better cash generation thus improving ROE from FY15 onwards and thus can garner better valuations. At CMP, stock is trading at a P/E of 10x and 7.5x its FY15E and FY16E earnings and we maintain BUY recommendation on the stock.

Q1FY15 details

Consolidated Revenues for the quarter grew -20%/29.5% QoQ/ YoY on the back of partly commercialized Vietnam plant. Company saw 8% YoY increase in volume growth. On QoQ basis, the sales fell due to seasonality. Indian plant was under maintenance for few days during the quarter; however co was able to cover for the loss.

EBIDTA margins grew 150 bps QoQ at 20.5%. Company expects to maintain these margins on the back of better inventory and power cost management. Post the division of Andhra Pradesh, the state has become power surplus one and CCL expects the power cost to be under control going forward. During the quarter, there was marginal forex loss included in the other expenses.

Company has also made arrangements for guaranteed Power with exchanges in Andhra Pradesh at fixed costs which is aiding to better margins for the company.

Tax rate for the standalone business came in at 27% during the quarter since the company has installed some pollution controlled equipments which has accelerated depreciation. Going forward, company might have similar tax rates for standalone business. On consolidated levels, tax rate stood at 22% during the quarter as Vietnam plant has 4 yr tax holiday.

PAT grew by 13% QoQ to Rs.20.1 crore on the back of better margins and lower tax rate.

Vietnam’s plant would have a capacity of 13000 MT and company expects 50-60% capacity utilization for FY15E. Once the utilization peaks, management plans to increase the Vietnam capacity to 20000 MT.

Company expects to enter newer markets like Japan; Korea with the start of production in Vietnam. Thus it expects 25-30% growth in revenues in FY15.

Company plans to build its Retail ‘Continental’ Brand in India for which it has already made soft launch in Andhra Pradesh.