Buy This Small Cap FMCG Sector Stock For Target Price Of Rs 600, Says Axis Securities

Axis Securities has recommended "buy" CCL Products (India) Limited, an FMCG sector company, with a target price of Rs 600 per share. The brokerage has picked CCL in its October top picks research report. According to the brokerage's given target price, the stock has a potential gain of up to 24% over the 12 months if purchased at the current market price.

Business Overview

CCL Products (CCLP) was incorporated in 1994 as an Export Oriented company engaged in the manufacture of Instant Coffee globally. It can import green coffee into India from any part of the world, and export the same to any part of the world, free of all duties. CCL Products manufactures Soluble Instant Spray Dried Coffee Powder, Spray Dried Agglomerated / Granulated Coffee, Freeze Dried Coffee, as well as Freeze Concentrated Liquid Coffee. Today, the company is India's largest manufacturer and exporter (36% market share) of instant coffee and the largest player in the private label market (with a 10% market share). 

Stock Outlook & Returns

On the NSE, the stock's current market price (CMP) is Rs 484.75 on 11 October. In the past week, it has given 4.08% negative return and in the past one month, 2.9% negative return. However, the stock gained 20.86% in the past 3 months. It has given a positive return of 18.17% in the last 12 months. 

When compared to returns over the previous year, its returns over the previous three years are strong. It has given a multibagger return of 104.15% over the last three years. The stock gave 55.27% positive return over the last five years.

The 52-week low of the stock is Rs 310 apiece and the 52-week high is Rs 541.70 apiece, respectively. With a market valuation of Rs 6,448.53 crore, it is a small-cap company of manufacturers and exporters (Tea and coffee) in India.
 

Post Q1FY23 guidance strong

The management remains confident and has upped its volume guidance from 15% to 20-25% volume growth. Moreover, 10-15% price growth should aid the company's overall topline growth of ~40% in FY23. It further alluded to consistent 30-40% annual growth in the Domestic branded business as it deepen further into the Indian markets. 

New capacity expansion

In Q1FY23, CCL announced a new greenfield (fourth unit) spray-dried manufacturing facility in Tirupati (AP) with an annual capacity of 16,000 tonnes which is expected to be commercialised by Q4FY24. This is an additional expansion on the back of the ongoing expansion of 16,500 tonnes (to 30,000 tonnes) of Vietnam's capacity (commercialised in Q4FY23). The company's capacity in FY22 stood at 38,500 tonnes, which will increase to 71,000 tonnes across Vietnam and India by FY24 end. The management's confidence in building new capacity is driven by 1) Strong domestic business outlook going ahead with expected growth of 30-40% over the next 3-4 years, 2) Robust international business outlook backed by several new business wins, and 3) Improving competitive edge over key competitors in Brazil with increasing economies of scale.

Domestic business on a strong footing

The company's overall domestic sales reported revenue of Rs 200 Cr in FY22 (vs. Rs 140 Cr in FY21). The branded business comprises ~70% of the domestic sales. In Q1FY23, the domestic business grew ~55% YoY and the company aims at ~30-40% topline growth with breakeven in FY23 as it is looking for large distribution expansion beyond south markets. We expect domestic business to grow 2x from the current 4,000 tonnes in the next 2-3 years. The company's gross margins in the domestic bulk and branded business currently stand at 20% and 35%. Recently launched plant-based meat protein is in a trial stage in three cities to gauge customer feedback. 

Valuation

"We remain positive on CCL Products given 1) Strong footing in the International markets as it continues to gain market share and access new business, 2) Cost-efficient business model; 3) Doubling of Vietnam's capacity from the current 13,500 MT to 30,000 MT and new capacity expansion in India leading to strong volume growth visibility for the next 2-3 years; 4) Capacity addition in the value-added products (FDC and small packs), and 5) Foray into high- margin branded retail business (Continental Coffee, Plant-based meat protein). We expect CCLP's Sales/EBITDA/PAT to grow at 26%/23%/19% CAGR over FY21-24E and maintain a high conviction BUY rating on the stock with a revised TP of Rs 600/share,"  the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.