Recommendation From Tea & Coffee Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

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HERE IS WHY
Elevated global coffee prices
Capacity expansion
Demand for agglomerated coffee in Vietnam 

CCL Products (India) Limited is engaged in the business of manufacturing instant coffee. It operates in the coffee and coffee-related products segment. The company produces soluble instant spray dried coffee powder, spray dried agglomerated/ granulated coffee, freeze-dried coffee and freeze concentrated liquid coffee. It supplies flavoured coffee, decaffeinated coffee, organic coffee, rainforest coffee, fair trade coffee, dual and triple certified coffee, as well as chicory-coffee mix. 

The company's brands include Continental Special, Continental Premium and Continental Supreme. The company's soluble instant coffee manufacturing plant has a capacity of 35,000 metric tonnes per annum. 

On the financial front, CCL Products (India) posted a 113.15 per cent rise in the revenue to Rs.216.69 crore in the second quarter of FY18 as against Rs.101.66 crore in Q2FY17. The company's PBIDT grew by 141.61 per cent to Rs.43.60 crore in Q2FY18 as against Rs.18.05 crore in the same quarter of the previous year. The net profit of the company rose 179.12 per cent to Rs.25.67 crore in Q2FY18 as against Rs.9.20 crore in Q2FY17. 

On the annual front, the net sales of the company increased 4.46 per cent to Rs.707.39 crore in FY17 on a year-on-year basis. The company's PBIDT grew 21.36 per cent to Rs.169.33 crore in FY17, as against Rs.139.53 crore in the previous fiscal. The net profit of the company increased 20.44 per cent to Rs.98.69 crore in FY17 as compared with Rs.81.94 crore in FY16. 

On the valuation front, the company is trading at a PE ratio of 30.12x, while the industry PE stood at 37.53x. Its return on capital employed (ROCE) stood at 26.53 per cent, whereas its return on equity (ROE) was 19.9 per cent. 

The company's enhanced production capacity at its Duggirala plant in Guntur district of Andhra Pradesh, coupled with its multi-dimensional presence will help the company tap the increased demand for coffee in the international markets. 

The company's flourishing presence in Vietnam enables it to cater to the strong demand of coffee from ASEAN countries, including Japan, Korea and China, among others, at lower price. This allows the company to operate within the frameworks of the favoured nation status, which confers the benefits of reduced or nil duty structures, besides savings on logistics. 

The company is also enhancing its presence in the domestic market by concentrating on its private label segment, as well as established brands. The soluble coffee consumption is expected to grow over 15 per cent on a year-on-year basis. We recommend the reader-investors to BUY the stock. 

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