Thread by @SmartSyncServ

Did You Know?

CCL Products did not start with the coffee business.

Since its inception in1961, it had been in the business of Lease Finance.

In 1994, The Sahayak Finance & Inv Corp Ltd' changed its name to Continental Coffee Ltd

Rest is history!

Here’s the full story.

1/

09.04.1995: Started commercial production
Capacity: 3600 Mts
Leadership: Challa Rajendra Prasad.

Mr. Prasad is reckoned as a pioneer and 1st entrepreneur in India to have placed Indian soluble coffee in the hard currency world markets.

2/

Before starting the coffee business for CCL, Mr. Prasad set up Asian Coffee Ltd in 1989.

Asian Coffee was the first Indian non-multinational-owned company engaged in the business of producing instant coffee.

3/

The first few years were very difficult for them as orders were infrequent. They made a blunder of aggressively pitching PAN India for the branded business despite not having the portfolio ready.

This resulted in higher A&P costs and hence losses.

4/
~FY00 was a landmark year for them.
~Revenues shot up to 50Cr for the first time in history.
~PAT of 5 Cr (1st time profit crossed 1 Cr)
~FY01 was even better.
~Revenues 62 Cr. PAT 13 Cr
~All accumulated losses got wiped off and Net distributable profit of 7 Cr

5/

“We can’t be in survival mode. We have to be in growth mode.”- Jeff Bezos

With survival issues out of the way, CCL began its growth journey from 2003 onwards

6/

~2003: Acquired ACMIL-easy access to RM + penetration in developed market
~2004: First company in India to set up freeze-dried technology
~2004-2007: Capacity Expanded 4X, 3.6 KTPA to 14 KTPA
~2008: Singapore subsidiary formed for exploring foreign expansion

7/

~2010: introduced cost pass-through clause, hedging the price volatility of coffee
~2011: Set up 3KTPA capacity plant in Switzerland to tap EU
~2013: Set up 10KTPA spray-dried Plant in Vietnam
~2015: Continental Coffee established to tap the B2C segment

8/

~2018: Praveen Jaipuria, former head of marketing at Dabur roped in as CEO of B2C
~2019: A 5,000-ton FD Coffee facility in SEZ operationalized
~2020: Expects Branded Sales to double from what it was in FY19 soon.
~2021: Survives Covid-19 & works on distribution

9/

Instant Coffee Market
~$ 96 Bn market in 2020. (CCL turnover in FY20 roughly $140 Mn)
~Quickly becoming popular all over the world
~Ease of Transportation
~Offers convenience in preparation, shelf life
~Instant coffee market growing at 15% YoY

10/

Two types of Coffee

Spray Dried
~Producing a dry powder from a liquid or slurry by rapidly drying with a hot gas.
~Cheaper Process
~Robusta Beans (strong) used as most of Aroma is lost in the process.
~Vietnam is the largest producer of Robusta Coffee.

11/

Freeze Dried
~Involves freezing the product, lowering pressure, then removing the ice by sublimation.
~Premium quality
~Arabica beans used as Aroma and quality is protected.

12/

Moat

~Long continuing habit- low substitution risk
~Capital intensive business- high upfront cost- long WC cycle
~Strong IP: 1000+ blends
~Low-cost & Tax-efficient -Strategically located
~Diversified revenue base (> 90 countries)

13/

Evidence of Moat is visible in the shock-proof business model

~Gross Margin has steadily improved from 30%+ in 2004 to 45% in 2020
~Last 20 years: 1160 Cr Capex Vs 1163 Cr CFO
~No equity Dilution
~Reasonable Debt attractive rate in foreign currency

14/

From 2000 to 2020

~Sales has increased from 50 Cr to 1139 Cr.

That’s a 17% CAGR

~PBT has increased from 6 Cr to 225 Cr

That’s 20% CAGR

15/

~Investors in CCL Products got 0 return between 2005-2013 (8 long years)
~In the next four years it was a 12 bagger.
~From its ATH in 2017, it is down 35%.
~From 35 times P/E in 2017 it is 18 times now.

What could be the reasons?

16/

That brings us to the risks:

~Key customer risks in the bulk business
~Dependent on coffee plantations in India & Vietnam
~Intense Market competition in Retail Branded Space
~Unfavourable change in export duty structure. (MEIS)
~Forex movements

17/
Parting Thoughts

CCL has optionality in the B2C segment and they are ready to sacrifice near term returns for Robustness

P.S>The attached slides have been sourced from Prof Sanjay Bakshi’s presentation

18/
Hungry for more?

Last 8 Concall Crisp Notes: bit.ly/39C2XS2
5- Min Stock Idea Report: bit.ly/3cOzUNj
Stock Infographic: bit.ly/2PM0KfM
FY20 AR Notes: bit.ly/3cJGUdY
Video: bit.ly/3drqNRv

L& R if you found value 🙂🙏

~End~