CCL Products shares hit fresh 52-week high; is more upside left in the stock?

Shares of CCL Products extended its gains on Friday after the counter hit its fresh 52-week high during the early trading session. The stock has been on a secular run amid the rising demand and prices of coffee across the globe on the back of adverse climate conditions in Brazil.

The company has been on the radar of investors at Dalal Street on the back of launch of new products, aggressive capital expenditure to lift the capacity and expansion plans to enter new vertices and markets. The company recently entered a couple of new markets and niche segment categories, which it believes to have immense growth potential.

Shares of CCL Products rose on Friday to hit a new 52-week high at Rs 672.95 with a total market capitalization of more than Rs 8,800 crore. The stock has posted double digits gains in the last one month, while in the last one quarter stood around 20 per cent.

Shares of CCL Products have surged about 275 per cent in the last three years, while the stock is up 75 per cent in the last one year. In the last five years, it has delivered returns of 150 per cent to the investors. Analysts across the board remain positive on the stock, but see limited upside in the stock, considering its recent run-up.

"We believe that underlying demand for spray dried (SD) coffee continues to be strong across geographies and CCL Products is in a position to clock 60,000 tonnes volume by FY26-end, which should translate into ~Rs7.1bn EBITDA, implying a 3-year CAGR of 21 per cent," said Nirmal Bang Institutional Equities.

The management maintained its 20 per cent volume growth guidance for FY24 and indicated that all the expansion plans are well on track. CCL Products continues to be our top idea in the midcap space and post earnings revision, it added maintaining a 'buy' with a revised target price of Rs750, valuing the stock at 25 times PE on FY25E earnings.

Founded in 1995, CCL Products (India) has started its journey from Duggirala in Andhra Pradesh, has now become a billion-dollar company and also the world's largest private label coffee manufacturer. Erstwhile known as Continental Coffee, CCL initially focused on coffee exports and contract manufacturing.

The company focused on the untapped potential of Indian-grown coffee being exported. CCL embarked on an aggressive capacity expansion. From a manufacturing setup of 3,000 tonnes per annum (TPA), the company scaled up its capacity to 55,000 TPA so far.

CCL Products is one of the largest manufacturers and exporters of instant coffee globally. CCL’s ability to create custom blends as per the client requirements has led to an extremely sticky customer base which has created a niche for itself, said Phillip Capital with a 'Buy' rating on the stock in its initiating coverage report released earlier this month with a target price of Rs 680.

"It is successfully leveraging its rich experience of coffee processing, diversified sourcing capabilities, strong technology support, innovative blends and global manufacturing presence to gain market share and grow faster than industry.  We remain positive about the company's future growth led by strong underlying demand momentum, new client additions, aggressive capex plan, scale benefit and gradual focus towards the B2C segment," it said.

The company has four manufacturing plants, two in India and one each in Vietnam and Switzerland. CCL Products has customer base across more than 100 countries. Earlier this month, the company acquired 6 coffee brands from Sweden-based coffee roasters Löfbergs Group in June 2023 to access to major the supermarkets in the UK - Europe’s largest instant coffee market.

"30 years ago, when I saw that Indian coffee beans were being exported as raw materials, I thought why shouldn’t we do the value addition in our own country and then export the finished products. With the help of our marketing partners, we were able to focus on creating customised products for all customers," said Challa Rajendra Prasad, Founder & Chairman, CCL Products.

CCL Products is moving the path to become a FMCG company with a basket of brands. The company has entered the plant-based protein snacks category, with its brand 'Greenbird' under which it launched 100 per cent vegetarian products such as ‘Chicken like nuggets’, ‘chicken like sausages’, ‘chicken like kababs’ and ‘keema’.

CCL Products (India) is planning to set up its new manufacturing plant at Continental Coffee Park in Kuvvakolli village in Tirupati district in Andhra Pradesh, with an investment of Rs 400 crore. Coming up on 22 acres, the plant, with an annual capacity of 16,000 metric tonnes, will manufacture spray-dried instant coffee, said Antique Stock Broking.

The production at the new plant will start in the fourth quarter of the current financial year. The funding for the new plant will be done through internal accruals and partly term loan, added the brokerage firm, which had a 'buy' rating on the stock with a target price of Rs 690 apiece.

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