CCL Products Ltd - Q2 FY21 Result Update - YES Securities

2QFY21 investor call takeaways

Positives outweighing the negatives setting up a strong growth platform for FY22; reiterate BUY

- Operational highlights - 7% overall volume growth, Rs 16-17cr benefit due to spillover of sales from 1Q, 800-900MT production loss due to 2 month shutdown of Duggirala FDC unit partially offset by old inventory which mitigated sales volume loss. Strong revenue growth led by optimum utilization in Vietnam and Chittoor plants and margin improvement led by a better product and geography mix.

- Vietnam business - Continued to see full utilization at 90-95% for second consecutive quarter led by incremental volumes to a large US retailer, expect full utilization for FY21 as well, brownfield expansion of 3,500mt delayed by 6 months and will now come onstream by March 2021.

- Duggirala EOU plant - 1H utilization of spray dried plant at 75%, looking to end FY21 with 80% utilization given strong traction in orders. 1H utilization of freeze dried plant at 65% now after a 2 month shutdown, looking to end FY21 at 70% utilization.

- Chittoor SEZ plant - New freeze dried facility running at optimum 80-85% utilization rate which should continue for the remainder of the year.

- India business - India business continues to ramp up really well growing 70% in 1H to reach Rs 60cr topline with 70% contribution from Continental brand (reached about 4% market share). Will try and get close to break-even by end of year with Continental brand touching Rs 100cr revenue. MT and eCom channel doing well while GT distribution has increased to 75k outlets with a target of reaching 100k outlets by end of the year.

- MEIS subsidy reduction impact - MEIS subsidy reduction impact of 1.5crs in 1Q, expect a hit of Rs 5-6crs in 2Q due to the temporary cap. Out of total annual benefit of Rs 40cr, new scheme can compensate about 33% and 33% can be passed on to clients, company will have to bear the remaining 33% which is about Rs 12-13cr annually.

- Geography wise outlook - Large order from US order will double US business this year, Europe supermarket business has been renewed for next year as well, postponed orders from Russian clients should be executed over next two quarters.

- Small packs business - The packing and agglomeration unit coming up in Chittoor has also been delayed to 1QFY22; company exploring 3rd party packers as small pack capacity fully utilized.

- Overall guidance - Still intend to deliver 10% volume growth for FY21 given no further order postponements although downside risks remain, margins should sustain at FY20 levels as MEIS hit will be offset by a better product mix. Once the demand environment normalizes, can again work towards 15% plus volume growth.

View - At this stage, we do not see a need to change our estimates and believe company remains on track to deliver 12% earnings growth in FY21 followed by a strong 23% growth in FY22. We reiterate our BUY rating with a TP of Rs 344 based on 20x FY22E earnings. While delays in expansion and MEIS benefits coming down are negatives, we believe continued penetration into developed markets, multiple value addition possibilities, improving demand environment overall and strong progress on the branded business s are key positives which should trigger a gradual re-rating for the stock.

- Result summary - Overall performance well ahead of estimates despite the production disruptions in Duggirala plant; revenue/EBITDA/PAT growth of 8%/26%/13% respectively.

- Topline - Revenue growth of 8% yoy to Rs 3.2bn, well ahead of estimates - Standalone India business declined only 8% (Chittoor seems to have almost completely offset the impact on Duggirala production disruption) while the subsidiaries (Vietnam and Continental B2C business) continued its strong growth trajectory growing 54% yoy.

- Margins - Gross margins improved sharply by 310bps yoy given a better mix in favor of freeze dried coffee translating into a 350bps EBITDA margins expansion to 24.1% with standalone margins increasing 400bps to 21.1% and subsidiaries margins declining 140bps to 29.3%.

- Earnings - PAT growth of 13% was lower than EBITDA growth of 26% owing to lower tax rate in the base quarter.

Shares of CCL PRODUCTS (INDIA) LTD. was last trading in BSE at Rs.252 as compared to the previous close of Rs. 245.65. The total number of shares traded during the day was 10157 in over 857 trades.

The stock hit an intraday high of Rs. 252 and intraday low of 242.3. The net turnover during the day was Rs. 2500097.

Source : Equity Bulls

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