Multibagger Stock: CCL Products gains 126% in 2.5 years, 2540% in 11 years. Is it still a buy?

Multibagger Stock: CCL Products (India), engaged in the production, trading, and distribution of coffee, has witnessed a remarkable surge in its share price over recent years, setting new milestones and breaking record highs. The stock, which was trading at ₹315 per share in May 2022, has surged 126.3% to reach its current value of ₹713. Over four years, the stock has gained 200% and a striking 2,540% over the past 11 years.

In September, the stock reached a fresh record high of ₹855 per share. This extraordinary rally can be attributed to the company's strong financial results, driven by increasing demand for its products.

Despite facing significant challenges—such as rising green coffee prices, intense competition, and supply chain disruptions due to geopolitical issues—CCL Products managed to achieve healthy volume growth and maintain profitability on a per-kilo basis.

For the quarter ended September 2024 (Q2), the company reported a 22% year-on-year (YoY) growth in revenue, reaching ₹738 crore, driven by a 10% YoY increase in volume and a higher contribution from value-added, high-margin products.

It delivered strong consolidated EBITDA growth, up 24.7% YoY to ₹137 crore in Q2FY25, with EBITDA margins expanding by 48 basis points YoY to 18.6%. Net profit rose by 21% YoY to ₹74 crore, with PAT margins coming at 10% in Q2FY25, in line with the previous quarter. The company also holds ₹50 crore in cash and cash equivalents on its balance sheet.

The company remains on track with its capacity expansion plans across subsidiaries. These efforts, along with a focused strategy to increase the share of premium and value-added products, are aimed at strengthening its market position.

The newly established Freeze-Dried Coffee (FDC) facility in Vietnam, with a capacity of 30,000 metric tonnes, is on track and currently operating at 40-50% capacity utilisation, showing steady progress toward full operation.

Coffee price headwinds

Despite posting healthy volume growth in Q2, growth came at the lower end of management’s guidance due to a sharp rise in coffee prices, which impacted the company's long-term contract bookings.

According to management, global coffee prices have shown some softening, with the potential to decline further to the USD 3,800-4,000 range, given favourable crop yields in Vietnam and Brazil. The company anticipates securing additional long-term contracts once coffee prices stabilise, likely after December.

The company has reaffirmed its volume growth guidance for FY25, projecting robust growth between 10-20%.

Looking ahead, the company expects that rising coffee prices may drive a shift in consumption patterns from out-of-home coffee consumption to more in-house consumption, which bodes well for the instant coffee industry. Recent estimates suggest that the domestic coffee market in India is growing at an approximate rate of 10-15% YoY. 

Can the stock sustain its rally?

Domestic brokerage firm LKP Securities projects that CCL Products will sustain mid-teen volume growth due to several strategic initiatives: a planned doubling of capacity from 38,500 MT in FY22 to approximately 77,000 MT by FY25, across its facilities in Vietnam and India, particularly in value-added segments like freeze-dried coffee and small packaging; the introduction of high-margin products, including specialty coffee, which now accounts for 5% of sales; and a cost-efficient business model.

Additionally, the company aims to strengthen its presence in the UK, US, and other key markets as part of its expansion strategy. Therefore, the brokerage maintains its ‘buy’ rating on the stock with a target price of ₹881 apiece. It expects the company to post a revenue, EBITDA, and PAT CAGR of 19%, 25%, and 29%, respectively, over FY24-26E.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.