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CD Equisearch Pvt Ltd Nov 4, 2015

Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance

CCL Products (India) Ltd

No. of shares (crore) 13.3

Mkt cap (Rs crs) 2805

Current price (04/11/2015) 211

Price target (Rs)

258

52 week H/L (Rs.) 254/130

Book Value (Rs.) (fv:5) 36.2

P/BV (16e/17e)

5.3/4.2

P/E (16e/17e) 21.9/17.2

EPS growth (FY15/16e/17e) 45.8/36.0/27.8

ROE (FY15/16e/17e) 24.3/26.8/27.1

Beta 0.8

Daily volume (avg. monthly) 291403

BSE Code 519600

NSE Code CCL

Bloomberg CCLP IN

Reuters CCLP.BO

Shareholding pattern % Promoters 44.7

MFs / Banks / FIs 5.9

Foreign 23.2

Non-Promoter Corp. 3.1

Public & others 23.1

Total 100.0

As on Sep 30, 2015

Recommendation

BUY

Analyst

KISHAN GUPTA, CFA, FRM

Phone: + 91 (33) 4488 0043

E- mail: [email protected]

(Figires in Rs crs)

FY13 FY14 FY15 FY16e FY17e

Income from operations 650.74 716.83 880.57 1053.44 1265.13

Other Income 1.88 2.62 3.02 3.13 3.28

EBITDA (other income included) 123.16 145.72 174.25 218.04 265.80

Net Profit after EO item 47.44 64.43 93.96 127.83 163.35

EPS (Rs) 3.57 4.84 7.06 9.61 12.28

EPS growth (%) 31.0 35.8 45.8 36.0 27.8

Company Brief

CCL Products produces several varieties and blends of coffee including spray

dried coffee powder, spray dried agglomerated / granulated coffee, freeze dried

coffee and freeze concentrated liquid coffee. It is also certified to supply organic

coffee, rainforest alliance coffee, UTZ certified coffee and fair trade coffee, in any

combination. In India it has a capacity of more than 20000 mt pa.

Highlights

� CCL is banking on growing demand of instant coffee in emerging markets of

Asia, Africa and Middle East to propel dispatches. According to market

research firm Euromonitor, global sale of instant coffee would touch $35bn

by 2018 from $31bn in 2013. CCL’s presence in Vietnam helps it to cater to

growing coffee consuming nations of South East Asia, Japan, Korea and

China. Apart from significant cost savings on logistics, most of these

countries have granted Vietnam most favored nation status with reduced or

zero duty structures.

� With this opportunity in sight, CCL is doubling capacity of its plant to 20000

tonnes by 2017. No less important is the liquid coffee capacity of 5000mt at

Vietnam which recently completed trial production. Higher throughput in

Vietnam unit would push margins higher not least due to product

superiority and better availability of raw materials in Vietnam.

� Indian market is also not left untouched. Huge potential in the soluble coffee

segment in the country (expected to grow annually by nearly 4% over the

next five years) goaded CCL to take a plunge with both private labels and

own brands. It has launched its Continental brand of coffee in supermarkets

in Andhra Pradesh, Telengana and Tamil Nadu, while the retail private label

market is being promoted across most Indian states in Reliance Retail, Big

Bazaar etc.

� CCL has failed to lose its zeal of launching value added products. After

launching few such products in Vietnam last year, it now plans to increase

share of small pack business (read: convert bulk business to retail packs).

� The stock currently trades at 21.9x FY16e EPS of Rs 9.61 and 17.2x FY17e EPS

of Rs 12.28. CCL’s relentless business growth over the last few years has

caught investors unawares. Yet risks of slowdown in off take in rapidly

expanding markets like China looms large. Weighing risks against potential

business growth (average earnings growth nearly 32% over the next two

years), we recommend investors buy the stock for a target of Rs 258 based on

21x FY17e earnings (peg ratio: 0.7), over a period of 9-12 months.

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Company Profile

CCL Products manufactures a wide range of powdered and granulated coffee (more than 70 varieties and blends) from its

plants in India, Vietnam and Switzerland. Its products include soluble instant spray dried coffee powder, spray dried

agglomerated / granulated coffee, freeze dried coffee and freeze concentrated liquid coffee. In addition to soluble instant

coffee, which is manufactured at Guntur district, Andhra Pradesh, it also supplies flavored coffee, decaffeinated coffee,

organic coffee, rainforest coffee, fair trade coffee, dual and triple certified coffee as well as chicory-coffee mix.

Its plant is equipped with latest instant/ soluble coffee technology purchased from globally renowned Swiss and Brazilian

manufacturers. Adaptation of this technology has allowed the company to manufacture top quality soluble coffee, which is

being exported to over 60 countries across the globe. Being an EOU, it has rights to import duty free green coffee from any

part of the globe and export processed coffee across the globe. For its contribution to the global coffee market, CCL Products

has been duly awarded by Ministry of Commerce, Government of India and the Coffee Board of India.

It has couple of subsidiaries in Vietnam and Switzerland - Ngon Coffee Company Ltd and Grandsaugreen SA respectively.

The former, with a spray dried coffee annual capacity of 10000 mt, manufactures instant / soluble spray dried coffee. It also

plans to commence a 5000mt pa freeze concentrated liquid coffee plant by next fiscal. The latter boasts of 3000 mt per annum

of agglomeration capacity and 4000mt pa of packing capacity.

Manufacturing process

Source: CCL Products

Product Overview Spray dried coffee

Its soluble coffee is processed from robusta and arabica coffee beans, blended in desired proportions. In the spray-dried

process, different kinds of spray dyers are used for coffee drying. However, the high temperatures involved in this process

affects the oils of the coffee, which leads to some loss of coffee flavor when compared to freeze dried coffee.

Spray dried granules

Agglomerated coffee is produced by converting the coffee powder into granules. The agglomeration process involves getting

smaller particles to cling to each other to form a powder comprising of bigger agglomerates.

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Freeze dried coffee

This process ensures retention of essential aspects of the coffee extract - colour; bulk density; solubility. In other words, the

freeze drying method preserves flavor of the coffee to a large extent. As the name suggests, in this process agglomerated wet

coffee granules are frozen to make the product more porous.

Freeze concentrated liquid coffee

CCL Products produces and supplies freeze concentrated liquid coffee. The hallmark of freeze concentration technology is its

ability to retain product quality due to processing at sub-zero temperatures. By eliminating vapour/liquid interfaces, this

technology reduces chance of aroma loss, thermal degradation and oxidation. The company has the capability to supply

liquid coffee in drums loaded in refrigerated containers.

Decaffeinated coffee

Removes bulk of caffeine from the coffee beans through a specialized process. CCL’s every kind of coffee is available

decaffeinated.

Certified coffee

CCL offers fair-trade, organic, and rainforest certified soluble instant coffee. It also supplies dual or triple certified soluble

instant coffee as per client requirements.

Chicory mix coffee

Offers this coffee in both forms - spray dried powder as well as granules. This type of coffee helps offer a stronger coffee at a

relatively lower cost.

Investment Thesis

Instant coffee brewing

CCL is well set to carve out a niche by focusing on the soluble coffee, which currently accounts for a fifth of the global coffee

consumption. According to market research firm Euromonitor, sale of instant coffee has nearly tripled since 2000 (see chart)

driven by sturdy growth in emerging markets of Asia; its sale is estimated to touch $35bn by 2018 from $31bn in 2013. Little

wonder, Asia Pacific is the world's largest instant coffee consuming region by sales. However, in Europe, the world's largest

coffee consuming region, the trends are awfully divergent: in Eastern Europe instant coffee accounts for over 50% of overall

retail brewed coffee consumption, whereas in Western Europe it accounts for more than 25%. But the story is totally different

in US, where instant coffee sales have hardly budged in last seven years.

Source: Euromonitor

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Volume wise, instant coffee accounts for over 60% of total retail brewed coffee in Asia -Pacific, over 50 percent in Eastern

Europe, over 40 percent in the Middle East and Africa, over 30 percent in Latin America, and over 25 percent in Western

Europe (see chart). But in North America it stands at an abysmal 10%. According to Euromonitor, China now stands as the

fourth-largest global market for ready to drink coffee in terms of volume, and fifth in terms of value. Indeed, instant coffee

forms around 99% of retail sales by volume and 98% by value (see chart).

International Coffee Organization (ICO) reckons that world coffee demand would show significant growth led by emerging

markets, particularly Asia and Africa; developed markets are expected to remain relatively stable. CCL believes that

Vietnam's instant coffee market could grow steadily over the years not least due to growing demand from youth population

who seek time saving methods for consuming beverages.

Capex

With global coffee consumption on the rise, CCL has pulled out all stops to expand its capacities. Capacity in India is being

ramped up by 5000mt to feed rising demand for instant coffee in international markets. Healthy pick up in dispatches at

Vietnam (production zoomed threefold last fiscal) prompted CCL to double its capacity to 20000mt at a cost of Rs 60-70 crs

by 2017. This year would be no different for the capacity utilization of the spray dried coffee is estimated to jump to 75%. No

less important to count the liquid coffee capacity of 5000mt at Vietnam which recently completed trial production.

However, a small technology up gradation is being implemented, which may take 4-5 months. In Switzerland the loss

shrunk last year for the company started supplying agglomerated coffee to some customers in Spain and Poland; it could

report a small profit (chf 0.3m) this fiscal year.

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Value added products

CCL is going full hog to bolster its portfolio of value added products. A whole host of new products were introduced in

Vietnam last fiscal year which did push up average realizations for some products. Specifically, it has converted many

products, which were earlier at raw material stage like specialty coffee into instant coffee. Commencement of liquid coffee

plant in Vietnam, as and when it happens, would also increase realizations. No less puny is its initiative to increase share of

small pack business (read: convert bulk business to retail packs). Some of it was visible, albeit on a small scale, last quarter

when the company reported disproportionate increase in cost of packing materials consumed. To expand share of small pack

business, it is also planning to set up packaging units in key locations like USA for speedier movement of products.

Vietnam - zipping growth

If CCL's estimates are any clue of things to come in Vietnam, then a major shift in business to the south east nation is in

offing. Not only would the Vietnam unit of CCL see higher capacity utilization (see chart) but also increased capacities -

plans are afoot to double installed capacity of spray dried coffee to 20000 tonnes by 2017. Proximity of Vietnam to other

ASEAN countries, where it enjoys zero duty structure, would open up new markets. It would propel margins too. Some of it

was manifested last fiscal when CCL's international business reported over 100 bps more operating margins than the

domestic outfit. Indeed in the first half of the current fiscal that gap has further yawned: 24.3% vs 20.3% for the standalone

entity. Product superiority - arising out of the coffee processing technology (coffee is spray dried at a maximum of 170 °C

compared to 240-280°C in India) -and better availability of raw materials explain much of this plumpness in margins.

Domestic focus

To promote its instant coffee brands in the domestic market, CCL has floated Continental Coffee Pvt Ltd, a wholly owned

subsidiary. It caps its successful foray in the freeze dried coffee segment in the international market. Huge potential in the

soluble coffee segment in the country (expected to grow annually by nearly 4% over the next five years) prodded CCL to

make a dent in this space with both private labels and own brands. It has launched its Continental brand of coffee in

supermarkets in Andhra Pradesh, Telengana and Tamil Nadu. Also retail private label market is being promoted across most

Indian states in Reliance Retail, Big Bazaar etc. It has ramped up its brand building exercise in the domestic market for the

margins are indeed higher. Post rebranding exercise, the company would operate two segments - one for chicory blends and

other for pure coffee blends. Most promising are its plans to launch new products with new stock keeping units.

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Financials & valuation

Thanks to meltdown in green coffee prices globally, CCL's revenue growth could moderate a bit going ahead. Revenues slid

by 4.9% to Rs 235.05 crs last quarter, the weakest showing in nine quarters; Indian operations saw a much sharper 8.8%

decline. Due to benign coffee prices, volumes would drive much of the growth in the current year and next (see chart). Yet

capacity utilization in Indian unit (as a whole) would dip for the new capacity of 5000 mt would go on stream sometime in

the current quarter. Higher efficiency of the Vietnam unit though would make up for the shortfall.

Free fall in green coffee prices (as measured by ICO composite indicator) in last few months has bruised realizations of

instant coffee. The ICO composite indicator has plunged 21.2% (based on average prices) since the start of this calendar

year. Margins though have sustained. In fact, OPM jumped 100 bps last quarter as the company did more packaged goods,

especially in Europe. Margins could remain buoyant not least due to its plan to introduce more value added products and

increase share of small pack business.

Yet risks cannot be by any means undermined. Dumping by Brazil, the world's largest instant coffee manufacturer could

repress prices; not to count ramp up of capacities in other cost competitive economies. Fast changing weather patterns in

coffee growing regions could impact the quality of coffee beans. No small are risks related to currency and technological

obsolescence.

Notwithstanding sharp growth in business in last six years to fiscal 2015, volatility in earnings cannot be fully set aside not

least due to commodity nature of business. Operating profits, for instance grew by just 5.3% (annual) in three years ending

fiscal 2009; volumes in the same period rose by a much dismal 3.2%. Worse still, earnings covered interest expense just over

two times in 2009. Yet the specter of such sustained sclerosis in business appears minimal as the company has seen massive

change since then: started a unit Vietnam; forayed in other regions; shifted liquid coffee plant.

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*figures in Rs crs; P/E on ttm basis

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The current stock valuation of 21.9x FY16e EPS of Rs 9.61 and 17.2x FY17e EPS of Rs 12.28 leaves little margin of error. Risks

abound. Growing affluence in China could impede growth of ready to drink (RTD) coffee as people trade up to specialist coffee

shop purchases. Shipments could get impacted due to congestion at Vietnam ports. Yet durable earnings growth (nearly 32%

average growth) and wider narrow moat, as manifested in gut-wrenching return on capital, would attract growth seeking

investors. We therefore recommend a buy on the stock with target of Rs 258 based on based on 21xFY17e earnings, over a

period of 9-12 months.

Risks & Concerns

Changing weather patterns

CCLP reckons that changing weather patterns across the globe, be it unpredictable rains or changes in temperature, could affect

the quality of coffee beans in its procurement areas. Much of this harm is attributed to changes in the nature of the pests.

Competition

CCLP faces intense threat of competition in the global coffee market not least due to low barriers of entry. Coffee prices could

fall if additional capacities are created in other cost competitive countries. The company aims to ward off such risks by focusing

on rolling out more value added products.

Foreign exchange risk

Business could get affected due to sharp fluctuations in currency markets as the company generates bulk of its revenues from

foreign markets. Sharp appreciation of the home country could impact both dispatches and profitability.

Cross Sectional Analysis

Company Equity* CMP Mcap* OI* PAT* OPMa NPM

a

Int

Cov. ROEa

Mcap

/ OI P/BV P/E EV/EBITDA

CCLP 26.6 211 2807 912 107 20.2 11.7 14.1 24.3 3.1 5.8 26.2 16.1

Tata Coffee 18.7 88 1643 1725 107 17.8 8.8 7.4 15.6 1.0 1.9 15.4 7.8

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Financials

Quarterly Results - Consolidated Figures in Rs crs

Q2FY16 Q2FY15 % chg. H1FY16 H1FY15 % chg.

Income from operations 235.05 247.24 -4.9 454.70 422.85 7.5

Other Income 1.22 0.74 63.7 1.84 1.60 14.6

Total Income 236.27 247.99 -4.7 456.54 424.46 7.6

Total Expenditure 186.63 198.83 -6.1 357.63 338.48 5.7

PBIDT (other income included) 49.63 49.16 1.0 98.90 85.98 15.0

Interest 2.65 3.29 -19.4 5.23 7.52 -30.4

Depreciation 7.04 6.94 1.5 13.90 13.64 2.0

PBT 39.94 38.93 2.6 79.77 64.82 23.1

Tax 10.68 12.80 -16.5 20.30 18.48 9.9

PAT after MI 29.26 26.14 12.0 59.47 46.35 28.3

Extraordinary Item - - - - - -

Adjusted Net Profit 29.26 26.14 12.0 59.47 46.35 28.3

EPS (F.V. 2) 2.20 1.96 12.0 4.47 3.48 28.3

Consolidated Income Statement Figures in Rs crs


Income from operations 650.74 716.83 880.57 1053.44 1265.13

Growth (%) 29.6 10.2 22.8 19.6 20.1

Other Income 1.88 2.62 3.02 3.13 3.28

Total Income 652.62 719.45 883.59 1056.57 1268.41

Total Expenditure 529.46 573.73 709.34 838.54 1002.62

EBITDA (other income included) 123.16 145.72 174.25 218.04 265.80

Interest 20.66 17.06 13.61 13.25 11.04

EBDT 102.50 128.66 160.64 204.79 254.75

Depreciation 28.64 29.10 26.82 28.47 30.99

Tax 26.42 35.15 39.84 48.49 60.42

Net profit after MI 47.44 64.41 93.98 127.83 163.35

Extraordinary item - -0.02 0.02 - -

Adjusted Net Profit 47.44 64.43 93.96 127.83 163.35

EPS (Rs.) 3.57 4.84 7.06 9.61 12.28

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Consolidated Balance Sheet Figures in Rs crs


SOURCES OF FUNDS

Share Capital 13.30 26.61 26.61 26.61 26.61

Reserves 265.08 326.18 394.97 505.55 648.03

Total Shareholders Funds 278.38 352.79 421.58 532.16 674.64

Minority Interest - - - - -

Long term debt 124.78 134.91 90.37 42.74 -

Total Liabilities 403.16 487.70 511.95 574.90 674.64

APPLICATION OF FUNDS

Gross Block 465.21 525.17 530.69 564.12 604.12

Less: Accumulated Depreciation 130.81 164.04 190.72 219.19 250.18

Net Block 334.40 361.13 339.97 344.93 353.94

Capital Work in Progress - 38.88 53.43 40.00 30.00

Investments 1.50 1.50 1.50 1.50 1.50

Current Assets, Loans & Advances

Inventory 155.51 137.95 173.53 199.56 229.49

Sundry Debtors 87.17 106.75 113.22 124.54 143.22

Cash and Bank 9.35 34.38 26.63 43.44 50.38

Other Assets 47.52 40.36 46.64 51.43 60.59

Total CA & LA 299.55 319.44 360.02 418.97 483.69

Current liabilities 232.56 192.55 200.91 184.03 146.76

Provisions 7.93 21.46 24.54 27.80 27.92

Total Current Liabilities 240.49 214.01 225.45 211.84 174.68

Net Current Assets 59.06 105.43 134.57 207.14 309.01

Net Deferred Tax (net of liability) -22.87 -23.32 -24.32 -25.46 -26.60

Other Assets (Net of liabilities) 31.08 4.08 6.79 6.79 6.79

Total Assets 403.16 487.70 511.95 574.90 674.64

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Cash Flow Statement Figures in Rs crs


Net Income (a) 47.44 64.41 93.98 127.83 163.35

Non cash exp. & others (b) 30.41 28.13 31.54 40.49 37.95

Depreciation 28.64 29.10 26.82 28.47 30.99

Profit / loss on sale of assets / inv 0.00 0.02 -0.02 0.00 0.00

Dividend income -0.11 -0.16 -0.20 0.20 0.20

Translation changes 0.83 -0.06 5.22 12.02 7.03

Other income -0.13 -1.23 -1.28 -1.34 -1.41

Deferred tax & others 1.18 0.45 1.00 1.14 1.14

(Increase) / decrease in NWC (c) -60.79 23.01 -26.16 -49.82 -58.68

Inventory -38.36 17.56 -35.58 -26.03 -29.93

Debtors -16.75 -19.58 -6.47 -11.32 -18.68

Loans & advances -27.80 34.16 -8.99 -4.79 -9.16

Other assets/liabilites 22.12 -9.13 24.88 -7.67 -0.90

Operating cash flow (a+b+c) 17.06 115.55 99.36 118.50 142.62

Purchase of fixed assets -37.77 -59.64 -20.65 -20.00 -30.00

Dividend income 0.11 0.16 0.20 -0.20 -0.20

Other income 0.13 1.23 1.28 1.34 1.41

Investing cash flow (d) -37.53 -58.25 -19.17 -18.86 -28.80

Net borrowings 31.91 -24.53 -69.26 -58.81 -79.66

Dividends paid -7.73 -7.73 -18.68 -24.02 -27.22

Financing cash flow (e) 24.18 -32.26 -87.94 -82.83 -106.89

Net change (a+b+c+d+e) 3.71 25.03 -7.75 16.81 6.94

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Key Financial Ratios


Growth Ratios

Revenue (%) 29.6 10.2 22.8 19.6 20.1

EBIDTA (%) 38.3 18.3 19.5 25.1 21.9

Net Profit (%) 31.0 35.8 45.8 36.0 27.8

EPS (%) 31.0 35.8 45.8 36.0 27.8

Margins

Operating Profit Margin (%) 18.6 20.0 19.4 20.4 20.8

Gross Profit Margin (%) 15.8 18.0 18.2 19.4 20.1

Net Profit Margin (%) 7.3 9.0 10.7 12.1 12.9

Return

ROCE (%) 11.2 12.3 16.0 20.3 23.3

RONW (%) 18.3 20.4 24.3 26.8 27.1

Valuations

Market Cap / Sales 0.5 0.9 2.7 2.7 2.2

EV/EBIDTA 5.2 6.4 14.8 13.8 11.3

P/E 7.3 10.5 25.3 21.9 17.2

P/BV 1.2 1.9 5.6 5.3 4.2

Other Ratios

Interest Coverage 4.6 6.8 10.8 14.3 21.3

Debt-Equity Ratio 1.1 0.8 0.5 0.3 0.1

Current Ratio 1.2 1.5 1.6 2.0 2.8

Turnover Ratios

Fixed Asset Turnover 2.2 2.1 2.5 3.1 3.6

Total Asset Turnover 1.2 1.2 1.4 1.6 1.7

Debtors Turnover 8.3 7.4 8.0 8.9 9.4

Inventory Turnover 3.9 3.9 4.6 4.5 4.7

Creditors Turnover 20.2 23.6 21.8 20.9 29.6

WC Ratios

Debtor Days 44.2 49.4 45.6 41.2 38.6

Inventory Days 94.0 93.3 80.1 81.2 78.1

Creditor Days 18.1 15.5 16.7 17.5 12.3

Cash Conversion Cycle 120.1 127.2 109.0 104.9 104.4

Cash Flows (Rs crs)

Operating Cash Flow 17.1 115.6 99.4 118.5 142.6

FCFF -6.8 68.6 89.2 108.4 121.1

FCFE 11.4 32.8 10.9 40.8 34.2

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Recommendation

Emerging trends in global soluble coffee markets presage a gargantuan rise in demand from developing markets,

including Asia, Africa and Middle East. Little surprise much of the growth would come from Asian countries - China,

India and ASEAN region. Market research firm, Euromonitor, expects global sale of instant coffee to touch $35bn by 2018

from $31 bn in 2013. It ranks China as the fourth-largest global market for RTD coffee in terms of volume, and fifth in

terms of value. It reckons that RTD coffee packaged in either cans or plastic bottles provides convenience to Chinese

consumers with busier lifestyles.

Led by favorable industry shifts, CCL posted yet another year of industry-beating performance: volumes in India jumped

by some 17%. Tata Coffee, an instant coffee manufacturer, too posted 16% jump in dispatches despite demand headwinds

in Russia - the largest market of soluble coffee globally. Risk of excess capacities impacting trade margins looms though.

To derisk its trade portfolio from Russia and CIS, Tata Coffee forayed in China, Angola, Pakistan and Mongolia.

Product innovation holds the key in this overly crowded industry. CCL’s slew of product launches (read: value added) in

Vietnam have bore fruit - margins shot up as a result. Commencement of liquid coffee plant in Vietnam would also do its

bit to boost margins. And so would its initiative to increase share of small pack business. Realizing that competitive

intensity is rising, Tata Coffee too would use its arsenal on product and packaging innovation.

Yet CCL needs to do more to stabilize capacity in Vietnam: despite full year of operation capacity utilization stood at just

46%. It needs to also sort out pressing issues of commencing the liquid coffee plant and doubling capacity to 20000 tonnes.

The former would not see commercial production before the next fiscal and the timeline for the latter is yet to be resolutely

determined. Higher capacity utilization in Vietnam and commencement of new capacity of 5000 mt in India (by Dec 2015)

would foment volume growth (annual: 18.3%) over next two years.

Higher throughput would doubtless shore up margins and asset turnover ratios. Both fixed and total asset turnover ratios

would reach decadal peaks by FY17. Free cash flows would get a boost from healthy internal accruals. CCL's parsimonious

domestic retail expansion strategy would limit investments in capital assets and brand building. To tap Indian retail

market, CCL has started exploring opportunities in private label market across India.

The current stock valuation of 21.9x FY16e EPS of Rs 9.61 and 17.2x FY17e EPS of Rs 12.28 leaves little margin of error.

Risks abound. Growing affluence in China could impede growth of RTD coffee as people trade up to specialist coffee shop

purchases. Congestion at Vietnam ports could impact shipments. Yet durable earnings growth (nearly 32% average

growth) and wider narrow moat, as manifested in gut-wrenching return on capital, would attract growth seeking

investors. We therefore recommend a buy on the stock with target of Rs 258 based on based on 21xFY17e earnings, over a

period of 9-12 months.

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Disclosure& Disclaimer CD Equisearch Private Limited (hereinafter referred to as ‘CD Equi’) is a Member registered with National Stock Exchange of India Limited,

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CD Equisearch Private Limited (CIN: U67120WB1995PTC071521)

Registered Office: 37, Shakespeare Sarani, 1st Floor, Kolkata – 700 017; Phone: +91(33) 4488 0000; Fax: +91(33) 2289 2557; Corporate Office: 10,

Vasawani Mansion, 2nd Floor, Dinshaw Wachha Road, Churchgate, Mumbai – 400 020; Phone: +91(22) 2283 0652/0653; Fax: +91(22) 2283, 2276

Website: www.cdequi.com; Email: [email protected]

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