Despite markets reeling under pressure and analysts expecting the volatility to continue, domestic brokerage house Nirmal Bang sees this instant coffee manufacturer surging nearly 61 percent in 12 months.
Nirmal Bang is bullish on CCL Products and has a 12-month target price of ₹600 per share for the stock. The stock is currently trading around ₹373 (as on March 9, 2022) on the BSE, implying an upside of 61 percent for the stock.
CCL Products (India) Limited is engaged in the manufacturing of instant coffee. The Company operates through the Coffee and Coffee related products segment. It is engaged in the manufacture of soluble instant spray dried coffee powder, spray dried agglomerated/granulated coffee, freeze-dried coffee and freeze concentrated liquid coffee.
The stock has jumped 42 percent return in the last one year, while long-term investors have made a killing with this stock which rose over 2,500 percent in the last ten years. However, in 2022 YTD, the stock has fallen 13 percent, delivering negative returns in February and March till date.
The company's revenue share from Commonwealth of Independent States (CIS) countries is around 20 percent, of which Russia has a major share, noted the brokerage. It added that the majority of the containers were on hold post declaration of the military operation by Russia on Ukraine.
However, despite the worsening crisis, the management has indicated that the overall impact on volume would be limited as supplies have resumed already, highlighted Nirmal Bang.
"While there could be volume deferment as all shipping lines are not accepting shipments to Russia, the management expects no permanent revenue loss. Apart from the current Russia-Ukraine issue, Covid-19 cases in Vietnam are rising again and the management sounded cautiously optimistic. As of now, there is no material impact on volume off-take as well as production in Vietnam. The management is not delaying its expansion plans," stated the brokerage.
The company does business in Russia with the top 5 clients which together control around 70 percent of the instant coffee market in Russia. Three of them have made separate arrangements like a change of delivery schedule or change in the delivery destination in order to ensure consistent supply. For the remaining two, the final solution is still awaited, the management confirmed.
They reiterated that Russia consumes more coffee than USA and Europe individually and Russian people will not stop drinking coffee. The management stated that the company is receiving fresh inquiries from existing clients in Russia. The firm would not add smaller companies as new clients in Russia as there could be a risk of default in an extreme situation, they added.
Another brokerage Axis Securities is also overweight on the stock with a target at ₹585, indicating around 57 percent upside in the stock on healthy earnings visibility.
Management indicated the consolidated business reported volume growth of 17 percent in Q3FY22 and maintained its guidance for FY22 at 15-20 percent volume growth, it noted.
Axis remains positive on CCL Products given its expertise in customized blends, cost-efficient business model, capacity additions in value-added products, and doubling of Vietnam capacity. It also said that CCL is the largest manufacturer and exporter of instant coffee and its foray into high margin branded retail business is another tailwind.
However, it added that risks to this target include Covid-led lockdown uncertainty and inflationary pressures on raw material and in supply chain weighing on near term profitability.
10 analysts polled by MintGenie also recommend 'strong buy' for the stock.
Disclosure: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.