Rahul Arora’s USP is his clarity of thought and expression. He has all the facts and figures of his favourite stocks on his finger-tips. It is a pleasure to listen to him explain why a particular stock is a must-buy for our portfolio.
Rahul Arora has a number of winning stocks to his credit. Some of the names that come immediately to mind are Kajaria Ceramics, Arvind, V-Mart Retail, Strides Arcolab, IndusInd Bank, Aurobindo Pharma, Natco Pharma etc. Each of these stocks has given humongous gains to investors and looks good for more gains in the foreseeable future.
To this elite list of stocks, we can add CCL Products as one of Arora’s winning stocks.
Rahul recommended a buy of CCL Products in August 2014 when the stock was available at about Rs. 70 (the initiating coverage report was issued on 27.08.2014 when the stock was at Rs. 90). As the stock started its upward trajectory, Rahul played the role of a cheerleader, periodically egging investors to board the gravy train.
Today, CCL Products stands tall at Rs. 235 on the back of blockbuster Q1FY16 results.
This has given Rahul Arora and the people who chose to follow his advice gains in excess of 200% in less than a year’s time.
|CCL Products (India) Ltd – Financial Overview|
|Figures in Rs crore||2015||2014||2013|
|Profit After Tax||93.98||64.42||47.43|
|CCL Products (India) Ltd – Ratios|
|Figures in Rs crore||2015||2014||2013|
|Operating Margin (%)||19.67||20.20||18.79|
|Net Profit Margin (%)||10.61||8.93||7.24|
|Return on Capital Employed (%)||22.76||19.04||17.37|
|Return on Net Worth (%)||24.27||20.41||18.31|
|Earning Per Share (Rs)||6.76||4.64||34.84|
Rahul Arora’s latest advice is that the good times are just beginning for CCL Products. He explained that CCL Products is regularly clocking a ROE of 25% and is still available at a P/E of only 15x. “It’s very hard to find a 15 P/E company with 25% return ratios” he said. “I still think it is a potential 2-bagger from here” he exclaimed.
The nuts and bolts of Rahul’s advice are to be found in the research report authored by Jignesh Kamani of Nirmal Bang. In that he says:
“Very Strong Performance On All Parameters
CCL Products (India) or CCL reported an all-round improvement in 1QFY16 performance with net revenue/EBITDA/PAT up by a healthy 25.1%/35.3%/49.5%, respectively. Following 182bps/54bps margin improvement at Indian/Vietnam operations, consolidated operating margin improved 167bps to 22.2%, 23bps/76bps above our/Bloomberg estimates, respectively. Key surprise was 19%/30.4% revenue/EBITDA growth at domestic operations. We expect the current margins to sustain following a better product mix and scale-up of high margin Vietnam operations. CCL added one large client in 3QFY15 in Europe for high-margin premium freeze dried coffee, where the ramp-up is happening at a faster pace. CCL is witnessing very good traction in the US market for products from its Vietnam plant in just the second year of its operations. CCL has started talks with equipment suppliers to double capacity at Vietnam plant, which indicates its confidence on the volume ramp-up front. Market leadership position with a 38.7% net profit CAGR, strong operating/free cash flow of Rs3.6bn/Rs2.5bn, respectively, a 962ps RoCE improvement to 25.6% over FY15-FY17E and free cash flow yield of 5.2% with a debt-free status likely by FY17 will continue the re-rating of CCL. We have retained Buy rating on it with a TP of Rs272, based on 20x/13.1x FY17E P/E and EV/EBITDA, respectively.”
Incidentally, Nirmal Bang Financial Services Pvt. Ltd held 17,45,200 shares of CCL Products as of 01.04.2014. They have reduced their holding to 2,45,500 shares as of 31.03.2015. Why they sold off a massive chunk of the stock when their brokerage is so bullish on the stock is a big mystery.
Anyway, Rahul’s confidence in CCL Products is shared by Edelweiss and Karvy.
Edelweiss recommended a buy on the basis that the “resilient business model, rising utilisation in Vietnam and sharpening brand focus in India place CCL in a sweet spot to post sales and PAT CAGR of 23.5% and 45.4%, respectively, over FY15-17E. Consequently RoE will improve from 24.3% in FY15 to 32.0% in FY17E”.
Edelweiss also stated that it “expects the company to be debt free by FY18 considering strong free cash flow and the next growth capex is likely in FY17/18”.
Karvy is also gung ho about CCL Products’ prospects though it recommended a ‘hold’ (when the price was at Rs. 181) on the basis that the stock is “fairly valued”.