Profit in Poll Season: Buy small-cap counter CCL Products for 51 pct gains in one year, say experts

At a time when Indian indices are trading tepid as the Foreign Institutional Investors (FIIs) have gone neutral after the revised GDP (Gross Domestic Product) forecast, domestic institutional investors or DIIs are looking at some cue from the Lok Sabha Elections 2019 as its results matter most to them. However, as per the market experts, strong fundamentals having technical support would matter more than the General Elections 2019 results. They bet high on the CCL Product or CCLP counter — a small-cap share — which in their view can give up to 51 per cent return in long-term perspective i.e. around one year. They advised market investors to take a cue in regard to the Lok Sabha Chunav 2019 results from the opinion Polls 2019, which is finding the return of Narendra Modi. 

Giving details about the fundamentals of CCL Products or CCLP Akhil Parekh, Research Analyst at Elara Securities said, "CCLP owns around 110 acres of land at the new location of which 30 acres are marked under the special economic zone (SEZ). The new plant at Greenfield plant at Sullurpeta, Andhra Pradesh, spread across 10 acres, is a freeze-dried coffee unit with 5,000 tonnes of capacity with machinery imported from Germany. The coffee bean roaster machinery is imported from Probat GmbH while freeze-dried tunnel (critical part in the manufacturing of freeze-dried coffee) is imported from Gea. This plant is fully automated and is expected to reduce labour cost (currently 160 people are employed at this plant) significantly compared to CCLP’s Duggirala plant." Apart from this, since the plant is just two hours from the Chennai port, it will allow the company to save on logistics cost. A major portion of instant coffee to be sold from this plant is expected to be bulk coffee for CCLP’s international clients.

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Akhil Parekh of Elara Securities said that the CCL Products has expanded around Rs 3,000mn on this new plant, of which near Rs 500mn was spent on land & construction and the rest on machinery and equipment. We expect the utilization level of the new plant to reach 40 to 50 per cent during FY20E and to be fully utilized by FY21. He expected the company to clock in sales of Rs 3,000mn at peak utilization level of 95 to 100 per cent. Total sales contribution from this new plant is expected to be Rs 1,500mn in FY20 and Rs 3,000mn by FY21. Since the plant is in the SEZ zone, there will be a tax holiday for five years starting in FY20. As per our estimates, we expect this new plant to add Rs 300mn in FY20 and Rs 750mn in FY21 to the company’s profitability.

On his suggestion to the market investors in regard to the small-cap counter CCLP Akhil Parekh of Elara Securities said, "We expect a volume CAGR (Cumulative Annual Growth Rate) of 11 per cent over FY18-21, a sales CAGR of 12 per cent, an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) CAGR of 16 per cent and a PAT (Profit After Tax) CAGR of 20 per cent over the same period. We reiterate Buy with a TP of Rs 421 on 22x FY21E."

Giving technical details of the small-cap counter Simi Bhaumik, a SEBI registered technical equity expert said, "The mid-term outlook shows an upside trend for the counter but it is trading currently at around 275 levels, which is its support. If it breaks these levels then the scrip may go down to the 260 levels. So, one can think of buying it if the stock sustains above 276/stock levels." On her outlook for the counter Simi Bhaumik said, "Once the counter sustains above 276 levels, it may show 295 to 300 levels in one to two months. So, people can hold this stock for the target of 295-300 in the mid-term perspective."

Asking investors to take a clue about the Lok Sabha Elections 2019 results Prakash Pandey, Head of Research at Fairwealth Securities said, "Majority of the opinion polls are suggesting about the return of Narendra Modi and FIIs pumping record Rs 34,000 crore into the India equity market is because of that." He said that overall the market is still bullish and investors can take advantage of this poll season by investing in a smart manner.