Date:02/03/2005 URL: http://www.thehindubusinessline.com/2005/03/02/stories/2005030201611900.htm

Back CCL Products hot on growth prospects

Jayanta Mallick

Kolkata , March 1

CCL Products in the coffee counter on Tuesday turned hot purely on fundamentals and growth prospects.

The stock moved 3.5 per cent on the BSE to close at Rs 223. The traded quantity also shot up on the NSE and BSE. Around 80,000 shares changed hands on the BSE in four deals.

According to analysts, soaring coffee prices and CCL's 1,500-tpa freeze-dried coffee project, to be commissioned later this year, are the main triggers for the stock.

According to Mr Deepak Jain of Anagram Stockbroking, CCL Products is likely to benefit from the rising trend in coffee prices in the international and domestic markets.

"The trend is expected to continue for another three quarters. Moreover, freeze-dried coffee is a high-margin product, which is expected to improve the bottomlines of the company in the next fiscal," he said.

Interestingly, Mr Jain said that Tata Coffee, the Indian major, is yet to enter this segment.

According to commodity experts, coffee prices are expected to rise to a six-year high in mid-2005, outpacing most other commodities.

Even during 2004, coffee futures jumped 60 per cent more than other commodities including crude oil, sugar and copper. This is attributed to the deteriorating outlook for the crop in Brazil, Vietnam and Indonesia. Consequently, lower prices discouraged farmers from planting new trees leading to reduced production in Central America and Africa.

Brazil's production of coffee beans is expected at 33 million bags in 2005 compared to 38.6 million in 2004 and 51million in 2003.

Overall, a 14.5-per cent decline in output is expected.

Indonesia's output was down by 3.3 per cent last year before the tsunami hit. There are estimates of a 30-per cent reduction in Vietnam's crop.

Global coffee consumption, on the other hand, is expected to have grown by 2.4 per cent in 2004 to 118 million bags (60kg/bag) while production is expected at 110 million bags.

After a long time, demand will outpace supply by 8-9 million bags. This will be further driven up by a 7-per cent increase in consumption from Brazil, which is the 2nd largest coffee consumer.

"All in all, we believe the Brazilian dry spell coupled with higher consumption will influence coffee prices in near term," a coffee analyst said.

Farm-gate prices for a kg of washed arabica have increased by a whopping 64 per cent, touching Rs 72 compared to Rs 44 in early 2004. The trend is expected to remain firm.

About 80 per cent of India's coffee is exported. Hence, international price trends have a great influence on Indian farm-gate prices.

According to Mr Rajesh Agarwal of CD Equisearch, being a 100 EOU, CCL Products is expected to reap the full benefit of a global price upswing and increase in the production at home.