[sabsubs]

Originally Posted by PatienceWins

Just trying to play devils advocate here. I do not track CCL.

What stops from other coffee manufacturers from doing the same? I mean, any big coffee manufacturer can set up a plant in Vietnam and get the same competitive advantage. Sorry if I am missing something here, do not see a moat just by reading the statement.

Good question. What I have learnt is that CCL has been a biggest importer of coffee seeds for more than a decade and hence Vietnam government offered concessions for CCL to setup a plant based out of Vietnam. I may be wrong here, I just started to analyze CCL so VidyWheels could be in a better position to enlighten us on this.

[VindyWheels]

You are spot-on Patience-wins! Vietnam story is just about growth visibility in sales and profits and does not say much about long term moat.

The margins and improving cash-flows all point to some moat - it could be blending skills, low cost manufacturing (they claim they can set-up a plant themselves at 60% of the cost that peers take), the agent relationships (they sell to pvt label players across the globe through agents which compete with Nestle, the market leader). I need to meet the promoter to get further clarity.

Blending is complex to certain extend - they claim they have "created" instant coffee markets in various countries (60-80 countries now) and each place has its own favorite blend (CCL has 100 types of blends). It also looks like that the high premium freeze-dried product is not easy to make. Even TATA coffee's freeze-dried plant, apparently is not coming out with desired output.

Manufacturing costs could be lowest. These guys are in this business since 1985 or so. The first Instant coffee plant in India was made by the promoter. They do not employ turn-key operators. Many of the employees I met at Guntur told they were in Vietnam for few months to set-up the plant. Capacity wise they are galloping ahead. Nestle might be huge, after that others seem to be behind. It could be difficult to emulate operational scales for others.

Agent relationships - 2 major agents took-up stake in CCL in lates 90's or so. They helped the company reach out to different parts of the world. Promoter bought out stake of one agent (promoter stake has increased from 24% to 45% over the years). This could be a risk as-well if there is dependency on agents - need to establish.

Overall I had enough conviction to take a starter position (6% is starter for me). At-least competition cannot do much in FY15 and FY16. Most likely a promoter meet will happen in October.

I have reduced Kitex a bit today owing to too high an allocation. But it is still my 2nd highest holding after Shilpa. Will reduce in steps if the price runs-up further. Want to buy more Kaveri.

Cheers

Vindy

Edit: Sabsubs is right, they have been behind Vietnam government for some time to get the plant in the middle of the highest production area with abundant water. They were initially told to set-up in industrial area which the company did not want to owing to water/air contamination risks. Even in Guntur the plant is in the middle of lovely paddy fields. 75% of raw coffee for Indian plant is imported from Vietnam, so the government may have favored them.

[maddy42]

Originally Posted by PatienceWins

Just trying to play devils advocate here. I do not track CCL.

What stops from other coffee manufacturers from doing the same? I mean, any big coffee manufacturer can set up a plant in Vietnam and get the same competitive advantage. Sorry if I am missing something here, do not see a moat just by reading the statement.

I am a avid reader of this thread. I do not trade in shares but i really want to. At the moment putting some pieces of debt together and hopefully can begin next year.

I just wanted to add some info on coffee. I am from a coffee cultivating family. I do not know CCL but i do know Tata coffee. Tata is the largest coffee grower in India and has been in the market from ages. They do procure coffee from the smaller growers which are then either exported or sold in their packaging.

Vietnam is the second largest grower of coffee in the world but mind you they grow the Robusta variety of coffee. This is mostly used in Instant coffee and the target markets are usually Europe and Russia for this product. The product has higher caffeine and more strength but in some markets in the world this is the drawback.

American markets traditionally drink Arabica which is a expensive and also the leader here is Brazil. Trying to sell robusta in this market is difficult but can be done with blending it with the product.

This is from my knowledge and can vary. I am not a big exporter or anything. Just a famers son with some interest in this so do not

Would be more interested in your research in this field.


Thanks
Maddy

[VindyWheels]

Maddy, thank you so much for writing in.

This kind of inputs from people in the industry are very very helpful. I have read that 50% of instant coffee market share is from Europe, your statement has validated that. Tata coffee has 8000T instant coffee capacity in spray drying and 1800T in freeze drying. They also supply to pvt label players. Their first plant (first plant in India) was sold to them by CCL promoter Chella Rajendra Prasad (forcefully sold as his partners sold their stake to TATAs). CCL with 24000T capacity in spray and 5000 in freeze do not consider TATAs as competition.

I will take the freedom to bother you when I have any doubts. The "Brazil strong in Arabica" and "Americans preferring Arabica" were interesting info. I can use this while meeting the promoter. Thanks again.

EDIT: CCL is a instant coffee producer and does not have coffee estates.

Originally Posted by maddy42

I am a avid reader of this thread. I do not trade in shares but i really want to. At the moment putting some pieces of debt together and hopefully can begin next year.

I just wanted to add some info on coffee. I am from a coffee cultivating family. I do not know CCL but i do know Tata coffee. Tata is the largest coffee grower in India and has been in the market from ages. They do procure coffee from the smaller growers which are then either exported or sold in their packaging.

Vietnam is the second largest grower of coffee in the world but mind you they grow the Robusta variety of coffee. This is mostly used in Instant coffee and the target markets are usually Europe and Russia for this product. The product has higher caffeine and more strength but in some markets in the world this is the drawback.

American markets traditionally drink Arabica which is a expensive and also the leader here is Brazil. Trying to sell robusta in this market is difficult but can be done with blending it with the product.

This is from my knowledge and can vary. I am not a big exporter or anything. Just a famers son with some interest in this so do not

Would be more interested in your research in this field.


Thanks
Maddy

[Saanil]

Originally Posted by sabsubs

Good question. What I have learnt is that CCL

Originally Posted by VindyWheels

You are spot-on Patience-wins!

Originally Posted by maddy42

I am a avid reader of this thread. I do not trade in shares but i really want to.
Thanks
Maddy

Originally Posted by VindyWheels

Maddy, thank you so much for writing in.


EDIT: CCL is a instant coffee producer and does not have coffee estates.

Thanks a lot for sharing this! Some contribution from my side:

- One should not look too much on the tax rebate thing. Even Tata Coffee has tax advantages. There is a section in our Income Tax Act which gives plantation industry some tax advantages. I spoke to a friend of mine and he confirmed it.

- Tata Coffee has presence in USA through its subsidiary Eight O'Clock which was acquired few years back - I think it is the 3rd largest coffee player in USA. I am not sure how much exposure CCL has to USA. Tata also has exposure to CIS countries but I am not sure how that business is doing in current conditions.

- I read somewhere that Coffee has alternate cycles of production - an ON and an OFF year. This year (Oct-Nov) period is supposed to be harvesting season so we should see some momentum in coffee production.

- One thing I am not able to understand - CCL says that it produces orders as and when it gets it. Since they do not own any coffee plantations, they need to source the raw material i.e. the green coffee beans. Now if coffee prices are rising, does this not affect margins of CCL? I mean yes they can pass on certain costs to the customers but there should be some affect on margins right? I am still not able to analyze this thing perfectly.

- Both Tata Coffee and CCL seems to give decent dividends but on a first look, it seems like growth is higher in CCL and slower in Tata Coffee. I still need to figure out why is this the case and what can Tata Coffee do to grow faster.

[VindyWheels]

Saanil, good work at digging.

I hope we are not hijacking this thread with too much of com related discussions.

Tata coffee tax benefit is for growing raw coffee and not for manufacturing instant coffee. Coffee is a commodity traded globally in dollars. To compare with CCL you need to separate Tata coffee's coffee plantation business with instant coffee production business.

What I understand is only steep volatility in raw coffee will affect CCL. Otherwise its passed on. Contracts are signed with margins almost in same range, so I would imagine its an understanding with its clients that you gain some when raw coffee price falls and you lose some margins when the price increases. This is again a sign of higher bargaining power with customers. We need to establish this well, your discomfort in this aspect is very valid. The margin profile of CCL over the years shows that they are able to sustain high margins.

Free cashflow for CCL is strong and expected to get stronger. Dividend payout will keep increasing as per the management. That is the other interesting part - decreasing debt, increasing dividends leading to increasing ROE.

[S_U_N]

Since you are all discussing about CCL (I don't drink coffee by the way), I decided to buy some shares a few minutes ago - got 40 shares.

I am wondering what quantity of shares you guys are buying, since you are all thinking and debating for quite some time.

I am just a small player.

[skumare]

VSNL/TCL - Can somebody comment on who owns the 773 acres land that belongs to this company? My understanding is as follows:

25% (shares sold by GOI to TATA) - the land portion is retained by GOI
75% - belongs to shareholders including public, TATA, GOI etc.

I have a small exposure to VSNL (now TCL) and need the above info to take a call on whether to retain the shares.

[Latheesh]

^^
another small player here , have 50 CCL @ 110. Thanks to Vindy, maddy, and Saahil.

[hiren959]

Thanks to Vindy
Bought CCL Products today 450 @ Rs.114/-
Kitex Garments 200 @ Rs.248/-
Shilpa Medicare 225 @ Rs.425/-

Overall happy till time, let us seen in CCL now.

[VindyWheels]

Hi,

Thanks...but it was your investment acumen which made you select those companies from many available, so pat yourself. I have mentioned more than 20 companies in this thread since July 2013. Remember, to hold on to your investment decisions you need to build your own conviction and understand your business partners well- Vishnukant Bhutada, Sabu Jacob and Challa Rajendra Prasad.

Kitex MD on CNBC today...perhaps for the first time. Use a little discount factor while listening - he is a very proud man basking in the sudden glory. But that should not take away any credit for the incredible work he has done in building up these two companies from scratch.

http://www.moneycontrol.com/news/bus...x_1187294.html

[Bomi]

Originally Posted by skumare

VSNL/TCL - Can somebody comment on who owns the 773 acres land that belongs to this company?

The Govt owns the land and Tata's will not benefit from any future returns from the land. This was inked in the divestment agreement.

If you want more details read : http://www.financialexpress.com/news...vt-nod/1120687

[Gansan]

Suzlon seems to be taking a beating for the past few days. Is it an advisable share to pick up, and at what levels?

[drsingh]

Originally Posted by Gansan

Suzlon seems to be taking a beating for the past few days. Is it an advisable share to pick up, and at what levels?

I've been getting in and out of this stock for the last 4 years. Booked profits at 30 this year. After CDR 16 was a strong support. I'll enter again at 10 - 12 Levels and add more if it dips further.

[sgiitk]

After the Coalgate judgement the market reaction is much less than may be expected. Maybe they had an idea, or the long term good may be keeping them quieter. Now the ball is in the court of Piyush Goyal to push the auctions as fast as possible