Getting Caffeinated

The tittle might have easily given you a hint about the industry which we’re going to talk about today. The second most consumed non-alcoholic beverage in the world coffee.

Served hot, cold, with water, with milk, with cream, and even with some butter (keto enthusiasts) coffee is one of the most consumed beverages. In year ending 2019 close to 170 million coffee bags consisting of 60kgs worth coffee was produced.

Coffee is not only good for increasing your alertness but is also known to help lowering the risk of liver cancer, protection against Parkinson’s disease, and an overall healthier heart. The café culture due to likes of chains like Starbucks, barista, Café Coffee Day (India) has further aided in increasing demand for coffee. It acts as a beverage while socialising when you’re not allowed to have alcohol. 

Due to its caffeine content coffee drinking is addictive in nature. Unless you have medical condition or intolerance towards coffee it is good for your health and is also claimed to help you increase your metabolic rate.

The global coffee market size is about $436,632m in 2021 and is expected to grow at 8.3% CAGR over 2021-25. Two of the main types of coffee bean include Arabica and Robusta.

The sub market we’re going to talk about is the private label instant coffee market sold by retail brand owners & supermarkets which is 3,50,000 MTPA in size. One of the key players in global private label instant coffee market is Continental Coffee (India) Ltd.

CCL was formed in 1994 and commenced its commercial operations in 1995. It is an Export Oriented Unit (EOU), with the ability to import green coffee into India from any part of the world, and export the same to any part of the world, free of all duties. CCL has adopted Swiss and Brazilian technologies at its plants, which have been purchased from world renowned pioneers in turnkey instant/soluble coffee technologies. This has enabled it to produce international quality soluble coffee with over 250 blends, which are currently being exported to more than 90 countries worldwide. Today, the company is India’s largest manufacturer and exporter (36% market share) of instant coffee and the largest player in the private label market (with 10% market share). CCL operates through four plants: two in India and one each in Vietnam and Switzerland.

As of FY2021 CCL has 10% market share of the global private label instant coffee market with a capacity of 35,000 MTPA. The company has scaled its capacity 10x from 3500 MTPA in 1995 to current 35,000. It further plants to scare it to 50,000 MTPA by FY23.

Why we like the company?

  1. The private label market is expected to grow at 9% CAGR during FY21-FY25. CCL being the largest player is well poised to capture more market share.

  2.  It has plants in strategic locations like Vietnam which is the second largest producer of coffee.  It is the largest producer of Robusta coffee, and CCL uses 90% Robusta beans for its products. CCL’s plant is located in the Dak Lak province, which is also regarded as the ‘Robusta Capital of the World’, further assuring perennial availability, low inventory requirements, and low logistics costs

  3. CCL is focussing on improving its product mix by increasing freeze dried (premium coffee) and on margin accretive small packs ($2 value add per pack) is further expected to help in margin expansion

  4. India is going to be an important market for them going ahead. For every ten cups of tea only one cup of coffee is consumed in India.  Coffee chains have grown rapidly from 3500 in 2017 to 6200 by 2020, this would aid in faster adoption as coffee habits are addictive in nature.  CCL is well placed to capture this as it offers over 250+ blends and has strong r&d capabilities.

  5. The research focus on improving the quality of their blends is best in class. A testament to this is their recent development of a cold brewed coffee in powdered format which increases its shelf life and make transportation easy as against traditional cold brewed coffee which needs to be stored at 5 degrees Celsius to maintain the taste. 

  6. Indian instant coffee market which is 2000 cr plus in size is dominated by HUL (bru) and Nestle (Nescafe). CCL with its superior offering has already garnered close to 5% market share since its launch in 2014 product offerings has already gained 5% market share. The market is expected to grow at high single digits, but CCL is growing at close to 18-20% gaining share rapidly.

In conclusion we feel due to above triggers CCL stands at a point of inflection and definitely deserves to be looked at as an investment. We would not be surprised if the company doubles their profits in the next 4 years.

Disclaimer: The above article is for education purpose only and should not be construed as an investment advice. It is safe to assume that the author might have a position in the stock discussed and may sell or buy more without updating readers. Readers are advised to consult their financial advisor before taking any investment decision.


Author: Naitik Mutha